The duty payable on an import is determined by a code assigned to the goods. Choosing that code is a legal exercise, and the difference between two plausible codes can be substantial.
The system is hierarchical and international
Goods are classified under a harmonised structure used by most trading nations, in which broad chapters divide into headings and then into more specific subheadings.
The first six digits are common internationally, which allows trade statistics to be compared. Countries add further digits for their own tariff and statistical purposes.
Because the structure is shared, an exporter and importer can discuss classification in the same terms even where the applicable duty rates differ entirely.
Interpretation follows formal rules
Classification is governed by written interpretative rules applied in order, beginning with the terms of the headings themselves and the accompanying notes.
Where goods appear to fall under more than one heading, the rules provide a sequence for resolving it, including a test based on essential character for composite articles.
Explanatory notes and published rulings guide application, and importers can request a binding ruling in advance to obtain certainty before shipping.
Small distinctions carry large consequences
Duty rates differ sharply between neighbouring codes, particularly in textiles, footwear and food, where composition or construction determines the heading.
The material content, the presence of a particular feature or the intended use can move an item into a different subheading with a different rate.
Because the difference is money, classification disputes with customs authorities are common and can involve substantial retrospective assessments.
The code controls more than duty
Import licensing, quotas, safety requirements and prohibitions are attached to codes, so classification determines what documentation a shipment needs.
Preferential tariff treatment under trade agreements is also expressed by code, and eligibility depends on the classification matching a listed provision.
Statistical reporting uses the same codes, which means national trade figures reflect classification practice as much as physical trade flows.
Responsibility sits with the importer
The importer of record is generally responsible for declaring the correct classification, valuation and origin, even where a broker prepares the entry.
Errors discovered later can lead to assessment of unpaid duty with interest, and penalties where the authority concludes reasonable care was not exercised.
Larger importers therefore maintain classification databases and review them when products change, since a specification change can move an existing product into a new code.