Communication and transportation have made it easy for us to import and export goods. Everyone now has access to ordering items from all over the world. Our daily lives are now significantly influenced by international trade.
If you are involved in any product distribution activity, you must deal with the HS Codes concept a lot. Whether you are involved in the export or import business or want to place an order from another country, you need to have a clear idea about HS code to have smooth transportation of your product. It is an integrated part of international trade. Let’s find out what HS codes are and how they work.
What HS code Means
A clear understanding of HS code meaning and significance is imperative for the successful conduct of international trade. HS code stands for the Harmonized System or Harmonized Commodity Description and Coding System. It is a standardized numerical system for classifying traded goods.
The HS is updated every five years by the World Customs Organization (WCO). Countries use it as the basis for their import and export classification systems. It is a universal economic language for trade.
What is the HS code definition?
HS codes, or Harmonized Commodity Description and Coding System, describe and code traded commodities worldwide.
To assess duties and taxes and gather statistics, customs authorities worldwide use it to identify products. According to the domestic laws and regulations of the country, the customs authority or the responsible local organization may add additional digits to the unified six-digit code even though it is internationally standardized. For example, HS codes China ten digits.
HTS codes: understanding the terminology
World Customs Organization (WCO)
The complete form of WCO is Word Customs Organizations. It is an intergovernmental organization based in Brussels, Belgium, and over 200 member countries. WCO provides leadership, guidance, and support to customs administrations.
To facilitate legitimate trade, secure fair revenue collection, and maintain world trade, the organization helps develop international standards, encourage cooperation, and foster capability development.
Harmonized System (HS)
The Harmonized System (HS Code) identifies goods for trade exchange using a unified international system. WCO has developed and maintained it since its effect in 1988.
The international standardized HS Code is a six-digit code set by WCO responsible for administrating and updating this system and cooperating with the local customs authorities in all countries.
HS code consists of six digits that are divided into three parts:
- In HS Nomenclature, the first two digits indicate which chapter the goods belong to
- Following the two digits are the chapter headings, and
- The last two digits identify a chapter’s subheading.
HTS code
An HTS (Harmonized Tariff Schedule) code is an eight- to ten-digit code that identifies a product for importing goods in the USA.
It was introduced in 1989 to describe goods in the United States for duty, quota, and statistics purposes. The system is based on the HS. The HTS is an entirely different schedule B code. To export goods from the United States, you need schedule B codes. Schedule B codes are 10-digit statistical classification codes.
Structure of HTS codes
HTS code is part of the HS code and is used to classify products imported into the USA. As we mentioned before, the HTS contains 8 to 10 digits. Now we will try to understand what the next four digits determine.
HS codes are the first six digits of HTS codes. Next, two digits identify the US subheading, and the final two digits are statistical suffixes.
How HTS codes work
Under the HTS, imported goods are classified according to their composition, product name, and function. The latest version of the HTS is available on the USITC government website, divided into 22 sections and 99 chapters.
Each section of such articles begins with a section note, and each chapter begins with a chapter note. It is recommended to consult chapters 98 and 99 when determining how to classify goods, as they are reserved for national use.
You can download individual HTS PDFs of each chapter or look them up in the HTS search database. Using the code, you can determine the duty (or tariff) depending on how much you purchased the item. You have to use different codes for multiple items.
HS general rules
Six general HS rules must be applied correctly while importing goods.
For example, GRI 1 specifies how products should be classified at the 4-digit heading level. And GRI 2 specifies how incomplete and unassembled goods are classified. GRI 3, GRI 4, and GRI 5 also detail the packaging and how to classify goods.
In GRI 6, product classification is determined by the wording in the 6-digit subheadings and the relative HS Sections and Chapter Notes.
The importance of HS codes in international trade
HS (harmonized system code) is crucial for interpreting the product’s information and preventing unwanted catalog-based confusion. It helps you to know valuable information about trading products.
The world’s eighth most traded product was plastics and articles thereof. It is, therefore, necessary to know the HS codes if you wish to import articles thereof.
HS Codes are also required for the following elements:
- Product-specific tariff rates for imports and exports.
- Data collection, classify products, and analysis for international trade.
- Calculate Tax liability, internal taxes, and trade statistics
In addition, the HS Code list helps importers and exporters avoid common foreign exchange challenges, such as delays at the border or non-approval of imports. The codes are essential for food industries, exporting organic or inorganic compounds of industrial or medicinal plants, organic surface-active agents for the textile industry, and more.
HS code Example
Take a look at the example of HS code:
The international standard HS code for “Green tea (not fermented)” is as follows:
Chapter 09: Coffee, Tea, Maté, and Spices
Group 09.02: Tea more specific information 09.02.10: Green tea (not fermented)
To avoid issues, you should understand how the HTS code works. You can visit the official customs or tax authority website to get the HTS codes.
Before importing, you must identify your product’s HTS code: gadgets, apparel, clothing accessories, or other fibrous cellulosic material. Remember to check the commercial invoice to match the HTS codes.
Consequences of improper HTS code use
When HS codes are misused, it can lead to delays, heightened inspections, fees, and penalties while importing goods. Those actions will affect your business and prevent your goods from entering the country. The schedule b number code is important to export goods from the USA. The United States Census Bureau administers Schedule B.
Conclusion
It is essential for entrepreneurs to know the HTS/HS code of a product to determine the tax rate for importing goods. You will be able to identify the most cost-effective sources for your products to maximize the business potential.
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