If you’re involved in the import/export trade business, you must know about Harmonised Commodity Description and Coding System. This system is also referred to as Harmonised System (HS) or Harmonised System of Nomenclature (HSN). This worldwide arrangement has a great role to play in classifying the traded products. This is a means by which the customs authorities segregate the commodities into different categories. The purpose is to evaluate the duties/tariffs & taxes.
This harmonized system is based on the unique 6-10 digit HS code for custom clearance purposes. This process is mandatory for all import/export trade practices. it is a procedure that demands any commodity passing through international borders must proclaim its HS codes to the customs. This is also important because it helps maintain a standard international trade record that is utilized by 200 countries.
Read ahead at Gaint Leaps System to know more about Harmonized System works for the classification of trade goods.
Table Of Contents
What Is Harmonized System?
The Harmonized Commodity Description & Coding System is a globally recognized system. It is a means of classifying the traded commodities by different countries like the USA & others. This was first developed by the World Customs Organization (WCO) & was put into effect on 1st January 1988. After every 5 years, the Belgium-based headquarters assess & make updates to the system as per the current standards.
The purpose of this is to be able to monitor & identify international trade commodities by the customs department. However, every commodity is assigned an HTS code as per the Harmonized Tariff Schedule of the particular country. These codes distinguish the different countries of import. It helps imply the correct classification for levying the taxes. The system is beneficial for different countries’ governments & international organizations. It provides keen insights into trade policies, freight tariffs, transport records, & economic analysis. The system is very important for international trade practices.
As per research, a single commodity could be classified 17 times in a single trade transaction. Therefore, with the coming of the Harmonized System, the division of commodities has become legal & logical as per the rules. There are 5,000 such categories divided into 97 chapters & 21 sections. This order exists for all the trade processes around the world.
What Is HS Code & HTS Code?
The Harmonized System (HS) Codes lay the foundation for the division of trade commodities. The 6 digit code is varied as per the product & product group. However, all the countries have permission to extend this code for a more detailed classification. These codes are administered by the customs authorities for the identification of the product. Another reason for this system is to be able to levy taxes.
The HS codes include over 98% of the commodities in international trade that are divided into product groups. Although, there is a big difference between the HS code & HTS (Harmonized Tariff Schedule) code. A 6 digit globally standardized numeric is known as the HS code. Whereas, an HST code is a 7-10 digit value extended for further classification by the country of import.
What Is The Australian Harmonized Export Commodity Classification (AHECC)?
The Australian Harmonized Export Commodity Classification (AHECC) is a commodity division system for goods exported from Australia. This system helps identify commodities. It is an extension of Harmonized Commodity Description & Coding System. The amendments in AHECC is corresponding to the updates on the harmonized system (HS) by the WCO. That means any major updates in five years on HS bring minor changes to AHECC.
The updates on AHECC are administered by the Australian Border Force (ABF), Department Of Home Affairs, & the ABS. The system also plays an important role in the compilation of Australian export statistics reports. The HS ( also the AHECC) is managed into 21 sections & 99 chapters. They define the product groups. It is arranged as per the commodity's technological ramifications & degree of manufacture. The chapters are also further divided into headings & subheadings for product details.
The AHECC code is an 8 digit numeric for commodity identification, tax purpose, & trade statistics:
1st & 2nd Digit - HS Chapter
3rd & 4th Digit - HS Heading
5th & 6th Digit - HS Subheading
7th & 8th Digit - Additional Information (for trade statistics)
What Is The ITC HS Code?
As the countries are allowed to surpass the 6-digit HS code laid down by the WCO, the number of digits can be increased. The additional digits can vary as per the country of import and can be expanded to a 10 digit number, like the USA. For export goods, it is Schedule B Number & in the case of imports, it is Harmonised Tariff Schedule (HTS) code.
ITC-HS Codes are known as Indian Trade Clarification or Indian Tariff Code. In India, this marks the base for import/export operations & is an 8 digit code as per the country’s trade demands. This arrangement consists of II Schedules:
Schedule l: For import practices in India, consists of 21 sections & 98 chapters - 8 digit nomenclature
Schedule ll: For export practices from India, consists of 97 chapters - 2 digit product description
The chapters are further divided into headings & subheadings as per product details. The Directorate General Of India (DGFT) carries out updates or changes in the codes. These are related to commodity descriptions, new codes, product descriptions, & others.
Structure Of The HS Code
The structure of HS Codes is as prescribed by the World Customs Organization. The first 6 digits are as per the system which is further followed by the additional 2 - 4 digits. This is as per a country’s trade requirements based on the information in the product description.
1st & 2nd Digit: HS Chapter, For example - edible fruit & nuts, peel of citrus/melons
3rd & 4th Digit: HS Heading, For example - apple, pears, quinces, fresh
5th & 6th Digit: HS Subheading, For example - apples
What Is The Importance Of HS Codes?
There are several functions of the Harmonized System (HS) Codes. From custom clearance procedures to a country’s trade statistics, every detail is covered. Therefore, here’s the system that is vital for world trade practices:
Helps custom authorities identify products while analyzing duties & taxes
Serves as the basis for international trade statistics
Helps evaluate freight & transport tariffs
Provide keen insights on rules of origin, quota controls freight tariffs, transport records, & economic analysis
Helps keep an eye on perilous controlled commodities (like weapons, narcotics, waste, & others
Helps government work on trade policies
FAQs
1. Who uses the Harmonized System (HS)?
Harmonized system is utilized by 200 countries. It is a means for evaluating custom tariffs & developing international trade statistics. These codes are used by government authorities, regulatory bodies, and statistical organizations. The HS or HSN has been internationally recognized by the countries. It is a mandatory arrangement for all import/export trade activities taking place. The system is also used by customs authorities all over the world to classify the commodities into different product groups. That’s because product identification becomes easy.
2. What is the importance of the HS code?
Here’s why the mechanism of HS codes is important for successful trade practices:
Commodity classification
Assessing tariffs/taxes
International trade statistics
Helps decide trade policies
Determines the origin of goods
3. Why do international trade activities need a Harmonized System?
International trade activities need a harmonized system for the following reasons:
To classify the commodities into product groups for legal & logical reasons
With 98% of commodities classified under HS, assessment of tariffs/taxes becomes seamless
The system helps maintain a record of international trade statistics for about 200 countries
Supports a uniform classification of goods & enables international trade
Takeaway
The harmonized commodity description & coding system is very important for international trade activities. The 6 - 10 digit code helps determine the particular country of import. It also lays the foundation for the classification of trade goods. The WCO administers the amendments & updates of HS via the harmonized system committee. Therefore, the HS codes are mandatory during the import/export of goods through international borders. In case of an incorrect HS Code, you will be liable to pay fines or penalties imposed by the customs authorities.
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