International Trade: Understanding the Significance of Harmonized System Codes

Harmonized Commodity Description and Coding System (HS) play a crucial role in international trade, recognized by over 200 countries to standardize and classify goods globally. Developed by the World Customs Organization (WCO), the HS simplifies the interpretation and application of customs regulations, proving essential for businesses aiming to enter the international market.

Business Advantages of HS Code Familiarity:

1. Clarity in International Trade: HS codes facilitate communication and mutual understanding in international business transactions.
2. Customs Clearance: Understanding HS codes helps companies comply with customs regulations, avoiding issues such as customs delays, penalties, and confiscation of goods.
3. Cost Calculation: With HS codes, businesses can calculate import tariffs, restrictions, and specific regulations for each country.
4. Commercial Negotiations: Proficiency in HS codes empowers businesses to engage in more informed commercial negotiations, anticipating potential barriers and identifying market opportunities.

HS Code Format:

HS codes consist of six digits, representing chapter, position, simple or 1st level subposition, and compound or 2nd level subposition. For example, in the case of selling T-shirts, the HS code would be 61 09 10:

- 61 — Articles of apparel and clothing accessories, knitted or crocheted;

- 61 09 — T-shirts, singlets, and other vests, knitted or crocheted;

- 61 09 10 — Of cotton.

The system undergoes updates approximately every five years to stay aligned with international market demands.

Impacts of Incorrect HS Codes:

Incorrectly associated HS codes can lead to various consequences, including:

1. Customs Delays: Incorrect codes may result in delays during customs clearance.
2. Incorrect Tariffs: HS codes determine the product’s tariff category; if wrong, applied tariffs may be inappropriate, leading to overcharges or undervaluation of due tariffs.
3. Non-compliance with Regulations: Each HS code is associated with specific regulations, such as import restrictions, licenses, and compliance requirements. An incorrect code may lead to non-compliance with these regulations.
4. Fiscal and Legal Issues: Improper product classification can result in fiscal and legal problems, including fines and penalties.
5. Audit Risks: Incorrect classification increases the risk of audits by tax and customs authorities, leading to detailed inspections and potential consequences.

To avoid these issues, it is crucial to ensure accurate HS code classification in compliance with applicable regulations.

Other Classification Systems:

Some countries use the HS as a reference but add additional digits to create their classification codes, such as:

• NCM (Common Nomenclature of Mercosur): Composed of 8 digits, with the first six being HS codes and an additional 2 digits to further specify the merchandise. Used exclusively by Mercosur countries.
• HTS (Harmonized Tariff Schedule, used by the USA): A 10-digit code specifying the import classification for goods arriving in the United States.

Avoiding Errors in Commodity Classification:

To prevent errors in commodity classification, consider these tools and resources:

1. WCO (World Customs Organization): Stay updated with official news from WCO on the Harmonized System.
2. Training Courses: Invest in training courses offered by regulatory bodies, international trade institutions, or specialized companies to enhance knowledge of commodity classification.
3. Contact Customs and Regulatory Bodies: Companies can reach out to local customs or regulatory bodies for more information on correct classification.
4. Specialized International Trade Consultancy: Specialized consultancy services offer personalized assistance in commodity classification. Advantages of such consultancy include:

a) Specialized Knowledge: Professionals understand classification rules, updates, and sector-specific interpretations.

b) Precise Identification of Goods: Assistance in accurately identifying merchandise characteristics, crucial for correct HS classification.

c) Detailed Documentation Analysis: Professionals review documentation related to goods, ensuring all necessary details for accurate classification are considered.

d) Error and Fine Reduction: Avoiding errors in commodity classification reduces customs delays and fines, ensuring correct classification from the start.

e) Personalized Consultation: Each sector and type of merchandise may present specific classification challenges. International trade consultancy offers personalized guidance, adapting to client-specific needs and ensuring accurate classification for each product.

In summary, relying on import and export consultancy is a strategic move to guarantee correct merchandise classification in the HS system.

“In the steel market, for instance, the World Steel Association estimates over 3,500 different types of steel with varying physical, chemical, and environmental properties. This complexity makes correct classification more challenging for companies with limited experience in international trade. Additionally, various countries impose restrictions on certain types of steel. Awareness of anti-dumping legislation, a tool for combating unfair trade practices worldwide, is crucial,” explains Mauro Oliveira, CEO of Asia Link Trade.

For more information on secure import and export practices, please leave your comments and follow us.

#internationalbusiness #importexport #asianbusiness #Sourcing #SupplyChain #Procurement #VendorManagement #Logistics