The current economy pays little attention to traditional geographic boundaries, as evidenced by the rapid expansion of American companies doing business overseas. Undoubtedly, there is a wealth of opportunity in the global marketplace for companies of all sizes to increase their revenue by importing and exporting goods. Before expanding into international markets, however, a company must know how U.S. laws and regulations classify those goods

Proper classification is the bedrock principle for importing and exporting merchandise, because it impacts almost all aspects of an international transaction. Classification determines the bottom line regarding the amount of duties, taxes and fees a company will owe when it imports goods into the U.S. Conversely, it also determines whether a company must obtain a license before exporting products.

Because so much depends on an item’s classification, accuracy is critical. In fact, U.S. regulations impose an affirmative duty on the importer of record to use “reasonable care” when classifying its merchandise. A failure to do so may result not only in delay or seizure of the goods at the time of entry into the U.S., but also potentially severe fines and penalties. The government also has the right to audit the import records of any company that brings goods into the U.S.

There are many ways for a company to exercise reasonable care when classifying the goods it imports or exports. Most importantly, a company can self-classify its merchandise by relying on an established procedure for doing so, which may include reviewing prior government rulings, tariff schedules and other publicly available information. The only way to be certain about the accuracy of a classification, however, is through a binding ruling from the agency that regulates the import or export.

U.S. Customs and Border Protection is the government agency that regulates imports. For exports, the answer is more complicated, and depends on the nature of the goods in question. In most cases, the agency with jurisdiction is the Bureau of Industry and Security (BIS) in the Department of Commerce. “Defense articles,” however, are regulated by the Directorate of Defense Trade Controls (DDTC) in the State Department. Still other exports are regulated by the Treasury Department. Classification determines which of these agencies has control.

A company does not have to go it alone when determining proper classification. It may enlist the help of a third-party professional that is well-versed in import and export controls, such as a customs broker, trade compliance consultant or attorney. Another option is to use specialized software to determine potential classifications. All of these tools, and more, are available to assist companies when doing business overseas. The ultimate legal responsibility for properly classifying merchandise, however, still lies with the company.

In today’s interconnected global marketplace, a company of any size can import and export with relative ease. Prior to pressing the “send” button on the approval of an invoice to China or fulfilling a purchase order from India, companies need to ensure that they have properly classified their products. Proper classification is the key to international trade compliance, as well as to a successful foray into overseas markets.