What Is an HS Code? Understand HS Code Systems in International Trade
March 25th, 2021
Are you confused about HS code system?
Do you know that how important it is to have a complete understanding of the HS code systems in International Trade?
Never would you have imagined how powerful a simple code could be in your business and what kind of impact it can have on the success of your business.
In this article, you will get to know the details of HS codes, what they are used for and how they can impact your business. All of the relevant and salient features will be a part of our blog.
Before you start doing import business, it will be vital for you to have the proper knowledge. And if you don’t know about the system, it can be a problem for you in the future. Reading this blog will surely help you understand more about imports and the codes used to classify them.
HS code means Harmonized System code in the international trading world, and it is the shortened form of Harmonized Commodity Description and Coding System.
It is an international and standardized system of numbers and names that are used to classify all trading products in the international trade system of the world. It has been in use since 1988 and is developed and overseen by World Customs Organization (WCO), which is an international organization with around 200 participant countries.
1. How to Use HS Codes
HS codes are used when exporting or importing products. They are used by looking up the product classification in the database and tailoring it according to the country in which one plans to do business. We will explain different facets of how this works in the next few sections.
2. What Is the HS Code Structure?
HS codes are structured in a hierarchy of product classification, that is, one component is divided into another, which is divided into another, and so on. This hierarchy is, from biggest to smallest component, as follows:
The code, of total 6 digits generally, is then structured as the first two digits denote chapter, second two digits denote heading and last two digits denote subheading. So for instance, the HS 8101.21 means chapter 81, heading 01, and subheading 21.
3. Purpose of Using HS Codes
You might be wondering what is the purpose of using these HS codes. The purpose is mainly two-fold:
Identification of goods: Every day a large number of goods are traded worldwide as imports and exports. The HS is a convenient, standardized, and internationally accepted way to identify and classify these products so that there is no inconvenience, delay, or miscalculation in taxes.
Customs clearance: Secondly, HS codes are necessary to get your products cleared through customs as it is a legal requirement. It is also the means by which customs duties and taxes are calculated according to the product type, which is specified by the code.
Chapter 2: Risks of Using the Wrong HS Code?
1. Over and Underpayment of Duties and Taxes
If you put the wrong HS, it will cause you to make more payments in duties and taxes. This can cause a huge loss to you. For example, let’s say you bought 100 bags from China, and the total duty that should be paid is 200$. But since you put the wrong HS, the customs charge you 400$. So this is a huge loss and you should always try to put the right HS.
2. Penalties by Customs
Declaring the wrong HS can cause you to pay fines to the customs. Because if there is a need to change the HS code on the documents, or the customs have to recalculate the duties for you, this means extra work for the customs. It will result in penalties for you.
3. Border Delays and Seizure of the Products
If you are incorrectly classifying a product, it can lead to non-compliance penalties, border delay, and confiscation of the products. You can even lose your import privileges. So this is a very important point to check before you are importing or exporting any product. The HS must be accurate.
Chapter 3: HS Codes for Imports and Exports (Why they matter)
Since the 6 digit HS code is standardized in all countries, exports and imports use the same code for those digits. However, the last few digits of each product’s HS code for each country may vary. So if you’re exporting to another country, be sure to check what their HS is for a specific product.
1. Primary Purpose of HS Codes?
The primary purpose in using HS for import and export is to get your identified products cleared through customs and make sure that taxes and duties are levied correctly. Furthermore, they are also used in the statistical data of any country regarding its exported and imported products.
2. Finding the HS Code for a Product
In order to find the HS for a product you wish to export or import, you should first classify the product into the 6 digit number as given in the WCO directory or the customs database.
Then if the country’s code requires extra digits, you can find them in the relevant customs database. For example, if you’re exporting to the US, then you’ll need their 10 digit codes; the details are given in the coming section. Keep reading the blog.
Chapter 4: The Classification of HS Codes
We mentioned in a previous section how the structure of HS codes is determined. We will now take a closer look at how the classification behind the said process is done and why it is needed.
1. The Need for Classification of Goods through HS Codes
The need for the classification of goods arises because each type of product, when it is classified and identified, requires different packaging, shipping methods, and customs duties, and taxes. It is also for the standardization of traded products throughout the world so export and import can proceed smoothly across borders.
Consider the situation of perishable goods like meat products versus those of heavy automobiles. These two products are classified differently and as a result that both the packaging methods and shipping methods are different: meat products are shipped via air freight while automobiles are shipped via sea freight.
Similarly, the classification of goods also enables the calculation of duties and taxes according to the type of product, for the customs clearance process.
2. Classification Process
The classification process is outlined in the ‘General rules for the interpretation of Harmonized System’, known as GRI. The classification is done based on various qualities and aspects of the products – function, form, and composition.
So, if the product is categorized by forms like vegetables and fruits, the classification would be among vegetables that are processed or unprocessed, and frozen or fresh, etc.
Similarly, classification by function is for something like a smoke detector, so classification here is made between products that use one mechanism of detection versus products that use another mechanism.
Lastly, for composition, products such as utensils are classified according to what they are made of – wood, metal, and steel, etc.
3. Important Categories
Some important categories are:
Animal or Vegetable Fats and Oils
Plastics / Rubbers
Wood & Wood Products
Machinery / Electrical
Arms and Ammunition
Chapter 5: The HS Code of Different Countries
While almost all countries in the world use the same 6 digit HS code, there are some differences.
1. The First Six Digits Are the Same
The first 6 digits are the same for every country and throughout the world that denotes the chapter, heading, and subheading, respectively. This is because those classification schemes have been standardized by World Customs Organization (WCO). Hence, the first 6 digits will be the same regardless of country.
2. The Final Digits May Vary
The variation is HS codes only arise in the last digits that come after the first 6 digits. Usually, two, four, or six digits are added at the end. So countries may have 6 digit, 8 digit, 10 digit, or even 12 digit HS codes.
These last few digits can vary from country to country for the same product even if the total digits are the same. For example, for the same item, the HS code in the US can be different from the HS in Germany.
Chapter 6: HS Categories and Sections
Each category is represented by a specific section.
1. The Total Number of Categories in the HS Code System
There are a total of 21 sections, so a total of 21 categories. For other subdivisions
Chapter – 99
Heading – 1244
Subheading – 5224
2. Determining the Category of Your Product
The category of your product can be matched with the directory of each section. For further information on that matter, consulting the GRI is a good option. So this shows you how an HS is created. The most important is the subheading part which should match exactly with your product.
3 . How Inclusive or Specific is Each Category?
Each category represented by sections is equally broad and not very inclusive. For further sub-division of categories, you can imagine an inverted pyramid with a section on top, a chapter beneath it, then a heading, and finally a subheading at the bottom.
As we go down the pyramid, the component changes from broader and inclusive to more specific and exclusive.
Chapter 7: Comparison between HS, HTS, and ITC Codes
While HS codes are universal, some country-specific codes also exist, which are based on HS codes for the first 6 digits but have extra digits at the end according to the country. Two of these codes are:
Harmonized Tariff Schedule (HTS) – the US only
Indian Tariff Code (ITC) – India only
1. They are Administered by Separate Organizations
The HTS is administered by the U.S. International Trade Commission and is operational in the US. On the other hand, the ITC is administered by the Directorate General of Foreign Trade and works within India.
2. They Have Different Number of Digits
The HTS utilizes 10 digits while the ITC uses 8 digits. However, keep in mind the first 6 digits are the same, that of the HS code. The main difference starts from the
3. Why Should I Care About This Difference?
You might be wondering why you should care about these differences. Here’s why. As an importer, you must be aware of the different code systems of the country you are importing from in order to avoid delays, get customs clearance, and the correct amount of taxes.
Chapter 8: Schedule B Codes and HS codes
We talked about HTS codes earlier which are used in the US. Another coding system used there are the Schedule B codes, which are a subset of the HTS codes. Let us see how to schedule B code is derived from HS Codes.
1. How Schedule B Codes Are Derived from HS Codes
In any case, the first 6 digits of the HS code are the same in the schedule B codes as well, which is 10 digits long. The last four digits must be derived from the classification database unique to the US.
2. The Difference between Schedule B and HS Codes
Key differences between Schedule B and HS codes are summarized as below:
US Census Bureau
3. The Utility of Schedule B Codes
First and foremost, it is very useful in the classification of products in the US. Secondly, since it is only a subset, classification is easier and quicker than HTS.
Chapter 9: Frequently Asked Questions HS Code
1. Why is an HS Code used during Shipping?
The HS code is used by customs to identify the products that are shipped across borders.
2. Do I Really Need an HS Code for Overseas Trade?
It is highly advisable to use HS codes to prevent delays and miscalculation of taxes at customs.
3. Is the HS Code Different When Exporting and Importing?
Since the 6 digit HS is standardized in all countries, exports and imports use the same code. However, you may need to check the last few digits of each product’s HS code for each country.
4. How Do I Find the HS Code of a Specific Product in My Country?
You can start by classifying the product into the 6 digit number as given by the WCO. Then if your country’s code requires extra digits, you can find them in your customs database.
5. What is the Specific Way to Read an HS Code?
There are 6 digits in the code. The first two digits denote the chapter, the second two digits denote the heading and the last two digits denote the subheading. So for instance, the code 1107.01 means chapter 11, heading 07, and subheading 01.
6. Is There a Penalty for Using a Wrong HS Code?
Using the wrong HS can lead to many difficulties like fines, delays at customs, seizure of cargo, and denial of tax and import privileges.
7. How often is the HS Code System Revised?
The HS system is revised every 5 years.
In this article, we highlighted the definition, importance, and different aspects of the HS that you as an exporter or importer need to be aware of in order to avoid any inconveniences and ensure that your business runs smoothly, delay-free, and without worries about issues with taxes and duties.
Hopefully, by now you have learned how the HS works, how it is used, and how products are classified. The differences between different systems in different countries have also been elaborated for your convenience, so you can have the right knowledge to make the right choices!