Product Classification Codes: How The Most Efficient Importers Use Them

As an importer, product classification codes are both a vital part of your daily trade operations and an ongoing challenge. Here’s why:

• 280 countries use the Harmonized Commodity Description and Coding System, meaning the first 6 digits can be replicated
• The HTS classification is the backbone for your import–determines duties, preferential treatment applicability, and additional PGA import requirements
• Up to 50% of customs entries are misclassified, according to morethanshipping.com

The first two points illustrate why these codes are so important, while the third shows how much room for improvement—and improved efficiency—many importers have. Getting the codes correct from the start matters when issuing preferential treatment certificates of origin, as it becomes part of the FTA process. –

Creating accurate product classification codes is crucial towards achieving long-term growth and success. Global businesses that aren’t managing classifications well operate with increased risk factors, including missed opportunities. How then does a business involved in global trade right their ship by better classification code management?

The best way to tighten product classification controls is by understanding how the most efficient importers manage their classifications. These companies don’t just slap codes on products and move on. They change the business processes behind the codes.

Incorrect product classifications will leave you vulnerable to import delays, spiking your trade risk. The root causes happen during import and export. Some of the other root causes of increased trade risk include:

• Inaccurate legal controls on product classifications;
• Outdated item masters; and
• Incorrect product numbers and shipping manifests.

As expected, Customs will issue fines and request audits should misclassifications be discovered. This can open up many issues, especially if you are participating in an FTA. The issues will progress in severity until finally, everything begins to fail. In the end, your misclassified products end up stuck in a customs warehouse or the hold of a ship, while you are on the hook for storage or demurrage fees. These types of delays can tarnish your customer relationships, especially if they rely on you in production-down situations. These all work to sink your trade operations and put you at risk of losing revenue.

Enlisting the help of a GTCC will help you navigate it all and will provide an additional benefit of helping align your GTS solution with your specific trade activities. They will work with business stakeholders to ensure any GTS software solutions put into place are configured correctly for your FTA and industry needs.

Today’s global trade environment mandates that you architect a system of checks and balances to fully address the risks involved when engaged in international trade. To simplify things a bit, it is important to see product classification codes for what they truly are: Data. Developing and implementing metrics to manage the data behind product classifications is important to their effective management. Automation helps, but some of the work requires human eyes to ensure a highly accurate process, especially when the nuances of each respective industry is brought into play.

What your final classification process looks like will be largely supported by the metrics you develop. These metrics must work to support your processes, aligning classifications with applicable FTAs, while providing support to your staff and monitoring their performances as you conduct your daily operations. When metrics that are aligned to your business operational goals are put into place, you will identify the time required to classify your products and see where there might have been stumbling blocks when obtaining needed information from vendors or sourcing. This also lets you see who has the most success properly classifying your products consistently, and where you need to seek improvements.

Your examination of how your products are being classified will let you know which processes are best removed from the mistake-prone hands of humans and given to automated systems.. A key example is the ability to update, track, and compare Export Control Classification Numbers (ECCNs) so that you can be properly alerted when products requiring export licenses are not properly licensed.

Automation in key points of your process reduces risk while giving you metrics that pinpoint audit functions needed for long-term success.

Auditing can be an aspect of global business that can make your life easier or end your career.

Proactive internal auditing is valuable because it reveals process gaps that need adjustments. This reduces trade risk, streamlines data collection and reporting, and serves external auditors better through providing a solid record of your due diligence.

SAP GTS is a great auditing tool with real-time reporting and logging, which is ideal for time-critical responses. Documentation controls let you track import documentation changes and newly-created documents. When GTS is matched with SAP GRC access controls, you gain deeper levels of audit tracking throughout all aspects of operations.

Top-tier importers understand that the level of compliance is directly related to documentation precision and logic. You need to be able to change prioritization of classifications fluidly and monitor business process changes in real-time, your documentation is what makes it all happen. This is a key area in which an experienced, expert level GTCC will be vital to your success. They will know this part of the global trade game and can work to prevent gaps in your documentation and processes, all while providing corrective compliance actions and training for staff.

Getting product classification codes right is important enough to seek expert advice. Your enlisted expert should have precise knowledge of the product listings in your industry. They’ll help implement the precise audit controls, accurate documentation, and metrics required to optimize product classification code management.

Pinary, Inc. uses the deep levels of global trade experience of GTCCs to get product classification code management right. We have 20 years of experience designing and implementing systems If you need to implement, upgrade, or streamline your current implementation, contact us today.