Harmonized System Codes Explained
HS codes are a global classification system for importing and exporting goods. Harmonized System codes are administrated by the World Customs Organization (WCO). It serves as the foundation for the import and export process globally.
HS Codes are utilized during the export and processes for goods. They are built using a numerical classification method. They are used by customs authorities worldwide to identify products cross border transit.
What are Harmonized System Codes, and why do they matter?
- Customs authorities around the world use it to assess duties.
- The HS assigns specific six-digit codes for all products and commodities. Countries can add longer codes to the first six digits for their own purposes.
- Using the right HS codes is crucial to allow for compliant duty payment, and minimize shipping delays.
Harmonized System Codes underwent changes in 2022 to reflect developments in evolution of technology. Particularly as they relate to new and expanded product categories (notably for electronics). Tariff codes and classifications for customs purposes is a key tool for international trade. See section below about HS Code 2022 updates
Disclaimer: The information in Jet Worldwide online content, including this post, is for general information only.
Harmonized Codes are used for duty assessment.
The three elements to determining the duty rate:
- Valuation of the Goods for shipping and import
- Origin of the Goods
- Customs tariff classification / HS Code (discussed below)
The International Convention on the Harmonized Commodity Description and Coding System (HS Convention) started in 1988. Major updates occur around every 5 years.
The difference between an HS code and an HTS code
A code with six digits is the universal standard Harmonized system code, whereas a code with seven to 10 digits is an HTS Code.
- HS code refers to a global classification
- HTS Code refers to a specific country's version
You may be thinking, so that’s an HTS code – but then what is an HS code? You can think of HTS codes as localized versions of HS codes. “HS” stands for “Harmonized System”, and refers to the single, universal and global classification system for most traded goods and products.
The term HS Codes or HTS is used to refer to global tariff schedules. Each country maintains their own HS code system. In this post, we refer to the general process that are fundamental. There are in a variety of countries to consider. A different HS code may be needed for export from one country versus import to another.
- Harmonized Tariff Schedule of the United States (HTSUS)
- In Canada, it’s the system of Canadian Customs Tariffs
Use of Tariff Codes beyond Duty assessment
The use of tariff codes to identify goods is not confined to duty calculation. Excise, VAT or GST laws and regulations rely often on tariff headings. Harmonized system codes can be used to determine unique treatment of a specific good.
The application of tariff headings are subject to interpretation. Customs officials are familiar with classification, whereas tax officials working in the sales and consumption tax areas may be less so.
The structure of Harmonized System Codes
The HS structure contains thousands of headings grouped in 96 Chapters. Some of which are further divided into sub-Chapters. The Chapters are arranged in 21 Sections.
Each heading is identified by a four-digit code:
- The first two digits indicating the Chapter wherein the heading appears,
- The latter two indicating the position of the heading in the Chapter.
- In addition, most of the headings are subdivided into 1-dash subheadings. Where necessary, further subdivided into 2-dash subheadings, identified by a 6- digit code (HS code).
The concept of the Harmonized System Codes is easily explained:
The Harmonized system is an internationally accepted method to describe goods being exported and imported. The system is maintained by the World Customs Organization (WTO).
The WTO serves to translate descriptions of items, that are often obscured by language and industry nomenclature, into a universally accepted numerical value.
For example: A toothbrush is translated into the numerical code of 9603.20; A DVD equals 8523.40.
The first 6 digits of the harmonized code is the internationally accepted standard. The following sequence is reserved for use by a specific country. Raw materials appearing early in the early chapters and highly processed goods in the later chapters.
Importers and exporters are most often legally required to declare their products to Customs by means of HS codes. HS classification determines a product's rate of duty, its import and export admissibility, and whether or not it should be physically examined. In some countries, importers are required to report HS codes to Customs before their products are loaded for export. In the United States, this mandatory advanced cargo reporting program is called "ISF", or "10+2".
Resources for finding the correct HS Code
- Custom's websites
- Licensed customs brokers
- Carrier's websites and shipping systems
- Independent on-line resources
Even with the many resources provided on line - including those from the carriers, finding the correct code can prove frustrating. For example: An electric toothbrush = "Electro-mechanical domestic appliances, with self-contained electric motor, other than vacuum cleaners of heading 85.08. Other."
If HS codes are not used correctly, consumers may end up paying more for products due to incorrect duty and taxes being levied.
The last digits after the HS code are different for each country. Be sure to confirm the correct code on you commercial invoice. Otherwise, an incorrect classification of your product can result. If you are exporting the goods, confirm the code with the receiver. For importing goods, make sure the shipper applies the Canadian harmonized system code.
H.S Codes: Useful for Export and Import
It is also a good idea to confirm with your international customer which HS Code should be used before sending the parcel. Although the exporter is responsible for declaring the correct HS code, the larger burden is with the importer. The HS code determines critical import elements such as admissibility, restrictions and duty.
HS Codes General Rules of Interpretation (GRI)
The six General Rules for the interpretation (GRI 1 to 6) determine how to find the correct HS code.
In general, if it looks like a duck, and quacks like a duck, then it is duck. Not feathers, wings, webbed feet or a beak. The defining attributes in determining an HS code is its "essential character of complete or finished articles." This can include how it will be used.
Below if a simplified listing to help with basic understanding. For questions, best to contact an HS code commodity specialist in customs prior to import.
General Rules of Interpretation - GRI
The titles of Sections, Chapters, and sub-Chapters are for reference only. Classification should be determined based on the headings, Section or Chapter Notes, and the following provisions, unless stated otherwise.
Any reference to an article in a heading includes both incomplete or unfinished articles that have the essential character of complete or finished articles, and complete or finished articles presented unassembled or disassembled.
Any reference to a material or substance in a heading includes mixtures or combinations of that material or substance with other materials or substances. References to goods made of a specific material or substance also include goods made entirely or partly of that material or substance. The classification of goods made of multiple materials or substances follows the principles of Rule 3.
When goods can be classified under two or more headings due to Rule 2 (b) or other reasons, classification should be done as follows:GRI3(a):
- The most specific description in a heading takes precedence over headings with more general descriptions. However, if multiple headings refer to only part of the materials or substances in mixed goods or part of the items in a set for retail sale, those headings are equally specific for those goods, even if one provides a more complete or precise description.
- Mixtures, composite goods made of different materials or components, and goods in retail sets that cannot be classified based on Rule 3 (a) should be classified as if they were made of the material or component that gives them their essential character, as applicable.
- If goods cannot be classified using Rule 3 (a) or 3 (b), they should be classified under the heading that occurs last in numerical order among those equally deserving consideration.
Goods that cannot be classified according to the above rules should be classified under the heading that best corresponds to similar goods.
In addition to the previous provisions, the following rules apply to the mentioned goods:GRI5(a):
- Cases designed specifically to hold particular articles or sets of articles, such as camera cases, musical instrument cases, and necklace cases, suitable for long-term use and presented together with the articles, should be classified with those articles if they are typically sold together. However, this rule does not apply when the containers define the essential character of the entire product.
- Packing materials and packing containers presented with the goods should be classified with the goods if they are commonly used for packing such goods. However, this rule doesn't apply when such packing materials or containers are clearly meant for repeated use.
For legal purposes, the classification of goods within the subheadings of a heading should be determined based on the terms of those subheadings, related Subheading Notes, and the above rules. It should be noted that only subheadings at the same level can be compared. The relevant Section and Chapter Notes also apply unless the context suggests otherwise.
HS Code Explanatory Notes
The HS Committee that is set up under the HS Convention convenes regularly to update the Explanatory Notes to the HS. They issue opinions and rulings on specific goods. Although these notes, opinions and rulings are not legally binding, they provide useful guidance.
Duty Rates and HS Codes
The tariff classification has a direct correlation to the import duty rate.
One of the first steps in determining if goods qualify under Canadian Free Trade Agreements is to find the tariff classification. Then check under that FTA's Specific Rules of Origin.
Read more: Understanding duty and how it is calculated.
HS classification is difficult for two main reasons.
- First, the HS itself is very complex. Product descriptions are distributed among thousands of headings and subheadings. The HS also contains section and chapter notes, which must be consulted in order to assign a proper HS code. Finally, classification is governed by a strict set of rules called the "General Rules of Interpretation" (GRI). See section above on GRI's.
- Second, definitions in HS lookups often do not match everyday product descriptions. For example:
A description of "shoes" is commonly understood to be footwear. Shoes can also mean parts of machinery, brakes, precision measuring equipment, cameras.
To send an international courier shipment, always include a clear, detailed description. Also include what the item will be used for. International couriers have developed the ability to efficiently assign HS Codes. It is best, however, to try to provide at least the first 6 digits of the HS Code.
The HS code for shoes?
- Types of shoes such as sneakers, snow boots, work boots etc
- Shoe parts such as soles, shoe laces, shoe care products
- Brake shoes under parts for motor vehicles?
- Industrial equipment, such as brake shoes for trains
- Camera shoe under photographic or cinematographic goods?
Finding the correct classification: Finding Lower Duty Rates
Most important is that the classification captures the essence of the product. Importers should be aware that researching alternative - yet still correct classifications - can save a significant amount of duty.
Shipping Online Orders with HS Codes
E-commerce companies who have predetermined the HS Code and duty charges, can easily access the various countries and determine the likely rate of duty.
The HS Coding system is an incredible feat of international cooperation to facilitate international trade. Understanding the basic concepts are critical to everyone sending or receiving international shipments - whether via international courier or mail, truck or ocean.
Generic Harmonized System (GHS) to Canada
Canada has a tariff classification process for qualified postal and courier imports. The system may be used in lieu of a more detailed classification. This a great benefit for e-commerce imports.
This gives the option to apply one of three generic Most-Favoured-Nation (MFN) tariff rates. Assessment on “special classification provisions” found in Chapter 98 of Canada’s Customs Tariff.
GHS Eligibility and Process Requirements
- Postal and courier imports with values less than CAD$500.
- Goods for individuals and for personal use only
- A rate of customs duty under this tariff must be within 5 percent of the default MFN rate
Updates for HS Code 2022
The system used by worldwide customs authorities to classify goods, the Harmonized System (HS), was last updated in 2022. The updates better define product categories that have increased in importance. This can be because of growth, technical advances, or regulatory concern.
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)
- The category fo glass fibres (heading 70.19) and metal forming machinery (84.62) have been refigured
- 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
- New subheadings for specific dangerous chemicals
- New subheadings have been introduced for the monitoring and control of fentanyl
- Attempts to clarify text to facilitate better global understanding
- For e-commerce companies, having a corresponding HS code for all products is critical. For the efficient clearance, capture duty charges upfront at customer checkout. The biggest single obstacle to e-commerce solutions is to have the duty charges determined in advance.
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We provide global logistics support, shipping rates with various systems regarding international and Canadian movement of goods. Our logistics support augments your team by not being beholden to a specific carrier or process.
After establishing the HS Code, value and other information, the next step is to review the international shipping options export and import to Canada. These can include:
- Air freight: This is the fastest option with economy air options
- Ocean: Best for large commercial orders
- Trucking: A good options for shipping pallets, less than truck load (LTL) and full truck loads between Mexico, USA and Canada,
- FedEX , DHL, UPS: Well known brands with air options (and international ground between Canada and USA). Shippers can access the carriers directly for via one of their partners.
- Local postal options: Best for sending personal items and gifts