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Example of Subheadings – Level 2 Indicator Codes (RANGE = 6-digits) 102 Level 2 Subheading Indicator (two dashes) Item Qualifiers within the range of products
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Subheadings – Level 3 Codes IV. LOCAL TARIFF SUBHEADINGS CODES (ITEM SPECIFICS = 8 DIGITS) • The further subdivision of the international 6-digit subheadings is a matter for individual government administrations to decide according to their economic requirements (duty rates). • In South Africa a large number of the 6-digit codes have been subdivided into 8-digit codes, item specifics, due largely to the protective policies adopted by government. • However, due to South Africa’s international obligations, resulting from the 1995 round of GATT in Uruguay, many of these 8-digit codes have fallen away as duties have been progressively reduced or eliminated. 104
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Subheadings – Level 3 Codes, continued Example: Tariff Heading and subheading 4601.9 “Other…” • This subheading is further divided into two local level 3 sub-subheadings or item specifics, i.e. 4601.92 “Other of bamboo” and 4601.93 “Other of rattan”. However, 4601.93 is further broken down into item specifics: • 4601.93.10 refers to “…of rattan, woven”, with a rate of General Duty of “FREE” • 4601.93.90 refers to “…other”, with a rate of General Duty of 20% Explanation: Let’s say our product is that of a rattan screen, where the rattan, due to its flexibility, was woven to make up the screen and then inserted into a rattan frame to make it sturdy and for standing it upright. The item specific (10) matches our product precisely, hence the correct 8-digit tariff classification (aka the Heading and Code) will be 4601.93.10, and we’ll describe it to Customs as “Other woven rattan screens”. 106
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Example of Subheadings – Level 3 Indicator Codes (local 8-digit sub-headings for item specifics) 108 Level 3 Subheading Indicator (three dashes) Sub-heading 4601.90 broken down into item specifics, 4601.93.10 and 4601.93.90
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First Steps to Tariff Classification 110
Basic Tools and Know-how My Toolkit Understanding the Customs Language to Describe Everyday Items How is the Tariff Split into 2 Distinctive Halves Asking Questions for Classification Purposes What does the Heading N.E.S.O.I. mean? 111
Toolkit for Tariff Classification It is very important to know that the Customs Tariff, Schedule 1 Part-1, is to be consulted in conjunction with other literature or books which are also part of the Customs and Excise Act No. 91 of 1964. • Customs Books: - The Alphabetical Index to the Explanatory Notes - The Explanatory Notes - The HS Classification Handbook • Other Literature: - Engineering Dictionaries and / or Engineering Designs / Plans - Chemical Dictionaries and / or Chemical Analysis Certificates - Other Product Dictionaries / Designs / Plans or Photographs 112
Customs Descriptions for Everyday Items (ALTERNATIVE WORDING) 113 Alternative wording refers to item descriptions or names for goods etc. where the everyday word to describe an item, is not the same as the name or description in Customs-terms or language. A battery, ask yourself, is it .... ... A power-cell? ... A primary power-cell, or rechargeable ... A dry or wet cell?
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Customs Descriptions for Everyday Items (EXAMPLES OF ALTERNATIVE WORDING) 115 • Paraffin: Petroleum oil as in kerosene (Chapter 27) • Lightning: Electrical Energy (Chapter 27) • Timing Belts: Transmission belts (Chapter 40) • Car, truck or Tractor Tyres: Pneumatic tyres (Chapter 40) • Tractor Tyres with a fishbone tread pattern: Pneumatic tyres herring-bone tyres (Chapter 40) • News papers, postcards, pictures, etc: Printed matter (Chapter 49) • Shoes and the like: Footwear (Chapter 64) • Spanners: Hand-tools (Chapter 82) • Scales (for weighing the mass of something): Mass-meters
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Customs Descriptions for Everyday Items (Examples of Alternative Wording) (Continued…) 117 • Computers: Described at Automatic Data Processing Machines (Chapter 84), • Diesel Engines: Compression-ignition internal combustion piston engines or semi-diesel engines (Chapter 84) • Petrol Engines: Spark-ignition reciprocating or rotary internal combustion piston engines (Chapter 84) • Cam or Crank shafts: Transmission shafts (Chapter 84) • Flicker Lights: Electrical lighting or signalling equipment (Chapter 85) • Hooters: Electrical sound signalling equipment (Chapter 85) • Geysers: Electric instantaneous or storage water heaters and immersion heaters (Chapter 85)
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Customs Descriptions for Everyday Items (Examples of Alternative Wording) (Continued…) 119 • Radios: Radio-broadcast receivers (Chapter 85) • Remote Controls for Cars: Instruments or apparatus for automatically controlling non-electrical quantities (Chapter 90) The importance of understanding the language of Customs, is (a) it is a literal description of an item, and (b) is to know this for lookup purposes when consulting the Alphabetical Index to determine the tariff heading.
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The Splitting of the Chapters in Schedule 1 Part 1 The tariff is split into two distinct halves: 1. In Sections I to XV (Chapters 01 to 83) goods are generally classified according to constituent materials (or ingredients). 2. Whereas in Sections XVI to XXI (Chapters 84 to 97) they are classified according to description or specialised industry (what does it do, or where is it used?). This is because articles like motor cars and machinery are made from many different materials and cannot be classified in any other way. 121 Sch.1 P.1 1 st Half Chapters 1 to 83 (What is it made of?) Sch.1 P.1 2 nd Half Chapters 84 to 97 (What does it do?)
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The Basic Questions i.t.o. Tariff Classification The 3 basic questions we ask when we need to classify goods are: 1. What is it? 2. How is it made, or what is it made of? 3. What is it used for, or what does it do? WHAT, as in what is it made of, and HOW, as in how is used will tell us in what specific half of the Tariff the item will be classified in; however, we are still faced with a challenge and the only way to narrow down the classification of an item is to ask 5 very specific questions (remember the 5 questions we “parked” right in the beginning?). 123
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Taking it a Step Further Applying 5 specific questions i.t.o. the Rules to Tariff Classification: 1. What do I have, what is it? 2. What is it made of? 3. What does it do? 4. How is it presented? 5. Is there any other technical information I need (i.e. descriptive literature)? You would have noticed that the three (3) basic questions still feature above, but it’s questions 4 and 5 that will present us with more answers to very technical issues. 125
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First Step to Tariff Classification – Part 1 Ask the following question: What is it made of? • This is your first step to classifying an article. • If it is made of one principal substance, then it will fall into the first half of the tariff according to constituent material. For example, you are asked to classify a carpet • Chapter 39 - Plastics and articles thereof, no! • Chapter 40 - Rubber and articles thereof, no! • Chapter 44 - Wood and articles thereof, no! • Chapter 45 - Cork and articles of cork, no! • Chapter 57 – Carpets and other textile floor coverings; aha, is this what we are looking for? 127
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First Step to Tariff Classification – Part 2 Now ask the question: What is it used for? • If an article is made of more than one constituent material (e.g. a motor car which is made of metal, plastic, rubber, textiles and glass etc..) then we must look in the second part of the Tariff (Chapters 84 to 97) where goods are classified by description or specialised industry. • It is obviously more difficult to classify goods by description due to the technical nature of most commodities. Here again, we must look out for Chapters 94 to 96 which comprise the Miscellaneous Manufactured Articles section. • The goods classified in Chapters 94 to 97 are goods that can be made of a variety of constituent materials (e.g. toys of rubber, plastic, wood, steel, aluminium and textiles, etc..) 129
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Order of Progression – Raw Material to Finished Goods As a general rule the goods in Chapters 01 to 83 are arranged in a progressive order through various stages of manufacture. The progression commences with raw material and goods in primary form to unworked products, semi-finished products, and then finished products. For instance, live animals fall in Chapter 01, animal hides and skins in Chapter 41, and leather footwear in Chapter 64 (Can you see the order of progression from raw material to completed product?). How about wood, or products of wood, worked further to a final finished item? • Live trees fall in Chapter 6, • Wood in Chapter 44, • Pulp of wood in Chapter 47, • Paper and paperboard in Chapter 48, and • Printed books in Chapter 49. 131
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General Notes A to Q & Articles to Schedule 1 133 https://www.sars.gov.za/wp-content/uploads/Legal/SCEA1964/LAPD-LPrim-Tariff-2012-03- General-Notes.pdf
General Notes A to Q to Schedule No. 1 Schedule 1 includes a set of introductory General Notes A – Q, which cover the following in the application of the Tariff: A. General Rules for the Interpretation of this Schedule, Notes 1 to 6. B. Duty assessment. C. Value for duty purposes. D. Mass for duty purposes. E. Sea produce taken by a ship recognised as a ship of South African nationality. F. Time of importation of certain goods. G. Abbreviations and symbols H. Additional Note in respect of Part 8. I.& J. Rates of duty specified in the three columns, General, EU and SADC of Part 1 of Schedule No.1 and goods imported from the Community. 134
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General Notes A to Q to Schedule No. 1 (Continued) K. Duties on goods to which the Protocol on Trade of SADC relates. L. Duties on goods to which the Free Trade Agreement between EFTA States and the SACU states relates M. Duties on goods to which the Preferential Trade Agreement between the Common Market of the South (MERCOSUR) and the South African Customs Union (SACU) relates N. DUTIES ON GOODS TO WHICH THE ECONOMIC PARTNERSHIP AGREEMENT BETWEEN THE SOUTHERN AFRICAN CUSTOMS UNION (SACU) MEMBER STATES AND MOZAMBIQUE AND THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND RELATES O. DUTIES ON GOODS TO WHICH THE AFRICAN CONTINENTAL FREE TRADE AREA RELATES 136
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Interpreting some of the General Notes to Schedule 1 Important Notes pertaining to the General Notes to Schedule 1 • Note A is extremely important as this note explains the 6 Rules (GIR) to Tariff Classification. • Note B explains the term “duty” and the term “rate of duty”. • Note C is equally important as this explains the Six Methods for Customs Valuation. The rules for this note are found in the Act (Law) under Section Note 65, which reads with Section Notes 66 and 67. • Note D explains the term “mass” and the various mass-terms as used by Customs, as well as the mass to be used for clearing purposes. • Note G contains the abbreviations that are required when referring to the Statistical Unit (“Stats Codes” required for each tariff code when clearing the goods. The stats code is a measure of quantity and certain duties are calculated on the quantity being imported opposed to the value, or calculated on a combination of the quantity and the value. 138
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General Notes L to Q to Schedule 1 Notes L to Q is a repeat of Schedule 10 – Trade Agreements. They contain definitions, agreements on specific items or goods indicated by the tariff classification subheadings, quotas, effective dates and the agreed rate of tariff (duty) on such specific items or goods, and the Articles related to the aforementioned. NOTE Q Specific: The abbreviation, BLNS (Botswana, Lesotho, Namibia & Swaziland) (SACU Members including the RSA), is explained i.t.o. the provisions in Schedule 1, effective 19 April 2018, have been transferred to the abbreviation BELN (Botswana, Eswatini, Lesotho & Namibia). In other words, all agreements prior to the 19th of April 2018 will still remain in force since there was a name change only where the former Kingdom of Swaziland changed to the Kingdom of Eswatini. 140
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The Importance of the Parts In the General Notes I.t.o. Tariff Classification 142 • The Trade Agreements deal specifically with goods being traded with. For that reason, the Parts refer to specific Chapters, Tariff Headings and Subheadings (6-digit code). • Definitions pertaining to specific products are set out with origin requirements (percentages to make up an article to qualify i.t.o. Rules of Origin). • Values are defined in accordance with the ICC Incoterms (EXW, FOB & CIF), including values of products i.t.o. make-up, and how that relates to movement certificates (trade certificates of origin, specific declarations on the commercial invoice relating to duties applicable to such a trade agreement). • Other co-operative agreements are also set out between the parties locked into trade agreement, applicable period, etc.
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General Interpretation Rules (GIR) (aka GRI) Interpreting the 6 Rules to Tariff Classification 144 hs-compendium.pdf (wcoomd.org) https://www.customslegaloffice.com/global/what-is-general-rules-of-interpretation-gris/
General Interpretation Rules (GIR) for Classification • The are 6 Rules for tariff classification of goods and these are set out in General Notes A of Schedule No. 1 (they are repeated in Book 1 of the Explanatory Notes). • These Rules must always be applied in strict hierarchical order of importance. The hierarchical order as referred to means Rule 1 takes precedence over Rules 2 to 6; and Rule 2 takes precedence over Rule 3, and so forth. • In other words, Rule 1 is the main applicable classification rule and shall be applied first, before reading and applying all the other Rules 2 – 6, hence Rules 2 – 6 will always in most cases revert back to Rule 1. • In essence, it means if Rule 1 applied to a commodity, then it should be classified i.t.o. Rule 1 and not under any other Rule. 145
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GIR Applied i.t.o. the Order of Hierarchy 147 GIR 1 GIR 2 GIR 3 GIR 4 GIR 5 GIR6 Main Rule: Overseas all other Rules (Classify within TH & as contemplated in the LEGAL Section & Chapter Notes) Guidance Rules: What is it? What does it do? How is it presented? GIR 2 – 6 will always revert back to GIR 1
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Revisiting the Structure of the Harmonised System – Part A 149 GIR 1 GIR 2-5 GIR 6 Section Notes Chapter Notes Subheading Notes 4-Digit Headings 5-Digit Subheadings 6-Digit Subheadings GIR = General Interpretation Rules (6 Rules for Tariff Classification) The 3 Components of the HS: 1. General Interpretation Rules (GIR 1 – 6) of the HS 2. Section & Chapter Notes 3. The list of headings arranged in a systematic order, and subdivided into subheadings 84.71 – Automatic Data Processing Machines (Computers) 8471.4 – OTHER Automatic Data Processing Machines 8471.41 – Comprising in the same housing… (Laptop)
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