What is Classification?
Proper classification of products is critical in global trade transactions because regulatory requirements require that products be correctly identified in communications with customs authorities.
Companies must properly inform customs authorities of the import and export control classification numbers of products that are being exported or imported. SAP Global Trade Services (GTS) maintains a repository of import/export control classification numbers. Product assignments ensure proper classification and simplify the assignment process
Who Is Responsible for the Classification of Products?
Typically, the exporter or the importer is responsible for the classification of goods in Global Trade Services. Some companies may have in-house specialists to handle this task, while others may outsource it to custom brokers, trade consultants, or freight forwarders who are better equipped with knowledge and tools to ensure accurate classification.
It's important to note that the legal responsibility of correct classification lies with the trader, even when outsourcing, therefore due diligence is highly important. Penalties for misclassification can be severe, including fines, seizure of goods, and in extreme cases, denial of import/export privileges.
Below Are the Key Learnings About Classification and Watch List Screening:
- Classification in International Trade Management refers to the process where goods, software, or technology are classified based on legally binding international trade nomenclatures.
- Classification determines the duty rate, any import restrictions, eligibility for special programs, and the need for an export license.
- Correct classification is crucial to managing international trade effectively and complying with local and global regulations.
- An example was provided using GlobalTech, a technology company, illustrating the importance of correct product classification before exporting to another country.
- Sanctioned Party Screening refers to the process of verifying whether a person or entity, such as a customer or a trading partner, is on a list of parties sanctioned by a government or supranational body.
- Sanctioned Party Screening databases are typically integrated into business software systems.
- Trading with a sanctioned party can result in severe criminal and civil penalties, harm a firm's reputation, and lead to loss of export privileges.
- Using GlobalTech again, an example was given demonstrating the importance of conducting Sanctioned Party Screening before finalizing a deal with a foreign entity.
- The conclusion emphasized that Classification and Sanctioned Party Screening are key pillars of maintaining trade compliance in today's globalized business environment.
- Businesses are encouraged to stay informed with changing classification rules and maintain up-to-date screening procedures to stay compliant, safeguard their operations, and position themselves for successful international trade.