The Importance of The Harmonized System Code In Export-Import Market

Is your domestic business ready to expand to the international market? Considering exporting or importing goods on the global marketplace? Maybe using drop-shipping facilities to supply your international customers?

These are all quick and smart ways to grow your business and reach a larger market.

Why it is so important for new entrepreneurs?

It is more important to understand the Harmonized System Code when entering the international market.

Unlike domestic transportation of goods, which is often effortless, your international consignment has to jump over some government obstacle, international shipping includes getting your consignment cleared by the customs department at the border.

To ensure goods reach international customers quickly and effectively, you have to deal with customs clearance for your shipments.

That’s what the tariff codes or HS Codes are all about.

An Overview: Harmonized System Code

HS code is used to recognize the exact type of products that have been shipped so that the import duty rate can be determined in the country of import.

This code is mandatory for all imported or exported goods. Its main objective is to classify and categorize goods in a worldwide system used for customs clearance purposes.

Also Read About: Major Ports In India For Import Export Goods

What is the Harmonized Commodity Code?

The Harmonized Commodity Code or HS Code is a tariff nomenclature developed and maintained by the World Customs Organization in 1988.

All products and services can be classified in the HS by using the General Rules for the Interpretation of the Harmonized System. The process of assigning HS codes is known as HS Classification.

Structure of The HS Codes

Each Harmonized System Code has a minimum of 6-digits and can be up to 10-digits long, usually written in the format ‘XXXX.XX'.

The process of getting the right HS Code for your product begins with the Section numbers. Sections are subdivided into 99 chapters. Further, 99 Harmonized system chapters are divided into 1,244 headings and 5224 subheadings.

The code is generally mentioned on customs forms and invoices.

Section Numbers

There are 21 sections in the Harmonized System that defines the product's category. The section helps to get the right code to identify your products. Like,

Section I ('Live Animals; Animals Products'), Section II ('Vegetable Products'), Section V ('Mineral Products').

Chapters

The first two digits define the chapters within the Section. There are 99 chapters to identify the products.

Let’s take an example that will clarify easily.

HS Code 1006.30

10: indicates the Harmonized System Chapter.
06: determine the specific HS heading.
30: the last two digits determine the HS subheading.

The example indicates Chapter 10 (Cereals), Heading 06 (Rice), and Subheading 30 (Semi-milled or wholly milled rice, whether or not polished or glazed).

In some countries, the HS code or product code might be 8-digits or 13-digits long.

Like, China uses 13-digits HS code while in the US it is 8-digits code.

For example, shipping in the US, you can check the correct product code on the official US Harmonized Tariff Schedule website.

While shipping to European countries, you will add two additional digits to the standard HS code. You can check the right product code on the official Combined Nomenclature website.

The extra digits that are used by the customs authority identify some additional descriptions of the products.

You can check the national customs authorities' website to see what product code is in the place.

Beat Common Challenges While Using The Tariff Codes

If you mention the wrong tariff code, your customer could get stuck with additional taxes and import duties that they won't be able to pay. That will impact a negative impression on your business relationship. To avoid this issue, do proper research and use the correct product codes.

Sometimes the custom authority performs an audit, and if they find a mismatch in the product codes or documentation, they may charge fines to your customer, which might damage your potential relations. Using the right product code avoids the additional burden.

Choosing the correct tariff code out of 1,244 headings and 5224 subheadings is a big challenge. Pay attention to choosing the correct subheading that will define the accurate description of your products.

Harmonized System Codes list is updated every 5 years, so make sure that you have updated the product code for shipping.

Here are some points that are necessary to understand and make proper use of them.

HS code classification depends on a variety of factors, including product composition, form, and function.
It is used by customs authorities across the world to recognize goods when assessing duties, and taxes, and for gathering statistics.
It is commonly used throughout the export process for products.
The customs agent will use the HS Code to confirm the rate of import duty or tariff that is payable when importing into the country. They classify and categorize products around the world used for customs clearance purposes.
The importer or exporter can use this code to conduct market research and obtain trade statistics.
It is more important to identify a specific product number in the country. The first 6-digit numbers are supposed to be the same around the world.
Each country can modify by adding two digits or four digits as per their requirements without changing the first six digits.
Although there is a local database in each country published by the customs authorities where you can identify the product code. But, such databases are not valid globally.
Many customs authorities allow traders to apply for an advanced HS classification ruling that protects the traders from future customs challenges concerning the incorrect classification of their import-export goods.
Moreover, it is widely used to calculate the total landed cost of imported products and parts and to identify selling and sourcing opportunities abroad as well as determine the product's value, quantities, weights, countries traded with, and many other details.
It also keeps a record of international trade statistics that are used in nearly 200 countries.

Summary

Before you search for the HS code for your products, it is important to understand what a Harmonized System Code actually is.

Once you have got the Harmonized Commodity code, you can view what the import duty will be, as this will be shown in the overview for your particular code.

FAQs: Harmonized System Code

Q. What is India's HS code?

Ans. The international part of the HS code is 090111, and "12" is added in India. This 8-digit code is referred to as the ITC (HS) code/Indian Trade Classification/Indian Tariff Code. The Directorate General of Foreign Trade in India develops and maintains these ITC (HS) codes.

Q. Is an HS code assigned to all products?

Ans. HS codes are accepted in 98% of global trade. An HS code consists of six digits. You use an HS code because it is a tool for universal classification. Many governments add digits to the HS number to further differentiate products into specific categories.

Q. Why are HS codes used?

Ans. The Harmonised System, or HS, nomenclature allows you to precisely identify your product and determine which tariff lines and rules apply. It is a logical structure for classifying goods that are used consistently by customs authorities all over the world.

Q. What is another way to say HS code?

Ans. Commodity Description and Coding System Harmonized - the Harmonized Commodity Description and Coding System, also known as the Harmonized System (HS) of tariff nomenclature, is a globally standardized system of names and numbers used to classify traded products.

Q. What is the format of the HS code?

Ans. A six-digit code that classifies each imported item. The first two digits represent the chapter, the middle two digits are the heading within the heading, and the last two digits are the sub-heading within the heading.

That's all guys! I hope, you have liked the article.
Do you have any questions or suggestions you can write in the comment box?

Explore More: