Commentary: Are X-Men human?

Tom Cook, managing director of Blue Tiger International, noted the importance of determining the proper Harmonized Tariff Classifications when moving goods across U.S. borders, using the imports of X-Men figurines as an example.    There was a time in our history when for X-Men action figures being imported from overseas and passing through our borders, the shipper had to determine the proper Harmonized Tariff Classifications (HTSUS) for reporting to U.S. Customs (CBP).
   At the time, there was a huge debate as to whether the X-Men figurines were “dolls” or “toys,” as dolls carried a higher duty rate because they were supposedly representative of human beings. Choosing the correct category would impact the HTSUS classification and lead to the proper calculation of duty obligations.
   It’s easy to appreciate why some fans of the gruff, cigar-smoking “Wolverine” character were upset about all this. Their beloved action figures were in the middle of a classification battle, and neither “doll” nor the inhuman “toy” seemed a particularly fitting label.
   After several years of regulatory haggling and interpretation, CBP eventually determined classification would be based on the human or non-human characteristics of the figurines, so some of the action figures were considered toys and some dolls. Ultimately, the so-called “toy and doll” distinction was eliminated entirely and the two were placed in the same category.
   This is just one example of the importance of getting to the right classification (HTSUS) when moving goods across U.S. borders.
   Importers exercising the standards of due diligence and reasonable care will always take great care in ensuring correct HTSUS is being utilized.
   HTSUS is an interpretative process, and choosing the correct classification is both an art and a science. It requires knowledge of the HTSUS code, as well as a common sense and intuitive approach.
   The U.S. government guidelines are called the General Rules of Interpretation (GRI), a set of six governing principles, plus one additional, that are to be “consulted and applied” each time merchandise is classified.
   There will be times that the interpretative process does not provide a clear and definitive option. In these cases, the government allows shippers to work with recognized experts, such as attorneys and consultants, who have experience and capability in the HTSUS arena.
   Additionally, importers and exporters can approach government agencies like CBP to obtain a “binding ruling,” accessing the expertise and interpretation that informs the authorized HTS number.
   Export codes, also known as Schedule B numbers, are administered by the U.S. Census Bureau. All import and export codes used by the United States are based on the Harmonized System (HS). The HS assigns six-digit codes for general categories known as Harmonized System numbers.
   Countries that use the HS are allowed to define commodities at a more detailed level than 6-digits, but all definitions must be within that six-digit framework. The U.S., for example, defines products using 10-digit codes in its Harmonized Tariff Schedule (HTS). Import codes are administered by the U.S. International Trade Commission.
   The HTS number of a given product will impact owed duties and taxes, which will affect the total landed cost of that product. This, in turn, impacts sourcing decisions, as the country of origin and the HTS code are the primary drivers of duty and tax determination.
   A shipper can import identical products from different countries, for example, and pay different duties and taxes. Sourcing managers who proactively calculate “landed costs” as part of their sourcing decisions will always be in a more competitive scenario in their global supply chain options.
   This makes management of the HTSUS not only a regulatory concern, but also a management tool to make better decisions in sourcing options and make sure companies are running the most competitive and leveraged global supply chain possible.
   Choosing the correct HTSUS will also impact the regulatory effects of other government agencies, such as but not limited to the Food and Drug Administration, Bureau of Alcohol, Tobacco and Firearms, and the Federal Communications Commission. The involvement of other government agencies can impact regulations, documentation, import licensing, costs, filings, marking, labeling and packing concerns, etc.
   CBP regulations, referred to as the Importers Security Filing, require ocean freight shippers to submit advanced cargo information electronically 24 hours prior to the merchandise is loaded on to the vessel. The “importer of record” is responsible for providing this data, which includes any applicable HTSUS codes for those shipments.
   This means shippers must be proactive in determining the correct HTSUS at the time of purchase, and make sure all the necessary logistics partners—freight forwarders, customs brokers, NVOCCs, and carriers—are properly notified of the correct HTSUS codes for a shipment.
   Failure to recognize the importance of managing one’s HTSUS responsibilities can lead to significant fines, penalties, delays, loss of import privileges, civil and criminal prosecution, and a vast array of disruptions and headaches that could easily be avoided by utilizing common sense and applying due diligence and reasonable care standards in the operation of global supply chains.

   Cook is a global supply chain professional, author of 19 books on global trade, and managing director of Blue Tiger International. He can be reached by email at tomcook@bluetigerintl.com.