Classification of goods according to Goods Nomenclature for Foreign Economic Activities of the Customs Union
Classification of Goods according to the FEACN of the CU
The classification of goods according to the Foreign Economic Activity Commodity Nomenclature of the Customs Union (hereinafter referred to as the FEACN of the CU) is one of the most relevant issues for participants of the foreign economic activity (hereinafter referred to as the FEA).
First, the classification code of goods according to the FEACN of the CU defines the rate of import/export duties an, therefore, the rate of customs duties, non-tariff measures, prohibitions and restrictions applied with respect to goods and vehicles.
Second, determination of the classification code of goods according to the FEACN of the CU often requires special technical expertise and additional examinations related to definition of technical specifications of goods, manufacturing processes, etc.
In particular, the accuracy of the classification of goods is also of great importance for better objectivity of customs statistics of the foreign trade, used in the course of development of the customs policy of the Member States of the Customs Union, and for adoption of specific measures for its implementation during customs clearance and control of goods and vehicles.
According to the provisions of the Customs Code of the Customs Union (hereinafter referred to as the CC of the CU) participants of the FEA shall determine, on their own, the code of goods crossing the customs border.
In case of incorrect classification of goods during their declaration, the classification code shall be determined by the customs authority (paragraph 3, Article 52 of the CC of the CU).
Authorized customs agents shall, at the request of a person concerned, make preliminary decisions on the classification of goods (paragraph 3, Article 52 of the CC of the CU).
Customs authorities assigned according to the legislation of the Member States of the Customs Union can make decisions and provide explanations on the classification of certain types of goods, provided such decisions and explanations are published (paragraph 6, Article 52 of the CC of the CU).
In order to ensure the uniform interpretation of the Foreign Economic Activity Commodity Nomenclature based on proposals of customs authorities, the Commission of the Customs Union (the Eurasian Economic Commission) shall adopt and publish decisions and explanations on the classification of certain types of goods (paragraph 7, Article 52 of the CC of the CU).
Criteria and rules of classification:
1. Criteria of classification – a property or characteristic of an object (product) that forms the basis of its classification (purpose, type of material, structure, construction, manufacturing process, finishing etc.). The classification of goods is based on criteria, such as the raw materials in use, chemical composition, application etc.
2. There are six rules of classification of goods – these are Fundamental Rules of Interpretation of the FEACN (hereinafter referred to as the FRI of the FEACN).
Creation of the commodity nomenclature used today in the international practice of the FEA is preceded by a long history.
For the purpose of state regulation of export and import of goods in the Customs Union, the international classifier – Foreign Economic Activity Commodity Nomenclature of the Customs Union (FEACN of the CU) – is used.
It is based on the experience in international trade and provisions of the International Convention on the Harmonized Commodity Description and Coding System. Thus, the FEACN of the CU is based on the nomenclature of the Harmonized Commodity Description and Coding System and the Combined Nomenclature of the European Community, which were used as the basis for development of the FEACN of the EurAsEC, FEACN of the CIS, FEACN of Russia and then FEACN of the CU. The first six digits of the product code correspond to the HS nomenclature, the seventh and eighth digits – to the Combined Nomenclature of the European Community, the ninth digit – to the FEACN of the CIS. The tenth digit of the product code is designed for detailing of goods at the national level.
Harmonized system – a commodity nomenclature that includes commodity items and subitems, relevant digit codes divided into groups and sections based on certain criteria, notes and fundamental rules of interpretation of the Harmonized System.
The basic principle of the Harmonized System consists in mandatory comparability of national and international data on foreign trade of any country.
The basic provisions of the Convention defines the following: certain countries or groups of countries acceded thereto may, based on the Harmonized System, develop their commodity nomenclature and customs tariffs with a better level of detail of commodity subitems in complementary structural elements in addition to a six-digit code specified in the nomenclature of the Harmonized System.
The classification scheme of the Harmonized System meets the following three conditions:
- goods are divided into groups so that goods within each group have one common criteria. All parts of the classification are independent and can be subdivided;
- goods can be only classified at a time based on one main criteria;
- goods shall be first classified based on more general criteria, and then – based on more detailed (specific) criteria.
Thus, development of the Harmonized System was part of general conditions designed to facilitate international trade procedures, overcome tariff and non-tariff barriers, standardize international trade documents and get the opportunity to exchange data in soft form.
Today there are more than 170 countries that develop their customs tariffs and commodity nomenclatures based on the Harmonized Commodity Description and Coding System.
Thus, the Harmonized System is the first international nomenclature that takes into account the requirements of foreign trade statistics.
Together with creation of the nomenclature of the Harmonized System, the International Convention as to application thereof has being developed in parallel
The Convention specifies the purposes of the Harmonized System, scope of its application, establishes the legal mechanism for the use of the Harmonized System by the member countries of the Convention, their commitments and the procedure for further improvement of the system.
The contracting parties shall take the following commitments under the Convention:
- use all commodity items and subitems of the Harmonized System and their respective codes without any additions and alterations;
- follow the basic rules of classification for interpretation of the Harmonized System, all notes; do not change the volume of sections and groups of the Harmonized System;
- comply with the coding procedure specified in the Harmonized System;
- publish their statistics on import and export of goods;
- have the right, for the purpose of the national nomenclature of customs tariffs or statistical nomenclature, to create subsections for classification of goods using more characters compared to the Harmonized System (provided that they are added to a six-digit code specified in the Harmonized System).
The following structural elements of the same legal force form an integral part of the FEACN of the CU:
- basic rules of interpretation of the FEACN;
- classification part;
- notes to the sections, groups, items, subitems, sub-subitems and additional notes.
The FEACN of the CU is characterized by the principle of unambiguous classification of goods by groups.
The six basic rules of interpretation define the classification of certain goods under the relevant commodity item, then – under the subitem and, lastly, under the sub-subitem.
Failure to comply with the above algorithm may lead to errors made by participants of the foreign economic activity during declaration of imported and exported goods.
Both the customs officials and participants of the FEA shall be aware of the Basics of the FEACN, including the procedure for development of the product code, since declaration of goods using an incorrect FEACN code may lead to charge of extra payments and imposition of penalties.
The ten-digit code of the FEACN of the CU is based on the decimal system and includes the code of the group, commodity item, subitem and sub-subitem and contains the following group of digits, where each character varies (ranges) from 0 to 9.
The commodity group includes the first two digits, the commodity item – four digits, subitem – six digits and sub-subitem – ten digits.
The description of goods in column 31 of the Declaration of Goods (hereinafter referred to as the DG) shall be detailed according to the requirements of the FEACN of the CU and contain the mandatory and optional characteristics (if specified in the customs legislation of the Customs Union) and comply with the product code according to the FEACN of the CU, as specified in column 33 of the DG.
The classification part of the nomenclature contains details of the units of goods. The main unit is kilograms, other units are complementary.
Note - a text that prefaces the classification part of the FEACN of the CU and details the meaning of each classification group (group of goods named in the FEACN of the CU based on common criteria). The classification group includes the following sections, groups, commodity items, subitems and sub-subitems.
All notes and the FEACN of the CU are effective.
Functions of notes:1) exclude goods from classification groups;
2) include goods in the classification group;
3) determine the meaning of the terms in order to avoid text overload of commodity items;
4) explain concepts, since interpretation of certain words and terms of the FEACN does not necessarily correspond to their accepted definitions and existing GOSTs are not always applicable in the nomenclature;
5) recommend certain coding of certain goods.
Notes are only applicable to the classification group over which they are, except where it is specified that notes are applicable to the whole FEACN of the CU. If it is not specified, this note shall not apply to the whole nomenclature, but to a section or group.
Thus, accurate classification requires being aware of the structure and purpose of goods, principle of operation, material, sometimes manufacturing process and narrow professional terms that characterize many goods in descriptions of commodity items.
For the purpose of unambiguous classification of goods in the HS and FEACN of the CU based thereon, the FRI of the FEACN shall be followed.
The rules are designed to define the procedure for determining the classification code of goods according to the FEACN of the CU.
The FRI are a kind of algorithmization of actions taken during classification of goods.
The FRI are numbered 1 to 6, however, some rules are subdivided.
Here are the fundamental rules of interpretation used for classification of goods according to the FEACN.| |
Rule 1 Rule 2 a, b |
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Rule 3 а, b, c |
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Rule 4 |
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Rule 5 а, b |
| | Rule 6 |
The FRI of the FEACN help to comply with the principle of unambiguous classification of goods by groups.
The six basic rules of the FEACN define the classification of certain goods under the relevant commodity item (FRI of the FEACN 1 to 5), then – under the subitem (FRI of the FEACN 6), and, lastly, under the sub-subitem (FRI of the FEACN 6).
This is the algorithm for classification of goods according to the FEACN of the CU. Failure to comply with it often lead to errors made by participants of the foreign economic activity during declaration of goods and vehicles.
To determine the product code according to the FEACN, the participant of the FEA shall comply with the following conditions:
- specify the proper name of goods and characteristics of goods;
- be aware of the classifier structure.
Thus, the fundamental rules define the main principles of classification of goods, where the first five rules help to determine the commodity item and the last (sixth) rule help to determine the subitem and sub-subitem.
Before using the rules of interpretation 2, 3, 4, 5 and 6, it is necessary to read through the notes to specific sections and groups (the FPI 1of the FEACN). If the product code cannot be determined using the FPI 1 of the FEACN, note the following:
- rule 2 and 6 shall only be used following the use of rule 1;
- for non-uniform goods rules 2b, 3a, 3b, 3c shall be successively used;
- rule 4 shall be used following the use of rules 1 to 3c;
- rules 2b, 5a, 5b and 6 can be used in any sequence or even simultaneously (e.g., a disassembled children's bike placed in a cardboard box shall be classified according to rules 2b and 5b).
Thus, the use of the FPI of the FEACN in the correct sequence will help to determine the correct classification code of goods according to the FEACN of the CU.
