In the first article I wrote for International Business Training, I examined the importance of proper product classification for the importer. Accurate classification is a Reasonable Care requirement of U.S. Customs, and non-compliance can result in substantial cost, both in back duties and penalties for the importer.
I noted in that initial article that proper classification requires an understanding of the rules and the process. What follows in this and subsequent articles are my recommendations to anyone who has to classify product.
First, make sure you have access to these reference resources:
- A current copy of the Explanatory Notes to the Harmonized System (EN). This is the underlying source for the definitions found in the Harmonized Tariff Schedule of the United States and is used as an essential reference by U.S. Customs in issuing official rulings. The EN extends to six digits, the first four are considered the “heading” and the last two are considered to be the “subheading”.
- A current copy of the Harmonized Tariff Schedule of the United States (HTSUS). This is the official listing of 10-digit product classifications for products imported into (and exported out of) the United States.
- An Internet connection (the faster the possible) and the ability to access the Customs Rulings Online Search Service (CROSS). This is the best online tool to research classifications. You may need to research to establish a classification or just to confirm your own conclusions. You will also need this connection to access any of the several excellent publications of U.S. Customs dealing with product classification.
After you have assembled your resources, begin with the EN. There are definite rules and guidelines for classification, and you must be conversant with these before actually classifying any product.
You will find the six “General Rules for the Interpretation of the Harmonized System” (GRI’s), found on page one of the EN. These rules are also found at the beginning of the HTSUS. However, the EN has detailed explanatory notes on all the rules, so it is considerably more useful.
What follows is a brief synopsis of the first two GRI’s along with a brief explanation of both. I will cover GRI’s three through six in my next article. Again, you will need to have the actual EN in hand to be sure of your final classification.
GRI 1 states:
The table of contents, alphabetical index, and titles of sections, chapters and sub-chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes and, provided such headings or notes do not otherwise require, according to the following provisions.
In other words, before you classify anything, you must read the Section and Chapter Notes pertaining to your products in order to be sure that your product is either included or perhaps excluded from the section. In many cases, the notes will tell you specifically which chapter contains your product. In other cases, they will only tell you that your product is excluded, in which case you must continue your search.
The Section and Chapter Notes will also describe how “parts” of a product are handled. In some cases, parts are classified in the same heading as the parent product. In other cases, there is a separate heading for parts.
GRI 1 also means that the classification process is hierarchical, i.e., the six GRI’s need to be applied in order. You cannot apply GRI’s 2-6 to classification until the “candidate” headings and subheadings have been determined.
GRI 2 states:
(a) Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), presented unassembled or disassembled.
(b) Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles of rule 3.
This GRI gives guidance in classifying in two specific cases. GRI 2(a) refers first to incomplete articles. These are articles that can only be made into the completed article and lack only some finishing process, such as threading or additional forming.
For example, a plastic bottle “blank” that has not had the threading on the neck applied. This “blank” can only become a bottle; therefore it is classified as a plastic bottle. There are several cases illustrating this in various Section and Chapter Notes in the EN and the HTSUS.
The concept of “essential character” is introduced here, but I will postpone discussion of this since it has its fullest application in GRI 3.
GRI 2(a) also applies to unassembled or disassembled products presented (or entered) with all components. A prime example of this is an unassembled bicycle. Assuming all the parts are present at the time of entry (presentation), that good is to be classified as a bicycle. These goods are to be assembled by “fixing operations” such as connecting by nuts, screws or by welding. However, no additional machining or processing is allowed under this GRI.
Again, there are several cases illustrating this in various Section and Chapter Notes in the EN and the HTSUS.
GRI 2(b) can be very confusing. It only applies to headings that refer either to actual materials or to goods of a certain material. Under GRI 2(b), copper-based alloys such as brass and bronze, for example, are classified with articles of copper. This is a very good example of the necessity of carefully reading the Section and Chapter Notes, as they generally give guidance in these cases.
The GRI notes that there are going to be many cases where goods that are composed of two or more substances, by application of this rule, may be potentially classifiable in two or more headings. In that case, you must proceed to GRI 3, which lets us know what to do in that case!
My next article will begin with a discussion of what “essential character” means for product classification and its application to GRI’s 2 and 3. I’ll then finish up with the remaining GRI’s.