Classification: Doing it by the Book — Part 3

10/19/03 7:00 PM | Hank Selby | Import Basics
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In order to meet the Reasonable Care requirements of U.S. Customs, importers must accurately classify their products or face back duties and penalties. The General Rules of Interpretation (GRI), which are found on the first page of the Explanatory Notes to the Harmonized System, are the first place to start when trying to classify any product using the Harmonized System.

Product_Classification-Plugs_from_A_to_GIn order to meet the Reasonable Care requirements of U.S. Customs, importers must accurately classify their products or face back duties and penalties. The General Rules of Interpretation (GRI), which are found on the first page of the Explanatory Notes to the Harmonized System, are the first place to start when trying to classify any product using the Harmonized System.

My second article in this series concluded with a discussion of General Rule of Interpretation 3. This article will proceed with a discussion of the remaining GRI’s.

As I previously noted, the first three GRI’s are the “meat” of the GRI’s. These last rules give guidance on the first three and explain the process of classification.

Here is GRI 4: “Goods which cannot be classified in accordance with the above rules shall be classified under the heading appropriate to the goods to which they are most akin.”

This is essentially a bailout provision. In the very rare cases where goods cannot be classified by a Heading or Subheading, then all one can do is to find the good that most closely resembles the subject. Kinship can consist of many factors, such as description, character or purpose.

GRI 5 gives us guidance regarding cases and packing containers:

“In addition to the foregoing provisions, the following rules shall apply in respect of the goods referred to therein:

  • Camera cases, musical instrument cases, gun cases, drawing instrument cases, necklace cases and similar containers, specially shaped or fitted to contain a specific article or set of articles, suitable for long-term use and entered with the articles for which they are intended, shall be classified with such articles when of a kind normally sold therewith. This rule does not, however, apply to containers which give the whole its essential character;
  • Subject to the provisions of rule 5(a) above, packing materials and packing containers entered with the goods therein shall be classified with the goods if they are of a kind normally used for packing such goods. However, this provision is not binding when such packing materials or packing containers are clearly suitable for repetitive use.”

In most cases, according to this rule, containers are classified together with the goods they contain; they are not classified separately. This is true of containers that are made for only one item as well as general containers such as crates.

There are only three instances where this rule does not apply:

  1. When the container itself gives the good its essential character. For example, a silver tea caddy containing tea or an ornamental ceramic bowl containing sweets.
  2. When the container is shipped separately. If you just ship an empty crate, it is classified as a crate.
  3. When the packing container is suitable for repetitive use. Many companies have heavy-duty crates or boxes that they use to ship repair and return items to and from overseas destinations. These must be classified separately as the type of containers they are.

GRI 6 is a little confusing as far as language:

“For legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related subheading notes and, mutatis mutandis, to the above rules, on the understanding that only subheadings at the same level are comparable. For the purposes of this rule, the relative section, chapter and subchapter notes also apply, unless the context otherwise requires.”

This rule is actually easier to understand than it seems. This rule establishes the principle of hierarchy in classification: When classifying goods, you need to start with the section, chapter and subchapter notes and then proceed to the headings and subheadings. If you have a good to classify, you first must classify it by section, then chapter, then subchapter, then by heading.

For example, if there are two chapters that can be considered, you must first establish which chapter applies. You can then proceed down to the heading level. Once at the heading level, you may compare subheadings.

In the Explanatory Notes, the subheadings appear as either a one-dash or two-dash subheading. One-dash subheadings can only be compared to other one-dash subheadings. In other words, your choice is not between a one-dash subheading and a two-dash subheading, both of which appear to describe the good. You must choose between descriptions that appear at the same level .

This principle is better explained using the Harmonized Tariff Schedule of the United States (HTSUS). In the HTSUS, items have a level of indentation. You can only compare descriptions that have the same indentation, which indicates that they have comparable headings.

So, you can only compare HTSUS numbers with the same number of digits; a description of an item with a 6-digit number cannot be compared with an item with an 8-digit number.

Here is an example from the HTSUS:
Steam turbines and other vapor turbines, and parts thereof:
Turbines for marine propulsion
Steam turbines . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Turbines: Of an output exceeding 40 MW:
Steam turbines . . . . . . . . . . . . . . . .
Stationary steam turbines, condensing type . . . . . . . . . . .
Other. .

In this example, steam turbines appear twice. However, these two descriptions cannot be compared since they do not fall in comparable headings. In other words, any steam turbine that is used for marine propulsion must fall in the first heading. It cannot fall to the lower heading even if its output exceeds 40kw. “Turbines for marine propulsion” must first be compared to “Other turbines” and then the classification determined under the proper heading.

This concludes our discussion of the General Rules of Interpretation. My fourth and final article on this topic will cover some other principles of classification, give you some hints on how to classify, and give you examples of common errors that are made in classification.