Despite being used by customs authorities around the world, HS codes are more than a little complicated. In this article, we zoom in on an harmonized system that aims to keep your foreign export operations running smoothly.
Understanding HS codes
An HS code is a six-digit code that gives a precise indication as to the exact nature of an imported product. The Harmonized System behind this code streamlines customs clearance procedures for international imports and exports.
Used by import/export businesses and in the international development of e-commerce sites, an HS code features in any documentation associated with the goods and is checked by customs authorities at the borders of importing countries before being cleared for customs.
HS codes aid shipping procedures in three ways:
- allowing customs authorities to ascertain any taxes due as per the type of goods;
- enabling customs authorities to check movement of the goods is permitted within the territory;
- allowing the territory’s administration to enrich its statistical data on imported goods.
Good to know: HS codes are handled by the International Convention on the Harmonized Commodity Description and Coding System.
The Harmonized System
HS Codes came into force in 1983, standardizing customs procedures around the world, and are now accepted in 176 countries. The system is managed by the World Customs Organization (WCO) which publishes guidelines explaining how the codes work.
The huge range of goods being exported and imported between countries means the Harmonized System is inevitably complex. However, the system gives all the continents and most territories their own export code.
This means 98% of goods imported for trade around the world fall under the Harmonized System – that’s over 200,000 product types!
It is pretty much essential for exporting businesses to use HS codes nowadays if they want easy access to new markets, so understanding how the codes work is vital. The code will be requested each time your goods cross a border.
Good to know: The Harmonized System was last changed on 1 January 2017. Its classifications are updated every five years.
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The composition of an HS code
The first six digits
HS codes are made up of six digits in the following format: XXXX.XX.
This numerical sequence allows each product to be identified by its:
Before the six digits, it is necessary to specify the section to which the merchandise belongs. There are 21 sections subdivided into various chapters.
Section 05 is “Mineral Products”, containing Chapters 25–27.
NB: The section does not appear in the HS Code, but must be stipulated before continuing to the six digits.
There are 99 chapters represented by the first two digits of the HS code. Chapters are listed within the sections as detailed lists of product types.
Chapter 26 is “Ores, slag and ash”.
Sections and chapters are both classified by the degree of goods manufacturing. So the more complex the fabrication of a product, the further down the list it appears.
The third and fourth digits of an HS Code represent the product title. There are 1,244 in total, each of which is specific to the selected chapter.
Title 03 (from Chapter 26) is “Copper ores and concentrates”.
Although sometimes the section and the first four digits (chapter and title) are sufficient to classify the product precisely, the HS code always ends with a subtitle in the format of XX containing the final two digits. There are no fewer than 5,244 subtitles.
“Copper ores and concentrates” appears in HS code “Section 5: 2603” and does not have a derivative. So its subtitle is “00”, with the resulting HS code “Section 05: 2603.00”.
Other digits and particular cases
As some territories like China, the USA, the EU and even member states of the Mercosur customs union have their own classification systems further to HS codes, exporters should familiarize themselves thoroughly with any other coding systems.
Many codes use eight digits, 13 in the case of China.
These combinations allow the countries in question to collect more precise data relating to imported goods. Also, any tax payable may differ according to the suffix.
Using an HS code
Conditions of use
Requested in legible form on business invoices and customs documentation, the HS code helps:
- customs authorities;
- government regulators;
- data collection agencies.
As any mistakes are liable for fines at the cost of the customer it is vital you familiarize yourself with the nomenclatures used by the host country.
Customers in Switzerland and other countries, the WCO, online resources, and research tools supplied by your carrier….there are a host of ways to ensure that your goods are classified with the correct code until you become more used to the process.
Good to know: If you cannot find an appropriate HS code for your goods – even after in-depth research – it can be placed in the catchall ‘Other goods” category.
On top of the benefits of HS codes for importing countries and customs authorities, the compliance of your documentation has an impact on your business relationships.
Using the correct codes will streamline your international deliveries – use guesswork here and it could result in a fine and even a refusal to import.
A central part of your export policy, using the Harmonized System will streamline your logistical costs and your customer relations. To take this further, b-sharpe will work with you to simplify your currency exchange needs.