When your goods are properly classified, you can save both time and money.
The word harmony itself is soothing. Think about it. Harmony evokes images of consistency, pleasure and order in chaos. If your company is shipping to other parts of the world, that order is not only appreciated but also critical. How does this apply to shippers? Through the use of harmonized tariff codes and the Harmonized Tariff Schedule (HTS).
"Correct classification will result in accurate calculation of duties and taxes and the avoidance of customs penalties due to errors." – Bill Ansley
According to the U.S. International Trade Commission, the HTS "is a global nomenclature system used to classify traded goods based on their material composition, product name, and/or intended function."
Imagine walking up to a Boston terrier owner and saying, "That's such a beautiful golden retriever!" Your argument? A dog is a dog, right? Well, yes, but clearly all dogs aren't the same. And sometimes it's important to know the difference. A similar argument in the world of global trade applies. Enter harmonized tariff codes.
For simplicity's sake, let's say you are shipping Widget A and Widget B, but you incorrectly label everything as Widgets. If the duty on Widget B is half that of Widget A, you might be paying too much by not getting specific enough in your classification.
Companies have worked with UPS Trade Management Services to reclassify their products crossing borders, resulting in significant savings that go straight to the bottom line.
Selecting specific HTS codes can speed clearance
Every imported or exported product has a HTS code. It's universal and applies across countries, cultures, time zones and languages. As the standard international reference for classifying products for duty and clearance, HTS groups items into broad categories and then refines further into narrow groups.
Similar to the classification of animals into kingdom, phylum, class, order, family, genus or species, products are narrowed down into their correct "bucket." The important part is selecting the most specific tariff code available to describe your product. It can significantly speed up the customs process and minimize duties.
Take for example cell phone cases. The classification of cell phone cases depends on the material they are made of (e.g., plastic, leather or metal/alloy) and their intended use. And not all cell phone cases have the same intended uses. Some cases are designed to simply protect a phone, while others have tools like cameras or flashlights. Finally, if the material for the cell phone case is much more valuable than the purpose of serving as a case, then the case may be classified by the material it's made of. A 24-karat gold cell phone case wouldn't be classified as a case but as 24-karat gold.
Bill Ansley, vice president of UPS Trade Management Services, says it's important to think carefully about your HTS codes because a better understanding can boost your bottom line. Among the reasons, he says, are the following:
- Calculating landed costs. "HTS codes determine the duties, fees and taxes required by the import country, or if a product is exempt based on free trade agreements," Ansley says.
- Ensuring import compliance. Ansley notes that accurate classification ensures shippers comply with import regulations, avoiding penalties, fines and delays for misclassification.
Minimize risks of non-compliance
Product classification sets the foundation for regulatory compliance throughout the entire trade process.
"Correct classification will result in accurate calculation of duties and taxes and the avoidance of customs penalties due to errors," Ansley says. "Equally important, though, is accurate classification can also help you avoid delays with shipping and can curb additional administrative costs."
He advises that other government agencies administering import and export laws and regulations also use HTS classifications to determine whether goods are subject to their agency rules. "Improper classification could result in penalties or delays from agencies other than Customs, like the equivalent to the U.S. Food and Drug Administration or the U.S. Fish and Wildlife Service."
When choosing a shipping company, Ansley suggests being smart about taking the time to classify your products. In doing so, companies can work with a carrier with an eye on minimizing duties, taxes and additional costs. What's more, your business will have the correct inputs to determine landed costs as well as cost of goods sold.
Smart companies will look for expert advice with classification and teams that can classify the shipper's products, Ansley says.
Click here to learn more about UPS Trade Management Services.