Author: Viktoriia Staryk, lawyer at F&P
The classification of goods is one of those customs tools that can change the economics of an import transaction in a minute. You have declared goods under one UKTZED code, and the customs believes that the correct code is another. The difference in one digit can mean a change in the duty rate from 0% to 10%, an additional anti-dumping duty, or even an import ban. And suddenly your profitable operation becomes unprofitable.
Why classification is not a technical issue
At first glance, determining the UKTZED code is a technical procedure: look at the commodity nomenclature, find the right item, and enter it in the declaration. But in reality, classification is an area of conflict of interest. The importer is interested in a code with a lower duty rate. Customs is interested in a code with a higher rate. And when the goods do not fall unambiguously under one item (and this happens much more often than it seems), a dispute begins.
Are nitrile gloves code 4015 (rubber products) or 3926 (plastic products)? Is a multifunctional device a printer, scanner, or copier? Is a corn and cheese snack a product of grain processing or a finished product? Each of these classifications has a different duty rate.
How customs makes a classification decision
The procedure is defined by Article 69 of the CCU and the Procedure for Maintaining the UKTZED. The customs authority may make a classification decision:
- During customs clearance – if it does not agree with the code specified by the declarant
- Retrospective reclassification based on the results of an inspection after the goods have been released
- Based on the results of a laboratory test or examination
Important: the customs authority must make a classification decision, not just refuse to clear the goods. If, instead of a classification decision, a refusal card is issued with the wording “incorrect code”, this is a procedural violation that is appealable.
Six Basic Rules of Interpretation: What You Need to Know
The UKTZED is based on the Harmonized Commodity Description and Coding System (HS), which has six Basic Rules of Interpretation (BRI). The classification of any product is determined by the consistent application of these rules. The courts review whether the customs has applied them correctly when considering disputes.
Rule 1 – the classification is determined by the texts of the commodity items and notes to sections and groups. This is the main rule, and often a sufficient one. If the text of the item clearly describes your product, the classification is unambiguous.
Rule 3 – applies when a product can be classified to two or more items. The rule provides for the choice by the degree of specificity of the description, by the component that provides the main characteristic, or by the item with the highest serial number. This is where most disputes arise, as each of these criteria is subject to interpretation.
Rule 6 – classification within subheadings is similar to classification at the item level. This means that all the same rules and notes apply at the level of 6, 8, 10-digit codes.
Preliminary decisions: how to reduce the risk before importation
The Customs Code provides for the possibility of obtaining a preliminary decision on classification (Article 23 of the CCU). This is a decision of the customs authority that determines the UKTZED code for a particular product BEFORE its actual importation. The preliminary decision is binding on the customs authorities for three years.
For importers who regularly import complex or ambiguous goods, this is the most effective tool for minimizing risk. Instead of arguing with customs at each clearance, you receive a decision once and then refer to it.
To obtain a license, you must submit an application with a detailed description of the goods, photos, technical specifications, and a sample (if possible). The processing time is up to 30 days.
Appealing a classification decision
If the customs office has made a classification decision with which you disagree, the procedure for appealing is similar to other customs decisions: an administrative complaint (10 working days) or a lawsuit in an administrative court (6 months).
In court, expertise plays a key role. The opinion of the Chamber of Commerce and Industry or other authorized organization on the characteristics of the goods and their classification is one of the most important pieces of evidence. If you are preparing for a dispute, order an expert opinion in advance.
Another important argument is the practice of classifying similar goods by other customs authorities or other countries. If the same product is classified under the same code in the EU and Ukraine has committed to harmonize its nomenclature, this is an argument in your favor.
If customs has changed the code of your goods, send us the classification decision. We will analyze the legality and tell you whether there are grounds for appeal.
Do you have a similar situation? Send us your documents and we will analyze your prospects for free.
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