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Trade Compliance

3rdwave Master Data - Product HS Classification

How 3rdwave supports product classification within the broader context of Master Data is what separates it from most other Master Data or Global Trade Management (GTM) solutions.

Ned Blinick

Chief Product Officer at 3rdwave

One of the main questions we are constantly asked is - Does 3rdwave support Product Classification? The answer is simply...Yes. However, how 3rdwave supports product classification within the broader context of Master Data is what separates it from most other Master Data or Global Trade Management (GTM) solutions.

Product Classification - The Essence of Product Master Data for Trade Compliance

Most master data solutions, whether they are part of the enterprise solution or a dedicated master data solution treat product classification as a necessary HS field within the very complex master data record. The HS tariff code’s main purpose is to support the international purchase, sale, and logistics of a product and its clearance through customs. It also is an important cost element necessary for determining the landed costs of a product. The importance of product HS classification cannot be overstated. HS classification is critical in ensuring that a product is properly declared for customs and census purposes.

For trade compliance, the HS tariff classification is but one of several important classification codes that a​​re necessary to define a product for customs, census, and the myriad PGAs that regulate cross-border trade. To effectively manage all the compliance codes requires a product master that addresses the unique trade compliance perspective.

But, for the purposes of this blog, we are focusing on the high profile HS classification and its relationship to master data.

HS Product Classification - Science and Art

There is a formal process for classifying products. The HS/Schedule B classification process begins with a thorough description of a product’s physical properties and its intended and general use. Depending on the structure of the business the product is owned by engineering, product design, product management, etc. It is not owned by the trade compliance team that is ultimately responsible for its use with customs and census. What is standard with any product is that it has (a) descriptions, Units of Measure, weights, and unique attributes which describe its composition. All of these physical characteristics of the product are used to establish the proper HS and/or Schedule B codes..

When it comes to classifying the product it may require a review of the General Rules of Interpretation (GRIs), Notes (Section and Chapter), and Rulings for context and clarification. Once the GRIs have been referenced, the tariff schedule needs to be reviewed beginning with the appropriate chapter, headings, subheadings, etc. etc. And that is where the art, or science, of classification begins. Although many products will fall neatly into a specific “10 digit” HS code, often a product’s classification is ambiguous because the description in the tariff is not specific enough, or the product has multiple end uses. It is the products end-use ambiguity that often requires a judgement call as to final classification. At times there is no easy way to associate the product with a specific description and it falls into the catch-all “other” HS category. These “other” catch-alls are legitimate when used properly but have their limitations and should be used judiciously.

However, effectively managing product classification for trade compliance goes beyond recording the 10 digit code and the associated tariff rate. Managing HS classification effectively means being able to demonstrate “reasonable care” in the classification process and use. In the context of “reasonable care” it is necessary to be able to demonstrate documented processes, record management, and proper application of the classification when interfacing with Customs and PGAs.

What applies to the HS classification process and management applies equally to ECCN classification and its related license management, and to PGA profiling and product classification.

Managing classification effectively requires comprehensive control and enterprise Master Data is most often insufficient to manage classification properly. Spreadsheets are flexible but lack to the structure to managie classification effectively. Only a systematized Product Master designed for the unique requirements of global trade can adequately provide an efficient, effective, and scalable solution.

Why 3rdwave is The Comprehensive Solution For Product HS Classification Management and Master Data Optimization

  1. 3rdwave supports product classification from the very beginning. 3rdwave provides for the collecting and storing of all relevant product descriptions, specifications, and end-use statements necessary to adequately describe the product. 
  2. 3rdwave provides a repository for interactive HS and Schedule B tariff chapters, numbers, and rates for immediate access during the classification process. This provides users access to the General Rules of Interpretation and associated notes and rulings.
  3. 3rdwave Master Data tables capture, store, and manage HS/Schedule B codes, general tariff and special trade programs rates.
  4. 3rdwave provides storage and maintenance of PGA product classification profiles
  5. 3rdwave allows users to store internal notes supporting the rationale for the resulting classification. 
  6. 3rdwave standardizes and guides processes for classification resulting in simplified workflow, improved classification outcomes, record management and retention capabilities, and supported downstream operational management.

Product HS classification is a critical element in defining a product from a trade compliance perspective. But, to benefit from the full potential of HS Classification specifically, and product classification more broadly, requires a structured trade compliance Master Data solution.

3rdwave’s comprehensive master data approach for trade compliance provides key operational benefits that optimize the value of HS classification and extended product classification requirements. 3rdwave’s structured Master Data delivers operational benefits that cannot be achieved with spreadsheets. With structured Master Data not only is product HS classification managed but:

  • Product Master Data security is assured
  • Integration with Enterprise Master Data records is easily synchronized
  • Systemic Master Data processes are layered into the classification and management process
  • Multi-country product classification is managed
  • Product Classification change management is controlled and user access is logged and time stamped 
  • Document storage is accommodated and simplified - all related documents to product records are stored and accessible
  • Product country of origin and “n-tiered” Bills of Material are related supporting Country or Origin determination and FTA qualification processes
  • Visibility into complex product relationships linked through HS classification tables are synchronized
  • Integration with Broker product records is coordinated and simplified, increasing broker effectiveness and accuracy in entry management.

Conclusions on the Value of Master Data with HS Classification Management

The importance of Master Data is irrefutable. Master Data is the backbone of any enterprise solution and is critical to supporting operational and financial processes.

For companies that are involved in international trade, Master Data has additional value that is often overlooked or not-supported by standard enterprise systems, like SAP, Oracle, Infor, or Microsoft Dynamics. International trade requires product definition and attribute control that reflect customs and PGA regulations and requirements. Master Data management with strong HS Classification support is essential for any trade compliance program. Master Data management with strong HS Classification is really table stakes for any serious international organization.

3rdwave has the most comprehensive master data application for trade compliance with powerful HS Classification support...and so much more.