Tariff Response 119 FAQ, Part 3: HS Code and Customs Value

A: The HS Code is internationally standardized through the first six digits, after which each country can extend the code according to its own tariff schedule. For example, 8517.62 is the international code shared across markets, while the United States may use 8517.62.0050 and Korea may use 8517.62.1000. The first six digits align globally, but the national subheadings from the seventh digit onward can differ, which means the applicable duty rate may also differ. Exporters should always verify the importing country's full code rather than relying only on the domestic classification.

A: Misclassification can result in either excess duty payments or underpayment that later triggers reassessment, interest, and penalties. U.S. CBP, for example, may recover the unpaid duties and impose significant penalties for negligence or fraud. On the export side, Korean customs filings may also be penalized if the declared HS code is inaccurate. When classification is ambiguous, companies should seek an advance ruling before shipment.

A: Composite goods are classified under the General Rules for the Interpretation of the Harmonized System, commonly referred to as the GIR. GIR 3(a) favors the most specific heading, GIR 3(b) focuses on the component or function that gives the product its essential character, and GIR 3(c) applies the heading that appears last in numerical order when earlier rules do not resolve the issue. A smartphone with a camera function, for example, is generally classified as a telephone because communication remains the essential function. If the analysis is unclear, expert review is advisable.

A: In many cases, yes. The United States calculates customs value on an FOB basis, which means freight and insurance are not included in the dutiable value. As a result, if the duty rate is the same, the total duty burden can be lower than in CIF-based jurisdictions. For example, if a product is priced at USD 10,000 with freight of USD 1,000 and insurance of USD 100, the U.S. dutiable value remains USD 10,000, whereas Korea would calculate duties on USD 11,100. Accurate invoice wording is therefore important for U.S.-bound shipments.

A: Under the WTO Customs Valuation Agreement, royalties and license fees related to imported goods can be added to customs value if two conditions are met: the payment relates to the imported goods and it is made as a condition of sale. A technical license fee that is essential for manufacturing the imported product may therefore be dutiable, while a more general brand royalty may not be. Companies should review each arrangement case by case before declaring customs value.