Harmonized System FAQ
Q: What is the HS?
A: HS stands for Harmonized Commodity Description and Coding System. The HS is the international standard for reporting goods to customs and other government agencies. It is a numeric language that is used by more than 180 countries worldwide, and almost 100% of international trade. The HS was created and is administered by the Brussels-based World Customs Organization (WCO).
Q: What are HS Codes?
A: HS codes are essentially the language of international trade. They are the numerical codes that describe "what" is being shipped to and from countries worldwide, and they form the basis upon which all modern customs management systems operate. The first 6 digits of the HS are used universally. Each country may then add to the original 6 to suit its own tariff and statistical needs, creating 8, 10, and sometimes 12 digit national codes.
Q: What is HS classification?
A: HS classification is the process of assigning numerical HS codes to products for import or export.
Q: Why is HS classification important?
A: Importers and exporters are legally required to declare their products to Customs by means of HS codes. HS classification determines a product's rate of duty, its import and export admissibility, and whether or not it should be physically examined. In some countries, importers are required to report HS codes to Customs before their products are loaded for export. In the United States, this mandatory advanced cargo reporting program is called "ISF", or "10+2" (an explanation of ISF / 10+2 is provided below).
Q: How do companies use HS codes?
A: HS codes are used by companies to comply with trade regulations, to calculate the true and total landed cost of imported articles and components, to identify selling and sourcing opportunities abroad, and to link the procurement and compliance elements of the supply chain.
Q: Is HS classification difficult?
A: HS classification is extremely difficult. Several government studies have shown that 30-50% of all Customs entries are misclassified (depending on the industry examined).
Q: Do HS codes ever change?
A: Yes, they can and do get revised. With the thousands of codes available staying on top of revisions is essential.
Q: What are the consequences of misclassification?
A: Improper classification can mean loss of profits, penalties, or worse. Most governments apply some form of monetary penalty for classification errors. In the United States, penalties are assessed based on Customs' determination of negligence, gross negligence or fraud. For the most benign kind of classification error, US Customs and Border Protection will assess a civil penalty amounting to either:
A. The lesser of -
i. The domestic value of the merchandise, or
ii. Two times the lawful duties, taxes, and fees of which the United States is or may be deprived, or
B. B. If the violation did not affect the assessment of duties, 20 percent of the dutiable value of the merchandise.
Q: Who is responsible for HS classification?
A: In most countries, the importer of record is solely responsible for the accuracy of the HS codes declared to customs. Many companies rely entirely on third party experts for HS classification, but this does not relieve them of liabilities associated with commodity reporting errors.
Q: Why is HS classification so difficult?
A: HS classification is difficult for two main reasons.
First, the HS itself is very complex. Product descriptions are distributed among more than 5,000 headings and subheadings. The HS also contains section and chapter notes, which must be consulted in order to assign a proper HS code. Finally, classification is governed by a strict set of rules called the "General Rules of Interpretation" (GRI). It is hardly surprising then, that the average national tariff schedule is more than 2,000 pages.
Second, product descriptions in the HS do not usually match everyday product descriptions. For example, in order to properly classify an "electric toothbrush", it must somehow be matched to "Electro-mechanical domestic appliances, with self-contained electric motor, other than vacuum cleaners of heading 85.08. Other."