The eCommerce Merchant’s Guide to HS Code

The HS Code or The International Convention on the Harmonized Commodity Description and Coding System is an international system for identifying physical items through numerical codes aiming to create a universal language for describing products. So why does such a thing exist? Thanks to this system, governments all around the world have a common understanding of what items are being transported over their borders. This agreement standardizes international customs procedures and eases the movement of merchandise across international borders. HS codes are defined and administered by the World Customs Organization (WCO). This international authority issues an updated HS code system every five years, adding new Headings and Sub-Headings as necessary to account for new types of products entering the international market.

In this article, we explore the meaning of HS Codes, where to find them, how to use them, and why it is important to use them correctly.

Why Does HS Code Exist?

If you export your products abroad, you are required by international trade restrictions to include the relevant HS classification codes for your items. The HS helps to simplify the application of import taxes, the control of regulated commodities, and the implementation of trade agreements.

This system was created as a multifunctional international product classification that describes all products that can be traded internationally. The correct HS code (also known as an HTS code) must be declared for products to successfully traverse international borders. The applicable tariff and tax rate for the item are determined by this code.

Where do you find the HS code?

You must understand how HS codes and international trade agreements function well in order to classify things on your own. The HS Code system is based on a 6-digit number that is used internationally to classify countries and is typically written as ‘XXXX.XX’.

You can check the newest HS Nomenclature, effective from 1 January 2022 here.

The HS comprises thousands of ‘headings’ and ‘subheadings’ that describe articles or products in great detail. All nations that use the HS agreement should classify a product using the same HS section, chapter, heading, and subheading; however, this is not always the case. Not all nations use the same HS versions or implement the rules in the same way. This ambiguity, combined with the rising complexity of products, may cause inconsistent and dangerous classification rules that can be difficult to navigate.

Many countries add extra digits to categorization levels to offer more depth. The United States, for example, classifies things using ten-digit codes. The last four numbers are unique to the United States and are used to further categorize the product. Other countries, such as Brazil, Argentina, Paraguay, and Uruguay, use eight-digit code systems. China uses a 13-digit system, adding a full seven extra digits to the standard HS codes. When shipping to EU countries or internationally within the European Union, you will use the HS code in combination with a two-digit Combined Nomenclature (CN) code, followed by a two-digit Integrated Tariff (TARIC) code.

The Section numbers help you find the correct code to identify your product, but they are not actually included in the HS code you will write on your customs document. Once you’re in the right section of the HS code system, start narrowing down the product till you find the most specific code to describe it. This enables you to find the right six digits that make up your product’s HS code.

It is critical for you to research the coding system used in the country to which you are sending items as an exporter.

How do you use the HS Code?

HS codes should always be included in mandatory customs documents. These documents are attached to the outside of your package, so they are clearly visible to customs authorities. Always include the complete six-digit code, as well as any additional digits requested by the destination country.

If you’re unsure which code to use, consult the recommendations provided by the customs authorities in your home country or contact the customs officials in the country to which you’re shipping. A little more study ahead of time will save you a lot of time and aggravation once your product has crossed the international border.

Why is HS Important for eCommerce Merchants?

HS codes are a relatively new notion for online companies. Today, cross-border eCommerce retailers must determine HS codes for all the products they offer in all the countries to which they sell. Knowledge of HS codes for certain markets can be valuable in a variety of situations.

You can, for example, see if your items are eligible for reduced tariffs under a free trade agreement. You can also compute the landing cost, ensuring that your customer receives the exact pricing. Shipments may also be stuck at customs due to missing or incorrect HS codes. This results in delivery delays, missed deadlines, disgruntled customers, and higher expenses.

The WCO does not provide information about duty rates, because customs duties are applied by WCO Members at a national level. Contact the Customs administration of the country concerned, or consult one of the following websites which provide public access to tariff rates of participating administrations:

http://www.macmap.org/ (created by the International Trade Centre – UNCTAD/WTO)
http://www.unctad.org/ (produced by UNCTAD)
https://tao.wto.org/  (Tariff Analysis Online facility provided by WTO)
http://madb.europa.eu/ (the European Union's Market Access Database), or search on the WCO web page for National and International Customs Tariffs.

The WTO also has several publicly available databases, publications, and analytical tools on customs duty rates that can be accessed through https://www.wto.org/english/tratop_e/tariffs_e/tariff_data_e.htm

Potential Challenges

If you classify your products wrongly, you may end yourself paying the wrong duty and tax on your goods. This could lead to a retrospective duty or tax bill for all the things you improperly categorized. The result would be fines and penalties, as well as the seizure or destruction of your items.

An improper classification might also result in duty and tax overpayments, which can have a negative impact on your company’s cash flow. You can file a claim for overpaid duties afterward, but you must be able to adequately support your justifications for such a change and
claim.

Conclusion

HS code classification can get difficult for eCommerce merchants without expensive human resources. As exhausting and unnecessary as it sounds, investing time and finances in educating yourself in HS Code System is essential for the smooth international shipping of your products.

PackageHopper offers international shipping services for your products and can ease the process for you. Use our online system to easily fill out shipping documents. In case of ambiguities, you can always contact our delivery experts to assist you throughout the process.

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