HARMONIZED SYSTEM (FOR THE DESCRIPTION AND CODING OF GOODS) - ECONOMY - 2025

The Harmonized Commodity Description and Coding System (HS) is a globally recognized system for categorizing products that are traded internationally. This system forms the basis of the customs duty.

Determining the correct tax rate when shipping internationally is a common challenge for businesses to ensure that the export faces minimal disruption upon arrival at the destination customs clearance.

Source: pixabay.com

On the other hand, it is sought not to pay more than required to send a product across borders. The harmonized system is an integral part of this process.

The harmonized system codes comprise a global index that is used to describe each product that is imported or exported. It is the standard product designation and coding structure used in international trade.

The harmonized system was deployed in 1988 and the World Customs Organization has supported it ever since. This set of rules is used for tax purposes to identify the tax rate applicable to a product in a country.

What is the organized system?

The harmonized system is the means by which products and goods can be described, cataloged and codified at the level of all international trade. Its purpose is to provide a universal system for classifying products that enter or cross international borders.

HS codes allow cross-border authorities to have a shared understanding of what is imported and exported, regardless of the languages ​​spoken and variations in local tariffs.

Anything you keep at home, or ever bought, is classified under the HS designation. From brake pads and household lamps to anchovies and bay leaves, there is an SA code that corresponds to every product.

The World Customs Organization is responsible for creating new codes and perfecting existing ones within the harmonized system, which is renewed every five years.

Structure

Having more than five thousand sets of products, the harmonized system standardizes the classification of goods in 21 sections that are listed in 97 chapters, which are structured in turn in four-digit titles and more specific six-digit subtitles.

This results in a code of a total of six digits for a product, with each two digits representing the corresponding chapter, title and subtitle, as well as a description of the product.

Although the harmonized system forms a six-digit coding for products, it can be seen that a large number of customs systems use a ten-digit system, in which the first six digits correspond to the code of the harmonized system.

Customs compliance

Under the law, it is up to the importer to determine the correct HS code and take responsibility for applying the correct classification to that shipment to maximize the chances that the shipment will clear customs with minimal delay.

When it comes to international electronic commerce, it is more practical if the function of determining the HS code falls on the exporting seller.

With e-commerce transactions the importer is often also the end consumer and is generally not in the best position to determine the appropriate HS code.

Importance

- The harmonized system strengthens international trade by providing a common vision of the products that are traded, regardless of national borders.

- Taxpayers are not obliged to present a description of the products when presenting the customs declaration, since it will be obtained from the invoices made based on the SA codes.

- It is a systematic form of classification, which will reduce the chances of a mistake in interpretation.

- It is very important that the SA code of the product is carefully selected at the time of migration. This will directly affect the tax rate applicable to the product.

- This system is used by more than 190 countries to prepare tax rates and establish international trade statistics.

- It is the basic instrument for commercial negotiations, quota control, certificates of origin and statistical analysis.

- It empowers the examination and control of commercial policies, internal and external taxes, freight and transport rates, and price and quota management.

- Over the years it has become an essential instrument of international organizations and governments, both private and governmental.

- Today it is essential to know these codes to manage import and export accounts.

Example

For example, in the harmonized system in chapter 09 is coffee, in addition to tea and herbs. In this chapter the title “0901” refers to the importation of coffee.

By adding two more digits ("21") to the heading of coffee "0901", customs officials and brokers will be able to further determine the shipment of coffee, which is roasted and not decaffeinated. Therefore, if the imported coffee is roasted and caffeinated, it is given the HS code "0901.21".

What this ultimately means is that, regardless of the customs agency you are dealing with anywhere in the world, 0901.21 is the universal code for roasted, non-decaffeinated coffee.

HS codes of each country

Many countries add more levels of captioning to the basic four- and six-digit HS codes. These additional tiers help countries to more specifically manage product taxes and to more closely track international trade.

In the case of the United States, the codes are extended to ten digits, using the last four digits to implement tax rates and detail statistical indicators.

For example, the coffee code will have four additional digits, leaving the final code as 0901.21.0035. Adding the digits "0035" includes the description "in packages of 2 kg or less". The tax for 0901.21.0035 is free.

Other countries have their own coding conventions. For example, both Brazil and China use eight digits.

As a general rule, codes that are specific to the country where the product is being imported are used. If products are being imported from the United States to Brazil, the Brazilian HS code must be used. If shipping in the opposite direction, the US HS code must be used.

References

1. UPS (2019). How to provide a valid description of goods. Taken from: ups.com.
2. Bizongo (2017). Your Complete Guide To HSN or Harmonized System Nomenclature Under GST. Taken from: bizongo.com.
3. Canada Border Services Agency (2019). Harmonized Commodity Description and Coding System. Taken from: cbsa-asfc.gc.ca.
4. Logistics Glossary (2019). Harmonized Commodity Description and Coding System. Taken from: logisticsglossary.com.
5. Classify (2019). What Is The Harmonized System Code (HSC)? Taken from: classify-app.com.