Logistics Rewired: 2022 Harmonized Schedule Update
Are You Ready For The 2020 Harmonized Scheduled Update?
Tom Gould: Hello everyone and welcome to our webinar today. Before we begin, there's a few housekeeping items I need to go over. On your screen, you should see a sidebar to the right of the main stage. If you need assistance during the webinar, during the live webinar, please message us in the help chat located on the sidebar. You can also answer questions in the Q & A tab on the sidebar, and you can do that throughout the webinar.
Your questions are only going to be visible to you and to the Flexport team. So feel free to ask whatever you like. We'll do our best to answer as many of the questions as time allows, and we are leaving time at the end for us to answer questions because I know that there's, we expect to have a bunch of questions.
Let's see, at the top of the screen there's an additional tab that includes the presentation slides. So if you'd like to download the slides, you're welcome to do that. And if you want to know how you can prepare for the Harmonized System 2022 Update, click the link in the chat and that will allow you to download the concordance table, and that's the US concordance table for how to see how your classification codes may have changed. And it will also allow you to get directly in touch with us.
When we're done with the webinar, there will be an on demand version that'll be available after the webinar. So if you missed something, we were recording this and you should be able to see, view that at your leisure anytime after the presentation today.
Now on the legal slide, I'm not going to dig into all the details, but remember that all the information is provided based on the situation, your situation at the time or our situation at the time and it's not customized to your specific presentation. And with that, I guess, I should introduce myself. My name is Tom Gould and I'm the Vice President of Customs and Trade here at Flexport. And Marcus, Adam, you want to introduce yourselves?
Adam Dambrov: Thanks Tom.
Marcus Eeman: Thanks Tom.
Marcus Eeman: Thanks Tom. We're going left to right, right?
Tom Gould: Marcus, you're next.
Marcus Eeman: Yeah. So hi, everyone, my name is Marcus. I'm the Global Customers Manager here in Chicago, in the central region and I've been working quite in depth on this HTS 2022 project to help Flexport get ready for it.
Adam Dambrov: Thank you Marcus. My name is Adam Dambrov, I'm Director of Trade Advisory and our team is helping people get ready for the HS 2022 revisions as well as providing general classification services to our customers and future customers.
Tom Gould: Wonderful. Thank you. And let's see, we're going to cover several things today. We're going to start out by talking a little bit about the World Customs Organization, the Harmonized System. I know that many of you participated in our first webinars. So some of this may be a little bit of review, but we are going to have some additional information for you as well.
And then we're going to talk a bit about what's changing sometime in 2022 and then we'll go over a bunch of examples. Now the examples if you attended our first webinar, we've dug through the data in the changes, and we've come up with different examples to go over with you to really show you more in depth what the changes mean to many products that you may be importing in the near future.
Then we're going to talk to you about how to prepare, how best to prepare for the upcoming change. And finally, at the end, we'll go through questions and answers. And as I said, we have planned, we have set aside questions,and feel free to put your questions in the Q & A, excuse me the Q & A on the right hand side of the screen.
What is the WCO?
Shall we move, there we go. So let's start out by talking a little bit about the World Customs Organization. The World Customs Organization is an independent body. It's not a government agency, but it's an inter-governmental agency with 183 countries around the world that represent somewhere in the neighborhood of 98% of global trade. Their mission is to enhance the effectiveness and the efficiency of customs administrations. And one of the main things that the World Customs Organization does, is they're the ones that publish the tariff schedule. What they publish is the first six digits of the HS schedule, along with the chapter and section notes and the explanatory notes, and really their idea is they want to have a single system that countries around the world can use to exchange data with their customs agencies. So that's a little bit about the World Customs Organization. Let's move on to the next slide.
What is the Harmonized System?
And the Harmonized System as I just mentioned, the first six digits of the harmonized code are harmonized globally. That means that if you're importing a product in one country or exporting a product out of one country and importing it into another country, the idea is that you should be able to use basically the same first six digits, or the same six digit code to identify your product.
So now, if you take a look here, this 6206 10 I think that's a shirt classification for women's blouses. And then if you'll notice, the number is actually a full 10 digit number. Now, the World Customs Organization publishes the first six digits, and it allows each of the individual countries to add on as many digits as they like to make the code specific to their country. So the first six digits keeps the numbers consistent from country to country, and the last few digits allow each country to add specifics to their particular system.
In the US, we use 10 digit, a 10 digit number and many countries around the world use 10 digit numbers, but some will use eight, some will use 12, some will only use the six digit WCO numbers. It's really up to each individual country to make those determinations. And the classifications, as many of you know, determine things like duty rates, they determine how you qualify for many free trade agreements out around the world. They help you to identify other issues with importing things like different government agency requirements, different types of duty rates, like anti dumping or countervailing duties and so forth. Let's move on to the next slide.
Let's talk a little bit about what happens. Oh, I'm sorry, we're gonna do a quick poll first. Can we move on to the next slide with a poll question? So the poll question that we're going to be asking is, because we'd like to just get a little bit of an idea about your process. So the question that we're asking is, who actually handles your product classifications at your company? And we'll share the results with you in a moment.
Are you determining your classifications in-house? Do you have some type of external trade counsel, a customs, a consultant, an attorney or someone like that, that handles your classifications for you? Is it your customs broker that handles it for you? Or are you not sure? And what we'd like you to do is pick whichever one handles the most or the primary, the bulk of your classifications.
So go ahead and select those. And I'm remembering that I have to select it as well, so that I can see. And what I'm seeing so far right now, the poll shows that about 63% of companies handle their classifications internally. That's a good thing, that's a great thing. Something around 25% have their customs broker determine their classifications. Only 9% have an external outside trade council, and 5% are not sure. And I guess that's a good thing that the number is fairly low. Wonderful, why don't we move on. So let's talk a little bit about what is happening in 2022.
What is Happening in 2022?
So the World Customs Organization, every five to six years, they go through a process where they review products that have been imported and exported from countries all around the world. And they look around at what other issues are being used by customs agencies around the world to impact how they do business. In other words, what types of issues are there that companies are using in their import and exports? And what type of information are countries looking for with their imports and exports?
So one of the things that happens is, you'll see that sometimes classification numbers are retired. For example, in the last round, the classification for typewriters was retired. Because there really is no longer any meaningful trade in typewriters. So there's a few classifications that were retired in ‘20, will be retired in 2022. And there will be a bunch of new classifications for new products that will be coming online and we'll be talking about those in just a moment.
And then I think what I'm going to do is, I'll turn things over to Marcus, who's going to talk a little bit about what countries have published their tariffs and some of the examples we'll be going through, Marcus.
Which Countries Have Published Their 2022 HTS?
Marcus Eeman: Yeah. Thanks Tom. So, when we did this last time, two months ago, the only two that were yes, were the United States and Canada. Since that time, we can see some updates have come through, we have the European Union, we have Australia, we have China. They have started to provide their information and you can click on the links if you need to see those tariff schedules.
So, as Tom pointed out every country gets ownership of their own tariff schedule, and they all get to make the determination about how, when, where and in what way do these changes go into place here. Great Britain, we think is still kind of finding their footing after Brexit. And we, you know, we expect them to kind of get their act together before the end of the year, but looks like most of the country is in a good spot for this.
And toward the end of the presentation, Adam actually have a couple of points about what this looks like in the United States, about what that timeline is and who has to approve it, and so forth. But we can go to the next slide and talk about, okay, well, what are some of these changes that we're seeing here.
What Product Groups Are Most Affected?
And so we're seeing most of the changes concentrated in 85. And if you were at the one, two months ago, you might remember this chart still hasn't changed. I think this just is a nice visual representation to see that. Really, we're seeing changes to Chapter 85, we're seeing changes to almost every heading under Chapter 44. Mostly to identify different kinds of wood commodity and wood species being imported and moved around the world, as well as 84 and some changes to the textile provisions as well. We can go to the next slide, please.
Stats: What is The Impact?
So the total impact is we're seeing 351 global updates made at the six digit level, that include 70 new headings and subheadings added. And what that means in the United States is 1500 10 digit HTS codes are being updated in some way. Some of them are purely cosmetic, we're just changing the last few digits. But the meaning of the tariff, the meaning of a classification hasn't actually changed. But many of these changes are more substantive, and that's kind of what we wanted to talk about, with some of the examples that were that we're starting with here.
So on the next slide will tell you about the two main ones that are getting taken out of the tariffs this year. Tom mentioned typewriters were taken out a few years ago.
Examples of Deleted Codes
But coming in 2022, your classification for globes, is being retired, had a good long life, it served the trade community well, but the trading globes is not quite what it used to be anymore. Likewise, telephone answering machines. I still remember when it was a big deal that we got one at our house, we didn't have to just dash to the telephone anymore. And unfortunately, times are changing and no longer have our telephone answering machines necessary. In trade, there's just not quite enough volume to justify specific six digit provisions for a telephone answering machine. Now let's go to the other ones.
Examples of New Codes
Let's talk about some of the additions to the tariff. So I'm talking about pomace oil, which as we all know, this sounds a little bit odd. What is pomace oil? Well, we probably don't know that. But you probably do know olive oil. And so very briefly, if you've ever wondered how olive oil was made, there was a great five minutes of how it was made, a version on Youtube, you can look at it.
The first pressing of olives results in extra virgin olive oil, and this is like the premier oil, it tastes the best, it has the most olive characters, the most unique, and it's also the most expensive. And then the second pressing gives you regular virgin olive oil, which has some olive flavor. The third pressing has very little flavor, but still a nice high heat oil.
Pomace oil is the fourth treatment, I wouldn't even say it's a pressing, you take the dried out flesh and the seeds and the pit within the olive and you can dissolve some of those things with chemicals and then you distill it a second time and you can get something called pomace oil, which sometimes just gets sold as regular vegetable oil.
So why am I bringing it up now? Currently, pomace oil can get lumped into the six digit provision for olive oil. And so olive oil producers in Spain, in Greece, in Italy, in the United States, pushed very hard to have a new provision for pomace oil created. And so 1509 is where olive oil was going to live, you know both now and going forward. But 1510 is going to be the new home of pomace oil. So there's very kind of low grade, very cheap, not very high quality.
Now across the entire WCO, we see how you know pomace oil is going to be differentiated from olive oil and there won't be any kind of commingling allowed especially because olive oil was now going to be defined according to UN standards and there's a certain amount of expressed acidity in the chemistry to be qualified as an extra virgin olive oil. So olive oil industries will probably be very happy by this new series of updates. Go to the next slide here.
Examples of New Codes
Last time I talked about changes to Chapter 29 which is, for those who don't know the main chemical provision. 29 had some of the changes, but we saw another one in 39 for a similar reason. So 3911.20 is for a metal phosphate with a polymer contained within it, which may not sound a whole lot. But if you may know, chapter 39, that's where articles of plastic go. So any random pieces of plastic or equipment or small parts, you might have some familiarity with chapter 39.
This methyl phosphate with polymer, this is also called phosphonic acid sometimes. But this is often used as a curing agent for a resin epoxy. So you mix it, the two parts together, and you may have done this before for home repair, and you then create like a hardened plastic to make a sealant or to hold something together.
Unfortunately, this can also be used to create chemical weapons, you take this phosphonic acid, and you can manipulate it, you can produce some pretty nasty poisonous gases. And so this was a chemical of interest for the Chemical Weapons Convention and the people overseeing that program.
So being able to identify this precursor chemical and being able to follow its movements around the globe make it easier to track. Okay, who's getting some of these precursor chemicals, and what might they be doing with it, so it's a little bit easier to kind of track these potentially dangerous chemicals down. So this was a little bit dark. But we can go to the next slide, and we'll end up a little bit lighter.
Examples of Updated Notes
So here, we're going to talk about lamps and luminaires. Lamps, as we may know it, we might think of a table lamp right, you sit on the table, you plug it in, there's a little pull chain that we call a lamp. A luminaire may not be a familiar word to us, but it is a very familiar word for the National Electric Council. It is for the American International Society of industrial Engineers. A lot of these things, a lot of these main industry groups would call something that sits on your table that you plug in and pull the chain, they'd call that a luminaire. But if you've ever had to classify a light bulb or a lamp like that, or lighting fixture that you mount into a wall or ceiling, you may have just searched the word lamp in the tariff and you may have gotten confused because you'd see two headings you'd see 85 39, and you see heading 9405 lamp was used in both places. And it's a little bit you can see how it could be frustrating for an entire system based on the meaning of words, to use two words in the same word in two totally different ways.
So this is meant to kind of clear that up a little bit. And so lamps that we might call light bulbs with pictured there are going to stay in 8539, where they have been isolated sources of light with a base, usually surrounded by glass envelopes. That's what we have pictured there. But luminaires, lighting fixtures, lighting fittings, those have always been in 94 05, but by using the word luminaire instead of lamps, it's making it a lot clearer and a lot easier for for importers to understand or for brokers to explain to their importers of these products.
If you go to the next one as well, we're starting to get a little bit in the weeds here. So I'm hoping we have some brokers on the call that like to get their hands dirty when it comes to the classifying.
Updates to Section XII (Plastics & Rubber) Notes
We're seeing an update here to the section note about printed articles, and if you've ever had a classification of an item or a sign, or something that kind of provides some sort of information in that way, and then you're visually or using words, you may have come across heading 4911, which is for other articles of the printing industry, things that have been printed upon.
And there's a slight change in the language here that might make it a little bit harder to get into 4911. 4911 is a nice attractive heading towards duty free, it's on the list for a meeting only 7.5 percent if you're importing this from China. They're changing the phrase, not merely incidental to the use to not merely subsidiary. So what this means is that any printing on here that's not merely incidental, right, meaning that it's more than incidental to the use. That's how it had been before, but now it's saying that it's more than subsidiary to the use.
So before incidental can sometimes feel like accidental, maybe it was there on purpose. Maybe it was there kind of by accident, and there's this printing thing here which you may have to classify, which makes it a little bit more ambiguous. It's harder to tell. Okay, is this chapter 39? Is this chapter 40? Or is it a printing article? You know, from Chapter 49.
Incidental makes it a little bit more gray. But by using the word subsidiary, they establish a hierarchical idea, right? We're saying not only does it have to be incidental, it's saying its subsidiary which often is a subsidiary to, it has to identify something primary and to kind of give an example of what might be incidental printing or what might be subsidiary printing.
And the top example is a plastic sheet tablecloth and it's been printed with a nice colorful design that looks really good. And you might have some debate like well, that design is pretty nice, maybe that's the essential character, maybe that's really important to this thing. But maybe it's just incidental. But now by changing that to the word subsidiary. Now so just like well, okay, that you know that printing is nice, but it is subsidiary, it's subordinate to the actual role of the tablecloth, which is protecting the table below.
That kind of language makes it a little bit harder to sort of make that argument that it’s just incidental. You might have to say now, it's easier to say it's not. More than a subsidiary in order to be classified as your central character, and that's driving the classification discussion.
Another example of this here is, we have our no smoking sign. Here's a pretty clear cut example in both the previous and in the current version of the tariff language to show not merely incidental, right. This sign is telling us a message and the whole reason for this sign being the whole essential character, that sign is to tell us, there's no smoking allowed here. It's not just a sheet of plastic or a profile shape of plastic. This is conveying information. This is if printed, this is an article of the printing industry from chapter 4911. So I want to give one more example here on the next slide.
Examples of Updated Codes
And this started with a discussion about okay, what's the biggest single change that is happening in tariffs this year? And headlines say it's drones, it says smartphones right? We're seeing better camera provisions. And I talked about wood and various wood species last time. But if I had to pick a single change, that was maybe the most impactful, I'd probably go with the one at the very bottom of the list, flat panel displays.
A new heading is being created under 8524 and you may think, well okay, I don't really deal with electronics, I deal with industrial cutting machines, how does this affect me? How could I come into play here? Think for just a moment about all the places where we have flat panel displays.
Think about it in your own home, right. You have your smartphone, smartwatch, tablet, computer, but okay, what about some of the other things? What about your coffeemaker? What about your refrigerator right? What about your blender? What about a heart rate monitor or a medical device monitor that has some sort of flat panel display in it? What about something with a touchscreen, right? Think about a smartwatch, think about all these other things that happen to have these flat panel displays in it. Like your cutting machine, right?
You say, well I only import cutting machines. Well right, but how does the worker interact with that machine? How does it program it? How does it give it controls? Well, it has to use a flat panel display. And so, if you've ever had to bring in a part of a flat part of the machine and it's the flat panel component, you do it now. You are on quite the journey for classifying, you have to do a very detailed parts analysis.
You think about okay, additional rule 1B is this, is it provided for anywhere else? And, you know, GRI1 okay. And there's actually a provision, section 16 note two, and you have to look at it really in depth, and you have to do quite the analysis to determine, okay is this essential to the functioning of my product? Can it be used with anything else? Is it just displaying? Or is it also doing processing of the images as well?
There's a lot of questions that kind of come along with it. And to do it right is very painstaking, and if you've ever had the misfortune of classifying and looking at 90 1380 versus 8528 52. I'm sorry, but the good news is you don't have to do that starting on January 1.
All of those parts are actually probably not all, but almost all of those parts are now going to be living in 8524. Under a GRI1 rationale, because these are going to be specifically named and provided for 8524. And as we know when applying the GRIs, that will take precedence over any provision for a parts or part provision, so a part thereof. So unless there's something else about it, or as part of a sub assembly, flat panel displays will now be blissfully and mercifully classified under a single heading of 8524.
So, with that, those are some great examples here. I think we have another poll question. If we'd go on to that. We'll take a look here. So how prepared are you for HTS 2022? After I've just given my scare speech now, we'll have to see what the results would have been before and after. Have you mapped your changes already? Are you in the process of mapping now? Are you planning on starting soon? Are you leaning completely on the broker? Are you a little bit unsure on how you're going to handle it?
Tom Gould: Interesting some of the results that we're starting to see pretty early on, Marcus, I see 47% says, we'll start planning soon. I guess that's a good sign for us because we had the we're doing this webinar now. So hopefully, this will kick start you into planning your changes, we don't have that much time left to to get them done, but hopefully we'll be able to help out with that.
Marcus Eeman: So it looks like a clear majority there at 44% start planning soon got about just about 300 votes, and then also a fairly even distribution among the other four. Although the minority one i I'm noticing and saying that we're all set. We've mapped our changes. Oh, looks like I get a few phone calls in the coming weeks.
Things to Watch Out For
Adam Dambrov: Okay, so I'll take it from here, Marcus, thank you for that detailed in depth discussion. We want to shift a little bit away from the granularity of those examples and look deeply into the tariff, which I'm sure most of you will be doing over the next six weeks or so.
I wanted to talk about some of the other unknowns or more practical implications that could impact your import business as a result of the changes to the HTS. And first, we'll talk about the implementation date. The ITC, the International Trade Commission, which is responsible for managing the HTS and making revisions to the HTS in accordance with the WCO updates, has indicated that the revisions are to take force or to enter into force on January 1st 2022. However, the ITC recommended changes do need to be approved by the President. And there have been some delays in the past. So these updates come every five years, and I think it was either five or 10 years ago, there was some delay in the implementation of the changes. But keep your eyes out for a presidential proclamation on or around December 1st. That is what happened five years ago. Right on December 1st, there was a presidential proclamation approving the HTS revisions and saying that the revisions were not contrary to US policy and are in line with the government's economic goals and objectives.
So keep an eye out for that. If you don't see that published, the first week of December, it may delay by a few days the implementation of the changes. So that's a possibility as well, but everybody is trying to get them enforced for January 1.
Another question that's kind of out there is, how will these changes impact section 301? As many of you know, the assessment of 301 duties on imported goods is based on a country of origin, China. And an individual HTS code that is flagged for the 301 tariffs. It's very possible that in January, some new codes may not be flagged for 301 tariffs, we really haven't gotten any guidance on this from the USTR or customs. So remains to be seen how these changes will impact the collection of 301 tariffs. There might even be a window where no 301 tariffs could be collected, but it remains to be seen.
The next thing we want to talk about is PGA OGA flags and anti dumping countervailing duties. With respect to PGA OGA, there may be a lag between January 1 and the time that the different agencies are able to talk with CBP to get flags on those particular HTS codes.
You may know that any OGA requirement for imported goods is sort of identified by a flag on that HTS code, which your broker sees when he goes to enter merchandise under that. So that could cause some issues with respect to OGA PGA enforcement.
With anti-dumping and countervailing duties, a similar instance could occur that is similar to the 301 tariffs where a collection of duties is based on flagging of the HTS code for AD CVD. And some HTS codes may not be flagged right away in January for AD CVD cases. That being said, it's very important to understand that when you're talking about anti-dumping and countervailing duties, the HTS classification of the individual item is not what determines whether an item is subject to AD or CVD. It is the narrative of the scope language for the individual AD or CVD order that controls and really determines whether an individual product is subject to AD or CBD.
So even though commerce may not have gotten around to instructing CBP on updated codes, your product is still likely covered by the narrative HTS sorry, narrative AD CVD order. So it's important to know that it's not going to change the applicability of an order to your products. Next slide please.
Things to Watch Out For
Additional ways that the HTS impacts imports free trade agreements. As some of you may know free trade agreements are agreed to at a very specific point in time by the parties to that agreement, and all of the HTS codes within that particular agreement remain in force until all of the countries to that particular agreement make those changes. So that will create some issues as well, particularly if you're trying to confirm origin going forward or looking at the different rules of a free trade agreement, the old HTS codes will still control. So that will add some confusion to trying to validate or qualify a product for particular HTS code. Another area where this might have an impact is duty drawback. As some of you know the tifty and drawback rules for substitution were enacted to help improve the commercial interchangeability of products and it's now based on the HTS codes. So if you're claiming substitution drawback and the HTS codes have changed, it might cause some issues with aligning those HTS codes with your export classifications, because they may not be aligned, and that'll make it more challenging for you to prepare substitution drawback claims. Duty calculation dates, and this is one of the reasons we're urging everybody to look at this sooner rather than later. If there's going to be a change in the duty rate that applies to your product, it may impact the day on which you want to import those goods. If the rate is going to go down January, then you might want to wait. If the rate's going to go up, then you might want to expedite imports. And another piece is customs rules. If you had a customs ruling that was issued to you, or you rely on a customs ruling issued to a third party, and that particular HTS code is no longer valid. Well, then that kind of eviscerates that ruling in many ways, and you may want to seek a new ruling or guidance on whether or not it's still control. Next slide please.
How To Prepare
And so what are we suggesting everybody do about all these changes and all these potential impacts and all of these unknowns. The first step is to ensure that your current product codes are accurate. It's a good time for everybody to just do a health check on your product database. If you maintain such a database, make sure your current codes are right. If you don't have a lot of confidence in your existing legacy database, you may have had over the years, suppliers provide codes, brokers provide codes, in-house expertise provide codes. You need to have some confidence in the classification of your goods as it stands right now. Because we don't want to have a bad data in and bad data out, so you don't want to map incorrect codes to new codes. And then once you have a certain level of confidence in your existing classification, we recommend that you begin mapping the codes out. Now to see what the impact will be, and it's important to emphasize that this is every case is not just going to be a one-to-one comparison. You're not necessarily always going to look at a chapter 85 revision and say, okay, now that's broken into two, that's very easy. There's also been changes to the section and the chapter notes that impact definitions of certain things as Tom mentioned, as Marcus mentioned before. So it's really important that you understand all the changes in the chapter notes and the section notes that could potentially impact where your goods are classified. In addition to that, if you do rely on any customs rulings like we mentioned before, whether or not they were issued to you or issued to a third party, but they provide a benefit to your business, it's a good idea to see if those HTS codes are going to change as well, because it may render the ruling less effective than prior to the change. So that's what we're recommending to try and avoid any disruptions to your business, any unexpected increases in costs, any compliance gaps. And as we saw from the poll, a good portion of the audience is going to get started mapping their HTS codes now and we think now is a really good time to do it. Tom Gould: Thank you. Adam Dambrov: So with that we open the door for questions. Tom Gould: Yeah, thanks Adam. Yeah absolutely, so again, let me before we jump into the questions, let me just give a quick reminder. If you do have any questions, please feel free to put them into the Q and A panel on the right-hand side of your screen. And again, the questions will be seen by us. We'll see them, Adam, Marcus and myself will see them, and you'll of course see them but none of the other participants will see the questions. And what we'll do is we're going to try to answer as many of them as we can here at the beginning. So the first question, which is I thank you for asking the question, what is the cost for Flexport to review or assist with the classification of items? And of course that's a service that we will provide through our trade advisory team. We will reach out to you and talk to you about your specific situation. The cost depends on the number of products, the type of information you're getting, you're providing to us and the time how long it, how quickly you need those products classified. But if you'd like to have somebody from our team speak to you about us helping out with your classifications or classifications of your products, please go ahead and ask a question or reach out to your representative here at Flexport. So that's one. The next question that I see is, let's see, I noticed on the concordance table, our major HS codes did not show up. Does this mean that there is little change in regards to our products and they, this person put toys as their product, so. Marcus Eeman: Yeah, Tom I can handle this. Tom Gould: Go ahead Marcus. Marcus Eeman: Yeah, so you're correct. Based on the concordance table, I think I saw there was a second question about this as well, with something in heading 7308. If it's not on that concordance table, it's not being affected. This year's changes are should be considered like they are still pretty big just by impact you know, we're talking over 1500 items usually in kind of the year end update, somewhere in the realm of 50 to a hundred. So we're talking a very significant amount of changes that are impacted, but there are still broad swaths of things not being affected. There are some, we talked about a few changes to garments, but overall for the most part garments and footwear, mostly unaffected chapter 73, mostly unaffected toys from heading 9503, also mostly unaffected the one carve-out is that there's going to be a new note added for drones kind of specifying the difference between more, what you might consider commercial or professional drones from toy drones that are solely designed or principal used, to use a phrase, principally used for the amusement of adults or children. So those will still stay in 9503, but other kinds of drones that were never really belonged to 9503, they won't go there anyway. So toys should be fairly unaffected. Tom Gould: And I'd like to chat briefly a little bit about the concordance table to let everyone really kind of know about it. So, first of all, there are multiple concordance tables that are available, and what you'll see is the first concordance table to look at is the WCO concordance table. And so what the WCO has done along with the different changes that they made, they came out with a table that has two columns, in the column on the left it might have the old number, and the column on the right it would have the new number, it could be the other way around. And the idea is, it's a cross-reference from the old number to the new number. And it's important to understand the cross-reference can have multiple issues associated with it. In some cases, there's one old number, one new number, easy to determine, you look at the table and it'll tell you what the old, if you look at the old classification, it'll tell you what the new classification is. Unfortunately, that's not the majority. Most of the classifications listed on the concordance table, will list either one old number and two or more new numbers, or they may list multiple old numbers and one or more new numbers. And so it's important to really look at the table and you, in most cases, you're going to have to dive a little bit deeper. So if you have one classification that was changed to two or more, you're going to actually have to go back and look at your product to determine what is the correct new classification for that product. And remember that concordance table is only provided as a reference, it's not actual factual law of what the classification is. The classification still must be determined the old-fashioned way by looking at the product details and comparing it to the note, to the description in the headings and the notes and the explanatory notes and so forth, in order to determine the classification, so important to know when you're looking at that. Another thing that the concordance table does not show or does not provide is, changes in the definitions. So like when Marcus was talking about the definitions of printed materials, that doesn't necessarily tell you what the old classification and the new classification are, because it may be that you have a product that is printed and under the old interpretation of, whether it's printed or not, it may be classified in one provision. But under the new, it might be classified in a different provision. So you have to look at that incidental or subordinate, was that the right term Marcus? Anyways, so that's important there. Marcus Eeman: Subsidiary, but. Tom Gould: Subsidiary, sorry. Marcus Eeman: Subordinate is probably a good equivalent. __Tom Gould:__Okay. __Adam Dambrov:__Yeah. I would just add that in another way. Tom Gould: Yeah. Adam Dambrov: To Tom's point, the concordance table only has numbers in it. There's more substantive changes than just the numbers. And so one of the other ways that we find helpful to map the changes and see what's going on is to actually look at the ITC publication. And when a customer of mine asks me, hey, what are my changes? I can do a word search based on the product name and get into the section and chapter, no changes. And I can, or I can just put it in the four digit HTS code and make sure I cover everything. So there's little more to it than just looking at the concordance tables because this, the changes are more than just numerical. Tom Gould: Great. Thanks Adam, thanks Marcus. Okay, let's look at the next question, and Marcus this looks like it's probably one for you as well. Can you please provide guidance on the types of products that will be classified under electric luminaries designed for use solely with led light sources. Marcus Eeman: Yeah. Happy to, looks likes, Linda thank you for this one. Yeah, so in terms of like what's providing the actual light fixture for a luminaire, right? A fixture or luminaire, I might use those two interchangeably. It doesn't really matter in terms of where that led light sources. The confusing one that can sometimes appear is a provision, I think it's 9405, 90, 8200, which is for the backlighting of led modules for displays, that one can also throw off some folks here, but this may come as a little bit of a surprise, especially if you spent some time cross. But since 2017, that's when led light bulbs or as we might conceive of them, they've been classified under 85, 39, fixtures with integrated components into it crosses usually pointed to in previous rulings, I should say, have pointed to when there've been integrated into a permanent fixture and they're not easily replaceable, those generally would go toward 9405. But for led light bulbs themselves, they had lived in 8543 but if you do foray into cross and you look at some rulings, I would caution you to just be aware that there's a ruling out there that has not yet been revoked saying that an led light bulb should go to 8543. If you're trying to apply that today, that's wrong. It should firmly go to 8539 and it should be there since 2017. That's been one that's tripped up more than a couple of importers as well. At least in terms of what's providing the source in one of those luminaires or fixtures, whether it's an incandescent bulb or fluorescent bulb or an led, that's been permanently integrated into a fixture. It's still probably going to be under a luminaire of 9405. There are some, I believe there's an active discussion about a fixture that screws into a standard A26 base. And if you go to, like a hardware store, you might see what I'm talking about. That one, I think the jury's still out on. But for most of your products that have like a permanently integrated led. Those are still going to be 9405, and they probably should not have been in 8539 before and this will just make it a little bit more clear, and kind of remove that gray area that you may have enjoyed in the past. Great question, thank you very much. Tom Gould: Okay. Thanks Marcus. So the next question, I like this, the next question is, will there be a 30 day compliance grace period through the end of January as was the case in the past. So let me address this, and first of all, I want to make sure that we all understand that remember each country will determine its own rules as to how and when to apply the classification changes. In the US, we still don't know, as I think Adam was saying, we still don't know for certain which date this is going to go into effect. We assume it's going to go into effect January 1, but in order for that to happen there has to be a presidential proclamation published in the federal register December 1, so that we have the 30 day notice required. So it could be a little bit after January 1, but there should be a specific date that will be named as to when the new tariff is implemented. Now, from my experience in the past, customs has not provided any grace period for the use of classifications on products imported into the US, but census has provided a 30 day grace period in the past for classifications used on exports, meaning that if you were exporting products from the US, in that first 30 days or that first short period of time, whatever is determined by the government agencies, it may be possible to have a grace period where you can use either the old number or the new number. Again, I don't expect customs to give any type of a grace period. They'll probably have a hard cut over date, but census might have a grace period when they're as far as for exports are concerned. Okay, next question. Are there significant changes to chapter 61 and 62? Marcus or Adam, do either one of you want to address that. Marcus Eeman: Yeah, and you know Tom, I remember you and I both spoke on this and the one, two months ago. I think the main one from chapter 61 and 62 that people should take a look at, is the changing definition of a shirt. What is especially a woven shirt within chapter 62. What the changes are going to be happening there is it's going to allow potentially for some more tariff engineering opportunities to exist for an importer that so chooses to pursue that, where the shirt is now being defined in the same way that a woman's shirt had been defined in the previous version. So certain things that will stop it from being a woven shirt of 6205 and moving it to an other garment of 6211 or 6212, Tom help me out, that was right I think, but either way it's going to be moved out of the more expensive shirt provision of 6205 if it has certain features like tightening at the waist, potentially pockets toward the bottom of the garment. Those kinds of things are going to now move those kinds of shirts out of 6205 and further down in chapter 62 where there's generally more favorable duty rates, especially if it's made of manmade material. Tom Gould: Yeah, and that would be 6211 is where they would be classified as shirts. Marcus Eeman: Thank you. Tom Gould: Excluded from 6205. Marcus Eeman: Okay. Tom Gould: Great. Now the other change in chapter 61 and 62 applies to laminated fabrics. And one of the things that is important to understand about both the change that Marcus just mentioned and the change to laminated fabrics is, you're not going to see them in a concordance table. And these changes are not changes to specific classification numbers. They're changes to definitions that apply to specific classifications or multiple classifications.
So the definition of laminated fabrics is changed and allows more fabrics that might be questionable about whether they would be classified as a laminated fabric or not to be classified as a laminated fabric. So those are the two major changes in 61 and 62. Let's see, the next one. I think you might've answered this one Marcus, will the language of subheading 9013 be updated to reflect the new subheading of 8524 for flat panel displays? Marcus Eeman: Yeah. Yes, it will, mercifully thank you. It was good questions Jonathan. It sounds like you may have had a similar challenge at one point in the past. Yes, it will, the language is not going to remove those liquid crystal displays that had previously existed under 90, 13, 80. Those are now going to move on, I think almost entirely to 85, 24 for that flat panel display thing, which is really wonderful there. However, I will temper your optimism a little bit. Some of the carve-outs about doing the comparison against 8528, 52 compared to now 8524, those comparisons will still exist. So if you are dealing with computer monitor screen, there will still be some complexity that you're going to have to give it a second look, so you’re not totally out of the woods yet, but that 90, 13 provision is for many people will be gone and the only ones to really concern with are 8524. Tom Gould: Great. Thanks Marcus. I think this next question, Adam is probably for you. If our supplier has traditionally been the one designating HS codes, what would be the best way to review the codes from the ground up? You want to take that Adam? Adam Dambrov: Yeah. Thanks Tom. The relying on a supplier can be hit or miss, but it's generally not recommended as the best way to classify your products. Sometimes the suppliers know more about the products, they have robust customs functions, they are very familiar with the HS classifications, they provide them to you on an invoice. Sometimes that works out very well, but many times it doesn't. Many times they rely on the four digit code that's provided by or six digit code provided by the WCO and they just throw it on the invoice, and then the broker selects the statistical suffix based on what he thinks is the product. And it's not the most effective and compliant way to review your classifications, or even to determine your classifications. As an importer of record to the United States, you have the ultimate responsibility of the accuracy of your classifications that are declared to customs, you are ultimately responsible. And so as the importer, you should own those classifications. You should have confidence in their accuracy, nobody's going to get it a hundred percent right all the time. As we know, classification can be more of an art than a science at times. And so I think customs expects that, but total reliance on suppliers, probably not the best way to go. And so we would suggest in that instance that you start confirming your existing classifications just as we recommended in the final slide. Tom Gould: Great. Thank you. Adam Dambrov: Thank you. Tom Gould: The next question, I think Marcus is for you, since Flexport is our broker, will they send out a list of HTS codes in our database that we'll be changing? Marcus, maybe you can explain to our listeners what it is that we're doing today and what we're going to be doing with all of our clients. Marcus Eeman: Yeah. So for any clients that we've historically seen an HCS code for in the past. So we've handled a shipment of drones for you before, those HTS codes that are changing from the concordance table, there's at least going to be some modification here. Those are identified to us. If you've maybe imported it before and you've never done it through us, we may not be able to know that right off the bat. However, those ones where we have handled products for you, we know what those changes are going to be and we can tell you. Reach out to your broker, we have some tools that we put together, whoever you kind of mainly work with, there are some tools together that kind of help identify it. We've had some folks reach out and for some people it's been like, yep, you've had three products effective in the last 12 months, totalling $1,000 of value. But for some clients it's been pretty substantial. They've had thousands and thousands of products affected by some of these changes. So, reach out to your main point of contact broker. They should be able to pull this for you, from some of the tools that we've built internally. I will also just want to take, since I have the mic, I will also address another question that came up. Tom, you spoke about concordance tables and how that works. Somebody asked about the parentheses with PT dot. Tom Gould: Okay. Marcus Eeman: I’ll just have a a quick note about that. That means partial, so Tom already said how it's a little bit confusing when you have like many to one or one to many, those kinds of changes. Partial just takes it up another three notches. Partial means that some things will go to a new heading, but some things will stay right where they are. That just kind of, again, highlights the need to have maybe to make sure you get a second set of eyes on it if you need it, or at least to make sure you have a formal discussion and try to classify from the ground up and realize that this, the concordance table as published by both USITC and the WCO, is more of kind of a crutch rather than it is a vehicle to kind of figure out where you need to go. It's really nice to have a guide to sort that out and be able to say, okay, are we one of the products that are moving or we, one of the parts of, one of the partial products that's not moving, are we staying where we are? Or are we being split based on some sort of determination. So, just wanted to end with that second point. Tom Gould: Great. Thanks Marcus. Let's see, okay here's another question if you, and this is I think for Adam you, if you have goods that were returned that are now being re imported after this change, within the time period that CPP requires, what needs to be considered to ensure we do not pay duties again, considering these changes. And I think what's being asked is, if something was imported with one classification in, let's say 2021 and it's being exported and then returned again in 2022 with a different classification. Adam, is that something that you might want to, maybe able to be address? Adam Dambrov: Yes. Thank you, Tom. Assuming that this transaction would qualify for chapter 98 of goods being returned to the United States, which I believe should be used when you have goods that have already been imported or exported and now they're coming back. Assuming they qualify for chapter 98 treatment. There’s certain documentation that needs to be submitted to customs in support of a chapter 98 claim. And you could explain very clearly in that documentation regarding the changes, and I believe customs would understand that. If for some reason this would not qualify for a chapter 98 provision subheading, then you probably would have to just re-import those goods under the new classification. But definitely something to look into in terms of the chapter 98 application. Tom Gould: Good. Thank you. Let's see. Another question. Are you seeing longer processing times for binding rulings due to the upcoming changes? Adam Dambrov: So, I think I'll grab that one too Tom, Tom Gould: Yeah. Adam Dambrov: Right now customs is pretty good with classification rulings. They're cranking them out pretty quickly within 30 days in some cases 45. So right now we haven't seen it delays, but that may change if there's a huge influx of rulings after the HTS goes into effect. Tom Gould: Yeah. One of the things that I'm seeing, or maybe I would say I'm not seeing is, I'm not seeing a significant push by a lot of other companies to be proactive with these changes. My fear is that January 1 will hit or December 1 will come and the presidential proclamation will be published. And that's when people will start to scramble, and January 1 will hit and you'll have a bunch of people that are, have products that they need to import, but they don't know the classification. Because the classification code that they'd used in the past is no longer a valid code or maybe isn't the correct code. So, that's anyways so that's, I would, that's one of the reasons why we wanted to prepare this well in advance and why we now this is our second webinar in doing this. We really want to prepare our clients to make sure that they're ready for these changes. Another question that I have, that I think I'm going to try to address, has to do with, how do you determine if your products are subject to PGA or anti-dumping duties, if the HTS numbers are no longer flagged? Well, as Adam mentioned, the anti-dumping duty orders are based on the description and not the HTS number. And similarly with PGA's with government agency requirements, those government agency flags that are in the tariff are not dispositive. That means that those are not a determining factor. They're just there as helpful guidance. So one of the things that we would recommend is, if you do have products that are currently subject to H, excuse me, anti-dumping countervailing duties, or if you have products that are subject to different PGA requirements that you look at the old classification, look at the flag on the old classification, because that will provide you with good guidance until customs and department of commerce and all the other different government agencies update the flagging on the classifications for the various different products. And with that, I think we've run out of time. I thank you everyone very much for participating in the webinar. And I look forward to hearing from you. If you have more questions, feel free to reach out to us. Thank you, Marcus. Thank you, Adam. Thank you everyone. Adam Dambrov: Thank you. Thanks everyone. Marcus Eeman: Thanks for attending.