Incomplete Goods and Mixed Materials As Vehicles for Customs Fraud: GRI 2
GRI 2 is the classification rule most importers never think about — and the one most easily exploited by those who do. GRI 2(a) requires that incomplete or unassembled goods be classified as the finished article they will become. GRI 2(b) extends material-specific headings to cover mixtures and combinations. When importers deliberately misapply either rule — shipping finished goods as “parts,” or concealing a product’s true material composition — the result is a false statement on every customs entry, and the False Claims Act consequences can be substantial.
GRI 2 occupies a unique position in the General Rules of Interpretation. It is the bridge between GRI 1 — which resolves the vast majority of classification questions by reference to heading terms and legal notes — and GRI 3, which addresses goods that appear classifiable under two or more headings. GRI 2 does not resolve ambiguity. It expands scope: it tells importers that headings describing finished articles also cover those articles in incomplete or unassembled form, and that headings referring to a material also cover mixtures containing that material. When applied correctly, GRI 2 prevents importers from exploiting the physical state or material composition of goods to escape the heading that plainly describes them.
When applied incorrectly — or, more to the point, when deliberately not applied — GRI 2 becomes a vehicle for systematic duty evasion. The Linde GmbH case, which settled for more than $22 million in 2020, illustrates both sides of this dynamic: among other violations, Linde was alleged to have misrepresented the nature and classification of imported industrial equipment and piping, in ways that implicate exactly the kind of manipulation GRI 2 is designed to prevent.
GRI 2(a): Incomplete, Unfinished, and Unassembled Goods
GRI 2(a) has two parts, both of which expand the reach of HTSUS headings. The first provides that any heading referring to a particular article also covers that article in incomplete or unfinished form, provided the article as presented has the essential character of the complete or finished article. The second provides that a heading covering a finished article also covers that article when it is entered in unassembled or disassembled form.
The purpose of both provisions is straightforward: to prevent importers from obtaining a different — and typically lower-duty — classification merely because their goods arrive in pieces rather than whole. An unassembled bicycle shipped with all its components is still a bicycle under heading 8712. A set of wooden panels intended for assembly into a cupboard is still furniture under Chapter 94. A condenser unit imported without its filter and solar panel, but with all essential components present, is still a condenser unit. The rule reflects a practical reality of international shipping: goods are frequently disassembled for transport, and the tariff classification system does not change simply because a product requires assembly upon arrival.
The fraud potential lies in both directions. An importer may declare a complete or substantially complete article as something less than what it is — characterizing a fully assembled piece of industrial equipment as “parts” or “components” to escape a heading that carries higher duties or antidumping exposure. Alternatively, an importer may exploit the unassembled-goods provision in reverse by failing to apply GRI 2(a) when it should apply: importing all the components of a finished article in separate shipments, classifying each as a standalone part, and avoiding the duty rate that would attach to the assembled whole.
Linde: GRI Manipulation at Industrial Scale
The Linde GmbH settlement is the most prominent example of classification fraud that implicates GRI 2 principles. Linde, a German multinational that imports materials for the construction of natural gas and chemical plants, agreed to pay more than $22 million to resolve False Claims Act allegations that it knowingly made false statements on customs declarations to avoid paying duties. Between 2011 and 2017, the company imported over $500 million in goods into the United States.
The government alleged that Linde avoided duties by misrepresenting the nature, classification, and valuation of imported merchandise, as well as the applicability of free trade agreements. Among the specific allegations: Linde was accused of describing stainless steel piping as carbon steel piping — a GRI 1 misdescription that eliminated antidumping and countervailing duty exposure. Linde was also alleged to have failed to disclose assists: raw materials and components it provided to overseas manufacturers, the value of which must be added to the declared customs value of the finished goods. Separately, the case involved allegations that the company misrepresented the classification of assembled industrial equipment to obtain more favorable tariff treatment — a manipulation that goes directly to how GRI 2(a) should have been applied.
The whistleblower, Crystal Johnson, a purchasing and logistics manager who worked for Linde for ten years, received approximately $3.7 million from the settlement. The case was brought by Phillips & Cohen LLP and resolved with the assistance of the U.S. Attorney’s Office for the Eastern District of Pennsylvania, the DOJ’s Commercial Litigation Branch, and CBP’s Regulatory Audit division.
Linde is instructive not because it is unusual, but because it is representative. Companies that import large-scale industrial equipment, machinery, and fabricated components face GRI 2(a) questions on virtually every shipment. When the assembled article carries antidumping duties, Section 232 tariffs, or Section 301 tariffs, the financial incentive to characterize the goods as “parts” rather than as the assembled article is enormous. Linde demonstrates that this incentive, when acted upon, produces FCA liability.
GRI 2(b): Mixtures, Combinations, and Material Mischaracterization
GRI 2(b) operates on a different axis. Where GRI 2(a) addresses the physical state of goods — assembled versus unassembled, complete versus incomplete — GRI 2(b) addresses their material composition. The rule provides that any heading referring to a material or substance also covers mixtures or combinations of that material with other materials. Similarly, any heading referring to goods of a given material also covers goods consisting partly of that material.
The practical effect is that a stainless steel kitchen article with a plastic handle is still classifiable as an article of stainless steel under heading 7323, because the article retains the character of the material-specific heading despite the presence of a secondary material. A copper alloy — brass, bronze — is classifiable with articles of copper. A wooden table with rubber endcaps remains an article of wood.
GRI 2(b) contains an important limitation: when the addition of another material deprives the article of the character of the kind mentioned in the heading, the rule sends the classifier to GRI 3. A travel mug that is half stainless steel and half plastic, for example, may no longer have the character of a steel article, and must be analyzed under the GRI 3 framework. But where the primary material is clear and the secondary material is incidental, GRI 2(b) keeps the classification where it belongs.
The fraud vector here is the mirror image of GRI 2(a) fraud. Instead of misrepresenting the state of the goods, the importer misrepresents their material composition — or, more precisely, selects a classification that treats a secondary or incidental material as though it were the primary one. Linde’s alleged practice of declaring stainless steel pipe as carbon steel pipe is an extreme version of this: not a GRI 2(b) question in the strict sense (because the goods were being described as a different material entirely, which is a GRI 1 misdescription), but it illustrates the same underlying incentive. When the difference between two materials is the difference between a 0% duty rate and a 25% antidumping rate, the temptation to shade the material characterization is powerful.
Hypothetical Fact Patterns: GRI 2(a)
The following scenarios illustrate how GRI 2(a) might be deliberately misapplied to reduce duty exposure. As with all hypotheticals on this site, whether any specific situation is actionable under the False Claims Act depends on the facts, the documentary record, and the importer’s knowledge. These are illustrative only — but the patterns they describe are realistic, and each is grounded in how GRI 2(a) operates.
Imported industrial filtration system declared as parts. A company imports a complete industrial water filtration system from a Section 301 country. The system is designed as a single functional unit: housing, filter assemblies, pump, control panel, and connecting piping. Instead of declaring the shipment as a complete filtration machine under heading 8421 — which carries Section 301 duties at 25% — the importer enters each component on a separate line of the entry summary as “parts of filtering machinery.” The parts heading carries a lower general duty rate and, depending on the subheading, may avoid the Section 301 exposure entirely. Under GRI 2(a), when all the components of a finished article are shipped together, the shipment should be classified as the assembled article. An employee in logistics, engineering, or compliance who recognizes that these components are shipped together, are assembled on arrival, and constitute a single functional machine may have a viable qui tam claim if the importer has been advised of GRI 2(a)’s requirements and chosen to ignore them.
Structural steel framework shipped in sections and classified as steel articles. A construction importer brings in pre-fabricated steel building framework from China, subject to Section 232 duties at 25% as an assembled steel structure. The framework arrives in bolted sections that require only connection at the job site. Instead of classifying the shipment as a prefabricated building or structure under heading 9406, the importer declares each section as a separate article of iron or steel under heading 7308 at a lower duty rate, arguing that the sections are not yet a building. If the sections, taken together, have the essential character of the finished structure and require only basic assembly, GRI 2(a) requires classification as the complete article. An importer that has received a customs broker’s advice to this effect and chosen a different path has likely made a knowing false statement on every affected entry.
Unfinished industrial valves imported to avoid AD/CVD exposure. A manufacturer imports cast valve bodies from a country subject to antidumping duties on finished industrial valves. The valve bodies lack only machining, threading, and the installation of actuators — finishing steps that do not change the essential character of the article. Under GRI 2(a), an unfinished article that possesses the essential character of the finished article must be classified as the finished article. The importer instead declares the valve bodies under a heading for castings, which carries no antidumping exposure. If CBP ruling precedent on similar products establishes that valve bodies at this stage of completion have the essential character of finished valves, the classification is knowably wrong, and the antidumping duties are being systematically evaded.
Hypothetical Fact Patterns: GRI 2(b)
GRI 2(b) fraud typically involves the characterization of a product’s material composition in a way that moves it from a high-duty heading to a low-duty one. Because GRI 2(b) extends material-specific headings to cover goods consisting partly of that material, the manipulation often takes the form of emphasizing a secondary material to escape the heading that the primary material dictates.
Composite metal furniture classified under the secondary material. A furniture importer brings in dining chairs from China that are predominantly stainless steel — the frame, legs, and structural supports are all steel — with decorative wooden seat panels. Stainless steel furniture from China is subject to Section 301 tariffs at a significant rate. The importer classifies the chairs under heading 9401 with a subheading for wooden furniture, on the theory that the wooden seat panel is the defining feature. Under GRI 2(b), a heading referring to goods of a given material covers goods consisting partly of that material, and when the steel is clearly the predominant structural component, the article retains the character of a steel article. Classifying it under the wood subheading to eliminate Section 301 exposure is a misapplication of GRI 2(b) that, if knowing, generates FCA liability on every entry.
Chemical mixture classified under the lower-duty component. A chemical distributor imports an industrial cleaning compound from a Section 301 country. The compound is a mixture of two chemicals: one subject to a 25% Section 301 tariff under its heading, and one that is duty-free. The mixture is predominantly the high-duty chemical — approximately 80% by weight and by function — with the duty-free component serving as a stabilizer. Under GRI 2(b), the heading for the primary chemical substance also covers mixtures of that substance with other materials. The importer instead classifies the product under the heading for the stabilizer compound, arguing that the product’s shelf-stability is the defining commercial characteristic. This inverts the analysis: GRI 2(b) looks to the material that gives the article its character, not to the material that performs a secondary function. Filing entries on this basis, particularly after a customs broker has flagged the issue, may constitute a knowing false claim.
Coated steel products classified as articles of the coating material. An importer brings in steel wire rope from a country subject to Section 232 tariffs. The wire rope has a thin polymer coating applied for corrosion resistance. The coating represents less than 5% of the product by weight and value. The importer classifies the product under a heading for articles of plastics, arguing that the coating is the commercially significant feature. Under GRI 2(b), the product is an article of steel with an incidental addition of another material — the steel heading extends to cover this composition. CBP ruling precedent consistently classifies coated metal products under the base metal heading when the coating is protective or incidental rather than character-defining. An employee who knows the product is steel wire rope and sees it classified as a plastic article has identified a recognizable pattern of GRI 2(b) misapplication.
What Employees Should Watch For
GRI 2 fraud leaves identifiable traces, but they are different from the misdescription patterns that characterize GRI 1 cases. In GRI 2 cases, the physical goods may be accurately described on the entry — the fraud lies in how those goods are classified relative to their state of completion, assembly, or material composition.
Red flags for GRI 2(a) manipulation include: shipments of components that are always assembled into a single product on arrival, but are classified as separate parts on every entry; instructions from management to avoid classifying goods as a “complete” article despite engineering documentation showing the shipment contains all essential components; a pattern of shipping complete equipment in disassembled form without corresponding GRI 2(a) analysis in the classification file; and internal communications acknowledging that the goods are functionally complete but directing that they be entered as parts to reduce duty exposure.
Red flags for GRI 2(b) manipulation include: products classified under a heading for a secondary or minority material rather than the primary structural or functional material; classification decisions that emphasize coatings, additives, or minor components while ignoring the predominant material; a customs broker’s written advice recommending classification under a different material heading, overruled without documented analysis; and products whose marketing materials, technical specifications, and internal descriptions identify them by one material while the customs entry identifies them by another.
The people most likely to spot these patterns are customs compliance professionals, product engineers, logistics managers, and sourcing teams — anyone who handles both the physical product and the documentation that accompanies it through customs.
Speaking with an Attorney
The False Claims Act’s qui tam provisions allow private individuals with original knowledge of customs classification 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 2 cases, the legal standard for the correct classification is often well-established: CBP ruling letters, Explanatory Notes, and the GRI framework itself define when an article must be classified as the finished product and when a material-specific heading extends to cover a mixed-composition good. A skilled customs fraud attorney can use those authorities to demonstrate that the correct classification was knowable and that the importer’s departure from it was not an honest mistake. If you have observed a pattern consistent with any of the scenarios described above, contact us for a confidential consultation.
