What is a Harmonized System (HS) Code?
- The Harmonized System (HS) code is an internationally standardised system of names and numbers to classify traded products.
- HS codes are used by over 200 countries as a basis for their Customs tariffs and collection of international trade statistics.
- The HS code is a unique identifier to classify the exact type of goods being shipped.
- Including a product’s HS code in shipping documents ensures uniformity in when clearing goods.
HS Code Format and Structure
The HS code consists of 6-digits and is essential for determining the applicable tariffs and duties, and it plays a crucial role in the documentation required for shipping.
Importance of Accurate Classification
Classifying your goods with the right HS code or commodity code is key to successful importing. This classification makes your products easily identifiable and compliant with international regulations which is vital for smooth customs clearance and logistics management. Correct classification can also save you costs by avoiding unnecessary tariffs and duties.
Using the wrong HS code can lead to delays, extra charges and penalties for non compliance. Misclassification can trigger customs inspections resulting in extended hold times and fines, delaying the release of your products, which can of course affect the businesses’ cash flow.
Correct classification can give you clear benefits such as taking advantage of free trade agreements with lower tariff rates for specific products. These agreements can save your business a lot of costs and allow you to offer more competitive pricing in the international market.
Knowing the exact HS code can help you assess market demand and identify new opportunities for growth. It also ensures compliance to health and safety standards which is critical for products subject to strict regulations such as pharmaceuticals and food items.
Finding the Right Code
The shipper is always responsible for providing the HS code or the correct commodity code. So you as the shipper must ensure you have the correct HS code for your products to avoid any issues during the transportation process. Understanding the correct HS code is not only for compliance but also for the smooth running of your business and it’s cashflow.
You can find the HS code for your product through your country’s government website. Many countries have online databases and search tools where you can look up the correct HS code by inputting product descriptions or keywords.
There are also third party platforms and software solutions that have comprehensive databases and expert help to determine the correct HS code.
Below are links to some of the official government websites:
- US Tariff Code: https://hts.usitc.gov/
- UK Tariff Codes: https://www.gov.uk/trade-tariff
- EU Tariff Codes: https://ec.europa.eu/taxation_customs/dds2/taric/taric_consultation.jsp?Lang=en
- Canada Tariff codes: https://www.tariffinder.ca/en/getStarted
- Australia Tariff Codes: https://ftaportal.dfat.gov.au/
- South Africa Tariff Codes: https://www.freightnews.co.za/customs/tariffs
In addition, below are some useful tools if you need to find the right commodity code and duty rates:
Businesses must indicate the HS code in their shipping documents so there’s a uniform mode of clearance every time. Include the correct HS code in all shipping documents such as invoices, packing lists and bills of lading to facilitate the customs clearance process. This way, customs authorities can quickly verify the classification of goods and reduce the risk of delays and get your shipments moving through international borders.
Variations in Classification
Harmonized System (HS) classification can be complex with many variables. These variables can affect accuracy of classification and compliance with customs regulations so it’s important for businesses to understand and navigate them well.
One of the main factors that cause classification variations is the interpretation of product descriptions. Different countries or customs authorities may interpret the same product description differently and this can result in different HS codes. This is more challenging for products with ambiguous or broad descriptions that don’t fit into one category.
Another factor is the constant evolution of products and technologies. As new products are developed and existing ones are modified, the HS code system must adapt to these changes. This can result in updates and revisions of the HS codes so businesses must stay informed and up-to-date to ensure accurate classification.
Variations can also occur due to differences in national tariff schedules. While the HS code is a 6-digit code, countries can add more digits to create subcategories for their tariff schedules. This means a product classified under a certain HS code in one country may have different classification in another country and this will affect the applicable tariffs and duties.
To navigate these variations, businesses should regularly check for updated HS codes. If you’re using a customs broker or freight forwarder, contact them and ask them if your products are classified correctly. By understanding and addressing these variations, businesses can ensure compliance with international trade regulations and avoid customs issues.
Benefits of Using the Harmonized System
The HS code, developed by the World Customs Organisation helps to facilitate global supply chains by providing a common language for customs authorities and international traders. This shared understanding helps move goods across borders efficiently, minimising delays and helping to streamline delivery schedules. HS codes can be integrated with logistics and supply chain management systems, which help shippers track their shipments.
Commodity Codes and HTS Codes: What’s the Difference?
Commodity codes are also known as Harmonised System (HS) codes, which are internationally recognized and used by customs authorities to classify products and determine taxes, tariffs, and duties. These codes are crucial for businesses engaging in international trade, as they ensure that products are accurately classified and taxed according to the regulations of the destination country. By using the right HS code, businesses can avoid costly mistakes and make sure they are compliant with global trade standards.
Challenges in Classification
HS classification can be tricky and many products are not classified under one heading. This is because of the multitude of products and variations within each category which requires detailed analysis to determine the correct classification but some items fall into grey areas which can lead to misclassification by shippers.
It’s very important to note that shippers are solely responsible to classify their goods accurately but may misclassifying HS codes due to lack of knowledge on HS classification rules. This requires a good understanding of the product and the subheadings under the HS system. Misclassification can happen if traders rely solely on product descriptions without considering the specific criteria in the HS code.
Best Practices for Harmonized System Code Classification
Don’t use the wrong HS code as it may lead to having to pay unintended duties and taxes, import restrictions or get rejected at the destination country. The right HS code ensures your products are classified correctly as per destination country’s customs regulations and helps in smoother import process.
Mark the correct HS code in the shipping documents so that mode of clearance is uniform every time. Accurate documentation with correct HS code reduces the risk of delays at customs and your shipments are processed and reaches on time.
Use the tools and resources listed above to find the correct HS code for your product. These tools have detailed descriptions and classifications that makes it easy to match your product with the code.
Consult with customs authorities, your customs agent or freight forwarder if you are not sure of the correct HS code for your product. Deal with professionals who have in-depth knowledge of international trade regulations and get their guidance. They can help you navigate the Harmonized System and ensure your products are classified correctly and you are compliant with global trade standards.
The ABTS® International Trade Mastery Programme
Understanding HS-codes is just one small part of importing and exporting. Before you dive in and find suppliers and setup your new import export business, it’s very important to understand how to navigate the world of international trade.
The ABTS® International Trade Mastery Programme teaches you import export from the ground up, how to handle sea freight and air freight and the most affordable shipping options, how to approach retail businesses, how to use trade shows to your advantage and of course, how to find reliable manufacturers.
You’ll learn how to maximise your profits while reducing your risk.
To lean more, check out the ABTS® International Trade Mastery Programme.