HS Codes play an important role in international imports and exports. The HS code system can be pretty frustrating when you encounter it for the first time. They are 6-10 digit codes assigned to specific goods by customs authorities. These codes are used all around the world, making cargo easily identifiable and ensuring the seamless delivery of goods from Point A to Point B.
Before the Harmonized System was established, global trade compliance was a bit chaotic. Each item had to be classified depending on the country’s different tariff systems. The HS code system was introduced in 1988. This system simplifies the process of classifying goods globally. The HS Code system was developed to enable users to easily calculate and implement various taxes and duties. It also allows users to monitor and control various trade agreements.
If you’re looking to understand more about what HS Codes are and how they are relevant to your import or export, you’re in the right place.
What are HS codes?
The HS code system is a set of uniform, internationally recognized codes used to identify products for import purposes. Each code consists of at least six digits, often followed by optional extra digits, that precisely identify what a product is, based on its specific features, components, purpose, and other criteria.
Customs authorities check these codes on the documentation accompanying imported products. They do this for a number of reasons including:
- determining tax and tariff rules that may apply for importing the products
- ensuring that the imported products are not banned due to import restrictions
- monitoring trade statistics
The code system is extremely detailed. That’s why it’s so effective. But it’s also why it can be so complicated to use when you’re still getting used to it.
Just imagine: the code system covers up to 98% of all products shipped in international commerce. When you consider how many different products there are on the global market, whether it’s jelly beans or paper cocktail umbrellas, you start to realize how extensive the HS code system is.
In short, when crossing most international borders, all products need to identify using the right HS code. Think of HS codes as your company’s password to entering the gate to a foreign market.
What does an HS code look like?
Each HS code consists of at least six digits, usually written in the format ‘XXXX.XX’.
These six digits combine three sets of the hierarchical two-digit codes used in the HS code system. For shippers, the process of finding the right HS code for your product starts with the Section numbers.
There are thousands of HS Codes, and each code describes specific goods. All customs agencies are able to identify these goods easily using the number associated with the particular commodity.
Take umbrellas for example. The digit “6601.91” is the HS code for umbrellas which have a telescopic shaft. But the digit “6601.99” is the HS code for ‘other umbrellas and sun umbrellas’.
Take potatoes as another example. Fresh or chilled potatoes will be classified as 0701.90. But frozen potatoes will go under the code 0710.10.
Each code has a unique structure as follows:
- A six-digit identification code
- Five thousand commodity groups
- Those groups feature 99 chapters
- The chapters themselves then have 21 sections
The code is structured and logical, stemming from the Kyoto Convention of 1974. A useful example to look at is as follows:
- Section II of the HS Codes are ‘Vegetable Products’
- Chapter 10 of Section II is entitled ‘Cereals’
- Heading 06 of Chapter 10 is then called ‘Rice’
- Subheading 30 of Heading 06 is then very specifically called ‘Semi-milled or wholly milled rice, whether or not polished or glazed’.
The HS Code given to this particular good is 1006.30. That digit reflects the product’s chapter, heading and subheading to form a unique digit recognised by customs authorities on an international basis. Think of the code as being split three groups of two numbers: the first group of two broadly categorises the product. The second two define the classification and the third group specifies the actual product.
There are approximately 5,300 of these codes in circulation. More than 98% of internationally traded goods rely on the HS Code system for their classification.
Why are HS Codes important?
So, now that you know what HS codes are and how to use them, you may be wondering: why are HS codes important? What difference does it make if you use the right code or not? The answer is: it makes a lot of difference, from a legal standpoint as well as from a business point of view.
The most prominent detail HS codes communicate for you as the importer is the taxes and duties applied to the shipment. However, other than the important information mentioned earlier, HS codes can also communicate data such as the origin of the goods, the eligibility of the products under Free Trade Agreements, compliance requirements, and assist in monitoring prohibited or restricted goods.
As the carriers of so much essential information, it is clear that these codes are critical in ensuring all shipments are treated correctly.
Where do I need to use HS Codes in shipping?
When shipping freight, it’s integral that you use the relevant HS Code on each line on your commercial invoice.
Using an HS Code on a commercial invoice ensures that exports make it through customs seamlessly and without delay. That way, importers will receive their goods faster and exporters are paid sooner. Failure to place the HS Code on the commercial invoice could risk the importer paying the incorrect tax. You also may end up paying interest on any back-payments for incorrect classification, and your goods may even be seized.
How do I find the right HS Code for my shipment?
There are several HS code Lookup sites that claim to help you find HS codes. However, due to the potential for fines and stuck shipments, if there are errors, you should ensure you vet HS code finders before using them.
The full breakdown of each chapter, like this HS code list detailing chapter 85, can also be found through the World Customs Organization, but deciphering this document is not simple and takes a significant time commitment. Inexperience in finding the correct code could result in you mistakenly using the incorrect code, which would have dire consequences for your shipment.
In exporting, from which country of HS code shall be used?
When exporting, the HS Code relevant to the country of export shall be declared on the export declaration.
Using the right HS codes always pays off
While the HS code system may seem like a headache to international retailers, it is actually a powerful tool for getting your merchandise onto the international market. Instead of seeing the HS system as a complicated legal formality, see it as a way of making sure your products get to your customers faster.
As a result of correctly using HS codes, you’ll keep your international customers satisfied and avoid unnecessary delays and expenses.
If you need any help in understanding Japan Import Compliance, COVUE is the best place to go. Contact us today to learn more.