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GAC's Tariff Classification Rulings and Legal Advice on HS Code Issues
2016.06.14

As two more classification ruling announcements [Zong-Shu-Gong-Gao [2016] No. 31and 33] respectively took effect on May 15 and June 1, 2016, the General Administration of Customs (“GAC”) seems to accelerate its pace in issuing administrative rulings on the tariff classification matters. Since June 3, 2015, the GAC has rendered its classification rulings covering 11 mechanical and electrical products, 2 chemical products and 1 surgical product. The requests for such rulings came from 10 companies registered in the Shanghai Free Trade Zone (“FTZ”) and 2 companies registered in the Guangdong FTZ.

Current Situation of GAC’s Classification Rulings

According to GAC’s Order No. 92 in 2002, an importer/exporter may file a request to the GAC or its district office for ruling on the tariff classification of goods (“Classification Ruling”) three months earlier prior to the importation/exportation. However, at this stage, the GAC seems to open such channel on a trial basis only to those importers/exporters registered in each FTZ in China. To date, there have been 4 FTZs established in Shanghai, Guangdong, Tianjin and Fujian.

The GAC has authorized each Customs Classification Sub-Center located in Shanghai, Guangzhou, Tianjin and Dalian (collectively “CCCs”) to render classification rulings to those products falling under their own jurisdiction (Shanghai CCC: Chapters 84-90 of China Tariff Schedule; Guangzhou CCC: Chapters 1-24, 27-43 and 50-71; Tianjin CCC: Chapters 47-49 and 72-83; Dalian CCC: Chapters 25-26, 44-46 and 91-97). The ruling, once rendered by the CCC and announced by the GAC, will have the legal effect countrywide.

Methods to Avoid or Resolve Classification Disputes with China Customs

To avoid or deal with a classification dispute with China Customs, the methods an importer/exporter may pursue include the following in practice:

Pre  Customs Clearance

At  Clearance

Post  Clearance

- Classification  Ruling;

-Pre-entry  classification (“Pre-Classification”) decision from a competent  customs district office (rarely used in practice) (“Pre-Classification  Decision”);

-Pre-classification  advice from a law firm or a consultancy company (“Pre-Classification  Advice”).

Classification  dispute negotiation with the on-site customs office.

-Petition  to the competent customs district office for administrative review;
-
Petition  to the court of jurisdiction for judicial review. 


Classification Ruling V.S. Pre-Classification Advice

Please note that the proper determination of classification at the pre-entry stage helps reduce delays at the declaration-processing stage, and as well as minimize and control post-clearance customs risks. Pre-Classification Decision, though legally binding within the customs district where it has been issued, is indeed rarely used in practice given that most offices of customs districts are reluctant to make such appealable administrative decisions when they lack personnel and other sufficient administrative resources. So there left two options, Classification Ruling or Pre-Classification Advice. The pros and cons of such options are as follows:

Pros & Cons
Classification  Ruling
Pre-Classification  Advice
Legal  Consequence
Deemed as  GAC’s administrative regulation with legal effect among all the customs  districts in China.
 
However, not  directly appealable through administrative review or judicial review.
Not legally  binding on the Customs.
 
In practice, at  least manifesting good intent of im/exporter (if all product information  and documents provided for the HS Code assessment are sufficient and accurate),  which could be one of legal defenses against the Customs’ smuggling claim.
Time Limits
Filing: 3  months earlier prior to im/exportation
Decision  Making: 15 days to decide whether to accept the request upon  the receipt and 60 days to render the ruling upon the acceptance
Flexible  depending on the complexity of a given product and the applicable customs  classification rules
 
 
Applicability
Only applicable  to goods that have not been expressly covered in the China Tariff Schedule,  its Explanatory Notes, Subheading Notes, Customs Classification Rulings and  Decisions (“Customs Classification Rules”). Otherwise, the request for  such advance ruling would be turned down.
 
Moreover, at  this stage, only applicable to the request filed by those trading businesses  registered in the FTZs.
Applicable to  any products to be imported to China, whether they are expressly covered by  the Customs Classification Rules.
 
 
 
 
No such  location limitation on those requesting the pre-classification services.
Issuing Party
Rendered by  each competent CCC and announced by the GAC.
Law firms or  consultancy companies.
Note:  according to GAC’s Circular [Shu-Shui-Han (2015) No. 338], the  threshold for individuals and institutions to engage in the  pre-classification services has been removed.
 
 

HaoLiWen Observation

At the pre-entry stage, given the above pros and cons, it might be more feasible for those importers/exporters registered in an FTZ to consider seeking a Classification Ruling on a more complicated product with a significant difficulty in the tariff classification. Even in pursuit of this solution, an importer/exporter may still need to have a thorough legal analysis of all possible HS Codes in advance and have a sound legal reasoning ready for submission to the Customs so that the voice of the company can be adequately heard. It might not be wise to solely rely on the Customs’ decision without presenting anything which can be legally substantiated and might contribute a favorable HS Code conclusion.

For those companies who are not registered in the FTZs, a pre-classification advice from an accountable law firm might be a more efficient and practical choice for regulatory compliance purposes.

Moreover, should any classification dispute arise or be anticipated to arise, animporter/exporter needs to explore and present effective legal defenses, such as the ambiguity of customs classification rules ambiguity or the existence of reasonable disputes on the classification of the same goods, so that administrative penalties or even retrospective import tax compensation can be avoided or reduced.
HaoLiWen Client Alert is published solely for the interest of friends and clients and should not be relied upon as the legal advice of any kind from us. Should you have any questions about this Client Alert, please contact the partner of HaoLiWen Customs & Trade Practice Group.

 

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周和敏Parry  Zhou,Partner
韩抒 Shu Han, Partner
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