Who's Responsible for Classifying Your Products for Import and Export?

I received the following in my inbox the other day:

Hey John,

It's Virginia. I attended a number of seminars you presented last April. I hope all is well with you. I've recently accepted a new position with a big important company and am trying to get them on the right track. I could use your assistance.

A request came down from corporate. I need to provide them supporting evidence as to why we, as a manufacturer and distributor, should be responsible for providing the HTS codes for importing and exporting. On the import side they think we should just accept the HTS codes provided by our vendors and our customs brokers. On the export side they think our buyers and their freight forwarders are the ones who should be assigning the Schedule B codes.

I know we are responsible, but I just can't put my finger on the regulations that hold us accountable. Can you please point me in the right direction to find that supporting article, regulation or requirement?

Thanks a load!

Virginia

Hi Virginia:

Thanks so much for addressing me as "Hey John." I much prefer this salutation to "Dear John."

I'm glad hear you landed a good job, but am sorry to hear they already are challenging you on something so fundamental as assigning Harmonized Tariff Schedule (HTS) and Schedule B codes.

Your instincts are right, and the regulations are pretty clear on this matter. Yes, Virginia, there really is a regulatory responsibility for your company to classify.

Assigning Harmonized Tariff Schedule Codes for Imports

The import responsibility is buried in the Tariff Act where it states the importer must exercise reasonable care when making entry. This includes assigning HTS codes to the goods. The citation is found in 19 USC §1484.

As we know, reasonable care has come to be defined as hyper due diligence. A discussion of reasonable care can be found at the Customs and Border Protection (CBP) website.

While reasonable care could mean different things for different importers, it has come to mean the importer must implement internal controls to assign HTS codes and ensure their accuracy. This means documenting the process by which codes were assigned using the general rules of interpretation protocol.

This routine doesn't mean it's incorrect to work with third parties such as the vendor or a customs broker when identifying a code. Blindly trusting their advice, however, is not a control and will likely result in inaccurate classification. If your company makes an error, CBP will not accept an excuse such as "my broker assigned the code" as proof of exercising reasonable care.

Assigning Schedule B Codes for Exports

As you can imagine, the regulations for exporting are a bit more dispersed due to the variety of regulations and regulators involved. The reporting of HTS or Schedule B codes falls primarily under Census Bureau's Foreign Trade Regulations (FTR). Of course, Census is collecting this data on behalf of other regulators. For this discussion let us focus on 15 CFR §30 and the reporting requirements under a direct export.

When your company arranges transportation of the cargo, it is the U.S. Principal Party in Interest (USPPI), and it is responsible for filing the Electronic Export Information (EEI) through the Automated Export System (AES). This responsibility is clearly stated with 15 CFR §30.2. The EEI data elements, including the Schedule B classification of the goods, are described within 15 CFR §30.6.

What is your responsibility when you are not the exporter? The regulations refer to this situation as a routed export transaction. In other words, your foreign customer (also known as the Foreign Principal Party in Interest or FPPI) designates the freight forwarder. The FPPI's forwarder is typically the one who files the EEI in this situation, but your company is still the USPPI. In this situation, FTR §30.3(e)(1) states that the USPPI must provide a list of data elements including the Schedule B to the freight forwarder.

Sorry for the alphabet soup, Virginia, but I believe this is the regulation your corporate leaders are looking for. The Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR) reflect the FTR and include their own obligations for exporters to either submit the EEI or ensure the EEI has been submitted. These regulations would imply that the Schedule B is part of that declaration and that it is accurate.

FTA Certificates of Origin

If you participate in a free trade agreement such as the USMCA, you will need to incorporate the HS code within the USMCA Certification of Origin. While your company may be participating in the USMCA as an exporter, the company will be subject to the customs regulations cited above and be responsible for exercising reasonable care in determining those codes.

Let me raise a non-regulatory issue for you. HS codes are the foundation for duty rates around the world. Duty rates can be a critical factor for a customer when making a purchasing decision. Even if your company is not paying the duty, wouldn't it be a wise strategy for your sales people to have an idea what the customer's duties are going to be? Of course it would! This is a common approach to closing a deal in international trade. Without the HS codes, however, your sales people won’t be able to analyze a deal from the customer's perspective and may be put in a situation where they leave money on the table or are unable to close the deal.

I hope all of this helps. I'm looking forward to coming to Paradise to help you whip things into shape.

John

This article was first published in April 2011 and has been updated to include current information, links and formatting.