HTSUS Classification and the Letter of Credit Description

By Catherine J. Petersen    5/5/2017

During the Q&A at the end of a recent Letter of Credit presentation, I fielded a question on descriptions in letters of credit. I was focused on letters of credit and the details of the UCP 600 during the Q&A, which requires the description on the commercial invoice to match that in the letter of credit.

After the fact, the question stayed in my head, and I realized that the question encompassed more than letters of credit. Here's a brief synopsis of the question:

"Our company sells systems to firms in the Kingdom of Saudi Arabia (KSA). When the quotation is prepared the description is of a system, but when the merchandise is being shipped, it is disassembled for shipping and packaging. When the items are removed from the system, they no longer qualify as the finished item and the items are of multiple countries of origin. The Saudi customer is upset when we request an amendment to the description in the LC from a system to an item with several separate components attached of various countries of origin. How do we deal with this with our customer?"

There are four parts to this firm's conundrum: the first is the description that leads to the second, which is classification of the goods. Third is the country of origin of the disassembled machinery components. Additionally, there is the question of whether the firm has obtained a Certificate of Conformity (CoC) for the machine.

Instead of focusing on the Letter of Credit portion of the question, I should have discussed the options available to her and her company to discuss the classification and description of the goods. KSA is a member of the Harmonized System (HS); within the HS, there are six General Rules of Interpretation or GRIs. The GRIs provide this firm with an option if they use GRI (2) a. GRI (2) a. essentially states that even if disassembled, the machine retains the classification of the product in its finished state. (See the General Notes of the HTSUS for the full text.) If the customer and KSA Customs authorities agree with her use of GRI (2) a., then the machine may be described per the letter of credit with a caveat as an "unassembled machine being shipped for installation and assembly in the KSA." However, her firm and the KSA customer are advised to petition the KSA Customs Authority to confirm the HS classification.

Country of origin determination for the disassembled machine components remains an issue that is not easily resolved. KSA has written that all imported products must be permanently marked with their country of origin; please see KSA's curricular number 99 /SEEN/43/MEEM of 2008. This exporter will require the assistance and cooperation of its customer. 

Finally, this company may want to engage Underwriters Laboratories, Bureau Veritas, Intertek or SGS Group to obtain a Saudi Arabian Conformity Assessment leading to issuance of a CoC for the machine.

Selling and then shipping internationally challenges an exporter to pull out every tool in its box to collaborate internally - sales, contracts, customer service, trade compliance and finance to ensure the description and the country of origin is as expected from start (quote) to finish (commercial invoice). The goal is to prevent disputes, delays, and discrepancies.