Misclassified: Risks of Shipping Blindly in an E-Commerce World

Who would have thought that in the wake of a global pandemic your business could grow exponentially simply by reaching a new audience of captive shoppers around the world? Thanks to e-commerce, shoppers and shippers alike can continually expand their opportunities to buy and sell goods regardless of location. But what does shipping internationally entail? Who is responsible for navigating customs, and what is tariff classification? 

The U.S. is notably one of the most complex trading environments for importers and exporters. Partner Government Agencies (PGAs) such as The Food and Drug Administration (FDA) and Animal and Plant Health Inspection Service (APHIS) bring complex data requirements for those looking to import into the U.S. While shipments containing goods subject to PGAs were previously excluded from entering the U.S. under the de minimis rule, U.S. Customs and Border Protection (CBP) has introduced the Entry Type 86, which expands duty-free entry of eCommerce shipments valued under $800 USD that contain PGA goods. Different from its predecessor “Section 321,” Entry Type 86 is considered Customs business and requires the Importer to declare the goods using the U.S. Harmonized Tariff Schedule (HTS) as well as to submit the required PGA data elements to CBP in order to enter U.S. commerce duty-free.

What does this mean for online retailers?

In order to remain competitive, companies need to understand the impact of the Harmonized Tariff Schedule code on their import shipment. The HTS code determines the duty rate as well as the applicable PGAs that apply to goods. Under the legacy “Section 321” provision, PGA goods are excluded from duty-free entry and require the importer to file an informal or formal entry with CBP and pay applicable duties and taxes. The HTS or Tariff Classification is the important link to determining your product’s admissibility as well as your competitive advantage in the e-commerce world.

What is the risk?

The impacts of negligence can have damaging effects on your supply chain. As noted by the U.S. Government Accountability Office (GAO), for fiscal year 2015, CBP assessed over $237 million in penalties for violations related to its Priority Trade Issues and collected $3.5 million, according to CBP. Knowing your responsibilities as an importer and the associated penalties for noncompliance can prevent you and your company from becoming the next featured case study for CBP Fines, Penalties, and Forfeitures Office (FP&F). 

What does olive oil have to do with it?

Let’s look at the example of importing specialty olive oil from Spain. The HTS classification for virgin olive oil is (1509.10), which is both dutiable and subject to PGA admissibility when importing into the U.S.  When paired with a country of origin of Spain, this tariff is also subject to additional import duties of 25 percent ad valorem. Misclassification of this product under (1510.00), as other oils, rendered unfit for use as food would result in duty-free entry. An untrained retailer may be tempted to use this classification to enter their low value shipment (under $800 USD) under “Section 321”, bypassing Customs entry, PGA reporting, and duty obligation. CBP pre-arrival regulations require the carrier to file advance manifest data which includes HTS, Value and Country of Origin for items entering the U.S. under “Section 321.” The incorrect duty-free tariff code for “other, oil” from Spain is a red flag for CBP, as food-grade olive oil from Spain is subject to PGAs and additional duties, exposing the importer for risk of CBP review and inspection. 

Applying the correct HTS classification for virgin olive oil from Spain (1509.10) and utilizing Entry Type 86, allows the importer to properly report PGA data to CBP and enter the goods duty-free into the U.S. as low value de minimis entries are not subject to the additional duties under Section 301. Knowing the rules and available trade programs can significantly impact your ability to stay compliant and competitive in today’s market.

Providing a positive customer experience as global e-commerce grows

Global e-commerce has skyrocketed and retailer sites like Amazon are making it easier for companies to expand internationally. But what do you need to know about your products and the countries you will be selling to before you embark on cross-border ecommerce? Having a global item database with detailed attributes applicable to the importing country will help ensure your shipment documentation contains all the necessary details for your customer to navigate their local Customs import requirements. Providing your customer with country specific HTS classifications helps prevent unnecessary delays and risk of undeliverable items, adding to a more positive customer experience.  

In a complex world of trade requirements and virtual business, having the knowledge and tools to guide your supply chain provides a competitive edge and flexibility to do business wherever the opportunities may take you.

Michelle Frennier is Director, Solution Consulting, specializing in customs and compliance, at BluJay Solutions.