A Layman’s Guide To HS and HTS Codes
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). If you don’t comprehend and properly apply both, 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 Harmonized System?
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.
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 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.
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.
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.
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.
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