Your Achilles heel? The importance of the right commodity code for imports and exports
- Arne Mielken
- Dec 22, 2023
- 8 min read
Getting the commodity code right is often not very straightforward, and the rules of the game are often very complicated and ambiguous, argues Arne Mielken of Customs Manager Ltd
If your business imports or exports goods, you need to find the correct HS code, or commodity code or CN code (all the same) that your goods fall in.
The commodity code is the trader's Achilles heel. A commodity code is usually required to make an import, export, or transit declaration when you bring goods in or send goods out of your country. This includes goods sent to you from abroad.
The commodity code determines the rate of customs duty of the customs tariff or the non-tariff measures that apply.
Meet the HS System
in international trade. HS classification, also known as the Harmonized System, is a standardized system for classifying traded products. It plays a crucial role in facilitating global trade by providing a common language for customs authorities, businesses, and statisticians to categorize and track goods. The HS classification system is used by over 200 countries and territories, making it an essential tool for harmonizing trade data and ensuring accurate tariff determination. Without a standardized classification system, international trade would be chaotic and prone to errors, hindering the efficiency and transparency of global commerce. Therefore, understanding the importance of HS classification is
98% of the world uses the HS system
Therefore, understanding the importance of HS classification is crucial for smooth and seamless international trade. For instance, according to the World Customs Organization, the HS classification system enables customs authorities to process more than 98% of global merchandise trade. This statistic highlights the vital role played by HS codes in facilitating the movement of goods across borders, reducing delays, and minimizing errors in customs procedures. By embracing this standardized system, countries can effectively communicate and cooperate, ultimately fostering economic growth and prosperity on a global scale.
- Preview the main points that will be discussed in the blog post
The global standard for classifying and categorizing good in international trade
HS classification, also known as Harmonized System classification, is a global standard for classifying and categorizing goods in international trade. It is a systematic method of organizing products into different categories based on their characteristics, such as their composition, function, and intended use. The purpose of HS classification is to provide a common language for customs authorities and traders to identify and classify goods accurately, ensuring consistency and uniformity in trade documentation and customs procedures. This classification system plays a crucial role in facilitating trade by enabling customs authorities to apply the correct customs duties, taxes, and regulations to imported and exported goods. A
About the structure of the Harmonized System (HS) codes
Additionally, the structure of the Harmonized System (HS) codes consists of six digits, with each digit representing a specific level of classification. The first two digits represent the chapter, which is a broad category that groups similar products together. The next two digits indicate the heading, which provides further detail within the chapter. The following two digits represent the subheading, which narrows down the classification even further. This hierarchical structure allows for more specific classification of goods and helps ensure accurate and consistent classification across countries and customs authorities., the Harmonized System (HS) codes are organized into 21 sections, which are further divided into chapters, headings, and subheadings.
The global significance of HS classification
The global significance of HS classification cannot be overstated. It plays a crucial role in international trade by providing a standard and universally recognized method for classifying products. This allows for seamless communication and understanding between countries, facilitating the movement of goods across borders. Moreover, HS classification enables accurate and consistent tariff determination, helping to ensure fair trade practices and prevent trade disputes. Overall, the harmonized system of product classification has become an essential tool in the global economy, promoting efficiency and transparency in international trade.
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The importance of HS classification: (1) Facilitates international trade by providing a common language for product identification (2) Enables accurate determination of customs duties, taxes, and tariffs (3) Aids in the collection of statistical data for economic analysis and planning
How is correct HS classification crucial for compliance with import/export regulations?
Correct HS classification is crucial for compliance with import/export regulations because it ensures that products are correctly categorized and declared. This is important for customs authorities to accurately determine the appropriate duties, taxes, and tariffs that need to be applied. Additionally, compliance with HS classification ensures that products meet any regulatory requirements or restrictions, such as health and safety standards, which are crucial for protecting consumers and maintaining fair trade practices. Failure to comply with HS classification can result in penalties, delays in customs clearance, and even legal consequences. Therefore, businesses must carefully classify their products according to the HS system to ensure compliance and minimize any risks associated with international trade.
What are the potential consequences of incorrect or inconsistent classification?
Incorrect or inconsistent classification of products can have significant consequences for businesses engaged in international trade. One potential consequence is the imposition of penalties by customs authorities. These penalties can range from monetary fines to more severe actions, such as the seizure or destruction of goods. Such penalties can result in financial losses and damage a company's reputation and relationships with suppliers and customers. Moreover, incorrect classification can lead to delays in customs clearance, causing disruptions in the supply chain and potentially resulting in lost sales opportunities. Additionally, inconsistent classification practices can attract the attention of regulatory bodies, leading to audits, investigations, and potential fines.
The role of HS classification in ensuring fair competition and preventing fraud
HS classification plays a crucial role in ensuring fair competition and preventing fraud within the global trade industry. By accurately classifying goods according to the Harmonized System, companies can avoid unfair advantages that may arise from misclassification or intentional fraud. This helps to maintain a level playing field for businesses and promotes transparency in international trade. Additionally, proper classification also helps to prevent the entry of illegal or prohibited goods into the market, safeguarding consumer safety and protecting the economy from potential harm.
Commodity code classification and the taxes you pay
If you classify your goods correctly, you’ll know what rate of duty and import VAT you should pay, and if:
you can save duty
you need a licence to move your goods
Commodity codes and trade measures
It is also used to apply non-tariff measures. So, even if all goods were zero-rated for customs purposes, classifications could still be necessary if you need to:
apply for an import or export licence
find out if import or export restrictions apply
issue a certificate of origin
claim an export refund or similar
determine whether a product is liable to excise duty
find out if a reduced value-added tax rate applies
agricultural policy
assess if anti-dumping duties apply
consider tariff quotas or suspensions.
What does customs classification mean?
It means determining the chapter, headings or further subdivisions of the customs tariff of your country under which the goods will be classified. For example, in the EU, that is the Combined Nomenclature, in the UK it is the Trade Tariff, in Switzerland it is TARES and in the US it is the HTS.
Example of a classification system
Take the European Union (EU) for example.
The EU classification system has 2 elements
The Combined Nomenclature (CN) - the EU’s 8-digit coding system. It is based on the Harmonized Commodity Description and Coding System (HS) - developed by the World Customs Organisation (WCO).The CN is used for the EU’s common customs tariff. It is also used to provide EU trade statistics.
The Integrated Tariff (TARIC) provides information on all trade policy and tariff measures that apply to specific goods in the EU (e.g. temporary suspension of duties, antidumping duties).
It is made up of the 8-digit code of the CN plus 2 extra digits (TARIC subheadings).
Searching for the right commodity code
Usually, countries of customs territories have an online tool to help businesses find the right commodity code. In the EU, businesses, for example, can use the TARIC working tariff online database, in the UK, importers and exporters use the Trade Tariff.
Classification rules
There are six General Rules used in interpreting (applying) the Tariff. These are known as the General Interpretative Rules (GIR) 1 through 6. They are quite complex and we suggest that you seek training to talk through them with your dedicated Customs Manager.
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Get help with a difficult classification
If you cannot find the right commodity code for your goods, you can contact Customs Manager Ltd for advice. For a quick and informal decision, reach out to your dedicated Customs Manager
How we can help
We can also help you get a legally binding decision from the authorities. This is known, for example, as a Binding Tariff Information decision in the EU or an Advanced Tariff Ruling in Great Britain (England, Scotland and Wales). Your dedicated Customs Manager know how to apply for a legally binding decision on the commodity code and can often fast track the application so that you do not have to wait up to 120 days for the authorities to process them.
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