The Importance of a Correct Customs Classification of Your Goods

The Importance of a Correct Customs Classification of Your Goods

Kelsey Vierkant

22/09/2021

Kelsey Schenk
Marketing Officer

How you classify your goods from a customs point of view matters. Wrongly classifying your goods can lead to delays in your customs declaration process or delays when the Customs Authorities detain a shipment at the border. It can also lead to higher duties and even significant fines.

Please be aware that the classification of your goods has an impact on:

  • Duties
  • Import- and export limitations
  • Documentation requirements
  • Licenses
  • Commercial policy measures
  • Security measures

How are goods classified?

Goods are classified according to the Harmonised System. The customs classification is done according to the classification rules set out by the World Customs Organization. Each Chapter and Section contains specific information regarding classification. These rules are too complex to go into in detail here, but I will mention the two most commonly used classification rules below.

Classification rule number 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.

Classification rule number 1 is the base rule for classifying goods and supersedes all other classification rules.

Classification rule number 6

For the classification of goods under the terms of the headers, the wording used for these headings and any relative section or chapter notes is used for legal purposes. The same goes mutatis mutandis for the previous rules, with the distinction that only classifications of similar standing can be compared. For the use of this rule, 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, apply.

 

Customs classification explained

The complexity of correctly classifying goods is not helped by the many different names for different classifications, which partly overlap:

  • HTS-code (Harmonised Tariff System)
  • Commodity code
  • HS-code (Harmonised system)
  • GS-code (Dutch: Geharmoniseerd Systeem)
  • Customs Code
  • Statistical Code
  • GN-code (Combined Nomenclature, Dutch: Gecombineerde Nomenclatuur)
  • Taric-code (European Union tariff code)

Once you determine the correct code for a product, it is called a customs classification. Based on the rules of classification, goods are classified in the Harmonised Tariff System (HTS) / Combined Nomenclature (GN). This is a classification system that the World Customs Organization maintains. The HTS system is used almost everywhere in the world. The GN system is an expansion of the HTS system explicitly used in the European Union.

The anatomy of a customs classification code

 

The anatomy of a customs classification code
 

The first six are the same worldwide. The numbers after that differ per country. Be aware of this if you have foreign suppliers sending you codes for the parts you get from them.

Let’s take an electric guitar as an example. The correct HS-Code is 9207 90 10 00. This code is based on the EU’s TARIC goods nomenclature database on the Dutch Customs website. In this case, 10 00 is a further categorisation by the Dutch Customs Authority.

9207 90 10 00 = CHAPTER 92 – MUSICAL INSTRUMENTS; PARTS AND ACCESSORIES OF SUCH ARTICLES

9207 90 10 00 = Musical instruments, the sound of which is produced, or must be amplified, electrically (for example, organs, guitars, accordions)

9207 90 10 00 = Other

9207 90 10 00 = Guitars


Document the process

Simply selecting the correct code is not enough. We advise companies also to document the process that was followed when classifying a product. During an internal or external audit, such a short report demonstrates why you use a specific code.

The report should have the following information:

  • The customs classification number
  • The classification rules that were followed
  • An explanation of the classification.

Keep in mind that the classification process can be different for each product, for example, when it is a composite good.


Customs classification codes are subject to change

Customs Authorities periodically publish updates to the customs classification codes. These updates can have an impact on the validity of the current classification of your products. The HTS system is updated twice a year with minor updates, and every five years, a significant update is done. There can also be laws and regulations that are updated that impact the classification of your goods.

It is essential to stay up to date on these changes and their impact on the classification of your goods.


What Happens When a Product is Classified Incorrectly?

Incorrectly classifying a product can lead to non-compliance penalties, border delays, seizure of the products, or even a denial of import privileges. As the exporter of the products, you are responsible for correctly classifying them, and therefore you are liable. Because classifying is complicated, this can be a risk.

When in doubt, it is best to seek expert advice and let AEO certified customs specialists classify your products.