Education 22 Sep 2020

What You Should Know About HS Code

"What is the HS code for iPhone 12!"
"What is the HS code for Bomber Jacket!!"
"What is the HS code for Napa Valley Merlot!!!"

If you're struggling to find the Harmonised System (HS) code for your product, don't worry. The different interpretations of the code between countries and customs authorities are tricky even for experienced importers. By the end of the article, you will know how to start finding the HS code for your product.

Before we dive into the details, it's important to understand the basic concepts of HS code. In this article, you will learn:

• What is HS code?
• The nature of HS code
• How to do HS classification?
• How to find the foreign HS code?
• Why do you need to find the correct HS code?

What is HS code?

When trading internationally, each product must be assigned with HS code that corresponds to the importing country. It is an internationally accepted system administered by the World Customs Organisation (WCO) since 1988 to classify all imported and exported products. The code is used to unify broad categories to classify different types of products with ease.

To ship the product successfully, the correct HS code must be declared. This code is commonly used by customs for a variety of purposes - from levying tariffs and duties on the product to ensuring that an importer is not importing illegal or hazardous goods.

The nature of HS code

The HS code is harmonized at the 6-digit level and updated every 5 years. Use by over 200 WCO Members countries, each country agrees to classify its code and duty structure according to the HS code categories.

In general, HS code can be broken down into five parts. Consider the example of Napa Valley Merlot with 14.5% alcohol content - 750ml:

1. Section

   There are 21 sections - the highest level of customs tariff code categorization. It includes a broad spectrum of products from Live Animals; Animal Products to Works of Art, Collectors' Pieces, and Antiques.

2. Chapter

   The 21 sections then split into 96 chapters where chapter 77 is reserved for future use and chapters 98 & 99 are limited to national use.

3. Heading

   The heading dictates the specific category within a chapter.

4. Sub-heading

   The last two digits of the international Harmonised Code are more specific, defining subcategories of product.

5. Additional digits (> 6 digits)

   To cater to country-specific categorizations, unfortunately, countries append additional digits (commonly 2-4 digits and may include alphabetical suffix for certain countries) to the harmonized 6-digit for further classification of products that are unique in every country. This dramatically increases the complexity of classifying products.

   Under the US Schedule B for export goods, our Merlot with 14.5% alcohol content is classified to 2204.21.7000. Incidentally, Merlot with < 14% alcohol content should classify to 2204.21.4000. Since these additional digits are unique, the same product in another country would begin with the same 6 digits but the additional digits would likely be different.

   We will elaborate further on this in the section: How to find the foreign HS code.

How to do HS classification?

1. Know the materials, functions, and performance specification of your product
2. Follow the WCO's General Rules for the Interpretation of the Harmonised System (GRI)

   GRI is a guideline that governs the classification of products under the HS system. It must be completed in the following order:

   GRI

   Description

   GRI Guidelines

   GRI 1

   To classify products at the 4-digit Heading level, based on the wording of the headings and the relative HS Section and Chapter Notes.

   GRI 2

   To classify both incomplete and unassembled goods and mixtures and combinations of goods.

   GRI 3

   To classify products that are, prima facie, classifiable under two different HS headings.

   GRI 4

   To classify products that cannot be classified according to GRI’s 1, 2, and 3.

   GRI 5

   To classify packaging.

   GRI 6

   To classify products at the 6-digit subheading level, based on the wording of the subheadings and the relative HS Section and Chapter Notes.

   The Singapore Customs provides great examples for the above GRI rules.

3. Continue to classify the remaining digits until there is no further breakdown (a.k.a dutiable HS code)

Example

Continuing the previous example of Napa Valley Merlot:

1. The import-focused specification of our Merlot is as follows:

   1. Varietal: Merlot

   2. Country of Origin: US

   3. Alcohol content: 14.5%

   4. Volume: 750ml

2. Complying to GRI 1, based on the specification and the HS description, our Merlot can be classified under the heading 2204. It would be a misclassification if heading 2009 is selected - Fruit juices (including grape must) and vegetable juices, unfermented and not containing added spirit, whether or not containing added sugar or other sweetening matter
3. Skip to GRI 6 since the heading is determined
4. Complying to GRI 6, since our Merlot is < 2 liters, it can be classified under the sub-heading 2204.21
5. Continue to classify the remaining digits. Since our Merlot has an alcohol content of > 14%, it can be classified under the dutiable code 2204.21.7000. No further breakdown is observed.

NOTE: Not all products are as straightforward as this example, it heavily depends on the complexity of your products.

How to find the foreign HS code?

Continuing the previous example of Napa Valley Merlot:

Different countries and customs authorities have different interpretations of the HS code. In the United States, our Merlot is classified to 2204.21.7000. If you're are planning to ship them to Singapore, and complete the documents using the same code, the Singapore's Custom will reject in a blink of an eye because the correct code for Singapore is 2204.21.11.

Often, your supplier may be able to provide you the local variation of the HS code, In the case where the supplier doesn't provide one for your importing country, you may use the first 6-digit of the HS code as a starting point.

Different countries may have different versions of the HS code list, but at least the first 6 digits are fully harmonized. As importers, HS code must be periodically reviewed as different countries update their list at a different pace. For the latest HS code list, you may visit the official websites of the country's government. Alternatively, you may use a lookup tool like our CIA.

Why do you need to find the correct HS code?

Using the correct HS code is of utmost importance to any importers. Although the pursuit might add time & effort to your shipping, misclassifying your product can lead to serious consequences. Usage of incorrect code may result in importers paying the wrong duty and tax on your products and not realizing that they need to apply for specific licenses before import. And customs may deem this behavior as misdeclaration and impose substantial penalties and fines, and even cause your product to be delayed or seized- eventually impacting the cost of imports and customer satisfaction.

Also, the incorrect classification may lead to overpayment of duty and tax or you might miss out on any preferential tariff rates or free trade agreements.

Conclusion

In this article, you have learned a few things about HS code:

• an internationally accepted system to classify all imported and exported product
• use by over 200 WCO Members countries
• harmonized at the 6-digit level (Chapters, Heading & Sub-heading) with additional digits unique in every country
• how to do HS classification and find the foreign HS code
• different countries have different versions of the HS code list - there is no single common HS list
• misclassifying your product can lead to substantial penalties and missing out any preferential tariff

The HS classification is key to any successful trade strategy and order fulfillment. It is a specialized skill that requires a broad knowledge base and experience. Being frustrated with finding a suitable HS code might be your worst nightmare, especially you have numerous products to be classified.

Alternatively, you can classify your product with ease using our CIA! This AI-powered look-up tool supports both HS code and laymen description searches and provides up-to-date tariffs for over 180 countries with preferential tariff advisory. Get instant access with 10 free searches today!