Trading is about exporting and importing goods. It has to classify those traded products. Thus, the need for a classifying system has appeared. HS Harmonized System (HS) Codes are one of the most used industrial classification systems in the export of commodities. In this article, we will discuss the HS meaning, structure, usage, maintenance, and classification. We will also address challenges, and how we can find HS Code.
HS code meaning
HS stands for Harmonized System which is a global product classification system. The Harmonized System is a standardized numerical classification system for traded goods. Customs officials used it all over the world to identify products and collect statistics when assessing duties and taxes.
The WCO (World Customs Organization) developed it. as a multipurpose global product nomenclature for characterizing the categories of commodities provided. Customs officers are now required to use the HS code to clear any goods that enter or cross international boundaries. So, if you are willing to export, you will need to know the HS code for your support.
HS Code Structure
HS codes are divided into Chapters (first two digits), Headings (first four digits), and Subheadings (full 6 digits). Depending on the country, the HS codes are then broken down into 7 to 12-digit items. (also referred to as commodity codes and national tariff lines).
A person can describe The HS code as follows
- It is a six-digit identification code.
- It has 5000 commodity groups.
- Those groups have 99 chapters.
- Those chapters have 21 sections.
- It’s organized in a legal and logical structure.
- Well-defined rules support it to realize uniform classification.
The code was created in response to the Kyoto Convention of 1974. and it simplifies and harmonizes Customs operations. The Kyoto Protocol lays out how to establish efficient procedures. As well as new and mandatory rules for doing so. As of January 2017, there are approximately 106 Contracting Signatories/Parties to this treaty.
HS codes are now used in electronic messages such as the EDIFACT. This has aided the system’s adoption as a global standard for defining goods across many platforms. Because of its widespread use, authorities such as the Port and Customs departments can identify products.
HS Code Usage
HS Codes are important to importers and exporters. Because having the proper product classification is part of their legal responsibility.
- Prepare physical commodities for transportation to a foreign country by classifying them;
- When the value of cargo exceeds $2,500 or the item requires a license, report it to the Automated Export System (AES).
- Complete any necessary shipping documents. Such as the shipper’s letter of instructions, business invoice, or certificate of origin.
- Determine the rates of import tariffs (duties) and if a product qualifies for a preferential tariff under a free trade agreement.
- Conduct market research and get trade statistics.
- Follow U.S. law, where applicable.
HS Codes aren’t just used by customs officers. People use code to manage commodities by many international organizations and private companies. The following are some of the aspects of this management:
- monitoring goods
- trade policies
- transport statistics
- quota controls
- traffic statistics
- origin rules
It is safe to say that the HS Code has become a vital aspect of worldwide trade. And is a universal language for commodities classification.
Maintenance and Classification of HS Code
The HS is governed by the International Convention on Harmonized Commodity Description and Coding. The Explanatory Notes produced by the WCO provide the official interpretation of the HS.
The WCO places a high priority on maintaining the HS code. This includes various procedures to ensure that the HS code is interpreted consistently. As well as periodic modifications in light of technological advancements and changes in trade trends.
The Harmonized System Committee, which represents the Contracting Signatories/Parties to the HS Convention, oversees the entire process for the WCO. The Committee makes categorization choices, evaluates policy issues, resolves disputes, and drafts Explanatory Notes revisions. Every 5-6 years, this group prepares bills to improve the HS System.
HS classification is the process of allocating HS codes. GRI is used to classify all commodities in the HS (General Rules of the Interpretation of the Harmonized System).
- GRI 1 prescribes how to classify products at the four-digit Heading level, according to the wording of the headings and the related HS Section and Chapter Notes.
- GRI 2 prescribes how to classify both unassembled and incomplete items, as well as mixtures and combinations of commodities.
- GRI 3 prescribes the way to classify products that are, prima facie, classifiable under two different HS headings.
- GRI 4 prescribes the way to classify products that cannot be classified based on GRI’s 1, 2, and 3.
- GRI 5 prescribes how to classify packaging.
- GRI 6 prescribes how to classify products at the six-digit subheading level, according to the wording of the subheadings and the related HS Section and Chapter Notes.
Challenges in the Classification of Companies
Since the classification system has gained international acceptance, it is critical to avoid errors in application and interpretation. Implementing the code incorrectly can cause misunderstanding among Customs authorities. It can also cause shipment deletion. It may even result in sanctions in some situations.
Misinterpretation is possible since people from various backgrounds and countries are implementing the same technology. Misinterpretation leads to incorrect categorization. Which leads to the imposition of incorrect tariff taxes on the commodity. The trader has already lost a significant amount of time by the time the errors are remedied.
As before stated, the loss can also take the form of fines as a result of incorrect categorization. Any question about the HS code’s implementation should be directed to the Customs authorities’ compliance personnel.
How do I find HS Code?
The HS Code for your product will be listed on the commercial invoice a buyer receives with their order. It may be used to classify products upon export and to calculate applicable taxes and duties upon import. You can use this link: http://www.foreign-trade.com/reference/hscode.htm to help determine what the HS code for your product should be.
If you’re in doubt about the correct HS codes to use, it’s prudent to consult customs or ask experts in customs clearance companies for advice.
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