Archive for the ‘H.S. Tariff Classification’ Category


 

The Most Crucial Aspect of Global Trade: HS Tariff Codes

HS Tariff CodesEvery commodity that clears through customs must have an accurate and correct Harmonized System code (HS code) applied to it. This code identifies the item to Canada Border Services Agency (CBSA), as well as indicates the duty rate payable.

The Canada Customs Invoices or Commercial Invoices prepared must provide enough detail to identify the goods and correctly establish the H. S. tariff classification code.

Tariff classification can be very complex and speaks to the essential character of the article being imported:

  • What article is being imported?
  • What is the article made of?
  • What is the item used for?

Almost 200 countries, representing about 98 percent of world trade use the Harmonized System as a basis for trade negotiations collecting international trade statistics, quota controls, rules of origin and for statistical and economic research and analysis.

Anatomy of an HS Code:

The HS code is a 10 digit code. The first six (6) digits of the HS code are universal (meaning that all countries use the same first six digits to classify a commodity); the remaining four (4) digits that make up the HS Code are unique from country to country and used for statistics.

Classifying commodities correctly is key with regards to the importer paying the correct amount of duty and avoiding Administrative Monetary Penalty System (AMPS) penalties, or worse, seizure of your goods.

The Customs Tariff book is a comprehensive list of all HS codes laid out in 99 chapters; the progression being from raw products to the most highly processed. These 99 chapters are also broken into 21 sections for ease of reference. The tariff book contains over 10,000 detailed tariff options. In order to select the correct tariff code, you or your customs broker are required to understand the rules contained in the tariff book, and have detailed knowledge of the item(s) being imported.

All imported items must be classified in the Harmonized Tariff System (HTS) using the General Rules of Interpretation and other aids.

 Commodities entering Canada are classified based on:

  1. Six (6) Universal General Interpretive Rules (GIR) and
  2. Three (3) Canadian Rules

 The Six Universal General Interpretive Rules (GIR):

Rule No.1:

The titles of Sections, Chapters and Sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or notes do not otherwise require, according to the following provisions.

Rule No.2:

2. (a) Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this Rule), presented unassembled or disassembled.

2. (b) Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles of Rule 3.

Rule No. 3:

3. When by application of Rule 2 (b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:

3 (a) The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.

3 (b) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to Rule 3 (a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.

3 (c) When goods cannot be classified by reference to Rule 3 (a) or 3 (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.

Rule No. 4:

Goods which cannot be classified in accordance with the above Rules shall be classified under the heading appropriate to the goods to which they are most akin.

Rule No. 5:

5. In addition to the foregoing provisions, the following Rules shall apply in respect of the goods referred to therein:

5(a) Camera cases, musical instrument cases, gun cases, drawing instrument cases, necklace cases and similar containers, specially shaped or fitted to contain a specific article or set of articles, suitable for long-term use and presented with the articles for which they are intended, shall be classified with such articles when of a kind normally sold therewith. This Rule does not, however, apply to containers which give the whole its essential character.

5(b) Subject to the provisions of Rule 5 (a) above, packing materials and packing containers presented with the goods therein shall be classified with the goods if they are of a kind normally used for packing such goods. However, this provision is not binding when such packing materials or packing containers are clearly suitable for repetitive use.

Rule No.6:

6. For legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related Subheading Notes and, mutatis mutandis, to the above Rules, on the understanding that only subheadings at the same level are comparable. For the purpose of this Rule the relative Section and Chapter Notes also apply, unless the context otherwise requires.

The Three Canadian Rules:

1. For legal purposes, the classification of goods in the tariff items of a subheading or of a heading shall be determined according to the terms of those tariff items and any related Supplementary Notes and, mutatis mutandis, to the General Rules for the Interpretation of the Harmonized System, on the understanding that only tariff items at the same level are comparable. For the purpose of this Rule the relative Section, Chapter and Subheading Notes also apply, unless the context otherwise requires.

2. Where both a Canadian term and an international term are presented in this Nomenclature, the commonly accepted meaning and scope of the international term shall take precedence.

3. For the purpose of Rule 5 (b) of the General Rules for the Interpretation of the Harmonized System, packing materials or packing containers clearly suitable for repetitive use shall be classified under their respective headings.

 

Correctly understanding and interpreting the General Interpretive Rules (GIR), and using them to apply the most accurate HS code, is the basis of tariff classification. A customs broker has years of practice using the GIR to apply true and accurate HS codes chosen from the 99 Chapters of the Customs Tariff book.

 

The Explanatory Notes

In addition to the GIRs contained in the Customs Tariff, a second publication, the Explanatory Notes, is used to assist in correctly classifying commodities. The Explanatory Notes is a list of definitions, explanations and rules that apply to and clarify headings and subheadings in the Customs Tariff.

As well as identifying the commodity and duty rate to CBSA, the HS code also indicates if the product requires additional clearances from other government agencies such as the Canadian Food Inspection Agency (CFIA) or Natural Resource Canada (NRCan).

 

Advanced Ruling

In the event that there is no obvious classification that fits the item being imported, an Advanced Ruling should be requested. An advanced ruling ensures that the item will be classified to CBSA’s satisfaction and there will be no penalty for misclassified items. This is recommended for any item that is not clearly stated in the Customs Tariff or appears to have more than one equally applicable tariff.

Should you get an advanced tariff classification ruling from CBSA?

Not all goods require an advanced ruling from customs in order to be properly classified, however the process remains complex and all imported items must be classified in the Harmonized Tariff System (HTS) using the General Rules of Interpretation and other aids. Getting an advance ruling ensures that the tariff classification number used is deemed correct by the CBSA. The advance ruling provides certainty to the importer, or his or her representative, as to how goods are to be classified and thereby facilitates the documentation and other governmental department requirements for clearing goods at the border.

 

Proper classification is the starting point of compliance. A thorough knowledge of the Harmonized System is essential for anyone involved in global trade. If you would like to further your understanding of tariff classification and find the correct commodity codes for your goods, attend our upcoming H.S. Tariff Classification Workshop. In this hands-on session you will learn how to classifying goods and parts , understand the complexities of the various rules of interpretations of the H.S. Tariff System, gain a better understanding of how duties are determined and learn about preferential tariff treatments. Register today!

 

Have questions or comments on H.S. tariff classification? Post your thoughts in the comments section below or email us at Ask Your Broker.

4 Reasons For Determining the Correct Harmonized Tariff Classification

Harmonized System Tariff and ClassificationThe dilemma: You are always getting calls from your customs broker asking for further information about your products. When asked “why”, they respond that they need to determine the correct harmonized tariff classification.

To the uninformed observer, why care? I mean let us be honest… all you want to know is… “Do I have to pay customs duty on these goods?” Right?

Like everything, you need to peel back the layers to see what lies beneath. First of all, let us briefly examine the complexity of the tariff schedule as defined by the harmonized system.

The Harmonized System (H.S.) Tariff Schedule:

The H.S. Tariff Schedule is comprised of 21 sections with 96 chapters; in Canada there are over 12,000 individual tariff classifications at the ten digit level. There is a specific hierarchy (the General Rules of Interpretation) which defines the methods used to determine a product classification. Additionally, there are sections, chapters and explanatory notes to consider, plus further rules defining how to navigate the punctuation and use of dashes or hyphens. Granted, some items can be classified easily but many require an expert with years of tariff classification experience.

Key Reasons Why “Getting It Right” Is So Important:

Let us start with the area that everyone is aware:

1. Duty rates: The tariff classification has a direct correlation to the duty rate that you will be expected to pay (and no, it is not a matter of “finding the one that says FREE”).

2. NAFTA: This is very important as one of the first steps in determining if goods qualify under NAFTA is to find the tariff classification for the product and to then check under the NAFTA Specific Rules of Origin to determine how the goods might qualify. A common misconception is that products will “automatically” qualify if they are made in Canada, the U.S. or Mexico.

3. Anti-Dumping Duty (ADD): If a government decides that they need to protect a domestic industry, they can impose an anti-dumping duty on specific imports. This is also driven by the harmonized tariff classification. Pay close attention to this area as anti-dumping duty rates are always very high – usually double or sometimes triple digit percentages.For a full list of Canadian imports subject to dumping duties visit this link » Goods subject to anti-dumping or countervailing duties

4. Exporting to countries other than the U.S. where the shipment value exceeds $2,000.00? You or your freight forwarder will be required to complete a B13A export document (or electronic equivalent), and you will need the eight digit harmonized system export code or the Canadian 10 digit import code for each product. Once again, export restrictions and permits governed by Foreign Affairs are driven by the tariff classification.The above topics are the primary reasons for determining the correct tariff classification. In addition, we should also include the controls through other governmental agencies, such as the Canadian Food Inspection Agency, Free Trade Agreements with other countries, and also the effects on Canada’s trade statistics.

 

Remember – If your company’s name is indicated as the importer on any customs documents, you (not your customs broker) are looked upon as the responsible party to ensure all declarations are correct. You may be able to avoid any future problems by getting it right the first time!

To learn more about the Harmonized System (HS) Code:

Proper classification is the starting point of compliance. A thorough knowledge of the Harmonized System is essential for anyone involved in global trade. If you would like to further your understanding of tariff classification and find the correct commodity codes for your goods, attend our upcoming H.S. Tariff Classification Workshop. In this hands-on session you will learn how to classifying goods and parts , understand the complexities of the various rules of interpretations of the H.S. Tariff System, gain a better understanding of how duties are determined and learn about preferential tariff treatments. Register today!

Have questions or comments on H.S. tariff classification? Post your thoughts in the comments section below or email us at Ask Your Broker.

Breaking Down Barriers with the Canada-EU Trade Agreement

Canda EU Free Trade DealAs a strong supporter of free trade, the European Union (EU) is a strategic partner for Canada, with the oldest formal relationship dating back to 1959. On October 18, 2013, Canada and the European Union (EU) reached an agreement in principle on a Comprehensive Economic and Trade Agreement (CETA) that proponents suggest will bring the trade and investment relationship between the two trading partners to a new level.

What is CETA?

The Comprehensive Economic and Trade Agreement (CETA) covers issues relevant to a modern trade and investment environment, from new market access opportunities to clear rules for European and Canadian traders and investors.  It addresses the full range of conditions that shape international trade in goods and services in order to eliminate or reduce barriers.

Impact of CETA on Canadian Businesses:

This agreement is by far Canada’s most ambitious trade initiative. It covers most aspects of the Canada-EU bilateral economic relationship, including trade in goods and services, investment, and government procurement. It also grants the flexibility to include areas of mutual interest beyond those that have traditionally been included in Canada’s trade agreements, such as regulatory cooperation. CETA will open new markets to Canadian exporters throughout the EU. It will also make Canada a more attractive destination for investors and manufacturers.

Key Milestones:

  • In an effort to deepen and broaden the Canada-EU commercial relationship, in 2008 Canada and the EU issue a joint study, Assessing the Costs and Benefits of a Closer EU-Canada Economic Partnership, which provided supporting rationale for a launch of negotiations.
  • Negotiations on a Comprehensive Economic and Trade Agreement (CETA) were launched in May 2009 at the EU-Canada Summit in Prague.
  • The content of the CETA and its general modalities were agreed in June 2009.
  • A successful and productive first round of negotiations toward a CETA was held in Ottawa in 2009. Both sides made efforts to identify common grounds and set an ambitious negotiating timeline.
  • EU Trade Commissioner Karel De Gucht and his Canadian counterpart Trade Minister Fast met in February 2013 to take stock of the remaining open points.
  • After months of intense negotiations, Commission President José Manuel Barroso and Canadian Prime Minister Stephen Harper  reached a political agreement on 18 October 2013.

Economic Ties Between the EU and Canada:

  • In 2010 Canadian merchandise exports amounted to C$34.5 billion, while imports stood at C$47.8 billion.
  • Canadian exports to the EU are diverse and include a significant share of value-added products in addition to traditional exports of resource-based products and commodities. Machinery and transport equipment, chemicals, pharmaceutical products, mineral fuels and diamonds are among our leading merchandise trade items.
  • Trade in services is significant, with Canada exporting C$12.6 billion in services to the EU in 2010, while importing approximately C$14.9 billion. Examples of often traded services between Canada and the EU are transportation, travel, insurance and communication.
  • The investment relationship is equally highly important. In 2011, European investors held investments worth more than €221.6 bn in Canada while Canadian direct investment stocks in the EU amounted to almost €137.6 bn. (Source: EU trade relations with Canada)
  • Key growth sectors of interest to Canada include ICT, telecommunications, aerospace and defence, energy technologies, and environmental products and services.

CETA Benefits:

The Agreement will provide Canada with preferential market access to the EU’s more than 500 million consumers and to its annual $17 trillion in economic activity.

A  joint study conducted in 2008 examined the costs and benefits of pursuing a closer economic partnership and revealed that both the EU and Canada can expect to gain from a closer bilateral trade relationship. A future agreement would contribute to economic growth and the creation of jobs. It would have several benefits, in particular:

  • The economic model of the Joint Study predicts annual real income gains of approximately €11.6 billion for the EU and €8.2 billion for Canada within seven years following the implementation of an agreement.
  • Total EU exports to Canada are estimated to go up by 24.3% or €17 billion, while Canadian bilateral exports to the EU are predicted to increase by 20.6% or €8.6 billion.
  • 50% of the total expected gains for the EU are related to trade in services, 25% to the removal of tariffs and the remaining 25% of the GDP gains can be reached by the dismantling of Non-tariff barriers (NTB).
  • The benefits from the Agreement in the area of NTBs are estimated to result in a €2.9 billion gain for the EU and €1.7 billion for Canada.
  • In the service sector new opportunities will arise both for European and Canadian companies.
  • Companies on both sides will benefit from the disciplines on investment protection, which are currently being negotiated, making investment even safer!
  • An agreement would bring the investment protection regimes on both sides to a comparable level.
  • Both countries will gain from increased access to the respective public procurement markets. All sub-federal levels of government in Canada will be open to European companies to engage in tenders.

Status of the Agreement:

Now that an agreement in principle has been reached, both parties will seek to conclude the formal agreement and undertake a legal review of the document. Once the final agreement is signed, it will then need to be ratified by respective parliaments.

 

Pacific Customs Brokers is monitoring the situation and will continue to post updates to the Trade News section of our website as they become available.

For more information on this agreement and to see how this it unfolds, please visit the CETA website.

 

American Goods Returned Are Not Duty Free

Made in the USA labelAmerican Goods Returned (AGR) also referred to as U.S. made goods returned (USGR) is a formal declaration for entering goods manufactured in the United States that have been previously exported and are now returning.

Do not assume that  the return of goods to the United States will be without some difficulty. A common mistake that importers make when declaring U.S. goods is that they do not know where the products were manufactured.  Just because the product was purchased in the U.S.  it doesn’t necessarily mean it was manufactured in the United States.

Did you know U.S. goods returning to the United States are usually eligible for duty-free treatment? The provision 9801.00.10 in the Harmonized Tariff Schedule allows U.S. made products to return to the U.S. without being subject to duty and the Merchandise Processing Fee. However, the provision stipulates the goods cannot be advanced in value or the condition of the goods improved while abroad.

For example, say you are the owner of a helicopter manufactured in the USA. The helicopter has electrical problems and you send it to a repair shop in Canada. When the helicopter returns the value of the repairs may be subject to duty.

Another example would be goods purchased from the U.S. by a Canadian company. They received their shipment and the goods were refused by the buyer because they did not meet their product specifications. The goods can be returned to the U.S. duty free if the proper documentation can be supplied to U.S. customs.

The most common proof is a Manufacturer’s Affidavit. Like the name implies, this form is completed by the actual manufacturer of the goods. U.S. customs requires this for any shipments that are valued over $2000 and if the articles are not clearly marked with the name and address of the manufacturer.

The affidavit must state that the goods are a product of the USA. U.S. Customs requires the affidavit to be on the U.S. manufacturer’s letterhead and it must be signed by an employee from the U.S. manufacturers facility that has the authority to sign on behalf of the company. At some U.S. ports of entry, Customs will accept a  NAFTA Certificate that is completed by the manufacturer.

Next time you get ready to ship U.S. goods remember it is not always as easy as it seems. Be sure to supply the proper paperwork to support your duty free return!

Leave us your questions or comments regarding American goods returning to the United States below or contact us at clientservices@pcbusa.com.

 

Correct Product Descriptions: Foundation for Import Accuracy

ChecklistWhen you travel, it doesn”t matter which English speaking country you are in. You could be in Canada, Britain, Scotland, South Africa, Australia or New Zealand. Everybody might be referring to the same thing but everyone uses a different word or phrase. Terminology, language, dialect, regional slang, pronunciation — so many factors enter into the equation and influence the way we describe people, places and things.

The same concept often applies when a customs broker is trying to process a Customs clearance on behalf of their client. Through trade names, item numbers or industry jargon, the product description on the commercial or Canada Customs invoice makes sense to the shipper and consignee, but is either too vague or lacks further information for the customs broker. Probably the number one reason that your customs broker needs to contact you or the shipper is for further details about the product description.

Why is this important?

The main reason your customs broker needs this information is to identify the correct tariff classification for each item. For a quick read on the importance of the tariff classification, refer to our previous post.

In addition, every product line on the Canada Customs or commercial invoice needs to be classified, data entered and transmitted to Customs. Generally, all shipments containing less than 100 product lines must be transmitted electronically in order to request a Customs clearance from Canada Customs. Yes, you read correctly…the information must be transmitted and accepted by Customs before the shipment can physically enter Canada. As you can well imagine, the window in which to perform this function could be very small if a truck driver is quickly approaching the Canadian border.

Ultimately, the “Importer of Record” (generally the Canadian purchaser) is responsible for all trade data submitted to a Customs agency on their behalf and is also liable for any errors or omissions. Essentially, this could lead to fines, penalties and interest fees under the Administrative Monetary Penalty System if the goods are incorrectly identified or classified due to an unclear or vague product description.

Here’s a hot-off-the-press real life example. This morning I had a client call me as her shipment was held up with a courier. The problem was that the product description was listed as “wine” on the bill of lading. Turns out the goods are actually “wine stoppers” (which, incidentally, carry a much lower duty rate than alcohol!).

So what information is your customs broker looking for?

In order to cover all the possibilities I would have to give you a 100 page booklet as every chapter of the customs tariff requests specific information. To keep it to the basics, the key areas are:

  • A clear literal description of the item (i.e. wooden chair with upholstered seat)
  • The chief materials from which the item is made (i.e. wood, plastic, steel, rubber, etc. If you import garments, you’ll need the fabric content)
  • The end use (if known) (i.e. used in the manufacture of __________)

Still frustrated? Attend our next Harmonized System Tariff & Classification Workshop and have our experts teach you how to properly classify products. Guess what you”ll learn first… it all starts with a detailed product description!

Still confused? Call Pacific Customs Brokers and we”ll discuss your customs requirements.