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Introduction of HS Code

By:BPOC   Update:2016-05-23
The Harmonized Commodity Description and Coding System, also known as the Harmonized System (HS) of tariff nomenclature is an internationally standardized system of names and numbers to classify traded products. It came into effect in 1988 and has since been developed and maintained by the World Customs Organization (WCO) (formerly the Customs Co-operation Council), an independent intergovernmental organization based in Brussels, Belgium, with over 200 member countries.
 
Fundamentally, the HS is organized logically by economic activity or component material. For example, animals and animal products are found in one section of the HS, while machinery and mechanical appliances are found in another. The HS is organized into 22 sections, which are subdivided into 98 chapters. The 98 HS chapters are further subdivided into approximately 5,000 headings and subheadings.

Section and Chapter titles describe broad categories of goods, while headings and subheadings describe products in more detail. Generally, HS sections and chapters are arranged in order of a product’s degree of manufacture or in terms of its technological complexity. Natural commodities, such as live animals and vegetables, for example, are described the early sections of the HS, whereas more evolved goods such as machinery and precision instruments are described in later sections. Chapters within the individual sections are also usually organized in order of complexity or degree of manufacture. For example, within Section X (Pulp of wood or of other fibrous cellulosic material; Recovered (waste and scrap) paper or paperboard; Paper and paperboard and articles thereof), Chapter 47 provides for pulp of wood or of other fibrous cellulosic materials, whereas Chapter 49 covers printed books, newspapers, and other printed matter. Finally, the headings within individual Chapters follow a similar order. For example, the first heading in Chapter 50 (Silk) provides for silk worm cocoons while articles made of silk are covered by the chapter's later headings.

The HS code consists of 6-digits. The first two digits designate the HS Chapter. The second two digits designate the HS heading. The third two digits designate the HS subheading. HS code 1006.30, for example indicates Chapter 10 (Cereals), Heading 06 (Rice), and Subheading 30 (Semi-milled or wholly milled rice, whether or not polished or glazed).The process of assigning HS codes is known as "HS Classification". All products can be classified in the HS by using the General Rules for the Interpretation of the Harmonized System ("GRI"). HS codes can be determined by a variety of factors including a product's composition, its form and its function. An example of a product classified according to its form would be whole potatoes. The classification will also change depending on whether the potatoes are fresh or frozen. Fresh potatoes are classified in position 0701.90, under the Header Potatoes, fresh or chilled, Sub header Other, while frozen potatoes are classified in position 0710.10 under the Header Vegetables (uncooked or cooked by steaming or boiling in water), frozen, Subheader Potatoes.

An example of a product classified according its material composition is a picture frame. Picture frames made of wood are classified under subheading 4414.00, which provides for Wooden frames for paintings, photographs, mirrors or similar objects. Picture frames made of plastic are classified under subheading 3924.90, which provides for Tableware, kitchenware, other household articles and hygienic or toilet articles, of plastics. Other. Picture frames made of glass are classified under subheading 7020.00, which provides for Other articles of glass. And so on.

Although every product and every part of every product is classifiable in the HS, very few are explicitly described in the HS nomenclature. Any product for which there is no explicit description can be classified under a "residual" or "basket" heading or subheading, which provide for Other goods. Residual codes normally occur last in numerical order under their related headings and subheadings.
An example of a product classified under a residual heading is a live dog, which must be classified under heading 01.06, which provides for Other live animals because dogs are not covered by headings 01.01 through 01.05, which explicitly provide for live equine, live bovine, live swine, live sheep and goats, and live poultry, respectively.

As of 2015, there were 180 countries or territories applying the Harmonized System worldwide.
HS code are used by Customs authorities, statistical agencies, and other government regulatory bodies, to monitor and control the import and export of commodities through:
         Customs tariffs
         Collection of international trade statistics
         Rules of origin
         Collection of internal taxes
         Trade negotiations (e.g., the World Trade Organization schedules of tariff concessions)
         Transport tariffs and statistics

Monitoring of controlled goods (e.g., wastes, narcotics, chemical weapons, ozone layer depleting substances, endangered species)

Areas of Customs controls and procedures, including risk assessment, information technology and compliance.

Companies use HS codes to calculate the total landed cost of imported products and parts, and to identify selling and sourcing opportunities abroad.

HS classification is not always straightforward. Many automotive parts, for example, are not classified under heading 87.08, which provides for Parts and accessories of the motor vehicles of headings 87.01 to 87.05. Automotive seats are classified as articles of furniture under heading 94.01, which provides for Seats (other than those of heading 94.02), whether or not convertible into beds, and parts thereof, and more specifically under subheading 9401.20, which provides for Seats of a kind used for motor vehicles.

In many jurisdictions, traders alone bear the legal responsibility to accurately classify their goods. Depending on the severity of the infraction, incorrect classification can result in the imposition of non-compliance penalties, border delays or seizures, or denial of import privileges.

There are several resources available to traders to assist in properly classifying their goods including:
        The Official Explanatory Notes to the Harmonized System, published by the World Customs Organization
         Explanatory notes to the Combined Nomenclature of the European Union by the European Commission
         Customs Rulings Online Search System (CROSS), by U.S. Customs and Border Protection
         Binding Tariff Information (BTI), by the European Commission
         Informed compliance publications, by U.S. Customs and Border Protection
         Classification Guides, by HM Revenue & Customs