In Part 1 of this column, a general background on tariff classification was provided which highlighted the reasons why allocating correct HS Codes are so important, and the possible implications of incorrectly classifying a commodity.
Based on the product to be imported or exported, allocating an HS Code may well be a relatively simple process or it may be a complex issue requiring extensive research, but the same basic process can be followed to ensure goods are classified as accurately as possible.
The HS Code or Tariff Heading consists of eight digits, the first six digits being international and represent the chapter (digits 1 and 2), the heading within the chapter (digits 3 and 4) and the subheading, international subdivision of the heading (digits 5 and 6), whereas the South African Customs Union uses eight-digit codes.
Before classifying a product, one must understand the structure of the tariff book i.e. the first 24 chapters cover agricultural products with the degree of processing being a factor, from live animals in Chapter 1 to prepared foodstuffs, beverages and tobacco products in Chapter 24.
Classification becomes easier knowing that plastic falls within Chapter 39, wood falls within Chapter 44 or furniture falls within Chapter 94 as examples.
To begin classifying a product, one must understand what the product actually is by asking basic questions such as what is the item, what is it made of, what is its function, how does it work, and in what form will it be imported?
Having detailed information on the product will almost certainly assist in determining the appropriate chapter within the tariff book.
Having found the chapter, one should read the Section and Chapter Notes to determine if the specific product is excluded (or specifically mentioned as included) within the chapter. If still in doubt, the Explanatory Notes to the Harmonized System are the next tool to assist in the process. The HSEN describes in detail the scope of each heading by means of Section, Chapter and Subheading Notes as well as general notes (commentary) in respect of the products/articles classified within a heading. When applying for a tariff determination, it is a basic customs requirement that the Explanatory Notes are referenced. The most important tool for classification purposes, is, however, the General Rules of Interpretation of which there are six to be used sequentially. GRI 1 requires classification be determined first according to the terms of the headings and any relative notes, Rule 2 covers incomplete, unfinished, unassembled goods, Rule 3 provides for the most specific description, Rule 4 refers to classification of goods most akin or similar, Rule 5 refers to packing material and containers, and Rule 6 applies to classification within subheadings. The use of these Rules becomes essential when a product may be classifiable within more than one heading.
Tariff disputes with customs are an everyday occurrence with possible financial risks in additional duties, VAT and penalties, as well as the possibility of a product being prohibited or restricted. The above only touches the surface of a very complex function, that of tariff classification. In summary, know your product, know the basic process to follow and use the tools available. Ignore rate of duty for tariff classification purposes, use common sense and your own general knowledge; tariff classification need not be that complex.
