Harmonised System (HS) codes are an essential component for businesses engaged in international trade. With over 200 countries adopting the HS codes, constituting 98% of world trade, understanding these codes is crucial for efficient cross-border commerce. This comprehensive guide will delve into the history, structure, significance, and benefits of HS codes, shedding light on their importance in international trade.
A Short History of the Harmonised System
The Harmonised System has a rich history dating back to 1931 when the League of Nations introduced the Geneva Nomenclature system. This system aimed to replace various national customs systems, but its widespread adoption was hindered by the Second World War. Post-war, in 1959, the Brussels Convention on Nomenclature for the Classification of Goods in Customs Tariffs was established, setting the foundation for what we now know as HS codes.
In 1974, this system evolved into the Customs Cooperation Council Nomenclature (CCCN), overseen by the intergovernmental body that later became the World Customs Organisation (WCO). The year 1988 marked a significant milestone when CCCN was renamed the Harmonised System, absorbing elements from various customs systems worldwide. Since 2002, the system undergoes major revisions every five years, with the latest update in 2022.
HS Code Structure
Understanding the structure of HS codes is vital for correct classification. The system comprises 21 sections, 96 chapters (including a reserved Chapter 77), 1,244 headings, and 5,224 subheadings. Each HS code is a six-digit number representing a chapter, heading, and subheading. For example, the HS code 2204.10 corresponds to sparkling wine under beverages.
Additionally, some countries use extended HS codes with additional digits for more specificity. For instance, the American Harmonised Tariff System (HTS) codes are 10 digits, and EU TARIC codes are 10 digits, including two Combined Nomenclature digits and two TARIC digits.
Why Are HS Codes Important?
One of the core strengths of the Harmonised System is its contribution to national security. HS codes facilitate accurate tracking and identification of goods, making them invaluable for monitoring controlled items like drugs, firearms, and hazardous materials. The system aligns with international guidelines and conventions, enhancing its role in security-related concerns.
Efficient taxation of imported goods relies on precise information about the products entering a country. HS codes provide this information, enabling tax authorities to assess customs duties accurately. The universal coding system eliminates the need for individual nations to create their own customs codes, streamlining cross-border trade.
Public institutions and private entities leverage international trade data for research and decision-making. HS codes play a crucial role in this process by providing a standardized classification system. Accurate application of HS codes ensures reliable statistical data, which, in turn, enhances the credibility and usefulness of research findings.
The Benefits of Using the Correct HS Codes
Accurate prices, faster delivery, and reduced customs duty are direct benefits consumers enjoy when businesses apply the correct HS codes. Knowing the precise landed price of a product and avoiding hidden costs contribute to customer satisfaction. Correct HS codes also prevent customs delays and overcharging, ensuring a positive purchasing experience.
For businesses, the advantages of using correct HS codes extend to customer satisfaction, reduced customs duty, and compliance. Satisfied customers lead to loyalty, repeat purchases, and positive reviews. Avoiding higher duty rates through correct code application saves costs for businesses operating under Delivered Duty Paid (DDP) terms. Compliance, especially with evolving regulations like the EU Import Control System 2 (ICS2), is crucial for seamless cross-border operations.
Common HS Code Errors
Despite their significance, HS codes are prone to errors, often resulting from oversight or inadequate understanding. Two common errors include incorrect country codes and incorrectly grouping products together.
Incorrect Country Codes
Some countries require additional digits in HS codes. Failing to include these digits or using the same code for the entire journey can lead to non-compliance. Automation, which incorporates an HS code library, proves invaluable in preventing such errors and ensuring accurate code application.
Incorrectly Grouping Products Together
Manufacturers dealing with numerous components or SKUs often make the mistake of grouping goods incorrectly. This error arises when businesses ship multiple components together, violating the specific codes required for each item. Automation, once again, emerges as a solution to avoid these errors, ensuring precise classification and compliance.
An Easier Way to Apply the Correct HS Codes
Navigating the complexities of HS code classification can be challenging, but advancements in technology offer solutions. Avalara Cross-Border, powered by AI, provides an easier way to apply correct HS codes and stay compliant.
Avalara’s tool instantly identifies products and applies relevant HS codes, including additional national codes when necessary. This ensures customs compliance when shipping between multiple nations.
Regular Essential Updates
The tool automatically incorporates updates to national customs nomenclatures and the Harmonised System, alleviating the need for constant manual checks for code changes.
Easy Integration and Setup
Avalara’s tool seamlessly integrates with existing software, eliminating the need for a complete overhaul of the tech stack.
In conclusion, mastering HS codes is essential for businesses engaged in international trade. The correct application of these codes ensures smooth cross-border transactions, enhances customer satisfaction, and contributes to overall business success. Leveraging automated tools like Avalara Cross-Border simplifies the complex task of HS code classification, empowering businesses to navigate the intricacies of international commerce with confidence.