What You Need to Know about Harmonized System Code?
So you want to import or export a product? Maybe do a bit of drop shipping? Great! It’s an amazing way to build a business and take advantage of the price differences between countries and exploit weaknesses in your own market.
But if you’re going to import or export, you absolutely must understand the Harmonized System (HS) and Harmonized Tariff Schedule (HTS), and HS Codes, Schedule B and some other classification terms.
When you don’t comprehend and properly apply proper product classifications for international shipping, you can face legal penalties which, if you’re not prepared, can sink your business. You can also have your goods seized, defeating the very purpose of your business.
With that in mind, we’ve prepared this layman’s guide to understanding HS and HTS codes. They may seem a bit complex and convoluted at first, but hang in there.
We’ll help you understand both systems, why they matter, and how to apply them properly. We’ll also give you some resources to help you dig deeper into specific items that may be applicable to your business.
This is an Intro 101 to these codes.
Ready? Let’s get started.
What Is The International Harmonized System (HS)?
The HS is an internationally accepted system of names and numbers used to classify traded products. It was developed in 1988 and continues to be maintained by the World Customs Organization, which is an independent intergovernmental body.
The World Customs Administration, administers a commodity-classification system that is called the International Harmonized System (HS): the code is used by all countries globally to classify all imported and exported goods.
When you are looking to ship a product overseas, it is a legal requirement that you have a six digit HS code. This doesn’t change whether you are shipping t-shirts or cars, every product must be assigned the HS code.
The code is split into three groups of two, in what some refer to as the HS Code List:
The first two categorize the product, the second two define this classification further and the final set is to specify the product in more detail.
For instance, the first two digits may say that your product is clothing; the second two might say it is trousers and the final two might say it is men’s blue trousers.
Adding Further Description: Schedule B and GHS
This system can be further enhanced depending on the country that is importing or exporting the good.
In the US, products are assigned an additional four digit code, known as the Schedule B number, to classify them further. This four digit code is added to the end of the HS code to make a 10 digit code.
Schedule B numbers are used and administered by the US Commerce Department, Census Bureau, Foreign Trade Division. The data they collect is then used to publish US export statistics.
To check what your Schedule B number is, you can use an HS Code Finder, like this free online search tool. Alternatively you can speak to a fulfillment provider who should be able to provide you with the relevant information.
In addition, in the US, when you are shipping consignments that are valued over $2,500 or the item is required to have a license, then you need to report the schedule B number to the Automated Export System.
Furthermore there is an additional requirement for the shipment of chemical that runs in parallel to the GS system. It’s called the Globally Harmonized System of Classification and Labelling of Chemicals (GHS).
How These Affect Custom Duty
Tariffs and duties are normally imposed on imports and exports based on the classification code given to them. For your product to get a duty rate for your products being imported into a country, you need to ensure that there is a classification number assigned to your consignment that is used by the receiving country.
Without the right Schedule B and HS numbers you can be sure that you aren’t missing out on preferential tariff rates under a free trade agreement.
It is also important to have the schedule B and HS numbers to ensure that your business’ fulfillment team are completing their export documents.
Ensuring that you have the right HS and Schedule B code might add more time to shipping internationally, but it can also help save time and ensure customers are happy in the other end.
Without the code, exports may be delayed at the exporting country or importing country.
You may also receive a fine or more expensive tariffs which making shipping excessive and unprofitable – not to mention unhappy customers will be unlikely to use you again.
HS Code for International eCommerce
Currently, 180 countries or territories use the Harmonized System for purposes of:
- Collecting international trade statistics
- Internal taxes
- Monitoring controlled goods
- And others…
[The Harmonized System is] extensively used by governments, international organizations and the private sector for many other purposes such as internal taxes, trade policies, monitoring of controlled goods, rules of origin, freight tariffs, transport statistics, price monitoring, quota controls, compilation of national accounts, and economic research and analysis. The HS is thus a universal economic language and code for goods, and an indispensable tool for international trade.
So, if you ship whoopee cushions to Costa Rica, the HS code allows those who receive it to know just what they’re getting.
The HS is organized into 21 sections, with 96 chapters in each section, with each chapter divided into around 5,000 headings and subheadings. The sections and chapters are large categories of goods which then get more specific within each heading and subheading. With that many sections, chapters, headings, and subheadings, things can get very, very detailed.
So, for example:
- Section II is, “Vegetable Products.”
- Within section II, Chapter 10 contains “Cereals.”
- Within Chapter 10, Heading 06 contains, “Rice.”
- Within Heading 06, Subheading 30 specifies, “Semi-milled or wholly milled rice, whether or not polished or glazed.”
Image via Wikipedia.org
Thus, the six digit HS code code is 1006.30.
Got all that?
Everything moves from broad, general categories to much more specific classifications.
Natural items, like live animals or vegetables are listed early in the HS while more complex items, like machinery and precision instruments show up later. Within each section, the chapters are usually organized by complexity or the degree of manufacturing involved.
Classifying Products In The Harmonized System
Given the absolutely enormous number of products that must be classified under the HS, things can get a little confusing. Classification can be determined by a number of factors, including composition, form, and use.
Take potatoes for example. It would seem to be pretty straightforward, right? Nope. If the potatoes are fresh, they are classified with code 0701.90 under the header, “Potatoes, fresh or chilled.”
Frozen potatoes, on the other hand, get the HS code of 0710.10 under the header, “Vegetables (uncooked or cooked by steaming or boiling in water) frozen” and then under the subheader of, “Potatoes.”
See what we mean? The HS is very comprehensive but not always straightforward.
Or take picture frames. Wooden picture frames receive HS code 4414.00 (“Wooden frames for paintings, photographs, mirrors or similar objects”), while plastic frames receive code 3924.90 (“Tableware, kitchenware, other household articles and hygienic or toilet articles, of plastics. Other.”).
Then there are live dogs, which falls under the “residual” heading 01.06 (“Other live animals”) because it isn’t covered under headings 01.01 – 01.05.
Essentially, every product you want to import or export must be given an HS code. Don’t assume you have the correct code. Take the time to get it right.
The Importance Of Using The Right HS Code
In many jurisdictions, the correctly classifying goods is the responsibility of the trader.
Failure to classify correctly can lead to:
- Non-compliance penalties
- Border delays
- Seizure of goods
- Denial of import privileges
- And more…
Unless you want to have your goods seized, lose your import privileges, or have things held up at the border, do the research to find the proper HS code.
Fortunately, there are a number of resources to help you determine the right HS code for your product:
- The US Census Bureau Schedule B Search Engine
- The U.S Customs Rulings Online Search Engine
- Export Training Videos from US Census Bureau
What Is the Harmonized Tariff Code Schedule (HTS)?
The HTS is a 10-digit classification system specific to importing in the United States.
HTS codes take their first six digits from the international HS code and then add an additional four digits for further definition.
For example, Section 09 is, “Coffee, Tea, Mate and Spices.” 0901 is, “Coffee; Coffee Husks Etc; Substitutes With Coffee.” 0901.11 is, “Coffee, Not Roasted, Not Decaffeinated.” 0901.11.0015 is, “Coffee, Certified Organic, Arabica, Not Decaffeinated, Not Roasted.”
Image via datamyne.com
Are you getting the picture? Things get very granular and very specific depending on your product. This convention of adding on nation-specific codes to HS codes is common in many countries.
To make things even more complicated, U.S. exporters must also use Schedule B codes, which are a 10-digit subset of HTS codes which add further specificity.
So many codes!
If you are a U.S. exporter, you must use the 10-digit HTS and Schedule B codes for goods. Similar to HS codes, a failure to properly classify products can lead to fines and other penalties.
As ShippingSolutions says:
HTS codes, also called HTS numbers, are administered by the U.S. International Trade Commission. It’s very important that all U.S. importers know and use the correct HTS-US codes, because commodity duties are assessed based on this classification.
If you fail to use the correct code, you are essentially committing fraud, and the U.S. government isn’t particularly fond of fraud.
You can access all sections of the Harmonized Tariff Schedule here. You can search the HTS here.
Conclusion: Harmonized System Code Compliance
The HS code is a standardized method used around the globe for shipments transported across international borders.
If you’re doing any importing or exporting, you absolutely must familiarize yourself with HS and HTS codes, given that they are the commerce languages of the world generally and the United States specifically.
Each product will have a specific code that identifies it, though further classification may be required by the importing or exporting country, like the Schedule B code required by the United States.
While the task may at first seem overwhelming, take advantage of the specific links and resources provided in this article.
And really, there’s no getting around it. Unless you want to end up in court for fraud, you need gain at least some understanding of these codes.
Have more questions about which codes are correct for your products? Feel free to reach out to us at Floship as we’ll help you find the right HS and HTS codes for your products.