Decoding harmonized codes
Sounds like you’re ready to take your business global but as you get started, you run into new terms that have you scratching your head. One of the first things someone will ask you is if you have HS or harmonized codes for your product. Unlike the complicated, technical definitions you may see when googling this term, we’ll be giving you a simpler breakdown of an HS code and what it means for the ecommerce world.
HS codes are like part numbers.
First, let’s take a quick look at something we’re all familiar with – part numbers. A part number is used to represent a product. Assigning a number to a product allows a merchant to automate and streamline business processes, reporting, etc. The part number has gone through an extremely powerful evolution in the business world, and most businesses can’t even function without it. Seriously, can you imagine not having part numbers and barcodes in retail?
A few decades ago, a group of countries decided they needed a better way to understand the types of products that get exported from and imported into their respective countries. They also needed a more streamlined way to know how much should be collected in duties and taxes as a shipment moves across borders. This is when the HS code was born. Introduced in 1988, the international harmonized system, or HS, is designed to streamline international trade by using a system of names and numbers to classify goods. Since then, over 180 countries have adopted the harmonized system, which pretty much represents all of ecommerce.
These countries use the HS code similarly to how businesses use a part number. An HS code is simply a number that represents a type of product. With an HS code, shipments clear faster, the import country knows how much duty to collect and what items to restrict, and there is a basis for improved statistics.
When are HS codes used?
It is recommended that you list the HS code on the commercial invoice attached to your ecommerce shipment. The commercial invoice is the paperwork used by the destination country containing the necessary details about your shipment. Nowadays, the commercial invoice is typically transmitted by electronic means and filling out the form is a pretty automated process with most of the shipping software available.
Most small package services don’t even require that you enter an HS code on the commercial invoice, but it’s a good idea to supply one when you can. If you do not list the HS code, then the destination country will be left to their own judgment to assign an HS code based solely on the description of the goods you gave them on the commercial invoice. This leaves things open to inconsistent classifications, which may lead to inconsistent duty rates, etc.
To assign an HS code to your products, you’ll need to understand a bit more about the harmonized system so let’s dive a little deeper into how an HS code is built.
What makes up an HS code?
The harmonized system is made up of a hierarchy of chapters, headings, and subheadings, and the length of the HS code gets longer as you drill deeper into the hierarchy. This means the HS code will actually tell a story to the trained eye. It’s essentially a universal language that countries from any language and culture can use.
The first two digits of the HS code represents the chapter, which is a very broad product category description. An example would be chapter 64, representing “Footwear”. Within chapter 64, you’ll find headings and subheadings that get more specific for the type of footwear.
Let’s say we want to find the HS code for a pair of tennis shoes. We’ve guided ourselves to chapter 64, because we know tennis shoes are a type of footwear; now we need to dive deeper into the headings and subheadings. We find the heading “6404” is for footwear with soles of rubber and an upper made of textile materials. We can now drill down to the subheading of “6404.11” to find the description of “Tennis Shoes”. This is your six-digit HS code that represents tennis shoes with a rubber sole and an upper of textile materials, and it can be used universally around the globe. Simple enough, right?
|Footwear||Soles and Rubber||Tennis Shoes|
Let’s take a closer look at the digits.
The first six digits are universal for all 180+ countries participating in the harmonized system, BUT each destination country can further classify the products beyond the six digits to make the HS code eight to ten digits long. This is done for statistical purposes and/or to apply specific duty rates to certain types of products. The harmonized system sets a universal classification standard for the first six digits but still leaves leeway for each country to classify products in a way that’s meaningful to them by going beyond the six digits.
For example, you may come across another acronym called HTS (Harmonized Tariff Schedule) codes or numbers. Within the industry, this term can often be used interchangeably with HS code, but typically, the HTS is a 10-digit import classification system that only applies to the United States. It takes the same form as an HS code when it comes to the first six digits, but will differ for the last four digits.
Beyond the six digits
If you wanted to fully classify beyond the six digits for every possible destination country, you would have 180+ different eight to ten-digit codes for the same pair of tennis shoes. This is an extremely daunting task for any ecommerce merchant and I wouldn’t recommend attempting it. The six-digit HS code is a great place to start, and it’s typically not worth the resources of going beyond the six-digits in the beginning. By listing the six-digit code on the commercial invoice, you at least let the destination country know that you are selling a pair of tennis shoes. They can further classify beyond that based off your product description.
As your business grows, you can start including HS codes beyond the six-digits for your major markets. A great place to start would be the European Union. The EU shares the same harmonized system so one eight to ten-digit code would apply to nearly 30 countries.
As you start classifying your product, you may be met with more than one classification that is a potential fit for your product or have a hard time finding a code that even matches your product. This isn’t an exact science, so you’ll just need to use your best judgment. Also, there’s no shame in asking for expert advice if things get too difficult.
Don’t let HS codes stop you from growing.
HS codes are an important component of cross-border ecommerce, but it shouldn’t be a stumbling block to taking your business global. How and when you decide to assign HS codes to your products is up to you, and the level of effort required varies greatly from merchant to merchant, depending on the type of product and number of SKUs that you sell. It’s better to get your feet wet by selling and shipping your products without HS codes then to not go global at all. As your international business grows, you’ll be able to easily justify the resources needed to start classifying your products.