PART I: OVERVIEW

Chapter 1: TARIFF AND CUSTOMS LAWS

Harmonized Tariff Schedule of the United States

Historical background

The Harmonized Tariff Schedule of the United States (HTS) was enacted as subtitle B of title I of the Omnibus Trade and Competitiveness Act of 19881 and became effective on January 1, 1989. The HTS replaced the Tariff Schedules of the United States (TSUS), enacted as section 1202 of the Tariff Act of 1930 (19 U.S.C. 1202) by the Tariff Classification Act of 1962; 2 the TSUS had been in effect since August 31, 1963.

The HTS is based upon the internationally adopted Harmonized Commodity Description and Coding System (known as the Harmonized System or HS) of the Customs Cooperation Council. Incorporated into a multilateral convention effective as of January 1, 1988, the HS was derived from the earlier Customs Cooperation Council Nomenclature, which in turn was a new version of the older Brussels Tariff Nomenclature. The HS is an up-to-date, detailed nomenclature structure intended to be utilized by contracting parties as the basis for their tariff, statistical and transport documentation programs.

The United States did not adopt either of the two previous nomenclatures but, because it was a party to the convention creating the Council and because of the potential benefits from using a modern, widely adopted nomenclature, became involved in the technical work to develop the HS. Section 608(c) of the Trade Act of 1974 3 directed the United States International Trade Commission (ITC) to investigate the principles and concepts which should underlie such an international nomenclature and to participate fully in the Council's technical work on the HS. The ITC, the U.S. Customs Service (which represents the United States at the Council), and other agencies were involved in this work through the midand late-1970's; in 1981, the President requested that the ITC prepare a draft conversion of the U.S. tariff into the nomenclature format of the HS, even as the international efforts to complete the nomenclature continued. The Commission's report and converted tariff were issued in June, 1983. After considerable review and the receipt of comments from interested parties, legislation to repeal the TSUS and replace it with the HTS was introduced. Following

1 Public Law 100-418, Aug. 23, 1988.

2 Public Law 87-456, approved May 24, 1962.

3 Public Law 93-618, Jan. 3, 1975.

the August 23, 1988 enactment of the omnibus trade measure, the United States became a party to the HS Convention, joining over 50 other major trading partners. The new HTS became effective by Presidential proclamation as of January 1, 1989.4

Structure of the schedule

Under the HS Convention, the contracting parties are obliged to base their import and export schedules on the HS nomenclature, but the rates of duty are set by each contracting party. The HS is organized into 21 sections and 96 chapters, with accompanying general interpretive rules and section and chapter notes. Goods in trade appear in the system, in general, in categories beginning with crude and natural products and continuing in further degrees of complexity through advanced manufactured goods. These product headings are designated, at the broadest coverage level, with 4digit numerical codes and are further subdivided into narrower categories assigned 2 additional digits. The contracting parties must employ all 4- and 6-digit provisions and all rules and notes without deviation; they may also adopt still narrower subcategories and additional notes for national purposes, and they determine all rates of duty. Thus, a common product description and numbering system to the 6-digit level of detail exists for all contracting parties, facilitating international trade in goods. Two final chapters, 98 and 99, are reserved for national use (chapter 77 is reserved for future use).

The HTS therefore sets forth all the international nomenclature at the 6-digit level and, where needed, contains added subdivisions assigned 2 more digits, for a total of 8 at the tariff rate line (legal) level. Two final digits are assigned as statistical reporting numbers where further statistical detail is needed, along with "check digits" for computerized verification of reporting accuracy (for a total of 11 digits to be listed on entry documents). Chapter 98 comprises special classification provisions (former TSUS schedule 8), and chapter 99 (former appendix to the TSUS) contains temporary modifications pursuant to legislation or presidential action.

Each section's chapters contain numerous 4-digit headings (which may, when followed by zeros, serve as U.S. duty rate lines) and 6- and 8-digits subheadings. Additional U.S. notes may appear after HS notes in a chapter or section, and most of the general headnotes of the former TSUS appear as general notes to the HTS set forth before chapter 1. These notes provide definitions or information on the scope of the pertinent provisions or set additional requirements for classification purposes. In addition, the HTS contains a table of contents, an index, footnotes, and other administrative material, all of which is provided for ease of reference and, along with the statistical reporting provisions, have no legal significance or effect.

The HTS is not published as a part of the statutes and regulations of the United States but is instead subsumed in a document produced and updated regularly by the ITC entitled Harmonized Tariff Schedule of the United States: Annotated for Statistical Reporting Purposes. Changes in the Schedule became so frequent and

4 Pres. Proc. 5911, Nov. 19, 1988.

voluminous that its inclusion in title 19 of the United States Code effectively ceased with the 1979 supplement to the 1976 edition. The Commission is charged by section 1207 of the 1988 Omnibus Trade and Competitiveness Act (19 U.S.C. 3007) with the responsibility of compiling and publishing, "at appropriate intervals," and keeping up to date the HTS and any related materials. This document, initially appearing as USITC Publication 2030, includes both the current legal text of the HTS and all statistical provisions adopted under section 484(e) of the Tariff Act of 1930 (19 U.S.C. 1484(e)). It is presented as a looseleaf publication so that pages being modified in supplements to the schedule's basic edition may be inserted as replacements. Several supplements may appear between the publication of each basic edition.

Unlike the TSUS, which applied exclusively to imported goods, the HTS can for almost all goods be used to document both imports and exports; the small number of exceptions enumerated before chapter 1 require particular exports to be reported under Schedule B provisions. That Schedule, which prior to 1989 served as the means of reporting all exports, has been converted to the HS nomenclature structure. However, for certain goods having significance in terms of exports, variations in the desired product description and detail compel the use of provisions that cannot be accommodated in the tariff under the international nomenclature structure.

The HTS, like its predecessor the TSUS, is presented in a tabular format containing 7 columns, each with a particular type of information. A sample page of the HTS is set forth below:

The first column, entitled "Heading/Subheading", sets forth the 4-, 6-, or 8-digit number assigned to the class of goods described to its right. It should be recalled that the latter is the only numerical code at the legal level which is determined by the United States, since the 4- and 6-digit designators are part of the international convention.

The second column is labelled "Stat. Suf. & cd", meaning statistical suffix and check digit. Wherever a tariff rate line is annotated to permit collection of trade data on narrower classes of merchandise, the provisions adopted administratively by an interagency committee under section 484(e) of the 1930 Act (19 U.S.C. 1484(e)) are given 2 more digits which must be included on the entry documents presented to Customs officials. Where no annotations exist, 2 additional zeroes are added to the 8-digit legal code applicable to the goods in question. The goods falling in all of the 10-digit statistical reporting numbers of a particular 8-digit legal provision receive the same duty treatment. The last digit, the check digit, is reported to permit computers examining an entry document or export declaration to ascertain if the particular subheading number exists or was erroneously copied.

The third column, "Article Description", contains a detailed description of the goods falling within each heading and statistical reporting number.

In the fourth column, "Units of Quantity", the unit of measure in which the goods in question are to be reported for statistical purposes is set forth. These units are administratively determined under section 484(e) of the Tariff Act of 1930. In many instances, the unit of quantity is also the basis for the assessment of the duty. For many categories of products, two or three different figures in different units must be reported (e.g., for some textiles, weight and square meters; for some apparel, the number of garments, value, and weight), with the second unit of quantity frequently being the basis for administering a measure regulating imports, such as a quota. Where an "X" appears in this column, only the value of the shipment must be reported.

The last three columns appear under the common heading "Rates of Duty" and are entitled "General", "Special", and "2", respectively. These columns contain all of the various rates of duty that apply to the goods of the pertinent provision, depending on the source of the goods and other criteria. Their application to goods originating in particular countries is discussed below under the heading "Applicable duty treatment."

A rate of duty generally has one of three forms: ad valorem, specific or compound. An ad valorem rate of duty is expressed in terms of a percentage to be assessed upon the transaction value of the goods in question. A specific rate is expressed in terms of a stated amount payable on some quantity of the imported goods, such as 17 cents per pound. Compound duty rates combine both ad valorem and specific components (such as 5% ad valorem plus 17 cents per pound).

Chapter 98 comprises special classification provisions permitting, in specified circumstances, duty-free entry or partial duty-free entry of goods which would otherwise be subject to duty. The article descriptions set forth in the headings of this chapter enunciate