The Harmonized System (HS) , the international standard for describing and classifying goods for cross border trade, is a challenge for many Shopify, eBay and other online sellers. The HS coding is both simple in its description but can be excruciatingly difficult for specific commodities. International sellers should become familiar with the basic framework and apply HS codes when ever possible.
HS Codes and E-Commerce Online Orders
E-commerce online orders - especially from Shopify, eBay and other independent platforms - do not consider H.S. Codes when either selling or shipping. Depending upon the country of destination, the HS Codes can have a varying degree of importance.
Jet enables direct shipping of online orders from Canada and the US to the UK, France, Germany, European Union, Japan, China, Caribbean and South America.
Important Notes on HS codes and Shipping Online orders:
- If the HS Code is known, it should be used
- If the HS Code is not known, a specific description (which could include how the product is being used) is required.
- For shipments valued under "duty free low value thresholds," HS codes are usually not required
- Without HS codes, import brokers often defer to the code with the highest duty (to avoid customs issues). This can lead to over payment of duty.
HS Codes: The system used by worldwide customs authorities to classify goods, the Harmonized System (HS) are updated regularly (see section below on latest 2022 updates).
The HS serves as a way for customs to translate product descriptions into commonly agreed nomenclature. The classifications are then used to determine tariffs, admissibility, quotas (if applicable), and trade statistics.
How are HS Codes Used For Importing Online Orders?
As for all imports, HS codes are used to determine an items admissibility and rate of duty (along with shipment value and country of origin).
The three main factors in determining duty include:
- HS Code Classification
- Value (see our blog on valuation)
- Country of Origin
HS Codes and Duty Free Import via Free Trade Agreements
As mentioned above, the country of origin can sometimes qualify the online goods to qualify for preferential duty free entry under a free trade agreement. This includes shipments between Canada, the USA and Mexico under the USMCA/ CUSMA / T-Mec Free trade agreement.
It is important to note that country of origin refers to where the goods were actually made and not from where they were shipped.
Canadian sellers can ship duty-free Canada Origin Goods to
- The UK: UK TCA
- France, Germany and E.U. Countries: CETA
- Japan, Australia, New Zealand, Singapore...: CPTPP
- South Korea: CKFTA
Most modern free trade agreements (including those listed above) have provisions for simplified country of origin (COO) declarations for international online orders shipped within the free trade zone. In these case of preferential duty free entry to free trade countries, the HS code is either required or highly recommended.
Even if the goods otherwise qualify for duty free entry, value added tax is most often assessed (see section below on VAT).
The Deception of Descriptions: Why HS Codes Exist
Product descriptions are filled with inconsistencies and often contain industry jargon that only professionals within that industry would recognize. See graphic below.
What is a shoe? A brake shoe? A camera shoe mount? Or a pair of wearing shoes? And if a pair of wearing shoes: Childrens shoes, work shoes, casual wear, leather, synthetic..(the list goes on and on!)
Example of HS Codes for Shoes:
- Shoe for wearing (footwear) = HS Code 6404.19
- Shoe breaks in a truck = HS Code 8708.30
- Shoe used in camera equipment = HS Code 8529.90
- Shoe used in a resistor: HS Code 8533.90
Shipping Below Duty Free Thresholds and HS Codes
To countries with high duty free thresholds, HS codes are less important. In these cases, customs focuses more ensuring the declared value is correct. Read about valuation for international shipments.
The duty free thresholds vary by country and, in some countries, are different based from where and even how the online orders were shipped.
Some sample duty free thresholds:
- European Union countries: €150
- United Kingdom: £135
- United States: $800
- Canada: Depending on origin and method of shipping from $20 to $150 (see graphic below)
Duty Free but payment of VAT for Import of online orders
An important note on cross border online shipping is that all imports - even those that otherwise qualify for duty free import - are subject to VAT. In some countries, VAT payment is required by the shipping platform.
HS Codes for e-commerce shipments to the USA
The low value duty free threshold to the USA is US$800. Most clearance express (ECCF) and cargo (CFS) processes do not require an HS Code. However, US CBP often holds shipments for inadequate descriptions.
Using Section 321 type 86 entries, e-commerce merchants can clear e-commerce orders via more traditional automated brokerage systems (ABI/ ACE) which require HS codes.
HS Code Updates and Online Orders
The International Convention on the Harmonized Commodity Description and Coding System (HS Convention) entered into force in 1988 with major updates around every 5 years.
HS Code 2022
Updating codes to better define product categories that have increased in importance either by reason of growth, technical advances, or regulatory concern. The changes are made to better reflect technological advances and improve trade statistics important to government and industries.
Products and categories subject to change include:
- Electronic waste (e-waste)
- novel tobacco nicotine (vaping) products
- unmanned aerial vehicles (UAVs)/ drones
- smartphones (gain a subheading and note)
- Flat panel display modules will be classified as a product in their own right
- A greater focus on the classification of multi-purpose intermediate assemblies
- Classifications for tools needed for rapid diagnosis of infectious diseases has been simplified
- The category fo glass fibres (heading 70.19) and metal forming machinery (84.62) have been refigured
- New subheadings have been introduced for the monitoring and control of fentanyl
- Attempts to clarify text to facilitate better global understanding
- New subheadings for specific dangerous chemicals