US Product Classifications For Tariffs And Import with Abby Duffield

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Hey there, product launchers, Tracy here. And I'm bringing you Abby Duffield from Shapiro, our expert in all things logistics and shipping and tariffs and incoterms and all these crazy things that you didn't know, that you didn't know. And Abby's an expert in them and she's bringing them to define them and help you understand better that process of what happens after your product is made and how it gets all the way to the distributor or on the shelf. So let's hear from Abby. Good afternoon or good morning or good evening. This is Abby with Shapiro. We are going to be talking today about product classification going into the US So when we're talking about product classification, what do we really mean when we say get your product classified? It's something that if you come to Shapiro, it's one of the first things that we recommend having done. We'll say, have you had your product classified? And what we mean is do you have the harmonized tariff number or product classification for what you're going to be bringing in? And what we're looking for with that is that we need to get information from you before we can get that product classified. And to do that, we need to have the following. You need to have what your product's name is or what you're going to be calling it as you're selling it. We need to have a very detailed description of what that product is. So you could just have handbag on email, but if you tell us that it is a cow leather handbag with a strap and a zipper, we have much more information to go off of to get this classified. And that's really important because the harmonized tariff schedule, HTS schedule that we're going to be using to figure out what that classification is with U.S. customs needs a lot of detail. They're very, very picky about a lot of things, especially when it comes to apparel, especially when it comes to any kind of machinery parts, things that are made of different materials that if you look at the HTS code, which you can actually do, if you Google HTS code, it actually brings up they have a digital copy of it on the Internet nowadays that you can look at. You can't just type in coloring book and have something pop up. You can't just type in a common word for something like bedsheets. It's actually classified by what the product is made out of. So the composition of the product which you see is one of the items that we're asking about and what the end use of the product is. So what is it going to be used for by the customer? So you could have a squirt bottle that you are selling as a water spritzer and you could say like, this is a water spritzer, but maybe that client is going to use that water sprinter as something else entirely. That end use could actually affect what the HTS code is. A really good example of this is that a couple of months ago we had a customer come to us. It was a little like plastic squeeze bottle that would normally go up your nostril to sort of clear out anything that you would have inside. But they didn't want to sell it as that type of product. They wanted to sell it as a spritzer for plants. But because that product's essential use was to be sort of that Neti potter or nostril cleaner and not this plant spritzer, because they were trying to to engineer the tariff in the wrong way, we had to go to them and say, you know what? This isn't the HTS that you're recommending to us. That we're telling you something different and we're having some conflict on is not exactly the right thing. Because what it really is meant for isn't necessarily what you're using it as. So that's why we need so much information. Because sometimes if you're looking at a certain HTS code saying, oh, it's definitely this, if customs were to import it and take a look at it, they would say, no, you know what? This is normally used for something else. We don't know why you're selling it as this type of thing. And that whole sentence was in air quotes. So you have to be very careful. Next they want to know what the country of origin is or the country of production. Now let's say that you have the fabric and it is made in China and then it is shipped to Mexico and made into backpacks in Mexico. So the product that you are essentially selling is a backpack. So this final country of origin, depending on how it is made and everything like that could be Mexico. Rather than saying it's from China. Because first you have that plain fabric that's starting in China and then it goes and is completely change. The product is completely made in a different country. So that end country of origin, that end country of production to get that essential character. You'll hear me say that a couple times, that essential character of what that product is, that's going to be your country of origin. So that's something else to look out for too and something that we get a lot of questions about. Final thing, sending us a link or a picture of the product. This really helps us to catch anything that you may miss in giving us a description about something. So let's go back to the handbag example. You send us the handbag, but you send us a link. And the link actually not only has a handbag, but it has a wallet insert and it has a coin purse insert. And they're all made of cow leather. But not only are they black, but maybe they're brown and maybe they have different kind of studs or leather on them. That can all affect what the classification is, what that tariff code classification going to be for the product. So we always recommend sending a link or a picture kind of going back to what does it mean to get a product classified. What we would send over to you from our compliance department here at Shapiro is going to be the tariff code or HTS code. HTS stands for Harmonized Tariff Schedule Code of what that product is going to be. My example that I have here is for coloring books. So a coloring book for a child is the HTS code of 4903.0 0.0000. And what that means at the end of the day is that that code, that 10 digit code is what we're going to be entering into the customs entry when we go to digitally clear this with customs. And that is how they're looking up to see what is that product that you're bringing in. So for the handbag there would be a different HTS code. For the nasal spritzer I was talking about, there would be an HTS code. And that HTS code not only gives us what the duty rate is going to be. You'll see that coloring books have a 0% duty or called duty free, but they also give us what other import requirements may be needed for that product. This is how we find out a lot of times about if a product needs to have any kind of Food and Drug Administration permit or certificate or any kind of clearance. And there's different levels of that. This is where we find out if we need any kind of wood filing or Lacey act filing. This is where we find out if you need any kind of USDA information for when you're doing the customs entry. Because that customs entry really is that gateway paperwork into letting your product into the US when you're doing this. And that's why it's so important to do this first thing and to do it early. Because some of these certificates that I'm talking about, they can take months to set up. So knowing what you're looking at in advance is very helpful. Something else I want to mention here, when we are doing the HTS code classification for you. This could bring up other items like anti dumping or countervailing. And those are extra duty rates that the US puts on products to defer importers from bringing them into the US A great example of this is colored pencils. So if you're trying to sell a coloring book set with colored pencils, the US has extra anti dumping duties on top of colored pencils to defer them from being brought into the US because there are already markets here and already businesses here in the US that have so much stock, have so much business in colored pencils, they don't want any competition. And so they're able to lobby Congress and the US Administration, which are the main bodies that help to make up what those duty rates are. So that is kind of how sort of that plays into effect. Businesses in the US have a very big hand in petitioning Congress, lobbying the government in order to say, you know what, we want these duty rates to be higher or lower depending on what we're looking for, depending on what we need in order to protect our business here in the US and that's really where everything comes down to at the end of the day. So diving back into the Harmonized Tariff schedule. This is actually a huge book that has several chapters in it. It goes up to chapter, I believe 99 right now. And there's always space for more things to be added. It covers everything from biological products to live animals to space rocks to things that haven't been discovered yet, but there is space for. And a lot of times things will fall into another category that it may be made of cotton, let's say, it may be woven, let's say, but it may not fit the exact description that's in the HTS code. But it can fall into another category which acts as that catch all category for that type of product. So there's many different things to think about when you look into this. Definitely recommend for every importer. Go and take a look at the HTS schedule on the Internet. Look at the digital copy that I mentioned before and look around and see if you can figure out what you're looking at. Because it can be very difficult. And a lot of times importers will come to us not necessarily understanding what they're looking at or understanding the information that has been provided to them. So it's not as easy as it looks when we're talking about items like this. Let's talk about that coloring book for a second. So the classification for the coloring book starts with 49 and that's the chapter number. So if we look at chapter 49, that includes pretty much any article that is considered a printed book, newspaper, picture or other product of the printing industry. And in that it has several different breakdowns. So it starts at 4901 and then it breaks down from there the 01 or the 03 in this case. So 4903, that O3 is the heading and that helps us figure out where our next item is going to go in. Then there are subheadings and subs. The reason it harmonized tariff schedule is harmonized. The reason it has that word harmonized in it is because the first six numbers are supposed to be universally consistent across the world. They came together many years ago and they said, you know what, we're all using different numbers. Let's try to have the same set for at least the first couple of numbers and go from there. What ends up happening for the last four numbers is that they are more dependent on the country that is being imported into. So if you were importing into China, your last four digits may be very different than if you were importing into the US because those last four digits are regulated more by the countries that are being imported to than being the harmonized set. And that's where the duty is being added to. That is where these percentages are being added to. That is what is allowing these countries to have that control over what they want to implement on certain products being imported. Setting, subheading. And we can see down here in Our picture, the 490-300-00000 is a children's picture or drawing book, coloring books. That's the article description of what we are looking at under. And we can see that it is duty free over here on the right hand side. Now, I'm not going to get into all of the 1 and 2 here because that really is diving down a large rabbit hole. But these can be very important and is part of the reason why we recommend talking to a customs broker and compliance department about what your product is, because there can be special regulations put upon your product depending on where it is coming from. And we will get more into that later. That's a hot topic there.

Why do the details matter? So this is a really great example, this coloring book that I'm bringing up of why the details matter. We had a client that came to us saying, I've got a coloring book that I want to import. Like, great, let's help you out. By the time that we actually got more information about the coloring book, we found that it was actually a scrapbooking set and not a coloring book. So the end use of what that product really is and kind of what you're describing it as can really change what that HDS code is. When we were talking to the client about the coloring book, they originally had said it was a children's coloring book. So we had classified it that way. But later they came back and they said it was a coloring book for adults. That's because it was a scrapbooking set and they were kind of misleading a little bit in terms of what they were using for that description. Adult coloring books fall underneath a different section. So you can see it's still in that chapter 49 because we're starting with 4, 9, but then it's falling underneath a different subheading, 01. And you can see I've got two dashes there for the end number. The reason for that is that there are different types of HTS codes of that 10 digit code that can be used for coloring books and that's dependent upon the page number and different requirements. So this could be classified in a multitude of ways. It would still thankfully have a duty rate of being duty free. But the end use of what that article is and who the end customer is really does matter. So sometimes when we're asking these questions and you're like, you know, this is kind of interesting common sense, the coloring book, it's not as cut as dry as you may think. And that has everything to do with the statistics that U.S. customs is running to see what is coming into the country and how much they want to charge for it for that duty. So don't just take us asking random questions. They're all very important.

So the client did send us a picture of the coloring book in air quotes and we found that it was actually a scrapbooking set. So it was this really beautiful binder that had metal binder rings in the center of it. And the pages themselves were colored and had some coloring abilities in them in terms of being a coloring book. But that was not the essential character of that item. So I've mentioned essential character a couple of times now. And what that really means is the essential character is when you think of that product, the very essence of that product. So if I'm talking about pickles, I'm not talking about the jar or the pickle juice. You think I'm talking about the pickles. The same kind of thing goes for the scrapbooking set. The main article of that scrapbooking set is the binder with the pages in it. And the binder holding it together differentiates the scrapbooking set from being a set to just being a bunch of pages flying all about. Because that binder is what's keeping everything together. And that kind of leads us into another issue, which is sets. So before I dive into sets, the last thing I want to say is the binder of the scrapbooking set is considered the essential character of the set and has an HTS code of 830-510-0000. So a completely different chapter of the HTS schedule, a completely different duty rate. And that's all because we asked more questions, we found out more information, and things changed. All right. Other taxes. So sometimes it can be misleading. If a customs broker says your product's duty free and then you see that there are other taxes being charged on your invoice. When you're thinking about duty, that's not the only charge that's going to be put upon your product when it's coming in. There are other taxes. And what these are is that U.S. customs Warrant Protection has something that we like to call cobra. It's the Consolidated Omnibus Budget Reconciliation act, and it is a review of any additional taxes that may be calculated during the importation of your shipment. So when we are doing the customs entry with Customs, they are charging a service fee, which they're calling the merchandise processing fee, on the product value, not necessarily on the freight. So it's not going on the cost of the freight. It's not going on the cost of insurance, anything to get it here. It's just that wholesale value that you're reporting on your commercial invoice and packing less.

They are charging per that value, a fee for us to use their system, for you to use that system through the customs broker to have your shipment cleared. So that's what that merchandise processing fee is. And it really can be quite low. They do have minimums and maximums on what that percentage is, but it is an ad valorem fee of 0.3464%, which really is quite low at the end of the day. The other fee that they like to charge is a harbor maintenance fee. And this goes to. There's money that goes to the ports to help keep up the harbor in the port when ships and vessels are coming in. And this is how they collect some of that money to be able to maintain that upkeep. The HMF fee is not charged on air cargo shipments, but some airports do actually charge that kind of fee because they are getting money from the government. It all depends. And it's always best to ask, and it's never best to assume either. The HMF fee is 0.125% of the value of the commercial cargo being shipped through. Just because something is duty free does not mean that you're not going to have other taxes on it.

Sets. I mentioned sets before, and sets are very important. If you are bringing in, let's say, a scrapbooking kit, that is a binder with pages inside of it with stickers that comes in a box, all of those different items need to be broken out on the customs entry. Customs requires importers to not only declare the set within their customs entry, so on that commercial invoice and packing list, but also each component in the set, we need to know the weights, we need to know the value, we need to know the piece count. So if you have, let's say, two pages of stickers per each scrapbook, and you're bringing in 50 scrapbooks, so you would have 100 stickers, that piece count is going to be different than the main piece count of that binder and maybe even of those pages. Let's say you've got 10 pages per scrapbook, so then you've got 500 pages. So each of these things adds up. And the reason for that is that we still need to have on the customs entry each of the classifications for each of the, we call it mixtures, composite goods, a different material made up of different components, or even just items that make up that set. So stickers are going to have a different classification and duty rate than paper pages, then the binder, then the box, then the pickles, then anything. So we have to have everything listed out there. The way customs can see what is coming in, how it is set, how it is lumped together for what is being done with the customs entry so they can see if the duty was properly charged or not. There's a lot to go into this. I wrote a great article on it that I can send More information to follow up of if you're interested. But getting into sets really is quite a rabbit hole. The main thing to take away, please make sure that if your product is a set or is a bundled grouping of products, you need to have all of the items of that set listed out with value and with weight on the commercial invoice for your customs broker for the Customs entry. Otherwise, we'll come back to you and we'll hound you until you do it. Last thing I want to mention, importer due diligence. While we're giving all this great information, it is up to the importer of record, which is probably you, to bring things to us, to double check all the information that you are getting to make sure that what is being reported for the value of the product and the classification of the product correct at the end of the day, you are responsible for this information. For example, if Shapiro is providing you with a classification for your product, we do send a disclaimer that says, this is our best recommendation from our licensed customs brokers. We're not saying that it's guaranteed or 100%, that is for customs to do. If you want to have Customs classify your product, we can do a formal ruling where we would need to get actual physical example of your product to send to Customs for them to look at it and say, this is the definite HTS code for this product. What we are doing is that we are looking at what the information that you are providing to us, looking into the HTS schedule and from our knowledge of how the HTS schedule works, other past classifications and other past legal rulings. This is our best recommendation of what the HTS code is. It is always the importer of records responsibility to make sure that they are double checking this information. They are double checking the information provided to us what they are using in the Customs entry. I cannot stress this enough. If Customs comes knocking on your door about classification for a product, you can use our email and everything that we sent you to say, you know, this is what I was provided, this is what I understand it to be as. But if custom says that that's wrong, then that's on you. It is only our best recommendation. So the biggest thing that I can say is always double check everything. A lot of times we get clients that will come in and they have a classification that comes from their supplier in China or from wherever you're importing from. And some of those numbers are incorrect or even out of date. The USHGs schedule updates just about every six months. We're finding that it's actually updating sooner because of new regulations and new programs that are coming from the US Administration. So having that classification number checked, double checking it yourself, not just assuming that everything that you're being given on a silver platter is right, making sure that you're protecting yourself. At the end of the day, if you're unsure, talk to a compliance specialist about getting a formal ruling, talk to somebody about getting another opinion. Making sure that your information is, you are confident in it and you have backup for it and you're ready to go. That's the big thing. Sorry, I get really passionate about that one just because I've seen so many people burned by it. Now I do want to, before I kind of bring in any questions, go over really quickly the section 301 tariffs that we are seeing that have been coming out recently. And so when I'm mentioning the Section 301 tariff, what I'm really talking about is the US administration has been doing additional updates to the Harmonized Tariff schedule for increasing duty on certain products, mainly looking at products that are coming from China, going to the US if you followed imports at all, or you can even just Google section 301, you can see so many things that have been coming up about that. So the section 301 tariffs are looking at those imports that are from China to the US and they're impacting so many different things. It's impacting so many different industries. We've heard a lot of concern from our client base saying, you know, how is this impacting me? And that's why one of the things that we're saying in the beginning is checking in advance what your classification is to see if this is going to be something that's going to impact you going forward. Their public customs is publishing this list very far in advance about things that may be impacted. They are allowing times for business people, or any people in general that are concerned with this process to speak up on their website to petition them against adding on certain additional duties like what they are doing. This all, like I said, comes from the administration. And it's always best to double check kind of what you're doing. Now for some importers, there's a couple of different things that we can recommend when you're being worried about the Section 301 tariffs or additional tariffs or we don't want to say the words trade war, but the duty increases from China to the US is you can always source from other locations. It doesn't necessarily have to come from China. And you can Avoid part of the issue altogether. So there are other industries that are out there that you could also look into instead of just looking for China to the U.S. the other idea is that you can always adjust your supply chain. So let's say that you're making a shirt that is 60% cotton and 40% polyester and it's from China to the US this is just an example and not an actual basis. So don't, don't be like she said this and kind of go crazy. If there would be an additional tariff on a shirt that is 60% cotton, maybe you can go to your manufacturer and say, you know what, we're going to change it so that the polyester is the higher value item in here. So it's 60% polyester and 40% cotton. So you using the same thing, just kind of changing the percentages around a bit, which actually will impact your classification. The higher percentage fabric material will have a different classification. So cotton has a different classification than polyester shirts. And that could polyester shirts. Expert cotton may not have that additional HTS code that we're talking about with Section 301. So you could change how your supply chain is working. You could change what your product is doing in order to help have a different classification, to have a different duty rate. The last thing that we're talking about right now is called tariff re engineering. And what this means is that it's changing the HTS code, not changing the product at all. So a good example of this is that bits were originally classified as pedometers, but they can also be classified as smartwatch technology. So a pedometer versus a smartwatch are going to have different HTS codes, even though we're talking about the same product. And that essential character use, that essential end use that we've been talking about can have different interpretations, but still be correct. So these are items that we're bringing up to importers when they're worried about the section 301, the additional duty rate that they see coming up between China and the U.S. there are other options. So don't be scared by it. Don't be like, oh, I'm never going to import at all. There's different options. There's different things that you can look at. The best thing to do, double check, be sure in advance, find out as much information as possible and ask questions. We have great resources on our website at www.shapiro.com you can find more information about in my expert profile or you can always email me. Like I said, we're at Ecomepiro we're happy to help answer questions and we're happy to help you get on your way. I hope you learned some great things about about product classification into the US and I hope that I get to hear from you with your questions. Take care.

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