HS Codes: A Beginner’s Guide for Imports and Exports
HS Codes play an important role in international imports and exports. They are 6-10 digit codes assigned to specific goods by customs authorities. These codes are used all around the world, making cargo easily identifiable and ensuring the seamless delivery of goods from Point A to Point B.
If you’re looking to understand more about what HS Codes are and how they are relevant to your import or export, you’re in the right place. Below we will discuss:
- The role of the HS code
- Who uses it
- Where you need to use it and
- How to find the right HS Code for your product. We’ll also look at how the codes differ from country to country, and how the system is managed internationally.
What is an HS Code?
‘HS’ stands for Harmonised System or, in its long form, the ‘Harmonised Commodity Description and Coding System’. Developed in 1988 by the World Customs Organisation (WCO), HS Codes are typically 6- to 10-digit figures that all goods require for international transport. The system is enforced in Australian law by the Customs Tariff Act.
There are thousands of HS Codes, and each code describes specific goods. All customs agencies are able to identify these goods easily using the number associated with the particular commodity.
Take umbrellas for example. The digit “6601.91” is the HS code for umbrellas which have a telescopic shaft. But the digit “6601.99” is the HS code for ‘other umbrellas and sun umbrellas’.
Take potatoes as another example. Fresh or chilled potatoes will be classified as 0701.90. But frozen potatoes will go under the code 0710.10.
Each code has a unique structure as follows:
- A six-digit identification code
- Five thousand commodity groups
- Those groups feature 99 chapters
- The chapters themselves then have 21 sections
The code is structured and logical, stemming from the Kyoto Convention of 1974. A useful example to look at is as follows:
- Section II of the HS Codes are ‘Vegetable Products’
- Chapter 10 of Section II is entitled ‘Cereals’
- Heading 06 of Chapter 10 is then called ‘Rice’
- Subheading 30 of Heading 06 is then very specifically called ‘Semi-milled or wholly milled rice, whether or not polished or glazed’.
The HS Code given to this particular good is 1006.30. That digit reflects the product’s chapter, heading and subheading to form a unique digit recognised by customs authorities on an international basis. Think of the code as being split three groups of two numbers: the first group of two broadly categorises the product. The second two define the classification and the third group specifies the actual product.
There are approximately 5,300 of these codes in circulation. More than 98% of internationally traded goods rely on the HS Code system for their classification.
Who uses the HS Code?
HS codes are used extensively by over 200 countries who are contracted to the Convention on the Harmonized Commodity Description and Coding System (also known as the ‘HS Convention’). Customs authorities not only use HS codes to identify what goods are being shipped; They also use them to apply relevant customs duties, taxes and regulations. Governments also use HS codes to collect global trade statistics and create tariffs.
Private companies use the same system to monitor goods, develop and advocate trade policies, collect statistics on traffic and transport as well as monitor prices.
Where do I need to use HS Codes in shipping?
When shipping freight, it’s integral that you use the relevant HS Code on each line on your commercial invoice (to understand what this is, please refer to our blog on Commercial Invoices).
Using a HS Code on a commercial invoice ensures that exports make it through customs seamlessly and without delay. That way, importers will receive their goods faster and exporters are paid sooner. Failure to place the HS Code on the commercial invoice could risk the importer paying the incorrect tax. You also may end up paying interest on any back-payments for incorrect classification, and your goods may even be seized.
How do I find the right HS Code for my shipment?
You can search HS Codes using the Free Trade Agreement Portal administered by the Department of Foreign Affairs and Trade (DFAT).
Placing the right HS code on your commercial invoice means you’ll pay the correct amount of duty. You’ll also know if the duty is suspended on any of your products and if any preferential duties rates can be applied on the goods being imported. Australia has a free trade agreement with many countries, and using the correct HS code may allow you to access certain preferential duties stemming from those agreements.
You’ll also discover if any tariff or anti-dumping duties apply. For example, a quick search of HS code 0203.29.023 will reveal that fresh, chilled or frozen swine exported to Japan is subject to a tariff under the Japan-Australia Economic Partnership Agreement (JAEPA)
How do HS codes differ from country to country?
As the HS Code system is used by over 200 countries, there are variations of how the Code is used. This is why using the correct digits can sometimes be difficult. It is a good idea to consult customs authorities directly or engage an expert freight forwarder and customs broker for advice as to the correct code.
Generally, the first six digits of the HS code is the same in all countries.
Different countries, however, may add further digits to detail commodities in more detail without amending the first six digits. In the United States, for instance, ten-digit codes are used in what they call the Harmonized Tariff Code Schedule (HTS). They use an additional four-digit code referred to as the ‘Schedule B number’, thereby creating a 10-digit code.
What HS Codes are affected during stink bug season?
The shipping industry is currently experiencing restrictions due to the 2020 stink bug season (see our stink bug season guide for further information).
Certain HS Codes are affected during this time. This is because the regulations around this season are designed to target high risk cargo whilst avoiding perishables or items that may be damaged by fumigation. Goods affected during this season are classified into three sections, namely:
‘High risk goods’ – these goods are subject to mandatory treatment. These include goods such as explosives, pyrotechnic products, matches, pyrophoric alloys, combustible preparations, wood and articles of wood, wood charcoal, coal and articles of cork.
‘Target risk goods’ – these goods are not subject to mandatory treatment. They include goods such as ores, slag, ash, salt, sulphur, mineral fuels, inorganic chemicals and more.
‘Exempt goods’ – goods under an exempt category will not be treated, even if they come from a ‘target risk country’. Exempt goods include:
- fresh produce
- live animals
- food for human consumption (including beverages)
- seeds for sowing and
- registered pharmaceuticals.
It is important to identify the categories of goods by reference to the HS Codes. Even if your goods are exported from a non-risk country, but manufactured in a country that is affected, your goods will need to be treated.
How is the HS Code System managed?
The Harmonised System is governed by international convention, administered by the WCO. This is an intergovernmental organisation headquartered in Belgium established to discuss, develop and promote modern systems of customs. The WCO has attempted to provide a uniform interpretation of the HS Code in its Explanatory Notes.
The Harmonised Systems Committee represents States who’ve signed up to use the HS Code system. They make decisions on how to classify items, settle disputes and update the HS system every five to six years. The WCO have resolved disputes such as;
- Whether Local Area Network (LAN) equipment is in the category of computer or telecommunications equipment;
- Whether high-fat cream cheese is in fact cheese, or if it’s dairy spread; and
- Where to draw the line between vehicles for transporting goods and vehicles that transport passengers.
Case study: Pharma-A-Care
For the first time in Australian legal history, the HS Code was looked at by the High Court of Australia in February 2020 in its examination of customs tariff law.
In 2017, a company called Pharm-A-Care Laboratories applied for a review of a decision made by the Australian Customs Service in relation to the classification of pastilles or gummies containing vitamins and certain weight loss gummies. Pharm-A-Care argued that these kinds of gummies should be classified as “medicaments” under HS Code 3004. But Customs argued they should be classified as “food preparations” under 2106 or “sugar confectionary” under code 1704.
This was important because HS Codes 2106 and 1704 attracted a duty rate of between 4% and 5%. HS Code 3004, however, was duty-free.
Pharma-A-Care won in the original Tribunal, but Customs appealed all the way to the High Court of Australia. In February 2020, the High Court ruled in Pharm-A-Care’s favour and dismissed Customs’ appeal.
This case study demonstrates how important tariff classifications can be for importers. Vitamins and weight loss supplements that were marketed as chewable gummies are classified as “medicaments”. The result is these goods can now be imported duty-free.
Check with customs brokers to ensure your classification is correct
It is important to engage expert customs brokers to determine if the HS Code on your commercial invoice is correct. Our in-house customs brokers at ICE Cargo can determine if:
- Your classification is accurate;
- There is a more appropriate tariff code with discounts and that can avoid duties;
- There is a tariff concession; and
- You are eligible for a duty refund due to an incorrect classification.
Should you have any further questions regarding HS Codes and how they are used, please contact an ICE team member on 1300 227 461 or leave a comment below.