Presentation on theme: "Proprietary and Copyright of The Descartes Systems Group Inc. All rights reserved."— Presentation transcript:
Proprietary and Copyright of The Descartes Systems Group Inc. All rights reserved.
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Best Practices in Global Classification August 14, 2014
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 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
Why is Classification Important? Admissibility into Destination Country Duties Owed Quotas Content Requirements Special Trade Program Eligibility Licensing Anti Dumping Duty / Countervailing Duty 201 Sanctions Can also trigger OGA Requirements Classification drives the entire import transaction. It determines, identifies, or impacts:
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 classificaiton determination. More important than ever to demonstrate reasonable care with a solid process of support and documentation. Why is Classification Important?
Issues with Global Classification It’s SUBJECTIVE! Complexity of Classification and Difficulties With Tariff Descriptions o Classification is an extremely complex task and the tariff schedules do not necessarily keep up with technology. Example: Sound bar (speaker) with internal circuit for playback capability Do you classify 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
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.”
Issues with Global Classification Different Interpretations of Classifications Between Countries and Among Auditors Within the Same Country o 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) o 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. Some countries still classify these items as cell phones or other electronic devices. o WCO Opinions Compendium o EU Binding Tariff Information Reference: GB123491487 o U.S. Customs Ruling Reference: HQ H075336
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. 1.Break down item universe into groups. 2.Research – always take the time to research your item even if you think you know how the item is classified. 3.Identify the necessary information you need to know about your item in order to obtain the best classification determination, i.e. – material, dimensions, etc. 4.Documentation! In order to demonstrate reasonable care you need to be able to support your classification determination. 5.Automation – Implementing a classification tool to allow you to quickly and easily map classifications to other countries, will improve productivity, increase efficiency, allow more time to accurately research a product and will improve the maintenance of records. 6.On going maintenance and monitoring to review HTS changes, binding rulings, and changes to your products. Establishing a Process
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. o 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? o 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) o 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 Example: Plastic 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 and (2) be used or displayed during that festive occasion. o Language is not in tariff or EN’s but only in rulings.
Supporting the Classification Determination It’s important to be able to SUPPORT your classifications with HOW you came to your classification determination. This includes: o Spec sheets/drawings/photos o Information requests to/from engineers, scientists, chemists, etc. o Chapter and Section Notes that apply o Explanatory Notes (not legally binding) o Informed Compliance Publications o Rulings used for applied logic or binding rulings specific to your company
Documentation & Recordkeeping Management Recordkeeping and Documentation 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. o Where are you storing this information now? o How long does your company maintain spec sheets or product specific information on a product that has been determined to be “end of life”?
Benefits of Automation Increased efficiency (KPI’s / time per classification) Decrease in classification errors and inconsistencies Improved Recordkeeping / Documentation Management Decrease in duty spend due to improved visibility and item compliance management
KPI’s - Increased Efficiency Companies who automate their global classification process with the Customs Info Global Trade Database, typically classify (on average) 25% more items than those with a manual classification process.
KPI’s - Increased Efficiency How does this translate into resources needed?
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.
Strategic Planning, Cost Reduction, and 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 through various programs such as First Sale, Duty Drawback, FTZs, etc.
Questions and Contact Information Melissa Harrington – West U.S. and Canada mharrington@Descartes.com Mobile: 760-277-5703 Tim Dysarz – Midwest and Asia Pacific tdysarz@Descartes.com Joely Callaway – East and European Union jcallaway@Descartes.com Preston Barton – Southwest and Mexico pbarton@Descartes.com