The harmonised coding system or HS code. An internationally standardised system of names and numbers used to classify traded products. It’s full name is the Harmonised Commodity Description and Coding System. Adopted in 200 member countries worldwide. The system has been in effect since 1998.
Although the chapters and headings are similar in all countries the interpretation of rates differs. Here on Forwarding Matters under customs tariffs on the menu of this page you can find several look up tools based on local country tariffs.
The WCO is as independent intergovernmental organisation headquartered in Brussels. They are responsible for developing and maintaining the HS code system.
What makes a HS Code
The harmonised system is structured into Chapters / Headings and Sub-headings. This then results in a breakdown of logical HS Codes. With a little understanding you can easily arrive at HS codes for your goods.
Similar goods are all grouped together under one chapter. As an example, section one of the HS code system relates to Animals and animal products. Machinery relating to the welfare of animals would not be in the same chaper. It comes much later in the chapter list.
It is this logical structure which makes the HS coding system so powerful.
Sections & Chapters
Section and chapter titles provide a broad category listing of goods. Headings and Sub-headings contained within describe products in more detail. The skill of a customs broker is understanding this structure to correctly classify the goods contained within. You must remember that the broker may provide guidance but the importer is responsible for the classification.
HS sections and chapters tend to be arranged in order of a technological complexity in manufacture. Natural commodities appear in earlier numbered chapters. More evolved goods such as machinery or laboratory equipment appear much later in the section listings.
HS Code structure
The HS Code consists of 6 digits , further extended to 8 or 10 locally.
- The first two digits designate the HS Chapter
- The second two digits confirm the HS Heading
- The third two digits provide the HS Subheading
To ensure harmonisation across the 200 countries signed up to the harmonised coding system these first 6 digits pre-face any local customs tariffs. Each country is permitted to expand the HS coding system by Adding their own legal notes. Arriving at their local tariff systems. Countries often set their local customs duties at the 8 digit level with a further two digits for statistical suffixes.
The most common local tariff structure therefore is a 10 digit number based on the first 6 digit Harmonised coding system with duties appliable at level 8 with full statistical analysis done at level 10. This 10 digit analysis helps to confirm full trade imbalances for GDP on imports v exports from any particular country.
Why use a HS Code
Every time your freight forwarder or customs broker moves your cargo across a border between the 200 listed countries he uses a HS Code. The process of using a HS Code is HS classification. It is therefore important that as a supplier of goods to a customer that you correctly supply HS Codes on your paperwork. Typically on your commercial invoice by the description of each item.
Correct classification means that your importer will pay the correct taxes when the goods arrive overseas, It is not just the supplier who is responsible for this. The classification of imported goods has a direct financial implication for the importer. Ensuring the correct duties and taxes are paid on all imported shipments. Avoiding possible fines and other penalties from customs authorities.
Now you know what a HS Code is
Next time your freight forwarder asks you for a HS code you will know what it is and where to go and look for it. You will appreciate the importance of why you should help the forwarder classify your goods correctly.
What you should also remember is that in most countries freight forwarders work under direct representation. Under direct representation the freight forwarder or customs broker is not responsible for an incorrect customs entry. Using the excuse that the customs broker or freight forwarder did the customs entry rarely provides any respite from customs.