a.k.a. classifying everything) - … ppt/040814-st… · classifier’s best friend in the htsus....

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TARIFF CLASSIFICATION 101

(A.K.A. CLASSIFYING EVERYTHING)

Presented by Deborah B. Stern, Esq.

© 2014 Sandler, Travis & Rosenberg, P.A. All rights reserved.

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only and should not be considered legal advice.

The hiring of a lawyer is an important decision that should not

be based solely on advertisements or seminar/ webinar

materials. Before you decide, contact us by phone to

305.267.9200 or email us at [email protected] and we

will send you free written information about our qualifications

and experience. © Sandler, Travis & Rosenberg, P.A. All Rights

Reserved.

DISCLAIMER

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• Importance of Classification

• HTSUS Overview

• The Classification Process

• The GRIs

• Parts and Accessories

• Best Practices

• Questions?

AGENDA

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• Duty rate

• Textile category

• Quota/Visa/License

• Eligibility for special duty rates

• Avoid delay in Customs clearance

• Reasonable care

WHY CLASSIFY?

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• Online Searchable HTSUS http://hts.usitc.gov/

• Full Text of the HTSUS

(preferred)

http://www.usitc.gov/tata/hts/

• 22 Sections, 99 Chapters

(97 are international),

hundreds of headings,

thousands of subheadings

THE HTSUS

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http://hts.usitc.gov/

http://www.usitc.gov/tata/hts/


• General Rules of Interpretation (“GRIs”)

• Additional U.S. Rules of Interpretation

• General Notes (Special Programs)

• Section Notes

• Chapter Notes

• Subheading Notes

• Additional US Notes

• Statistical Notes (nonlegal)

• Headings and Subheadings

• Appendices

COMPOSITION OF THE HTSUS

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HTSUS HEIRARCHY

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HEADING

SUBHEADINGS

INT’L: 6-digit

US ONLY: below 6

8 -digit provides

duty rate, SPI

10 -digit US trade

stats (US Census)


GENERAL RULES OF INTERPRETATION

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CLASSIFICATION RESOURCES

• The text of the HTSUS (http://www.usitc.gov/tata/hts)

• WCO Explanatory Notes (pay service)

• CBP administrative/binding rulings (CBP’s CROSS Rulings

Database http://rulings.cbp.gov)

• CBP “Informed Compliance Publications”

(http://www.cbp.gov/xp/cgov/trade/legal/informed_compliance_pubs/

• Court Decisions (pay service and CBP Bulletin and Decisions)

http://www.cbp.gov/xp/cgov/trade/legal/bulletins_decisions/

• CBP Import Specialists, National Import Specialists, Attorneys (nonbinding oral advice)

• Specialized Customs Counsel ([email protected])

• Customs Broker

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http://www.usitc.gov/tata/hts

http://rulings.cbp.gov/

http://www.cbp.gov/xp/cgov/trade/legal/informed_compliance_pubs/

http://www.cbp.gov/xp/cgov/trade/legal/bulletins_decisions/

mailto:[email protected]


• NY Rulings cover specific product described; serve as guidance for

materially and substantially identical goods; usually lacks

analysis

• HQ Rulings serve a precedent because they contain legal analysis

and interpretation of the tariff provisions as well as specific products

addressed therein; often complex, may need advice.

• Note the year a ruling was issued and whether subsequent rulings

seem to come to a different result or provide a different interpretation

of a tariff provision.

• Do not automatically rely on the first ruling you see that appears to

classify your product. Review several and analyze which is most

akin to your specific facts.

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CBP RULINGS


CBP’s Informed Compliance Publication on Footwear

A. “Zoris” must have all of the following characteristics:

1. It is wholly of rubber or plastic.

2. An upper which is a single molded piece of rubber or plastic.

3. A foamed rubber or plastic sole, which is approximately uniform in thickness, i.e., the thickest point

is neither more than 3/8 inch thicker than the thinnest point nor more than 35 percent thicker than the

thinnest point.

4. At its thickest point, the sole is less than 2 inches thick.

5. The sole does not have a separate “insole.” A layer of rubber or plastic similar to the other layers of

the sole is not a separate insole, assuming it is more than 1/32 inch thick.

6. The molded rubber or plastic upper segment has plugs at the end of each segment and each plug

must penetrate all or part of the sole. The plugs do not have to penetrate all layers of the sole.

7. The upper either has straps (segments) which form a “V” or “Y” and a thong which goes between

the first and second toes or has straps (segments) which form an “X.”

B. “Zoris” may have:

1. Either a sole of one piece of foamed rubber or plastic or many horizontal layers of different colors

joined together.

2. A separate, loosely attached ornament on the upper, such as a plastic flower.

WHY LOOK BEYOND THE TARIFF?

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THE CLASSIFICATION

PROCESS

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THE CLASSIFICATION PROCESS

• Identify the good.

• Play the “name game.”

• Choose your headings.

• Apply the GRIs in order.

• Consult Classification

Sources and Analyze.

• Record your work.

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1. Identify the good:

– Your product must be classified in its condition as imported into the U.S.

– Gather all relevant product information. • What is this item called?

• What is its part number?

• Where and how is it used?

• What is it made of?

– Gather product information before you classify – any surprise facts discovered later can turn the classification around completely.

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THE CLASSIFICATION PROCESS


2. Play the “name game”:

• Think of different terms which might describe this item

(especially if its called an ambiguous term like “adapter”

or “accessory” or “assembly”).

• What some might call a seal, to others may be a gasket,

a washer, an O-ring, etc.

• Be flexible with words – the difference between a “boot”

and a trunk or a “bonnet” and a hood may be which side

of the Atlantic you’re on.

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THE CLASSIFICATION PROCESSnt.)


3. Choose your headings:

• Use Index to find headings which might describe the item

you’re trying to classify. It is not legally binding, but can be a

classifier’s best friend in the HTSUS.

• Look to the language of the Heading text. Does it describe

your good? Could it be more specific?

• Search terms in CBP’s Rulings database CROSS for other

possible headings

o Do NOT choose the first classification you see (more on this to follow)

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THE CLASSIFICATION PROCESSnt


4. Apply the General Rules of Interpretation

• “Eliminate all suspects.”

• Break down heading text language.

• Review Legal Notes and Explanatory Notes (Ens) to determine

scope of heading text and whether your good fits in it.

o Legal Notes identify what is excluded from heading even if

otherwise covered by the heading text.

o Legal Notes define heading text terms.

o ENs provide explanations and examples of goods that fit

into heading text and what is excluded.

• The last heading remaining after all eliminations should be the

proper tariff classification for the item, but…

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5. Research and Analyze

• Research HTS Resources: CBP rulings (CROSS),

CBP Informed Compliance Publications, Court cases, etc.

o These resources help determine how the tariff provisions are interpreted and applied. The heading text and legal notes are not the full story!

o Look for definitions/explanations of scope of heading text terms in rulings and decisions

o Look at what kind of goods are classified in the provision.

• Analyze the Classification:

o Identify: Which one heading covers this product and no other?

o Analyze: Compare and contrast the facts of the product to be classified with the language of the heading and the “rules” derived from classification sources.

o Conclude: The product must be classified under this heading because …

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6. Record your work: • You have just spent company time & resources in arriving at a

correct tariff classification.

• You do not want to spend additional resources researching a second time to verify the classification.

• Record your product research, analysis and conclusion in an audit trail.

• Your audit trail is the only proof you have that your classification is not “unreasonable” for the purposes of reasonable care.

• Your reasoning can now be used to classify similar products.

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GENERAL RULES OF

INTEREPRETATION

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GRI 1 Classification of goods shall be determined

according to the terms of the headings of the tariff schedule

and any relative Section or Chapter Notes.

The table of contents, alphabetical index, and titles of

sections, chapters and sub-chapters are for reference

purposes only.

In the event that the goods cannot be classified solely on

the basis of GRI 1, and if the headings and legal notes do

not otherwise require, the remaining GRIs may then be

applied.

GENERAL RULES OF INTERPRETATION

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Classification is based on the terms of the

headings, and, if relevant, the section and/or

chapter notes.

• What is the scope of the heading?

• Does it describe my good?

• Is my good excluded from the heading?

• Does any other heading also describe my good?

• Is it a part (or accessory) of another good?

GRI 1

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• “Automatic Data Processing Machine”

• Magnetic/Optical Readers

• Machines for Transcribing Data

GRI 1 –BREAK DOWN HEADING TEXT

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GRI 1 – APPLY LEGAL NOTES

“Automatic data processing machines” of

heading 8471 are defined in the legal notes

to Chapter 84:

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GRI 1 - APPLY LEGAL NOTES

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APPLY LEGAL NOTES

• If the “computer” you are classifying does not satisfy each

element of that note, it cannot be classified in heading 8471.

• So, for example, a special purpose computer embedded in

medical equipment that has specific requirements and the

performs only pre-defined tasks which cannot be changed by

the user is not an ADP machine of heading 8471.

• By extension, a requirement in another tariff provision that

specifies “of a kind used in an ADP machine” is similarly limited

by the parameters of the legal note.

IN ANY CASE, in a conflict between the legal notes and the

GRIs, legal notes will take precedence.

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Unassembled or Disassembled Articles are

classified in the same provision as the

assembled articles.

Example:

• Complete bicycle shipped unassembled =

heading 8712

GRI 2(a)

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Incomplete or Unfinished Articles are classified in the same provision as the complete or finished articles, provided that they have the Essential Character of the complete or finished article. (and they may also be unassembled.)

Example:

• Complete bicycle shipped without seat and unassembled = heading 8712

GRI 2(a) (Cont.)

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Material described in a heading includes mixtures

and combinations of that material as they still have

its essential character.

But, for goods consisting of more than one

material or substance, go to GRI 3.

GRI 2(b)

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Goods that are classifiable under more than one

heading should be classified in the heading which

provides the most specific description.

Example:

Where is an electric shaver classified?

– Electro-mechanical tools for working in the hand

(8505);

– Electro-mechanical domestic appliances (8509); or

– Shavers & hair clippers (8510)

GRI 3(a)

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When two or more headings each refer to only part

of the materials/components in an article, treat

each heading as equally specific, even if one is

more complete or precise and apply GRI 3(b).

Example:

Wooden table for office w/ glass top

Part wooden office furniture = 9403.30

Part glass office furniture = 9403.80

Treated as equally specific, and go to GRI 3(b)

GRI 3(a) Cont.

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May be used to classify:

1. Mixed Goods or Composite Goods

2. Goods put up in Sets for Retail Sale

Classified as if consisting of the component which

gives the composite good or set its essential

character.

(But some mixed goods may actually be classified at GRI

1, e.g., certain mixtures of chemicals (3824), GRI 1 sets

such as tool sets, manicure sets, stencil sets)

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GRI 3(b)


Composite Goods may be made up of:

1. Components attached to each other, or

2. Separate components, but only if

° adapted one to the other;

° mutually complementary; and

° together must form a whole which would not normally

be offered for sale in separate parts

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GRI 3(b) COMPOSITE GOODS


1. Must consist of at least 2 different articles which are

classifiable in different headings.

2. Must consist of articles put up together to meet a

particular need or carry out a specific activity.

3. Must be put up in a manner suitable for retail sale.

GRI 3(b) sets are classified by the component that imparts

the essential character of the set

GRI 3(b) SETS FOR RETAIL SALE

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For composite goods or sets for retail sale, must

consider the following:

Nature of the component or material:

bulk, quality, quantity, weight, value

Role of the component in relation to the

overall use of the goods

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GRI 3(b) SETS FOR RETAIL SALE


If goods cannot be classified under 3(a) or (b) then

they should be classified under whichever tariff

provision falls last in the tariff among those that

merit equal consideration.

Should be used infrequently, only as last resort.

GRI 3(c)

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• Q: Six fondue forks (heading 8215) packaged together for retail sale? A: No, same heading.

• Q: Bottle of vodka (heading 2208) and bottle of wine (heading 2204) packaged together for retail sale? A: No, not used together for particular need or specific activity (yes, that’s debatable!). But a margarita set? Yes!

• Q: Package of grated cheese (heading 0406), package of uncooked spaghetti (heading 1902) and can of tomato sauce (heading 2103) in a carton proclaiming “Spaghetti For Two”. A: Yes!

IS IT A GRI 3(b) SET?

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If goods cannot be classified according to GRIs 1-3, then

they may be classified under the heading appropriate to the

goods to which they are most akin.

• Should be applied very infrequently! GRIs 1-3

will cover the classification of almost all goods.

• When attempting to apply this rule, consider description,

character, purpose or intended use, designation,

production process and the nature of the goods.

GRI 4

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Long-term use containers imported with articles the

articles for which they are intended to be used are to be

classified with the articles if they are of a kind of container

normally sold with such articles (e.g., camera cases with

cameras and musical instrument cases with musical

instruments).

This rule DOES NOT apply to containers that give the

imported article its essential character. Such merchandise is to be

classified under the heading for the container

GRI 5(a)

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GRI 5(b)

Packing materials/containers are classified with the goods if:

– Normally used for packing goods when entered w/ such goods. (e.g., cardboard boxes or containers containing food products).

– Are not commercially suitable for repetitive use. Packaging materials or packing containers that are clearly suitable for repetitive use are classified separately from the materials that they hold.

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GRI 5(b) (Cont.)

• “Clearly Suitable for Repetitive Use”

– Commercially reusable, not like long term use of GRI 5(a). Does not require actual reuse but clear durability

– Example: Hangers used in hanger recovery programs

• “Of a kind normally sold with”

– If not normally sold with contents (aka “Unusual”) then

classified separately under GRI 5(b).

– Example: 4 foot tall long-neck bottle with containing wine

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GRIs 1-5 are to be reapplied in the same manner

to determine the classification of goods at the

subheading level within a given heading. (hint:

substitute “subheading” wherever you see the

word “heading”)

GRI 6

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There are 4 rules, but the most often used are (a) and (c)

In the absence of special language or context which requires

otherwise:

(a) a tariff classification controlled by use (other than actual

use*) is to be determined in accordance with the use of

like goods in the US at, or immediately prior to, the date

of importation;

(c) a provision for parts of an article covers products solely

or principally used as a part of such articles but a

provision for “parts” or “parts and accessories” shall not

prevail over a specific provision for such part or

accessory

ADD’L US RULES OF INTERPRETATION

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Use provisions are identified by the terms of the provision

• “Of a kind used…” (e.g., of a kind used for table, kitchen,

toilet…and similar purposes)

• “Articles for…” (e.g., articles and equipment for general

physical exercise, gymnastics…)

• Terms designating use (e.g., diagnostic or laboratory

reagents; kitchenware; household articles; toy)

• “used for” (but “used for” may mean actual use, different

from principal use and must comply with 19 CFR 10.131-

10.139)

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ARI 1(a) AND PRINCIPAL USE


• Use provisions (other than actual) are based on “Principal Use”

• Principal use is the use of the class or kind of merchandise at issue

that exceeds any other use.

• Carborundum (or Lennox) Factors are used to determine whether a

particular article belongs to a particular class or kind of good and

has been used to determine an article’s principal use

the general physical characteristics of the article,

the expectation of the ultimate purchaser,

channels of trade,

environment of sale (accompanying accessories, manner of advertisement

and display),

use in the same manner as merchandise which defines the class,

economic practicality of so using the import, and

recognition in the trade of this use

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Example: Festive Articles

Festive Articles – Heading 9505 – is a use provision because defining

feature is implied by an article’s use.

• Classification of merchandise as a festive article requires that the

article satisfy two criteria:

(1) It must be closely associated with a festive occasion and

(2) It must be used or displayed principally during that festive occasion.

• In addition, CBP applies the Carborundum factors to determine of a

good belongs to a class or kind of festive article

(Note Landmark Cases: Midwest, Park B Smith, Michael Simon, Wilton

Industries)

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Example: Festive Articles Cont.

• An article that is found to be (or rather, principally used as) a Christmas

ornament is prima facie classifiable as a “festive article” under heading 9505

• CBP recently considered “keepsake” ornaments imported in 2007 that were

liquidated as statuettes, music boxes, made up textile articles, etc. They

were not all Xmas-themed articles. (HQ H167996, December 4, 2012).

Carborundum was applied.

• Ornaments had physical features of Xmas ornaments, including metal

eyelets for attaching to a tree

• Marketed during holiday season as Xmas ornaments used to decorate

Xmas trees

• Found and sold in importer’s Xmas ornament catalogue

• Has “Christmas ornament” printed on packaging

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• Parts must be solely or principally used as a part, as

these terms are interpreted for purposes of classification.

• Specific provision for a particular part prevails over a

“parts” or “parts and accessories” provision (ala GRI

3(a)) unless a legal note or the like dictates otherwise.

• Example -- Chapter 95, Note 3 -- Subject to note 1

above, parts and accessories which are suitable for use

solely or principally with articles of this chapter are to be

classified with those articles.

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ARI 1(c), PARTS AND PRINCIPAL USE

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BRIEF OVERVIEW :

CLASSIFYING PARTS AND

ACCESSORIES


• Integral, constituent or component part, without which the article to

which it is to be joined could not function as such article

• “Dedicated solely for use with another article” rather than being a

separate and distinct commercial entity.

o specially designed, clearly identifiable, won’t fit anything else

o determined by legal notes and heading text

• Never includes “Parts of General Use” as defined by Note 2, Section

XV (even if dedicated for specific use)

• Where a particular part of an article is provided for specifically, a part

of that particular part is more specifically provided for as part of the

part than as part of the whole”

PARTS: BRIEF OVERVIEW

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PARTS vs. MATERIALS

When does a "material" becomes an "article" ?

• Character or identity is fixed with certainty

• Not commercially capable of any other use.

• Material has been so far advanced/processed that it loses its character as material

• If the material is intended to be made into multiple parts, the individual parts to be made from it must be identifiable and fixed with certainty.

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ACCESSORIES: BRIEF OVERVIEW

• Not defined term in the HTSUS or in the ENs

• Not necessary for principle article to function

• Of secondary importance, but contributes to the effectiveness of the principal article

• An accessory must relate directly to the thing accessorized. (Rollerblade, Inc. v. United States, 116 F. Supp. 2d 1247 (CIT 2000), aff’d, 282 F. 3d 1349 (Fed. Cir. 2002))

• Articles called accessories are not classified as an accessories if there is a more specific provision (e.g., imitation jewelry, articles made of artificial flowers, cables, power adapters, memory cards ) – ARI 1(c)

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• Create and regularly update comprehensive classification database for

current products (by product number/style number, detailed description, classification, duty rate, rulings and other support for decision, etc.)

• Create a process for identifying and capturing new products as early as possible

• Document the classification process in a manual

• Get outside expert advice or get rulings for tough calls

• Instruct brokers not to make unilateral decisions on classification without first consulting with the importer, and brokers, ask your importers about classification

• Conduct regular internal audits.

BEST PRACTICES

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Deborah B. Stern, Esq.

Member - Miami Office

Sandler, Travis & Rosenberg, P.A.

305.894.1007

[email protected]

www.strtrade.com

QUESTIONS?

54

mailto:[email protected]

http://www.strtrade.com/

a.k.a. classifying everything) - … ppt/040814-st… · classifier’s best friend in the htsus....

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