Jerry Peck is a Licensed Customs Broker, with more than 30 years’
experience working in product classification — mostly within the
corporate trade operations of Fortune 300 multinationals. In this
QAD Precision Report, Jerry recounts “lessons learned” from his time
By Jerry Peck
Correctly classifying goods with the correct Harmonized System (HS)
10 digit codes is no easy task. Classification is a difficult for
three major reasons:
Lack of detailed product descriptions
The complexity of the General Rules of Interpretation (GRI) of
the HS System
Lack of time to deal with issues 1 and 2
When I first began my career as an Entry Writer for a Customs Broker,
I had very little control over how and when pending Entries landed on
When I moved to the industry side of the fence, beginning with Mattel
Toys, I learnt the importance of gaining early visibility into the
arrival of goods.
In other words, if I could give myself more time, I could
more easily address the first two major reasons that make
Classification a challenge.
Better still, if I could gain visibility to the complete process — in
particular where the build/buy decisions are made — it was possible to
turn Classification from a tactical process to a strategic one.
Here are five important lessons I learned from my time in industry.
During my time at Mattel, we were producing a special Bob
Mackie-designed ball gown for Barbie. The gown contained a feather boa
made from a real feather.
But by having advanced visibility we were able to secure the
certificate required by the Department of Fish & Wildlife. This
documents the genus and species of the bird feather used. If we did
not have this, our shipments would have been detained at the Port.
Advanced visibility also creates an opportunity for “Tariff
Engineering”. This is where you can take an originally designed
product and alter its content and/or functionality so that it
qualifies under a more favorable HS Code.
My favorite example of Tariff Engineering is also my first
experience, which happened quite by accident.
To buy myself additional time to Classify Mattel’s products, I went
further and further ‘upstream’ into the product design process. I
would bring a copy of the tariff that covered toys and walk behind the
designers to see what they were working on.
One day, I saw someone working on the next generation of the Barbie
I knew that Customs classified these as articles of luggage in
Chapter 42. This carried a duty rate of 20 percent. In spite of our
best efforts to convince them otherwise, Customs would not budge.
Therefore, if we couldn’t change Customs, then we needed to change the
We held a meeting with the designer, his boss, and the head of
marketing. We opened a doll case and placed it on the table and began
thinking about what we could do.
Well, we had an obvious structure, so maybe a building? What kind of
building? What if it was a clothing store where Barbie could try on
her clothes? Then at the end of the day, it all folded up as a
We inserted a connecting pull down floor, mylar mirrors, clothing
racks and a dressing room. Suddenly we had created the “Barbie
Boutique Play Case.”
Customs agreed that we had incorporated enough play value to now make
the play activity the “essential character” of the product, which
could now qualify as a toy accessory.
After our tariff engineering redesign, the new Barbie Boutique Play
Case now qualified for a much lower tariff rate — 6.8 percent instead
of 20 percent.
Even better, the redesign meant that the product was also eligible
for preferential duties under NAFTA. Therefore, we shifted production
to our plant in Mexico where it qualified for duty-free entry. This
ultimately saved Mattel seven figures in duty payments.
Any time you change the composition of a product, or source a new
product, you should look to see if it qualifies for preferential
duties under a Free Trade Agreement.
My experience with the Barbie Boutique Play Case is when I had the
proverbial “light bulb” moment.
Why wouldn’t any company not formally include Trade
& Customs considerations as part of their strategic planning? I
mean it just made so much common sense, why wasn’t this a standard practice?
Now granted, Tariff Engineering is not going to be an available
option for every company, but the point is that there are still
plenty of other value-add services that can be performed. This
includes risk modelling.
Classification is used to identify cost and/or regulatory risks.
Therefore it can have a direct impact on sourcing decisions. It also
serves as a starting position towards identifying other
country-related risk considerations as part of a more comprehensive
It’s always surprising to me to see the number of companies that
don’t factor in total landed cost and related logistics factors when
selecting an international supplier. For instance, and I’m over
simplifying, but generally a buyer will vet potential suppliers based
on factors such as their ability to meet:
The product engineer’s design specifications
Any quality requirements, such as clean room filtering
And whether they can meet the company’s production demands
Let’s say two suppliers make the cut – one from China and one from
Mexico, with China having the lowest per unit cost. Based on unit cost
alone the buyer may see the Chinese supplier as the logical choice.
However, without factoring in landed costs and logistics
considerations, they’ve unknowingly just omitted a supplier that
qualifies for zero duties under a Free Trade Agreement, has lower
transportation costs, a shorter supply chain, and is in the same Time
Zone for easier communication.
The first step in turning Classification into a competitive advantage
is to start with a general assessment of what you have today with
regard to people, processes and enabling technology. Begin by
identifying any gaps:
Do I have enough people, and are they proficient in
Classification or do they need additional training?
Are my Classification procedures documented? Do I lack
centralized control if I have multiple divisions importing?
And do you have any supporting systems or is your process
Next, learn where your company’s product build/buy decisions start.
Introduce yourself to the key people in these departments, as well as
the other supporting departments such as procurement, marketing, sales
Explain how what you do could benefit them and the company. This is
far more successful than a “I need your help” perspective. Note any
systems they are using which you might also be able to leverage.
This initiative isn’t going to drive itself. Be prepared to take
ownership. You’ll need to schedule meetings with these groups to
explain and evangelize how this will benefit them.
And finally, get your efforts noticed by tracking and publishing your
wins. Send out congratulatory emails noting the people that helped
make it happen. A company newsletter, if you have one, is an excellent
source for this. You’ll likely find that other people and departments
will start contacting you to see how they could benefit.
Jerry is the VP of Product Strategy with QAD Precision and is based
out of Dallas, Texas. But most importantly, Jerry is a Licensed
Customs Broker with over 3 decades of experience in product
Classification, with over half of that time spent within the corporate
trade operations of Fortune 300 multinationals.
To access an on-demand version of Jerry Peck's webinar, Turning
Import Classification into a Competitive Advantage, please
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