CHAPTER 3

INTERNATIONAL COMMERCIAL TERMS

"Incoterms" is an abbreviation of International Commercial Terms, which were first

published in 1936 by the International Chamber of Commerce (ICC). The ICC is a
nongovernmental entity. Incoterms are neither a national legislation nor an international
treaty. They apply when the parties expressly indicate their intention to incorporate them
into their export sales contract. If the parties do not explicitly agree to be governed by
Incoterms, it could be made an implicit term of the contract as part of international custom.
Incoterms are periodically revised every ten years to represent contemporary commercial
practice (Incoterms, 1980, 1990, 2000 and 2010). In order to avoid any misunderstanding,
parties to export contracts should always state the application of the current version of
Incoterms. The Incoterms provide a common set of rules for the most often used
international terms of trade. According to UNCTAD (1999) “INCOTERMS define the
mutual obligations of seller and buyer arising from the movement of goods under an
international contract from the standpoint of risks, costs and documents”. They are a set of
international rules for the interpretation of the most commonly used foreign trade terms.

1.2.1 PURPOSE AND SIGNIFICANCE OF INCOTERMS

Incoterms are internationally accepted commercial terms defining the respective roles of
the buyer and seller in the arrangement of transportation and other responsibilities and
clarify when the ownership of the merchandise takes place. They are used in conjunction
with a sales agreement or other method of transacting the sale. The purpose of
INCOTERMS is to provide a set of international rules for the interpretation of the chief
terms used in foreign trade contract, for the optional use of businessmen who prefer the
certainty of uniform international rules to the uncertainties of the varied interpretations of
the same terms in different countries.The major difficulties faced by importers and
exporters are:
1 Uncertainly as to the law of which country will be applicable to their contracts
2 Difficulties arising from diversity in interpretation.
These handicaps to trade can be much reduced by the use of INCOTERMS published by
the International Chamber of Commerce. In any sales agreement, it is very important that a
common understanding exists regarding the delivery terms. In general Incoterms define the
rights and obligations of the parties to the contract of sale with respect to the delivery of
goods sold. These also provide a clear, universal set of standards for multi-lingual, multi-
cultural, “multi-legal” usage -- very practical and based on business practices but not the
legal principles and abstract ideas. Incoterms thus specify which party -- either the seller or
the buyer -- has the obligation to arrange and cover any costs for carriage, cargo insurance,
and trade compliance.The terms in international business transactions often sound similar
to those used in domestic business, but frequently have very different meanings. They are
important for the following reasons;
 Reduce the uncertainty caused by trade practices in different countries.
 Simplify the negotiations involved in international commerce.
 Ensure common understanding of obligations
While Incoterms have played a pivotal role in reducing handicaps in international trade,
there are certain aspects of international trade that these terms cannot solve. Incoterms do
not dictate the terms & conditions of carriage convey title to point of sale of goods or
address issues regarding revenue recognition. In addition Incoterms do not include all of
the duties of the buyer or sellerin a transaction. Most importantly these do not
automatically apply. Incoterms must be specified in sales contracts in order to apply. This
is normally done by citing the current Incoterms version in sales quotations and purchase
orders. Detailed situations beyond the scope of Incoterms must be covered elsewhere in the
sales contracts.

1.2.5 CATEGORIES OF INCOTERMS

Category Incoterms Code
E TERMS Ex works EXW
F TERMS Free carrier FCA
Free alongside ship FAS
Free on board FOB
C TERMS Cost & freight CFR
Cost, insurance & freight CIF
Carriage paid to CPT
Carriage and insurance paid to CIP
D TERMS Delivered at frontier DAF
Delivered at Place DAP
Delivered at Terminal DAT
Delivered duty paid DDP
 BUYERS PREMISES
NAMED PLACE
TERMINAL
ONBOARD VESSEL
PORT OF UNLOADING
ONBOARD VESSEL
PORT OF LOADING
ALONGSIDE SHIP PORT
OF LOADING
CARRIER NOT
UNLOADED
LOADED ON CARRIER
EXPORT CUSTOMS

1.2.7 INCOTERMS 2010

SELLER AT NAMED
PLACE
INCOTERM

EXW

DAT
FCA

FOB

CFR

DAP

DDP
CPT
FAS

CIF

CIP
ANY MODE SEA AND INLAND ANY MODE INCLUDING
INCLUDING
WATERWAY ONLY MULTIMODAL
MULTIMOAL
 1. EXW EX WORK (named place)
Ex works means that the seller delivers when he places the goods at the disposal of the buyer
at the seller’s premises or another named place (i.e. works, factory, warehouse, etc.) not
cleared for export and not loaded on any collecting vehicle. This term thus represents the
minimum obligation for the seller, and the buyer has to bear all costs and risks involved in
taking the goods from the seller’s premises. However, if the parties wish the seller to be
responsible for the loading of the goods on departure and to bear the risks and all the costs of
such loading, this should be made clear by adding explicit wording to this effect in the
contract of sale. This term should not be used when the buyer cannot carry out the export
formalities directly or indirectly. In such circumstances, the FCA term should be used,
provided the seller agrees that he will load at his cost and risk.There are no documents that
the seller must complete for EX WORKS , unless otherwise stipulated in the contract.

Obligations of the seller

The Seller must:
i. Supply the goods in conformity with the contract of sale, together with such evidence
of conformity as may be required by the contract.
ii. Place the goods at the buyer’s disposal at the time provided in the contract, at the
point of delivery named on the conveyance to be provided by the buyer.
iii. Provide at his own expense the packing, if any, to enable the buyer to take delivery of
the goods.
iv. Give the buyer reasonable notice as to when the goods will be at his disposal.
v. Bear the cost of checking operations (quality, measuring, weighing, counting)
required to place the goods at the buyer’s disposal.
vi. Bear all risks and expenses of the goods until they have been placed at the disposal of
the buyer at the same time as provided that the goods have been duly appropriated to
the contract.
vii. Render the buyer, at the latter’s request, risks and expense, every assistance in
obtaining any documents issued in the country of delivery or of origin required for the
purposes of exportation, importation or passage in transit through another country.
Obligations of the buyer
The Buyer must:
i. Take delivery of the goods as soon as they are placed at his disposal at the time and at
the place provided in the contract, and pay the price as provided in the contract.
 ii. Bear all charges and risks from the time when they have been so placed at his
disposal, provided that the goods have been duly appropriate to the contract.
iii. Bear any customs duties and taxes that may be levied by reason of exportation.
iv. Pay all costs and charges incurred in obtaining the documents including the cost of
certificate of origin, export license and consular fees.

2. CPT CARRIAGE PAID TO (named place of destinations)

Carriage Paid To means that the seller delivers the goods to the carrier or another person
nominated by the seller at an agreed place (if any such place is agreed between parties) and
that the seller must contract for and pay the costs of carriage necessary to bring the goods to
the named place of destination.

Seller’s Obligations
The Seller must:
i. Supply the goods together with such evidence of conformity as required by the
contract of sale.
ii. Bear all risks of the goods until they shall have been delivered into the custody of the
first carrier.
iii. Pay the costs of any checking operations for the purpose of loading, provide the buyer
with the usual transport documents and render assistance in obtaining any other
documents than those mentioned, obtain any export license and pay any dues and
taxes incurred in respect of the goods in the country of dispatch.
Buyer’s Obligations
The Buyer must:
i. Take the delivery of the goods at the delivery point at the place of destination and pay
the price provided in the contract and bear all charges from the time of the arrival of
the goods at the delivery point.
ii. Bear all risks of the goods from the time when they shall have been delivered into the
custody of the first carrier.
iii. Pay all costs charges incurred in obtaining the documents, pay all customs duties as
well as any other duties and taxes payable by reason of the importation.

3. CIP CARRIAGE AND INSURANCE PAID TO (named destination)

“Carriage and Insurance Paid to” means that the seller delivers the goods to the carrier or
another person nominated by the seller at an agreed place (if any such place is agreed
between parties) and that the seller must contract for and pay the costs of carriage necessary
to bring the goods to the named place of destination.
‘The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to
the goods during the carriage. The buyer should note that under CIP the seller is required to
obtain insurance only on minimum cover. Should the buyer wish to have more insurance
protection, it will need either to agree as much expressly with the seller or to make its own
extra insurance arrangements.”

4. FCA FREE CARRIER (named destination)

Free Carrier means that the seller delivers the goods to the carrier or another person
nominated by the buyer at the seller’s premises or another named place. The parties are well
advised to specify as clearly as possible the point within the named place of delivery, as the
risk passes to the buyer at that point.

5. FAS FREE ALONGSIDE SHIP (named port of shipment)

Free Alongside Ship means that the seller delivers when the goods are placed alongside the
vessel (e.g., on a quay or a barge) nominated by the buyer at the named port of shipment. The
risk of loss of or damage to the goods passes when the goods are alongside the ship, and the
buyer bears all costs from that moment onwards.

Seller’s Obligations
The Seller must:
i. Supply the goods in conformity with the contract of sale, deliver the goods alongside
the vessel at the loading berth named by the buyer, at the named port of shipment, and
notify the buyer that the goods have been delivered alongside the vessel.
ii. Bear all costs and risks of the goods until they shall have been delivered alongside the
vessel, including the costs and charges of a lighter to carry the goods alongside the
vessel.
iii. Provide at his own expense the customary clean documents in proof of delivery of the
goods alongside the named vessel.

Buyer’s Obligations
The Buyer must:
i. Give the seller due notice of the name, loading berth and delivery dates to the vessel.
ii. Bear all charges and risks of the goods from the time when they shall have been
effectively delivered alongside the vessel at the named port of shipment.
iii. Pay all costs and charges obtaining the documents mentioned above.

6. FOB FREE ON BOARD (named port of shipment)

Free On Board means that the seller delivers the goods on board the vessel nominated by the
buyer at the named port of shipment or procures the goods already so delivered. The risk of
loss of or damage to the goods passes when the goods are on board the vessel, and the buyer
bears all costs from that moment onwards.

Seller’s Obligation
The Seller must:
i. Supply the goods in conformity with the contract of sales, deliver the goods on board
the vessel named by the buyer, at the named port of shipment, and notify the buyer
that the goods have been delivered on the board the vessel.
ii. Bear all the costs and risks until the goods shall have passed the ship’s rail, including
any taxes, fees or charges as well as the costs and formalities which he shall have to
fulfill in order to load the goods on board.
iii. Pay the costs of any checking operations. Provide at his own expense the customary
clean documents required to deliver the goods on the board the named vessel.

Buyer’s Obligation
The Buyer must:
i. Charter a vessel or reserve the necessary space on the board a vessel and give the
seller due notice of the name, loading berth of and delivery dates to the vessel.
ii. Bear all costs and risks of the goods from the time when they shall have passed the
ship’s rail, pay the price as provided in the contract.
iii. Pay any costs and charges incurred in obtaining the documents required for the
importation of the goods.

7. CFR COST AND FREIGHT (named port of destination)

“Cost and Freight” means that the seller delivers the goods on board the vessel or procures
the goods already so delivered. The risk of loss of or damage to the goods passes when the
goods are on board the vessel. the seller must contract for and pay the costs and freight
necessary to bring the goods to the named port of destination.

Seller must:
i. Supply the goods under the contract of sale, contract at his own expense for the
carriage of goods to the agreed port of destinations and pay freight charges and any
charges for unloading at the port of discharge.
ii. Obtain at his own expense any export license necessary for export. Furnish to the
buyer a clean negotiable B/L for the agreed port of destination as well as the invoice
of the goods shipped
iii. .Pay any dues and taxes incurred up to the time of loading the goods. Provide the
buyer, at the latter’s request and expense, with every assistance in obtaining
documents required for the importation of the goods into the country of destination.

Buyer must:
i. Accept the documents when tendered by the seller and pay the price as provided by
the contract.
ii. Bear, except freight, all costs and charges incurred in respect of the goods in the
course of their transit by sea until their arrival at the port of destination.
iii. Bear all risks from the time the goods shall have passed the ship’s rail at the port of
shipment.
iv. Pay the costs and charges in obtaining the certificate of origin, consular invoice and
the import license.

8. CIF COST, INSURANCE, FREIGHT (named port of destination)

Cost, Insurance and Freight means that the seller delivers the goods on board the vessel or
procures the goods already so delivered. The risk of loss of or damage to the goods passes
when the goods are on board the vessel. The seller must contract for and pay the costs and
freight necessary to bring the goods to the named port of destination. ‘The seller also
contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during
the carriage. The buyer should note that under CIF the seller is required to obtain insurance
only on minimum cover. Should the buyer wish to have more insurance protection, it will
need either to agree as much expressly with the seller or to make its own extra insurance
arrangements.”

Seller must:
i. Supply the goods, contract at his own expense for the carriage of goods to the agreed
port of destination, and pay freight charges and any charges for unloading at the port
of discharge.
ii. Load the goods on board the vessel, procure a vessel at the port of shipment, a policy
of marine insurance against the risks of the carriage involved in the contract.
iii. Bear all risks until the goods have passed the ship’s rail at the port of shipment.
iv. Render the buyer every assistance in obtaining any documents required for the
importation of goods.

Buyer must:
i. Accept the documents tendered by the seller, and pay the price as provided in the
contract.
ii. Receive the goods at the agreed port of destination and bear ( except the freight and
marine insurance) all costs and charges unless they have been included in the freight
or collected by the steamship company at the time freight was paid.
iii. Pay the costs and charges in obtaining the certificate of origin and consular
documents.
iv. Pay all customs duties and taxes by reason of the importation.

9. DAT DELIVERED AT TERMINAL (named place)

“Delivered at Terminal” means that the seller delivers when the goods, once unloaded from
the arriving means of transport, are placed at the disposal of the buyer at a named terminal at
the named port or place of destination. “Terminal” includes a place, whether covered or not,
such as a quay, warehouse, container yard or road, rail or air cargo terminal. The seller bears
all risks involved in bringing the goods to and unloading them at the terminal at the named
port or place of destination.

10. DAP DELIVERED AT PLACE (named place)

Delivered at Place means that the seller delivers when the goods are placed at the disposal of
the buyer on the arriving means of transport ready for unloading at the named place of
destination. The seller bears all risks involved in bringing the goods to the named place.

11. DDP DELIVERED DUTY PAID (named place)

Delivered Duty Paid means that the seller delivers the goods when the goods are placed at the
disposal of the buyer, cleared for import on the arriving means of transport ready for
unloading at the named place of destination. The seller bears all the costs and risks involved
in bringing the goods to the place of destination and has an obligation to clear the goods not
only for export but also for import, to pay any duty for both export and import and to carry
out all customs formalities.
 CHAPTER TWO

INTERNATIONAL TRADE DOCUMENTATION

1.1 INTRODUCTION
Export documentation is a tedious but necessary process that all exporters must pay close
attention to, as documentation requirements vary considerably by country, commodity, and
situation. Shipping documents are the key to international trade, and have been used for
thousands of years. These also ensure compliance with applicable regulations. Using an
experienced Freight Forwarder will help you an importer/exporter to avoid problems and
secure your relationship with your customers. Although a Freight Forwarder is not absolutely
required for a successful export shipment, a licensed Customs House agent is required to
clear goods imported into any country, including Zimbabwe.

The country of origin and country of destination of the goods is one of the factors that
determines the type and nature of documents required on export . in addition, the mode of
transportation whether road, rail, ocean, air, pipeline and the type of commodity, its size ,
value, volume, weight, dimensions and the parties to the transaction all affect the
documentation required on export. These documents can be prepared by the exporter and then
processed or forwarded by a Freight Forwarder.

The completion and submission of required documents is critical to the successful shipment,
transportation, and discharge of cargo at the port of destination (Seydoum, 2009) and in some
cases mandatory. The number one reason for export problems to occur is incorrect
documentation.A missing certificate of origin, an error in spelling, deleted language, or
inaccuratenumber of copies will cause substantial delays in obtaining customs clearance
andrequire additional costs to complete the process. Wasted time and money cut intoprofits,
annoy customers, and frustrate the export staff.In addition to knowing the required
documents, the exporter will also need toknow the correct language, mandated number of
copies, required signatures, appropriateformat, notary seals, consularization stamps, shipping
instructions, andany specific documentary requirement due to the type of commodity.
The best sources for information are the customer, the customer’s agent, and thefreight
forwarder being used. A company may ship to Brazil once a month, but thefreight forwarder
may be moving shipments to Brazil daily. Relying on the forwarder‘s experience and their
depth and reach can eliminate many exportheadaches. While the documentation process can
be complicated to master, the right approachtogether with support from several resources can
simplify the process andremove the inherent obstacles.

Section 26 (1) of the Customs and Excise Act (Chapter 23:02)

The person in charge of any vehicle, other than a railway train, arriving in Zimbabwe,
whether conveying goods or not, shall proceed immediately with the vehicle to the custom
house or customs post at the port of entry and, before unloading or in any manner disposing
of such vehicle or goods, make full report in such manner as the officer may require or as
may be prescribed concerning the vehicle, the goods in his possession or charge and the
journey or destination of such goods. If a report in writing is prescribed or required by the
officer, such person shall make and subscribe before the officer a declaration, at the foot of
the report, as to the truth of the same, and shall answer to the best of his knowledge all such
questions and produce all waybills or other documents relating to the goods, freight and
journey as may be demanded of him by such officer.

Although the sales agreement is by far the most important single document in an export sales
transaction, there are numerous other documents with which the exporter must be familiar. In
some cases, the exporter may not actually prepare such documents, especially if the exporter
or importer utilizes the services of a freight forwarder. The documents for collection
generally include

 commercial invoices,
 consular services,
 certificates of origin, and
 inspection certificates.
For the purpose of documents aligned system, documents have been classified into two
categories: Commercial documents and Regulatory documents. According to Johnson and
Bade (2010) if the exporter does not understand the documents or the information that is
being requested and a mistake occurs, the freight forwarder will claim that the mistake was
due to improper information provided by the exporter.
i. Proforma Invoice
A Proforma invoice is a quote in an invoice format that may be required by the buyer to;
a) Apply for an import license,
b) contract for pre-shipment inspection,
c) open a letter of credit or
d) arrange for transfer of hard currency.

The significance of a Proforma Invoice is thus twofold; It forms basis of all trade transactions
and further negotiation or contract is made on this basis and It helps the importer to obtain the
import license, where required, and obtain foreign exchange for completion of the contract.
ii. Commercial Invoice
Commercial invoice is the basic document in an export transaction created by the seller,
shipper or supplier. It is also called a billing document. It is made or created by the supplier
and should include name and address of supplier and buyer; description of goods; quantity of
goods; terms of payment and banking; mode of dispatch; value of goods (stating whether
CIF, FCA, or CFR); destination of goods; marks or numbers on the package; order date and
order number; shipping date; statutory information for example VAT number and country or
origin for example China.

Johnson and Bade (2010) state that it is extremely important that, before shipping the product
and preparing the commercial invoice, the exporter check through either an attorney, the
buyer, or the freight forwarder to determine exactly what information must be included in the
commercial invoice in order to clear foreign customs. Johnson and Bade (2010) add that
often certain items, such as inland shipping expenses, packing, installation and service
charges, financing charges, international transportation charges, insurance, assists, royalties,
or license fees, may have to be shown separately because some of these items may be
deducted from or added to the price in calculating the customs value and the payment of
duties.

It contains all the information which is required for the preparation of all other documents. It
is, thus, a document of content. It gives the description of the goods, Harmonized Systems
nomenclature (HSN), price agreed between two parties, terms of shipment and the marks and
numbers on the packages containing the merchandise. The date name and address of both
buyer and seller, name of the shipping vessel and the port of destination should also be
specified.
There is no standard form of commercial invoice. The exporter has to design the invoice form
to be used. Some countries, prescribe their own forms. In such cases, the exporter has
necessarily to use the form prescribed by the importing country. The commercial invoice is
also used for checking of the consignment buy customs as well. All customs entry papers for
customs clearance prepared by the clearing agents are prepared based on the commercial
invoice.

The description of the merchandise in the commercial invoice must correspond exactly to the
description in the letter of credit. Unless the letter of credit specifically states otherwise,
generic description of merchandise is usually acceptable in the other documents. It is
preferable however that merchandise description in all documents corresponds to the
description in the letter of credit. Marks and numbers on the commercial invoice, insurance
documents, bill of lading lists must correspond.
Significance of Commercial Invoice
 It is prima facie evidence of the contract of sale and purchase of goods. On the basis
of the invoice, all the other documents, in the context of export, are prepared as it is
the basic document.
 Invoice constitutes the main document for various export formalities such as
reshipments inspection, quality, excise and customs procedures.
 It is useful for accounting purposes, both by the exporter and importer.
 This document is required in collection/negotiation of documents through the bank.
 For claiming incentives, this document is essential.

iii. Consular Invoice

Some of the importing countries insist that the invoice is to be signed by the importing
county’s consular located in the exporter’s country. Such invoices are known as consular
invoice. A consular invoice is usually prepared from the information in the commercial
invoice, but it must be signed by a representative of the country of destination stationed at
that country’s embassy or consulate located in the United States nearest the exporter. One
reason for requiring such invoices is that the country of destination may deduct certain
charges from the price of the goods in order to determine the value for customs duties. If the
commercial invoice does not contain all of the information necessary, the foreign customs
service would be unable to complete the duty assessment. The consular invoice lists the
specific items about which that country requires information. The consular charges a fee for
this service

Significance of Consular Invoice

Importance to the Exporter
1. Once the invoice is signed by the consulate of the importing country, the exporter is
reasonably assured that there are no import restrictions in the importer’s country for the
goods and that there would be no problem in realization of export proceeds or foreign
exchange.
2. It enables prompt clearance from the customs of exporter’s country for shipping the goods.
Importance to the Importer
1. In the importer’s country, the customs do not normally open the packages. It helps the
importer to get speedy delivery of goods.
2. Lot of unnecessary hardship which importer faces once the packages are opened is
avoided.
Importance to the Customs
1. The customs of the exporting country can easily clear the goods.
2. The customs of the importing country need not open the packages for checking and can
easily calculate the import duties.

(iv) Customs Invoice

When the commercial invoice is prepared on the format prescribed by the customs authorities
of the importing country, it is called “Customs Invoice”.

(vi) Packing List

A packing list is a document which details the contents, and often dimensions and weight, of
each package or container. It is also known as a bill of parcel, unpacking note, packaging slip,
delivery docket, delivery list, manifest , customer receipt or shipping list. It serves to inform
all parties involved with shipping, including transport agencies, government authorities, and
customers, about the contents of the package. It helps them deal with the package
accordingly. A packing list may serve as conforming document. It is not a substitute for a
commercial invoice.

This formal document itemises quite a number of details about the cargo such as:
  The name of the exporter (referred to as the shipper) and their contact details (tel,
fax, cell, e-mail), including physical (not postal) address
 The name of the importer (referred to as the consignee, meaning the person or firm to
whom the goods are to be sent) and their contact details (tel, fax, cell, e-mail),
including physical (not postal) address
 The gross (i.e. the weight of the product and packaging - that is, the total weight), tare
(i.e. the weight of the packaging without any contents) and net (i.e. the weight of the
product only) weights of the cargo
 The nature, quality and specifications of the product being shipped
 The type of package (such as pallet, box, crate, drum, carton, etc.)
 The measurements/dimensions of each package
 The number of pallets/boxes/crates/drums, etc.
 The contents of each pallet or box (or other container)
 The package markings, if any, as well as shipper's and buyer's reference numbers
 Reference to the associated commercial invoice such as the invoice number and date
 A purchase order number or similar reference to correspondence between the supplier
and importer
 An indication of who the carrier is (airline, shipping line or road hauler)
 Reference to the Bill of Lading or Air Waybill number

(vii) Freight forwarder Invoice

(viii) Certificate of Origin

Certificate of origin is a certificate that specifies the name of the country where goods are
produced. This is absolutely necessary where the importing country has banned the entry of
goods of certain countries to ensure that the goods from those countries are not allowed to
enter in. Some countries require that goods shipped to the country be accompanied by a
certificate of origin designating the place of manufacture or production of the goods. This is
signed by the exporter, and, usually, a local chamber of commerce that is used to performing
this service (again, for a fee) certifies to the best of its knowledge that the products are
products of the country specified by the exporter. The exporter may exports to or imports
from Canada or Mexico. In general, in order to be eligible for the duty-free or reduced duty
rates under NAFTA, all items imported from outside of North America must have undergone
the ‘‘tariff shift’’ specified in Annex 401 during the manufacturing process for that product.
Certificate of Origin (CO) is a document which is used for certification that the products
exported are wholly obtained, produced or manufactured in a particular Country. It is
generally an integral part of export documents.

The origin does not refer to the country where the goods were shipped from but to the
country where they were made. In the event the products were manufactured in two or more
countries, origin is obtained in the country where the last substantial economically justified
working or processing is carried out. An often used practice is that if more than 50% of the
cost of producing the goods originates from one country, the "national content" is more than
50%, then, that country is acceptable as the country of origin.

Determining the origin of a product is important because it is a key basis for applying tariff
and other important criteria. For example, when countries unite in trading agreements, they
may allow Certificate of Origin to state the trading bloc, for the exporter to get preferential
treatment, like SADC or COMESA rather than a specific country. However, not all exporters
need a certificate of origin, this will depend on the destination of the goods, their nature, and
it can also depend on the financial institution involved in the export operation.There are two
types of certificates of origin namely non preferential certificates of origin and preferential
certificates of origin.

(1) Non-preferential certificates of origin are the most common type of certificate. These
certificates of origin see that goods do not benefit from any preferential treatment and do not
emanate from a particular bilateral or multilateral free trade agreement. Chambers that are
authorized to issue certificates of origin are most frequently authorized to issue non-
preferential certificates of origin. The fees charged for the issuing will vary depending on
several factors, such as the nature of the merchandise, and may also vary if the exporter’s a
member. Indeed, exporters whose companies are member of the chamber often benefit from a
preferential price, which is lower than that of non-member firms.

(2) A preferential certificate of origin is a document attesting that goods in a particular

shipment are of a certain origin under the definitions of a particular bilateral or multilateral
free trade agreement (FTA). This certificate is required by a country's customs authority in
deciding whether the imports should benefit from preferential treatment in accordance with
special trading areas or customs unions such as the COMESA or SADC before anti-dumping
taxes are enforced. The definition of "Country of Origin" and "Preferential Origin" are
different.

The certificate of origin declares the details of goods to be shipped and the country where
these goods are grown, manufactured or produced. Such goods need to have substantial value
addition so as to become eligible to certification of this nature

Significance of Certificate of Origin

(A) Certificate of origin is required for availing concession under Commonwealth
Preferences (CWP) as well as Generalized System of Preferences (GSP).
(B) It facilitates the importer to adhere to the rules and regulations of his country.
(C) Customs in the importer’s country allow the concessional tariff only on production of this
certificate.
(D) When goods from some countries are banned, importing country requires this certificate
to ensure that goods from banned countries are not entering into the country.
(E) Exporting country may insist on this certificate to ensure that the goods imported are not
reshipped again.

(v) Bill of Lading

Bill of Lading is a document issued by the shipping company or his agent acknowledging the
receipt of cargo on board. This is an undertaking to deliver the goods in the same order and
condition as received to the consignee or his agent on receipt of freight, the shipping
company is entitled to. It is a very important document to the exporter as it constitutes
document of title to the goods. Bills of lading are best understood if considered as bills of
loading. These documents are issued by transportation carriers as evidence that they have
received the shipment and have agreed to transport it to the destination in accordance with
their usual tariffs (rate schedule). Separate bills of lading may be issued for the inland or
domestic portion of the transportation and the ocean (marine) or air transportation, or a
through bill of lading covering all transportation to the destination may be issued.

The domestic portion of the route will usually be handled by the trucking company or
railroad transporting the product to the port of export. Such transportation companies have
their own forms of bills of lading and, again, commercial stationers make available forms that
can be utilized by exporters, which generally say that the exporter agrees to all of the specific
terms or conditions of transport normally contained in the carrier’s usual bill of lading and
tariff. The inland bill of lading should be prepared in accordance with the freight forwarder’s
or transportation carrier’s instructions.

The ocean transportation will be covered by a marine bill of lading prepared by the exporter
or freight forwarder and issued by the steamship company. Information in bills of lading
(except apparent condition at the time of loading) such as marks, numbers, quantity, weight,
and hazardous nature is based on information provided to the carrier by the shipper, and the
shipper warrants its accuracy. Making, altering, negotiating, or transferring a bill of lading
with intent to defraud is a criminal offense.

If the transportation is by air, the airline carrier will prepare and issue an air waybill. A
freight consolidator will issue house air waybills which are not binding on the carrier but are
given to each shipper to evidence inclusion of its shipment as part of the consolidated
shipment. In such cases the freight consolidator becomes the ‘‘shipper’’ on the master bill of
lading.
Main Purposes of Bill of Lading
It serves three main purposes.
(A) As a document of title to the goods
(B) As a receipt from the shipping company and
(C) As a contract of affreightment (transportation) of goods.

Types of Bill of Lading(10 types)

(1) Received for Shipment B/L: A shipping company issues it when goods have been
given to the custody of the shipping company, but they have not been placed on board.
(2) On Board Shipped B/L: The shipping company certifies that the cargo has been
received on board the ship.
(3) Clean B/L: It indicates a clean receipt. In other words, it implies that there has been
no defect in the apparent order or condition of goods at the time of receipt or shipment of
goods by the shipping company.
(4) Claused or Dirty B/L: It shows that the B/L is qualified which expressly declares a
defective condition of goods. The clause may state “bale number 5 hook-damaged” or
“package number 10 broken”. By superimposing this type of clause, the shipping company is
limiting its responsibility at the time of delivery of goods, at the destination. It is very
important to note that bank accepts only a clean B/L at the time of negotiation.
(5) Transshipment or Through B/L: When the journey covers several modes of transport
from the place of starting to the place of destination, this type of B/L is taken. It indicates that
transshipment would be en route. For example, part of the journey is by ship and the rest of
journey may be by road, rail and air.
(6) Stale B/L: According to international commercial practice, B/L along with other
documents must be presented to the bank not later than twenty one days of the date of
shipment as given in the B/L.
(7) To Order B/L: In this case, the B/L is issued to the order of a specified person.
(8) Charter Party B/L: It covers shipment on a chartered ship.
(9) Freight paid B/L: When the shipper pays the freight, then this type of B/L is issued with
the words “Freight paid”.
(10) Freight Collect B/L: When the freight on the B/L is not paid and to be collected at the
point of destination, it is marked “Freight Collect” and this B/L is known as “Freight Collect
B/L”.

Contents of B/L
1. Name and address of the shipper.
2 Name and address of the vessel.
3. Name of port of loading.
4. Date of loading of goods.
5. Name of port of discharge and place of delivery.
6. Quantity, quality, marks and other description.
7. Number of packages.
8. Freight paid or payable.
9. Number of originals issued.
10. Name of the shipping company.
11 Voyage number and date.
12. Signature of the issuing authority.

SIGNIFICANCE OF BILL OF LADING

Importance to the Exporter
1. It is an acknowledgment from the shipping company that the goods have been received for
the purpose of shipment. 2. After receipt of B/L, it helps him to send the shipping advice to
the importer.
3. If any damage occurs to the cargo during transit, he can hold the shipping company
responsible, if he has received clean bill of lading.
4. A copy of bill of lading is required to be attached to the application form to claim the
incentives
5. It is a contract of carriage between the exporter (shipper) and the shipping company.

Importance to the Importer

1. It is a document of title to the goods, which enables him to transfer the title by
endorsement and delivery.
2. The exporter can send a non-negotiable copy of B/L as advance intimation of shipment to
the importer.
3 It enables him to pay the freight amount as the B/L contains freight details.

Importance to the Shipping Company

1. It helps the shipping company to collect the freight amount from the exporter (CIF
contract) or importer (FOB contract).
2. Shipping company can protect itself from the wrongful claims of exporter/importer by
incorporating condition of goods/packaging, at the time of receipt. In case the shipping
company, inadvertently, omits to mention the adverse condition, at the time of receipt,
advantage can be claimed by exporter/importer, by submitting wrongful claim.

(vi) Airway Bill

Airway Bill is also called Air consignment Note. It is a receipt issued by an airline for the
carriage of goods. As each shipping company has its own Bill of Lading, so each airline has
its own airway bill.Air waybills are not particular to a given airline and can be from any other
airline that participates in the carriage (Wood et al., 1995).

Importance of Airway Bill

1. It is a contract of carriage of goods between the consignor and airlines or his agent.
2. It acts as a customs declaration form.
3. It contains details of freight and so works as a freight bill.
(vii) Bill of Entry
Bill of Entry is a declaration form made by the importer or his clearing agent. For the purpose
of giving information, goods are classified into three categories.
(1) Free Goods: These goods are not subjected to any customs duty.
(2) Goods for Home Consumption: These goods are imported for self-consumption.
(3) Bonded Goods:. Where goods are subject to customs duty, till duty is paid, goods are
kept in Bond.h clearance of imported goods can be made
Contents of Bill of Entry
1. Name and address of importer.
2. Name and address of exporter.
3. Import license number.
4. Name of port where goods are to be cleared.
5. Description of goods.
6. Value of goods.
7. Rate and value of import duty payable.

(i ) Letter of Credit
A letter of credit is a document-containing guarantee of a bank to make payment to
the exporter, under certain conditions and up to a certain amount, provided the conditions
contained in the letter of credit are complied with. For a detailed presentation, reader may
refer to the chapter on Export Financing.

Certificate of Inspection:
An inspection certificate provides proof that what one is shipping is, in fact, what the
customer has ordered, and is also of good quality. The inspection certificate mighty be
requested when one is shipping high value products. An inspection certificate can be
furnished directly to a buyer, a buyer’s government or direct to a buyer’s bank.

The purpose of this document is to prevent less than quality goods from entering the
country.For example if one is importing an agricultural product in Zimbabwe, such as nuts,
fruits, seeds, grains and vegetables, one will need an inspection certificate. This certificate is
issued by the Department of Agriculture to satisfy if the product is not genetically modified
which are less than quality products and are prevented from entering the country.
Another reason is to deflect attempts to avoid the payment of customs duties and also to
validate the price charged by an exporter to reflect the true value of the goods

CHAPTER FOUR

CUSTOMS CLEARANCE PROCEDURES

In terms of Section 38 (1) of the Customs and Excise Act,

“No goods shall be imported into Zimbabwe without entry being made and without
the duty being paid or secured”.

Therefore all goods that are imported into or exported from Zimbabwe whether private or
commercial must be declared to Customs on the appropriate form and following the
appropriate procedure. These customs procedures to be followed are regardless of the goods’
value or dutiable status. The Zimbabwe Revenue Authority through customs control seeks to
ensure that the all goods enter into or exits out of the country after compliance with different
laws concerning import and export trade. In addition customs works to ensure the authenticity
of value of goods to check over or under invoicing so as to correctly assess and collect duty,
if applicable. This helps in the compilation of accurate data on cargo and trade movements.
Goods carried as passenger's baggage, goods of a value not exceeding a prescribed amount
and other diplomatic importations and subject the provisions of the Customs and Excise Act
(Chapter 23:02) as read with the Customs and Excise (General) Regulations, 2001), do not
attract duty on importation. However commercial importations usually attract duty or some
form of customs control.

Commercial importation refers to the importation of goods for commercial purposes by any
individual or an organisation. . For commercial goods importation, the customs clearance
formalities have to be complied with by the importer prior to arrival of the goods at the
customs yard. This is a process generally referred to as “Preclearance”. Clearance of such
importations is done by a Bill of Entry which is processed in the ASYCUDA World system.
As a prerequisite an importer should have a Business Partner Number (BPN) and a Customs
Contract Number.

Due to the complexity of the process and the requirements by Zimbabwe Revenue Authority,
there is needed to engage the services of a registered clearing agent to facilitate the clearance
process. Importers are encouraged to engage the services of professional clearing agents
because of the complexities of the valuation system and the Harmonized Tariff System. High
import tariffs and multiplicity of rates of duty also contribute in complicating the
documentation and procedures resulting in a major gap between the customs import and
export procedures in Zimbabwe and the best international practices.

The major problems associated with the customs clearance procedures with reference to
international best practices are:
 Excessive documentation requirements;
 Lack of automation and insignificant use of information technology;
 Lack of transparency; unclear and unspecified import and export requirements;
 Inadequate procedures; especially a lack of audit-based controls and risk assessment
techniques;
 Lack of modernization of, and cooperation among other governmental agencies,
which thwarts efforts to deal effectively with increased trade flows;
 Procedures are transaction based. Every document has to be checked, double checked,
signed and countersigned and most import and export goods are physically examined,
which also breeds corruption;
 Documentary inspection for all export cargo is intensive though less than in the case
of imports.

Customs grant permission for importation after documentary checks are made at the
office of the customs that is the Customs House and sometimes after a physical
examination of goods is made to verify that the goods being exported are the same as
have been declared on the documents submitted at the Customs House. When the
documents are processed, assessed and are correct a Release Order is issued authorizing
the collection of goods from the carrier or detention. If there is need to inspect the goods,
an Examination Order is issued and an inspection carried out to verify the quantities,
classification, origin, values or any aspect that needs clarification.
OBJECTIVES OF CUSTOMS CONTROL
The objectives of customs control are:
1. To ensure nothing goes out of the country against the laws of the land and
customs authorities duly enforce stipulated prohibitions and restrictions regarding
outward cargo;
2. To ensure authenticity of value of outward cargo according to the customs
valuation rules to check over and under invoicing;
3. To assess and realise export duty/cess/charge according to the customs Tariff Act
and any other fiscal legislation;
4. To check that all the regulatory provisions of Export (Control) Order, Export
(Quality Control and Inspection) Act and Foreign Exchange Regulations Act are
duly complied with and
5. To provide export data through the customs returns.
While complying with the objectives, before granting permission, customs ensure that
the goods exported are of the same type, sort and value as have been declared by the
exporter and the duty or cess thereon is properly determined and paid by the exporter

CATEGORIES OF IMPORTS
The export-import policy offers the facilities to import raw materials, components, parts,
other inputs and capital goods to facilitate production of goods for export promotion. The
facility of imports is allowed under different categories:
1. Import of Unrestricted Items
Any person having import-export number is allowed to import the goods, whichdo not
have any kind of restriction. Any intending importer has to check the classification of
the item by referring to HS Classification to find out the duties applicable to that item.
If the item falls under unrestricted category, the only requirement is payment of
applicable import duty, after obtaining customs clearance for the import consignment.
2. Import of Restricted Items
Any business firm intending to import restricted items has to apply for import
licence.For import of items under the restriction,importer has to give justification of
the need to import those goods. The importer has tosubmit a statement of reasons to
the licensing authority for the import. Import of restricteditems is not a matter of right.
 It is a privilege extended by the Government. The licensingauthority has the authority
to refuse licence if it is not satisfied with the reasons of import.

PROCEDURE FOR CUSTOMS CLEARANCE

The process of customs clearance involves various steps, as under:
Arrival of Goods and Cargo Manifest
In terms of the Customs and Excise Act the person in charge of the conveyance(ship, aircraft
etc) carrying imported goods is required to deliver a document known as Cargo Manifest to
the proper officer of Customs. The Cargo Manifest is a list of items that the carrier is carrying
for the purpose of unloading at theport of arrival. In the case of a vessel, the manifest is
normally submitted before the arrivalof the vessel.

Reporting and Road Report Number

On receipt of the documents sent by the importer/exporter, the clearing agent initiates action
to obtain customs clearance release of goods. The agent or transporter reports to the
Reporting Officer at Crew Desk by submitting four copies of the Customs Road Manifest. If
satisfied with the documents presented the Officer endorses a running number known as a
Road Report Number on the manifest. The distribution of the manifest is as follows;
(1) Reporting Desk One Copy
(2) Importer’s Set of Documents One Copy
(3) Customs’ Set of Documents One Copy
(4) Release Desk (Notification Copy) One Copy

Preparing Bill of Entry

The basic document used for obtaining customs clearance is known as “Bill of Entry”.Bill of
Entry may be filed in advance, of the expected arrival of concerned cargo to expedite
processing of Bill of Entry. The main contents are the following:
(i) Details of importer’s name and address Business Partner Number, Port ofShipment,
particulars of origin of goods, and vessel’s name;
(ii) Particulars of goods imported with regard to the number, quantity, packages etc;
(iii) Description, classification and value of goods;
(iv) Rate and amount of import duty payable;
(v) Currency, weight, freight, insurance etc;
(vi) Details of exporter;
(vii) Import licence number of importer and
(viii) Declaration as to correctness of the information recorded.

For the purpose of giving information in Bill of Entry form, based on goods, Bill of Entry are
divided into three categories:
i. Bill of Entry for Home Consumption: This is used when importedgoods are cleared
for home consumption, on payment of duty.
ii. Bill of Entry on Bonded Goods : This is used when goods aretransferred to recognised
bonded warehouse of customs as no duty is paid onimported goods
iii. Bill of Entry for Ex-Bond Clearance for Home Consumption: This is used when
theimporter intends to clear imported goods, fully or partly, for home
consumptionfrom bonded warehouse, paying applicable import duty.

Online Submissions and First Vetting

Filing the necessary documents to enables customs assess the duty payable as well as release
goods to the importer. For this reason, it is sometimes important for the documents to
undergo first vetting before examining and duty assessment. The standard form of declaration
of commercial importations is made on Bill of Entry Form 21 (Part 2 and First Schedule, Part
II, Customs and Excise (General) Regulations, 2001). The clearing agent must submit a Bill
of Entry electronically into the ASYCUDA World system to enable the clearing process to
begin. Two sets of the Bill of Entry and supporting documents, the ‘ZIMRA Set’ and the
‘Importer’s set’ are submitted, clearly marked as such. The following documents normally
must accompany the Bill of Entry Form 21;
1. Customs Road Manifest (Form 1)
2. Commercial invoice or pro forma invoice where a commercial invoice cannot be
produced,
3. Bill of lading, Air Waybill or Consignment Note,
4. Packing list,
5. Export or transit Bill of Entry from the country of export where applicable
6. Value Declaration Forms
7. Freight statements
8. Insurance Statement
9. Certificates of Origin where preference is claimed
10. Port charges invoices where applicable
 11. Original permits and Licences,
12. Duty Free Certificates, Rebate Letters and Value Rulings where applicable
13. Agent / Importer’s Worksheet
14. Copy of Income Tax Form 263
15. Other documents necessary to determine the admissibility of the merchandise

On submission of the Bill of Entry Form 21, ZIMRA retains a full set of the commercial
documents normally accompanying a declaration usually market ‘ZIMRA set’. These
documents include commercial invoices, transport documents such as Air Waybill, Rail
Advice Notes or Bills of Lading, documents supporting a claim to preferential or reduced
rates of duty and worksheets. Importers, exporters or declarants who wish to retain a set of
similar documents for their own or other organizations’ use must ensure that a duplicate set is
available at the time of first presentation of the declaration and these will be returned when
ZIMRA processing of the declaration has been completed. The number of copies of the
declaration form to be submitted to ZIMRA varies depending on the customs procedures
being used and whether or not the document will be processed using the computerized or
manual environment.

Assessment of Duty
Assessment of duty essentially involves proper classification of the goods imported in the
customs tariff having due regard to the rules of interpretations, chapter and sections notes and
determining the duty liability. It also involves correct determination of value where the goods
are assessable on ad valorem basis. The Examining Officer has to take note of the
commercial invoice and other declarations submitted along with the Bill of Entry to support
the valuation claim, and adjudge whether the transaction value method and the invoice value
claimed for the basis of assessment is acceptable, or value needs to be predetermined having
due regard to the provisions of law and the valuation rules issued there under, the case law
and various instructions on the subject. Where the examining officer is not very clear about
the description of the goods from the document or as some doubts about the proper
classification which may be possible only to determine after detailed examination of the
nature of the goods or testing of its samples, he may give an examination order in advance of
finalization of assessment including order for drawing of representative sample. This is done
generally on the reverse of the original copy of the bill of entry which is presented by the
authorized agent of the importer to the appraising staff. On receipt of the examination report
the examining officers in the group assesses the bill of entry. He indicates the final
classification and valuation in the bill of entry indicating separately the various duties such as
basic, countervailing, anti-dumping, safeguard duties etc., which may be leviable. Thereafter
the bill of entry goes to team leader for confirmation depending upon certain value limits and
sent to the commercial office who calculates the duty amount taking into account the rate of
exchange at the relevant date.

Examination of Goods
All imported goods are required to be examined for verification of correctness of description
given in the bill of entry. However, a part of the consignment is selected on random selection
basis and is examined. In case the importer does not have complete information with him at
the time of import, he may request for examination of the goods before assessing the duty
liability or, if the Commissioner General feels the goods are required to be examined before
assessment, the goods are examined prior to assessment. The importer has to request for first
check examination at the time of filing the bill of entry or at data entry stage. The reason for
seeking the physical examination is also required to be given. The goods can also be
examined subsequent to assessment and payment of duty. Most of the consignments are
cleared on after assessment examination basis. It is to be noted that whole of the consignment
may not examined but only those packages which are selected on random selection basis are
examined in the shed.

Release Order
On the basis of release order, the goods are taken out of customsarea.

Confiscation of Goods
If customs authorities find that the intended goods of import are prohibited or import isin
contravention of the provisions of any Act, import goods can be confiscated. The
authoritylies with the Adjudicating authority to release goods on payment of fine or
confiscate them.
 AGENT OR IMPORTER

Agent submits Customs Road Manifest for

Road Report Number at Reporting Desk

Omissions? YES

NO

Online Submission by Agent and First

Vetting

Examining Officer checks authenticity of

documents

Insufficient Funds? YES

NO

ASYCUDA provides assessment and

collection of duty & tax owed.

Physical Examination? YES

 NO

Declaration sent to Delivery officer and Goods undergo Physical

Release Order Issued Examination

Documents released by Release Officer

Goods released to Importer or Agent

Amendments to declaration information: A Bill of Entry Query Notification / Request to

Amend (Form 45) is used to advise declarants of errors on entries. In infrequent cases this
form is used by the declarant or agent for a voluntary disclosure of errors or omissions on the
Bill of Entry submitted before final release. In such instance the request to amend is
originated by the agent and the form must be clearly marked “Voluntary Disclosure” to avoid
penalties and other additional charges. The Form 45 is made up of four parts. ZIMRA may
call for payment of a deposit pending fulfillment of Section 44 of the Customs and Excise
Act. Any additional supporting documents requested by ZIMRA must accompany the
original copy of the query advice upon its return to ZIMRA.

TYPES OF ENTRY
Entry for Consumption: This is the most common type of entry. Merchandise that is not
held for examination is released under bond. Even in cases where examination is required
(e.g., to determine value, dutiable status, proper markings, or whether shipment contains
prohibited articles), certain packages are designated for examination and the rest of the
shipment is released under bond.

Entry for Warehouse: Imported goods may be placed in a customs bonded warehouse and
payment of duties is deferred until the goods are removed for consumption. No duty is
payable if they are re-exported or destroyed under customs supervision. Goods may be
manipulated, sorted, or repackaged in the bonded warehouse for eventual consumption or
export. In this case, the duty payable is for the manipulated or new product at the time of
withdrawal. Goods may remain in a bonded warehouse up to five years from the date of
importation.
Removal of Goods in Bond
This is removal of goods in bond for final clearance at an inland port. A clearing agent who
has a bond with ZIMRA or an importer who does in-house clearing and has a bond with
ZIMRA can do such movement of goods and do the final clearance inland. Goods moved
under Removal in Bond are expected to be entered for consumption within a specified period.

Removal in Transit: Goods passing through Zimbabwe destined for other country are
moved in bond and do not attract duty.

Drawback Entry: A refund of customs duties is allowed under certain conditions:

 if the imported material is exported in the same condition as when imported or when
destroyed under customs supervision within three years of the date of importation, or
 If the imported merchandise is used in the manufacturing process and exported within
five years from the date of importation.

PREFERENTIAL DUTY REGIMES AND CERTIFICATES OF ORIGIN

Where goods are imported from SADC, COMESA or any Member State with which we have
trade agreement, preferential rates of duty will be applicable if the correct applicable
certificates of origin are attached. Imported articles are to be marked with the name of the
country of origin to indicate to the ultimate purchaser the name of the country in which the
product was manufactured. The ultimate purchaser is generally the last person in the
Zimbabwe who will receive the article in the form in which it was imported. Country of
origin determination is important because imports are subject to selective tariffs and nontariff
barriers depending on the origin of the merchandise. Country of origin is the country of
manufacture, production, or growth of an article.

Customs uses the “substantial transformation test” to determine the country of origin of a
product that is made up of components or materials from several different countries. The
country of origin is determined to be the one where the product was substantially transformed
into its current state (Buonafina and Haar, 1989). Markings must be legible and located in a
conspicuous place where they can be seen with a casual eye in the handling of the
merchandise. They should be capable of remaining permanently on the article during
transportation or handling. In the case of certain articles for which marking is not readable the
need to be remarked to indicate the English name of the country of origin. There are also
special marking requirements for certain articles such as watches, surgical instruments,
knives, razors, steel, pipes, and vacuum containers. However, marking is not required for
imports not intended for sale (personal use items), products used for further processing, or
crude substances, or for items that are incapable of being marked or cannot be marked
without injury or prohibitive expense.

Customs Procedure Codes (CPCs)

Different importers import goods for different reasons and as such different Customs
Procedure Codes will be used on such importations. Such codes will enable importer to enjoy
any privileges they are entitled to, for instance, importations for the exclusive use of the
Government will come in duty free and a specific code for that was created. Some goods
were granted a suspension of duty and such CPC was created also for that purpose. Some
importers enjoy certain rebates and such codes will enable suppression of the duties due.
However each declaration is verified by checking also if the CPC used is applicable. If one
tries to take advantage of non-applicable codes, it becomes a false declaration and the goods
will be liable to seizure.
 CHAPTER FIVE

THE CUSTOMS TARRIFF AND CLASSIFICATION OF GOODS

An important component of the customs declaration process, regardless of whether the goods
are declared to Customs for import or export is proper tariff classification of goods. To
enable proper classification of goods, an accurate description of goods should be states in the
export documents especially the commercial invoice. The description of goods is of
paramount importance as it reduces errors when declaring goods through customs thereby
reducing the risk of fines and penalties. A customs tariff has been developed over the years to
enable easy and correct classification of goods in international trade.

The Customs and Excise Act (Chapter 23:02) provides laws for the levying of customs and
excise duties, the prohibition and control of the importation, export or manufacture of certain
goods and for matters incidental thereto and connected therewith. Section 87 (1) states that

“For the purpose of determining the customs duty payable in respect of any goods
that are imported, the Commissioner or an officer shall classify such goods into the
 appropriate tariff headings, subheadings or codes in accordance with any rules set
out in the customs tariff…”
This Section forms the legal basis for classification of goods primarily for the determination
of the appropriate rate of duty on imported goods.

REQUIREMENTS IN RELATION TO CLASSIFICATION OF GOODS

When an importer or exporter submits a bill of entry to lodge a declaration of goods for
purpose of importing or exporting them, such a declaration must include:

i. A correct and accurate description of the goods in question;

ii. A correct and accurate commodity code (also known as a tariff code);
iii. This helps to determine the correct charges and other measures which are prescribed
by law to be applying to that commodity description and commodity code e.g.
a. customs duty payable,
b. excise duty payable,
c. anti-dumping duty payable,
d. rebate of duties if any,
e. refund of duty if any
f. import permit number if required (for
THE CUSTOMS TARIFF

The Customs Tariff is a systematic classification of goods entering the international trade for
national interests together with rates of duty. The customs tariff, and the Harmonized System
on which it is usually based, lay down a goods nomenclature for the purpose of international
trade, and its rules of application are in principle confined to that purpose. However, when
customs tariff headings are used without further qualifications for domestic tax purposes such
as sales or consumption taxes, its rules of application and interpretation serve well for such
national purposes too. Customs tariff classification issues are often highly technical and may
require consultation of trained personnel, a freight forwarder or a customs clearing agent.

Tariffs can be used to:

 raise money for the government;
 protect domestic industries from foreign competition; and
 Prohibit the importation of goods.
The customs tariff schedule has two essential components; the goods nomenclature and the
list of tariff rates. Both elements are necessarily linked: in order to determine tariff rates for
different categories of goods, those categories must be defined first. This is the purpose of a
goods nomenclature. It is important to note, however, that the nomenclature and the tariff
rates are different issues. The goods nomenclature is commonly based on the Harmonized
System.

In general, classification of goods in the tariff handbook is done in a manner described below.

THE HARMONIZED SYSTEM

The Goods Nomenclature is based on the Convention on the Harmonized Commodity

Description and Coding System, commonly known as “HS Nomenclature” and is a
systematic naming, or enumerating of all goods found in international trade along with
international rules and interpretations. The Harmonized System was developed by the World
Customs Organization (WCO) and is governed by The International Convention on the
Harmonized Commodity Description and Coding System. It comprises about 5,000
commodity groups; each identified by a six digit code, arranged in a legal and logical
structure and is supported by well-defined rules to achieve uniform classification.

The Goods Nomenclature is extensively used by governments, international organizations

and the private sector for many other purposes such as internal taxes, trade policies,
monitoring of controlled goods, rules of origin, freight tariffs, transport statistics, price
monitoring, quota controls, compilation of national accounts, and economic research and
analysis. The official interpretation of the HS is given in the Explanatory Notes published by
the WCO. The Harmonized System classifies goods according to their “essential character”
or, in the case of apparel, on the basis of the fiber of chief weight while the General Rules of
Interpretation and Section and Chapter Notes provide rules for classifying goods and
determining a single HS code for each product.

USES OF THE HARMONIZED SYSTEM

A common Nomenclature is not only necessary in classifying goods in the international trade,
but also for the following reasons;

(a) Levy Customs duty on imports and exports

(b) Provide reliable statistics on international trade
(c) Determination of the origin of goods
(d) Monitor trade in controlled goods (i.e. narcotics, ozone layer depleting chemicals,
endangered species, etc.)
(e) Remove trade barriers and facilitating the international trade
ADVANTAGES OF INTERNATIONAL CUSTOMS NOMENCLATURE

All goods in the international trade should be classified uniformly and consistently according
to a common international nomenclature. This eliminates reclassifying goods as they are
moved from one country to another.

Customs terminologies are standardized in the nomenclature, which makes it easier for
import and export companies, manufacturers, shippers and Customs administrations to apply.
It also helps in trade negotiations, enabling trade figures conform to a uniform standard so
that they can be compared internationally. This facilitates analysis and comparisons of
international trade.

The Harmonized System contributes to the harmonization of customs and trade procedures,
thus reducing the costs related to international trade. It thus facilitates the shipment and
documentation of merchandise into the Zimbabwe and creates a uniform and familiar system
for Zimbabwean exporters shipping to other countries. It is such uniformity in classification
and coding across countries simplifies the conduct of international trade negotiations and
increases the accuracy of international trade statistics.

THE HARMONIZED SYSTEM USERS

Harmonized Commodity Descriptions and Coding System (HS Nomenclature) is designed as

a multi-purpose tool and is therefore used by;

• Governments
• International Organizations
• Importers and Exporters
• Manufacturers
• Traders
• Shipping agents
• Transporters
• Port Authorities
• Statisticians, etc.
STRUCTURE OF THE HARMONISED SYSTEM (HS)

The structure of the Harmonized System (HS) Nomenclature is comprised of 21 Sections and
99 Chapters. Chapter 77 is reserved for future use in the HS and Chapters 98 to 99 are
reserved for special uses by the contracting parties. The Harmonized System provides a
coding system that is based on a hierarchical structure, starting with the Section at the higher
level and getting more specific at Chapter, heading and subheading levels (Yu 2008).
Chapters, headings and subheadings are coded according to their positions in the hierarchy
and these Section, Chapter and sub-Chapter names are provided for ease of reference and are
not part of the legal text for classification purposes in terms of General Interpretative Rule 1
to be discussed in detail later.

Arrangement of Sections of the Harmonized System

The Harmonized System comprises of 21 Sections which cover all the commodities of
international trade. The Section numbers are written in Roman numerals such as I, II, III. The
arrangement of Sections in the HS is based on three principles;
 1. Articles made of same material are grouped together, for example, Section II
(Vegetable products) and Section XV (Base metal and articles of base metal).
2. Goods of the same use or function are put together, for example, Section XVII
(Vehicles, aircrafts, vessels and associated transport equipment) and Section XIX
(Arms and ammunitions, parts and accessories thereof).
3. The stage of processing or degree of manufacturing of articles is put together, for
example, Section V (ores slag and ash) which are unworked and Section XV (Base
metal and articles of base metal) which are products of the articles in section V.

Breaking Down Tariff Code 0101 2100

CHAPTERS IN THE HARMONISED SYSTEM

Chapters are the next level of sub-division after Sections in the HS. Sections in the HS
contain one or more Chapters, for example, Section I has five Chapters, while Section III has
only one Chapter. The Chapter numbers are written in Arabic numerals and have 2 digits for
instance 01, 02,15, 16.

SUB-CHAPTERS IN THE HARMONIZED SYSTEM

A Chapter may be subdivided into two or more sub-Chapters to clarify and underline the
differences between products in the same Chapter. Such classes which are arranged according
to the characters, to the degree of processing, or to a combination thereof, are provided for in
Chapters 28, 29, 39, 63, 69, 71 and 72.

Example:

Chapter 71 Natural or cultured pearls, precious or semi-precious stones, precious

metals, metal clad with precious metal and articles thereof; imitation
jewellery; coin

Chapter 71 is divided into three sub-Chapters:

Sub-Chapter I Natural or cultured pearls and precious or semi-precious stones

Sub-Chapter II Precious metal and metals clad with precious metals
Sub-Chapter III Jewellery, goldsmiths’ and silversmiths’ wares and other articles

STRUCTURE OF THE HEADING AND SUBHEADING

The HS heading number is denoted by four digits codes. The first two digits show which
Chapter a commodity belongs to and the last two digits indicate position of the heading in the
Chapter. A heading may further be sub-divided into two or more subheadings, where deemed
appropriate, individualizing narrower categories of commodities. These subcategories
(subheadings), which are preceded with one or two dashes as the case may be, are identified
with an additional two digits numerical code. The one-dash subheadings are shown as five
digits numerical codes which are generated by adding one digit to the heading.

A one-dash subheading may be further subdivided to two-dash subheadings, which are

presented as six digits numerical codes created by adding one more digit after their parental
one-dash subheadings’ codes. The one-dash headings and two-dash subheadings are also
identified by recognizing the dashes “-” and “--” placed before their terms of subheading
respectively. In the case that a heading is not further subdivided, two zeros are added after the
four digits codes number. Where a subheading is not further divided, a zero is added after the
5th digit to make it six digit code which is the international harmonized system code.

PRINCIPLES USED IN THE ARRANGEMENT OF THE HS

The Harmonized Commodity Description and Coding System, generally referred to as
“Harmonized System” or simply “HS” is arranged according to the following principles;

 Materials of the commodity

 Function of the commodity
 Degree of processing

BASIC QUESTIONS TO ASK IN DETERMINING THE IDENTITY OF GOODS

1. What is it?
2. What is the substance or material composition?
3. What is its function or use?
4. Under what form is it imported?
5. Is it the only possible classification?
PUNCTUATION IN THE HARMONIZED SYSTEM
There are some basic punctuation marks and words used in the Tariff that affect the meaning
and scope of the classification being considered.

Semi-Colon
A semi-colon (;) used in a HS classification indicates a full stop. The portions of the
classification divided by means of a semi-colon are separate and distinct from each other. It is
used to indicate a full-stop and that a good or list of goods separated by semi-colons must be
treated as distinct and separate from each other when considering tariff classification at the
heading or subheading level.

Example
83.06 BELLS, GONGS AND THE LIKE, NON-ELECTRIC, OF BASE METAL;
STATUETTES AND OTHER ORNAMENTS, OF BASE METAL;
PHOTOGRAPH, PICTURE OR SIMILAR FRAMES, OF BASE METAL;
MIRRORS OF BASE METAL.

In this example the semi-colon indicates a full stop; separate items within the descriptive text
into independent units.

Colon
The colon (:) is used to indicate that additional information follows which pertains to the
goods specified. It is used to indicate that further subdivisions will occur. The colons appear
after the end of every subheading text which has further breakdowns. When a colon (:)
appears at the end of one-dash subheading text, it indicates that the one dash subheading is
further divided into two-dash subheadings.

Example:
Heading 01.03 Live swine
0103.10 - Pure bred breeding animals
- Other:
0103.91 -- Weighing less than 50kg
0103.92 -- Weighing 50kg or more

The one dash subheading text (pure bred breeding animals does not have a colon (:) and
therefore not further subdivided. On the other hand, the one dash subheading (Other) has a
colon (:) meaning that it is further subdivided into weighing less than 50kgs and weighing
50kgs or more.

Comma
The comma (,) is used to separate a list or series of goods. It is to separate items or list of
goods described in the heading and subheading texts. It is also used to separate the list of
items from the descriptor phrase or from a series of descriptors to which the items belong.

Example

84.29 SELF-PROPELLED BULLDOZERS, ANGLEDOZERS, GRADERS,

LEVELLERS, SCRAPERS, MECHANICAL SHOVELS, EXCAVATORS,
SHOVEL LOADERS, TAMPING MACHINES AND ROAD ROLLERS.
In this example commas are used to separate items in a list.

Example

72.21 BARS AND RODS, HOT-ROLLED, IN IRREGULARLY WOUND COILS, OF

STAINLESS STEEL.
Commas are also used to separate descriptors in a heading/subheading text. Descriptor is an
element or term that serves to describe, identify, or index something. The description of the
heading states that the “bars and rods” classified under the heading should be “hot-rolled”,
imported in “irregularly wound coils”, AND made “of stainless steel.”

Period (.)

It is used to indicate a full stop in the heading text which means only those products
mentioned are included and nothing more.

Example
42.03 ARTICLES OF APPAREL AND CLOTHING ACCESSORIES, OF LEATHER OR
OF COMPOSITION LEATHER.

The period indicates the end of the descriptive text of the heading. Only those article
described therein can be classified under the term of that heading.

“And” and “Or”

Finally, the words "and" and "or" are important. "And" indicates that to be eligible under a
classification more than one condition must be satisfied, while "or" indicates that alternatives
exist.

For example:

OTHER MODELS, NOT BEING ASSEMBLY KITS AND NOT INCORPORATING A

MOTOR.

In this case, the models may not be assembly kits and they may not incorporate a motor.

For example:

Potatoes, fresh or chilled.

The potatoes can be either fresh or chilled. It is not necessary for them to be both fresh and
chilled. Careful reading of the notes, and a close regard to punctuation, are necessary to
interpret and understand the Customs Tariff.
Special Provisions

Some of the legal Notes have the expression “otherwise require”. This means that if other
legal provisions provide different views to those notes, they are given preference.

Example

Note 1 to Chapter 25 reads:

“Except where the context or Note 4 to this Chapter otherwise requires, the headings of
this Chapter cover only products which are in the crude state or washed with chemicals to
eliminate impurities without changing the structure of the product, but not products which
have been roasted, calcined, obtained by mixing or subjected to processing beyond that
mentioned in each heading.”

On the other hand, the text of heading 25.07 reads “Kaolin and other kaolinic clays, whether
or not calcined.”

In this case, the provision of the terms of heading 25.07 is given preference to Note 1 to
Chapter 25.

DASH SYSTEM
In the Harmonized System (HS), when a Heading is divided into two or more 6-digit
subheadings, a single dash appears before the description of products to indicate the first
level of divisions. And when necessary, subheadings are broken down into two or more 2-
dash subheadings to indicate the second level of subdivisions. Dashes are laid down in an
increasing manner. A one-dash is followed by two dashes, two dashes by three dashes, three
dashes by four dashes, and so on.
The Dash Principles
When classifying goods, compare only subheadings at the same level:
(a) Only compare one-dash subheadings that are under the same heading.
(b) Choose the one-dash subheading that fits the description of the goods being classified;
(c) If the established one-dash subheading is further divided, compare all two-dash
subheadings that are under that one-dash subheading and choose the two-dash
subheading that fits the description of the goods being classified; and, if applicable,
 (d) Compare all three-dash subheadings under the established two-dashed and determine
the correct three-dash subheading classification.

OTHER
“Other” is the most recurring description found in almost all HS headings. “Other”, provides
for a more general, widely-scoped, and sometimes vague coverage. When headings are
further divided into subheadings, two major groups are generally created:
(a) Subheading/s with specific description
(b) Subheading/s with the description “Other”

Describing the coverage of “Other” is just like answering a puzzle since it is sometimes
difficult and tricky. Extra care should be taken into consideration in describing the coverage
of “Other” especially when there are too many subheadings involve.

Steps in describing Other:

1. Read the terms of the heading, i.e., the articles mentioned under the 4-digit heading.
2. Take note of the dash level of subheadings.
3. “Other” covers articles not provided by subheadings under the same dash level taking
into consideration the description of the preceding subheading with a lower dash
count.

LEGAL AND NON LEGAL TEXTS

Legal Text
The Harmonized System contains Section Notes, Chapter Notes and Terms of the heading
as legal texts according to Rule 1 of the Harmonized System. The Subheading Notes and
terms of the Subheadings are legal texts at the subheading level according to Rule 6 of the
General Interpretative Rules of the Harmonized System. Section or Chapter Notes should
be consulted for every classification.

Non-Legal Text
There are a number of publications that assist in the classification of goods, the Explanatory
Notes (EN) of the Harmonized System, the Alphabetical Index and the Compendium of
Classification Opinions. These should be referred to during the classification process. The EN
and the Index are the HS Committee’s formal guidance on the HS, the compendium is the HS
Committee’s classification decisions of individual goods. They help users during
classification. However, it should be noted that these publications have no legal force.

PRINCIPLES OF TARIFF CLASSIFICATION

When classifying merchandise under the Harmonized System, the language of the General
Rules of Interpretation, section, chapter and subheading notes, and the terms of the headings
and subheadings are to be consulted and applied. They constitute the “legal text” or the
“nomenclature” of the Harmonized System. The titles of sections, chapters and subchapters
are provided for ease of reference only and have no legal significance.

Merchandise may be specifically provided for or identified by its common, commercial or

technical name in an article or product description (i.e., the text to a heading or subheading)
in the Harmonized System. When merchandise is not so specifically provided for in the
Harmonized System, the article description covering such merchandise is generally
considered to be a “residual provision” (sometimes also referred to as a “basket provision”)
by use of the phrase “not elsewhere specified or included” or by the use of the term “other.”

A commodity can thus be classified either by:

(1) Terms of heading,
(2) Notes to sections, chapters or subheadings,
(3) General interpretative rules.

INTERPRETATION OF LEGAL NOTES, TERMS OF THE HEADING

To ensure uniform interpretation and application of the HS, there are classification principles
and legal notes which shall be consulted in the process of classifying goods.

Definitions

Terms of the heading

These are descriptions of commodities in the HS at four digits level. Headings are further
split into subheadings. Headings having mutually related scopes are grouped into a Chapter,
and relevant Chapters are grouped into a Section.
Section and Chapter Notes

These are legal provisions to be referred to during classification of goods. They guide users
during classification of goods. The notes form an integral part of the HS and appear after the
titles of Sections and Chapters in the nomenclature.

Subheading Notes

These are legal provisions that guide the classification at the subheading level. They may
appear after Chapter notes in the nomenclature.

FEATURES AND STYLES OF THE TERMS OF HEADINGS

There is a difference between punctuation marks which are used in a normal text and the one
used in the HS. It is also important to note that several heading texts have broad meanings but
some of heading texts have a specific meaning.

Article with broad meanings

Some of the terms of headings refer to a specific product or article (for example heading
04.09 “Natural honey”, heading 12.03 “Copra”, heading 96.04 “Hand sieves and hand
riddles”. Terms of headings having broad meanings, for example, heading 39.26 “other
articles of plastics” is a basket heading of Chapter 39 (for articles of plastic) and covers office
and school supplies, articles of apparel and clothing accessories (gloves etc), fittings for
furniture made of plastic, if those articles are not referred to in other headings. Another
example is heading 09.01, which includes “coffee” roasted or not roasted and whether or not
decaffeinated. The heading includes coffee in husks and skins and coffee substitutes
containing coffee in any proportion.

TYPES OF NOTES

There are three types of Notes; Section Notes, Chapter Notes and Subheading Notes. Section
and Chapter Notes clarify the scopes of Section, Chapter and heading (within 4-digit level).
Subheading Notes only clarify the scope of subheading for the purpose of classification at the
subheading level (within 6-digit).

Functions of Notes
Notes establish as precisely as possible the scope and limits of certain Headings, Chapters
and Sections, or define or give classification guidance to certain terms or expressions. These
notes derive their legality from GIR 1 and 6. The Notes can be grouped into 7 categories:

1. Illustrative Notes
These Notes demonstrate an exhaustive or non-exhaustive list of goods falling in a heading of
a group of headings. Illustrative Notes can further be divided into exhaustive and
nonexhaustive notes.

(a) Exhaustive Notes

They exemplify an exhaustive list of goods falling in a heading or a group of headings.

Examples:

 Note 3 to Chapter 39 give the exhaustive list of goods falling in headings 39.01 to
39.11 (synthetic polymers in primary forms)
 Note 11 to Chapter 39 enumerate ALL articles which are to be classified in heading
39.25(e.g. builders’ ware of plastic which includes reservoirs, tanks, of a capacity
exceeding 300 liters, doors, windows and their frames). The Chapter Note provides
the definite scope of Heading 39.25.
 Note 7 to Chapter 90 describe all the goods falling in heading 90.32 (Automatic
regulating or controlling instruments and apparatus).

(b) Non-Exhaustive Notes

These are Notes which point out a non-exhaustive list of typical goods falling in a heading. It
should be noted that those non-exhaustive lists merely give examples of products to be
covered by particular headings

Examples:

 Note 4 to Chapter 15 list some examples of products falling in heading 15.22.

 Note 4 to Chapter 25 give a list of goods, inter alia, included in heading 25.30
(Mineral substances and products).
 Note 11 to Chapter 48 states that heading 48.23 (Other papers) applies, inter alia, to
the products mentioned in the Note
  Note 2 to Chapter 86 gives a list of goods, inter alia, falling in heading 86.07 (Part of
railway, etc.) the list given is not exhaustive.

2. Exclusion Notes
The Notes are designed to avoid misclassification arising when goods are classifiable under
two or more headings by application of only the provisions of terms of headings. Therefore
they exclude some articles from a particular heading. These Notes give an inventory of
certain articles that must not be included in a particular Section.

Examples:
Section Note
Note 1 to Section XI and Note 1 to Section XV provide the descriptions which list certain
articles that must be excluded from the Chapters of those Sections.
Chapter Notes
These Notes denote goods/commodities that should be excluded from a particular heading in
favor of another heading for example;
 Note 1 to Chapter 15 excludes certain goods like pig fat (heading 02.09), cocoa butter
(heading 18.04).
 Note 2 to Chapter 10 excludes sweet corn from heading 10.05 (Maize corn).
 Note 5 to Chapter 59 excludes certain fabrics from heading 59.07.

3. Definition Notes
These Notes ascertain the meanings of particular terms or expressions within a Chapter or a
Section.
Examples
 Note 1 to Section II defines the term “pellets” mentioned in that Section.
 Note 5 to Section XVI give the meaning of the term “machine” used in Notes 1 to 4 of
that Section.
 Note 2 to Chapter 44 defines the meaning of the expression “densified wood”
applicable throughout that Chapter.

4. Classification Notes
These Notes establish the class of certain goods which are clearly classifiable under two or
more headings. They instruct users how to classify such commodities for examples;
 Note 1 to Section VII establishes the classification of certain goods put up in sets
consisting of two or more separate constituents.
 Note 4 to Section XVII establishes the classification of “amphibious motor vehicles”

5. Limitation Notes
The Notes give lists of classifiable goods or articles, stipulate requirements for classification,
or clarify the scopes of headings. The limitation Notes basically include the expressions “…
apply only to …” or “… cover only …” or “does not cover...” in those texts.
Examples:
 Note 3 to Chapter 39 (Heading apply only to …) and Note 1 to Chapter 82 (This
chapter covers only............) Note 1 to section IX (This section does not cover........)

6. Preference Notes
The Notes give priority to one or several headings over one or several other headings.
Examples;
 Note 2 to Chapter 84 stipulate that headings 84.01 to 84.24 and 84.86 take preference
over headings 84.25 to 84.80.
 Note 5 to Chapter 90 gives preference to heading 90.31 over heading 90.13 for certain
measuring or checking optical instruments, appliances or machines.
 Note 3 to Chapter 25 gives preference to heading 25.17 over any other heading of that
Chapter as to the products which could potentially be classified in that heading.
 Note 2 to Section VI gives certain headings preference over all other headings
throughout the Nomenclature, in respect of products put up in measured dozes or for
retail sale.

7. Constructive Notes
These notes have expressions like “… to be regarded as …” or “applies only...” in those texts.
Example
 Note 3 to Chapter 12 (the seeds listed in the Note are to be regarded as “seeds of a
kind used for sowing”).
 EXAMPLE OF A CUSTOMS TARRIFF

SECTION I

LIVE ANIMALS; ANIMAL PRODUCTS

Notes

1. Any reference in this Section to a particular genus or species of an animal, except where the
context otherwise requires, includes a reference to the young of that genus or species.
2. Except where the context otherwise requires, throughout the Nomenclature any reference to
“dried” products also covers products which have been dehydrated, evaporated or freeze-dried.

Chapter 1

Live animals

Note.
1. This Chapter covers all live animals except:
a) Fish and crustaceans, molluscs and other aquatic invertebrates, of heading 03.01, 03.06, 03.07 or
03.08
b) Cultures of micro-organisms and other products of heading 30.02; and
c) Animals of heading 95.08.

RATES OF DUTY
Description of Goods
RSA Bilateral
Quantity Data

Differentiated
COMESA
Heading No.

General
Commodity

SADC
SADC
MFN

VAT
ZA

Other
Code

0101 LIVE HORSES,

ASSES, MULES AND
HINNIES
- Horses
0101.2100 --Pure bred breeding 1.Kg Free Free 0% F.U.L 0% 0% 0%
animals 2.No
0101.2900 --Other 1.Kg Free Free 0% F.U.L 0% 0% 0%
2.No
0101.3000 -Asses 1.Kg Free Free 0% F.U.L 0% 0% 0%

GENERAL RULES OF INTERPRETATION

The tariff classification of merchandise under the Harmonized System is governed by the
principles set forth in the General Rules of Interpretation (“GRIs”). The GRIs are intended to
be consulted and applied each time merchandise is to be classified under the Harmonized
 System. Accordingly, it is the GRIs that are the single set of legal principles that always
govern the classification of merchandise under the Harmonized System.

General Interpretative Rules simply referred to as GIRs are a set of rules that govern
classification of goods in the Nomenclature. There are six rules (GIR 1- 6) applied
sequentially or hierarchically to ensure uniformity and consistency in the application of the
HS and how the Nomenclature should be interpreted.

The General Interpretative Rules (GIRs) establish the classification principles which are
applicable throughout the Harmonized System Nomenclature. The Rules should be quoted to
support classification. GIRs clearly provide a step by step basis for the classification of goods
within the HS so that, in every case, an article must first be classified in its appropriate 4-
digits heading, then to its appropriate one-dash subheading within that heading and only
thereafter to its appropriate two-dash subheading within the predetermined one-dash
subheading.

When classifying merchandise, one must be aware that due to the hierarchical structure of the
Harmonized System:
 merchandise must first be classified in the Harmonized System in the 4-digit heading
whose terms most specifically describe the merchandise (unless otherwise required or
directed by the GRIs); and
 only 4-digit headings are comparable (i.e., no consideration should be given to the
terms of any subheading within any 4-digit heading when considering the proper
classification of merchandise at the 4-digit heading level).

General Rule of Interpretation No. 1

RULE 1
Rule
The 1 takes
titles precedence
of sections, over the
chapters andremaining rules. are
sub-chapters It requires thatforclassification
provided be determined
ease of reference only; for
legal purposes, classification shall be determined according to the terms of
first according to the terms of the headings of the Harmonized System and any relative the headings and any
relative section or chapter notes and, provided such headings or notes do not otherwise require,
section or
according to chapter notes.provisions:
the following Rule 1 further
(thatstates that2 if
is Rule to the
6) texts of the headings and of the notes
cannot, by themselves, determine the appropriate heading for classification of merchandise,
then classification is to be determined by the appropriate Rules that follow Rule 1 that is Rule
2 to 6.

General Rule of Interpretation No. 2

RULE 2

(a) any reference in a heading to an article shall be taken to include a reference to that
article incomplete or unfinished, provided that, as entered, the incomplete or unfinished
article has the essential character of the complete or finished article. It shall also include
a reference to that article complete or finished (or falling to be classified as complete or
finished by virtue of this rule), entered unassembled or disassembled.
(b) any reference in a heading to a material or substance shall be taken to include a
reference to mixtures or combinations of that material or substance with other materials
or substances. Any reference to goods of a given material or substance shall be taken to
Rule 2 contains two sections: 2 (a) and 2 (b). These two sections deal with the classification
include a reference to goods consisting wholly or partly of such material or substance.
of goodsThe
thatclassification of goods
as imported are consisting
(1) incomplete of more than
or unfinished, (2)one material or
unassembled or substance shall be
disassembled,
according to the principles of rule 3.
or (3) composed of mixtures or combinations of materials or substances.

GRI 2 (a)
GRI 2 (a) has two parts. Part one deals with incomplete or unfinished goods and part two
deals with unassembled or disassembled goods.
Part One
The first part of GRI 2 (a) extends the scope of any heading that refers to a particular article
to cover not only the complete article but also that article incomplete or unfinished, provided
that, as presented, it has the “essential character” (which is discussed below) of the complete
or finished article.
Part Two
The second part of GRI 2 (a) provides that complete or finished articles presented
unassembled or disassembled (which may occur for reasons related to the packing, handling
or transportation of the articles) are to be classified in the same heading as the assembled
article. It also provides that incomplete or unfinished articles presented unassembled or
disassembled are to be classified in the same heading as the complete or finished article
provided that as presented they have the essential character of the complete or finished article
(as provided for in the first part of GRI 2 (a).

GRI 2 (b)
GRI 2 (b) governs the classification (1) of mixtures and combinations of materials or
substances and (2) of goods consisting of two or more materials or substances. The rule
extends headings referring (1) to a material or substance to include mixtures or combinations
of that material or substance with other materials or substances and (2) to goods of a given
material or substance to include goods consisting wholly or partly of that material or
substance (but only as long as another heading does not refer to the goods in their mixed or
composite state). If the addition of another material or substance deprives the imported good
of the character of the kind mentioned in the heading under consideration, however, then one
must resort to GRI 3 for classification of the merchandise. Or, in other words, mixtures and
combinations of materials or substances, and goods consisting of more than one material or
substance, if upon initial consideration are potentially classifiable under two or more
headings, they must be classified according to the principles of GRI 3.

EXAMPLE: Under GRI 2 (b), a stainless steel travel mug with a plastic handle would be
classifiable in heading 7323 as a table, kitchen or other household article of steel despite
the plastic handle (as it retains the character of a table, kitchen or other household article
of steel as mentioned in heading 7323). If a travel mug, however, contained relatively equal
amounts of stainless steel and plastic (e.g., the outside or outer surface of the mug is made
of plastic and the inside or inner surface (lining) of the mug is made of stainless steel),
then the travel mug would be potentially classifiable under two headings: heading 3924 as
tableware, kitchenware or other household article of plastic and heading 7323 as a table,
kitchen or other household article of steel. (Or, contrasting this product with the initial one
considered in this example, a travel mug consisting of relatively equal amounts of stainless
steel and plastic does not have the character of a table, kitchen or other household article
of steel as mentioned in heading 7323.) In this situation, pursuant to GRI 2 (b), resort
would need to be made to GRI 3 for classification of the product.

General Rule of Interpretation No. 3

RULE 3
When, by application of rule 2(b) or for any other reason, goods are, prima facie,
classifiable under two or more headings, classification shall be effected as follows:
(a) The heading which provides the most specific description shall be preferred to
headings providing a more general description. However, when two or more
headings each refer to part only of the materials or substances contained in
mixed or composite goods or to part only of the items in a set put up for retail
sale, those headings are to be regarded as equally specific in relation to those
goods, even if one of them gives a more complete or precise description of the
goods.
(b) Mixtures, composite goods consisting of different materials or made up of
different components, and goods put up in sets for retail sale, which cannot be
classified by reference to 3(a), shall be classified as if they consisted of the
GRI 3 provides for the classification of goods that are prima facie (or when initially
considered) classifiable under two or more headings. In such instances, the goods are
classified pursuant to this rule based on three criteria, taken in order:

GRI 3 (a)
The first sentence to GRI 3 (a) provides that goods should be classified in the heading that
provides the most specific description. In general, under this criterion, (1) a description by
name is more specific than a description by class and (2) a description that more clearly
identifies a product is more specific than one which is less complete.

EXAMPLE 1: An example of a description by name in one heading that is more specific

than a description by class in another heading is as follow: “shavers and hair clippers with
self-contained electric motor” of heading 8510 is more specific than “electro-mechanical
tools for working in the hand with self-contained electric motor” of heading 8467 or
“electro- mechanical domestic appliances with self-contained electric motor” of heading
8509.

EXAMPLE 2: An example of a description in one heading that more clearly identifies a

product than a description in another heading (and thus the first description is more
specific than the second description) is as follows: A product identified as “unframed
safety glass made of toughened or laminated glass that is shaped and identifiable for use in
airplanes” is more clearly described by the article description “safety glass” of heading
7007 than by the article description “parts of goods of heading 8801 or 8802” (parts of
aircraft and spacecraft) of heading 8803.
The second sentence to GRI 3 (a) further provides that when two or more headings each refer
to only one of the materials or substances in mixed or composite goods, or to only some of
the articles included in a set put up for retail sale, those headings are to be regarded as equally
specific in relation to those goods, even if one of them gives a more complete or precise
description of the goods. If this situation exists, then resort must be made to GRI 3 (b). (See
examples discussed below for GRI 3 (b).)

GRI 3 (b)

GRI 3 (b) deals with mixed goods, composite goods, and goods put up in sets for retail sale as
described above in the second sentence to GRI 3 (a) (i.e., each of the goods is potentially
classifiable in more than one heading because each good consists of two or more different
ingredients, materials, components or articles and no heading provides for the goods as a
whole). By application of this criterion, such goods are classified according to the ingredient,
material, component or article that gives the mixtures, composite goods, or sets their
“essential character.”

Goods Put up in Sets for Retail Sale. For the purposes of GRI 3 (b), the term “goods put up
in sets for retail sale” means that the goods under consideration must (a) consist of at least
two different articles (i.e., the articles must be of a different type or nature, e.g., two table
spoons are not such a “set”) which are, prima facie, 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.

MIXTURE EXAMPLE: An example of a “mixture” coming within the purview of GRI 3

(b) would be a mixture of barley of heading 1003 and oats of heading 1004 in equal
amounts. In such an instance, there is a product consisting of two or more ingredients with
each ingredient having a provision in which it could potentially be classified and no
provision exists in the Harmonized System that provides for the mixture as a whole.

COMPOSITE GOOD EXAMPLE: An example of a “composite good” coming within the

purview of GRI 3 (b) would be a combined flashlight of heading 8513 and radio of heading
8527 (i.e., both are contained in the same housing). In such an instance, there is a product
consisting of two or more different units or components that are located in the same
housing with each component having a provision in which it could potentially be classified
and no provision exists in the Harmonized System that provides for the composite good as
a whole.

SET EXAMPLE: An example of a “set” coming within the purview of GRI 3 (b) would be
a hairdressing kit consisting of a pair of electric hair clippers of heading 8510, a comb of
heading 9615, a pair of scissors of heading 8213, and a brush of heading 9603. In such an
instance, there is a product that consists of more than one item or article with each article
having a provision in which it could potentially be classified and no provision exists in the
Harmonized System that provides for the set as a whole. In the above-mentioned
hairdressing kit, the articles are put up together to meet the particular need or carry out the
specific activity of grooming hair.

In each of the above-mentioned three examples, one would need to make a determination as
to the ingredient, material, component or article that imparts the essential character to the
particular good. The good would then be classified as if made or consisting entirely of that
ingredient, material, component or article. In some situations, however, no ingredient,
material, component or article will be found to impart the essential character to a particular
good. In such instances, resort would need to be made to GRI 3 (c) in order to classify the
good.

GRI 3 (c)

GRI 3 (c) states that goods should be classified under the heading that occurs last in
numerical order from among those that equally merit consideration if the goods cannot be
classified by reference to GRIs 3 (a) or 3 (b).

EXAMPLE: In the above-mentioned example of the mixed good consisting of barley and
oats in equal amounts, if neither the barley nor the oats is found to impart the essential
character to the product, then by application of GRI 3 (b) the product would be classified
in heading 1004 as if consisting solely of the oats. This is because the heading number for
the oats found in the mixture occurs last in numerical order as between it and the barley
(i.e., 1003 for the barley and 1004 for the oats).
WHAT IS THE ESSENTIAL CHARACTER OF A PRODUCT?

The term “essential character,” as used in the GRIs, is not defined in the Harmonized System.
As concerns that term, however, it is stated in the Explanatory Notes to the Harmonized
System (which is an extrinsic interpretative aid to the Harmonized System that is discussed
below) that the factor that determines the essential character of a good will vary as between
different kinds of goods (i.e., essential character must be determined on a case-by-case basis).
The essential character of a good, may, for example, be determined by the nature of the
material or component, its bulk, quality, weight or value, or by the role of a constituent
material in relation to the use of the goods. Other factors may be considered in determining
the essential character of a product.

General Rule of Interpretation No. 4

RULE 4
Goods which cannot be classified in accordance with the above rules shall be classified
under the heading appropriate to the goods to which they are most akin.

If goods cannot be classified according to GRIs 1 to 3, then resort must be made to GRI 4.
GRI 4 requires that goods are to “be classified under the heading appropriate to the goods to
which they are most akin.” This rule should be applied very infrequently as GRIs 1 to 3 will
cover the classification of almost all goods. When attempting to apply this rule, however, any
determination regarding “kinship” should depend on such factors as description, character,
purpose or intended use, designation, production process and the nature of the goods.

General Rule of Interpretation No. 5

RULE 5
In addition to the foregoing provisions, the following rules shall apply in respect of the
goods referred to therein:

(a) Camera cases, musical instrument cases, gun cases, drawing instrument cases,
necklace cases and similar containers, specially shaped or fitted to contain a
specific article or set of articles, suitable for long- term use and entered with the
articles for which they are intended, shall be classified with such articles when of
a kind normally sold therewith. This rule does not, however, apply to containers
which give the whole its essential character;
GRI (b)
5 hasSubject
two sections:
to the GRI 5 (a) and
provisions of GRI
rule 55(a)
(b). above,
These two sections
packing deal with
materials andvarious types
packing
containers entered with the goods therein shall be classified with the goods if
of containers
theypresented
are of awith
kindthenormally
articles for which
used forthey are intended.
packing such goods. However, this
provision is not binding when such packing materials or packing containers are
clearly suitable for repetitive use.
GRI 5 (a)

GRI 5 (a) deals with the treatment of long-term use cases, boxes, and similar containers
presented with the articles for which they are intended. Under this rule, long-term use
containers imported with articles for which they are intended to be used are to be classified
with the articles if they are of a kind of container normally sold with such articles (e.g.,
camera cases with cameras and musical instrument cases with musical instruments). This
rule, however, does not apply to containers that give the imported article its essential
character (e.g., a silver tray or dish containing tea or a high-quality ornamental ceramic bowl
containing candies or sweets). Such merchandise is to be classified under the heading for the
container.

GRI 5 (b)

GRI 5 (b) states that packaging containers and materials not normally intended to be reused
are classified with the articles in which they are presented or imported (e.g., cardboard boxes
or containers containing food products). This rule, however, does not apply to packaging
materials or packing containers clearly suitable for repetitive use (e.g., certain metal drums or
containers of iron or steel for compressed or liquefied gas). Such containers are to be
classified separately from the materials that they hold.

General Rule of Interpretation No. 6

RULE 6
For legal purposes, the classification of goods in the subheadings of a heading shall be
determined according to the terms of those subheadings and any related subheading
notes and, mutatis mutandis, to the above rules, on the understanding that only
subheadings at the same level are comparable. For the purposes of this rule, the
relative section chapter and subchapter notes also apply unless the context otherwise

GRI 6 is the last of the GRIs. It prescribes that, for legal purposes, GRIs 1 to 5 govern,
mutatis mutandis (or with the necessary changes), classification at subheading levels within
the same heading. Or, in other words, GRIs 1 to 5 are to be reapplied to determine the
classification of goods at the subheading level. Goods are to be classified at equal subheading
levels (that is, at the same digit level) within the same heading under the subheading that
most specifically describes or identifies them (or as otherwise required or directed under
GRIs 1 to 5). Only subheadings at the same level within the same heading are comparable
(i.e., no consideration should be given to the terms of any subheading within another
subheading when considering the proper classification of merchandise at the higher level
subheading).

EXAMPLE 1: A framed glass mirror is found to be classified in heading 7009. Thereafter,

it would have to be classified within the subheading structure of that heading by
application of GRIs 1 to 5 pursuant to GRI 6:

- GLASS MIRRORS, WHETHER OR NOT FRAMED, INCLUDING REAR-

VIEW MIRRORS.

7009.10 - Rear-view mirrors for vehicles

- Other:

7009.91 -- Unframed

7009.92 -- Framed

Initially, a determination would need to be made as to whether the framed glass mirror is
classified at the 5-digit (or “one-dash”) subheading level in 5-digit subheading 7009.1 (“rear-
view mirrors for vehicles”) or in 5-digit subheading 7009.9 (“other”). If the product is found
to be classified in 5- digit subheading 7009.1 (as a rear-view mirror for a vehicle), then the
classification analysis would end there and the product would be classified in subheading
7009.10 (as 5-digit subheading 7009.1 is not further subdivided). In the instant case, the
framed glass mirror does not satisfy the article description for 5-digit subheading 7009.1.
Therefore, the product would be classified at the 5-digit subheading level in 5-digit
subheading 7009.9 (as a glass mirror other than a rear-view mirror for a vehicle). Next, a
determination would have to be made as to whether the product is classified at the 6-digit (or
“two-dash”) subheading level within 5-digit subheading 7009.9 in 6-digit subheading
7009.91 (as an unframed glass mirror other than a rear-view mirror for a vehicle) or in 6-digit
subheading 7009.92 (as a framed glass mirror other than a rear-view mirror for a vehicle).
The framed glass mirror would be classified in subheading 7009.92 by application of GRI 1
pursuant to GRI 6.

EXAMPLE 2: A set consisting of a shovel, fork, and pick for use in gardening would be
classified in heading 8201 as each article is specifically provided for in the terms to that
heading. Within heading 8201, shovels are provided for in subheading 8201.10, forks in
subheading 8201.20, and picks in subheading 8201.30. Consequently, one would need to
resort to GRI 3 pursuant to GRI 6 in order to classify the set at the subheading level within
heading 8201. That is, one would need to determine which of the three articles imparts the
essential character to the set pursuant to GRI 3 (b). If no one article is found to impart the
essential character to the set, then one would classify the set under subheading 8201.30
because the subheading number for that article occurs last in numerical order as provided for
in GRI 3 (c).

As evident from the above discussion, the GRIs provide that goods must first be classified
by heading level, and only after the appropriate heading has been determined, then by equal
subheading levels (first by five-digit and then by six-digit international levels) within that
heading. When considering the appropriate classification at a particular subheading level, no
consideration should be given to any of the terms of any lower-level subheading (as the
analysis at each subheading level should be conducted without consideration of the terms of
any lower-level subheading provision). This step-by-step analysis applies without exception
throughout the Harmonized System (and throughout any national subheading levels as found
in a particular country’s Harmonized System-based tariff system).

STEPS TO FOLLOW IN CHOOSING THE MOST APPROPRIATE TARIFF

CLASSIFICATION

(a) Choose the Section and Chapter.

(b) Compare all possible Headings while reading pertinent Legal Notes (i.e.,
Section/Chapter Notes) to determine possible headings that can be considered.
(c) Use the GIRs (Rules 1 - 5) to determine the appropriate heading classification.
(d) Compare all possible subheadings under the chosen heading by the dash-level of
subdivisions, while reading pertinent Legal Notes (i.e., Subheading Notes).
(e) Finally, use GIR Rule 6 to determine the applicable subheading classification.
RATES OF DUTY

Duty is the amount of tax paid on an imported good. The amount of duty that an importer has
to pay is determined by three factors:
1. The type of goods (their classification)
2. The value of the goods (their valuation)
3. The country from which the goods originated (the rules of origin)
The tariff is the rate at which an import is taxed; the rate is dependent on the classification of
the goods, as well as their country of origin. The tariff rate is also called the duty rate.

The Harmonized System Convention imposes no obligations on the contracting parties

regarding rates of duty. Rates of duty are left to each contracting party to apply based on
national legislation. The rates of duty for most countries are generally the result of trade
agreements that is either bilateral agreements or multilateral agreements such as World Trade
Organization bound tariff-rate agreements. Rates of duty are charged either as advalorem
duty and specific duty.

Specific duty is a duty imposed on each unit of a commodity imported or exported. It is easy
to calculate and administer as it can simply be calculated by multiplying the rate of duty with
number of units imported or exported. It is levied on such goods whose quantification in
terms of number of units is possible. For example, number of T. V. sets and meters of cloth.
In spite of advantages over advalorem duty, specific duty is not very popular as most of the
countries use advalorem duties. In this case value of commodity is not taken into
consideration, for example, $5 on each meter of cloth imported or $500 on each T.V. set
imported.

Advalorem duty is a duty imposed on the total value of commodity imported or exported. It is
difficult to calculate as it requires a proper assessment of the value of goods imported or
exported and is levied on such goods whose quantification in terms of number of units is not
possible. Generally most of the countries charge duties on the basis of value of goods
imported or exported, i.e., Advalorem duties. In this case physical units of commodity are not
taken into consideration. For example, 5% of F.O.B. value of cloth imported or 10% of C.I.F.
value of T.V. sets imported
Practice Example
For each of the given items you are required to state the correct 8 digit tariff code.
DESCRIPTION TARIFF CODE NOTES
Hair Shampoos
Rubber based adhesive/glue in
a 5kg tin
Bathroom scales with a
maximum weight of 130kg
Typewriter ribbons – inked
Fermented black tea in 5kg
packs
Wheat bran
Ornamental dogs of china
Filing cabinets of steel
Ceramic flower pots
Needle roller bearings
Medicated toilet soap