The basic rule of tariff classification under the Harmonized Tariff Schedules (HTS) is that each article imported must be separately and individually classified at the time of entry.

There are, of course, exceptions to this rule. For example, if you have machinery that consists of combination of machines or apparatuses intended to contribute together to a clearly defined function covered by one of the headings in chapters 84, 85 or 90, then the whole is to be classified in the heading appropriate to that function. See Section XVI, Notes 3 and 4, and Section XVIII, Chapter 90, Note 3. For articles that fall outside chapters 84, 85 or 90, we need to consider the application of General Rules of Interpretation (GRI) 3(b). A good CBP ruling to review is HQ H025404, April 28, 2008.

If you have a "composite good" or a retail set under GRI 3(b), then the entire set takes on the classification of that part or component from which the set derives its "essential character." If you do not have "composite good" or a retail set, then, regardless of the number of components you have, each is to be individually classified.

The Harmonized System Explanatory Notes (ENs) provides that:

Composite goods made up of different components shall be taken to mean not only those in which the components are attached to each other to form a practically inseparable whole but also those with separable components, provided these components are adapted one to the other and are mutually complementary and that together they form a whole which would not normally be offered for sale in separate parts . . . As a general rule, the components of these composite goods are put up in a common packing.

The ENs also define a “retail set”:

(X) For the purposes of this Rule, the term "goods put up in sets for retail sale" shall be taken to mean goods which:

(a) Consist of at least two different articles which are, prima facie, classifiable in different headings;

(b) Consist of products or articles put up together to meet a particular need or carry out a specific activity; and

(c) Are put up in a manner suitable for sale directly to users without repacking (e.g., in boxes or cases or on boards).

Determining which component or material the set or composite goods derives its "essential character" from can sometimes be challenging, as essential character will vary between different kinds of goods. It may, for example, be determined by the nature of the material or component, its bulk, quantity, weight or value, or by the role of a constituent material in relation to the use of the goods. Determining essential character requires a good knowledge of the products, how they are made, and how they are used.

If the component or material from which the retail set or composite good derives its essential character cannot be determined, then application of GRI 3(c) is required. GRI 3(c) simply provides that when goods cannot be classified by reference to Rule 3(a) or 3(b), they are to be classified in the heading which occurs last in numerical order among those which equally merit consideration in determining their classification.

Declaring Composite Goods And Retail Sets At Time Of Entry

For purposes of completing your Customs Entry declaration, however, a different issue arises. The instructions for preparation of the CF 7501 provide:

For sets, which are classifiable in accordance with GRI 3(b) or 3(c) of the HTS, report in column 30 the HTS number from which the rate of duty for the set is derived. Precede this number with an SPI of "X." Report with that part of the set so classified the total value, quantity and charges associated with the set, as well as all applicable duties, taxes, and fees, in the appropriate columns. In addition, each article in the set (including the article designated with a prefix of "X") should be reported on a separate line as if it were separately classified. Precede these HTS numbers with an SPI of "V." Report the quantity and value attributed to each article associated with the "V" SPI.

All other reporting requirements including, but not limited to, quota, visa, licensing, and other government agency requirements, should be reported along with the appropriate HTS number preceded with an SPI of "V." Both the "X" and "V" should be right justified in column 27, immediately preceding, and on the same line as the HTS number to which it applies.

You can find instructions on how to properly report goods classified under GRI 3(b) or 3(c) by going to http://www.cbp.gov/xp/cgov/trade/legal/directives/ and clicking on the link to 7501 instructions in the box on the right.

As you can see, even if you import a kit and classify it under a single tariff item pursuant to GRI 3(b) or 3(c), you will still need to itemize each item, determine its classification and its value, and report these at the time of entry.

For more information regarding these issues, contact George Tuttle, III at (415) 986-8780 or geo@tuttlelaw.com.

George R. Tuttle, III is an attorney with the Law Offices of George R. Tuttle in San Francisco.

The information in this article is general in nature, and is not intended to constitute legal advice or to create an attorney-client relationship with respect to any event or occurrence, and may not be considered as such.

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