{"id":10833,"date":"2022-04-06T14:53:18","date_gmt":"2022-04-06T21:53:18","guid":{"rendered":"https:\/\/www.qad.com\/blog\/?p=10833"},"modified":"2023-01-18T15:01:26","modified_gmt":"2023-01-18T23:01:26","slug":"leveraging-import-classification-5-lessons-learned","status":"publish","type":"post","link":"https:\/\/www.qad.com\/blog\/2022\/04\/leveraging-import-classification-5-lessons-learned","title":{"rendered":"Leveraging Import Classification: 5 Lessons Learned"},"content":{"rendered":"

[vc_row][vc_column][vc_single_image image=”10837″ img_size=”full”][vc_column_text]Correctly classifying goods for import or export with the correct Harmonized System (HS) codes is no easy task. The HS is an internationally recognized tariff nomenclature that uses a six digit code to classify products. Countries can add extra digits for their own reporting purposes. The United States uses a 10-digit code, known as the Harmonized Tariff Schedule (HTS).<\/span><\/p>\n

Having said that, ensuring you have the correct tariff classification is a critical aspect of international trade and regulatory compliance.<\/span><\/p>\n

Classification is a difficult for three major reasons:<\/span><\/p>\n

    \n
  1. Lack of detailed product descriptions<\/span><\/li>\n
  2. The complexity of the General Rules of Interpretation (GRI) of the HS System<\/span><\/li>\n
  3. Lack of time to deal with issues 1 and 2<\/span><\/li>\n<\/ol>\n

    When I first began my career as an Entry Writer for a Customs Broker, I had very little control over how and when pending Entries landed on my desk.\u00a0<\/span><\/p>\n

    When I moved to the industry side of the fence, beginning with Mattel Toys, I learnt the importance of gaining early visibility into the arrival of goods.<\/span><\/p>\n

    In other words, if I could give myself more <\/span>time<\/span><\/i>, I could more easily address the first two major reasons that make classifying products a challenge.\u00a0<\/span><\/p>\n

    Better still, if I could gain visibility to the complete process \u2014 in particular where the build\/buy decisions are made \u2014 it was possible to turn Classification from a tactical process to a strategic one.<\/span><\/p>\n

    Here are five important lessons I learned from my time in industry.<\/span><\/p>\n

    Lesson 1: Early Visibility Helps Ensure You Have The Right Documentation and Certificates<\/span><\/h2>\n

    During my time at Mattel, we were producing a special Bob Mackie-designed ball gown for Barbie. The gown contained a feather boa made from a real feather.\u00a0\u00a0<\/span><\/p>\n

    But by having advanced visibility we were able to secure the certificate required by the Department of Fish & Wildlife. This documents the genus and species of the bird feather used. If we did not have this, our shipments would have been detained at the Port.<\/span><\/p>\n

    Lesson 2: Early Visibility Can Help You Save with Tariff Engineering<\/span>\u00a0<\/b><\/h2>\n

    Advanced visibility also creates an opportunity for \u201cTariff Engineering\u201d. This is where you can take an originally designed product and alter its content and\/or functionality so that it qualifies under a more favorable HS Code.\u00a0<\/span><\/p>\n

    My favorite example of Tariff Engineering is also my first experience, which happened quite by accident.<\/span><\/p>\n

    To buy myself additional time to Classify Mattel\u2019s products, I went further and further \u2018upstream\u2019 into the product design process. I would bring a copy of the tariff that covered toys and walk behind the designers to see what they were working on.\u00a0<\/span><\/p>\n

    One day, I saw someone working on the next generation of the Barbie Doll Case.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0<\/span><\/p>\n

    I knew that Customs classified these as articles of luggage in Chapter 42. This carried a duty rate of 20 percent. In spite of our best efforts to convince them otherwise, Customs would not budge. Therefore, if we couldn\u2019t change Customs, then we needed to change the Doll Case.<\/span><\/p>\n

    We held a meeting with the designer, his boss, and the head of marketing. We opened a doll case and placed it on the table and began thinking about what we could do.\u00a0<\/span><\/p>\n

    Well, we had an obvious structure, so maybe a building? What kind of building?\u00a0 What if it was a clothing store where Barbie could try on her clothes? Then at the end of the day, it all folded up as a carrying case?\u00a0<\/span><\/p>\n

    We inserted a connecting pull down floor, mylar mirrors, clothing racks and a dressing room. Suddenly we had created the \u201cBarbie Boutique Play Case.\u201d<\/span><\/p>\n

    Customs agreed that we had incorporated enough play value to now make the play activity the \u201cessential character\u201d of the product, which could now qualify as a toy accessory.<\/span><\/p>\n

    Lesson 3: Classification Should be Part of Your Strategic Planning<\/span><\/h2>\n

    After our tariff engineering redesign, the new Barbie Boutique Play Case now qualified for a much lower tariff rate \u2014 6.8 percent instead of 20 percent.<\/span><\/p>\n

    Even better, the redesign meant that the product was also eligible for preferential duties under NAFTA. Therefore, we shifted production to our plant in Mexico where it qualified for duty-free entry. This ultimately saved Mattel seven figures in duty payments.\u00a0\u00a0\u00a0\u00a0<\/span><\/p>\n

    Any time you change the composition of a product, or source a new product, you should look to see if it qualifies for preferential duties under a Free Trade Agreement.<\/span><\/p>\n

    My experience with the Barbie Boutique Play Case is when I had the proverbial \u201clight bulb\u201d moment.<\/span><\/p>\n

    Why wouldn\u2019t <\/span>any<\/span><\/i> company <\/span>not<\/span><\/i> formally include Trade & Customs considerations as part of their strategic planning? I mean it just made so much common sense, why wasn\u2019t this a standard practice?\u00a0<\/span><\/p>\n

    Now granted, Tariff Engineering is not going to be an available option for every company,\u00a0 but the point is that there are still plenty of other value-add services that can be performed. This includes risk modelling.<\/span><\/p>\n

    Lesson 4: Classification Should be Part of Risk-Modeling Strategy<\/span>\u00a0\u00a0<\/b><\/h2>\n

    Classification is used to identify cost and\/or regulatory risks. Therefore it can have a direct impact on sourcing decisions. It also serves as a starting position towards identifying other country-related risk considerations as part of a more comprehensive Risk-Modeling Strategy.\u00a0\u00a0<\/span><\/p>\n

    It\u2019s always surprising to me to see the number of companies that don\u2019t factor in total landed cost and related logistics factors when selecting an international supplier.\u00a0 For instance, and I\u2019m over simplifying, but generally a buyer will vet potential suppliers based on factors such as their ability to meet:<\/span><\/p>\n

      \n
    • The product engineer\u2019s design specifications<\/span><\/li>\n
    • Any quality requirements, such as clean room filtering<\/span><\/li>\n
    • And whether they can meet the company\u2019s production demands<\/span><\/li>\n<\/ul>\n

      Let\u2019s say two suppliers make the cut \u2013 one from China and one from Mexico, with China having the lowest per unit cost. Based on unit cost alone the buyer may see the Chinese supplier as the logical choice.\u00a0<\/span><\/p>\n

      However, without factoring in landed costs and logistics considerations, they\u2019ve unknowingly just omitted a supplier that qualifies for zero duties under a Free Trade Agreement, has lower transportation costs, a shorter supply chain, and is in the same Time Zone for easier communication.<\/span><\/p>\n

      Lesson 5: You Need to Drive Change Across Your Organization<\/span><\/h2>\n

      The first step in turning Classification into a competitive advantage is to start with a general assessment of what you have today with regard to people, processes and enabling technology. Begin by identifying any gaps:<\/span><\/p>\n

        \n
      • Do I have enough people, and are they proficient in Classification or do they need additional training?\u00a0<\/span><\/li>\n
      • Are my Classification procedures documented? Do I lack centralized control if I have multiple divisions importing?<\/span><\/li>\n
      • And do you have any supporting systems or is your process entirely manual?\u00a0\u00a0\u00a0\u00a0\u00a0<\/span><\/li>\n<\/ul>\n

        Next, learn where your company\u2019s product build\/buy decisions start. Introduce yourself to the key people in these departments, as well as the other supporting departments such as procurement, marketing, sales and finance.\u00a0<\/span><\/p>\n

        Explain how what you do could benefit them and the company. This is far more successful than a \u201cI need your help\u201d perspective. Note any systems they are using which you might also be able to leverage.\u00a0\u00a0\u00a0<\/span><\/p>\n

        This initiative isn\u2019t going to drive itself. Be prepared to take ownership. You\u2019ll need to schedule meetings with these groups to explain and evangelize how this will benefit them.\u00a0<\/span><\/p>\n

        And finally, get your efforts noticed by tracking and publishing your wins. Send out congratulatory emails noting the people that helped make it happen. A company newsletter, if you have one, is an excellent source for this. You\u2019ll likely find that other people and departments will start contacting you to see how they could benefit.<\/span>[\/vc_column_text][\/vc_column][\/vc_row]<\/p>\n","protected":false},"excerpt":{"rendered":"

        [vc_row][vc_column][vc_single_image image=”10837″ img_size=”full”][vc_column_text]Correctly classifying goods for import or export with the correct Harmonized System (HS) codes is no easy task. The HS is an internationally recognized tariff nomenclature that uses a six digit code to classify products. Countries can add extra digits for their own reporting purposes. The United States uses a 10-digit code, known […]<\/p>\n","protected":false},"author":139,"featured_media":10837,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2045],"tags":[2578,2579,516,2577,406,1830],"class_list":["post-10833","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-supply-chain-trends","tag-classification","tag-commodity-codes","tag-global-trade-management","tag-import-management","tag-trade-compliance","tag-trade-optimization"],"yoast_head":"\nLeveraging Import Classification: 5 Lessons Learned | QAD Blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.qad.com\/blog\/2022\/04\/leveraging-import-classification-5-lessons-learned\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Leveraging Import Classification: 5 Lessons Learned | QAD Blog\" \/>\n<meta property=\"og:description\" content=\"[vc_row][vc_column][vc_single_image image=”10837″ img_size=”full”][vc_column_text]Correctly classifying goods for import or export with the correct Harmonized System (HS) codes is no easy task. The HS is an internationally recognized tariff nomenclature that uses a six digit code to classify products. Countries can add extra digits for their own reporting purposes. 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