Harmonized System Codes are the industry classification systems frequently used in exporting goods from various countries. The HS (Harmonized System) is a numerical classification system for traded goods that is standardized. Customs authorities worldwide use it to identify the products when assessing taxes and duties and to compile statistics.
Various countries adopted a global order of categorizing items known as the harmonized system (HS). The system, which went into effect in 1988, was intended to make shipment more controllable. The system employs six-digit codes to distinguish various product groupings, which are needed by customs authorities for most imports and exports.
Here’s everything we need to understand about the international shipping HS code system.
What Exactly Is the Harmonized System?
Harmonized system is a numerical classification algorithm developed and maintained by the World Customs Organization (WCO). Customs authorities worldwide use it to identify the object while assessing taxes and duties and compiling statistics.
More than 200 nations and economies use HS codes as the foundation for import duties and exchange statistics gathering. As a result, over 98 percent of items traded worldwide are classified using HS.
The HS has become the most widely used method of classifying goods in global trade, with almost every country using it. It impacts and harmonizes customs and commerce procedures, lowering global trade costs.
What Is an HS Code?
The Harmonized System (Commodity Description and Coding), or HS code, is a classification system that employs a six-digit sequence to generate a special ID that recognizes each merchandise unit. Customs uses this number to classify the goods.
- The HS code is essentially a six-digit identification code.
- It has over 5,000 resource groupings in total.
- Strict legal & logical criteria organize it.
- It is characterized by rules that promote consistent and uniform global categorization.
This same harmonized system code service is a statistical and structural standard for gathering international trade data and determining customs duties and tariffs. The HS Code is the basis for import taxes and categorizes most goods traded internationally.
Why is the HS Code Required for Shipping?
The basic six-digit HS code is the same regardless of the country in which we operate. But every country can add a few more digits to help in the identification of the product. To precisely explain what item is shipped, the US, for example, adds four digits after the basic HS code; Japan uses special three-digit codes for such a purpose.
Harmonized shipping codes are typically available on a country’s customs website. These will include country-specific codes. On the other hand, several websites have the universal harmonized code list as various freight and 3rd-party trading companies share it widely.
How Effective Is the System for Online Retailers?
After all course, this customs brokerage services system has some advantages for online merchants, but it also has a few disadvantages. We have mentioned the same below.
- A standardized process for precisely identifying products facilitates trading.
- Customs and duties evaluation becomes simpler.
- Shipping is now faster and simpler.
- Data on trade is collected directly.
- By using these codes, eCommerce retailers fulfill a legal obligation.
- Increases shipping process productivity.
- Employee training is simple.
- Makes sure that trade agreements are up-to-date and relevant.
- It serves as a common language in trade negotiations and commercial practices.
- If HS codes are not used correctly, incorrect duties and taxes may be levied, increasing the cost of goods to consumers.
- Because the last digit numbers after the HS code differ between countries, mentioning it on the commercial invoice may define a unique model for the customer’s country.
- If the incorrect HS code is used, it can lead to cases of fraud.
How Does the Harmonized System Work?
To identify various product categories, the system employs six-digit codes. Each nation can then add code of up to four digit numbers to identify better the types of goods brought into the country. In total, the HS code is made of 5,300 product descriptions approximately. A book with 99 chapters and 21 sections showcases these as headings and subheadings.
The basic 6-digit codes are composed of three two-digit groups. The first two numbers reflect the product chapter to which the item belongs, such as cowhide, tea, or coffee. The second and third digits identify the product category within the chapter, such as designer bags, suitcases, or flavoured or unflavoured tea. The final two numbers portray even more precise details, such as whether a product’s outer layer is leather.
To summarise, the HS code is a global classification system that allocates each product to a unique numeric code. This allows us to classify products correctly, which assists businesses in determining the right customs duties and other trade laws for importing and exporting goods.
It may be intimidating initially but investing time in learning how an HS Code works will assist the company saves tax when trading internationally. Hence over a period, this can result in financial savings.