What is an HS Code?
HS stands for Harmonized System. It was developed by the WCO (World Customs Organization) as a multipurpose international product nomenclature that describes the type of good that is shipped. Today, customs officers must use HS code to clear every commodity that enters or crosses any international borders.
HS Code Structure
The HS code can be described 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 arranged in a legal and logical structure.
- Well-defined rules support it to realize uniform classification worldwide.
The code follows from the Kyoto Convention of 1974 and facilitates the simplification and harmonization of Customs procedures. The Kyoto Convention details the application of efficient procedures, as well as new and obligatory rules for their implementation. As of January 2017, this convention has about 106 Contracting Signatories/Parties.
Today, HS codes are used extensively in electronic messages like the EDIFACT. This has made it easier for the system to become a worldwide standard for describing a good across various platforms. Its nearly universal usage allows authorities such as Port and Customs departments to identify the products.
HS Code Usage
The HS system is used by over 200 countries and other economies around the world for the collection of international trade statistics, and as a basis for customs tariffs. Over 98% of the goods involved in international trade are classified in terms of the HS Code.
In addition to governments, the code is also used by private-sector firms and international organizations. It is utilized to monitor, update, and optimize controlled goods, internal taxes, rules of origin, trade policies, transport statistics, freight tariffs, compilation of national accounts, quota controls, price monitoring, traffic statistics, and economic research as well as analysis.
Thus, the HS code is regarded as an indispensable tool for international trade, universal economic language, and coding for commodities.
Maintenance and Classification of HS Code
The Harmonized System is governed by The International Convention on the Harmonized Commodity Description and Coding System. The official interpretation of the HS is given in the Explanatory Notes published by the WCO (World Customs Organization).
The WCO prioritizes the maintenance of HS code. This includes some measures to secure uniform interpretation of the HS code as well as its periodic updates in light of developments in technology and fluctuations in trade patterns.
The WCO manages the entire process through the Harmonized System Committee that represents the Contracting Signatories/Parties to the HS Convection. The Committee takes decisions on classification questions, examines policy matters, settles disputes, and prepares amendments to the Explanatory Notes. This committee also prepares bills that update the HS System every 5-6 years.
HS Classification is the process by which HS codes are assigned. All commodities are classified in the HS by using GRI (General Rules of the Interpretation of the Harmonized System).
According to Wikipedia, HS applications involve 6 General Rules that must be completed in consecutive order. They include:
- GRI 1 prescribes how to classify products at the four-digit Heading level, based on the wording of the headings and the relative HS Section and Chapter Notes.
- GRI 2 prescribes how to classify both incomplete and unassembled goods and mixtures, as well as combinations of goods.
- GRI 3 prescribes how to classify products that are, prima facie, classifiable under two different HS headings.
- GRI 4 prescribes how to classify products that cannot be classified according to 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, based on the wording of the subheadings and the relative HS Section and Chapter Notes.
Challenges in the Classification of Companies
The acceptance and versatility of the HS code as a universal economic language and code for goods has made it an indispensable tool for international trade, incorporated into many customs clearance systems around the world.
Using the correct HS code and the right interpretation is of utmost importance for an importer, as usage of incorrect code may be considered by customs as non-compliance, misleading or misdeclaration – each of which comes with its associated penalties.
Using the correct HS code can be quite tricky in specific instances, as an interpretation of the codes may vary between countries and customs authorities. Improper usage of the HS code could result in an improper tariff being applied by customs, which can increase the cost of imports to the customer exponentially.
If you’re in doubt about the correct HS codes to use, it’s prudent to consult customs directly or ask experts in customs clearance companies for advice.
Get in touch with our Freight Forwarding networking team here.
HSN Codes were required by a distributor of chemicals from Mumbai in order to check tax information and pay the correct amounts in accordance with local regulations.
TFG put us in touch with expert HS experts so that we could ship our chemical goods across the state and also pay the appropriate taxes to the government.
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