4 Ways Improper Product Classification Can Cause Trouble

Export goods to another country and you will have to work with Foreign Principal Parties in Interest (FPPIs) to ensure that they are properly classified and assigned Schedule B codes. If you’re on the import end, you have to assign the correct Harmonized Tariff System (HTS) codes and pay any necessary duties. Don’t get it wrong either way.

Import and export classification is a matter of both regulation and taxation. There are both U.S. and international standards to pay attention to. Unfortunately, even the slightest mistake could lead to big problems. No company wants those problems because they tend to have a domino effect.

For purposes of illustration, here are four ways in which improper product classification can cause a lot of trouble:

1. Penalties and Fees

As with all government regulations, those governing imports and exports require compliance enforceable by way of fees and penalties. When duties are involved, any outstanding monies must be paid along with any additional penalties and fees assessed by the government.

Vigilant Global Trade Services says fees and penalties can be significant, especially when unpaid duties are involved. Fail to pay them and your company could find itself in even more hot water. Messing up product classification could ultimately have a devastating financial impact on your business. As such, it is not something to be careless about.

2. Delays at the Border

Import and export classification is primarily an issue of tariffs and duties. The entire world works on a Harmonized System (HS) intended to make sure that trade occurs on a level playing field. Get it wrong and your product could be delayed at the border.

If you are importing, border delays mean you don’t get the products you need on time. This could disrupt everything from manufacturing to distribution and retail. If you are exporting, border delays mean your customers will not get your products on schedule. That’s no way to keep customers happy. In fact, it’s a good way to lose them.

3. Seizure of Goods

Most compliance issues are resolved without serious, long-term consequences. Past duties are paid, and fines and penalties assessed. But in the most serious of cases, goods can actually be seized by customs officials. And if that happens, getting the goods back is not as easy as making a phone call and apologizing. There is a lot of red tape involved.

Though seizures are considered a means of last resort, they do occur more frequently than importers and exporters know. Seized goods may never make it to their destinations. And even when they do, delays are almost always part of the equation.

4. Import Privilege Suspension

Finally, blatant and unresolved issues involving imports could ultimately lead to a suspension of import privileges. The government will simply say that your company is no longer allowed to import because you cannot seem to get product classification correct. This is obviously an extreme action to take. Furthermore, the government imposing a privilege suspension could mean the end of your business.

Having privileges reinstated means correcting the compliance issues, for starters. More often than not though, a company has to further demonstrate that it has implemented the necessary procedures and policies to guarantee future compliance. Fail to convince authorities that your company has straightened things out and you can expect the privilege suspension to continue indefinitely.

Product classification is no laughing matter. The authorities take it seriously. So should your company. If your company is involved in imports, exports, or both, either make sure you have an experienced product classification team or you contract with a specialized service provider.

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