HS Tariff Classification: A Trader’s Guide

What is a HS code or Tariff classification?

HS codes, tariff codes, tariff classifications, HS classifications and HTS codes all refer to the World Customs Organization’s (WCO) published nomenclature for the classification of goods that are traded across borders. This almost universally adopted system allows Customs authorities to identify traded products in a standardized way, without having to study product descriptions of every item that a trader is bringing across a border. The nomenclature consists of 21 Sections, spanning 99 Chapters. More than 200 countries have developed their own local version of tariff books based on WCO’s HS nomenclature.

The number of digits in a tariff classification can vary from country to country. For example, Singapore’s tariff book maintains 8-digit HS codes, while Thailand’s tariff book maintains 11-digit HS codes. In theory, the first 6 digits of the HS code for any product will be the same across all countries. However, this is only possible if the 6 rules of classification called the General Rules of Interpretation are uniformly applied across all importing sites. When applied in practice, the rules can themselves be subjective and sometimes be open to the individual’s interpretation, it is often not surprising to find different countries accepting different HS codes for the same product.

The first 2 digits of a HS code are called the Chapter, the first 4 digits are called the Heading. The first 6 digits are referred to as Sub-Headings. These terms matter when read with Free Trade Agreement text, as several trade pacts define originating rules in terms of tariff shifts that can be specific to the Heading or first Sub-Heading level.

When applied in practice, the rules can themselves be subjective and have areas open to the individual’s interpretation, it is often not surprising to find different countries accepting different HS codes for the same product.

Why are HS codes important?

In many countries, Customs regimes typically levy Customs and import duties, anti-dumping duties and administer licensing regimes solely based on the HS code presented in an import declaration. In many Customs regimes, a wrong HS code declaration is treated as a serious offence.

HS codes also need to be correct to enjoy any FTA benefits that the trader intends to apply for. Traders should think about tariff codes as product descriptions being translated into a set of numbers.

Traders should think about tariff codes as product descriptions being translated into a set of numbers.

How to HS classify a product?

Arguably, determining a HS code is more of an art than a science and takes years of experience to master. When attempting to assign a HS code to a product, the first 4 out of 6 General Rules of Interpretation must be followed in sequential order, until a HS classification is obtained and the process stops. The 5th and 6th rules apply to all classifications. When considering Chapters, Headings and Sub-Headings, traders must also read all Chapter and Heading notes that may include definitions, exclusions or inclusions. The classifier must also be familiar with the language of the tariff book and understand what commas or semi-colons mean when these appear in descriptions. It is almost impossible to build competency in the area of tariff classification without some level of focused practice and study. The rules are not intuitive and without making an attempt to understand how they were meant to be used, traders will not be able to self-classify parts accurately.

The rules are not intuitive and without making an attempt to understand how they were meant to be used, traders will not be able to self-classify parts accurately.

General Rules of Interpretation or GRIs

General Rules of Interpretation 1 (GRI 1)

The descriptions in Section and Chapter titles in the tariff book are for guidance only. It is important to read the Section and Chapter notes in order to know what kinds of products may be excluded or included in the Chapter. These notes can sometimes be lengthy, but it is impossible to intuitively know which products are covered in a Section or Chapter and hence it is important not to skip this step no matter how daunting these notes can be.

The descriptions included with Headings and Sub-Headings are to be used when determining a HS code, assuming that the Section and Chapter notes do not exclude the product type.

Using GRI 1 is sometimes referred to as classifying a product “by name”, or sometimes referred to as “eo nomine”, which is a Latin phrase that translates into “by under that name”.

In many cases, importers will be able to stop at GRI 1 after determining the correct HS code for their product.

An easy example would be the HS classification of apples under HS08081000 in Singapore.

To reach this classification we would study the descriptions and notes for Chapter, Headings and Sub-headings, in that order.

For example:

Chapter: 08, Description: “Edible fruit and nuts; peel of citrus or melons”. The Chapter notes do not mention any exclusions for apples.

Heading: 0808, Description: “Apples, pears and quinces, fresh”. WCO Heading notes also specify that Apples and pears are classified in this heading whether they are suitable for dessert, for making beverages …. or for industrial purposes …”, so we know that regardless of the intended use of the apples we are trying to import, they are correctly classified in the 0808 Heading.

Subheading: 08081000, Description: “Apples”.

General Rules of Interpretation 2a & 2b (GRI 2a & GRI 2b)

GRI 2a specifies that incomplete, unassembled or unfinished products that already possess the essential character of the final product, should be classified as that final product. The most common example used to illustrate this rule is the classification of a motorcar imported without its tires. In this case, the motorcar would be classified as a complete motorcar. We will talk more about the concept of essential character when we discuss the next rule.

GRI 2b dictates that mixtures or materials like metal alloys and chemical mixtures should be classified using GRI 3.

General Rules of Interpretation 3 (GRI 3a, GRI 3b & GRI 3c)

GRI 3a states that if for any reason, if at first glance multiple Headings seem to apply to a product, the most specific Heading should be chosen. For example, when trying to assign a HS code for a steel screw, the trader may be considering whether to classify it as a steel screw, an article of steel or a part of the instrument it is intended to be used on. According to GRI 3a, it should be classified as a steel screw, since this is the most specific description available between the 3 options.

GRI 3b states that mixtures, sets and composite products should be classified according to the product’s essential character. The definition of essential character is not properly formulated in the explanatory notes of WCO’s tariffs. Typical methods of determining essential character are to look at form, function, component cost, weight or size of parts. However, this topic is often open to fierce debate. For example, when trying to classify a drone that has an attached video camera and gripping claw – 1 party may deem the drone gives the entire item its essential character due to the functionality it provides, another party may think that the video camera gives the item its essential character due to cost of the video recording component and a third party may be of the view that the gripping claw gives the item it’s essential character because of the weight of the gripping component.

GRI 3c is used when faced with a composite product or mixture where no single component gives the material it’s essential character. When this is the case, the item must be classified under the Heading that occurs last in the order of the nomenclature. For example, a mixture containing 5 apples (HS 080810) and 5 pears (HS 080830), would likely be classified under HS 080830 as neither the apples nor the pears give the mixture it’s essential character and the tariff code for pears appears last in numerical order.

Typical methods of determining essential character are to look at form, function, component cost, weight or size of parts. However, this topic is often open to fierce debate.

General Rules of Interpretation 4 (GRI 4)

If the item cannot be classified in the tariff due to its extremely unique nature, GRI 4 requires the importer to classify the product by using the classification of a product similar to it. An example used to illustrate this GRI would be the HS classification of a wine spritzer. Since none of the GRIs offered a suitable solution it it classified as if it were a fermented beverage.

General Rules of Interpretation 5 (GRI 5a & GRI 5b)

GRI 5a states that containers and packaging materials are classified under the same HS code as the finished good they contain, as long as the container does not give the product it’s essential character. For example, a cheap guitar case can be classified under the same HS code as the guitar it contains but a diamond encrusted guitar case containing a $10 guitar cannot be classified under the same HS with the guitar.

GRI 5b requires packaging material that are clearly intended for reuse to be classified separately, they cannot be classified with the commodity or item they contain. For example, industrial gas canisters used to import and export gases must be classified on their own and not classified as the gas they contain.

General Rules of Interpretation 6 (GRI 6)

GRI 6 is probably the most important rule of all the GRIs, yet it is not well understood even by very experienced Customs brokers. This rule simply states that the Headings and Sub-Headings in the tariff should be compared at the same “dash” level, taking into account the legal notes attached if there are any. This rule truly deserves its own write up, but here are some pointers below.

  1. When attempting to classify a product, the trader must first decide the Chapter.
  2. Next, within that Chapter, the trader must decide the Heading that he/she wants to use.
  3. Finally, within the Heading, the trader must decide the Sub-Heading that he/she wants to use.

A good rule of thumb is that if a trader finds herself/himself looking at 2 descriptions stating “Other”, that means something has gone wrong in applying GRI 6.

A good rule of thumb is that if a trader finds herself/himself looking at 2 descriptions stating “Other”, that means something has gone wrong in applying GRI 6.

How to apply for a HS code ruling?

As many importers often struggle with determining the correct HS code for their parts, some Customs authorities offer Advance Ruling or Pre-Classification services. Such a ruling is legally binding so importers should always do some preparatory work prior to submitting a ruling, at least to try and influence the decision of Customs to a favorable HS code (i.e. lower duty, less licensing requirements). The recommended way to do this is to submit a position paper or tariff write up with the ruling submission containing a carefully articulated message to explain why the importer or trader believes that the product should fall under a particular HS code. This write up should be properly formulated, grammatically correct and have with it with supporting documents attached, with everything translated into the country’s local language. This is a technical document, not a memo.

Applying for an advance ruling in countries requires the trader to do some homework and develop a strategy of approach.

For example the trader should be asking the following questions:

  1. How much information is the trader going to release to Customs?
  2. Is the trader going to ask for an audience with Customs to explain the product?
  3. Does the trader know what HS codes competitors are using?
  4. Does the trader need the support of industry associations?

However, it takes years of expertise and mastery to craft such a document and even experienced trade compliance professionals are often unable to do it effectively. Hence, if necessary, it would be advisable to enlist the help of a professional to prepare this document for them instead.

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