Item Compliance, Research, Classification
Presenters: Preston Barton
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Agenda
• Why is Classification Important?
• Define “Best in Class Global Classification”
 Process – establishing a process that demonstrates “reasonable care”
 Research/Support – being able to support your classification determination
with product details/spec sheets, GRIs, rulings, EN’s, and other legal basis
(court cases, publications, etc.)
 Documentation – a system of documenting the support from above to meet
the importing country’s recordkeeping requirements.
• Benefits of Automation






Reduce Labor (Initial and Ongoing)
Reduce Risk
Increased efficiency (KPI’s/time per classification)
Decrease in classification errors and inconsistencies
Improved recordkeeping
Decrease in duty spend due to improved visibility and item compliance
management
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Why do we care about classification solutions?
• Reduce Risk
• Reduce Labor
• Increase visibility
• Increase speed and efficiency of compliance functions and supply chain
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Comprehensive Reach Supporting Worldwide Trade
152
Countries & Territories
Duty & Tax
Multiple Languages
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220
Countries
Regulatory
Provide Increased Visibility and Service to your
customers via Descartes Global Trade Content
01010101101010 Digital Global Trade Data110101011110100
Country Trade Data
• Global Tariff Codes, Duty & Tax data
• Export Control Classification Number
(ECCN) /Dual Use Codes – approximately
20 countries in current library
• Rules of Origin Data for around the
globe, including NAFA, US-KR and EUMercosur
• World Customs Organization (WCO)
Explanatory Notes
• Rulings & Country Regulations
• Measures
• Military Lists
• Sanctioned Party Screening
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Other Trade Data
e-Commerce
• Food and Drug
Administration
(FDA) –
Customized
• Deminimis
• Customs Offices
• Landed Cost Data
• Shipping Rates
• Duty Rate Analysis
• Shipping Velocity
• Import and Export
Regulations/
Restrictions
Why is Classification Important?
Classification drives the entire import transaction since it determines,
identifies or impacts:
• Admissibility into destination country
• Duties owed
• Quotas
• Content requirements
• Special trade program eligibility
• Licensing
• Anti Dumping Duty / Countervailing Duty
• Can also trigger PGA requirements
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Why is Classification Important?
Top three reasons why classification matters
1
One of the most
highly scrutinized
area in a
Customs Audit
due to it’s
subjective
nature.
2
3
Not about right
vs. wrong but
being able to
defend and
support your
classification
determination.
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More important
than ever to
demonstrate
reasonable care
with a solid
process of
support and
documentation.
Issues with Global Classification
• Classification is subjective
• Complexity of classification and difficulties with tariff descriptions
• Classification is an extremely complex task and the tariff schedules do
not necessarily keep pace with technology
Example: Sound bar (speaker) with internal circuit for playback capability
•
Should this be classified as a speaker or as a playback device?
•
Speakers are classified in 8518.21.0000
at 4.9% duty
•
Playback devices are classified in
8519.81.4050 at 0% duty
•
Customs Ruling Reference: NY N182121,
NY N243484 and NY N243110
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Issues with Global Classification
Example: Are these items screws or bolts?
• According to CBP, it depends on
how they are torqued (See
Customs Rulings HQ H100095)
• Per HQ H10095, “A bolt is an
externally threaded fastener. . .
and is normally intended to be
tightened or released by torqueing
a nut. A screw is an externally
threaded fastener… being tightened
or released by torqueing the head.”
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Issues with Global Classification
Different Interpretations of Classifications Between Countries and Among
Auditors Within the Same Country
• Different customs authorities in different countries interpret the tariff
differently for the same item (despite it being harmonized to the 6
digit level for WCO countries)
• Example: Tablets or iPad, - most WCO countries classify these items
as automatic data processing machines (computers) under HS Code
subheading 8471.30, however, this hasn’t always been the case since
some countries still classify these items as cell phones or other
electronic devices.
• WCO Opinions Compendium
• EU Binding Tariff Information Reference: GB123491487
• U.S. Customs Ruling Reference: HQ H075336
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Establishing A Process
Q:
A:
How do you implement Best Practices to design a
classification process that meets your compliance
obligations, ensures you are using the lowest possible
duty rate for your item and is efficient and cost effective?
Start with one country, determine a methodology and
map to other countries
•
Compartmentalize - Break down the item universe into groups
•
Research – always research even if you think you know how the item is classified
•
Identify – Locate the necessary information you need in order to obtain the best
classification determination, i.e. – material, dimensions, etc.
•
Documentation – In order to demonstrate reasonable care you need to be able
to support your classification determination
•
Automation – Implement a classification tool to allow you to quickly and easily
map classifications to other countries & improve productivity and efficiency
•
Maintenance/Monitoring - Consistently review HTS changes, binding rulings,
and changes to your products
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Importance of Research
• Research. CustomsInfo.com is a great resource for obtaining
rulings, Explanatory Notes, GRI’s, and even Informed
Compliance publications to help you identify the best possible
classification with the lowest possible duty rate for your item.
• Make sure you take the time to research your item.

Whether you are just starting out and don’t know where to begin or if
you’ve classified this item hundreds of times and know it like the back of
your hand.
• Why?

Customs logic is constantly changing (i.e. – digital still image cameras with
camcorder capability, rulings NY R04381, R04507, R04505 revoked by HQ
H046643 4 years later)

Technology is constantly changing and the tariff doesn’t necessarily keep
up with technology (example – sound bar speakers from above, taking the
time to research resulted in over $1M in duty savings)
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Issues with Global Classification
Example: Plastic holiday figurine
• Do you classify as a plastic figurine or a
“festive article”?
• Plastic figurines are classified in
3926.40.0000 at 5.3% duty
• “Festive articles” are 9505.10.2500 at
0% duty
• Per ruling HQ H167996, to be a festive
article items must satisfy two criteria:
1. Must be closely associated with a festive
occasion
2. Be used or displayed during that festive
occasion
• Language is not in tariff or EN’s but only in
rulings
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Justifying the Classification Determination
It’s important to be able to support
your classifications and detail how you
came to your classification determination
by including:
 Spec sheets/drawings/photos
 Information requests to/from
engineers, scientists, chemists, etc.
 Chapter and Section Notes that
apply
 Explanatory Notes (not legally
binding)
 Informed Compliance Publications
 Rulings used for applied logic or
binding rulings specific to your
company
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Documentation & Recordkeeping Management
•
In the U.S., under the (a)(1)(A) list, (Section 509(a)(1)(A) of the
Tariff Act), importers must maintain all import related documents for
a period of no less than 5 years
•
This includes any spec sheets, drawings, or material information that
allowed you to make a classification determination, along with any
other rulings or internal advice that you received from Customs in
making your classification determination. Other countries have similar
recordkeeping requirements
•
For exports it may be even longer, exporters must maintain records
and license information 5 years from the date the license expires

Where are you storing this information now?

How long does your company maintain spec sheets or product specific
information on a product that has been determined to be “end of life”?
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Benefits of Automation
Increased
efficiency
(KPI’s /
time per
classifcation
Improved
recordkeeping
Reduced
classification
erros
Why automate?
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Decreased
dutyspend
KPI’s - Increased Efficiency
Companies who automate their global classification process,
on average can classify 25% more items than those with a
manual classification process.
Items Classified Manually vs. automated with
Customs Info Manager™
45
40
35
30
25
20
15
10
5
0
Number of classifications completed per
hour (manually):
(manually)
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Number of classifications completed per
hour in(automated)
GTD:
KPI’s - Increased Efficiency
How does this translate into resources needed?
Number of FTEs Needed for Classification
1
0,00
2,00
4,00
6,00
8,00
10,00
Number of FTEs needed to classify items in GTD (assume 40 hours / week, 50 weeks / year)
Number of FTEs needed to classify items manually (assume 40 hours / week, 50 weeks / year)
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12,00
Overall Improved Compliance
• Decrease in classification error
rate and inconsistencies within
a product grouping
• Improved record retention
capabilities and the ability to
produce documents when
requested by Customs officials
or during a Customs audit
A Better Way to Work!
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Strategic Planning, Cost Reduction & Improved Compliance
• We understand that most customs compliance departments are
strapped for resources and time
• It is not unusual for managers/directors to spend 50% or more of
their time on classification determinations
• Automating this process can free up management time and resources
to focus on other important compliance issues or more strategic areas
to reduce duty spend such as:

Valuation

Special Trade Programs

Special Duty Provisions (9801/9802)

Minimizing Duty Spend
What are you going to do with your free time?
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Other Lines of Business
1
Website Research
Item Classification/Compliance
Software
2
Our comprehensive
offering includes the
following and more
3
4
5
e-Commerce Websites
Classification Services/Support
Global Trade Management Schemas
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Descartes Customs Info™ Reference - Reduce labor and effort
involved in classification research
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Descartes Customs Info™ Manager - Speed Up Global Tariff
Mapping to Other Countries & Assign Duty Rates and Taxes
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Global Trade Content Solution Footprint
GTM
Systems
Back Office
Systems
Content
Trading Partner
Systems
TMS
Reference
eCommerce
Manager
Other
Applications
Audit
Global Trade Content
HS / ECCN / Schedule B
Import/Export Controls
Trade Agreements
Restricted Parties
Embargoes
Rules of Origin
Documentation
Requirements
Rulings
Content
Update
Mechanism
Country
Data
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Landed Cost Data Services for Brokers
API Services Example:
Client system passes the following data elements (may vary based on client’s needs)

COD= AR

COO=China

Code=85171100110M
Descartes Customs Info system returns:

Duty Rate = .20 (percent)

VAT Tax = .21 (percent)

VAT Calculation Basis = CIF +Duty
Direct Loading into Client System:
Full Tariff files can be delivered, linked and housed in your system. Data includes

Full tariff codes for any required country,

Duty rates, including preferential treatments

Multiple taxes and fees
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Landed Cost Data Example
Calculable Data is
also available
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What do you do if you don’t have a fully qualified tariff code
assigned to your catalogs?
Mode Rate Analysis – Cover your costs
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e-Commerce Country Restrictions
Examples of some Australian Restricted Goods
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Regulations for Commercial Products:
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DeMinimis information can save you time and money
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Q&A
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Network
Applications
Community
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