The tariff is a very detailed classification of all categories of goods possible in accordance with an international harmonised code, for classifying goods. It defines the customs duty and other treatment applicable to each category of goods. All goods must be classified in accordance with the tariff. Technically, there is a right or wrong answer and it is not always obvious what this is. Issues of interpretation arise as set out separately..
For good reason, the tariff classification is harmonised on a worldwide basis. The first six digits of each tariff code is based on the World Customs Organisation (WCO) worldwide classifications. The harmonised commodity description and coding description was developed by the WTO and introduced in 1988. It is part of the international convention on the harmonised commodity description and coding system
There are six digits in the Harmonized System (HS) Code. The HS code is a universal classification tool. Many governments add additional digits to the HS number to further distinguish products in certain categories. These additional digits are typically different in every country.
The TARIC code (TARif Intégré Communautaire; Integrated Tariff of the European Communities) is designed to show the various rules applying to specific products when imported into the EU.
Misclassification of the goods under the incorrect tariff heading is a notorious customs risk. The harmonised system is designed to be independent of languages and culture. Goods which might appear to have similar descriptions may have different tariff coding and therefore different duty and customs obligations.
Hamonised System of Classification
- Harmonised System 1 2 3 4 5 6
- heading 1 2 3 4
- subheading 5 6
- Combined Nomenclature 1 2 3 4 5 6 7 8
- TARIC 1 2 3 4 5 6 7 8 9 10
- 1st additional TARIC code 11 12 13 14
- 2nd additional TARIC code 15 16 17 18
- National codes 19 20 21 22
The customs authorities may give informal non-binding advice and support on classification. Although this is not definitive it may assist in terms of the imposition of interest and penalties in the event that the classification is subsequently determined to be otherwise.
Classification is not necessarily for all time and may evolving. Categories are regularly added and deleted. They may reflect new products and changes in the nature of existing products. Changing classification can have a significant risk in a business and in some sectors may require regular monitoring.
The tariff is amended from time to time so that certain categories may be deleted, and others are added, as goods change in nature and new goods are developed Binding tariff information ruling is may feed into the revision of the tariff.
The harmonised system nomenclature comprises
- 97 chapters at two-digit level with a further two chapters 98 and 99 for national use
- 1450 headings as five-digit level
- 5000 subheadings at six-digit level
- 200,000 numerical codes for products
The EU has a 10-digt system of codes. Eight digits are required for export declarations and ten digits are required for import declarations Where there are no further subdivisions applicable in the tariff the digits zero are inserted to complete the requisite number of digits.
The customs tariff nomenclature or naming system
- Sets out the duty rate
- identifies prohibitions and restrictions
- implements quotas
- monitors trade policies and rules of origin
- is the basis for WTO schedules
The tariff has an internal logic and division. The correct identification of goods under the tariff can be a very skilled process and may involve elements of judgement in the case of novel products. There are systematic rules which enable novel classification of new unique products. There is an inherent logical structure where progression according to the sophistication of the product.
Goods must be classified first within a high level before being classified within subheadings. As with legal and tax rules generally, there is a technically correct answer regardless of whether or not it is self-evident. Ultimately it might only be decided following a binding tariff information ruling or decision by a tax authority or appeal authority.
There are a range of interpretative criteria which may be applicable in a complex case including
- general rules on interpretation
- explanatory notes
- WTO guidance
- previous rulings for similar products
Terms of the headings and any relative section or chapter notes
- 2a) Incomplete or unfinished article – essential character of complete or finished article
- 2b) Mixtures or combinations of that material or substance – GIR 3
- 3a) The most specific description shall be preferred
- 3b) Material or component which gives the essential character
- 3c) Last in numerical order among those which equally merit consideration
- 4) Heading appropriate to the goods to which they are most akin
- 5a) Containers
- 5b) Packing materials and packing containers
- 6) Mutatis mutandis subheadings
In complex case may be necessary to consider
- the nature of the product
- what it is made from
- what it is used for
- what is its
- functions in what form will be imported
- its technical specifications
In some cases, evidence may be required from technical or engineering sources to understand the intrinsic nature of the product. It may be necessary to bring in those who have been involved in creating the product in order to give a proper brief on the nature and function of the product. In some cases, businesses seek to engineer products with a view to their qualifying for lower tariffs.
There can be many sources of uncertainty. New products may not be readily classifiable as they do not fit within the existing logical order of the code. Products may be classified in accordance with function but there may be multiple functions. It can happen the different customs authority allocate different treatments to the same item. Ultimately a binding tariff information gives a degree of comfort and certainty for a period.
Although Internet searches may be a very crude starting point, reliance on industry sources and particular the manufacturer is likely to be more reliable. Most customs agents will not take on the risk classifying goods given the potential for errors and will require the trader to ascertain the correct commodity codes.
Applying the Tariff
The effect of classification is that the requirements applicable under the tariff for that classification apply. It will specify the rate of duty. It will also specify a preferential rate of duty that may apply in respect of is from countries with which there is a trade agreement for imports from countries with enjoy the general system of preferences or the enhanced general system of preferences.
The tariff will also set out any additional import’s charges due over and above standard customs duty. It may specify applicable nontariff barriers and regulatory requirements.
It is possible to see the treatment that applies to third countries with which there is no agreements i.e. the default Brexit treatment from the EU perspective (and possibly from the UK perspective), as well as other conditions and measures that apply to the import or export of the goods concerned. The Canada rate may represent the possible UK rate for EU imports, as it is held up as a model.
Typically, a rate of duty is prescribed with reference to a percentage of value. Most tariffs in most sector are between zero and twelve percent and many are below 6.5%. This is much lower than was once the case and is a result of gradual decreases over the last six decades. In some cases, tariffs are higher and, in some cases, significantly higher, reflecting peculiar trade policies perhaps protecting particular sectors in the EU or a country.
The tariff will set out those (limited number of) cases where quotas apply so that so much of the product only be imported under a licence at a particular rate into the EU as a whole and after that, a higher rate will apply. The licence may be available, for example, from the European Union Commission on a first come first served basis.
In some small number of cases, the tariff applies with reference to weight, a particular ingredient or a combination of weight plus value. This is most commonly found in relation to agricultural products and foods. This is defined in the tariff. The tariff will set out other licensing obligations and regulations that may apply.
The EU tariff is available here https://ec.europa.eu/taxation_customs/dds2/taric/taric_consultation.jsp?Lang=en
The tariff classification lists the “erga omnes” treatment i.e. that for countries with which there is no trade agreement i.e. the likely default Brexit treatment. This is the likely dutes that apply in a no deal Brexit. The rate under existing trade agreements are also shown. It will commonly be nil or close to nil in most cases.
The TARIC also sets out regulatory and licensing requirements that may apply.