A Quick Guide to General Rules of Interpretation (GRI)

General Rules of Interpretation (GRI) are governing Customs Classification, the biggest area of dispute between traders and Customs authorities.

When it comes to Customs classification, determining the correct commodity code for a product is crucial. This process follows the General Rules of Interpretation (GRI). This is a set of mandatory rules to classify goods under the Harmonised System. Understanding and applying these rules correctly is essential for businesses to ensure compliance with Customs regulations and avoid costly mistakes.

Legal Framework of the General Rules of Interpretation (GRI)

The Rules are part of an international convention for classifying goods for Customs purposes. They form part of most national Customs legislation. The GRIs are used whenever a product needs to be classified, ensuring that it is assigned the correct tariff code. These rules are legally binding, and misclassification can lead to significant penalties.

For example the GRIs are found in:

• UK Customs Law: The Customs Tariff (Establishment) (EU Exit) Regulations 2020 (No. 1430) outlines how the rules should be applied in the UK. It includes specific references to the Goods Classification Table and notes to sections or chapters.
• EU Customs Law: The Council Regulation (EEC) No. 2658/87 of 23 July 1987 sets out the classification principles under the Common Customs Tariff, including the GRIs.

Application of the General Rules of Interpretation (GRI)

The GRI must be applied in a specific sequence, starting with Rule 1 (GRI 1). If, and only if, this Rule 1 can’t be applied, then Rule 2 (GRI 2) is considered and so on. This, until Rule 4 (GRI 4). Rule 5 (GRI 5) and Rule 6 (GRI 6) are applied separately, based on the product’s specific characteristics.

The classification process also follows the Harmonised System’s hierarchical structure.

• Initially, goods must be classified at the Heading level. This is the first 4-digit of a commodity code that best describes the product.
• Only after this step can classification move to the subheading level (6-digit or 8-digit code).

When comparing several descriptions, the comparison must be at the 4-digit heading levels. No consideration should be given to sub-headings at their stage. It is only when the heading (4-digit code) has been established that the classification can then move to the sub-heading.

Tools to help with the application of the GRI

There are several tools to help with the GRI application process, including:

• Precedent Court Decisions: Previous Customs rulings and tribunal decisions can provide guidance and serve as precedents for classifying similar products.
• Explanatory Notes: The Explanatory Notes to the Harmonised System offer additional context and help interpret specific rules.
• Online Commodity Code Search: Many Customs authorities provide online search tools, like the UK’s HMRC Trade Tariff. These tools can help identify potential classifications through keyword searches. However, it’s important to remember that the GRI is the legal basis for classification. Online tools are only aids in the process, and misclassification can still result in issues with Customs.

The Role of GRI in Customs Duties

Customs classification plays a key role in determining duties, but it is not a way to reduce import duties. For those looking to lower duties, there are other mechanisms like tariff engineering, where product design can influence classification. However, this approach carries risks and requires professional advice.

The Risks of Incorrect Customs Classification

There is a difference if the error comes from applying the rules incorrectly or not applying the rules at all.

Generally, if the incorrect classification results in underpaid duties, Customs authorities will collect the unpaid the duty. They can go back several years, for instance 3 years in the EU. We have a UK client who received a duty bill of over £50K covering the past 3 years of imports. This, because of an incorrect commodity code. In some countries, penalties will also apply.

Incorrect classification can also lead to over-payment of duty. This will increase the Cost of the Goods Sold and affect the competitiveness of the business. Fortunately, if duty have been overpaid over a number of years, it may be possible to claim back duty from Customs.

In conclusion, correctly applying the General Rules of Interpretation (GRI) is essential for businesses to ensure compliance with Customs laws, avoid penalties, and streamline the classification process. With the right tools, resources, and a solid understanding of the GRI, businesses can confidently navigate the complexities of Customs classification.

GENERAL RULES FOR THE INTERPRETATION OF THE HARMONISED SYSTEM

Classification of goods in the Nomenclature shall be governed by the following principles :

1. The 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 :

2. (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.

3 When by application of Rule 2 (b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows :

(a)  The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.

(b)  Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3 (a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.

(c)  When goods cannot be classified by reference to 3 (a) or 3 (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.

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.

5 In addition to the foregoing provisions, the following Rules shall apply in respect of the goods referred to therein :

(a)  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 presented 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;

(b)  Subject to the provisions of Rule 5 (a) above, packing materials and packing containers presented 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.

6 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 and Chapter Notes also apply, unless the context otherwise requires.

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