With the acceleration in digital adoption by global markets, the success of an organisation increasingly hinges on its ability to expand its business across borders via e-commerce. However, for companies in New Zealand to unlock this new revenue stream and boost their cross-border operations, having a clear understanding of what Harmonised Commodity Description and Coding System (HS) entails is crucial. From helping firms avoid costly customs penalties to ensuring a smoother shipping experience, HS codes affect more than one aspect of the import-export operations. In this article, DHL Express delves into the true implications of HS codes so firms can use them right and keep pace with the market.
What is the HS code?
The Harmonised Commodity Description and Coding System was created by the World Customs Organisation (WCO) in 1983. It categorises 98% of commodities traded globally and is widely adopted in many countries worldwide, except for those excluded from the List of Contracting Parties to the HS Convention and countries using the HS. Under this classification system, HS codes are assigned to goods, providing a universal language for describing export and import merchandise. These codes can also be six to 12 digits long, and a set of conventions govern how they are determined. To illustrate this, consider the example of the importation of a basketball with a code of 9506628020:
9506628020: ‘95’ refers to the chapter under which the HS code falls under.
9506628020: ‘9506’ refers to the heading in the chapter, which is the product category.
9506628020: ‘950662’ refers to the subheading in the chapter, which is the product subcategory.
Meanwhile, the remaining digits are prescribed based on the importing country’s version of the HS system. For instance, if the same basketball is imported into Germany, the codes will differ as follows:
U.S. Harmonised Tariff Schedule (HTS): 9506628020
Germany Integrated Tariff of the European Union (TARIC): 9506620000
As shown above, the first six numbers are uniform, while the remaining numbers vary between the importing countries.
Why is HS code important?
Being widely accepted and integrated into customs procedures globally has cemented the significance of HS codes in international trade, making it vital for businesses to grasp this system. More specifically, ensuring the proper classification of products is essential in the following ways:
1. Prevent increase in trading costs
HS codes form the foundation for tariffs and duties determination. As such, failure to provide or accurately assign an HS code can be considered a non-compliance, misleading act or misdeclaration that results in dire consequences, including:
If you pay more tariffs and duties than required, no refund is given.
Your products may be denied preferential duties.
If you underpaid your tariffs and duties, costly penalties may be imposed.
2. Avoid shipment delays
When HS codes are incorrect or not assigned, goods can also be withheld at customs for further inspection. You may also need to prepare and submit additional supporting documents, meaning further shipment delays. In the worst-case scenario, your commodities may be rejected by the destination country, and these outcomes can negatively affect your bottom line.
Where do I find my HS code?
With an understanding of the importance of HS codes, you may then wonder how to obtain this number and act on your newly acquired knowledge. Generally, the party responsible for ensuring that the imported products conform to all the customs and legal requirements of the destination country oversees the HS codes. In other words, as a merchant, you will be responsible for ensuring this code is accurately declared. Fortunately, the New Zealand government offers The New Zealand Working Tariff Document, which enables importers to find the correct digits and duty rates easily. If you are looking to export your products, the destination country’s system should be applied, and many countries have a HS code finder listed on their customs authorities’ websites for you to make use of.
After obtaining the HS code, it is advised to have it on your shipping documents to provide a clear and precise shipment description. This is especially helpful if you are shipping a highly technical item. For example, while the description ‘Television Parts’ may appear straightforward, it can involve various categories of technical components that can only be accurately defined using an HS code. By providing this information, you can minimise complications and delays during international customs clearance.
