When governments, international bodies, or — on a smaller scale — importers engage in international trade, it isn’t simply a free-for-all. There are specific guidelines that must be followed in order to keep a uniform set of procedures. These procedures fall under the globally accepted Harmonized System, a series of numbers and codes used to classify goods being traded overseas.
The Harmonized System, or HS, is regarded as the commerce language. If it isn’t properly adhered to, there can be some devastating consequences for those within the import or export industry.
Why is the Harmonized System important?
As a series of numbers, codes, and product descriptions, the HS is used to identify exactly what is being shipped to a specified country. It was developed in 1988 and kept in practice by the World Customs Organization, becoming the main source for international system code names.
Every country has their own rules and regulations. There may be some free trade exemptions, as well as tariff and duties, to impose. the HS gives countries the ability to make quick note of goods being imported and ease the trading process.
If a shipment fails to properly identify their goods, it could mean some serious fines, and countries are at liberty to handle those situations independently. This means it is extremely important for people engaging in international trade to completely commit to and understand the Harmonized System code list.
Failure to do so will result in:
- Heavy border delays
- Non-compliance penalties
- Seizure of goods
- Import blacklisting
Essentially, if you want to continue trade relations with a specific country, make sure to understand which codes to use and when to use them. The consequences otherwise could get you blacklisted and, in many cases, devastate your business.
How does the Harmonized System work?
Most countries that follow the HS use a series of six numbers. The numbers are separated into pairs, with the first pair representing a broader category and the following pairs narrowing in on the specific item being shipped.
There’s a vast array of numbers that can be used. In fact, the HS code list is comprised of roughly 5,000 commodity groups, representing 98% of merchandise traded internationally.
If someone is shipping goods that are frozen, fresh, wood, or plastic, each has their own specific codes — even if they’re part of the same category. Sometimes the code list can be convoluted, but in the end, the list helps quicken the trading process, thus satisfying customer needs.
While that list may seem challenging to memorize (or at the very least comprehend) it’s crucial for any importer to familiarize themselves with the codes. There’s no way around this, either, because of the previously outlined consequences.
The Harmonized System goes even deeper in the U.S.
HS codes are typically limited to six digits, but in America, the Commerce Department requires an additional four digits, which is called Schedule B.
In the America, HS codes are always comprised of 10 numbers. The reason for the longer sequence relates back to the government; the main function of Schedule B is to help the Commerce Department collect data for their yearly U.S. Export Statistics.
In addition, if the goods being shipped are valued at over $2,500, or the items need a special license, then the Schedule B numbers need to be reported to the Commerce Department and the Automated Export System.
Alone, the HS codes carry a lot of weight and take time to process. Adding the Schedule B might make it more complicated to some within the import and export industry, but those extra four numbers go a long way to satisfying customer needs.
When done properly, it will get packages to customers in a timely manner, and ensure that the package being sent from the U.S. receives preferential tariff rates, depending on its destination.
Understanding the Harmonized System will take time, so it’s important to not become frustrated with the massive pile of numbers. Instead, take a moment to do the proper research. There are several online resources that can be used to help better understand the entire process and sequence of codes, such as the U.S. Census Bureau’s search engine and many others like it.