Explanatory Notes to CN and HS – How to Use Them and Why They Are Important
In the dynamic world of international trade, where billions of products are moved across borders daily, accuracy and clarity are absolutely crucial. Every company involved in import and export faces a fundamental challenge: how to ensure that customs authorities around the world understand exactly what is in the shipment? The answer is the universal language of commerce – a system of numerical codes that transcends language barriers and enables uniform classification of all goods.
This guide is a comprehensive introduction to two fundamental pillars of this system – the Harmonized System (HS) and the Combined Nomenclature (CN) – and focuses on the most important, yet often overlooked tool: Explanatory Notes. Understanding what these explanatory notes are, why they are indispensable, and how to use them correctly is the difference between smooth customs clearance and costly delays, fines, and legal disputes. This article will provide you with detailed insight into this issue and will serve as your reliable guide for correct tariff classification of goods.
Basic Pillars of Goods Classification
Before we delve into the explanatory notes themselves, it is necessary to define the systems to which they relate. These systems form a hierarchical structure where each subsequent level adds a greater degree of detail.
Harmonized System (HS)
What is it?
The Harmonized System for the Description and Coding of Goods (HS) is an internationally standardized nomenclature managed by the World Customs Organization (WCO). It serves as the basic building block for customs tariffs and the collection of trade statistics worldwide. The HS is used by more than 200 countries and economies. Knowledge of it is essential for anyone trading across borders.
Structure and Hierarchy of HS
- HS code has 6 digits, which are binding worldwide.
- Code breakdown:
- First two digits: Chapter (e.g., 84 – Nuclear reactors, boilers, machinery and mechanical equipment).
- First four digits: Item (e.g., 8408 – Piston internal combustion engines).
- Six digits: Subheading (e.g., 8408.10 – Marine piston internal combustion engines).
- HS contains approximately 5,300 subheadings and covers the vast majority of world trade products.
Purpose of HS
- Determination of customs duties and rules of origin.
- Collection of international trade statistics.
- Monitoring of controlled goods.
- Application of trade agreements, embargoes, preferential regimes.
- Ensuring uniform classification of goods and clarity of customs declarations.
Combined Nomenclature (CN)
What is it?
The Combined Nomenclature (CN) is an eight-digit goods coding system valid within the European Union. It builds directly on the HS, adopts its six-digit structure and supplements it with two European digits for more detailed classification.
Structure and Relationship to HS
- Code structure: 6 HS digits + 2 CN digits = 8 CN digits.
- Each eight-digit CN subheading allows more detailed distinction of goods within the EU (e.g., for statistical, customs, and trade policy purposes).
- Updated annually – see current CN version.
Purpose of CN in the EU
- Determination of the exact customs duty rate when importing from third countries.
- Basis for trade statistics between member states (INTRASTAT) and with third countries (EXTRASTAT).
- Assignment of additional EU measures (anti-dumping, quotas, bans, embargoes).
TARIC (Integrated EU Tariff)
What is TARIC?
- TARIC is the integrated EU tariff – an extensive database that, based on the CN code, displays all trade policy and customs measures applicable to a specific import or export.
- Enables the application of specific measures to narrowly defined groups of products (up to 10 digits).
Main Functions of TARIC
- Displays current customs duties, preferential and suspension duties, quotas, anti-dumping measures.
- Provides information on import/export bans/restrictions, licensing requirements, excise taxes, VAT.
- Is updated daily and publicly available.
Explanatory Notes: The Key to Correct Interpretation
The names of items in the nomenclature alone are often too brief to cover the diversity of products. This is where explanatory notes come in.
What are Explanatory Notes?
- Official comments and clarifications to the texts of nomenclature (HS and CN).
- They are issued by two authorities:
- WCO – for HS (HSEN: Harmonized System Explanatory Notes).
- European Commission – for CN (CNEN: Combined Nomenclature Explanatory Notes).
- They are not legally binding in themselves, but are the most authoritative interpretive guidance and customs authorities follow them.
Structure of Explanatory Notes
| Type of Explanatory Notes | Publisher | Scope | Legal Force | Content |
|---|---|---|---|---|
| HSEN | WCO | 6-digit HS | Non-binding, authoritative | Description, examples, exclusions, definitions |
| CNEN | European Commission | 8-digit CN | Non-binding, authoritative (in EU) | Clarification for CN subheadings, European specifics |
Official wording of explanatory notes to CN can be found in the PDF document.
What do Explanatory Notes Contain?
- Detailed description of goods falling under a specific item.
- Technical parameters, material composition, method of manufacture, function and use.
- Lists of included and excluded products (including references to other items).
- Definitions of technical terms and clarification of ambiguous terminology.
- Practical examples of tariff classification (e.g., gift sets, composite goods).
Legal Force of Explanatory Notes and Their Use (Case Law, Opinions, Practice)
- Explanatory notes are not legally binding, but their importance in practice is fundamental.
- The Czech Supreme Administrative Court has repeatedly confirmed (e.g., judgment 2 Afs 62/2017) that “although explanatory notes do not have the nature of a legal regulation, they are an important tool for interpreting the nomenclature and customs authorities and courts should take them into account”.
- If the text of the nomenclature is ambiguous, reference to explanatory notes is the strongest argument in customs proceedings or court disputes.
- Explanatory notes to CN must always be interpreted in relation to HSEN – proceeding from the general (HSEN) to the specific (CNEN).
Why are Explanatory Notes so Important?
1. Legal Certainty and Predictability
- Correct classification is a legal obligation of the importer/exporter.
- Error = additional customs duty and VAT, fines, delays, seizure of goods.
- Explanatory notes provide a strong argumentative basis and are respected by customs authorities throughout the EU and worldwide.
2. Solving Complex Cases and New Products
- The nomenclature cannot cover all possible variants of goods.
- Explanatory notes offer solutions for:
- Composite products, sets, multifunctional devices.
- Goods made from new materials or technologies (bioplastics, electronics).
- Compounds and combinations of goods (gift packages, promo sets).
3. Minimizing Risk in International Trade
- Uniform interpretation = same HS/CN code in both export and import.
- Reduced risk of shipment detention due to classification dispute.
- Particularly important when exporting outside the EU, where HS forms the basis for customs proceedings in 200+ countries.
4. Optimization of Customs Costs
- Explanatory notes will help you find the most accurate and often most favorable code (legally!).
- Example: Distinction by material, function or composition can mean a difference in customs duty rate of several percent.
5. Protection Against Sanctions and Possibility of Defense
- In case of a classification dispute, argumentation using explanatory notes is a commonly accepted procedure.
- Explanatory notes are often cited in decisions of the Court of Justice of the EU.
How to Use Explanatory Notes in Practice: Step-by-Step Procedure
Correct use of explanatory notes is a systematic process. You cannot simply “flip through” them – you must proceed from legal and technical rules.
Step 1: Start with General Rules for Interpretation (GRI)
- GRI (General Rules for the Interpretation) are binding rules that determine how to read and apply the nomenclature.
- Example: GRI 1 specifies that classification is always governed by the wording of the item and notes to classes and chapters, not just the name!
- Explanatory notes often contain examples of how these rules are applied.
Step 2: Study Notes to Classes and Chapters
- Notes may clearly determine that a certain type of goods does not belong in a chapter (e.g., “This chapter does not include…”).
- They are legally binding!
Step 3: Analysis of Nomenclature Text and Comparison with Product
- Carefully read the descriptions in the nomenclature, including footnotes and supplementary information.
Step 4: Find Corresponding Explanatory Notes (HSEN, then CNEN)
- Find the corresponding item in HSEN (for 6 digits).
- Then in CNEN (for 8-digit CN). Check whether explanatory notes have been issued for your subheading – for some items CNEN is missing.
- Explanatory notes to CN in Czech: PDF document.
Step 5: Compare with Your Product’s Characteristics
- Compare the description, technical parameters, examples and excluded products in the text of the explanatory notes with your goods.
- If your product is on the border between two codes, pay attention to details (material, purpose, method of packaging).
Step 6: Verify Correctness in TARIC
- After determining the code, verify it in the TARIC system.
- You will obtain not only confirmation of correctness, but also the current customs duty rate and other applicable measures.
Step 7: Use the Public ZISZ/BTI Database
- The European database Binding Tariff Information (BTI) contains hundreds of thousands of binding classification decisions.
- By searching the database, you will find a precedent for the classification of similar goods, including justification and citation of the explanatory notes used.
Step 8: Request Your Own ZISZ (Binding Information on Tariff Classification)
- If you are unsure, or if it is a new/complex product, request the issuance of ZISZ.
- This decision is legally binding for 3 years in all EU member states.
Practical Examples of Using Explanatory Notes
Example 1: Composite Product – Gift Set
- A set containing a bottle of wine, cheese and pâté.
- According to GRI 3b (essential character) and explanatory notes on sets, the decisive factor is which component determines the character – here usually wine.
- Explanatory notes also explain the procedure when the essential character cannot be determined (then the last order in the nomenclature applies).
Example 2: Electronic Device with Multiple Functions
- Classification according to the main function (see explanatory notes to GRI 3c).
- If the device performs multiple functions, the decisive one is the one that is the main one for the customer.
Example 3: Product on the Border of Two Items
- E.g., sports shoes vs. regular shoes – explanatory notes determine the decisive parameters (sole material, intended use).
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