Tom Gould is one of the world’s top customs and compliance professionals. He’s also VP of Global Customs at Flexport. Follow along as Tom reveals the ins and outs of getting goods in and out of anywhere. Rules and regs, compliance trends, and a master class in classification: Tom covers it all on the blog, LinkedIn, and Twitter.
Every five years, the World Customs Organization (WCO) updates the Harmonized System—aka HTS codes. The next update is the tariff’s seventh edition, and it takes effect on January 1, 2022.
That’s approximately four months from now. With that amount of time, you can audit your product library and prepare for compliance early enough to optimize your tariff scenarios. Some of your insights may lead to larger changes across your supply chain, too.
I’ve created an executive roadmap to help you capture greater opportunities while ensuring classification and tariff compliance. Here it is.
In this step, you or—if you value your sanity—your customs broker collates your products and cross-checks them to ensure compliance with new HTS codes.
Start by pulling a list of all the items you sell. In the Flexport Platform, this is as easy as exporting your Product Library to a spreadsheet. Then, compare your list to what will change.
You may have a sense of scope from the US International Trade Commission (USITC) correlation tables, which indicate potential updates for your products. The tables list current and recommended new HTS codes, no descriptions, just two columns of numbers.
It’s a helpful starting point, but it’s highly unlikely your entire inventory is going to fall into one-to-one code exchanges. In reality, your HTS code updates could also look like this:
That's because HTS updates reflect the evolution of trade in all its messy, real, sometimes-political glory:
A key piece of advice: Ask about complexity if you’re shopping automation services. Companies that claim to fully automate the transition may just be plugging in the data from the correlation table and running your inventory against it.
Brainpower is vital here. Customs brokers who specialize in classification pore over definitions on a regular basis. They’re able to compare the details of your product to the specific parameters of each code to determine which are both fully accurate and most favorable for your business.
Once the new codes are accurately assigned, the Flexport Platform updates your Product Library, so it can serve as a centralized source of truth for the rest of your workflows, including tariff calculation.
After assigning new HTS codes, determine eligibility under Free Trade Agreements or other compliance-related programs. Troubleshoot or adjust as needed.
When your HTS codes change, your other compliance scenarios may change, too. The trickle effects can become increasingly complex with impacts in categories like dangerous goods, antidumping, and other government agency requirements.
For example, most Free Trade Agreement (FTA) eligibility is tied to a product and its components’ HTS codes.
Since it can take several years for FTAs to incorporate HTS updates, some companies maintain both the old and the new HTS in their product library. The new is used for customs entry, duty, and other regular uses of the HTS. The old is used to qualify products for the FTA until the FTA is updated.
Another example: If you’ve been on the hook for Section 301 tariffs on goods from China, some of your products may have new codes that are no longer on the lists.
Changing the Section 301 lists may be easier than changing an FTA, but it’s too early to tell what governments may do between now and January.
Now, get more value out of your audit by identifying product design adjustments that could reduce tariff exposure. Small changes can create major savings.
Essentially, the practice involves the modification of new or existing products to pay the lowest possible duty rate. It almost sounds like it should be illegal, but it’s not—it’s proactive.
This is where you can double-dip on your audit: Bring your codes into compliance and make sure you aren’t exposing your company to tariffs that are higher than necessary.
The brokers who work on tariff engineering are part strategic masterminds and part mad scientists. They review scores of details to find opportunities, and they can save you an extraordinary amount of money. For example, a legitimate addition of textile to the sole of a pair of sneakers could cut the duty rate from nearly 40% to less than 10%.
With enough time for you to execute, their recommendations could position you to make product or supplier adjustments in time for the new HTS codes or shortly thereafter. My recommendation is to start the process as soon as you can.
Reshuffle and refine your analytics to highlight supply chain opportunities.
As you move into the final stages of your transition, set up frameworks to compile strong trade data. With the addition of brand-new HTS codes, many companies may be able to take analysis further.
The US International Trade Commission (USITC) maintains trade statistics available to the public. For some new HTS, that data will be more specific.
For example, a smartphone company can see how many phones are imported. After the new HTS kick in, the company will be able to see the number of smartphones versus feature phones (aka dumb phones) imported by country and other variables.
In the Flexport Platform, your trade data is parsed for you automatically. Your customs broker can easily retrieve your company’s customs and logistics data without asking you to spend time compiling documentation. The result is a data set that reveals global trade statistics and logistics patterns with almost no work on your part.
For help preparing for the 2022 HTS code update, send your questions to my team at firstname.lastname@example.org.
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