If you’re new to the transportation industry, the words Beneficial Cargo Owner, or BCO, might seem unfamiliar. I recently had to clarify this term with a colleague to fully understand the meaning and importance.

A BCO refers to an importer that takes control of their cargo at the point of entry and does not utilize a third party source like an NVOCC or Freight Forwarder. Typically, BCOs are large companies that import products regularly, thus, they have an in-house department for import procedures.

According to Zepol’s TradeIQ™, for the first half of 2012, approximately 57% of all vessel imports, in terms of shipments, were imported by a BCO. In 2003, this figure was about 80%. The graph below illustrates this trend for the past nine years, showing the percent of imports by Beneficial Cargo Owners slowly declining. This trend also indicates that more importers are utilizing third party sources to bring their goods safely into the United States.


*Data from January through June, 2012 

We spoke with John M. Peterson, international trade/Customs law expert and partner at Neville Peterson LLP, about the dangerous mishaps importers can make with import classification. John has co-authored this 3-part-blog and provided some first-hand examples on classification errors that he sees regularly in the industry.
3. Fail to stay current

Example:
There’s a big difference between data and knowledge. You’re importing a tablecloth with a holiday design. You find a ruling from 2004 classifying the good as “festive articles” under a particular subheading of the HTS heading 9505. You provide the subheading to your Customs broker, and look forward to some duty free treatment.

The mistake?
All of a sudden the honeymoon is over, things start happening. The HTS number is outdated, and Customs’ computer systems won’t accept it. The changes to Chapter 95, Note 1(v) of the Harmonized Tariff Schedule, which took place in early 2007, most likely prevent your tablecloths from being classified as “festive articles.” Now, you’re looking at a high duty rate indeed – not a happy situation if you’ve already set prices to customers anticipating no duty costs. It’s not enough to find a ruling that seems to fit your product; you have to move your research forward to the present, to make sure old rulings are still good law.

We spoke with John M. Peterson, international trade/Customs law expert and partner at Neville Peterson LLP, about the dangerous mishaps importers can make with import classification. John has co-authored this 3-part-blog and provided some first-hand examples on classification errors that he sees regularly in the industry.

2. Neglect to Review Rulings

Example:
You’re importing a specially designed plastic package used to enclose medical supplies. The special package not only helps patients store syringes with medication, but contains a compartment for storing the used syringes safely. You check the HTS and find the subheading 3923.10; this covers plastic articles for the conveyance or packaging of goods. The duty rate is just 3% ad valorem. You’re happy.

So what’s the problem?
If you’d checked the rulings, you’d learn that Customs labels those types of products as secondary Nairobi Protocol classification, in subheading 9817.00.96. This is defined as “Articles specially designed for use by the blind and physically handicapped,” and is DUTY FREE (See New York Ruling N184815 dated October 13, 2011). Sure, you’ve got a low duty rate, but you’re leaving money on the table.

Most importers know that to classify a product under the correct HTS code is no easy task. Oftentimes professionals make these common mistakes, which can result in disaster.

We spoke with John M. Peterson, international trade/Customs law expert and partner at Neville Peterson LLP, about these dangerous mishaps. John has co-authored this 3-part-blog and provided some first-hand examples on classification errors that he sees regularly in the industry.

1. Choose the Lowest Duty Rate Versus the Correct Classification

Example:
You’re importing woven textile graduation gowns. The HTS subheading 6211.43.0091 provision for “other” wearing apparel carries a 16% ad valorem duty rate – ouch! On the other hand, “festive articles” of HTS Heading 9505 are duty free, and, after all, graduation gowns are typically worn on festive occasions. So you enter the goods under Heading 9505. That’s potentially a costly mistake, since Customs has ruled that graduation gowns are classifiable as apparel.

Since U.S. Customs issues penalties for an entry by means of false statements, acts or practices are expressed as a multiple of revenue losses, a reclassification, plus a simple “negligence” penalty of two times the loss of revenue, you could find yourself owing the government 48% of the value of your imports.

What’s the best solution?
Just because Customs says something in a ruling doesn’t make it right; an importer has every right to protest duty assessments and challenge classifications administratively in the U.S. Court of International Trade. [In fact, one importer is challenging the classification of graduation gowns right now]. But an importer who ignores rulings in favor of convenience does so in peril. Better to seek your own ruling, file a protest if you disagree – or both.

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