The Harmonized Tariff Schedule of the United States (HTSUS)¹ classifies goods based on a variety of attributes, such as name, use or material in its makeup. The schedule consists of 99 chapters and a variety of appendices, and is used to assign the 10-digit numbers necessary to import compounds into the U.S.² Organic chemicals are described in chapters 28-30 but mainly in chapter 29. HTSUS classification depends primarily on the structure of a compound, but is also affected by other characteristics such as its source or use. Major changes the international Harmonized System (HS) goods nomenclature, and the resultant changes in the HTSUS expected in early 2012, make a review of this topic especially timely.

HTSUS Number
 

In the U.S. the Harmonized Tariff Schedule classification is a 10-digit number as illustrated in Figure 1. The first six digits are internationally harmonized and consist of a chapter, heading, and subheading; the last four digits are U.S. specific, consisting of U.S. tariff rates and statistical reporting.
 

Key Organizations 
 

International

The World Customs Organization (WCO)³ is the intergovernmental organization responsible for maintaining the international Harmonized System (HS) goods nomenclature for the 206 participating nations.

U.S.

1. The U.S. International Trade Commission maintains and publishes the U.S. Harmonized Tariff Schedule.⁴
2. The U.S. Customs Service is responsible for administering the HTSUS, including classification of imported goods, collecting duties, ruling on country of origin, enforcing requirements of other federal agencies, etc.⁵
3. The U.S. Census Bureau compiles and reports trade data collected under HTSUS classifications and generates balance-of-trade statistics. It also maintains and publishes the Schedule B for Exports, the structure of which is also based on the international HS.⁶

Types of Classification

1. Chemical Classification: The HTSUS classification of organic chemicals in chapter 29 is based mainly on chemical structure. Simpler structures are provided for in the beginning of the chapter and increase in complexity as one moves through the headings. Note 3 to chapter 29 provides that chemicals that could be included in two or more headings (by virtue of their functional structure) are to be classified in the heading that comes last in numerical order. For example, sulfonamides would fall in heading 2935, which comes later in the chapter than other functionalities.
2. Chemical Appendix: The Chemical Appendix is a list of compounds that were imported into the U.S. before January 1, 1978, or were produced in the U.S. before May 1, 1978. It consists of approximately 10,000 compounds listed by Chemical Abstracts (CAS) registry number where known, or the common chemical name or trade name where the CAS number is not available. This appendix was originally created to make tariff rate distinctions that have since disappeared through multilateral negotiations; differences in duty treatment, if any, at this point, would be in the column 1-special duty rate column. Despite this, accurate HTSUS classification requires consideration of this appendix.⁷
3. Named Compounds: There are approximately 1,200 compounds specified by name in the current HTSUS. For example, methyl ethyl ketone (Figure 2) is a named compound in subheading 2914.12.0000.
4. Pharmaceutical Appendix: The Pharmaceutical Appendix consists of approximately 7,500 products found in International Non-proprietary Names (INN), as well as their named derivatives.⁸ Compounds on this appendix are eligible for duty-free entry under General Note 13 to the tariff schedule, but presence on the list d oes not affect their HTSUS classification.
5. Intermediate Chemicals for Dyes Appendix:  This appendix enumerates those intermediate chemicals for dyes which are eligible for duty-free treatment under the provisions of general note 14 of the tariff schedule.⁹

Methods of

Classification

1. Manual Lookup: Internal personnel with a technical background (often chemists and/or former customs agents) can classify compounds by manually looking them up in the HTSUS. Alternatively, some brokers and consultants will provide classifications, via manual lookup, for chemicals as part of a larger HTSUS classification service. Some formal training is usually required to perform this function for chemical classification. 

For organizations importing only a small number of compounds this can be a reasonably efficient method. In addition, with a static list of chemical imports it is relatively simple to set up a database — basically a lookup table of identifier versus HTSUS classification. 

The advantages of manual lookup are the flexibility to consider all aspects of the assignment, including source and use, and not base the classification strictly on structure. The main problems with manual lookup are

1. the lack of efficiency (making it problematic to classify very large numbers of compounds),
2. the potential for inconsistent classifications between different chemists, but also by the same chemist at different times, and 
3. the steep learning curve required to perform this function, which can be aggravated by the rapid turnover of personnel that many companies experience.

2. Automated Lookup: Several companies have written their own in-house automated HTS classification applications. Accelrys’ Pipeline Pilot is the most popular software for these applications, while Chemcart has also been used. There is also at least one commercially available automated HTSUS application available. 

    Advantages of automated lookup are

1. consistency of classification of a given compound,
2. the speed that assignments can be performed and
3. minimal or no chemistry background or training is required for use. Problems arise from basing the classifications strictly on structure.

Resources

1. U.S. Customs Service: Online filing of an electronic binding ruling request can be submitted to the National Commodity Specialist Division of the Office of Regulations and Rulings via an eRulings Template will result in a ruling within 30 days of receipt.¹⁰
2. CROSS Customs Rulings Online Search System: CROSS is a searchable database of past binding rulings that can be retrieved based on simple or complex searches using keywords, including compound names, CAS numbers and HTSUS 10-digit numbers.¹¹

Updates

1. WCO: Major changes in the World Customs Organization Harmonized Commodity Coding and Classification System (Harmonized System) occur every five years. The last major update was in 2007; the next update is scheduled for January 2012.¹²
2. HTSUS: The Harmonized Tariff Schedule of the U.S. is updated periodically to reflect Congressional legislation, Presidential proclamations, and other government actions. In 2010 there were three published updates and in 2011 there were two updates. In practice the changes with regards to chemicals in chapters 28-30 are few, if any. Detecting any changes is more problematic than the actual number of changes. 
   On the other hand, as already mentioned above, major changes in the HTSUS (including Chapters 28-30) occur every five years to correspond with changes in the international Harmonized System of the WCO.^{13, 14}
3. Appendices: The Pharmaceutical Appendix, which is a part of the HTSUS based on the International Non-proprietary Names, is a list of pharmaceuticals that is updated approximately every four years.¹⁵

Evaluation and Summary

Any organization that imports chemicals into the U.S., including big pharma, biotechs, chemical companies and CROs/CMOs, must classify compounds in the HTSUS system in order to get their compounds through U.S. Customs and pay the appropriate tariffs. Failure to meet a customs requirement can result in monetary fines (which can reach $100,000 per violation), as well as penalties ranging from seizing the merchandise to serving actual jail time.16 In practice, the federal government regards compliance with U.S. import requirements as a shared responsibility between U.S. Customs and industry. 

Organizations with modest numbers of compounds or a static list of compounds to import can use manual lookup with a reasonable expectancy that they will be compliant, and if not, that minor corrections will not result in fines.

Larger numbers of compounds can be very problematic. Imports consisting of several hundred to tens of thousands of new compounds can be a challenge. It is impractical to expect U.S. Customs to produce binding rulings for more than a handful of compounds, and a 30-day turnaround (although, in practice rulings are often faster than that) does not lend itself to today’s fast pace for international trade. Likewise, manual lookup is also impractical for large numbers of samples unless they are relatively homogenous, say, small variations on a structural theme. 

The only practical way to deal with large numbers of diverse compounds is to use automated methods, which are based solely on the structure of the molecule being classified. Although disregarding non-structural information can be seen as a disadvantage, in practice manual lookup (like automated lookup) is usually based primarily, if not solely, on structure. 
 

Coupling disclaimers with automated methods allows selected human interaction to modify classifications when pertinent, non-structural information is available. For example, Ribavirin (Figure 3) could be classified as 2934.99.9000 based on chemical classification, which provides for “Nucleic acids and their salts, whether or not chemically defined; other heterocyclic compounds: Other: Other: Other: Other: Other” and a disclaimer for this classification would state “Unless ‘Drugs, then HTS - 2934.99.4700”. An end-user who is aware that Ribavirin is a “Drug” (or can look up the binding ruling) would know that the disclaimer applies. If they are only aware of the structure it is unlikely they would make this distinction.

A variety of different methods are being utilized to perform the function of classifying chemicals in the HTSUS system for import into the U.S. The complexity of the schedule virtually guarantees that no organization will be 100% compliant. Likewise, U.S. Cus-toms has neither the tools nor the resources to comprehensively monitor all chemicals coming into the U.S. for HTSUS compliance. Being able to document due diligence is probably the best an organization can do to deal with this complex task and minimize risk of non-compliance.  

References

1. www.usitc.gov/publications/docs/tata/hts/bychapter/
2. en.wikipedia.org/wiki/Harmonized_Tariff_Schedule_for_ the_United_States
3. en.wikipedia.org/wiki/World_Customs_Organization
4. www.usitc.gov/
5. www.cbp.gov/xp/cgov/trade/
6. www.census.gov/
7. www.usitc.gov/publications/docs/tata/hts/bychapter/0900CHEMAPPX.pdf
8. www.who.int/medicines/services/inn/en/ 
9. www.usitc.gov/publications/docs/tata/hts/bychapter/1100DYESAPPX.pdf
10. www.cbp.gov/xp/cgov/trade/legal/rulings/eRuling Requirements.xml
11. rulings.cbp.gov/
12. info.managementdynamics.com/rs/managementdynamics/images/WCO%202012%20Delta%20Report.pdf?mkt_tok=3RkMMJWWfF9wsRokvq3KZKXonjHpfsX74%2BorWKCg38431UFwdcjKPmjr1YEASMB0dvycMRAVFZl5nQFZFOGSeY1F9OFZEk%2BzVTL8kw%3D%3D
13. www.wcoomd.org/files/1.%20Public%20files/PDFand Documents/HarmonizedSystem/HS%20Overview/NG0163B1.pdf
14. www.usitc.gov/tariff_affairs/hts_documents/1205-7 FinalReport.pdf
15. www.usitc.gov/tariff_affairs/hts_documents/pub4208.pdf
16. www.fuerstlaw.com/practice-areas/customs-fines-and-penalties

Robert E. Schwartz was a scientist at Merck & Co. for 26 years and is one of the recipients of the ACS 2006 Heroes of Chemistry awards for the discovery of Cancidas. He is presently the owner of MyIslandBeach LLC (www.myislandbeach.net/) and can be contacted at schwart@optonline.net.