Understanding the Harmonized System of Tariffs

An audit by the Canadian government found that as many as one-third of shipments arriving at its border on any given day are misclassified, meaning they have been assigned an improper tariff code.

For the Canadian government, this has significant implications, namely, the possibility that improper classifications will result in shippers paying incorrect amounts of duties. A sampling of just three percent of shipments found almost CAD $60 million in underreported duty obligations.

While the Canadian government, all governments in fact, worries about misclassifications generating too little revenue, businesses need to be concerned that misclassified shipments result in too much duty being paid.

A 2014 survey by the International Chamber of Commerce of global managers representing 19 different industrial sectors revealed that “classification uncertainty” was the top “barrier to business” for 12 of the sectors, followed by delays and unnecessary inspections.

What exactly is tariff misclassification, and how can a business take steps to guard against its shipments being miscoded?