What is HS code? The most basic task in international trade is to determine the correct customs tariff classification as well as export control classification for a product. After that, the continuous application of these classifications after their creation is necessary. global classification can be a difficult task; But it is an essential part of customs and trade compliance.
Without a correct classification system, it will not be possible to achieve the correct calculation of customs duties or determine preferential treatment, and this common system is known as HS Code. This common system facilitates the communication between the customs authorities for the implementation of various regulatory measures as well as the assessment of duties and taxes received.
What is HS Code?
Harmonized System codes or HS, which stands for Harmonized System; A unique identifier to classify the exact type of item you are shipping.
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Among classification systems, HS codes are commonly used throughout the import and export process to classify goods. HS code is a standardized numerical method for classifying traded products. Countries around the world use it to uniformly identify and describe products for purposes such as job evaluation and statistical collection.
Harmonized System or HS Code is an international classification system that consists of 6-digit codes and is used to classify physical goods for customs purposes. The HS coding system was introduced by the World Customs Organization (WCO) in 1988 and is now used by more than 200 countries as the basis for customs tariffs.
HS codes were created by the World Customs Organization and are recognized in almost all countries and internationally. Customs and government bodies now have a common reference point for inducing regulations based on HS classes and can develop a standard to approach HS categories in a uniform manner.
This in turn is a more organized import-export structure and a good guideline for countries willing to implement the new regulations. The HS Code is updated by the World Customs Organization (WCO) every five years. This serves as the basis for import and export classification systems used in many countries.
HS Code assigns specific six-digit codes for different classifications and commodities. Countries are allowed to add longer codes to the first six digits for further classification.
Based on the information you have obtained so far, you have most likely realized that the HS Code applies to all commercial goods shipped internationally. All these codes are set according to the global standard.
What is the key feature of HS Code?
Among the key features of HS Code, the following can be mentioned:
- Has a six-digit code for the classification of goods
- including the rules defined for the classification of goods
- Use it as a single standard for classifying goods worldwide
- Covering about 98% of goods in international trade and more than 5000 goods
What is the reason for needing HS Code?
The reasons for needing this type of code are:
- The correct HS code for your goods is required for use in legal and commercial documents when trading.
- Some of these legal and business documents are required when applying for business financing.
- HS codes are also used by customs authorities to apply tariffs and taxes on goods and to track imports and exports.
Some examples of HS code usage are as follows:
- Sales contracts
- bills of lading
- Letter of credit
- Certificate of origin
What are the benefits of using HS Code?
- Uniform classification: HS codes enable transparent communication between customs authorities in different countries and act as a universal language for classifying goods and reducing soft inefficiencies.
- Efficient customs processing: HS codes make it easier to source the correct documents before import. With these standard codes, customs officers can quickly and accurately identify goods, assess duties, and process imports and exports.
- Payment of Customs Duties and Other Taxes: Using the HS code, one can easily calculate the customs duties payable on imported goods, thereby enabling efficient budgeting, forecasting and financial planning.
- World trade statistics: HS codes are very useful in the collection and analysis of trade data that is critical for economic planning and policy making.
- Regulations: These statistics will also facilitate the regulation of the following:
- Regulation of internal taxes
- Business policies
- Monitoring of controlled goods such as dual purpose equipment
- Origin rules
- International organizations
- private sector
What is the structure of HS Code?
In the previous section, you understood to a large extent what hs code is and what information it contains. As we said, there is a lot of information about the product in this 8-digit serial number, and one of the most important information in it is the general characteristics of the product.
Due to the presence of complete information in the hs code, the accurate identification of the goods at the customs of the countries has become extremely easy, and as a result, the goods can be cleared from the customs in a short period of time. In general, it can be said that almost all the goods available around the world for crossing borders and international transportation have hs code and are identified around the world using the same 8-digit serial number.
There is only one correct HS code for each product, which is used in more than 200 countries worldwide. The HS Code defines the following:
- The nature of the product
- Main product features
- Product type
- Any unique feature of said product
It is not possible to change the HS code of a product without making significant changes to the product itself. There are approximately 5,300 different 6-digit HS codes, each describing a specific category or group of related products. These HS codes are classified into 21 different sections. Each section consists of chapters that are divided under different headings.
The first two digits of each HS code refer to the appropriate season, the next two digits refer to that appropriate season, and the last two digits refer to its subsidiary. The combination of these 6 digits forms a code that applies to an individual product.
For example:
- Oranges are classified in Division 2 (vegetable products).
- Chapter 8 is for edible fruit and nuts, citrus peel or melon.
- Heading 0805 is for fresh or dried citrus fruits.
- The subcode of Orange is 080510.
However, the customs office in each country can add more digits to the 6-digit HS code to better categorize products that fall under the same subheading.
For example:
- Fresh orange: 08051010
- Dried orange: 08051090
Universal HS Codes:
The WCO HS World Code System consists of 21 sections including 97 chapters. These codes represent the HS code in three hierarchies:
- Two-digit codes (chapter)
- four-digit codes (title)
- Six-digit codes (subtitle)
These codes are well defined by interpretive rules and supported to achieve uniform classification worldwide.
NOTE: HS codes are a universal tool for classifying products. However, some governments add digits to the HS number to further and better classify their products into specific categories. This is indicated by HTS codes.
What are HS Code chapters?
HS tariff chapters are the first part of each commodity code. These chapters are categorized into parts of the complete list of goods. The sections also have a progressive logic, although there are also overlaps and backspins.
In the following, we will get acquainted with the sections of the HS code:
- Part 1 (Chapters 1-5): Living Animals
- Part 2 (Chapter 14-6): Vegetables and vegetable products
- Part 3 (Chapter 15): animal and vegetable oils
- Part 4 (Chapter 16-24): Prepared food
- Part 5(Chapters 25-27): Minerals
- Part 6 (chapter 28-38): chemical products
- Part 7 (Chapter 39-40): Plastic and rubber and materials obtained from them
- Part 8(Chapters 41-43): animal and vegetable products for consumption
- Part 9 (Chapters 44-46): Wood and its products
- Part 10 (Chapters 47-49): Wood pulp and other fibrous products, paper and products thereof
- Part 11 (Chapters 50-63): Textiles and articles thereof
- Part 12 (Chapters 64-67): Shoes, scarves, umbrellas, canes, whips and similar items
- Part 13 (Chapters 68-70): Non-metallic mineral products such as stone, plaster, cement, ceramics and their articles
- Part 14 (Chapter 71): Precious Metals and Stones, Pearls, Imitation Jewellery, Coins
- Part 15 (Chapters 72-76, 78-83): Base Metals and Products Derived from Base Metals
- Part 16 (Chapters 84-85): Audio and visual mechanical equipment and accessories
- Part 17 (Chapters 86-89): Specialized machinery for the transport sector
- Part 18 (Chapters 90-92): Optical, cinematographic, measuring, musical and medical devices and instruments
- Part 19 (Chapter 93): Arms and ammunition
- Part 20 (Chapters 94-96): Miscellaneous such as toys, furniture, games, signs
- Part 21 (Chapters 97-99): Works of art and tariff provisions for special use
Application of HS Code
Since the past years, many countries have used the commodity classification system or HS code in their customs activities. By now, you probably understand what the use of Hs code is and why it is used. But for a better understanding of this issue, we must say that the customs tariff code or Hs product code is used to perform customs work, monitor the import and export of goods and control international trade. more generally, it should be said that the HS code is the first thing that should be used to register a product order.
If you import or export goods, you will need HS codes when completing commercial documents, including the following:
- Commercial invoices
- bills of lading
- Customs declarations
- Export declarations
- Import and export licenses
How to use HS Code
It is always the sender’s responsibility to provide the HS code. The HS code of the product can be found through the government website in each country or by using the dedicated tool MyGTS in DHL Express Global Trade Services. When exporting goods abroad, you will need the program number of the exporting country for your product.
The first 6 digits contain the coordinated system code. Using this information will be very useful and effective for the following:
- Classification of physical goods is required for shipment to a foreign country.
- Report shipments in the automated export system when the value of the goods exceeds $2,500 or the goods require a permit.
- Complete the required shipping documents such as the shipper’s instructions, commercial invoice or certificate of origin.
- Determining import tariff rates (tariffs) and determining whether a product qualifies for a preferential tariff under a free trade agreement.
- Conducting market research and obtaining business statistics should also be done.
How to get HS Code for a product
- The structure of each coordinated system consists of six digits. The first two digits indicate the season in which the HS code is placed.
- There are 21 chapters in total.
- Each chapter provides explanations.
- The next four digits contain the title and subtitle in the chapter.
ASEAN countries follow the ASEAN Harmonized Tariff Nomenclature (AHTN) (where the first six digits still refer to international HS codes) but there are two additional digits at the end that break down most of the subheadings. Goods shipped within ASEAN usually use the eight-digit AHTN classification; But six-digit HS codes are also considered valid.
Why is HS Code important?
The acceptance and versatility of the HS Code as an economic language and global code for goods has made it an essential tool for international trade, used in many customs clearance systems around the world.
Customs Procedures The use of the correct HS code and the correct interpretation are of great importance; Because using the code incorrectly may be considered by customs as non-compliance, misleading or misrepresentation, each of which has its own penalties. Using the correct HS code can be very difficult in certain cases; Because the interpretation of codes may differ between countries and customs authorities.
Also, incorrect use of the HS code can lead to the imposition of an inappropriate tariff by the customs, which may increase the import cost exponentially for the customer. Trade Statistics Uniform codes also allow for their use in tracking trade statistics. In addition to governments, this code is also used by private sector organizations and international organizations.
HS codes are used in the following cases:
- Supervision
- Updating and optimizing controlled goods
- Internal taxes
- Origin rules
- Business policies
- Transportation statistics
- Shipping rates
- A set of national accounts
- Rationing controls
- Price monitoring
- Traffic statistics
- Economic research and analysis
Commercial data transmission HS codes are widely used in electronic messages such as the United Nations Regulations for the Electronic Data Interchange for Trade and Administrative Transport (UN/EDIFACT). This has caused this system to become a global standard for product description on different platforms. Universal use of this code allows authorities such as port and customs offices to easily identify products.
Notes on HS Code:
- Almost all countries in the world have the same interpretation for HS codes.
- This system is used by more than 200 countries and economies as the basis for customs tariffs and the collection of international trade statistics, and more than 98% of goods in international trade are classified by HS code.
- HS codes are continuously updated to reflect changes in technology and the emergence of new products.
- The last amendment came into effect in 2022, so the current edition is named HS Nomenclature 2022 edition.
- However, in practice some countries may adapt their procedures and laws at different times.
- This may lead to temporary inconsistencies.
- The European Union (EU) Combined Nomenclature is the eight-digit coding system of the European Union, consisting of HS codes with EU subdivisions and further legal notes specifically developed to meet the needs of the European Union.
Penalty for wrong use of HS Code:
Using the wrong HS code is one of the main reasons for the shipment to get stuck, if the wrong code is used, the shipment will be delayed for inspection. In addition, the importer may have to pay additional fees or penalties. Using the wrong HS code can have the following consequences:
- Penalties for non-compliance: Monetary penalties that can run into the millions of dollars.
- Risk of delays and storage and warehousing costs: Commercial goods require inspection and the shipment will not be cleared until discrepancies are fully investigated. This can lead to confiscation of the goods until the problems are resolved.
- Seizure of goods: The shipment may be detained indefinitely until the customs officials classify the goods correctly.
- Regulatory Risk: Misclassifying your goods can prompt regulatory agencies to intervene and result in the importer paying higher duties or incorrect fines.
conclusion
In this blog, we explained to you what hs code is and why it is used. As we said, this 8-digit code is very important in regulating customs affairs around the world. By using this code, you can identify and classify all the goods available around the world. because as we said, this customs tariff code provides a lot of information about the characteristics of the goods. If you have any other question about hs code and don’t know how to clear the product using it, you can ask us in the comments section.
