The logistics industry is like a finely tuned watch, with every business, supplier, carrier, regulation and process playing its part in keeping global supply chains ticking, customers happy and businesses thriving. Among those processes is tariff classification of commodities, and the Harmonized System (HS) that organises the trillions of dollars of goods traded internationally every year under a single standard nomenclature. Let’s take a closer look.

What is a Harmonized System (HS) code?

Among industry classification systems, HS codes are commonly and universally used throughout the export and import process for goods. The Harmonized System is a standardised numerical method of classifying traded products. It is used by more than 200 countries and economies around the world to identify products when determining their treatment in customs tariffs and for gathering statistics.

The clue to this is in the name of the HS itself. With so many goods moving around the world, it’s important to harmonise that flow, know what these goods are and how to make a distinction between different goods categories. This allows customs authorities to easily identify each product and apply the correct tariff rates — thereby reducing costs and facilitating international trade for everyone.

Established in the 1980s by the World Customs Organization (WCO) – the HS codes are generally reviewed every five years to reflect new technologies, patterns and trends, as well as new goods that enter the global market and are traded in significant volumes.

What does an HS code look like?

In practice, an HS code is a six-digit number that corresponds to one of more than 5,000 commodity groups singled out in the HS. The first two digits in that code show the HS Chapter to which a specific product belongs, the third and the fourth digits indicate the heading within that Chapter, and the last two digits show the subheading within that heading.

To ensure that products are classified in a uniform manner, the HS has six basic principles, known as General Rules for the Interpretation of the HS. They help users navigate the billions of goods produced and traded worldwide to find the correct place for them within the HS.

Let’s look at an example of a company shipping rear-view mirrors for vehicles, which has the HS code 7009.10:

  • The first two digits in the HS code are the Chapter – this is the broad categorisation of your commodity. In our case, this would be glass and glassware (Chapter 70)
  • The second two digits are the heading, which is a specific category of products within that Chapter. Here we would need the heading for glass mirrors (heading 70.09).
  • The final two digits are the sub-heading, which is a sub-category within that heading. In the case of our glass example, there is a sub-heading specific to rear-view mirrors for vehicles, which adds the final two digits to make the HS code complete (10).

Bringing all these components together gives you the HS code: 7009.10.

Some headings are not further subdivided into sub-headings, in which case the final two digits of commodity codes are “00” (e.g. O504.00).

The WCO has a handy tool that allows you to search and explore goods and commodities to identify the right HS code.

What are HTS, TARIC and other HS-based instruments?

You may have heard of commodity classification within other instruments such as the Harmonized Tariff Schedule (HTS) of the United States, the Integrated Tariff of the European Union (TARIC) and other goods nomenclatures, alongside the HS.

While the six-digit HS code is a global standard and the basis for national and regional tariff and statistical nomenclatures, those regional and national nomenclatures in most cases have further subdivisions beyond the HS six-digit level, featuring subheadings of eight, 10 or even more digits.

What changes happened in 2022?

As a general rule, the HS Nomenclature is updated every five years, at the end of each review cycle. With each review, some HS codes are removed, some new codes are created, and some of the existing codes and provisions are modified. This review mechanism is vital for the HS to remain relevant and user-friendly, catering for the evolving needs of traders and the constantly changing landscape of international trade.

The latest HS version came into effect on 1 January 2022. There were a lot of changes in the latest update, with 351 sets of amendments.

Some of the changes:

  • New separate provisions were created for increasingly prominent products in international trade. For example, the new heading 88.06 was created for unmanned aerial vehicles (drones) and the new subheading 8517.13 was introduced to cover smartphones.
  • Some amendments were made to better capture new technologies. As an example, 3D printers, which used to fall in several different headings within Chapter 84, have been moved to a single new heading (heading 84.85).
  • As the spread of infectious diseases is becoming a global issue, specific provisions have been created for diagnostic reagents and kits (including malaria diagnostic kits) under heading 38.22, to streamline their classification.

Using correct HS codes in shipping

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