Harmonized System Code, or HS Code for short, is a standardized system of goods classification recognized internationally for traded products. Created and maintained by the World Customs Organization (WCO) in 1988, the organization based in Belgium is a non-governmental entity with more than 200 member countries.
HS codes established a world standard for describing goods. It makes the electronic classification and messaging more accessible, and the universality creates a standard across custom and border agencies, helping them move more efficiently. According to the WCO, the coding system identifies goods for tax purposes, rules of origins, specific policies, quota controls, and statistical data analysis.
The system is arranged by the complexity of the goods. There is a series of 21 sections with 99 chapters that lead into more than1200 headings divided into 5200+ subheadings. Simple one-material type products are found in the early chapters, while the more complex the goods, the higher the chapter number. For example, basic commodities like potatoes can be found in an earlier chapter, while machinery with many components and complexity is in a much later chapter.
The length of the HS Codes can vary from country to country. However, the standardized 6-digit code is most common. Each part of the code identifies the classification of the good. The HS Chapter is identified in the first two digits. The second two digits are the HS heading numbers, and the final two digits indicate the HS subheading.
The HS codes outline some legal aspects for recognized product definitions, and countries are allowed to add additional numbers to classify goods further. These additional numbers are called national subheadings, which classify items further for the receiving country. The US uses an eight and ten-digit code to classify goods for export called a Harmonized Tariff Schedule (HTS) or Schedule B of coding based on the HS codes from the WCO. Six of those digits are the internationally recognized HS codes.
The Schedule B system in the US is used to complete electronic export information, track statistical data of exports, and may be used to compare similar products in overseas markets. The US Census Bureau has an online tool called the “Schedule B Search Engine” to help classify goods with clarifying questions about each item. When searching, it is recommended to only research one product at a time, have percentages of the item makeup available (if applicable), and to reach out to the Census Bureau for assistance with classifications. The tool is also a way for companies to see legal classifications and rulings across countries for the specified item. Listed in the resources below are a training video and the Schedule B Search engine tool.
When it comes to applying HS and HTS codes to the exported goods, it can be pretty simple at times, but often it may take more effort. Getting the correct HS code is imperative as export and import controls are globally tracked using these digits. Understanding the rules, regulations, and interpretations of the terms is also key to applying the codes. There are many resources for the do-it-yourself companies, such as the Section B search tool (linked below). If this seems like too much for your company, there are experts available who specialize in applying HS Codes to a more substantial amount of goods.
Typically, the WCO updates HS codes every five years, and the new code rules/interpretation will be effective in 2022. In the meantime, it is a good opportunity to ensure export goods will meet the new HS code interpretations. For more assistance on HS Codes, the North Dakota Trade Office is here to assist; please don’t hessite to reach out to us at info@ndto.com.
References
United States Census Bureau. (2011, July). Retrieved from Classify Your Export Commodity Using the Schedule B Search: https://www.youtube.com/watch?v=QR0Zo-Yem60
United States Census Bureau. (2021, April). Retrieved from Foreign Trade- Schedule B: https://www.census.gov/foreign-trade/schedules/b/index.html
Unites States International Trade Commission. (2021). Retrieved from Harmonized Tariff Information: https://usitc.gov/harmonized_tariff_information
What is an HS Code? HS Code Explained. (2021). Retrieved from Trade Finance Global: https://www.tradefinanceglobal.com/freight-forwarding/what-is-an-hs-code/