PLH 76 | Product Classification And Tariffs

So much goes into getting your products classified in the US that many still find problems with the entire process. Abby Duffield of Shapiro breaks down all the necessary things you need to know about US product classifications for tariffs and import. She gets down into the details of the information you need to present about the products and gives some instructions that will help you identify what you have to provide, like how to know the country of origin, among others. Abby also presents real-life examples that show what goes under the entire process of having your product classified. Being conscious about all these, you’ll find the true value of products.

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Product Information

This is Abby with Shapiro. We are going to be talking about product classification going into the US. When we’re talking about product classification, what do we mean when we say, “Get your product classified?” It’s something that if you come to Shapiro, it’s one of the first things that we recommend having done. We’ll say, “Have you had your product classified?” What we mean is do you have the harmonized tariff number or product classification for what you’re going to be bringing in? What we’re looking for with that is we need to get the information from you before we can get that product classified. To do that, we need to have the following. We need to have your product’s name or what you’re going to be calling it as you’re selling it. We need to have a very detailed description of what that product is. You could have a handbag on the email, but if you tell us that it is a cow leather handbag with a strap and a zipper, we have much more information to go off to get this classified.

That’s important because the harmonized tariff schedule or the HTS schedule that we’re going to be using to figure out what that classification is with the US Customs needs a lot of detail. They’re very picky about a lot of things, especially when it comes to apparel, any kind of machinery parts, or things that are made of different materials. If you look at the HTS Code, they have a digital copy of it on the internet that you can look at. You can’t just type in, “Coloring book,” and have something pop up. You can’t just type in a common word for something like bedsheets. It’s classified by what the product is made of. The composition of the product is one of the items that we’re asking about, and what the end use of the product is. What is it going to be used for by the customer? You could have a squirt bottle that you are selling as a water spritzer and you could say, “This is a water spritzer,” but maybe that client is going to use that water spritzer as something else entirely. That end use could affect what the HTS code is.

A good example of this is that we had a customer come to us with a little plastic squeeze bottle that would normally go up your nostril to clear out anything that you would have inside, but they didn’t want to sell it as that type of product. They wanted to sell it as a spritz for plants, but that product’s essential use was to be a Neti potter or nostril cleaner and not this plant spritzer because they were trying to engineer the tariff in the wrong way. We had to go to them and say, “The HTS that you’re recommending to us that we’re telling you something different and we’re having some conflict on is not exactly the right thing because what it is meant for isn’t necessarily what you’re using it as.” That’s why we need much information, because sometimes if you’re looking at a certain HTS code saying, “It’s definitely this.” If the Customs were to import it and take a look at it, they would say, “No. This is normally used for something else. We don’t know why you’re selling it as this type of thing.” You have to be very careful.

Country Of Origin

Next, they want to know what the country of origin is or the country of production. Let’s say the fabric you have is made in China and it is shipped to Mexico, then made into backpacks in Mexico. The product that you are essentially selling is a backpack. The final country of origin, depending on how it is made and everything like that could be Mexico rather than saying it’s from China because first you have that plain fabric that’s started in China, then it goes and is completely changed. The product is completely made in a different country. That end country of origin, that end country of production to get that essential character of what that product is, that’s going to be your country of origin. That’s something else to look out for too and something that we get a lot of questions about.

The final thing, send us a link or a picture of the product. This helps us to catch anything that you may miss in giving us a description of something. Let’s go back to the handbag example. You send us the handbag and a link. The link not only has a handbag, but it has a wallet insert and a coin purse insert. They’re all made of cow leather. Not only are they black, maybe they’re brown with different studs or leather on them. That can all affect what that tariff code classification is going to be for the product. We always recommend sending a link or a picture.

Tariff Code

Going back to what it means to get a product classified. What we would send over to you from our Compliance Department here at Shapiro is going to be the tariff code or HTS Code. HTS stands for Harmonized Tariff Schedule Code of what that product is going to be. The example that I have is for coloring books. A coloring book for a child is the HTS code of 4903.00.0000. That ten-digit code is what we’re going to be entering into the customs entry when we go to digitally clear this with customs. That is how they’re looking up to see what the product is that you’re bringing in. For the handbag, there will be a different HTS Code. For the nasal spritzer, there will be an HTS Code. The HTS Code not only gives us what the duty rate is going to be, but they also give us what other important requirements may be needed for that product. You’ll see that coloring books have a 0% duty or called duty-free.

PLH 76 | Product Classification And Tariffs

Product Classification And Tariffs: Customs entry is the gateway paperwork into letting your product in to the US.

This is how we find out a lot of times about if a product needs to have any kind of Food and Drug Administration permit or a certificate or any clearance, and there are different levels of that. This is where we find out if we need any kind of Lacey Act filing. This is where we find out if you need any USDA information for when you’re doing the customs entry. That customs entry is that gateway paperwork into letting your product into the US when you’re doing this. That is why it’s so important to do this first thing and to do it early. Some of these certificates that I have mentioned can take months to set up, so knowing what you’re looking at it in advance is very helpful.

When we’re doing the HTS Code classification for you, this could bring up other items like anti-dumping or countervailing. Those are extra duty rates that the US puts on products to defer importers from bringing them into the US. A great example of this is colored pencils. If you’re trying to sell a coloring book set with colored pencils, the US has extra anti-dumping duties on top of colored pencils to defer them from being brought into the US because there are already markets and businesses in the US that have so much stock and have so much business in colored pencils. They don’t want any competition. They’re able to lobby Congress and the US administration, which are the main bodies that help to make up what those duty rates are. That is how that plays into effect. Businesses in the US have a very big hand in petitioning Congress, but lobbying the government in order to say, “We want these duty rates to be higher or lower depending on what we’re looking for, depending on what we need in order to protect our business here in the US.” That’s where everything comes down to at the end of the day.

The harmonized tariff schedule is a huge book that has several chapters in it. It goes up to Chapter 99 and there’s always space for more things to be added. It covers everything from biological products to live animals, space rocks, to things that haven’t been discovered yet, but there is a space for. A lot of times things will fall into another category that may be made of cotton, it may be woven, but may not fit the exact description that’s in the HTS Code, but it can fall into another category which acts as that catch-all category for that product. There are many different things to think about when you’re looking into this. I’d highly recommend for every importer to go and take a look at the HTS Schedule on the internet. Look at the digital copy that I mentioned before and see if you can figure out what you’re looking at because it can be very difficult. A lot of times, importers will come to us not necessarily understanding what they’re looking at or understanding the information that has been provided to them. It’s not as easy as it looks when we’re talking about items like this.

The classification for the coloring book starts with 49, and that’s the chapter number. If we look at Chapter 49, that includes any article that is considered a printed book, a newspaper, a picture or other product of the printing industry. In that, it has several breakdowns. It starts at 4901 and then it breaks down from there. In this case, 4903, the 03 is the heading. That helps us figure out where our next item is going to go in. Then, there are subheadings and sub-suffixes. The reason the Harmonized Tariff Schedule is harmonized, the reason it has that word harmonized in it, is that the first six numbers are supposed to be universally consistent across the world. They came together many years ago and said, “We’re all using different numbers. Let’s try to have the same set for at least the first couple of numbers and go from there.”

What ends up happening for the last four numbers is that they’re more dependent on the country that is being imported into. If you are importing into China, your last four digits may be very different than if you were importing into the US because those last four digits are regulated more by the countries that are being imported to than being the harmonized set. That’s where the duty and these percentages are being added to. That is what is allowing these countries to have that control over what they want to implement on certain products being imported. In the subheading, the 4903.00.0000 is a children’s picture or drawing book, coloring books. That’s the article description of what we’re looking at under. We can see that it is duty-free on the right-hand side.

I’m not going into all of the 01 and 02 because that really is diving down a large rabbit hole, but these can be very important. It is part of the reason why we recommend talking to a customs broker and compliance department about what your product is because there can be special regulations put upon your product depending on where it is coming from. Why do the details matter? This is a great example, this coloring book that I’m bringing up of why the details matter. We had a client who came to us saying, “I’ve got a coloring book that I want to import.” Like, “Great, let’s help you out.” By the time that we got more information about the coloring book, we found out it was a scrapbooking set and not a coloring book. The end use of what that product is and what you’re describing it as can change what the HTS Code is.

When we were talking to the client about the coloring book, they originally said it was a children’s coloring book, so we classified it that way. Later, they came back and said it was a coloring book for adults. That’s because it was scrapbooking set and they were misleading a little bit in terms of what they were using for that description. Adult coloring books fall underneath a different section. It’s still in that chapter 49, but then it’s falling underneath a different subheading, 01. I’ve got two dashes there for the end number. The reason for that is that there are different HTS codes of that ten-digit code that can be used for coloring books. That’s depending upon the page number and different requirements, so this can be classified in a multitude of ways. It would still thankfully have a duty rate of being duty-free, but the end use of what that article is and who the end customer is does matter.

Sometimes when we’re asking these questions, you’re like, “This should see in common sense that the coloring book is not as good as dry as you may think.” That has everything to do with the statistics that US customs is running to see what is coming into the country and how much they want to charge for it for that duty. Don’t take us asking random questions, they’re all very important. The client had sent us a picture of the “coloring book” and we found that it was a scrapbooking set. It was this beautiful binder that had metal binder rings in the center of it. The pages themselves were colored and had some coloring abilities in them in terms of being a coloring book, but that was not the essential character of that item.

Taxes And Fees

The essential character is when you think of that product, the very essence of that product. If I’m talking about the pickles, I’m not about the jar or the pickle juice, but the pickles. The same thing goes with the scrapbooking set. The main article of that scrapbooking set is the binder with the pages in it. The binder holding it together differentiates the scrapbooking set from being a set to being a bunch of pages flying all about because that binder is what’s keeping everything together. The binder of the scrapbooking set is considered the essential character of the set and has an HTS Code of 8305.10.0000. It’s a completely different chapter of the HTS Schedule and a completely different duty rate. That’s all because we ask more questions, we found that more information and things changed.

Duty-free does not mean tax-free. Click To Tweet

Other taxers, sometimes it can be misleading if a customs broker says, “Your product is duty-free,” and then you see that there are other taxes being charged on your invoice. When you’re thinking about duty, that’s not the only charge that’s going to be put upon your product that’s coming in, there are other taxes. What these are is that US Customs and Border Protection has something that we call COBRA. It’s the Consolidated Omnibus Budget Reconciliation Act. It is a review of any additional taxes that may be calculated during the importation of your shipment. When we’re doing the customs entry with the Customs, they are charging a service fee, which they’re calling the merchandise processing fee on the product, on the product value, not necessarily on the freight. It’s not going on the cost of the freight, it’s not going on the cost of insurance to get it here. It’s just that wholesale value that you’re reporting on your commercial invoice and packing lists. They are charging per that value a fee for us to use their system, for you to use that system through the customs broker, to have your shipment cleared. That’s what that merchandise processing fee is. It really can be quite low. They do have minimums and maximums on what that percentage is, but it is an ad valorem fee of 0.3464%, which is quite low.

The other fee that they like to charge is a Harbor Maintenance Fee. This is money that goes to the ports to help keep up the harbor and the port when ships and vessels are coming in. This is how they collect some of that money to be able to maintain that upkeep. The HMF fee is not charged on air cargo shipments, but some airports do charge that fee because they are getting money from the government. It all depends and it’s always best to ask. It’s never best to assume either. The HMF fee is 0.125% of the value of the commercial cargo being shipped through. Just because something is duty-free does not mean that you’re not going to have other taxes on it.

Classifying Sets

Sets are very important. If you are bringing in a scrapbooking kit that is a binder with pages inside of it with stickers that come in a box, all different items need to be broken out on the customs entry. The customs require importers to not only declare the set within their customs entry, on that commercial invoice and packing lists, but also each component in the set. We need to know the weights, the value, and the piece count. If you have two pages of stickers per scrapbook and you’re bringing in 50 scrapbooks, so you would have 100 stickers. That piece count is going to be different than the main piece count of that binder and maybe even of those pages. Let’s say you have ten pages per scrapbook, then you’ve got 500 pages. Each of these things adds up.

It’s never best to assume. Always ask. Click To Tweet

The reason for that is we still need to have on the customs entry each of the classifications for each of the mixtures, composite goods with different material, made up of different components, or even items that make up that set. Stickers are going to have a different classification duty-rate than the paper pages, the binder, the box, the pickles, than anything. We have to have everything listed out there. The way customs can see what is coming in, how it is set, how it is lumped together, or what is being done with the customs entry, so they can see if the duty was properly charged or not. We’ve written a great article on it that I can send more information to follow up if you’re interested, but getting into sets is quite a rabbit hole.

PLH 76 | Product Classification And Tariffs

Product Classification And Tariffs: Getting into sets is quite a rabbit hole.

Importer Due Diligence

The main thing to take away, please make sure that if your product is a set or is a bundled grouping of products, you need to have all the items of that set listed out with value and with weight on the commercial invoice for your customs broker, for the customs entry. Otherwise, it will come back to you and will hound you until you do it. The last thing is importer due diligence. While we’re giving all this great information, it is up to the importer of record, which is probably you, to bring things to us to double check all the information that you’re getting to make sure that what is being reported for the value of the product and the classification of the product are correct. You are responsible for this information.

For example, if Shapiro is providing you with a classification for your product, we do send a disclaimer that says, “This is the best recommendation from our licensed customs brokers.” We’re not saying that it’s guaranteed or 100%, that is for customers to do. If you want to have customs classify your product, we can do a formal ruling where we would need to get an actual physical example of your product to send to customs for them to look at it and say, “This is the definite HTS Code for this product.” What we’re doing is that we’re looking at whether the information that you’re providing to us, looking into the HTS Schedule and from our knowledge of the HTS schedule works, other past classifications and other past legal rulings, this is our best recommendation of what the HTS code is.

It is always the importer of record’s responsibility to make sure that they are double checking this information. They are double checking the information provided to us and what they are using in the customs entry. I cannot stress this enough. If customs come knocking on your door about the classification for a product, you can use our email and everything that we sent you to say, “This is what I was provided. This is what I understand it to be as,” but if custom says that that’s wrong, that’s all on you. It is only our best recommendations. The biggest thing is to always double check everything. A lot of times we get clients that come in and they have a classification that comes from their supplier in China or from wherever you’re importing from. Some of those numbers are incorrect or even out of date.

It is right not to assume that everything is given to you in a silver platter. Click To Tweet

The US HTS Schedule updates about every six months. We’re finding that it is updating sooner because of new regulations and new programs that are coming from the US administration. Having that classification number checked, double checking it yourself, not just assuming that everything that you’re being given on a silver platter is right, you’re making sure that you’re protecting yourself at the end of the day. If you’re unsure, talk to a compliance specialist about getting a formal ruling. Talk to somebody about getting another opinion. Make sure that you are confident in your information, you have a backup for it, and you’re ready to go.

When I’m mentioning the Section 301 Tariffs, what I’m really talking about is the US Administration has been doing additional updates to the Harmonized Tariff Schedule for increasing duty on certain products, mainly looking at products that are coming from China going to the US. If you follow imports at all or you can even Google Section 301, there are so many things that have been coming up about that. The Section 301 Tariffs are looking at those imports that are from China to the US. They’re impacting so many different things. It is impacting so many different industries.

We’ve heard a lot of concern from our client saying, “How is this impacting me?” That’s why one of the things that we’re saying in the beginning is checking in advance what your classification is to see if this is going to be something that’s going to impact you going forward. The public customs is publishing this list very far in advance about things that may be impacted. They are allowing times for business people or any people in general that are concerned with this process to speak up on their website and to petition them against adding on certain additional duties like what they are doing.

This all comes from the administration and is always best to double check what you’re doing. For some importers, there are a couple of different things that we can recommend when you’re being worried about the Section 301 Tariffs or additional tariffs. The duty increases from China to the US and you can always source from other locations. It doesn’t necessarily have to come from China and you can avoid part of the issue altogether. There are other industries that are out there that you could also look into instead of just looking for China to the US. The other idea is that you can always adjust your supply chain.

Let’s say that you are making a shirt that is 60% cotton and 40% polyester and it is from China to the US. This is an example. If there would be an additional tariff on a shirt that is 60% cotton, maybe you can go to your manufacturer and say, “We’re going to change it so that the polyester is the higher value item in here. It’s 60% polyester and 40% cotton.” You’re using the same thing, just changing the percentages around a bit, which will impact your classification. The higher percentage the fabric material will have a different classification. The cotton has a different classification than polyester shirts. Polyester shirts may not have that additional HTS Code that we’re talking about in Section 301. You could change how your supply chain is working. You could change what your product is doing in order to have a different classification, to have a different duty-rate.

Tariff Re-engineering

The last thing is called Tariff Re-engineering. It’s changing the HTS Code, but not changing the product at all. A good example of this is that Fitbits were originally classified as pedometers, but they can also be classified as smartwatch technology. A pedometer versus a smartwatch is going to have different HTS Codes even though they’re the same product. That essential character use, that essential end use, can have different interpretations but still be correct. These are items that we’re bringing up to importers when they’re worried about the Section 301, the additional duty rates that they see coming up between China and the US. There are other options, so don’t be scared by it. Don’t be like, “I’m never going to import it all.” There are different things that you can look at.

PLH 76 | Product Classification And Tariffs

Product Classification And Tariffs: The best thing to do is double check. Be sure in advance, ask questions, and find out as much information as possible.

The best thing to do is double check, be sure in advance, find out as much information as possible, and ask questions. We have great resources on our website at www.Shapiro.com. You can find more information on my Expert Profile or you can always email me. Come at Shapiro. We’re happy to help answer questions and help you get on your way. I hope you learned some great things about product classification in the US. I hope that I get to hear from you with your questions.

Tune in to Abby’s next Office Hours. Connect with and find out more about Abby in our Experts Directory.

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Abby Duffield
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