Crash Course in the Harmonized Tariff Schedule of the United States

What is the HTSUS?

The HTSUS is the Harmonized Tariff Schedule of the United States.

This post will give a rundown of what the HTSUS is and why it is so                                                           important:

• The HTSUS was established in 1989 through an act of Congress. This new tariff classification replaced the old Tariff Schedule of the United States.
• The “HTS comprises a hierarchical structure for describing all goods in trade for duty, quota, and statistical purposes.”
• The hierarchical structure is based on the international Harmonized Commodity Description and Coding System (HS). This system was created by the World Customs Organization, which is based out of Brussels, Belgium.
• The HTSUS contains 10 numbers, grouped by chapter, heading and subheadings.
• The first 6 digits of the HTS are universal throughout the world.
• The HTSUS is the primary source for determining the proper tariff classification for goods that are imported into the United States.
• The HTSUS assists importers in deciphering what duties are owed for imported goods.
• It is an importers obligation to utilize “reasonable care” in ascertaining the correct HTSUS.
• Experts use the HTS, in conjunction with explanatory notes, general notes, general rules of interpretation and Customs Binding Rulings to determine the correct HTS.
• Penalties for non-compliance with the HTSUS (i.e., randomly picking the HTSUS with the lowest duty rate) can be severe! 19 U.S.C. 1592 is the statute CBP references when issuing penalties for negligence, gross negligence or fraud – depending on the degree of culpability CBP believes you had at the time of your non-compliance.

How is the classification determined?

• The classification for the HTSUS is done in accordance with the General and Additional U.S. Rules of Interpretation. There are two columns for rates of duties. The first column is broken down into two subcolumns. Those subcolumns are “General” and “Special” rates of duties. The General subcolumn “sets forth the general or normal trade relations (NTR) rates”. The “Special” subcolumn “reflects rates of duty under one or more special tariff treatment programs”. Column two is “duty rates for products from” countries that do not have NTR with the United States. Currently there are only two countries on that list and those are Cuba and North Korea.

What is My Obligation as an Importer as it Relates to the HTSUS?

• CBP published a terrific guide titled “Importing into the U.S.” “A Guide for Commercial Importers”.  The guide discusses the Trade Act of 2002 and the Customs Modernization Act (the “Mod Act”) and the responsibilities that came to fruition for importers as a result. A key feature of the Mod Act is a “relationship between CBP and importers that is characterized by informed compliance”. What this means is now there is ashared responsibility between CBP and the import community, wherein CBP communicates its requirements to the importer, and the importer, in turn, uses “reasonable care” to assure that CBP is provided with accurate and timely data. Bottom line, no “reasonable care” = BIG problem.

How Do I Prove I Used Reasonable Care?

If you have an answer for these 10 questions (from CBP’s Reasonable Care Checklist), then you can prove you used “reasonable care” as it relates to your HTSUS:

1. “Have you provided or established reliable procedures to ensure you provide a complete and accurate description of your merchandise to U.S. Customs and Border Protection in accordance with 19 U.S.C. 1481? (Also, see 19 CFR 141.87 and 19 CFR 141.89 for special merchandise description requirements.)
2. Have you provided or established reliable procedures to ensure you provide a correct tariff classification of your merchandise to U.S. Customs and Border Protection in accordance with 19 U.S.C. 1484?
3. Have you obtained a Customs "ruling" regarding the description of the merchandise or its tariff classification (See 19 CFR Part 177), and if so, have you established reliable procedures to ensure that you have followed the ruling and brought it to U.S. Customs and Border Protection’s attention?
4. Where merchandise description or tariff classification information is not immediately available, have you established a reliable procedure for providing that information, and is the procedure being followed?
5. Have you participated in a Customs pre-classification of your merchandise relating to proper merchandise description and classification?
6. Have you consulted the tariff schedules, Customs informed compliance publications, court cases and/or Customs rulings to assist you in describing and classifying the merchandise?
7. Have you consulted with a Customs "expert" (e.g., lawyer, Customs broker, accountant, or Customs consultant) to assist in the description and/or classification of the merchandise?
8. If you are claiming a conditionally free or special tariff classification/provision for your merchandise (e.g., GSP, HTS Item 9802, NAFTA, etc.), How have you verified that the merchandise qualifies for such status? Have you obtained or developed reliable procedures to obtain any required or necessary documentation to support the claim? If making a NAFTA preference claim, do you already have a NAFTA certificate of origin in your possession?
9. Is the nature of your merchandise such that a laboratory analysis or other specialized procedure is suggested to assist in proper description and classification?
10. Have you developed a reliable program or procedure to maintain and produce any required Customs entry documentation and supporting information?”

 What is a Customs Binding Ruling and Do I need One?

• Considering an importer of record has a responsibility to use “reasonable care” when declaring the classification for merchandise upon entry to the U.S., CBP has a binding ruling program in place where importers can receive a binding determination from CBP on issues relating to classification prior to importation.
• A binding ruling can only be given by the National Commodity Specialist Division (NCSD) of the Office of Regulations and Rulings. We routinely advise importers to research the HTSUS first, and ask CBP for the HTSUS you believe best fits your product when requesting a binding ruling. It’s important to remember, the decision is BINDING. Not following it is not an option. There is a reconsideration process, but, it takes a considerable amount of time, whereas binding ruling requests for an HTSUS are generally issued within 30 days.

How Would CBP Know I’m NOT Using the Correct HTSUS?

• CBP has the right to check up on importers and ensure you are using “reasonable care” in regard to the classification of merchandise entered into the U.S.  CBP often verifies that an importer is declaring merchandise entered into the U.S. properly by sending an importer a Request for Information, also known as Customs Form (CBP Form) 28. Upon receipt of a Request for Information, if an importer determines an inadvertent error took place, and an investigation by CBP has not yet commenced, filing a perfected Prior Disclosure may assist in drastically reducing potential penalties from CBP.  A CBP Form 28 is NOT friendly. It can (and often does lead to enforcement by CBP). This is where you get counsel involved to ensure you respond adequately to the CBP Form 28, and if advised by counsel, submit a Prior Disclosure as a response.

Need help with complying with the proper HTSUS so you do not receive a penalty? Then contact Diaz Trade Law at info@diaztradelaw.com to make sure you have the correct HTSUS.