Uncovering Tariff Misclassification – A Case Study on Duty Recovery

Trade Talk Blog

n the world of cross-border trade, navigating the complex landscape of tariffs and customs regulations is a daunting task. However, having a customs broker who understands the nuances of tariff classification can make all the difference. One such success story-turned-case study involves a Canadian importer and manufacturer– Rick’s Machine and Parts Manufacturing, a global supplier of mining solutions.

Tariff Misclassification and Duty Recovery

GHY met with Rick Blume, the CFO of Rick’s Machine Manufacturing and during their meeting, Rick inquired about potential tariff benefits for batteries used in electric vehicles. These batteries were being imported from China under tariff classification 8507.60 by their current broker, with a duty rate of 7%, resulting in substantial duties paid amounting to over $150,000 CAD.

To gain more insight, GHY asked Rick to share some sample entries for us to review and identify where duty might have been erroneously paid. In reviewing these entries, and asking in-depth questions about their business processes, GHY was able to determine the following:

• The imported batteries were specifically being used in the manufacturing of electric vehicles of tariff classification 8703.80. Therefore, the batteries should have been specifically provided for under a conditional duty relief provision of 8507.60.10.

As a result, GHY was able to successfully support this business in recovering all duties previously paid. This example demonstrates how customs brokerage expertise and a forensic audit review of entries, married with an in-depth understanding of tariff classifications can lead to significant financial benefits for businesses.

Understanding Conditional Relief Tariff Items

This success story was not just about identifying the correct tariff classification but also understanding conditional relief tariff items, as outlined in Customs Memorandum D11-8-5.

While most conditional duty relief provisions are provided for in Chapter 99 of the Customs Tariff, some duty-free duty classifications also fall under Chapters 1-97 as outlined in this case with the end use of the product.

Conclusion

This success story turned case study serves as an excellent example of the vital role customs brokers occupy within the realm of cross-border trade. It illuminates how customs brokers can be instrumental in determining both the financial and trade compliance success or failure of a business in this context. Furthermore, it underscores how their expertise can effectively convert what might have been a costly situation into one that is financially advantageous.

How GHY Can Help

Unlock the potential for significant savings and trade compliance success in your cross-border operations with GHY. Our approach involves a forensic audit of your entries, a thorough understanding of your entire business processes, while identifying that correct classifications are applied to all of your imported products.

Book a meeting with or email one of our Trade Experts today and we can ensure that you’re not paying a penny more than necessary in duties, if any at all!.