Item Compliance, Research, Classification

P r o p r i e t a r y a n d C o p y r i g h t o f T h e D e s c a r t e s S y s t e m s G r o u p I n c . A l l r i g h t s r e s e r v e d .

Presenters: Preston Barton

Item Compliance, Research, Classification


• 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

Agenda


• Reduce Risk

• Reduce Labor

• Increase visibility

• Increase speed and efficiency of compliance functions and supply chain

Why do we care about classification solutions?


Comprehensive Reach Supporting Worldwide Trade

152Countries & Territories

Duty & TaxMultiple Languages

220CountriesRegulatory


Provide Increased Visibility and Service to your customers via Descartes Global Trade Content

Country Trade Data Other Trade Data e-Commerce

• 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 EU-Mercosur

• World Customs Organization (WCO) Explanatory Notes

• Rulings & Country Regulations

• Measures

• Military Lists

• Sanctioned Party Screening

• Food and Drug Administration (FDA) –Customized

• Customs Offices

• Shipping Rates

• Shipping Velocity

• Deminimis

• Import and Export Regulations/Restrictions

• Landed Cost Data

• Duty Rate Analysis

Digital Global Trade Data01010101101010 110101011110100


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

Why is Classification Important?


Why is Classification Important?

One of the most highly scrutinized area in a Customs Audit due to it’s subjective nature.

Not about right vs. wrong but being able to defend and support your classification determination.

More important than ever to demonstrate reasonable care with a solid process of support and documentation.

1 2 3

Top three reasons why classification matters


• 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

Issues with Global Classification

• Should this be classified as a speaker or as a playback device?

• Speakers are classified in 8518.21.0000at 4.9% duty

• Playback devices are classified in 8519.81.4050 at 0% duty

• Customs Ruling Reference: NY N182121, NY N243484 and NY N243110

Example: Sound bar (speaker) with internal circuit for playback capability



• 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 torqueinga nut. A screw is an externally threaded fastener… being tightened or released by torqueing the head.”

Example: Are these items screws or bolts?


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



• 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

Establishing A Process

Q: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?

A: Start with one country, determine a methodology and map to other countries


• 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)

Importance of Research



• 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

Example: Plastic holiday figurine


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

Justifying the Classification Determination


• 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”?

Documentation & Recordkeeping Management


Benefits of Automation

Increased efficiency (KPI’s / time per

class-ifcation

Improvedrecord-keeping

Reducedclass-

ificationerros

Decreasedduty-spend

Why automate?


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.

0

5

10

15

20

25

30

35

40

45

Number of classifications completed per

hour (manually):

Number of classifications completed per

hour in GTD:

Items Classified Manually vs. automated with Customs Info Manager™

(automated)(manually)


KPI’s - Increased Efficiency

How does this translate into resources needed?

1

0,00 2,00 4,00 6,00 8,00 10,00 12,00

Number of FTEs Needed for Classification

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)


• 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

Overall Improved Compliance

A Better Way to Work!


• 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

Strategic Planning, Cost Reduction & Improved Compliance

What are you going to do with your free time?


Website Research1

Item Classification/Compliance Software2

e-Commerce Websites3

Other Lines of Business

Our comprehensive offering includes the following and more

Classification Services/Support4

Global Trade Management Schemas5


Descartes Customs Info™ Reference - Reduce labor and effort involved in classification research


Descartes Customs Info™ Manager - Speed Up Global Tariff Mapping to Other Countries & Assign Duty Rates and Taxes


Global Trade Content Solution Footprint

Back Office Systems

GTMSystems

Trading Partner Systems

TMS eCommerceOther

Applications

Reference AuditManager

CountryData

Content Update

Mechanism

Global Trade Content

Import/Export ControlsHS / ECCN / Schedule B Trade Agreements Restricted Parties

Rules of OriginEmbargoesDocumentation Requirements

Rulings

Content


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

Landed Cost Data Services for Brokers


Landed Cost Data Example

Calculable Data is also available


What do you do if you don’t have a fully qualified tariff code

assigned to your catalogs?

Mode Rate Analysis – Cover your costs


e-Commerce Country Restrictions

Examples of some Australian Restricted Goods


Regulations for Commercial Products:


DeMinimis information can save you time and money


Q&A


Network Applications Community

Documents

Item Compliance, Research, Classification