For those working on export/imports or logistics sectors, Harmonized system code, or HS Code for short is not a foreign word. But, that terms might sound alien to people working in other sectors. So, what is HS Code?
HS Code is a standardized numerical method of classifying traded products. Every commodity that crosses international borders has to be declared to customs by using hscode. The HS code helps to standardize the commodity code worldwide.
Harmonized System Code is developed by the World Customs Organization (WCO). There are more than 5.000 commodity groups in the code and each is identified by a six-digit code. As of now, the system is used by more than 200 countries as a basis for their customs tariffs.
The Code helps reduce costs related to international trade by harmonizing the customs and trade procedures. It is extensively used by governments, international organizations, and the private sector for many other purposes such as internal taxes, trade policies, monitoring of controlled goods, rules of origin, freight tariffs, transport statistics, price monitoring, quota controls, a compilation of national accounts, and economic research and analysis.
The HS Code is vital to the world because of its purpose as a universal economic language and code for goods that make them an indispensable tool for international trade.
WCO’s priority is to maintain the hscode. They have measures to secure uniform interpretation of the HS and its periodic updating in light of developments in technology and changes in trade patterns. The WCO manages this process through the Harmonized System Committee (representing the Contracting Parties to the HS Convention), which examines policy matters, takes decisions on classification questions, settles disputes, and prepares amendments to the Explanatory Notes. The HS Committee is also tasked with updating the HS every 5-6 years.
Decisions concerning the interpretation and application of the Harmonized System, such as classification decisions and amendments to the Explanatory Notes or to the Compendium of Classification Opinions, become effective two months after the approval by the HS Committee.
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4 Key Features of HS Code
– There are 6 digit codes to classify the goods
– Defined rules that classify the goods
– Act as a uniform standard for the classification of goods worldwide
– Covers 98% of goods in international trade and over 5000 commodities
Why Do We Need HS Code?
HS Code is required for legal and commercial documents when undertaking the trade of the goods. HScode is also used in sales contracts, letters of credit, bills of landing, and certificates of origin. Those are important legal and commercial documents needed when applying for trade finance.
The code is used by customs authorities to apply tariffs and taxes to the goods. They also use the HS Code to keep track of imports and exports in the country.
The Importance of HS code in International Trade
The versatility of the HS code as a universal economic language and the code for goods has made it an indispensable tool for international trade and make them incorporated into many customs clearance systems around the world.
Below are the importance of the Code in international trade.
Customs procedures
Using the correct HS code and the right interpretation is necessary, as usage of incorrect code may be considered by customs as non-compliance, misleading, or misdeclaration – each of which comes with its own associated penalties.
On that note, using the correct HS code can be quite tricky in specific instances, as an interpretation of the codes may vary between countries and customs authorities. Improper usage of the HS code could result in an improper tariff being applied by customs, which can increase the cost of imports to the customer exponentially.
Trade statistics
The uniform codes also allow for use in tracking trade statistics. In addition to governments, the code is also used by private-sector firms and international organizations.
It is utilized to monitor, update, and optimize controlled goods, internal taxes, rules of origin, trade policies, transport statistics, freight tariffs, a compilation of national accounts, quota controls, price monitoring, traffic statistics, and economic research and analysis.
Transferring trade information
HS codes are used extensively in electronic messages like the United Nations rules for Electronic Data Interchange for Administration Commerce and Transport (UN/EDIFACT).
This has made it easier for the system to become a worldwide standard for describing a good across various platforms. Its nearly universal usage allows authorities such as port and customs departments to identify the products.
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