5 Most Challenging Import Destinations11 August 2021
Not all importing is created equally – here are some of the more difficult import destinations around the globe.
Before the Harmonized System, global trade compliance was a jumble of mismatched global processes, where each item had to be classified under the differing tariff systems of various countries. Fortunately, the Harmonized Commodity Description and Coding System, or HS code system, was introduced in 1988 as a standardized numerical solution to classifying goods across the globe. The HS code system was developed to simplify the calculation and implementation of taxes and duties, control regulated goods, monitor trade agreements, and collect trade statistics.
While HS codes have certainly achieved this goal for customs offices across the 212 countries that use them, approximately 98% of all merchandise in international trade is classified. The sheer magnitude of globally traded items makes correctly classifying goods extremely complex. Further complicating the current process is the lack of standardization between countries. Although the first six digits of the code remain consistent, many countries like the USA require additional classification. This means HS codes can vary between six and ten digits, depending on the country and their particular system.
These small numbers may seem like an insignificant piece of admin; however, they are crucial to the success of a shipment. Here is a complete guide to help you better understand HS codes, where to find them, and why they are important.
Since HS codes are used to classify all trade products numerically, they represent a global economic alphabet. Each trade product is assigned a unique code that customs officers use worldwide to identify products and attach the correct duties and taxes. The HS system tells the customs officers about the nature of the goods and provides insight into whether the shipped item is restricted. It also assists official government bodies to collect, analyze, and compare trade statistics more efficiently.
An HS code can be broken down into three groups of two digits. Let us look at a cellphone, for example.
The first two digits indicate the chapter in which you can find the product. This gives a broad definition of the goods are. A cellphone would fall under chapter 85, which is the most common in the tech industry. Here the cellphone is defined as “Electronic machinery, equipment or parts thereof…”. The code is still too vague to dictate duties and taxes, so we need to define it further.
The middle two digits drill down a bit further into the exact nature of the equipment. These refer to a particular heading within the specified chapter. At this level, the cellphone would be defined under chapter 85, heading 17 or HS 8517, meaning the goods are “Electronic machinery, equipment or parts” – “Telephone sets, including telephones for cellular networks…”.
Now that we know the goods are electronics, specifically a telephone, we need to go even further, which is the final two numbers that give the subheading. The subheading provides the capabilities of this telephone. Following our current example, we may look at subheading 12 under chapter 85, heading 17. This subheading classifies the goods as “Telephones for cellular networks or other wireless networks.”.
Therefore, our cellphone has the HS code 8517.12. If this cellphone were to be shipped to a country such as the USA, we would need to expand this with four additional digits giving even more detail about the product.
The most prominent detail HS codes communicate for you as the importer is the taxes and duties applied to the shipment. However, other than the important information mentioned earlier, HS codes can also communicate data such as the origin of the goods, the eligibility of the products under Free Trade Agreements, compliance requirements, and assist in monitoring prohibited or restricted goods.
As the carriers of so much essential information, it is clear that these codes are critical in ensuring all shipments are treated correctly.
Classifying your HS codes is very risky. One small mistake could mean you pay the incorrect taxes and duties on your shipment. This may result in paying top-up duty or tax bills which can affect your profit margins. Furthermore, these bills can come with severe penalties and fines. In some cases, incorrect HS codes may even result in your goods being seized or destroyed.
There are also cases where incorrect classification can result in an overpayment, which will also affect your cash flow. Additionally, as with many other areas in life, retrospective bills for underpayment appear almost instantly while trying to claim money back from customs is near impossible.
Usually, as the importer or exporter, it is your legal responsibility to classify the goods being shipped correctly. However, when you ship with TecEx, we can quickly source the correct HS Code for your products from our extensive database.
There are several HS code Lookup sites that claim to help you find HS codes. However, due to the potential for fines and stuck shipments, if there are errors, you should ensure you vet HS code finders before using them.
The full breakdown of each chapter, like this HS code list detailing chapter 85, can also be found through the World Customs Organization, but deciphering this document is not simple and takes a significant time commitment. Inexperience in finding the correct code could result in you mistakenly using the incorrect code, which would have dire consequences for your shipment.
A more reliable option is to request the HS codes from your supplier. Unfortunately, this is not without complication, as suppliers will often provide local codes that may not be appropriate for the destination country.
The most reliable way to ensure you get your HS codes right is to consult a professional like TecEx. TecEx has developed an extensive products database which our clients can benefit from when shipping with us. We are confident in our ability to classify your goods and give you accurate, upfront tax and duty calculations.
While the first six digits in an HS code remain the same across all 212 countries using the system, some countries add a further two to four digits. Two examples of countries that do this are China and the USA.
These extended codes are referred to as Harmonized Tariff Schedule codes or HTS codes. In the USA, codes are ten digits long, while Chinese HTS codes are eight digits. Even though they have a different name and differ in length, the first six digits are the universal HS code.
Incidents such as this can confuse shippers with international suppliers. When you request the HS code from your Chinese supplier, they will likely give you their local HTS code. The code will differ from that required in the country of import. If your destination country uses a simple HS system, you can take the first six digits of the supplied code. However, if you are shipping to a country like the USA, where additional classification is required, you will need to ensure you find the correct last four digits for your product.
In a perfect world, all countries would classify products in the same simple and accessible way. Unfortunately, the reality of the situation is far more complex, with most countries adding their flair to the HS code system making, avoiding costly mistakes difficult. Outsourcing this responsibility to TecEx helps ease the risks and responsibilities associates with importing high-value Tech and Medical Equipment.
For assistance with an upcoming or current shipment, contact TecEx for expert advice and seamless shipments.