General Rules for Interpretation of Customs Tariff Classification

The General Rules of Interpretation (GRI) are the rules that determine the classification of goods or products based on the Harmonized Standard (HS) code, which was developed by the World Customs Organization (WCO). The existence of GRI is applicable for guiding international trade actors to find the accurate HS code and the national code for each country. In this article, we will discuss the logical application of GRI to identify traded goods accordingly, following the 6 sets of rules on the GRI, the history of the GRI, as well as the way to simplify the process of understanding the HS code for your products. 

What is General Rules for Interpretation (GRI)?

GRI is a set of official rules that has generally been accepted as a guide to classify commodities correctly. It has 6 main rules that shall be applied subsequently, starting with Rule 1 (GR 1). If Rule 1 could not answer your issues or be applied to your case, you may consider Rule 2  and so on up to Rule 6. 

In short, the six rules of GRI can be summarized below.  

• Rule 1: Focusing on the use of the Harmonized System (HS) code, whose structures are divided into the details below.

• Sections (broad categories such as Textiles, Vegetable Products, Mineral Products, etc.)
• Chapters (subdivisions such as cereals, edible fruits and nuts, etc.)
• Headings (4-digit code that provides specific product groups, for example, coconut, almond, natural honey, bananas, etc.)
• Subheadings (6-digit code that explain the classification further, such as shelled coconut, milk, and cream with no added sugar or sweetener, grated cheese, etc). 

• Rule 2: Mentioning additional considerations of the unfinished, incomplete, or unassembled goods, as well as materials or combinations of substances. 

• If the goods are prominent parts of the main products, they shall be classified as the principal products. For example, a cell phone without a battery is still categorised as a cell phone, a camera without a lens is still a camera, a watch without a strap is a watch, a car body without tires is a car anyway, and yet disassembled wood panels of a knockdown chair are considered a chair. 
• This rule also refers to the material or substance of the goods as part of the consideration to determine the correct HS code. For example, chocolate powder containing added sugar has a different HS code than the one with no added sugar. Milk with different percentages of fat content will have different HS codes as well.

• Rule 3: The additional classification for goods that can fall into multiple categories, or for part only of the item in a retail sale. It highlights the need to classify goods with their most essential character or main functions, particularly those with more than one material or substance. If there are mixtures of materials and components in the products, they shall be categorized according to the material/component that gives them their essential character. Here are a few examples of the Rule 3 application from GRI. 

• A stainless steel spoon has a specific HS code despite being made of metal.
• Leather bags with plastic handles shall be categorised of its leather material rather than the plastic. 

• Rule 4: Underlining the classifications by the most akin or similar categories, if the goods cannot be specified by the above rules. This usually applies to new innovations such as new types of beverages, multifunction jackets, or raincoats. 

• Rule 5: Regulating the packaging and containers of the goods, such as cases for cameras and musical instruments or jewelry boxes. If they are presented with goods or products, they shall be classified with the goods. There will be exceptions for packaging materials or containers that are suitable for repetitive use, as well as containers that give new essential characteristics to the goods. 

• Rule 6: Pointing out the possibility and necessity of adding subheadings as part of the classification. This applied once we determined the correct 4-digit code based on the 5 rules above. 

Why are General Interpretative Rules important? 

Now, why is it essential in global trade? Here are several possible reasons. 

• The GRI provides a standard that has been applied globally. This uniformity is important to help simplify and manage the global trade procedures. Most importantly,. It will fasten the customs and shipping process. 
• General Rules for Interpretation (GRI) can help clarify and identify commodities and goods, particularly those with complex forms that potentially may fall into multiple classifications. 
• It helps both traders and customs officials to determine tariff rates and import duties, which will diminish any possible disputes, penalties, delays, and other unnecessary problems. 

Risk of not following the set rules of GRI? 

As the General Rules for Interpretation (GRI) have been considered a universal rule, you may expect consequences if you ship or accept goods with incorrect classifications. The consequences are generally in the form of penalties or unpaid duty. The authorities may not collect your unpaid duty instantly; they will send the bill in months or even years after the incident. 

Inserting an incorrect HS code could also lead to an overpayment tariff or duty, which can influence your final market price. If this is the case, expect the plummeting competitiveness level of your products once they hit the market. Repeating the errors could also lead to severe legal consequences and blacklisting, as you might be considered a fraud. Hence, it is essential to be precise in the classification process by following the General Rules for Interpretation (GRI) meticulously. 

Simple Classification of HS code using HSCodeMatch

Following the 6 rules of GRI is crucial to ensure the accuracy of the HS code. However, in this digital era, there are many applications and tools that are available to avoid the inaccuracy of the HS code for your products. But now, HSCodeMatch will assist you in simplifying the classification of HS codes.

HSCodeMatch provides the detailed description from the chapter to the subheading of the HS code. This application will give you the instant classification of your products and the latest regulations to assist international trade actor to help their business and find the lowest tariff. Here is the simple step-by-step classification of the HS code using HSCodeMatch. 

• First step: Access the HSCodeMatch application by tapping hscodematch.com on your browser. Then, find the HS Code Search and fill in the product name, origin, and destination country. For example, we can use the HS code for phone 851713, from India to the United States. 

• Second step: HSCodeMatch provides the list of the most relevant HS codes for your products. From the results, we can see that there is only one HS code 85171300 for exporting phones from India to the United States. 

• Third step: Move to the HS Code Details, where we can see the HS Code Description on the right side of the page. This allows you to check whether this HS code applies to your products or not. Please remember that you must apply the General Rules of Interpretation for classifying your products. 

• Fourth step: To know more about the tariff rate that applies for smartphone under the HS code 85171300, you can move to the bottom section of the page. You can find the insight of list of tariffs for exporting smartphones from India to the United States. 

Not only does HSCodeMatch explain tariff and HS code, but HSCodeMatch also provides an AI chatbot assistant to ease your confusion. You can ask anything regarding the exportation of smartphones from India to the United States. Here are examples of answers from an AI chatbot assistant. 

What are the full tariff rates for exporting smartphones under HS code 85171300 from India to the United States?

The full tariff for exporting smartphones from India to the United States is 0%, and it is based on the Most Favoured Nations (MFN) or non-preferential regime. It means that 0% tariff not only applies to Indian smartphones, but also to smartphones from other countries. In addition, there is a 35% of Column 2. This tariff rate has implemented since  27 January 2022, and it will remain in effect until 31 December 2050. Here is the explanation of the tariff rate to export smartphones from India to the United States. 

• HS code or HTS code 85171300 covers smartphones with cellular or wireless networks in the United States. 
• General tariff rate 0% MFN is the standard to export smartphone from other countries to the United States. 
• The additional tariff is the 35% Column 2 rate that is specifically for the smartphones under exceptional conditions in the United States. 

What documentations are required for exporting a smartphone under HS code 85171300 from India to the United States?

In order to export a smartphone under HS code 85171300 from India to the United States, there are several documents required. One of the most important things is the import declaration, which requires the entry format bill to disclose all of the values and components of the smartphone. As you know, it is a mandate from the Indian import regulators before exporting electronic equipment to other countries. In the United States, there must be compliance with the regulations for radio frequency devices from the FCC. Here are the key documentation requirements for exporting a smartphone from India to the United States. 

Are there any restrictions or additional compliance requirements for exporting a smartphone under HS code 85171300 from India to the United States? 

Yes, a smartphone or wireless device must face the restriction from the United States regulations, especially from the Federal Communications Commission (FCC). The FCC mandates that RF devices receive equipment authorization before importing to the United States. FCC also clarifies that there is a prohibition on modular transmitters and all of the devices that contain them. Moreover, the FCC expands the frequency range for exposure limits above 6GHz to address issues regarding the wireless power transfer device. Here is the regulation summary: 

Conclusion

As you inspect which HS code is correct for your goods, you may need to read and comprehensively understand the General Rules of Interpretation (GRI). In short, it is a set of six essential rules that has accepted by global trade actors and is made to accommodate global traders like you in determining the accurate HS code. They are concise, clear, and shall be applied chronologically, starting from Rule 1 to 6. 

Frequently Asked Questions (FAQ) about General Rules for Interpretation of Customs Tariff

1. Which is the most important rule of GRI? 

All rules are important, but everyone will need to make sure they understand Rule 1 before sequentially moving to the next rules. Rule 1 of GRI points up the essence of the Section, Chapter, and Headings in order to determine accurate HS codes for imported or exported goods. 

2. What is the difference between Rule 2 and Rule 3 in GRI for customs classification? 

Rule 2 (GRI 2) applies to unfinished or disassembled goods. It also mentions the importance of combinations of substances or materials (for example, fat content, added sweetener, mixture of grains, etc) in affecting the HS code. Meanwhile, Rule 3 (GRI 3) emphasized the goods that can be classified in more than one heading or category, such as a combination of paper and plastic in stationery, or fabric and wood in furniture. This rule, in general, recommends users to consider materials that create essential character to the goods, or following most specific descriptions.

3. In what conditions is GRI 6 applied? 

Once you have determined a 4-digit code based on Rule 1 through Rule 5, you may apply GRI 6, which will give you a final 6-digit code as a result. You might also want to read the Section and Chapter notes to fully understand some specific regulations, such as exceptions and more detailed guidance on classifications. You could not do it otherwise, as the GRI must be followed chronologically. 

4. What is an example of the application of GRI 4? 

GRI 4 or Rule 4 of GRI can be applied if there is no right or specific classifications indicating your items. Therefore, you may use the code for similar groups of products. For example, you are about to export a beverage that is made of a combination of soda and an herbal drink. As there is no specific code to classify that type of drink, you may use the HS code for carbonated beverages. Then, proceed to check on the specific code that identifies the sugar and alcohol content. 

5. Does GRI affect customs tariffs? 

 Yes, the General Rules of Interpretation (GRI) affects customs tariff directly because it is associated with the HS code, which will apply to the determination of tax rate. Hence, it is important for you to read and understand it in order to decide the most accurate code for your traded items. 

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