I live a rules-driven life. My daily existence is guided by the norms of what is right and wrong or by what simply works best. Call me conventional, but I find following some simple rules to be efficient. It frees up time to do other more important things with my life. It makes my day flow more smoothly.
Take getting dressed in the morning. I put on my pants first, then socks and then my shoes. Some days I live on the wild side and put my socks on first then pants then shoes. I’ve learned through experience, however, never to put my shoes on first. It makes putting my pants on devilishly tricky, not to mention it looks pretty silly wearing my socks on the outside of my shoes.
Wholesale Adidas SunglassesThis is pretty logical stuff. Don’t you think? These are lessons learned by most people as preschoolers. Why, when it comes to trade compliance, are so many importers and exporters walking around with their socks on the outside of their shoes?
In the world of importing and exporting there are a variety of tasks that should occur long before a company goes to market. There is none more important than assigning the harmonized system (HS) code. Too frequently, however, importers issue and exporters accept purchase orders before they are aware of HS codes. This, in my opinion, is akin to wearing socks on the outside of your shoes.
This may seem a trivial distinction. Failing to assign HS codes prior to issuing an import purchase order or prior to issuing an export quote is simply not good international business practice. It can lead to issues that distract a company from its core business. It can cause inefficiencies, waste time, damage the company’s reputation with the regulators, and cost it money. How so? Consider the following:
Duties: Duties are associated with HS codes. Failing to understand the HS code is commercially risky. It means not understanding a critical portion of a buyer’s cost structure. I am not simply addressing this comment to importers. Competitive exporters take the time to understand the duty rates within their buyers’ countries. In addition to standard duties, punitive antidumping and countervailing duties are frequently associated with HS codes.
Free Trade Agreements: Qualifying goods for participation in the contemporary free trade agreements (NAFTA etc.) is done through understanding of HS codes. If you don’t know your HS codes, it is difficult know if a product is eligible for participation in the free trade agreement.
Admissibility: Countries frequently assign other regulatory requirements based upon the HS code of a good. The new U.S. import reporting required under the Lacey Act amendment is an example of this.
Importer Security Filing (“10+2”): One of the most effective methods U.S. importers have found to comply with the ISF requirement is to include the HTS code within the purchase order.
Shipment Delays: Shippers risk delays and corresponding storage charges when customs brokers cannot identify the cargo and its corresponding HS codes timely.
Regulatory Risk: Shippers also risk regulatory intervention. Assigning HS codes on the fly is a risky venture resulting in lower accuracy. Improper HS codes can result in the importer paying too much duty or being fined for the inaccuracy.
Wholesale Armani SunglassesEvery supply chain is slightly different. Some importers and exporters may choose to put on their socks…er assign HS codes even earlier within their commercial processes. For example it is not uncommon for companies to assign HS codes as part of the product development, design or specification process. The earlier HS codes are assigned in a supply chain the better prepared the company will be to address more substantive issues within its business. Such companies clearly understand the importance of assigning HS codes and desperately do not want to be seen in public with their socks on the outside of their shoes!
Other companies still fail to assign HS codes. That is tantamount to not wearing any socks. That, however, is a metaphor I’ll leave you to explore on your own.