Exporting and or importing goods can be demanding, especially for less experienced traders, and are not au fait with the procedures involved. In this article, we look at the classification of commodities in the shipping and customs clearance process. The topics covered are:
- What are Harmonized System (HS) codes?
- When is an HS Code Required?
- Who are the Users of HS Codes?
- Applying the Correct Code – What You Need to Know
- What’s New?
- Moving Ahead
What are Harmonized System (HS) Codes?
Adopted in 1988 by the World Customs Organization, the Harmonized Commodity Description and Coding System is the basis by which the multipurpose international product nomenclature, known as the Harmonized System (HS), was developed. Under this system, more than 5,000 commodity groups have HS codes. Features of HS nomenclature include:
- Global Application - More than 212 countries and economies use these codes as a basis for their Customs tariffs and the collection of trade statistics.
- Distinctive Structure - An HS code can have up to ten digits, with the first six numbers being universal. Countries may add numbers for their purpose. The HS consists of 21 sections, subdivided into 99 chapters.
The first of the six digits has a three-part breakdown. Using an HS code example, we explain what each part represents. Here the HS code 8471.30 is for a personal computer, where:
- 84 (first two digits) corresponds to the Chapter
- 84.71 (first four digits) corresponds to Heading in that chapter, and
- 8471.30 (full six digits) corresponds to the Subheading
When is an HS Code Required?
You will need the HS code if you are shipping products to another country. Shipping documents such as commercial invoices, bill of lading, or certificate of origin must include the HS code. The HS code assists users in determining:
- The applicable tariff for a product.
- If a product qualifies for duty and or tax exemption under a preferential tariff regime.
- If a product is prohibited or in compliance with a country’s trade regulations
Who are the Users of HS Codes?
HS code is not restricted to importers and exporters only as it is also extensively used by governments, trade offices, international institutions, and the private sector for a myriad of purposes such as:
- internal taxes
- trade policies
- monitoring of controlled goods
- rules of origin
- freight tariffs
- transport statistics
- price monitoring
- quota controls
- compilation of national accounts
- economic research and analysis
Please visit World Customs Organization to learn more.
Applying the Correct HS Code – What You Need to Know
Approximately 98% of all products are assigned an HS code. Therefore, it is likely that an HS code exists for your product. However, the product’s use may not be the basis for the classification as sometimes items are based on their composition.
Utilizing an incorrect code could create delays and the burden of additional costs associated with demurrage charges and storage. There is also an implication for tariffs. For example, if the tariff rate of the incorrect HS code is higher than the assigned rate, you will be out of pocket, having to pay more. However, if the tariff is lower than the rate, the Customs agent could consider the misdeclaration deliberate and impose penalties.
Where there is uncertainty concerning the correct interpretation of the codes, seek advice from a logistics expert such as a Customs Broker or a freight forwarder. You can also contact your local customs department or conduct an online search using a foreign tariff lookup tool to guide your decision.
We recommend that you check the HS code for your product every time you need to apply it. Why? Because the HS code you are using could change as countries periodically review them. Also, some countries may have different HS codes for the same product.
The WCO publishes a new version of the Harmonized System in five-year review cycles. The Contracting Parties of the HS have approved the January 2022 edition, and countries are preparing for its implementation. This new edition will represent the 7th Release of the HS nomenclature.
Close examination of the new HS 2022 edition shows that 56% of the 351 amendments apply to three sectors: agricultural, food, and tobacco; machinery and electrical and electronic goods; and the chemical sectors. For information on the modifications, please visit WCO HS 22 for details on the amendments.
Now that you know the importance of HS codes, you can move forward in your trade-related activities with greater awareness. Remember, when in doubt, consult a specialist or conduct an online search. Support is readily available.
**To access the 2017 version of the HS codes, you may visit WCO Trade Tools.