What is a tariff? In today’s world, a tariff is a tax enforced by the US federal government to protect domestic industries against environmental, safety and competitive threats. Tariff codes apply to goods imported from a foreign market, which is where the Harmonized System (HS) comes into play.
HS is a globally recognized numerical process of classifying goods for trade using six-digit codes. Almost 200 countries use these systems worldwide to gain insight into import and export transactions. However, many importers are unaware of how vital tariffs are to the import process and the many frightening things that can come from misusing them.
Being that it’s the scariest season of the year, in today’s blog, we will go through tips on how to remain compliant with scary tariff updates, ways you can ensure your classifications are correct, and a few reasons behind increasing tariffs that have been haunting importers for decades.
The Scary Truths Of Tariffs Updates
HS is administered by the World Customs Organization (WCO), with updates generally seen every year to every five years. HS assigns a unique six-digit HS code for commodities, forming classifications that speak in the language of global customs. However, the Harmonized Tariff System (HTS) code serves the same purpose but has seven to ten digits that will only differ from the sixth digit.
Countries can change the last four numbers of their ten-digit HTS code to collect more personalized insights and information about imported and exported goods. With this, codes may vary in ending numbers depending on the country of origin, but they should be identified universally by the first six digits.
Tariff updates occur to track commodities in the global market and can be used to combat different scenarios, such as changes in technology and war, and to strengthen individual economies. These updates create; new commodities, changes in consumer behavior, fluctuations in demand, and new classifications.
For improper classifications, importers will be subject to scary outcomes that can result in penalties and interest payments; additionally, frequent misclassification can lead to audits and revocation of importing privileges. Importers will not only have to pay; the penalty, duty increase, and interest but will also face having privileges revoked from doing any further business in the United States.
Specialist Tip: As an importer, you should ensure that your customs broker keeps you apprised of the updates on your import commodities. Customs brokers should continuously review the customs ruling to update the information on the database of your imports while liaising and notifying you about any changes made. Stay updated with the HS Classifications Schedule to avoid the impacts of your shipment not getting across US border lines.
Incorrect Tariff Codes Haunting Importers
As necessary as HS/HTS codes are, there are still a few in the trade that cut corners when classifying commodities. Time pressures, limited resources and saturated markets lead sellers and importers to cut corners by not understanding how to properly self-classify goods.
Importers might be struggling to keep up with tariff updates and the accurate classification of regulatory change demands. Another common misunderstanding is that ‘because goods were classified once, they no longer need to be organized again.’
Denial of import privileges, delays at Customs and monetary penalties are just a few of the horrid problems importers have to deal with for using the incorrect codes when classifying their goods.
US Customs and Border Protection (CBP) officers will enforce penalties for not classifying goods according to the guidelines based on the Tariff Act of 1930, famously known as the Smoot-Hawley Act. Importers should read the General Rules of Interpretation as a guide to make tariff determinations.
Specialist Tip: Importers, with the assistance of their customs broker, should check HS/HTS codes annually to ensure trade commodities are not falling under new or multiple classifications that could generate increased rates in duty, taxes and government fees. WCO administers tariff updates affecting trade and would be a helpful resource when monitoring the tariffs and classifications of your goods. Additionally, importers should go through and understand the Chapter Notes, which will describe any specificities needed within the chapter.
The Hidden Costs Of Anti-Dumping And Countervailing Duties
Tariffs have been around for a long time; however, whether or not tariffs constitute good or bad is the debate left unanswered for decades.
If you are in trade, chances are you have heard about the anti-dumping, countervailing and trade remedy duties being a few of the issues of significant concern for their contribution to the hidden costs of importing. For those unfamiliar with these duties, anti-dumping duty is a trade barrier that domestic governments enforce on international imports below fair trade market value.
Countervailing duties are tariffs set by domestic governments to balance the subsidies given to the manufacturers of the goods distributed by the country of origin. Both duties ensure that domestic markets remain unharmed by unfair trade practices, which will increase international importing tariffs if your commodity falls under these cases.
HS/HTS codes play a huge role in helping to calculate the duties, tariffs and taxes that are not only hard to find without proper codes but difficult to understand. Customs brokers can assist importers in finding out whether their commodities fall under anti-dumping and countervailing duties and taxes by using the product's HS/HTS code. According to The World Trade Organization (WTO), “a best practice, you should always query an HTS code at the 8 and 10-digit level to determine if an AD/CVD Case applies, but also review the description and nature of the goods to determine if they fall within the scope of any AD/CVD Case”.
Tariff Classification should be the foundation of your international trade process. With over 7,000 languages worldwide, HS classifications speak a universal language. Tariffs will never be a thing of the past, despite all the recurring nightmares they might bring to some importers responsible for paying tariffs on selective imports.
As the world progresses due to developmental advances, war, and global issues, so will the laws and regulations that govern the countries of your imported or exported trade.
We will keep you informed of any US tariff updates; in the meantime, remember that Customs takes compliant classifications seriously. Do yourself a favor and trade your commodities fairly to avoid the chilling penalties for non-compliant trade.