Customs Tariff Classification

Ensuring that goods are assigned the right customs tariff classification when being imported to a country is vital to the smooth flow of trade.

This not only makes certain you're paying the correct amount of duties on any goods, but also helps maintain visibility into global trade and ensures that importers and exporters are obeying all the relevant rules for their goods in each territory.

How are goods classified for tariff purposes?

Any goods imported into a country will require a classification code that specifies what the shipment contains. This is usually a six to ten-digit code that informs customs officials of both the general category of the goods and their specific details.

These classifications are vital in determining how much import duties and tariffs businesses will be required to pay, as well as helping complete import or export declarations and other essential paperwork. Import duties in the EU, for example, are calculated using this classification code, along with the country of origin and the value of the items.

Non-tariff considerations

However, calculating the correct customs duty is not the only reason why having the right tariff classifications is essential. There are also a range of potential non-tariff issues that can be identified with correct classification, such as:

  • If you need an import or export license
  • If there are any export controls
  • If goods are eligible for refunds or reduced rates
  • If items will be subject to quotas

Using the Harmonized System

The vast majority of world trade uses the Harmonized System (HS) to ensure goods are classified consistently. Developed by the World Customs Organization (WCO), it covers more than 5,000 commodity groups, each of which is identified by a six digit code. 

More than 200 countries and territories use HS, accounting for 98 percent of internationally-traded merchandise. Typically, the first six digits will be consistent across all participating nations, but beyond that, territories may have their own assignments for individual items.

How does the Harmonized System work?

HS codes are made up of four parts. The first two digits refer to the chapter of the HS that covers the product. This describes the industry to which the product belongs, such as textiles or animal products. There are 98 chapters across 21 sections.

The next two refer to the HS Heading. Beyond this, the next two numbers cover the HS sub-heading, and the last two to four digits are country or economy-specific.

It's important to remember that while the first six digits are constant, the remaining two to four may differ. This can cause issues if suppliers in different parts of the world use their own codes, so it's vital firms have systems in place to ensure consistency.

Trading within the EU

As an example, consider the EU, which sees a large amount of intra-bloc trade as well as external imports and exports. Its classification system is called Combined Nomenclature (CN) and is used to determine which rate of customs duty applies to items, as well as how the goods are treated for statistical purposes or other European Union policies.

It uses the HS system along with a further two-digit sub-heading, as well as a description of the goods and their duty rate.

For example, using the CN system, the HS code for cocoa powder containing less than five percent sucrose would be 1806 10 15, broken down as follows:

  • HS Chapter - 18: Cocoa and Cocoa Preparations
  • HS Heading - 1806: Chocolate and other food preparations containing cocoa
  • HS Sub-heading - 1806 10: Cocoa powder, containing added sugar or sweetening matter
  • CN Sub-heading - 1806 10 15: Products containing no sucrose or containing less than five percent by weight of sucrose

Assigning the wrong classification code to goods can cause a range of issues. These may include non-compliance penalties, border delays or the seizure of the products. Therefore, it is vital you use the right tools to ensure you're following these procedures correctly.

MIC's software solution for Customs Tariff Classification

Take a look into MIC's Central Classification System (MIC CCS) which offers a cost-effective solution for the determination, assignment and validation of customs tariffs classifications and export control classifications according to particular customs tariffs and export control commodity lists. Additionally, MIC CCS contains all necessary content in a user-friendly format. Most importantly, the software allows clearly structured control of the entire product classification process at a global level.

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