1. Defining an HS code
Harmonized System code is an industry classification system used around the globe for the export process of goods. Used by customs, it identifies products when evaluating duties and taxes.
How are HS Codes Used?
To use the HS code, you need a U.S. Schedule B number and the foreign country’s version. You can then use the code for several purposes, including:
- Classifying goods when shipping them to foreign countries
- Reporting shipments valued over $2500 or requiring a license in the Automated Export System (AES)
- Completing required shipping documentation
- Determining import tariff (duty) rates, including preferential tariffs related to free trade agreements
- Conducting market research such as trade statistics
- Compliance where applicable.
How to Identify Schedule B Codes
There is a free Schedule B search tool provided by the Consensus board that comes in handy when classifying your products. Additionally, it offers training resources and assistance. For hard-to-classify products, the Customs Rulings Online Search System (CROSS) database is best as it provides official, legally binding rulings. They utilize other exporters’ and importers’ requests to support your own.
Although it is straightforward to determine a Schedule B code in most cases, it becomes more complicated for sets. For example, while an unassembled bike is still considered a bike, some products shipped as composite goods, mixtures, and items that are sold in a set are harder to find. For instance, tracking is difficult when products like textiles are shipped as a set.
How to Identify a Foreign HS Code
Luckily, you can also find HS codes in other countries. You can use custom info databases or foreign tariff databases when determining the HS Code for your product in another country.
2. What separates an HS code from other product codes?
First, the HS code is administered by the World Customs Organization (WCO) as opposed to the GS1 responsible for setting language standards for coding systems such as UPCs. Conversely, it has a different focus, providing standardized coding for international commerce, making it easier to transport goods, and identifying duties and taxes. Basically, the code consists of six digits which each country can expand. For example, the United States uses ten digits to accommodate a Schedule B number, with the first six digits being the HS code and the last four providing the Schedule B code.
3. A brief history of the HS code
In 1889 at the International Commercial Congress in Paris, an important question was raised:
“Would it not be in the interest of all nations to adopt in their Customs tariffs and in their official statistics comparable classifications and uniform vocabularies?”
Although the answer was clearly yes, it wasn’t until 1931 that the League of Nations’ “Sub-Committee of Experts for the Unification of Customs Tariff Nomenclature” completed its “Draft Customs Nomenclature.” It was then revised in 1937, but WWWII interrupted its use.
After the war, in 1949, a preliminary draft was issued. However, it was decided the headings needed a Convention. As a result, it wasn’t until December 15, 1950, that the Brussels Convention on Nomenclature for the Classification of Goods in Customs Tariffs was opened for signature and didn’t come into force until September 11, 1959, after its adoption, on July 1, 1955, of a Protocol of Amendment establishing a revised version of the Nomenclature. In 1974, it was renamed the “Customs Co-operation Council Nomenclature” (CCCN) to avoid confusion over who was responsible for the management.
It consisted of 1,241 headings divided among 96 Chapters arranged in 21 Sections, with each heading identified by two groups of two digits. This accounts for the six digits used today.
HS codes today
The headings were used into the 1960s when studies showed the costs for the public and private sectors to maintain different product classification systems in different countries was becoming far too high. A Study Group was set up to examine the possibility of preparing a Harmonized Commodity Description and Coding System that was effective for Customs authorities, statisticians, carriers and producers to help reduce costs.
They also studied the “Standard International Trade Classification” (SITC) as a classification tool used by governments for their external trade statistics. Their report determined the development of a Harmonized Commodity Description and Coding System was essential.
60 countries and more than 20 international and national organizations participated in the Harmonized System Committee and its Working Party, all of which were part of the decision-making process. Various iterations over the years resulted in the 1988 Harmonized System Convention used today.