Frequently Asked Questions
What is tariff classification?
All goods that enter the United States must be categorized according to the Harmonized Tariff Schedule (HTS). The act of placing goods into the correct category is called classification. Classification determines how much duty will be collected. While it sounds simple, it involves more than looking up an item in an index. Accurate classification involves a complicated process of applying the HTS General Rules of Interpretation and the HTS section, chapter, and subheading notes as well as additional explanatory notes.
How important is accurate HS classification?
Customs & Border Protection (CBP) holds Importers of Record responsible for classifying imported merchandise properly under the Harmonized Tariff Schedule (HTS) of classification. This means that importers must assign the correct HTS number and tariff description to every product imported. Further, the CBP requires importers to demonstrate "reasonable care" in doing so.
The Canadian Customs Service requires importers to show the full 10-digit tariff number on every invoice at the time of release.
Your profit margin depends on it:
You need to know how much duty you will be paying on goods you import so that you can price your products correctly and make your profit margin. Even when your customers are paying the duty, you need to be able to tell them what the duty will be to avoid any surprise costs.
Don't miss opportunities:
Further, U.S. HTS numbers dictate the Rule of Origin for NAFTA eligibility and other duty preference programs, such as the General System of Preferences (GSP) and the Andean Trade Preference Act (ATPA).
What is NAFTA?
NAFTA is the North American Free Trade Agreement between the U .S., Canada and Mexico. It became effective on Jan. 1, 1994. The purpose of NAFTA was to encourage trade by eliminating tariffs on most goods originating in and traded between these countries over a 15-year period.
What does NAFTA do?
NAFTA provides preferential tariff treatment for certain products traded between these countries when strict documentation and certification procedures are met. Currently, preferential treatment means either reduced or eliminated tariff rates, depending on the product.
Why do Customs & Border Protection (CBP) and the Canada Customs and Revenue Agency (CCRA) perform audits?
The United States Customs Modernization Act (Mod Act) and the Canadian Customs Act shifted the legal responsibility for Customs compliance activities to importers. It is the responsibility of importers to declare value, classification, duty rate and other information for every item imported into the U.S. or Canada.
The CBP and the Canadian Customs Service use audits to test an importer's ability to fulfill these responsibilities.
What are the consequences of an audit?
If Customs determines that an importer is fulfilling its legal responsibilities and that it has adequate systems to ensure future compliance:
- The audit process ends efficiently and positively.
- The company will likely receive minimal inspections in the future.
If Customs determines that a company is not in compliance or that it does not have adequate systems to ensure future compliance:
- The importer will be required to develop a Compliance Improvement Plan.
- The importer will receive followup audits to re-measure compliance and re-evaluate systems and processes.
- Future inspections will occur at a higher than average rate.
- Penalties may be issued.
What is Administrative Monetary Penalty System (AMPS)?
AMPS targets non-compliance with Canada‘s Customs Act, the Customs Tariff and the Special Import Measures Act and their regulations.
What is a Foreign Trade Zone (FTZ)?
Foreign Trade Zones are federally designated areas physically located within the U.S. in which qualified goods may be stored or handled - and be considered to be outside the authority of Customs & Border Protection (CBP).
Companies can save time and money by using an FTZ to streamline their import/export process, because goods and component parts are exempt from customs clearance and duties until they leave the FTZ.
Importers and exporters can perform a wide range of commercial activities on goods in an FTZ, including storing, distributing, assembling, processing, manufacturing, testing, repackaging, repairing, displaying, destroying, inspecting, and labeling.
What is the Importer Self-Assessment Program (ISA)?
The ISA is a new program of Customs & Border Protection (CBP) that goes hand in hand with the Customs-Trade Partnership Against Terrorism (C-TPAT).
ISA is a voluntary program providing support and recognition for resident importers that work with the CBP to improve trade compliance. ISA participants assume responsibility for self-assessment. They must control their environment and activities, assess areas of risk, and communicate and monitor their customs operations.
What are the program requirements?
To become ISA-certified, a company must:
- Be a member of C-TPAT with full benefits.
- Be a resident importer with two years of importing experience.
- Agree to comply with all applicable customs laws and regulations.
- Have and maintain business records related to customs business.
How can FedEx Trade Networks help me with customs valuation?
We evaluate our client’s cost structure and declared customs value so that the importer adopts and declares the correct, most optimal tax valuation method.
What are Preference Programs?
Certain foreign manufactured products qualify for full or partial duty exemptions upon import into the United States, through various tariff preference programs offered by the United States. The North American Free Trade Agreement (NAFTA) is one example of a tariff preference program extended to goods imported into the U.S. from an eligible foreign country. Other U.S. preference programs include Generalized System of Preferences (GSP), the United States-Israel Free Trade Agreement, and the Caribbean Basin Initiative (CBI).
What kinds of export regulations are there?
Exports from the U.S. are controlled by Export Administration Regulations (EAR), International Trafficking in Arms Regulations (ITAR) and regulations from other government agencies (OGA), such as the Drug Enforcement Administration and the Department of Commerce.
Additionally, every other country has its own set of rules and regulations for importing that must be considered.