What is HS Code in Logistics? What role does it play in the Export & Import shipping process?

In the international trading business, you may often hear the term “HS code”.
A HS code controls importing and exporting products by using specific codes,
and plays a role of seamless business trade in the world. In this post, we will explain what is HS code and what role does it play in export & import shipping process.

The purpose of allocating HS code

There are variety of products which can be exported and imported in trading, such as fresh products and industry products. There are different specifications for industrial products, and there are countless varieties of products. You may not be able to identify which type of products, only by checking the invoice, or only by checking the product name on the packaging list.

By using HS code for customs declaration, you will be able to identify the product immediately.

Here is an example:

A wheel of a passenger car is classified with six digits as “8708.70”. The HS code has a clear rule of how you classify the products. Therefore, if you have the HS code information of “8708.70”, the customs will be able to identify what products are immediately.

What’s the regulation to control HS codes?

The HS code is administrated by the World Customs Organization as, “International Convention on the Harmonized Commodity Description and Coding System”, Which is HS Convention. The HS Convention is contracted to more than 150 countries, therefore this is a universal rule.

The HS code is reviewed every five years for product classification and amendments are updated. They may include more detail for specific products and new products may be added.

Harmonized codes and country’s own code

Based on the classification and type of the product, the duty rate is decided. The codes are internationally harmonized, and the product type is shown with six digits when exporting and importing.

More than six digits may be used to classify, and define products at more detailed level, based on each country’s domestic rules.

HS Code classification Structure

HS code classification looks like the following:

  1. Chapter – first 2 digits
  2. Heading – first 4 digits including the chapter
  3. Sub-Heading – first 6 digits including the chapter and the heading

The 6 digit classification is a universal code.

How are products classified?

1. Chapter

First, they are roughly classified by products as follows. There are 01 to 97 Chapters. Here are a few examples:

  • Chapter 01: Live animals
  • Chapter 02: Meat and edible meat offal
  • Chapter 08: Edible fruits and nuts, peel citrus fruits or melon
  • Chapter 09: Coffee, tea, mate and spices
  • Chapter 10: Cereals
  • Chapter 11: Products of the milling industry, malt, starches, inulin, wheat gluten
  • Chapter 97: Works of art, collectors’ pieces and antiques

2. Heading

We will use the example of brown rice to check which HS code is allocated. First, brown rice is a cereal, so it falls within Chapter 10. And cereals are categorized as follows:

  • 10.01: Wheat
  • 10.02: Rye
  • 10.03: Barley
  • 10.06: Rice

Brown rice is rice, therefore it comes under 10.06.

3. Sub-heading

Sub-Heading categorizes what has been classified in the four digit, heading by product, such as raw material and materials. For example, classification of Heading 10.06 (Rice):

  • 10.06 – Rice
  • 1006.10 – Rice in the husk
  • 1006.20 – Brown Rice
  • 1006.30 – Semi-milled or wholly milled rice
  • 1006.40 – Broken rice

Therefore, brown rice Sub-Heading is 1006.20. If the HS code is allocated as ten digits for brown rice, it will be displayed as “10.06.20.090.4” in Japan.

When the HS code is used?

HS codes are utilized for customs declaration for both exporting and importing countries. Six digits for HS code classification is universal, however, different duty rates may occur in an exporting country and an importing country, depending on the understanding of classification of the product.

The duty rate may be different from what you have expected, if import side customs specialists apply a different HS code for importing.

When using an exporting and importing agency such as a freight forwarder,
there is normally a customs specialist who is qualified and will select the relevant exporting and importing goods’ HS code. They will check the product name on the shipping note, and using their experience, select the relevant HS code.

However, when they are unable to identify the product by name, they need to confirm the details. If it’s a chemical related product such as raw material, they need to check the material using the MSDS to identify its HS code.

The HS code which an exporter includes within the documentation, may differ from the HS code used by the customs specialist. When HS codes do not match, the customs specialist will confirm the product detail and the ingredients, with the exporter to ensure that the correct HS code is allocated.

It is also possible to confirm the correct HS code with customs, therefore when you are unsure, it is advised to contact customs. The HS code information will be declared to the customs, with the product name and once approved, the relevant product code will be included on the export certification.

When dealing with documentation such as invoices issued by exporters, you will find HS codes along with the product name. It is normally included, because when they process the import declaration in an importing country, they are required to send the HS code in advance.

HS code requirements for each country

Individual countries have their own arrangement for allocating HS codes when importing.

24-hour Rule

When processing import customs clearance for EU countries and the USA, there is a 24 hours rule. The HS code and detailed product information must be provided to the local customs 24 hours before the cargo is loaded on the vessel.

A Certificate of Origin

When exporting products to a country which has EPA agreement, you can receive a reduced custom tariff if you can provide a certificate of origin for the product. If you are exporting with a certificate of origin, and the wrong HS code is applied,
the incorrect tariff rate could be applied and you may not receive the special rate.

Before submitting the documentation, you need to identify the 6 digits of HS code and tariff rate for the importing country. HS code on a certificate of origin is not mandatory.

However, if there is any discrepancy relating to HS code, you will need to follow the importing country’s customs HS code decision. If an unexpected duty rate is applied, it may cause some problem between an exporter and an importer.

Normally, an exporting party will check with the importing party in advance,
and include the code on an invoice and a certificate of origin.

Summary

Rules of HS codes are essential knowledge required in the worldwide trading industry. You don’t need to know all products in depth classification, however it is important to understand the overview, and how and why they are used to make arrangement for exporting and importing.

In the future, more countries may introduce the use of the HS code system, and the control will be strengthened. It is important to understand the rule of HS code, as it provides additional protection and safety.

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