GRI 1: The First Rule of Customs Classification, and the Most Common Basis for Fraud
Every product imported into the United States must be classified under a mandatory set of rules called the General Rules of Interpretation. The first rule — classify according to the terms of the headings and any relative section or chapter notes — resolves the vast majority of classification questions. It is also the rule whose misapplication has produced more False Claims Act settlements than all the others combined.
Every product imported into the United States must be assigned a ten-digit classification code under the Harmonized Tariff Schedule of the United States. That code determines the applicable duty rate, whether antidumping or countervailing duties apply, and a range of other legal consequences. It is not a matter of preference: importers are legally required to exercise reasonable care in classifying their goods correctly, and a knowing misclassification is a false statement on every customs entry — actionable under the False Claims Act on every shipment where it appears.
Classification is governed by six General Rules of Interpretation, applied in strict hierarchical order. GRI 1 comes first and is always applied first. GRI 2 through GRI 6 may only be used if the preceding rules do not resolve the question. In practice, they rarely need to be. Most goods — furniture, steel pipe, pharmaceuticals, electronics, apparel, machinery — are specifically described in a heading of the HTSUS, and a correct GRI 1 application produces a clear, unambiguous answer. Because most goods are classified under GRI 1, most customs classification fraud happens there too.
How GRI 1 Works: Heading Terms and Legal Notes
GRI 1 has two components that carry equal legal weight. The first is the heading text itself — the four-digit description that defines the scope of a tariff provision. The second is the section and chapter notes that accompany the HTSUS. Both are legally binding. The chapter and section titles are not: the HTSUS explicitly states that titles are provided for ease of reference only and have no legal effect on classification. What controls is the text of the heading and the notes.
Section notes apply to all chapters within a section. Chapter notes apply to all headings within a chapter. Their functions vary: some notes define terms used in the headings, some expand the scope of a heading to include goods not explicitly named, and some — critically — exclude specific goods from a chapter or heading that might otherwise appear to apply. An exclusionary note has the same binding force as the heading text. A product that falls within a heading’s terms but is explicitly excluded by a chapter note is not classified in that heading.
This two-part structure means that a GRI 1 misclassification can occur in two distinct ways: by misdescribing the goods so that a favorable heading appears to apply when it does not, or by correctly describing the goods but ignoring a legal note that would foreclose the favorable heading. Both are false statements. Both are actionable under the False Claims Act when made knowingly.
Misdescription: False Statements About What the Goods Are
The more straightforward GRI 1 fraud is simple misdescription: the goods are accurately known to the importer, but they are described on the customs entry in a way that invokes a lower-duty heading. This is the pattern behind most of the large customs fraud FCA settlements of the past decade.
The wooden bedroom furniture cases are the clearest illustration. Chinese-origin wooden bedroom furniture was subject to substantial antidumping and countervailing duty orders. Importers who wanted to avoid those duties described their goods as something else — metal furniture, office furniture, entertainment furniture — that either fell under a different, lower-rate heading or was not covered by the AD/CVD orders at all. The heading for wooden bedroom furniture specifically and completely described the goods. GRI 1 required that heading. The false description on the entry was a knowing misstatement that generated FCA liability on every affected shipment. Z Gallerie settled for $15 million. University Furnishings settled for $15 million. Blue Furniture Solutions settled for $5.2 million. Bassett Mirror settled for $10.5 million. The pattern repeated across the industry because the financial incentive was large and the misdescription easy to execute.
The same dynamic appears across industries. Ceratizit, in the $54.4 million settlement announced in December 2025 — the largest customs fraud FCA recovery in history — was alleged in part to have used incorrect HTS codes that reduced the applicable general duty rate to zero for tungsten carbide products that fell under a higher-duty heading. Linde was alleged to have declared stainless steel piping as carbon steel piping: a different material, a different heading, and dramatically lower antidumping exposure. A 2024 DOJ lawsuit alleged that Chinese solar panels were classified as LED lights. In each instance, the goods were specifically described by an existing HTSUS heading, and a correct GRI 1 application would have produced a clear answer. The false entry was not a judgment call about an uncertain tariff boundary. It was a decision to describe the goods as something other than what they were.
Legal Notes: The Binding Constraints Importers Prefer to Ignore
The second GRI 1 fraud vector is less frequently discussed but equally real. Section and chapter notes are part of GRI 1, and an importer who selects a heading while ignoring a note that forecloses it is misclassifying just as surely as one who misdescribes the goods.
Exclusionary notes are the most direct example. Many chapters of the HTSUS contain notes that exclude goods classifiable in other, more specific chapters. Chapter 63, covering certain made-up textile articles, excludes goods classifiable in earlier chapters. Chapter 90, covering optical and precision instruments, excludes articles more specifically described elsewhere. Chapter 94, covering furniture, excludes certain items specifically provided for in earlier chapters. These exclusions exist to resolve ambiguities at the boundary between chapters — ensuring that a product with features of multiple chapters ends up in the correct one. An importer who classifies goods in a chapter whose exclusionary note specifically covers those goods has made a false statement under GRI 1, not a reasonable judgment call.
Definitional notes are a subtler but equally significant source of liability. Many chapters contain notes that define terms used in the headings — and those definitions control, not the ordinary meaning of the word. Chapter 94’s definition of “furniture,” Chapter 84’s scope note on machinery, Chapter 39’s definitions governing plastics: all establish the precise boundary of what qualifies for a given heading. An importer who applies a heading to goods that the chapter’s definitional note excludes from that heading’s scope has not made a permissible interpretation of ambiguous language. It has ignored a binding legal constraint that is as much a part of GRI 1 as the heading text itself.
In practice, note-based misclassification is harder to recognize from inside a company than misdescription, because it requires knowledge not just of the goods but of the notes. This is one reason it tends to be the customs broker or compliance officer who spots it first. An instruction from management to classify goods under a heading despite broker advice that a chapter note forecloses it is a recognizable pattern — and a strong indicator of the knowing state of mind the FCA requires.
What Employees Should Look For
GRI 1 fraud leaves recognizable traces. The employees most likely to encounter it are those in customs compliance, trade operations, and legal — but also product managers and sourcing teams who know what the goods actually are and can see that the customs declaration describes them as something different.
Specific signals include a customs classification that does not match the product’s own marketing materials, specifications, or internal product descriptions; a history of CBP Form 28 requests or Form 29 notices questioning the classification, followed by a decision to continue using the same code; a customs broker’s written advice recommending a different heading that was overruled without documented analysis; and any internal communication that acknowledges the correct heading but directs use of an alternative because it produces a lower duty rate or avoids antidumping exposure.
The False Claims Act’s qui tam provisions allow individuals with original knowledge of this kind of fraud to file suit on behalf of the United States and share in any recovery — typically 15 to 30 percent of what the government recovers. In GRI 1 cases, the evidentiary foundation is often straightforward: the product description, the CBP ruling history for similar goods, and the internal communications that establish the importer knew the correct classification and chose a different one. Contact us for a confidential consultation if you have observed this pattern.
