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The Harmonized Commodity Description and Coding System, which is also known as the Harmonized System (HS) of tariff nomenclature is a globally recognized, utilized, and harmonized system of descriptions, names, and numerals that can be utilized to broadly identity goods that are traded across borders. The HS code used for Customs entries in import and export declaration can be found in the Harmonized System (HS).
It came into effect in 1988. Ever since then, it has been developed and maintained by the World Customs Organization (WCO), which is an independent organization. The WCO is an intergovernmental organization. The WCO function as an independent body, with no bias towards or against any particular government or regime. The WCO is based in Brussels, Belgium. More than 200 countries are members of the WCO. The WCO is responsible for reviewing, amending, and improving the system periodically.
More than 97% of commodities traded all over the world have a HS code assigned to them at some point in their supply chain journey between manufacturing to purchase by the end customer. This means that most of the products that cross borders in trade all over the world will undergo the process of HS classification. Hence, the number of HS classifications done every single day all over the world is staggering.
If you intend to be or are involved in any business that requires import or export activities, you must clearly understand the concepts related to Hs classification and the Harmonized System (HS). Being able to apply the correct HS code is critical to any trader involved in international trade. The HS code system and its rules may be challenging and counterintuitive at times, but all business people who intend to move products between countries must have a good understanding of it. The importance of doing it correctly should not be underestimated.
The descriptive text of the HS code system is utilized all over the world and to a significant extent, all countries use the name set of numerals and descriptions in the local version of their tariff books. All WCO signatories have adopted the same descriptions and numbers of the HS code system at least up top the first 6 digits. Today, it can be said that countries are harmonized in its use.
Its nearly universal usage allows authorities such as Customs departments to easily identify the products being presented at the borders every day. Customs authorities all over the world rely on the HS code system extensively for day-to-day operation to take place smoothly.
When the system was developed by the WCO, it was intended to be a multipurpose international commodity classification nomenclature that describes the type of good that is being shipped, imported, or exported to a reasonably specific degree. By design, the HS code system is intended to serve many different purposes. As we have mentioned, the primary use of the system is to allow the relevant authorities to quickly and easily identify different commodities using just a number. This makes the administration of several processes more efficient. It goes without saying that in most cases, the trader will not be able to import or export a product if he or she does not know the HS code for it. Other government agencies can sometimes also use the code to establish regulatory licensing administrative requirements. The HS code may also appear on shipping documents such as letters of assurance.
The system of classification is a result of the 1974 Kyoto Convention. The intention and objective of the convention was to facilitate, simplify and harmonize Customs processes and procedures around the world. In addition to the nomenclature, the Kyoto Convention also details the design and operationalization of efficient procedures, as well as the obligatory rules for their correct implementation. As of early 2017, the convention has about 106 committed signatories.
HS code classification is crucial to the import process all over the world. The system also forms the basis of levying import tariffs of about 179 countries. Customs authorities use the system to determine the type of duties that need to be paid on every import. Hence, it can be said that Customs all over the world depend on the HS code system to allocate the correct duty rates for imports into the country.
In fact, most countries consider the misclassification of products to be a serious violation. This makes HS misclassification a significant trade compliance issue. In many countries, it is a serious compliance issue to submit wrong HS codes to Customs and can result in penalties and fines if caught. If a trader wishes to avoid penalties, he/she should ensure that the right HS codes are declared to Customs. In the worst of cases, a trader may lose the privilege to import or export products from a country. This requires that the companies involved in worldwide trade know how to use the HS system to properly classify their products. Hence, businesses that do trade across borders should invest some focus and effort in ensuring that they are able to classify the correct HS code for their products. It now becomes an important business need for companies to build capability in this area.
Unfortunately, many companies involved in global trade still struggle without a having sufficient understanding of how the HS classification system works and why it is a key factor in trade compliance. At times, companies try to avoid costs related to compliance or understaff compliance functions severely and hence run into HS code classification problems easily. It may be challenging and costly to hire experienced compliance professionals and hence many companies do not have in-house compliance capabilities to support them with HS code classification. However, this is not an excuse that Customs will accept if any offenses are detected.
What are HS codes used for?
The Harmonized System (HS) Classification, is an internationally recognized and harmonized classification system which when properly used, results in a specific 6 digit HS code being identified as specific groups of products. It must be noted that WCO’s HS code classification system is only focused on the first 6 digits of the HS code. The first 6 digits are provided by the WCO for countries to develop their own HS code systems.
The HS classification number plays a critical role in determining the non-preferential origin of goods. An important point that many traders do not realize is that HS codes play a significant role with regard to country of origin determination. In many countries, the HS code of all raw materials and finished goods must first be determined before a manufacturer can claim the country of origin or “Made in” status.
The MFN tariffs as well as preferential tariffs under FTAs are set based on HS classifications. The duty waiver or reduction rates under FTAs are also determined with reference to HS codes.
In addition, understanding how to properly assign determine the HS classification of a product is a necessary step when attempting to determine the correct rule of origin under any FTA or Free Trade Agreement. Applicable Rules of origin under any free trade agreement can be different for goods classified under different commodity codes.
The Structure of the HS System
The HS code system is to some extent organized logically by economic activity or type of material in terms of complexity. It can also be said that the HS code system is arranged roughly according to a sequence of first looking at raw materials then moving on to finished goods. The system is written in such a way that raw materials appear early in the text of the nomenclature while finished goods appear later in the text of the nomenclature.
For example, animals and animal products can be found listed in the First Section of the HS System, while machinery and similar mechanical appliances are found in another Section that appears towards the later part of the nomenclature. In another example, commodities like fruits are found early in the text while commodities like computers appear later in the text. Also, if you look at the HS code system and the way it is organized, you can see that commodities like products made of blood are found in the first few Chapters while commodities like furniture and electrical equipment are found in the back. It can also be said that the Sections and Chapters are arranged in order of a product’s degree of processing or manufacture or in terms of its technological complexity. The more composite or complex a product is, the further down the HS code system it ought to be listed. The HS code system is designed to refer to more complex articles and products in the later Chapters. Natural commodities, such as live animals and vegetables, for example, are described in the early Sections of the HS, whereas more complex goods such as machinery and precision instruments and apparatus are listed in Sections that come later. Chapters within the individual Sections are usually organized in order of complexity or degree of prior processing.
The HS code system is organized into 21 Sections, which are then subdivided into 99 Chapters. The 99 HS Chapters are further subdivided into 1,244 Headings and 5224 Subheadings.
Section and Chapter titles describe broad categories of goods, while headings and Subheadings describe products in more detail. The higher the hierarchy of the descriptive text, the more general the description. This means that the Section descriptions are more general than the Subheading descriptions. When you view the Section to Subheading descriptions, the descriptions become more and more specific. But it must be noted that Section descriptions are only to be used as guides.
The Harmonized System is governed by The International Convention on the Harmonized Commodity Description and Coding System. A WCO Committee appointed oversees the administration of the HS code system. This Committee has the responsibility to oversee the HS code system. The official interpretation and definitions of the HS is given in the Explanatory Notes published by the WCO. The policy intent of the nomenclature can also be gleaned from these notes, which are sometimes referred to as ENs.
Developed and managed by the WCO since the late 1900’s, let’s look at a few quick facts about the HS code system that we have learned so far:
- The System consists of 5,000 commodity groups
- It contains 99 Chapters
- The Chapters roll up into 21 Sections
- Products can be identified by no less than a 6-digit number or code
- The first six digits are supposed to be harmonized throughout the world
- The text of the system is arranged in a logical structure that is intuitive and goes from raw materials to finished or processed products
- Is supported by defined rules published by the WCO to achieve harmonized classification all over the world, at least in theory
WCO’s version of the HS code system is composed of 6 digits. HS codes can be further extended to 7 or even 12 digits (or more) depending on country preferences, needs, and objectives. This means that HS codes can be further expanded by countries. These extensions are sometimes referred to as commodity codes and/or statistical codes. Countries can expand on the WCO HS code system by adding country specific digits to the number, but they cannot (or at least should not) change the first 6 digits. So traders must note that any digits beyond those six are country specific and could be different for every country.
The HS code system is very robust and comprehensive. Hence, almost all traders will be able to find all their products described within it. With so many commodity groups in the nomenclature of the HS code system, it should not be difficult to find a suitable HS code for any product. Correctly used, HS Classification numbers can help to ensure that your exports make it through Customs clearance checkpoints without undue delay and get delivered to their final destinations on time, which can help you get paid faster.
Why are the first 6 digits important?
As we have discussed earlier, the WCO version of the HS code system consists of six-digits. The first six digits of any HS code are the most important because, in theory, these are supposed to be the same for a single product anywhere in the world.
The first two digits indicate the HS Chapter of the code. The second two digits indicate the HS heading. The third two digits indicate the HS Subheading.
HS code 3304.91, for example, indicates Chapter 33 (Cosmetics), heading 04 (Beauty preparations), and Subheading 91 (Powders).
The HS (Harmonized Commodity Description and Coding System) Code is mandatorily required for all international shipments. This number is used by Customs authorities to identify the broad categories of products shipped across international borders. Let’s look at an example of how specific HS Codes are:
- 442191 is the HS code for ice cream spoons made of bamboo
- 442199 is the HS code for ice cream spoons made of other wood instead of bamboo
Sometimes traders get confused about the number of digits in HS code. Does HS code contain 2 digit, 4 digits,6 digits,8 digits or 10 digits? Each country can modify by adding two digits or four digits as per their requirements without changing first six digits. In other words, first six digits of HS code (HTS code) are same in all countries. But countries can add additional digits to categorize and define commodities at more detailed level, as long as they do it without modifying or changing first six digits.
HS codes in detail
In addition to the HS codes themselves and commodity descriptions or names, each Section and Chapter of the nomenclature system is accompanied by Legal Notes, which are drafted to clarify the proper classification of goods by providing inclusions, exclusions, and clarifications. To ensure harmonization is internationally achieved, the contracting parties or signatories to the Kyoto Convention on the Harmonized Commodity Description and Coding System, are obligated to design their own national tariff schedules and nomenclatures on the HS nomenclature and published Legal Notes of the WCO. Parties are allowed to further extend the HS nomenclature beyond six-digits and add their own local Legal Notes according to their own tariff and/or statistical requirements. Parties usually set their Customs duties at the 8-digit “tariff code” level and at further levels don’t differentiate tariff amounts. Statistical codes are sometimes added to the end of the 8-digit tariff code to create a total of 10 digits or more. In some cases, the statistical codes are also the 8-digit country-code extensions. In many countries (almost all), traders bear the legal responsibility to accurately classify their goods, or at least ensure that the products are correctly classified and declared to Customs. However, due to a lack of familiarity with and understanding of the rules of HS Classification, many traders may unintentionally and inadvertently choose erroneous HS codes for their imported and exported and commodities. Depending on the severity or seriousness of the misdeclaration, incorrect classification can result in the imposition of non-compliance penalties by Customs. It can also be the cause for border delays or cargo seizures or denial of import privileges.
When you do not fully comprehend or understand the rules of HS classification and eventually end up improperly applying product classifications when doing international shipping or imports and exports, you can face legal penalties. These lapses can end your business. You can have your goods seized, or held back in Customs indefinitely, while you pay for storage charges. Hence, it is critical and important to understand the structure of a HS Classification number and how to go about classifying products. The HTS code number is split into groups of 2 digits separated by a “.”. The first two categorize the product, the second two define this classification further (i.e. make it narrower) and the final 2 digits is to specify the product in even more granular detail. This repeats for every set of 2 digits. The Harmonized System is extensively used and relied on by governments, international non-governmental organizations and the private sector for many other purposes such as computing and analyzing internal taxes, developing and drafting trade policies, monitoring the flow of controlled ore regulated goods, determining rules of origin or country of origin, calculating freight tariffs, collecting transport statistics, doing price monitoring, enforcing quota controls, on-going compilation of national accounts, and for the purpose of economic research and analysis. The HS system can hence be treated as a universal economic language and classification code for goods. Today, it is an indispensable part of international trade. However, given the tremendously large number of products that must be classified under a HS in day-to-day world-wide operations, things can sometimes get confusing. Classification can be determined by a number of factors that contribute to the essential character which includes product composition, product form, and product use. But in all cases, the rules of classification as published by the WCO must be followed closely.
Most suppliers of goods and products will usually include a HS code information on their shipping documentation such as MSDS, Commercial Invoices, and Packing Lists. It is important to note that in some cases there may be slight to large discrepancies between the HS Code suppliers use and the correct HS Code in the country of import. This can be due to various reasons such as countries having a different nomenclature or countries having conflicting rulings. Therefore, you should contact your freight forwarder or Customs broker to get help classifying the tariff code of your product in the respective countries. Import duty rates vary for every country, so it is vital that you consult with a professional if you are not sure of what you are doing so that you don’t face penalties later. The Customs clearance agent or House agent arranging for Customs clearance to take place will need the HS classification number when submitting information about the shipment to the Customs authorities. They need this information to confirm the rate of import duty rates or import tariff that is attracted by the imported goods. The licensing conditions of the product can also be determined based on the HS code of the product. Therefore, it is important to give your Customs clearance agent as much detailed information as possible about the products so they can be cleared correctly through Customs. Good Customs Brokers and Freight Forwarders employ trained experienced operators who deal with classification issues daily. For this reason, it’s best to leave it in professional hands because opinions frequently vary on what is the “correct” classification.
HS classifications are risky if you classify your products for import or export incorrectly, as you may be paying the wrong duty and tax on your products. This can result in a retrospective duty or tax bill for the back payment of all the goods you incorrectly classified over the past several years. This can lead to substantial penalties and fines, and even cause your goods to be seized or destroyed. An incorrect classification can also lead to overpayment of duty and tax, which has implications for your business cash flow. It is possible, in some countries to make a retrospective claim for overpaid duties, but you must be able to fully back up your arguments for such a retrospective change and claim. In most countries however, it is very difficult.
Tariff classification is a specialized skill that requires a broad knowledge base and experience. Not all importers or exporters necessarily have this expertise. Correctly declaring goods to Customs agencies is a key element of any declarants’ services. It is best to work with a freight forwarder that has a Customs and trade compliance teams around the world who are experts at HS classification, and are able to support you with advice on how best to classify your products.
In most cases, importers should seek help from qualified professionals—like licensed Customs brokers or Customs attorneys—who have extensive experience in classifying goods to help make sure they classify their goods correctly.
To assign a product an HS code, the following information is needed:
- all the components and raw materials that have been incorporated into the product,
- all the intended purpose(s) of it, and
- any notes in the HS that may pertain to the particular product.
In order to get the correct Customs classification of goods to get the correct tariff amount, the goods must be fully described within the Customs declaration. Basically, goods can be classified by material condition and by function or usage (combinations are possible). Understanding how to classify products under the Harmonized System (HS) is essential in keeping the global supply chain moving. HS classification is an important component in both, export declaration for export shipments and the Customs entry for import shipments. The HS classification is central to determining both export eligibility and import duty rates and taxes. The correct HS classification is also key to determining if products qualify for preferential tariff treatment under the many free trade agreements.
The HS classification process
When doing HS classification, the goods to be classified must first be classified into the appropriate 4-digit HS heading, followed by the appropriate 1-dash Subheading, and the appropriate 2-dash Subheading and so on, depending on may dash levels you need to go through before you are able to completely classify the product. You should not proceed directly to the lower-level Subheadings without first determining the appropriate Heading. When classifying your products, one will need to apply the General Interpretative Rules (GIR) which provide a step-by-step set of rules published by the WCO for the classification of goods and to ensure uniform interpretation of the Harmonised System (HS) nomenclature. The first 4 rules must be applied in sequential order. The last 2 rules must be applied throughout the classification process.
To classify products on your own, you must be familiar with the concept of HS codes and the rules of classification. You also need to know about Customs advanced rulings. Otherwise, mistakes and oversights made in HS classification can cost you in terms of delayed shipments, poor customer experience, penalties or even criminal proceedings. You can of course, always try to classify your products by yourself. However, expect and be prepared to deal with uncertainty, especially if you have large-scale inventories and want to ensure accurate classification. This is because the rules of classification are not entirely objective and intuitive to use. You may have to consider making Customs compliance a core part of your business strategy if you find yourself dealing with extensive Customs compliance problems frequently.
The most important thing about classifying products is to carefully read all the Section and Chapter Notes applicable to any potential classification. Quite often these Notes will give you clear instructions for selecting the correct Heading for a class of products, or they will give you specific lists of articles included or excluded from a particular Section or Chapter. Without reviewing these notes, you cannot be said to have taken reasonable care or due diligence in classifying your product.
The WCO has made available 6 rules that need to be used when doing classification of goods under the HS nomenclature. They are intended to provide a uniform legal interpretation of the HS nomenclature for the proper classification of goods, although in practice there is often some degree of variation across countries. The GRIs are applied in strict number order. Rule 1 explains that titles of Sections & Chapters have no legal status. Classification is to be determined according to the terms of Headings and relative Section or Chapter Notes and by reference to the other Interpretative Rules. For example, Rule 1 of the GRI states that just because Chapter 87 is titled ‘Vehicles other than railway or tramway rolling stock and parts and accessories thereof’, it does not mean that every item you might find on a car is automatically included. Tires for example, fall within Chapter 40. When looking at Rule 2, Part (a) of this Rule states that the same headings apply to incomplete products if they have the character of the complete article. It also states that unassembled products are classified in the same heading as the fully assembled product. Part (b) of this rule deals with mixtures or combinations of substances. It extends the scope of headings that refer to one particular material or substance, to mixtures or combinations of those goods with other materials or substances. Rule 3 comes into play when products could be classified under two or more headings. Rule 4. This rule covers goods that cannot be classified by applying rules 1 to 3. It states that such goods are to be classified in the heading for those with which they are most similar. Rule 5 is concerned with the boxes, containers, and packing materials that are used to package the product. Rule 6: The previous Rules have dealt with classification at the heading level. The purpose of rule 6 is to ensure that Rules 1-5 are also applied to the classification of goods at sub-heading level subject, so long as the Subheadings notes are taken into account.
GRIs are the classification rules that have been published by the WCO for the purpose of determining HTS codes. It should be noted that most products can be easily classified by using the first three GRIs: 1 to 3. In fact, for most traders, the things they import or export can be safely classified under the first rule itself. Although there are only 6 classification rules, the first three are usually used for the purpose of HS classification. GRI 1 states that HTS classification must be according to the text and names in the Headings. All relevant Section or Chapter notes must be properly consulted. GRI 1 requires the trader to use the most specific HS code for the product. Hence, as a classifier, you need to collect as much of the product specifications as you possibly can before even you sit down to attempt classifying goods. The kinds of documents and information that should be collected include complete descriptions, raw material specifications, photographs and illustrations, technical sketches, technical drawings, component lists, and so on. GRI 2 deals with the classification of unassembled/incomplete goods. These goods can be in a state that all components are present, but are not yet assembled/ finished. If the article’s state is incomplete, unassembled or unfinished, as a HS classifier you need to classify it as if it were a complete or finished product. This is true as long as the shipment has the essential character of the finished product. GRI 3 provides the guidance that whenever a mixture, composite good or set is at first appearance or prima facie classifiable under two or more headings, you again need to classify the product based on the concept of essential character. GRI 3 also states the guidelines for the correct classification approach towards sets.
Dealing with HS code classification challenges
Determining a correct HS Number for your imported or exported products is not always straight forward. Oftentimes, you will realize that more than one tariff classification number is possibly suitable for one of your products. In such cases, in addition to referring to the Section and Chapter and Classification notes for guidance, you could also try to look for any Customs rulings that are relevant to your article. You can also consider reaching out to Customs for an advanced classification ruling. Such rulings are legally binding in nature, so be wary when applying for them and go prepared.
For the purpose of executing correct HS Number classification, we can use tools such as the General Interpretive Rules (GIRs) for the HS. However, there can be big differences of opinion or thought about the correct tariff classification for a product not only across the world, within the same country as well. There are many cases of such disagreements leading to court cases that drag for long durations. In addition to the rules, the WCO also very helpfully publishes a set of Explanatory Notes that provide users with a comprehensive official WCO interpretation of the HS system. Although the Explanatory Notes are not binding in all countries (or any country for that matter), they are widely referred to by authorities and courts to work through challenging classification issues. These notes serve to significantly improve the global understanding of the correct way to apply HS codes in every corner of the world.
Considering that many other regulations, rules, quotas, duties, tariffs, taxes, levies, restrictions and Other Government Authorities’ requirements are triggered on the basis of the HS code, ensuring a globally aligned HS code for every product is important for development and industry. Unfortunately, proper tariff classification using the manual application of GRIs correctly is soon becoming a lost art. Computerized/Automated classification programs running on rudimentary artificial intelligence give traders a false sense of security. This results in inexperienced and/or unskilled compliance or logistics personal being made responsible for the process of HS classification in a company. This problem is further complicated by the fact that all too often, the description and names of the goods that get printed on commercial invoices or that end up on the artwork on product boxes is inaccurate or too generic. Many companies also use generic names such as “electronic equipment” or “electrical parts” etc. They often fail to mention the kind of “electrical equipment” that the parts are for. This makes the job of a Customs broker very hard, since it is impossible to understand the nature of goods just based on a vague description on an invoice.
HS classifications can be complicated and intricate. The application of the GRIs can be challenging for inexperienced classifiers. Let’s look at 2 examples that show why HTS codes can end up getting inconsistently applied for the same product:
Many companies make highly specialized articles for sale and to simplify the logistics process, traders declare all spares and parts of those products as being parts of the main product. This is not wrong and most of the time is actually correct. When done in this way, duty rates levied on these spares and parts are usually very low. However, at the same time it must be mentioned that generic parts of “general use” – such as screws, springs and washers are classified as those specific items elsewhere, often at much higher duty rates.
Heading 3304 covers articles like beauty preparations and similar products. However, it may not cover beauty preparations that may contain surface cleaning agents in them. The duty rates between these classifications can differ in some countries. Moreover, the licensing conditions can also differ.
The biggest issue with HS classification faced by countries all over the world is that it is subjective in nature, despite the classification rules. Due to several reasons, there is a lot of underlying complexity with standardizing classification approaches, and many traders and even Customs officers face difficulties with interpreting tariff system’s names and descriptions. Moreover, tariff schedules do not usually keep up to date with the latest technologies and trends. It is not uncommon to find different interpretations of tariff nomenclature between countries. It is also not uncommon to find disagreements between auditors in one country. In some cases, different Customs officers in different ports of the same country can disagree on the correct tariff code for a product.
Making intentional or unintentional errors with HS code classifications can have serious consequences. Hence, traders must exercise proper due diligence with HS classification.
Using the incorrect tariff classification code for an article in an import or export declaration could result in:
- The exporter’s certificates of origin will show the wrong HS code
- Customs at the port or checkpoint may raise a dispute concerning the HS classification used for import.
- Import clearance delays may occur due to detained cargo and additional storage charges may be incurred
- The buyer may incur additional costs due to additional storage charts, surveyor charges of even loss of the cargo to forfeiture
- Goods may be denied preferential duty rates that they are otherwise qualified for
- Penalties and fines may be imposed on the trader
HS code are used by Customs authorities, statistical agencies, private research bodies and other government regulatory bodies for various purposes:
- Determining the tariff to be imposed by Customs for the import of the product
- Collection of statistics relating to international trade
- Rules of origin determination
- Collection of internal taxes, levies, tariffs
- As a basis for trade negotiations
- Collection and analysis of transport tariffs and statistics
- Monitoring of controlled and regulated goods
- Enforcing Customs controls, processes and procedures
Since it came into force about 30 odd years ago, the HS code system has established itself not only as the standard basis for the identification of goods by authorities, determining duties and taxes, and collecting and collating commerce statistics, but it can also be used by other government agencies, international commerce organizations and various other entities in the private sector for a variety of objectives and purposes. This is a logical, structured, systematic, and easy to understand universal language of Customs that is utilized for developing and discussing commerce policies, monitoring and controlling regulated cargo, determining and developing unique rules of origin, deciding on appropriate freight rates, analyzing transportation and freights statistics, monitoring unit pricing and controlling quotas, as well as for generic commercial research and study.
The misclassification of products and articles may easily trigger an administrative or even smuggling investigation or query by Customs authorities against the importing trader. Making a wrongful declaration to Customs authorities is a serious violation of Customs laws. Taking into account the potentially severe consequences and complex technical nature of HTS tariff classification, it is always advisable for importers and exporters to seek professional advice pertaining to the correct code to use for their products. Traders should also have a robust and comprehensive defense plan in place for each and every HS Code declared for every product to Customs in any country.
Traders must be aware of the risks of incorrectly classifying goods. They must keep in mind that failing to execute due diligence and reasonable care can easily lead to overpayment or underpayment of taxes/levies or duties, the imposition of penalties and fines and extremely severe fines and penalties. In the worst of cases, it can also end up as a seizure of cargo. If traders regularly submit wrong HS classifications to Customs, it is a red flag for authorities. This is interpreted by Customs as the importer lacking appropriate internal controls over its tariff classification procedures and processes. HTS Classification has a direct relationship to the duties and taxes paid for imports. The codes are also used as a basis for other important concerns such as quotas, sanctions, embargoes, and other controls. HTS Numbers are also very important and directly linked to Free Trade Agreement matters.
A Final Note about HS code
Because the tariff classification process is not without its ambiguity, the topic of HS codes may result in some disagreement between you and your customer. In fact, your customers may have strong and very good reasons why they think the HS codes you intend to use for their products are wrong. In other cases, they may just want you to use an inappropriate HS code in order to circumvent controls or pay lower duties than they really ought to. Traders must keep in mind that if they intentionally use the wrong HS code for an import declaration, they are committing a very serious offense that in extreme instances can lead to jail time in some countries.
When doing HSN classification, if you have difficulty understanding the Heading, Subheading, Explanatory Notes, Section Notes of any part of the nomenclature, you should seek clarification from the authorities. It is the responsibility of the importer or owner of the goods to ensure that the correct HS codes are declared to Customs for their consignments. Traders cannot hide behind contractual regulations and clauses to push liabilities for fines and penalties to their declarants.
When doing HSN Classification, classifiers should follow a structured approach to ensure that they are in the best possible position to execute the classification correctly.
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