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Not All Kits Are Created Equal

The mislabeling and reporting of kits on commercial invoices is, quite possibly, the most common mistake noted by Allyn International analysts in applying HTS codes to products on parts lists or upon importation. A mistake like this can delay a shipment for days and accrue storage charges at port.  Fortunately, a little bit of education and foresight can prevent these costs and allow an importer to be as compliant as possible with customs regulation.

Kits, Sets, Disassembled Machines and Spare Parts

All of the items listed above have one thing in common: they are multiple products that a company is trying to list a one line item on a commercial invoice.  Under all other circumstances, each distinct item in a shipment would need to be claimed as its own line item.  Customs requires itemization because each dissimilar item will have a distinct value, description, and possibly HTS code, thus impacting duty.  For example, a shipment of a bolt, two O-rings, and a wrench would be arranged on an invoice as depicted below:

Qt    Desc             HTS                        Unit      Total
 1     Steel Bolt    7318.15.20.65      1.50      1.50
 2     O-ring          3926.90.45.10      8.26      16.52
 1     Wrench       8204.11.00.60      10.82    10.82

Because the O-rings are identical they may be grouped together.  However, the wrench and O-ring are distinct items with their own values, descriptions, and HTS code.  Therefore it would not be compliant to group the items together, unless they meet the terms of a kit. Too often dissimilar items are thrown together in a box and labeled “spare parts.”  As far as customs is concerned this is unacceptable and could even constitute intentionally dodging duties. 

 

General Rule of Interpretation 3 and Kits

When is a kit considered a “kit” and when is it “spare parts?”

An importer first needs to consult the General Rules of Interpretations (GRI). The GRI’s are legally binding rules used to compliantly classify items in the Harmonized Tariff. There are 6 GRI’s in total. Hierarchical in nature, in classifying items in the Harmonized Tariff, importers must begin with GRI1. If the product does not satisfy the rule in GRI 1, the importer moves down through GRI’s 2-6 in descending order until they find the rule that most clearly represents the type of merchandise that is being imported.

The explanatory notes published by the World Trade Organization for GRI 3 detail a few simple guidelines for what constitutes a kit that can be claimed as a single line item on a commercial invoice.  To be considered a kit an article must:

(a) Consist of at least two different articles which are classifiable in different headings;

(b) Consist of products or articles put up together to meet a particular need or carry out a specific activity; and

(c) Are put up in a manner suitable for sale directly to users without repacking (e.g., in boxes or cases or on boards).

Part C of GRI3 is the requirement that is most often not fulfilled by a box of parts.  Even if a box of spare parts is “for a specific need, or to carry out a specific activity” the items must still “be put up in a manner for sale directly to users without repacking.”  This means that a collection of parts handpicked by the buyer will never qualify as a kit.  The parts would have to have already been collected together, given a part number, and be presented “as is” for the buyer to purchase, without modification.

If a product does not meet all 3 requirements, then it is not a kit and all products will need to be itemized on the commercial invoice.

 

GRI 2 and Disassembled Machines

Customs has one other provision that allows an importer to group dissimilar items together, and it is found in GRI 2.  This provision provides that an incomplete, unfinished, or disassembled article can be claimed as the completed item, provided it contains the essential character of the finished good.

For example, if an importer wishes to import an engine that is too large to be shipped when assembled, it is common practice to disassemble the item and ship the pieces packed individually on the same vessel.  Individual packing would create a packing list of distinct items that could each have their own classification (spark plugs, cylinders, pistons, crank shafts, etc.). Under normal circumstances these distinct pieces would be itemized, valued and classified separately on the commercial invoice.  However, because of General Rule of Interpretation 2, and because all of the items ultimately assemble together to make a complete engine and are travelling together, customs allows importers to declare all items as a one line item with the description “Engine.”

 

Putting it All Together

When these guidelines are followed, it is easy to make an invoice that clearly reflects what is being shipped so that there is no confusion to the nature of the goods or the duties owed to customs.  Creating clear and compliant invoices allows the broker and customs department to release a shipment as quickly as possible, with no need for time consuming invoice revisions and costly delays on important shipments.
 

 

For more information on kits or to find out how Allyn International can assist with your Trade Compliance program, contact Allyn International at 239-489-9900 or sales@allynintl.com.
Contributor: Michael Kader

For reference to the GRIs you may consult the general notes to the Harmonized Tariff Code of the United States:  http://www.usitc.gov/publications/docs/tata/hts/bychapter/1501gn.pdf

 

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