General Rules of Interpretation (GRI) are the rules for determining the appropriate commodity code of a product. The accurate classification of a product requires a sound understanding of these rules. These rules have legal values and are usually part of Customs legislation around the world. As Customs classification remains to biggest area of dispute with Customs authorities and is part of the business Customs compliance obligations, this article explains the principles behind the rules and how to apply them.
Legal Framework of the General Rules of Interpretation (GRI)
The General Rules of Interpretation (GRI) are the rules for customs classification, they must therefore be applied each time to determine the classification of a product. The GRIs (included at the end of this article) are therefore the set of legal principles that always govern the classification of goods. General rules of Interpretation (GRI) are part of the customs legislation of a country:
UK Customs law: The Customs Tariff (Establishment) (EU Exit) Regulations 2020 No.1430 as follows
Rules of interpretation
3.—(1) For the purposes of determining the commodity codes within which goods most appropriately fall, the rules of interpretation contained in the following have effect—
- (a)Part Two (Goods Classification Table Rules of Interpretation) of the Tariff of the United Kingdom; and
- (b)notes to a section or chapter of the Goods Classification Table.
EU Customs law: Council Regulation (EEC) No 2658/87 of 23 July 1987 on the tariff and statistical nomenclature and on the Common Customs Tariff (Official Journal L 256, 07/09/1987).
ANNEX, part one, Preliminary Provisions, Section 1, General Rules
Classification of goods in the combined nomenclature shall be governed by the following principles … (General Rules of Interpretation)
Application of the General Rules of Interpretation (GRI)
The General Rules of Interpretation (GRI) apply in sequential order starting with Rule 1 (GRI 1). GRI 1 takes precedence over the remaining rules. If, and only if, the product can’t be classified using GRI 1, then Rule 2 (GRI 2) can be considered and so on until GRI 4. GRI 5 and GRI 6 apply separately.
When determining the commodity code of a product, the hierarchical structure of the Harmonised System must be followed. Goods must first be classified at the heading level (the 4-digit code) that describes the goods. 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 support the use of the GRIs
There are aids available to support the application of the GRIs. They come mainly in the form of previous decisions establishing a precedent. Explanatory Notes to the Harmonised Systems, Compendium, Customs rulings, and tribunal decisions are part of the toolbox of the classification process.
Online commodity code search
Online search engines are made available to traders by customs authorities in many countries. However, these are only facilitation mechanisms. For instance in the UK, HMRC has an online Trade Tariff that contains a keyword search function. The GRIs remain the legal process to classify a product and are a central part of your Customs compliance. Those of you who went through a Customs audit know how quickly GRIs appear in the discussion with the authorities when a dispute arises. If you need to defend a commodity code you have selected, the GRI becomes central to the debate. Online tools are nevertheless very useful to identify positions with a keyword search.
GRI’s and Customs duties
Classification is not a way to reduce import duty, there are other means to obtain reliefs and reductions. Tariff engineering is an exercise where designers work with the Harmonised Systems from the design stage of a product to make it fit into a particular 4-level heading. This exercise carries a high level of risk and professional advice should be secured.
Getting Customs Classification wrong
There is a difference if the error comes from applying the rules incorrectly, not applying the rules at all, trying to cheat or just fraud. There are also differences across countries.
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, an small SME, who received a duty bill for over £50K for the last 3 years of imports with an incorrect commodity code. They duty bill has wiped out their entire profit. In some countries, penalties will also apply.
Start using the GRIs…
GENERAL RULES FOR THE INTERPRETATION OF THE HARMONIZED 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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