Customs Classification and Tariffs, Explained

Customs classification is the process of assigning goods to specific customs codes for import into a destination country. The classification of goods determines the tariff that will be applied to those products. Tariffs are used to calculate how much an importer must pay in fees when importing goods.

Customs classification in the US and most other countries around the world is based on the Harmonized Tariff System (HTS), which provides a standardized list of codes used to classify all trade goods. HTS codes provide a common baseline for classifying goods, and those codes can be further subdivided according to the needs of each country importing specific products.

The tariffs applied to imported goods vary, depending on the classification code, the country of origin or export, and certain other factors. Governments use customs classification to collect duties, follow customs policies, enforce laws, manage trade negotiations, make economic plans, and for several other purposes. In the US, the main agency responsible for reviewing classifications and clearing goods into the country is US Customs and Border Protection.

Correct customs classification is the responsibility of the importer, and it is a legal requirement to classify all products correctly. A licensed customs broker can analyze, classify, manage, and file the necessary paperwork on behalf of an importer.

Key takeaways

Customs classification is typically applied to all commercial goods being imported into a country, especially if goods are being imported for sale or a similar purpose.
In most countries and economies, products are classified using the Harmonized Tariff System, which applies certain standardized customs codes to all goods of a particular type.
Each country assigns a tariff based on the HTS code, the country of origin, and several other factors. This tariff determines the duty that’s payable when the goods are imported.
The importer is legally responsible for classifying products correctly and filing accurate paperwork with the relevant customs authorities.
Incorrect classification can lead to clearance delays, increased duties, audits, inspections, fines, and other penalties.

The customs classification process

Here’s how the classification of goods for customs purposes might work for US importers:

You decide to import goods from another country into the US.
You get details of the goods you’re importing, including their composition, intended use, manufacturer’s code, and other key information.
You consult the Harmonized Tariff System codes and determine how your products should be classified.
You classify your products and file the relevant paperwork with US Customs and Border Protection (CBP).
You find the relevant tariff and use it to calculate how much will be due in duties, taxes, and other fees when importing your products into the US.
You import products into the US and pay the relevant duties.
Your goods are classified correctly, they clear customs, and are available for onward distribution or sale in the US market.

GEODIS provides comprehensive customs brokerage services across each step of the classification and tariff process.

Get in touch with us today to learn how our services can help you optimize your customs classifications.

The benefits of customs classification and tariffs

The correct classification of customs goods provides several benefits to importers:

Get early classification to understand compliance needs and potential issues before import.
Clear products through customs quickly and avoid delays.
Pay the correct amount in customs duties, taxes, and other fees.
Reduce or eliminate duties on products imported on special terms or free trade agreements.
Mitigate the risks of auditing or inspections.
Use tariff engineering to pay lower duties due to changes in a tariff band.
Understand if specific products will require additional permits, certificates, or licenses.
Avoid extra duties, audits, or penalties due to misclassifying goods.

GEODIS customs insights
Customs regulations change quickly, and they can be notoriously complex. At GEODIS, we use our deep expertise and extensive experience in global customs procedures to ensure you classify your products correctly. We’ll help you comply with regulations, pay the correct customs tariffs, and avoid delays, fines, and penalties—while you focus on your core business.

Classification determines the US customs tariff on goods and the duties paid

The US applies tariffs on goods according to the specific product, how it is classified, and where it is being imported from. This tariff is then applied to the value of the goods to calculate the total amount of taxes owed by the importer. Most duties are calculated as a percentage of the total invoiced value of a particular product, although some duties and taxes may be based on the weight, volume, or other aspects of the imported goods.

The correct classification ensures the right tariff is applied, and that you pay accurate amounts.

Example of classification, tariffs, and duties
An importer is bringing in clothing from a country with which the US does not have a free trade agreement or special tariff rates. The importer reviews the tariff schedule and sees that the tariff sets the duty rate at 8% of the invoiced value. The importer is bringing in $120,000 worth of clothing, so the basic duty due would be $9,600.

How imported products are classified

Products are classified according to the HTS, based on their composition and intended use.

The Harmonized Tariff System determines the codes used to classify goods

Most trading nations, including the US, classify goods according to the Harmonized Tariff System. The HTS provides a consistent series of customs tariff numbers, or codes, that apply to any products imported into a country. The system is used across more than 200 economies.

The HTS commodity code is made up of a standardized series of numbers—the first six digits are consistent for all countries that use the HTS, while the last few digits can vary between countries. HTS codes can vary in length, often between six and ten digits.

CBP requires that commercial goods entering the country must be classified using the Harmonized Tariff Schedule of the United States (HTSUS). The HTSUS is based on the Harmonized Commodity Description and Coding System.

According to the US International Trade Commission, “the 4- and 6-digit HS product categories are subdivided into 8-digit unique U.S. rate lines and 10-digit non-legal statistical reporting categories.”

It’s important to understand the HTSUS and how it applies to your products, imports, or exports.

Products are classified according to what they are made from and their intended use

Under the HTS, products are classified using a specific customs tariff number. This code is mainly determined by two key factors:

The main material that comprises the product, or that the product is constructed from.
The main intended use of the product.

For some goods, only the main material would be used to classify the product. For example, “Durum wheat flour” has a specific customs code, and if it were imported in its basic form, that would be the code used. In other cases, the use of the product is also important. For example, a wooden spoon isn’t just classified a certain way because it is made of wood, it is also classified according to its purpose as kitchenware.

The HTS may use additional guidelines to classify a product. For example, if an importer is bringing steel into the country, there would be a different code for steel wire from the one for steel tubing.

GEODIS customs insights
“Some of our clients develop completely new products, and so they’re not sure how to classify it or what the duty would be. Our trade services group will do the analysis and figure out the right customs classification. They’ll look up the customs regulations, the tariff book, the chapter notes, and supporting documents to determine what that customs classification is. Good importers do that ahead of bringing the product in so they know what their landed cost is going to be.”
Brian Riley, Senior Vice President, Customs

Customs classification helps countries track and measure goods coming into the country

Government agencies like census bureaus use customs classification statistics to track the movement of goods into their countries. This tracking helps governments to set tariffs, monitor trade agreements, and implement other policies. Parts of the HTS may be used to:

Implement and track internal taxes
Monitor controlled products
Set rules of origin and destination
Analyze transport statistics
Monitor prices
Enforcement of quota controls
Research economic trends

At GEODIS, we’re customs classification specialists. We provide complete tariff and classification services, combined with deep expertise with the Harmonized Tariff System. Get in touch today and learn how we can help you.

Legal responsibilities for classifying goods

The importer of record is responsible for classifying customs goods correctly.

Importers are responsible for classifying the products they import

In the US, it’s the importer’s responsibility to correctly classify the products they are bringing into the country. This means importers need to classify, declare, and value imported products as accurately as possible. CBP will use these classifications to demand duty payments based on the product type, relevant tariff, and the value of the goods. Importers must be familiar with the HTSUS and how it will be applied to their products.

CBP will also carry out inspections and audits of products to ensure they match the information provided by the importer. If the agency discovers a mismatch between document filings and the physical quantity, type, value, or other aspects of imported products, this can cause delays and additional duties. In certain circumstances, incorrect classification can trigger further audits and penalties.

You can use a licensed customs broker to analyze your products and review the HTSUS to ensure your goods are being classified correctly. This will help your business avoid penalties for incorrect customs classifications.

Importers can obtain classification rulings from CBP

If an importer isn’t sure about the correct classification of their products, they can apply to CBP for a formal ruling. This decision will indicate the classification code most applicable to the products based on the information provided to CBP. The ruling is binding on the importer and should be used whenever importing that specific product into the US.

An importer can get a ruling by providing information to CBP, including:

Names, addresses, and contact information for all parties.
Manufacturer identification code for the product.
Names of the ports of entry.
The type of import transaction.
Certain statements about previous information or rulings.
Detailed descriptions of the products, including their intended use.
Types, quantities, and cost breakdowns of the parts or ingredients in the product.
Any other necessary information about the product.

Classification rulings can take time, so it’s important to get a ruling from CBP as early as possible.

Importers must notify CBP of customs classification and entry

CBP requires that importers or their agents, for example a customs broker, “enter” products, typically by filing an electronic entry to obtain the release of the goods. This will then be followed by filing an electronic entry summary on release of the goods.

Errors in customs tariff classification can delay the import of goods and expose importers to penalties

Correct classification helps ensure that products will clear through customs quickly, making them available for onward distribution and sales. Incorrectly classifying goods can lead to issues for importers, including:

Delays in processing goods through customs and getting them into the marketplace.
Additional requirements for licensing or permits from government agencies.
CBP assigning new tariffs, with a possible increase in duty owed.
CBP applying penalties to importers for misclassifying products.
CBP audits on both the current import and previous imports.
Retrospective changes to tariffs on goods previously imported.
Extra duty owed and fines on goods previously imported.
Potential penalties and restrictions for importing companies.
Increased scrutiny, audits, and inspections on future imports.

The penalties for incorrect, misleading, or false declarations can be significant. You can avoid these issues through robust analysis of any imported goods to ensure you provide the correct tariff codes.

Self-compliance audits help importers to meet all regulations

Importers can carry out spot-checks and audits themselves or ask a licensed customs broker to do so on their behalf. These types of audits help ensure that all products are being classified correctly and significantly reduce the risk of misclassification, increased duty, or other penalties. Self-compliance audits can cover a range of areas including:

Valuation of products
HTSUS tariff classification
Manufacturer’s code
Country of origin
Free trade agreements

GEODIS customs classification specialists ensure that all of your customs declarations are accurate. Contact us today and learn how we support you in staying compliant.

GEODIS customs insights
“There are some critical areas for customs compliance. The classification of merchandise is one, the proper valuation of merchandise is another, the scope of free trade agreements is a third. Certain products may incur additional duty. Specific tariff classifications create a regulatory requirement that involves other government agencies. As part of pre-entry preparation, achieving the correct tariff number will help you understand the other requirements that are related to that tariff number.
Failure to obtain a proper tariff number could be very costly and damaging in terms of penalties for the client in the post-entry scenario. We believe that prevention is much better than cure. It’s important to have someone with the knowledge to properly guide you. The pre-entry work helps to mitigate consequences that may surface in the post-entry environment.”
Robert Chin Quee, Senior Vice President, Customs

Special considerations for classification and tariffs

Classifying products isn’t just necessary for calculating duties and clearing goods through customs.

Classification of products must occur well before importing goods into a country

The correct classification of customs products has significant implications on tariffs, duties owed, licenses, legal requirements, clearance, and several other areas. Importers need to plan for all eventualities, so it’s important to correctly review and classify products well before transportation or entry into another country.

Classification is important to complying with quotas, restrictions, or trade embargoes

Countries may set limits on bringing certain types of goods into the country or ban those products altogether. Correct customs classification helps importers understand if they are likely to face any import or export quotas or embargoes. It’s vital to analyze any possible restrictions and the impact they may have before attempting to import products into the relevant nation.

International trade controls can be complex, so it’s often helpful to consult with an expert who can guide you through any restrictions.

Correct US customs tariffs may require a certificate of origin

Countries may charge different tariffs depending on the original country that is exporting the goods. If importers or exporters want to take advantage of favorable tariff rates, then it’s important to prove where goods are being exported from. You can do this by requesting a certificate of origin, which legally states the country of origin for specific products.

Classification is used to determine special licensing, permits, or other requirements

The US requires that certain types of products receive special licenses, permits, or certifications before being imported into the US. Properly classifying goods can help importers understand if they need to meet specific legal requirements or apply for any special permissions prior to bringing in goods.

If you believe you may need additional permissions a customs broker can help you apply for the necessary import and export licenses and permits.

GEODIS customs insights
“US valuation is very different to valuation in other countries, so paying the right customs duty is important. It’s not just what you pay based on Incoterms, there are additions or subtraction from your invoice value that you pay in order to make a customs entry. There are several regulatory government agencies that may be involved in the entry process, like the Consumer Product Safety Commission for some types of goods, the Food and Drug Administration for other types of goods.”
Robert Chin Quee, Senior Vice President, Customs

GEODIS can advise you on any special considerations for when you’re importing goods into the US.

Cost savings through classification

Importers and exporters can use product classification to reduce or remove the duties they pay.

Correct classification can lead to reduced tariffs or duty-free imports between certain countries

Free trade agreements and similar policies can allow for reduced tariff rates or remove the requirement to pay duty altogether—also known as zero-rated goods. An importer will need to review their customs classifications and any agreements between the exporting and importing countries to understand the likely tariff rates, potential duties owed, and any other requirements or considerations. A licensed customs broker can advise how to reduce duty costs through the use of free trade agreements or other policies.

You can consult with a broker to optimize your imports and maximize your duty savings.

Tariff engineering can generate cost savings for importers and exporters

Importers and exporters can manufacture products into different forms to change the tariff number and the amount of duty paid. This is known as tariff engineering and involves making small changes to the design and manufacture of products that reclassifies those finished goods into a lower tariff band. When the goods are imported, duties are calculated based on the reclassified product, resulting in cost savings.

GEODIS customs insights
“There have been several instances where we have a product, and we tell the customer, ‘Here’s the duty rate on this product and it’s high. If you do something like this to the product and tweak it, you will then be able to change the tariff and therefore reduce the duty to a lower rate.’”
Brian Riley, Senior Vice President, Customs

Duty drawback allows for refunds based on customs tariff classifications

Importers can have up to 99% of their duties refunded if goods are re-exported or destroyed. This “duty drawback” process requires importers to claim a refund based on the tariff classification. When goods are unaltered, this will be an import and re-export under the same tariff code. Raw materials, ingredients, or parts can also be imported on a specific tariff, manufactured, and then exported on a different tariff, and generate cost savings for importers.

GEODIS provides a range of duty drawback, tariff engineering, and related services—all designed to help you reduce the duties you pay.

GEODIS US customs classification specialist services

GEODIS provides a complete range of customs classification and US tariff services as part of an integrated logistics and supply chain business. Our classification services include:

Working with clients to analyze and understand their import needs and the products they are bringing into the US.
Classifying products accurately according to the Harmonized Tariff Schedule.
Applying the correct US customs tariff numbers to products.
Maintaining a master products database and associated tariffs for clients.
Assisting with obtaining classification rulings from CBP.
Helping clients take advantage of free trade agreements and other opportunities to reduce tariffs and duties.
Calculating duties and other taxes that will be due when products are imported.
Preparing and filing pre- and post-entry customs classification documents electronically.
Advising on additional permits and licenses that may be required due to product classifications.
Notifying clients about potential restrictions or trade quotas for specific product types.
Obtaining any necessary licenses for the import or export of goods.
Calculating and paying customs tariffs, duties, taxes, and other fees on behalf of our clients.
Carrying out self-compliance audits to ensure all products are classified correctly.
Filing claims and collecting refunds as part of duty drawback.
Consulting on tariff engineering to reduce duties and other fees.
Record-keeping for all aspects of the customs classification process.
Producing a daily broker management report on all operational aspects of imported products, tariffs, and duties.
Supporting clients with goods inspection, audits, and other regulations.

Get in touch with GEODIS today and discover how we can optimize your tariff classifications.

Frequently asked questions about customs tariffs and classification

How do I ensure a correct customs tariff classification?

We recommend consulting with a licensed customs broker. These experts are licensed by CBP to act as intermediaries on behalf of clients and CBP. Customs brokers ensure that shipments imported into the US meet all relevant federal requirements, including correct classification for tariff and duty purposes.

What are the risks of misclassifying goods when importing into the US?

CBP can impose several penalties on importers that do not classify goods accurately. In many cases, this will be an increased duty amount, as goods are reclassified to a new customs code. In more egregious cases, CBP may impose additional penalties and fines. Willful misclassification in an attempt to avoid or lower duties can result in criminal proceedings.

Importers also need to be aware that misclassifying goods can lead to delays in clearing customs, increased inspections, and audits. CBP also has broad latitude to look at historic imports and impose back duties or other penalties if they believe goods have been previously misclassified.

What is the difference between a customs tariff and customs duty?

There is a subtle difference between duties and tariffs. Duty is a tax that a government charges both on goods produced and sold in a particular country and on products imported into the country. Tariffs are only charged on goods imported between countries. Tariffs are typically used to preserve and protect domestic producers and manufacturers from competition for inexpensive, imported products.

How do I get tariff relief on imported goods?

Importers have several ways to get tariff relief. They can use free trade agreements to import from countries that are trading beneficiaries with the US. These countries often have lower tariff costs that reduce or eliminate duty requirements when importing into the US.

Some importers can take advantage of tariff engineering, where changes to the manufacturing process alter the classification and tariff band of a product. Finally, importers can get a refund of duties paid through a process known as duty drawback. This occurs when an importer re-exports or destroys goods that they have previously imported.

Do I need a customs classification specialist?

Small importers with simple needs may not need a customs classification specialist, especially if they understand the HTS and get rulings from CBP. In most other cases, importers would significantly benefit from a specialist such as a licensed customs broker. These brokers can provide in-depth, expert advice on all aspects of customs classification and importing goods.

What is tariff engineering?

Tariff engineering makes changes to the design and manufacture of a product to place it into a lower tariff band and reduce the potential duties paid. For example, “Product A” is manufactured from certain goods and attracts a tariff rate of 4%. But, some small changes to the finished product may instead allow it to be classified as “Product B” which attracts a lower tariff rate of 3%. Tariff engineering would then save duty costs of 1% for every product.

How do I find the correct customs tariff number?

Importers can find the right tariff code by consulting the Harmonized Tariff System. The HTS provides in-depth information on how products are classified, together with a unique code that identifies goods when they are imported into HTS-compliant countries. Alternatively, a licensed customs broker can classify products on an importer’s behalf.

Helpful links and resources

Tariff classification from CBP