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.

A Tariff directly relates to the harmonized tariff system codes (HTS) which imported/exported products are classified under. HTS codes let U.S. Customs know what tariff rate should be charged to specific products; this mainly applies to imports over exports.

Let’s say I’m an importer of “knotted carpets and textile floor coverings.” I classify my product under the HTS code 5701.10.9000, and the corresponding U.S. tariff would be the taxed percentage, which in this case is 4.5%.

A Duty is the actual amount of money paid on the imported/exported product. Although, the actual tax reference is the same thing, the import duty paid on “knotted carpets and textile floor coverings” depends on the quantity imported.

For example, if I imported $200,000 worth of the product to the United States last month, my duties would then be $9,000.

Most professionals use the terms interchangeably, which is correct, but in certain cases one is more appropriate than the other.