The correct classification of internationally traded goods using HS codes requires lot of experience and insight. A small mistake in correct classification of traded goods can lead to over payment or under payment of customs duties and hence trigger audits and penalties by customs authorities. Transmanna can assist you in taking advantage of this service. Our experts can assist you in correct classification of your goods into right category for valuation and determination of customs duty and thus reduce risk from: shipment delays, increased inspections, fines or other administrative penalties or loss due to missed opportunity of paying reduced customs duty.

What can we do for you?

Our compliance experts can work with you to analyze the function, form, composition and end use of your products and apply appropriate classification procedures to ensure that all your traded items are correctly classified and right duty rate is applied and if possible, a preferential duty rates an international free trade agreements, is applied.

The Canadian Harmonized System of Tariff Classification (HS System)

The correct tariff classification of traded goods is the basic requirement of international trade compliance. Canadian customs authorities impose customs duty on traded goods based on their classification of goods and services into various categories by using HS system. All goods that are imported into Canada must be classified into one of the 10-digit tariff classification numbers found in the Customs Tariff 1 under Canadian Harmonized System of Tariff Classification. The rate of duty that is applied to the imported goods will depend on the tariff classification and the tariff treatment for those goods.  The Canadian HS code takes the international HS code base of 6 digits and adds an additional 4 digits, which describe both the intended purpose and the constituent materials of the imported goods. Within the Customs Tariff, goods are classified numerically and divided by chapter (first two digits), heading (first four digits), subheading (first six digits), tariff item (first eight digits), and a final 10-digit classification number. Thus a Canadian HS Code contains a total of 10 digits. There are thousands of HS codes divided up in 98 chapters. Each chapter of the customs tariff includes legal and interpretative notes.Improve your experience with customs authorities.       

  • Improve your experience with customs authorities.
  • Avoid delays in shipping and delivery of goods.
  • Avoid initiation of costly customs audits.
  • Avoid fines and administrative penalties.
  • Save embarrassing situations that lead to bad company image and reputation.

Six General Rules of Interpretation (GRI)?

The General Rules of Interpretation (GRI) are designed to help you understand and properly apply the HS Tariff Classifications. There are a total of 6 basic rules that must be followed in sequence. It’s not possible to apply rule 4, if rules 1, 2, or 3 were not applied previously. The rules are published in the WCO’s customs tariff and are adopted by each of the member countries.

Rule#01

Basis for classification

Use the Section and Chapter titles of the Canadian Customs Tariff to classify the goods but check carefully the Notes associated with any of the Sections and Chapters under consideration, to determine whether the product is mentioned specifically as being included or excluded.

Example:

If you were importing Christmas tree candles, logically your first choice might have been HS Code 9505.10.00.90Other, articles for Christmas festivities.However, the Notes to Chapter 95 of the Canadian Customs Tariff clearly state that Chapter 95 does not cover Christmas tree candles. In fact, this type of good should be classified under HS Code 3406.00.00.00: Candles, tapers and the like.

Rule#02

 

 

2(a)-Classification of Unfinished, Incomplete, Unassembled, or Disassembled Goods

Unfinished and incomplete goods can be classified under the same Heading as the same goods in a finished state provided that they have the essential character of the complete or finished article. As well, unassembled or disassembled goods may also be classified the same way as the complete finished product. However, you can’t apply Rule 2(a) if the text of the Heading or the relevant Legal Notes excludes the unfinished or unassembled product in question.

Example:

  • A car missing only its wheels would be classified the same as if it were complete. Although it does not have wheels, in essence it’s still a car.
  • A shipment of an unassembled bicycle (containing all parts and components necessary to build a bicycle) would be classified in heading 8712as an assembled, finished bicycle as if it had been imported as the assembled, finished bicycle.

 

2(b)-Classification of Mixtures

Rule 2 (b) lays the groundwork for dealing with product, not classifiable through the use of Rule 1 or Rule 2 (a). These goods are usually composed of a mixture of materials or substances. This means that a mixed product may seem to be eligible for classification under two or more headings. However, a given product can only be classified under one heading. If Rule 2(b) can’t be applied, then Rule 3 must be used to decide between alternate headings.

Example:

  • If you were importing dicalcium citrate, the Canadian Customs Tariff does not specifically list this compound. Yet, it is a compound containing more than one material and its essential character is salt of citric acid. Thus, dicalcium citrate qualifies as HS code 2918.15.90.19: Salts and esters of citric acid, Other.
  • Rule 2 (b) lays the groundwork for dealing with product, not classifiable through the use of Rule 1 or Rule 2 (a). These goods are usually composed of a mixture of materials or substances. This means that a mixed product may seem to be eligible for classification under two or more headings. However, a given product can only be classified under one heading. If Rule 2(b) can’t be applied, then Rule 3 must be used to decide between alternate headings.
  • Under GRI 2 (b), a stainless steel travel mug with a plastic handle would be classifiable in heading 7323as a table, kitchen or other household articles of steel despite the plastic handle (as it retains the character of other household articles of steel). If, however, a travel mug contained relatively equal amounts of stainless steel and plastic (meaning the outside or surface of the mug is made of plastic and the inside is made of stainless steel), then the travel mug would be potentially classifiable under two headings: heading 3924tableware, kitchenware or other household article of plastic OR heading 7323: other household article of steel.

Rule#03 

Resolves cases with headings describing similar goods

If by application of Rule 2 (b) or for any other reason, goods are classifiable under two or more headings, use either Rule 3 (a) or Rule 3 (b). Rule 3 (c) will also be explained and illustrated.

3(a)

 

Rule 3 (a) states that if 2 or more headings appear to apply, the one which provides the most specific description of the product in question should be used. This means that a heading which names the actual product is to be used in preference to one which only names a category to which the product could belong. Also, a heading that describes the whole product should be used in preference to one which describes part of it. But, where two headings each only describe part of the product, this rule cannot be used to tell which one to use, even if one seems more specific or detailed than the other. 

Example:

Mint tea is not itemized specifically as a product in the Canadian Customs Tariff. Although the product descriptions available are mint and tea, the importer must classify mint tea under the appropriate tea heading because it provides the most specific product description and mint is only the flavor of the tea.

3 (b)

 

Rule 3 (b) applies to mixtures, composite goods, and sets that cannot be classified by the use of the previous rules. These items should be classified as if they consisted of the material or component which gives them their essential character.

Example:

A company importing “liquor gift sets” (that include the bottle of liquor and glasses) must classify the goods under the appropriate liquor heading. The essential character of the item is the liquor itself and not the glasses contained within the set.

How would an electric shaver be classified? In this example, a description by name in one heading is more specific than a description by class in another heading.

  • Heading 8510: “shavers and hair clippers with self-contained electric motor”
  • Heading 8467: “electro-mechanical tools for working in the hand with self-contained electric motor”
  • Heading 8509: “electro-mechanical domestic appliances with self-contained electric motor”

Based on GRI 3(b), the correct heading in this case is 8510.

 

3 (c)

 

Rule 3 (c) is for use in cases in which a good seems to fit in more than one heading and the essential character cannot be determined. In this case, the product should be classified under the heading which occurs last in numerical order.

Example:
A gift set which is composed of socks (Heading 61.15) and ties (Heading 61.17) cannot be classified by the previous rule since neither item gives the gift set its essential character. The gift set must be classified under heading 61.17 for ties, which is the heading that occurs last in numerical order.

Rule#04

The Last Resource Rule

This is a “last resort” rule, most often used with new products.

Example:

Waste and scraps from grindstones, polishing stones, etc. (Heading 68.04), is only suitable for recovery of the abrasives (emery, pumice, etc). By application of GRI rule 4, waste and scraps should be classified under the heading of abrasive materials themselves (Heading 25.13), rather than under the grindstones heading.

 

Rule # 05

Product Cases and Packaging Materials

Rule 5 specifies how to classify containers.

 

 

Rule 5(a)

Rule 5 (a) deals with 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 that have these characteristics can be classified with the products that 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.

Example: 

Rule 5 (a) would apply to flute cases because flutes are normally sold with their cases (due to their specific shape) and are intended for long term use.

 

Rule 5(b)

Rule 5 (b) deals with other types of containers and packing materials. These 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: 

Goods which use styrofoam chips for padding would fit well into Rule 5 (b). Styrofoam chips are normally used for the padding and insulation of many goods; however they are rarely reused and are therefore classified with the goods when they enter Canada.

Rule#06

Application of rules 1 to 5 at the subheading level

 

 

 

 

 

Once goods have been classified to the heading level by the use of Rules 1 to 5, then classification to the Subheading level can now take place by repeating Rules 1 to 5 and taking into account any related legal notes.

Example: The Classification Process

Let’s look at the following example to understand how the good is globally recognized based on its classification. The product is a metal swivel seat, with variable height adjustment, for domestic purposes.

Step

Canadian Customs Tariff

 

HS Code

1. Identify the Chapter in which the item is classified.

 

Chapter
Furniture

 

94

2. Select the Heading that best describes the goods.

 

Heading
Seats

 

3. Review the Subheadings that divide a heading into specific categories of goods.

Note: Headings and subheadings are international: These six digits are the same in all countries using the HS. A Certificate of Origin will only include the first six digits.

 

Sub-heading
Swivel seats with variable height adjustment 

 

9401.30.

4. The tariff item is the Canadian subdivision and level at which the rates of duty are established, based on intended use of the good and applicable trade agreements.
If you look at the customs tariff, this item’s duty rate is 8% (MFN).

 

Tariff Item
For domestic purposes

 

9401.30.10
5. The last two digits form the statistical suffix.
They provide even more specific details on the imported product.
They were created by Statistics Canada and are used for this Agency’s purposes.

Statistical Suffix Of metal

 

9401.30.1010

 

 

General Rules of Interpretation (GRI) for Classification of Goods

                                                                          

Rule 1 Basis for classification

Rule 2(a,b) Alternative to Rule 1

Rule 3(a,b,c) – Resolves cases with headings describing similar goods

Rule 4 – The last resource rule

Rule 5(a,b) – Product Cases and Packaging Materials

Rule 6 – Application of rules 1 to 5 at the subheading level

Customs Traffic- Schedule

Issued January 1, 2013 GENERAL RULES FOR THE INTERPRETATION OF THE HARMONIZED SYSTEM Classification of goods in the Nomenclature shall be governed by the following principles:

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.

(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.

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 Rule 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 Rule 3 (a) or 3 (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.

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.

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.

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.

Canadian Rules

For legal purposes, the classification of goods in the tariff items of a subheading or of a heading shall be determined according to the terms of those tariff items and any related Supplementary Notes and, mutatis mutandis, to the General Rules for the Interpretation of the Harmonized System, on the understanding that only tariff items at the same level are comparable. For the purpose of this Rule the relative Section, Chapter and Subheading Notes also apply, unless the context otherwise requires.

Where both a Canadian term and an international term are presented in this Nomenclature, the commonly accepted meaning and scope of the international term shall take precedence.

For the purpose of Rule 5 (b) of the General Rules for the Interpretation of the Harmonized System, packing materials or packing containers clearly suitable for repetitive use shall be classified under their respective headings.

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