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Doing It by the Book: Classifying Your Goods for International Trade

On: July 23, 2018    |    By: Hank Selby Hank Selby    |    14 min. read

Doing It By the Book - Classifying Your Goods for International Trade | Shipping SolutionsIn the first article I wrote for the International Trade Blog, I examined the importance of proper product classification for the importer. Accurate classification is a reasonable care requirement of U.S. Customs and Border Protection (CBP), 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 are my recommendations to anyone who has to classify product.

Import-Export Classification Resources

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 CBP 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.

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.

Watch the free webinar—Classifying Your Products for Importing and Exporting:  Understanding the U.S. Harmonized Tariff Schedule and Schedule B

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.

General Rule of Interpretation 1

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.

General Rule of Interpretation 2

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!

General Rule of Interpretation 3

Of the six GRI’s, GRI 3 is by far the most complicated and the one whose interpretation is quite often the subject of Customs Ruling Requests. As I explained above, GRI’s fall in a hierarchical order. GRI 3 tells us how to classify goods that are classifiable under two or more headings by application of GRI 2(b) (or for any other reason).

This GRI introduces some classification concepts that are not precisely defined in the text. Instead, these concepts are explained through examples and, in many cases, from examining the Customs Rulings applicable to the particular product or group of products being classified.

Are you confused by the different but similar types of product classification?

GRI 3 consists of three separate parts that are to be taken in hierarchical order, provided that the terms of the headings, Section or Chapter notes do not indicate otherwise. In other words, before you can apply GRI 3, go back and make sure that there are not already instructions for classification already in place. Note that this is a reiteration of GRI 1!

GRI 3(a) states that the heading that gives the most specific description of a good is preferred over a heading that gives a more general description. In other words, you should choose a classification that specifically names a product instead of one that identifies the product by class.

For example, heading 85.10 that classifies "electric shavers and hair clippers" is preferred to heading 85.09 that classifies "electro-mechanical domestic appliances with self-contained electric motor."

Similarly, a more clear description is preferable to a more general description. For example, safety glass for airplanes is classified as safety glass, not as parts of airplanes.

However, there are many cases where GRI 3(a) does not work. For instance, if there are composite goods where two or more headings only refer to part of the materials (e.g., situations where there are more than two components in a mixture or laminated product), then you cannot use GRI 3(a). Classification must fall to GRI 3(b) or 3(c).

Rule 3(b) applies only to mixtures, composite goods consisting of different materials or components, and "goods put up in sets for retail sales."

Before delving into the application of this rule, we first need to define "goods put up in sets for retail sales." This means a set of two or more articles classifiable in different headings that are packed for sale as a unit and are used together to meet a particular need or to carry out a specific activity.

An example of this would be a taco kit that consists of tortillas, taco sauce and taco mix for hamburger. These items are clearly meant to be used at the same time.

On the other hand, a general set of specialty food items like olive oil, wine, cheese and sausage does not fit this definition since these the items will be used separately. In this case, all those items would be classified separately.

Also, in the context of this rule, retail does not mean for sale in retail stores; it means any product—industrial, commercial or retail—that is generally offered for sale.

Essential Character

Under Rule 3(b), you should classify a composite item or set as if they consisted of the material or component that gives them their essential character. In other words, the person classifying the product must determine what the essential character of the product is and then determine the classification as if it consisted solely of that product giving it its essential character.

The concept of essential character is not precisely defined in the GRI’s, which makes it subject to a degree of subjectivity in its interpretation. As one might suspect, importers have submitted many Ruling Requests to CBP to determine the essential character of a composite good.

The factors that determine essential character will vary depending on the type of good. Some of these factors can be:

  • The nature of the material or component.
  • The primary function of the product and which component contributes the most to this function.
  • The relative bulk/thickness of component materials.
  • The relative weight of the component materials.
  • The relative value of the component materials.

A ready-to-cook spaghetti meal is a perfect example of where the essential character determines classification. This ready-to-cook meal includes uncooked spaghetti (19.02), grated cheese (04.06) and tomato sauce (21.03) all sold together in a carton. In this case, the spaghetti is the item that gives the set its essential character. Therefore, the set is classified under 19.02.

Sometimes, determining essential character can get very detailed, particularly when there are components that contribute equally to the function of the product and are present in roughly the same degree. You should always try to classify your product by the preceding GRI’s, but if this is not possible, you can always proceed to GRI 3(c).

GRI 3(c) states that when goods that qualify for classification under GRI 3 are not classifiable under 3(a) or (b), then and only then are they classified in the heading that appears last in numerical order among those headings that deserve equal classification. For example, let’s look at a laminate made of equal parts paper and plastic. If neither the paper (49.11) nor the plastic (39.21) gives the product its essential character, by default you would classify it under 49.11.

As you can see, GRI 3 covers a lot of territory! You will find, however, that 99% of all goods can be classified by application of the first three GRI’s.

General Rules of Interpretation 4 through 6

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.

General Rule of Interpretation 4

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.

General Rule of Interpretation 5

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.

Stop! If what you’re reading doesn’t make any sense, start here: Classifying  Your Products for International Trade

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.

General Rule of Interpretation 6

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. 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.

Principles and Hints for Classifying Your Products

The most important thing I can tell you about classifying is to be sure to carefully read the Section and Chapter Notes applicable to any prospective classification. Quite often these notes will give you definitive instructions for selecting the correct heading for a class of products, or they will give you specific lists of articles included or excluded from a particular section or chapter.

Without reviewing these notes, you cannot be said to have taken reasonable care in classifying your product.

Classifying Parts

In my experience, the most confusing aspect of the HS and the HTSUS is the different treatment of goods that can be considered parts of other products.

Most importantly, there are classes of goods that can never be considered to be parts of a parent item. These are considered to be "Parts of General Use" defined in Note 2 to Section XV, HTSUS. These articles include springs, nails, screws, pipe fittings, etc. Under no circumstances can they be considered to be parts of any article, but must be classified under their own headings.

Please note that although it is not specified in this note, this generally applies to similar articles of plastic, see Note 1(g) to Section XVI, HTSUS. You have to eliminate the article you are classifying from general use before you can consider classifying it under any other heading.

Once you have eliminated your article as not being a part of general use, you must read the applicable Section and Chapter Notes before you can classify it! In most cases, these provide definitive guidance for what constitutes parts of articles and where they are to be found. For a good example of this, go to Note 2 to Section XVI, HTSUS.

Let’s look at a couple of the referenced headings:

Heading 8408 is for diesel engines. However, parts of diesel engines are classified in another heading: 8409. But, if we go to heading 8477—machinery for working rubber or plastics—we see that parts are included in 8477. Confusing? Yes, but not too confusing if you follow the proper steps for classifying and read the directions first!

Classification Problem Areas

Here are some problem areas that you should be aware of when classifying:

There are definitions in the HTSUS that do not necessarily match the dictionary definitions for certain products. An example of this is in Chapter 76, where unalloyed aluminum can actually contain up to one percent of certain elements. By the dictionary definition, adding any amount of another metal would make this an alloy, but for classification purposes, this does not apply.

There are certain classes of items that are difficult to classify because the headings are broken down into so many subheadings. Some examples of these are bearings, screws, and industrial/commercial belts and belting. In many cases, such as belts, you must first identify the constituent material and then classify the product. This is an area where customs has actually published a number of articles on their website to assist you in determining the proper classification.

Some items are classified by their actual use such as the previously mentioned heading 8477, while other items are classified by their constituent materials. For example, Chapter 39 is entirely composed of Plastics and Articles Thereof.

Unfortunately, some items require a little more digging than others. For example, gaskets can be found in four different places in the HTSUS depending on their composition and use.

Customs Ruling Online Search System

In any case, if you feel that you don’t understand the meaning of a particular heading or subheading, you should consult the U.S. customs rulings after reading both the Explanatory Notes and the HTSUS.

The Customs Ruling Online Search System (CROSS) is a very user-friendly system that allows you to search by keywords. You can either enter descriptive names for your article, or, if you want to see what customs has classified under a particular HTSUS number, put that number in and see rulings that have been issued classifying products under that number.

As an importer or exporter, you are not required by law to perform your own classifications; however, the correctness of your classifications is your responsibility. Even if you have contracted with a broker or consultant to classify your products, you must understand what is behind the classifications and be able to understand why your products fall in certain classifications.

This article was initially a series of four articles published from August to November 2003. It has been combined into a single article and updated to include current information, links and formatting.

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