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Internal Global Tariff Classification - Finance| Feb 11, 2014

TRAINING MANUAL
FOR
HARMONIZED TARIFF SCHEDULE (HTS)
CLASSIFICATION

Global Tariff Classification Project

Karthik Vijayarangan
RN03414
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Training Objectives

At the end of the lesson, participants will be able to:

Define terms used in the Customs Nomenclature
Outline the evolution of Customs Nomenclature
State the reasons for tariff classification
Identify the uses of the Harmonized System
Outline the structure of the Harmonized System
Identify the concept of classification
Basis of Authority 1 & 2
Use General Rules of Interpretation (GRI)
Know about Explanatory Notes and Cross Rulings.

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DEFINITIONS

Nomenclature:
A systematic naming, or enumerating of all goods found in international
trade along with international rules and interpretations.

Customs tariff:
A systematic classification of goods entering the international trade for
National interests together with rates of duties.

Classification:
A process of arriving at a particular heading or sub heading of a
commodity entering the international trade.

International trade:
An exchange of goods between two or more countries.

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Reasons for tariff classification:

Systematic Classification of goods

Uniform Classification of goods

To have common Custom language

To ensure simplification and certainty

HISTORICAL BACKGROUND
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The Harmonized System took more than 100 years to design

Aim was to facilitate international trade

Classification according to commodities alphabetical order

From 1853-1922 an international statistical nomenclature.

Approved by an international convention and signed by 29 countries.

IMPORTANT STAGES OF DEVELOPMENT
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It consisted of 186 items, arranged in five groups namely:
Live animals
Food and beverages
Raw and simply prepared materials
Manufactured goods
Gold and Silver

In 1922 International Bureau of Statistics compiled commercial
statistics
Used in the preparation of the harmonized commodity description and
coding system.

IMPORTANT STAGES OF DEVELOPMENT
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THE LEAGUE OF NATIONS

League of Nations Conference 1927

Draft Nomenclature produced 1931

Geneva Nomenclature

The nomenclature had 991 headings grouped in 86 chapters

The chapters were arranged into 21 sections

Revised in 1937

Development stopped by World War II

IMPORTANT STAGES OF DEVELOPMENT
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THE BRUSSELS CONVENTION 1950

1948 -European customs study group continued to work on Geneva
nomenclature.

1950-Draft named Brussels Tariff Nomenclature (BTN)


IMPORTANT STAGES OF DEVELOPMENT
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1974-(BTN) renamed The Customs Cooperation Council
Nomenclature (CCCN).
CCCN Had 1241 headings
Grouped into 99 Chapters
Arranged in 21 Sections
CCCN supported by:
Explanatory Notes for official interpretation
Alphabetical index listing
A compendium of classification opinion

1983 CCCN was replaced by the Harmonized Commodity
Description and Coding System.

1988 The Harmonized System entered into force.


IMPORTANT STAGES OF DEVELOPMENT
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Basis for customs tariff

Collection of international trade statistics

Rules of Origin

Collection of government revenue

Trade negotiations (e.g. the WTO schedule of tariff concessions)

Transport tariffs and statistics

Monitoring prohibited and restricted goods

As a vital element of core customs process areas of customs controls and
procedures

USES OF HARMONIZED SYSTEM
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Arrangement of Harmonized system
Raw materials/natural goods
Un-worked products
Semi-finished products
Finished products

Headings covering related products are grouped into chapters

Chapters covering related products are grouped into Sections
21 Sections
99 Chapters
Chapter 77 reserved for future use
Chapters 98 & 99 reserved for National Use



STRUCTURE OF HARMONIZED SYSTEM
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International (HS)
CODE POSITIONS
Chapter 1 & 2
Heading 3 & 4
Subheading 5 & 6


8708.29.5060 = 87 8708 870829

Chapter Heading Subheading

STRUCTURE OF HARMONIZED SYSTEM
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STRUCTURE OF HARMONIZED SYSTEM
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Section I: Live Animals; Animal Products

Section VII: Plastics and Articles Thereof Rubber and Articles
Thereof

Section XV: Base Metals and Articles of Base Metal

Section XVII: Vehicles, Aircraft, Vessels and Associated Transport
Equipment

STRUCTURE OF HARMONIZED SYSTEM
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The titles of Sections, Chapters and Subchapters are not legally
binding
They are for ease of reference only
They are pointers or labels used to divide up the
nomenclature.
Help in directing you to areas of the nomenclature.
They should not be quoted to support classification.

Example: Section XV is entitled base metal and articles of base
metal
However, many articles of base metal are classified in other
Sections.

STRUCTURE OF HARMONIZED SYSTEM
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Chapter Commodities
01-05 Animal & Animal Products
06-15 Vegetable Products
16-24 Foodstuffs
25-27 Mineral Products
28-38 Chemicals & Allied Industries
39-40 Plastics / Rubbers
41-43 Raw Hides, Skins, Leather, & Furs
44-49 Wood & Wood Products
50-63 Textiles
64-67 Footwear / Headgear
68-71 Stone / Glass
72-83 Metals
84-85 Machinery / Electrical
86-89 Transportation
90-97 Miscellaneous
98-99 Service
STRUCTURE OF HARMONIZED SYSTEM
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Sections and Chapters Commodities
Section VII: Plastics and Articles Thereof Rubber and Articles Thereof
Chapter 39 Plastics and articles thereof
Chapter 40 Rubber and articles thereof
Section XIII: Articles of Stone, Plaster, Cement, Asbestos, Mica or Similar
Materials; Ceramic Products; Glass and Glassware
Chapter 70 Glass and glassware
Section XV: Base Metals and Articles of Base Metal
Chapter 73 Articles of iron or steel
Chapter 82 Tools, implements, of base metal; parts thereof of base metal
Chapter 83 Miscellaneous articles of base metal
Section XVI: Machinery and Mechanical Appliances; Electrical Equipment;
Parts Thereof; Sound Recorders and Reproducers, Television Image and
Sound Recorders and Reproducers, and Parts and Accessories of Such
Articles
Chapter 84
Nuclear reactors, boilers, machinery and mechanical appliances; parts
thereof
Chapter 85
Electrical machinery and equipment and parts thereof; sound recorders
and reproducers, television image and sound recorders and reproducers,
and parts and accessories of such articles
Section XVII: Vehicles, Aircraft, Vessels and Associated Transport
Equipment
Chapter 87
Vehicles other than railway or tramway rolling stock, and parts and
accessories thereof
Section XVIII: Optical, Photographic, Cinematographic, Measuring,
Checking, Precision, Medical or Surgical Instruments and Apparatus;
Clocks and Watches; Musical Instruments; Parts and Accessories Thereof
Chapter 90
Optical, photographic, cinematographic, measuring, checking, precision,
medical or surgical instruments and apparatus; parts and accessories
thereof
Section XX: Miscellaneous Manufactured Articles
Chapter 94
Furniture; bedding, mattresses, mattress supports, cushions and similar
stuffed furnishings; lamps and lighting fittings, not elsewhere specified or
included; illuminated sign illuminated nameplates and the like;
prefabricated buildings
STRUCTURE OF HARMONIZED SYSTEM
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Goods are grouped in two broad categories:

Goods which the earth is endowed with.
e.g. Minerals, Animals, Plant Water etc.

Goods which are man-made
e.g. TVs, Motor vehicles, the list is endless because of change in
technologies

Goods under chapters 1 to 83 are generally classified according to
material of manufacture.

Goods under chapter 84 to 96 are generally classified according to
function

STRUCTURE OF HARMONIZED SYSTEM
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Where is it used? (LOCATION)

What material or substance is it made of? (MATERIAL)

What is its function or use? (FUNCTION)

In what form/spec is it imported? (SPECIFICATION)

Is this the only possible classification?

PRINCIPLES OF TARIFF CLASSIFICATION
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HOOD ASSY

Location: Body

Material: Metal

Function: Car Hood

Section XVII
Chapter 87
Heading 8708
Subheading 870829

PRINCIPLES OF TARIFF CLASSIFICATION
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To properly arrive at the correct classification of a good, the
following must be understood and applied:

Structure and arrangement of Sections, Chapters and Subchapters

How to apply the Sections, Chapter and Subchapter Notes

How to apply the General Rules of Interpretation

How to search Cross Rulings

How to read the Explanatory Notes.

PRINCIPLES OF TARIFF CLASSIFICATION
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A commodity can be classified either by:

Terms of the Heading

Notes to the Sections, Chapters or Subheadings

The General Interpretative Rules (GRI)

PRINCIPLES OF TARIFF CLASSIFICATION
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This can be further categorized into five parts:

Lists of Description

Legal Notes (Legal Force)

General Rules of Interpretation

Explanatory Notes (No legal force)

Classification Rulings

PRINCIPLES OF TARIFF CLASSIFICATION
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The Legal Notes which appear in front of most Sections and
Chapters are known as Section Notes and Chapter Notes

Section XI is the only Section with Subheading Notes' which refer to
the interpretation of Subheadings

The Legal Notes for each Section and Chapter provide:

Exclusions
Definitions
Classification Provisions
Limitations of Scope

SECTION, CHAPTER AND HEADING NOTES
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Exclusion: Note 1 Chapter 87

VEHICLES OTHER THAN RAILWAY OR TRAMWAY ROLLING-
STOCK,AND PARTS AND ACCESSORIES THEREOF

This chapter does not cover
This chapter does not cover railway or tramway rolling-stock designed solely
for running on rails.
Heading 8712 includes all children's bicycles. Other children's cycles fall in
heading 9503.
SECTION, CHAPTER AND HEADING NOTES
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Definition: Note 2 Chapter 87

Note 2: For the purposes of this chapter, "tractors" means vehicles
constructed essentially for hauling or pushing another vehicle, appliance
or load, whether or not they contain subsidiary provision for the
transport, in connection with the main use of the tractor, of tools,
seeds,fertilizers or other goods.

Machines and working tools designed for fitting to tractors of heading
8701 as interchangeable equipment remain classified in their respective
headings even if presented with the tractor, and whether or not mounted
on it.
SECTION, CHAPTER AND HEADING NOTES
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Classification Provision: Note 4 to Section XVII

These notes establish the classification of certain goods.

Example: Note 4 to section XVII establishes the classification of
amphibious motor vehicles

Note 4. For the purposes of this section:
(b) Amphibious motor vehicles are classified under the
appropriate heading of chapter 87;


SECTION, CHAPTER AND HEADING NOTES
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Limitation of Scope: Note 2 to section XVII

These notes limit the scope of goods to be classified in the section.

Example: Note 2 to section XVII (which limits the scope of the
expressions Parts and Parts and accessories).

Note 2. The expressions "parts" and "parts and accessories" do not apply to the
following articles, whether or not they are identifiable as for the goods of this
section:

SECTION, CHAPTER AND HEADING NOTES
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The General Rules of Interpretation (GRI) are designed to ensure
that a given product is always classified in the same heading and
subheading with the exclusion of any other heading meriting
consideration.

They illustrate and provide step-by-step basis for classification of
goods in the harmonized system.

A clear route to the classification of any item can be made

Provide authority and justification for any classification

Uniform system operated throughout the world.


GENERAL RULES OF INTERPRETATION
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There are six rules which are applied in hierarchical order.
No GRI can be used until the preceding GRI has failed

They should be quoted to support classification.
All goods must be classified according to the terms of the heading texts
in the nomenclature
AND
any relative section or chapter notes.

Where not possible, then according to the following provisions

A systematic and consecutive approach to the rules must be taken
Remember, Headings and the Legal Note must first be considered
when determining classification

GENERAL RULES OF INTERPRETATION
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General Rule of Interpretation 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.

Used when direct classification can be made

Many items can be classified using GRI 1 only:
A live sheep is classified in 0104
A leather suitcase is classified in 4202
A base metal is classified in 8301
A car door is classified in 8708

GENERAL RULES OF INTERPRETATION
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General Rule of Interpretation 1

Not only where the item is mentioned in the heading text

BUT

Only after consulting the Section and Chapter Notes

These Notes should be consulted for EVERY classification

Because of the direction given in GRI 1, use of GRI 2 is allowed only
where classification using GRI 1 is not possible.

GENERAL RULES OF INTERPRETATION
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General Rule of Interpretation 2

Can only be used if GRI 1 has failed.

This rule refers to:
Incomplete
Unfinished
Unassembled or
Disassembled Articles
Mixtures or combinations of materials or substances

There are two parts to this rule: GRI 2(a) & GRI 2(b)


GENERAL RULES OF INTERPRETATION
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General Rule of Interpretation 2(a): Essential Character

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.

GRI 2(a) covers:
Incomplete
Unfinished
Unassembled or
Disassembled articles


GENERAL RULES OF INTERPRETATION
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General Rule of Interpretation 2(a): Essential Character

Where you can clearly recognize in an unfinished or incomplete article
the essential character of the goods described in a particular heading.

The article only lacks a component(s) or part(s) or assembly.

Classify as if complete under GRI 2(a)

GENERAL RULES OF INTERPRETATION
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General Rule of Interpretation 2(a): Essential Character

Question to ask
What is the essential function of the item?
Or
What is its main purpose and use?

Influencing factors:
The kind of goods being considered
The nature of the material or components
Their bulk, quality or weight
The role of a particular constituent material or component in relation to the
use of the goods
The way the goods are packaged..and so on.


GENERAL RULES OF INTERPRETATION
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General Rule of Interpretation 2(a): Essential Character

Examples:
Bottle performs of plastic in tubular shape, with one closed end and one
open end threaded to secure screw type closure

Motor vehicles without engine or wheels

Freezer without a compressor

An unassembled bicycle with all the components of a finished bicycle

An unassembled table with all the components of a finished table

A rough forging that has the profile shape of the finished good

GENERAL RULES OF INTERPRETATION
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General Rule of Interpretation 2(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.

GRI 2(b) covers mixtures or combinations of materials or substances
but only if the headings or Section/Chapter Notes do not otherwise
require

GENERAL RULES OF INTERPRETATION
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General Rule of Interpretation 2(b):

Refers to three situations:

Heading reference to a material or substance

Reference to goods of a given material or substance

Goods consisting of more than one material or substance i.e., classifiable
under two or more headings


GENERAL RULES OF INTERPRETATION
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General Rule of Interpretation 2(b):

Heading reference to a material or substance
Under GRI 2(b), a stainless steel travel mug with a plastic handle would be
classifiable in heading 7323 as a table, kitchen or other household article of
steel despite the plastic handle, as it retains the essential character of a
table, kitchen or other household article of steel as mentioned in heading
7323.

Reference to goods of a given material or substance
If a travel mug, however, contained relatively equal amounts of stainless
steel and plastic (e.g., the outside or outer surface of the mug is made of
plastic and the inside or inner surface (lining) of the mug is made of stainless
steel), then the travel mug would be potentially classifiable under two
headings: heading 3924 as tableware, kitchenware or other household
article of plastic and heading 7323 as a table, kitchen or other household
article of steel.
GENERAL RULES OF INTERPRETATION
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General Rule of Interpretation 3

Can only be used after GRI 1, 2(a) and 2(b) fail

Covers goods consisting of more than one material or substance and
classifiable under two or more headings, i.e., when there is no essential
character

Example: travel mug consisting of relatively equal amounts of stainless steel
and plastic does not have the essential character of a table, kitchen or other
household article of steel as mentioned in heading 7323. In this situation we
must go to GRI 3 for classification of the product.

There are three parts to this rule: GRI 3(a), GRI 3(b) and GRI 3(c)



GENERAL RULES OF INTERPRETATION
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General Rule of Interpretation 3(a): Most Specific Description

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

Most specific description
Tufted textile carpet for automobiles: 5703 or 8708? Answer: 5703
Carpets and other textile floor coverings, tufted, whether or not made up is more
specific than Parts and accessories of the motor vehicles of headings 8701 to
8705
Seats for automobiles: 8708 or 9401? Answer: 9401
Seats (other than those of heading 9402), whether or not convertible into beds,
and parts thereof is more specific than Parts and accessories of the motor
vehicles of headings 8701 to 8705


GENERAL RULES OF INTERPRETATION
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General Rule of Interpretation 3(b): Essential Character

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

For the purposes of GRI 3(b) goods must be:
Mixtures
Composite goods of different materials
Composite goods of different Components
Goods put up in sets for retail sale.

For the Purposes of GRI 3(b) goods put up in set for retail sale means:
Consist of at least two different articles.
Consist of products or articles put up together to meet a particular need or carry out a
specific activity.
Are put in manner suitable for sale directly to users without repacking.

GENERAL RULES OF INTERPRETATION
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General Rule of Interpretation 3(b): Essential Character

MIXTURE: A mixture of barley of heading 1003 and oats of heading 1004 in equal amounts.
In such an instance, there is a product consisting of two or more ingredients with each
ingredient having a provision in which it could potentially be classified and no provision exists
in the Harmonized System that provides for the mixture as a whole.

COMPOSITE GOOD: A combined flashlight of heading 8513 and radio of heading 8527
contained in the same housing. In such an instance, there is a product consisting of two or
more different units or components that are located in the same housing with each
component having a provision in which it could potentially be classified and no provision
exists in the Harmonized System that provides for the composite good as a whole.

SET: A hairdressing kit consisting of a pair of electric hair clippers of heading 8510, a comb
of heading 9615, a pair of scissors of heading 8213, and a brush of heading 9603. In such an
instance, there is a product that consists of more than one item or article with each article
having a provision in which it could potentially be classified and no provision exists in the
Harmonized System that provides for the set as a whole. In the above-mentioned
hairdressing kit, the articles are put up together to meet the particular need or carry out the
specific activity of grooming hair.


GENERAL RULES OF INTERPRETATION
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General Rule of Interpretation 3(c): Last in Tariff

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.

No ingredient, material, component or article can be found to impart the essential
character to a particular good

Goods are to be classified in the heading which occurs last in numerical order
among those which equally merit consideration.


GENERAL RULES OF INTERPRETATION
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General Rule of Interpretation 4: Most Akin

Goods which cannot be classified in accordance with the above rules shall
be classified under the heading appropriate to the

This is a "last resort" rule.

Most often used with new technologies.

GENERAL RULES OF INTERPRETATION
| 47 Internal
General Rule of Interpretation 5(a): Cases

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;

Specifies how to classify containers which:
Are shaped or fitted for the article they will contain,
Are suitable for long-term use,
Protect the article when not in use,
Are of a kind normally sold with such articles,
Are presented with the articles they are designed to contain.

Containers which have these characteristics can be classified with the products
which they contain. However, in cases where the container gives the product its
essential character it would be the container which would have to be classified.

GENERAL RULES OF INTERPRETATION
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General Rule of Interpretation 5(b): Packing

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 does not apply when such packing materials or
packing containers are clearly suitable for repetitive use.

Deals with packing containers and materials.

These items should be classified with the goods they contain if they are
of a kind normally used for packing such goods and are not suitable for
repetitive use.

Example: An importer bringing in goods and using styrofoam chips for
padding. Styrofoam chips are normally used for the padding and insulation
of many goods and are rarely reused.



GENERAL RULES OF INTERPRETATION
| 49 Internal
General Rule of Interpretation 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 purpose of this Rule the relative Section and Chapter
Notes also apply, unless the context otherwise requires.

Once goods have been classified to the Heading level by the use of GRI
1 through 5, classification to the Subheading level can take place by
repeating GRI 1 through 5 and taking into account any related Legal
Notes.

GENERAL RULES OF INTERPRETATION
| 50 Internal

The Explanatory Notes represent the official interpretation of the
Customs Cooperation Council (hereafter referred to as the World
Customs Organization) on the scope of each heading of the
Harmonized System at the international level.

They are intended to be applicable at the 4-digit (heading) numerical
code level, and sometimes at the 6-digit (subheading) numerical
code level.

At times, however, the Explanatory Notes may provide guidance at
the national numerical code level (i.e., beyond the 6-digit numerical
code level) in a contracting party's tariff system.

EXPLANTORY NOTES
| 51 Internal
Although they are neither legally binding on the contracting parties
to the Harmonized System Convention nor considered to be
dispositive in the interpretation of the Harmonized System, the
generally accepted view is that the Explanatory Notes should be
consulted for guidance and considered as persuasive authority in
interpreting the Harmonized System (although some countries may
treat the Explanatory Notes as having the same legal authority as
the legal text of the Harmonized System).

The Explanatory Notes are periodically amended by the Harmonized
System Committee (which is a committee of the World Customs
Organization that is charged with interpreting and maintaining the
Harmonized System--see discussion below). All such amendments
to the Explanatory Notes are periodically published by the World
Customs Organization as amending supplements to that document.
EXPLANTORY NOTES
| 52 Internal

A tariff classification ruling is a legally binding opinion on the
classification of a specific good issued by U.S. Customs Office of
Regulations and Rulings.

CROSS is a searchable database of CBP rulings that can be
retrieved based on simple or complex search characteristics using
keywords and Boolean operators. CROSS has the added
functionality of CROSS referencing rulings from the initial search
result set with their modified, revoked or referenced counterparts.

Rulings collections are separated into Headquarters and New York
and span the years 1989 to present. Collections can be searched
individually or collectively.
CUSTOMS RULINGS ONLINE SEARCH
SYSTEM (CROSS)
| 53 Internal
Thank You