As China develops to be an important importing country, the declaration of Harmonized System Codes (“HS Codes”) has become an acute legal issue for the trade community, as incorrect declaration of HS Codes can lead to costly delay in customs clearance, deposit requirement, possible fines and even criminal penalties. Unfortunately, often in reliance upon HS Codes provided by exporters or non-legal brokers or consultants, many importers fail to take a sober second look to see whether they are indeed in compliance with China Customs’ tariff classification rules. Such failure might eventually expose importers to unnecessary customs risks due to misclassification of imported goods.
Though the World Customs Organization’s Harmonized Commodity Description and Coding System has been widely accepted as a uniform tariff nomenclature at the 6-digit level (meaning all member countries use the same first 6 digits of HS Code to classify a commodity), the tariff classification in practice could still end up with different 6-digit HS Codes in different member countries for the same product. The reasons could vary, for example, different interpretations to the Explanatory Notes by customs authorities in different jurisdictions, or different provisions of the Subheading Notes issued by member countries on their own, or simply translation gap among different language versions of the Tariff Schedule or Explanatory Notes. Accordingly, when determining tariff classifications at importation, the foreign HS Codes provided by exporters may only be taken as reference rather than solid conclusion.
Taking fish oil as an example. An importer imported fish oil capsules (“Products”) using the HS Code 1504.2000 [Fats and oils and their fractions, of fish, other than liver oils]. The first 6 digits of Product’s HS Code at exportation are 1504.20. Also, a local customs consulting company classified the Products under HS Code 1504.2000. At that stage, it appeared that the importer’s tariff classification is perfect to fit the Products. However, it turned out to be not accurate when more Product information was revealed.
Although the tariff item for HS Code 1504.2000 is an eo nomine provision (meaning a tariff item that specifically describes a product by its common or technical name), the relevant Explanatory Notes expressly exclude fish oil products which have undergone chemical modification. Moreover, the relevant customs classification decisions imply that this HS Code 1504.2000 only applies to a product which consists of a single type of fish oil. In fact, the Product is found to be made from several types of fishes with certain chemical modification in the manufacturing process. Therefore, HS Code 1504.2000 is an incorrect HS Code for the Products.
Those importers who rely on external advice from non-legal consultants must be certain whether they are fully protected by resolving the following issues: (1) whether those consultants started from sufficient product information and grabbed all relevant details for classification purpose; (2) whether they covered all legal basis for tariff classification, such as the PRC Tariff Schedule, its Explanatory Notes and Subheading Notes, the relevant customs decisions and rulings, and even the national or industry standards; (3) whether they took all competing Headings into consideration; (4) whether they could see through subtle details of the relevant classification rules, but still bear a clear picture of the structure or lay-out for how to apply such rules, for example, how to apply the General Rules of Interpretation in classifying parts or components or unfinished products; and most importantly, (5) whether they may prescribe the legal defenses for HS Codes previously and currently used if the customs raises any challenges or even investigations.
Misclassification may trigger administrative or smuggling investigation by ASB (the anti-smuggling bureau within a given customs authority) against the importer. As long as the relevant classification rules are clear under the PRC Tariff Schedule, its Explanatory Notes and Subheading Notes or customs classification rulings and decisions, the misclassification is a violation of customs law, and the intentional misclassification will likely be subject to the smuggling charge. Given the severe consequences and complex technical and legal nature of tariff clarification, it is advisable that importers seek legal advice and also have legal defense in place for each HS Code declared to China customs. As such, importers may eventually minimize exposures to regulatory customs violations due to misclassification of imported goods.