The Harmonized Tariff Schedule: General Rules of Interpretation Never Written (But Used Daily)

Those of you familiar with the classification process are, without a doubt, veterans of the General Rules of Interpretation (GRIs), the six international rules that provide instructions for determining the Harmonized Tariff Schedule (HTS) code for your products.

Those of you new to the process will find these rules printed for you at the beginning of the Harmonized Tariff Schedule of the United States.

The GRIs start with the following simple words:

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

Now, I am not an attorney, but I am used to reading complex legal text like the above sentence. (Sarcasm intended.) Whenever I run across the technical term “shall,” I replace it with the word “must.”

Let’s reread the phrase: Classification of goods in the tariff schedule must be governed by the following principles.

That’s clearer now, isn’t it? That simple little phrase states that when selecting an HTS number, importers, attorneys, judges, brokers, Customs and Border Protection (CBP), and, yes, even consultants, have no choice but to apply the principles of the General Rules of Interpretation. Why is it, then, when it comes to assigning HTS codes to products, classifiers ignore the GRIs and reach into Pandora’s Box to pull out one of the following rules?

Here are the six General Rules of Interpretation—never written—but used daily:

GRI 7: Russian Roulette

When a good is subject to two or more headings, write the relevant headings on slips of paper. Load the paper slips into the chambers of the barrel of a revolver. Spin the revolver barrel and pull the trigger. The number that shoots out of the revolver is the correct classification. Also known as the dartboard rule.

Just pick a number. You’re bound to get one right. Besides, they are all pretty much the same. Of course, you are also bound to get some wrong. Just like the real-life game of the same name, getting the wrong number can have serious consequences.

GRI 8A: Lowest Duty Rate

When a product is subject to two or more headings, the number with the lowest duty rate applies.

More often applied by importers, this rule introduces an unintended bias into the classification process. An importer will naturally be more inclined toward selecting a classification with a lower duty rate. An experienced classifier learns to ignore the duty rates so as not to cloud his/her judgment.

GRI 8B: Highest Duty Rate

Whenever a product is subject to two or more headings, the number with the highest duty rate applies.

The inverse of GRI 8A, this rule has a tendency to cloud the judgment of the regulators. Curiously some risk-adverse importers seem to think that paying more duty somehow buys them compliance points with Customs even though the classification may be incorrect.

GRI 9: Classification by Proxy

Importers should not question the wisdom of the classifications provided by their customs brokers.

Well this is simply nonsense now, isn’t it? The law holds the importer responsible for exercising reasonable care in assigning classifications. Even if the importer and customs broker have a documented classification protocol in place, the importer should monitor the accuracy of the broker’s work.

GRI 10: Horseshoes

Customs is not concerned about the accuracy of a complete 10-digit classification. Properly classifying to the heading (four digits) or subheading (six digits) level is sufficient.

Poppycock! There is a reason the government has designed a 10-digit system. The eight-digit classification will determine the proper duty rate while the 10-digit code will determine the statistical reporting requirements. This may seem trivial, but not to the regulators.

GRI 11: Historical Precedent

Whenever an importer uses the same classification over a long period of time and Customs does not challenge it, the classification will be deemed to be accurate. Also known as the “We haven’t been caught yet” or the “We’ve always done it this way” rule.

Two wrongs have never made a right. Simply because CBP has not challenged your classification does not mean it is correct by default.

GRI 12: Computer Assigned

Whenever a product is similar to another product to which an HTS code has already been assigned, the importer’s ERP system should automatically assign the same HTS code.

This would seem to be a reasonable solution. Unfortunately it relies on the erroneous assumption that classification is a wholly linear, objective decision process. It also erroneously presumes that minor differences between products do not result in different classifications. While systems can certainly assist with classification, at the end of the process the tariff is subject to some level of interpretation.

GRI 13: Biggest Ego Wins

Whenever there is a dispute between two individuals over a classification, the classification provided by the individual with the louder voice, deeper pockets, higher level of education, or biggest ego is the accurate classification.

Ok, John, now you are being silly. Plus you can’t count. You said there were only six unwritten GRIs.

Perhaps I am being silly, but the above seven rules are just a sampling of the fairy tales we tell ourselves while classifying. They each have their risks because they stray from the actual GRIs and ultimately result in poorer quality classifications.

In the next installment of this article, I will explore a number of best practices that experienced companies use to enhance their classification processes.

This article was first published in April 2007 and has been updated to include current information, links and formatting.