Friday, October 1, 2010

Customs Brokers and the HTS

Last week I mentioned that I'm studying for the Customs Broker Exam.  You might be wondering, what does a customs broker do?

This only applies to brokers registered with US CBP.  Other countries have different roles and rules.

In the US, a customs broker mainly files import entries and performs HTS classification.  A customs broker is responsible for knowing American law and following it.  Brokers are registered with ports (not exclusively ocean ports, every state has at least one port), and can also file remotely in other locations if they're registered for it.  A customs broker may work for directly for an importer or indirectly through a freight forwarder or as an independent. 

The importer of record can always file their own documents.  So why hire a customs broker?  First, it's complicated.  If you're not an expert it can be extremely time consuming, to the extent that it will probably cost less to pay a broker then spend your own time on it.  Second, there's legal liability associated with importing.  Using a broker doesn't absolve the importer of record from responsibility, but it does minimize risk.

You don't have to use a customs broker for your HTS classification.  In fact, my preference is to do that in house.  Your customs broker isn't going to be an expert in your product, and expert-level knowledge can be necessary.  Regardless who does the classification, the importer is liable for it.

You might be wondering - what's HTS?  HTS stands for harmonized tariff system.  Most countries have their own version of the harmonized tariff.  You may see US HTS, the common abbreviation for United States Harmonized Tariff System.  HTS usually refers to a ten digit code.  Every physical good that exists (or may exist) has an HTS.  The HTS is divided into sections and chapters.  Sections are broad categories (animals and animal products, plant and plant products, and so on), and chapters are more detailed.  Generally speaking, more processed or complicated products fit in higher chapters.  The classification process follows the general rules of interpretation.  You might also hear the term Schedule B.  Schedule B is another classification system, managed by Census instead of CBP.  Schedule B classifications are used for exports, HTS classifications can be used for imports and exports.  If you're both an importer and exporter, using HTS for everything saves the work of classifying something twice.

Why is the system harmonized?  The first six digits of a product's HTS are the same for every country that uses the HTS.  The last four digits vary.

This is one of the areas where I've done a lot of work - I did about 6000 unique classifications in the last fifteen months.  There's a learning curve to classification.  The best way to start is a class or training with someone experienced.  Once you've learned the process, start practicing.  Try to classify products you see around you, at work or home.  For example, I'm wearing a long-sleeve t-shirt right now.  What information do I need to classify?  I bought it at Target, according to the tag it's 100% cotton and made in Bangladesh.  It's a boy's large.

It's apparel, so I know I'm starting in Section XI Textiles and Textile Articles.  The shirt is complete (not a raw material), so it's an article.  T-shirt fabric is knitted, not woven, so we're looking at Chapter 61.  The code I land on is 6105.10.0030, a knitted cotton boy's shirt, not imported as part of a playsuit.  The HTS also shows a duty rate of 19.7%.  If it had been manufactured somewhere else (including Jordan or the Dominican Republic), it could have been duty free since it's covered under ten free trade agreements. 

What are some of the common pitfalls when classifying?  First, reading the tariff.  Always read the chapter notes before assuming you belong in that chapter.  Make sure you're in the right section, the tabs can confuse people.  Finally, record your thought process.  Don't just put the classification in your database, also put in a note with your logic.

Finally, chances are you're going to make mistakes at first.  With classification, that's normal.  The way to learn the tariff is familiarity and practice.

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