Note: This is an opinion editorial article that will not reach you how to do HS classification. In order to fully enjoy this article, you must already be familiar with HS classification concepts. If you want to learn the basics about HS code determination you can refer to our HS introductory write-up. If you want to try and classify a product on your own you can refer to our simplified guide on HS code classification.
The Art of HS Code Determination
Let’s explore a different perspective on HS classification that actually makes business sense.
First things first – I would like to make the below statement.
HS Classification is more of an art, than it is a science.
Here are 4 reasons why …
- The general interpretative rules published by the World Customs Organization are by no means objective rules, except for maybe GRI number 6.
- The concept of essential character plays an important role in HS classification yet is wildly open to interpretation
- WCO classification decisions are not enforceable in local jurisdictions
- Explanatory notes are optional references and not legally binding
Yet for some inexplicable reason, compliance professionals around the world try their best to get the “correct” HS code. In pursuit of this goal, they end up applying the classification rules in as objective a manner as possible according to their interpretation and experience, then hope that the duty rate that it attracts is low enough to be acceptable to the business.
However, since HS classification is not a precise science – in many cases no globally accepted harmonised code exists.
- India Customs may insist you classify customised valves as valves while Customs in the United States may insist you classify them as spare parts to the equipment you intend to use them for.
- China Customs may argue that the essential character of a leather and gold pendent comes from the leather while Singapore Customs may hold the view that the essential character comes from the gold.
- Thai Customs may insist that your classification agrees completely with the product’s description on the packaging while Customs in Vietnam may want you to classify the product according to something they found in other marketing material.
Trade compliance professionals need to shift their thinking process from looking for the “right” HS code to looking for the most defendable HS code.
A first glance the “right” HS code and the most defendable HS code may appear to refer to the same thing. However, this is not exactly true in all cases.
Selecting the most defendable HS code in each country means:
- Not aligning HS codes to a corporate ideal
- Not aligning HS codes to a single published ruling in another country
- Not being stubbornly steadfast on a classification outcome and refusing to consider other interpretations
Instead, it means you:
- Do not assume corporate HS codes are always correct
- Consider Customs opinions
- Look for all available rulings and consider every one
Note: Customs may in some cases request you provide proof of the HS codes used in other countries you do business in. But keep in mind that Customs authorities do not have the right to force you to provide documents like foreign export clearance permits. Customs permits are declarations made by the trader to the relevant Customs authorities. A Customs authority in the another country does not have the legal power to demand to see the declaration made by the foreign shipper/consignee to the foreign Customs authority.
Looking for the most defendable HS code also removes the imaginary ethical restriction that many compliance professionals bind themselves with. To be specific, it is not an erosion of ethics to revalidate HS codes provided by corporate, to ignore a ruling published in another jurisdiction or to change your mind about the essential character of a product after considering Customs point of view.
There are also no laws being broken if company A imports product B under 2 different HS codes in 2 different countries. For example, if you already have rulings in both countries to defend the HS codes used in both jurisdictions, you are not committing any offence.
Now let’s go back to the question of “what is the right HS code?”.
Here is the answer – The right HS code is the HS code you can defend successfully in the jurisdiction of the country you are importing into or exporting out of. What does defendable HS code mean? It means you can illustrate to any auditor how you used the GRI in correct order to conclude upon the HS code presented, adhering to all Section, Chapter and Heading notes. A HS code becomes strongly defendable if you can find supportive text in WCO’s Explanatory notes or classification compendium. Finally, any supportive rulings that you can find outside the relevant jurisdiction can be used to support your point of view, if these are available.