HS codes refer to the World Customs Organization’s (WCO) published nomenclature system for the standardized classification of goods that are traded globally across borders. The nomenclature consists of 21 Sections that include 99 Chapters. These 99 Chapters contain more than 5000 Headings. More than 200 countries have developed their own local version of tariff books based on WCO’s HS nomenclature. The HS code classification process requires classifiers to follow the 6 general interpretative rules of harmonized system in order to finally determine a HS code for a product.
Classifying a product correctly is critical to importers and exporters, as wrong HS codes used will result in wrong duties being paid. If Free Trade Agreements are being used, wrong HS code may invalidate documentation required to enjoy duty exemptions. Getting the HS code correct is arguably the single most important thing that all traders should ensure before attempting to ship a product.
Before you start determining a HS Code
Understand the product you are trying to assign a HS code to. You need to reach a level of understanding about the item that a product engineer would have. This means you need to know all the possible commercial names of your product, uses, functions, options, accessories and industries of intended use. In many cases you will need to know the specifications of materials used in the construction of your product. In other cases, you might need to know the manufacturing processes that the product had undergone before becoming a finished product.
Confirm which country you are trying to import the product into. Tariff books in every country are different to some extent. So, make sure you have access to the HS book of the country you are trying to import into. If the local tariff book is in a language you do not understand you can refer to a translated version. However, you must keep in mind that the meanings of Heading descriptions may vary when in the original local language.
Be familiar with the 6 rules of classification. The first 4 rules must be applied in order. Rules 5 and 6 are applicable at all steps of classification.
- General Rule of Interpretation 1: HS Classify by name
- General Rule of Interpretation 2: Unfinished, unassembled or knocked down products are classified as if they are complete products if they already have the essential character of the finished product.
- General Rule of Interpretation 3: Mixtures and composite products are classified according to the aspect or component of the product that gives the product its essential character. If there is no single aspect or component giving the product an essential character, the product is classified according to the largest HS number of the consisting parts.
- General Rule of Interpretation 4: If you cannot find a suitable Heading to classify your product. You can classify the product according to some other product that is most similar.
- General Rule of Interpretation 5: Packaging material is not classified separately from the finished good, unless the packaging material is of a kind that is reusable.
- General Rule of Interpretation 6: You must classify products making reference to the right “dash” level that appears in the local tariff book you are classifying the product against
Now that you are familiar with the rules, you can start to HS classify your product. If your product is not a set, composite product, mixture, kit, bundle or unfinished product, you can now try to attempt to classify the product using the first rule of first general rule of interpretation. This means that you will review the 4 digit Headings in the tariff book to find a suitable description. Remember to follow the requirement of classification rule 6. You must only compare Headings at the 4 digit level for a start. Once you find a suitable Heading, read the any Section, Chapter and Heading notes that are available in the tariff book. If your product is not excluded, you can now compare the 6 digit or “2 dash” level under the Heading you chose and repeat this process until to get a complete HS code.
If you were not able to determine the HS code for the product using the first rule of classification because your product is unfinished, unassembled or knocked down (but easily put together), you can classify the product as if were complete. Once again you would need to review the Headings at the correct level and subsequently the Sub Headings at the correct “dash” level.
If your product is a set, composite product, mixture, kit, bundle or unfinished product, you would not be able to HS classify the product using the first or second general rules of interpretation. In this case, you would need to determine the aspect of component of your product giving it its essential character. This can be done using weight of components, cost, value, volume, feature or functionality. Be aware that this can be challenged by Customs so think through this step carefully. Once you have identified the aspect or component of the product that gives the product it’s essential character and assign a HS code.
Having attempted to use the first three general rules of interpretation, if you are still unable to classify your product because there is nothing suitable you can now use the general interpretative rule 4 for HS classification. This rule allows you to classify the product by comparing it to another product that is very similar.
The last 2 rules of classification simply stipulate that:
- Packaging material must be assigned separate HS codes if they are intended to be reused.
- The correct “dash levels” must be followed when comparing Headings and Sub-Headings during the process of determining a HS code. Classifiers should not jump sections within the tariff book.
Some helpful tips:
- It is helpful to search the Internet for any published rulings concerning the HS classification code of your product. This might give you some guidance even if the country that issued the ruling is not a country you are intending to export out of or import into.
- Reach out to the relevant Customs authorities in the countries you do business in as they may be able to share guidance for the correct HS classification of your product. You may also apply for a HS ruling with Customs if necessary, however this is not available in all countries.
- Do not guess HS codes for your products as Customs will levy import duties and license controls on products depending on the HS code used.