What are the common pitfalls or mistakes to avoid when using the harmonized tariff system?

A huge pitfall when using the Harmonized Tariff System (HTS) is over-reliance on automated tools without a thorough understanding of the product's nuances. Automated systems may misclassify items due to subtle differences in product specifications or intended use. Another mistake is neglecting to check for updates or changes in tariff codes, which can lead to using outdated classifications. Also, failing to consider country-specific interpretations of HTS codes can result in misclassification and unexpected duties or compliance issues.

It is of the utmost importance to read HTS notes. Not reading the notes in the Harmonized Tariff System (HTS) can lead to misclassification due to product nuances. Some products may appear to fall under a specific heading, but detailed notes can specify exclusions or special conditions that alter the correct classification. Ignoring these notes can lead to incorrect tariff application, potentially resulting in overpayment of duties, compliance violations, or penalties during audits. Additionally, missed notes may affect eligibility for preferential trade agreements, impacting costs and legal compliance.

When not being specific enough with the Harmonized Tariff System (HTS), a less obvious pitfall is misclassification leading to missed preferential trade opportunities. Failing to pinpoint the correct subheading may result in overlooking duty-free or reduced tariff benefits under trade agreements, increasing costs unnecessarily. Additionally, vague classifications can trigger red flags during audits, leading to delays, penalties, or a loss of trusted trader status, harming your long-term customs relationship.

Enhancing HTS classification is crucial for smooth global trade operations. Leveraging external resources can significantly streamline and improve accuracy. iCustoms, an AI-based product classification tool, stands out as a game-changer in the realm of global trade. iCustoms automates the tariff classification process with an impressive accuracy rate of 90% or more. Unlike traditional methods, this tool minimizes manual work, reducing costs by 50% on average. iCustoms is revolutionizing product classification, offering a smarter and quicker way to navigate the complexities of HS and HTS codes. By automating and streamlining the process, businesses can optimize duty spending, reduce costs, and ensure seamless cross-border trade.

The customs classification is done according to rules developed by the World Customs Organization (HS level) that each country or group of countries (i.e: Europe, Andean Community) apply and supplement with additional rules to be more specific. In my opinion, once the explanatory notes (HS, NC, Nandina) and rules are identified is key to use additional tools such as databases with binding decisions, consult court decisions, check specific regulations related to this subject to be sure that the custom code selected is the right one. Additionally, checking customs updates is necessary because customs classification is evolving constantly. For this reason, my recommendation is to hire trained professionals or specialists in this field.

It is important to understand how you came to a decision on your choice of HTS code. A less obvious pitfall of not documenting your process when using the Harmonized Tariff System (HTS) is the loss of institutional knowledge. Over time, team members who understand the nuances of your classification process may leave, taking their expertise with them. Without proper documentation, new staff might misclassify goods, leading to inconsistent tariff applications, potential fines, and even strained relationships with customs authorities. Additionally, undocumented processes hinder the ability to analyze and optimize classification decisions, potentially missing out on cost-saving opportunities.

Organizations often depend on classification decisions that were made years ago (sometimes decades) without revisiting them for accuracy. This reliance on old classifications can lead to significant issues, especially as the market and technology landscape shifts. To ensure that product categorizations remain accurate and relevant, it's beneficial to have objective (external) reviews and/or employ intelligent technology capable of identifying inconsistencies in large data sets. Staying updated with classification changes is key to avoiding compliance problems and maintaining a solid reputation.

In my experience it comes down to literally experience. I have observed customers overpaying duty by millions of dollars, other customers fined because they are using outdated HTS codes and customers having stock held by customs for months. It is imperative to seek out the right help and support with your HTS codes even when you think things are running smooth. The last thing you want is to discover issues during a customs audit by your local government agency. It’s better to be upfront and honest if a mistake has been made. Believe me, experience of the above is not pleasant but can be managed