Many exporters confuse the various classification systems, leading to incorrect filings and compliance issues. Though the different systems are related, there are important differences to understand. Following is a brief explanation of the differences, along with several free resources we’ve created to help you master the differences.
The HS system is administered by the World Customs Organization (WCO), and the WCO reviews HS codes every five years to account for new products that have entered the market and changes to existing products. The most recent update became effective on January 1, 2022. (Our article, HS Codes 2022: What Every Exporter Needs to Know, details the most recent set of changes.) Regularly review and update classification codes for your products to account for changes, or use Product Classification Software that keeps up with changes.
Using a single classification for all variations of a product, despite significant differences in features or functions, can lead to errors. Evaluate each product variation separately to determine if different classifications are warranted. Ensure that any modifications are considered in the classification process.
Consider a company that manufactures electronic devices such as laptops. They produce a standard model and a high-security model with enhanced encryption features. While the standard model might be classified under a general ECCN (Export Control Classification Number) for computers, the high-security model with advanced encryption could fall under a stricter ECCN due to its potential dual-use nature. Failing to differentiate between these models and using the same classification for both could lead to significant compliance issues and export violations.
Relying solely on supplier-provided classification codes without independent verification can get you in trouble! Always verify the accuracy of classification codes provided by suppliers. Conduct your own classification analysis because as the exporter, you’re ultimately responsible for using the correct classification.
Before attempting to classify your product, you must have its complete description and know the product’s function, composition and characteristics. This includes having documentation that describes its:
If a good seems to fall into more than one category because it is a mixture or composite, the General Rules of Interpretation (GRI) say classification should be based on a product’s essential character. Misclassifications can happen by focusing on secondary characteristics rather than the product's essential character.
EAR99 is a classification under the Export Administration Regulations (EAR) for items that are not listed on the Commerce Control List (CCL). It is often seen as the default or "easy" classification because it generally indicates that the item does not require an export license unless it's going to an embargoed or sanctioned country or to a prohibited end-user or end-use.
Exporters may classify an item as EAR99 to simplify the export process, but this can lead to noncompliance if the item actually falls under a specific ECCN. Items that appear to be simple or low-tech may still have specific ECCNs because they may be dual-use, meaning they have both civilian and military applications. Thoroughly check the CCL to determine if your goods have an ECCN and require a license.
Some items that were previously on the United States Munitions List (USML) but have now been moved to the CCL are labeled with 600 series ECCNs. Officials transferred these items to the EAR, in part, to loosen restrictions and make it easier to export them to NATO countries and other allies. This category can be particularly tricky because it often deals with technology that can have a military use.
To ensure accurate classification, it's crucial to involve the right people in the process. For 600 series products, it may require an engineer to understand the technical specifications well enough to properly classify the item. A non-technical compliance person may not have the necessary knowledge to classify accurately. Therefore, companies should consider creating teams of personnel with diverse skills from different departments to collaborate on the classification process. Neglecting these details could lead to inaccurate classification and potential compliance issues.
Many exporters mistakenly believe that export regulations only apply to physical shipments of goods out of the country. A deemed export occurs when technology, technical data or source code is released to a foreign national within the United States. This can happen through various means, including:
Companies must identify and classify all technology and technical data that could be subject to export controls in the same way that they would a physical good.
The easiest choice is not always the right choice when it comes to product classification! By using these tips and resources, you can minimize the risk of classification errors. However, navigating export regulations can be complex. If you'd like additional support to ensure accurate classification and compliance, we’d love to show you how Shipping Solutions Export Documentation and Compliance Software can help. Or, click here to give our standalone Product Classification Software a try for free.
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