GHY U Tariff Classification (Part 1) - March 2014Presentation Transcript
Tariff Classification (Part 1)
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• This course will provide an understanding of the
Harmonized System of Tariff Classification (HS) that is
the foundational pillar in the global language of trade
About the Class
• Anthony (Tony) Gurniak is a Certified Customs Specialist
with more than 35 years in cross border trade facilitation
and relationship management.
• In his career, the team that Tony oversees has facilitated
in excess of 5 million transactions representing 56 billion
dollars in product imported into Canada.
• Tony's client relationship base is diversified across all
sectors including food, agricultural, chemical, aerospace,
manufacturing, retail, etc.
About the Speaker
• The Harmonized System: “The language of trade”...
– Developed and maintained by World Customs Organization
– Is the basis for collection of customs duties and international
statistics by almost all countries.
– Is backed by Explanatory Notes and a Compendium of
Classification Options and used as a basis for:
• Customs tariffs; Rules of origin
• Trade negotiations
• Monitoring controlled goods; various customs control programs and
– High degree of error in this program – as high as 30% - 40%.
• Harmonized Description & Coding (HS) – 141 Countries
– 6 Digit – International (4 Digit – country and state specific).
– Responsibility of importer/exporter.
– Affects duty, trade agreements, and rules of origin.
– Customs „risking & security profiling‟ largely based on HS
• Information and declaration of most imports to Customs.
• Incorrect HS results in compliance liabilities affecting costing and margins.
Importance of Correct HTS Classification
• Responsibility of the importer as per the customs
• Determines the duty if importing or excise taxes apply.
• Determines the “rule of origin” for most Free Trade
Agreements (i.e. NAFTA) requirements.
• Identifies goods that are subject to control.
• Required to be electronically submitted prior to goods‟
arrival in Canada (commercial goods).
• Risk based assessment based on classification.
An incorrect HTS classification and subsequent
reassessment would affect costing and profit margins.
Duty of CARE
• Declarations have a direct impact on cross border supply
chain, profitability, and brand reputation.
– Clerical/administrative errors considered negligence by customs.
What is the Harmonized System?
• The Harmonized System (HS) contains approximately
5,000 headings and subheadings covering virtually all
articles in trade.
• These provisions are organized in 99 chapters, arranged
in 21 sections.
• Along with the General Interpretive Rules and Legal
Notes to the chapters and sections, these form the legal
text of the HS.
The Harmonized System Structure
• Under the HS all products are described by a ten-digit
number that is broken down by Chapter, Heading,
Subheading, and Commodity Code.
The Harmonized System Structure
• Example: 8481.80.00.72
– Commodity: Dual-control, polished-chrome sink faucet.
• 84 Chapter
– Machinery and mechanical appliances.
• 84.81 Heading
– Taps, calks, valves, and similar appliances.
• 8481.80 Subheading
– Other appliances – Hand operated
• 8481.80.00 Tariff Item
– Of other materials…
• 8481.80.00.72 Commodity
– Faucets, plated, duel control.
– International Level
• 84 – Chapter
• 84.81 – Heading
• 8481.80 – Subheading
– Country-specific Level
• 8481.80.00 – Tariff Item
• 8481.80.00.72 – Classification No.
• First 6 digits represent the international portion of the
classification number used by all countries acceding to the
International Convention on the Harmonized Commodity
Description & Coding System.
• The Last 4 digits reflect Canadian tariff and statistical
The Harmonized System Structure
Any Questions Yet?
G.I.R.’s (General Interpretive Rules)
• The HS is a “rule-based” classification system.
• Classification is determined by strict application of the
• There are six G.I.R.‟s.
• Rules 1 to 4 must be applied in sequence.
• Rules 5 and 6 stand on their own.
Tariff Classification (>5,000 HS Codes)
Basic Rules & Understanding
1. General Rules of Interpretation.
2. Legal Notes.
3. Explanatory Notes.
4. Other References (D Memo, CROSS, etc.)
• Parts and accessories.
• Sets and kits.
• New products on the market.
• Multi-purpose products.
• Products consisting of mixed materials.
• Products that can be described by several different
• Dual purpose goods.
Products that are Difficult to Classify
• Named parts of general use have a „Unique
Classification‟ (fittings, nuts, bolts, seals, etc.).
• Parts/accessories committed exclusively by design may
use „catch-all classifications‟ (i.e. brake parts, steering
Tariff Classification ‘Crash Course’
Brake Parts 8708.30
Transmission Parts 8708.50
Suspension Parts 8708.80
Radiator Parts 8708.91
Exhaust/Muffler Parts 8708.92
Clutch Parts 8708.93
Steering Parts 8708.94
Composition irrelevant in ‘catch-all HS’
Unique Classification or Catch-All
Chapter 40 Rubber and Articles Thereof
Heading 40.16 Other articles of vulcanized rubber other than
Sub-Heading 4016.93 .Gaskets, washers, and other seals
Tariff Item 4016.93.10 Of a kind used in automotive goods of
Statistical Level 4016.93.10.10 .Gaskets
Unique HS vary by composition (aluminum,
steel, zinc, rubber, plastic, etc.)
Chapter 40 16 93 10 10
Usually a „part or accessory‟ is committed exclusively by
design for only one use.
• Part: defined as identifiable component of article,
machine, specific good, that is „integral‟ to design and
essential to function of product in which it is used.
• Accessory: defined as article performing secondary role,
not essential to function, designed for a specific purpose
that could improve effectiveness of host machine, equip.
apparatus, or appliance.
Catch-All Classification (Acceptable Use)
Bracket case study – D10-14-42
• 8708 part of chassis-frame, element of body, engine,
running board, etc.
• 8302.30 incorporated into ends of rails of interior bus
body, vehicle door handles, for blinds, or used to attach
hoses to radiators.
Catch-All Classification In Action
HS Classification Process Summarized
• Determine what the product is, its material composition
and its use (primary function).
• Is the product specifically named in the HS (normally a
„part of general use‟).
• Review and apply the General Interpretive Rules (GIR),
Legal and Explanatory Notes.
• Utilize external references tools for support (CROSS –
Business/Relational/3rd Party Liability
• Customs systematically increasing audits and enforcing
– Undetected errors result in retroactive costs impacting
profitability (fines, penalties, administration, etc.)
• Importer of Record own „compliance and financial risks‟
associated with declaration.
Cost of Non-Conformance
• Border crossing delays.
– How many border crossings do you have each
• Supply chain disruptions.
• Financial penalties.
• FTA loss.
• Additional customs fees (Merchandise
Process Fees – MPF).
• Increased enforcements (exam/audit).
• Increased COGS/reduced profitability.
• Damage to brand reputation.
Best Practices Approach
1. Ensure your supply chain partners are aware of what is
required of them to support declarations that are made
in your name (as IOR).
2. Assign internal champion to ensure parts have
classification and corresponding ECO (based on
description, end-use, and composition) and adjust as
appropriate (identify champion and timeline for
3. Ensure new or changed parts follow same process
(sustained and documented compliance).
4. Engage outsourced specialists if required (i.e. GHY).
• Global sourcing adds value and complexity.
• Governments are escalating enforcement actions
(focused assessment – systematic review and targeting)
• Tariff (and NAFTA) essential to targeting/risking
(problems not detected early have systemic impact and
can be costly both financially and to importers‟
Recognize Tariff is the Foundation of Trade
1. Identify plan of action – supply chain information
integrity (document compliance accountability plan
including use of description, tariff, origin, and value).
2. Indemnification – implement supplier indemnification
clauses (costs of non-compliance).
3. Review regularly (at least annually).
4. Share findings of review (corrective actions and
voluntary disclosures may be necessary).
You Will Be Audited – Have a Plan
Phone: 204-947-6700 ext. 234