Are you in exporting and importing goods? Then you should be familiar with the Harmonised Commodity Description and Coding System, which is also know as the Harmonised System (HS) or in some cases as the Harmonised System of Nomenclature (HSN). HS code is a universally accepted method of classifying traded goods and it is used to help custom authorities identify products and apply the right duties and taxes on them.

The Harmonised System (HS) Code  is made of a minimum of 6 numbers and a maximum of 10 numbers except for China which has 13 numbers. The HS code can be broken down into three part namely,

• Chapter: the first two digits identifies the chapter in which the goods are classified
• Heading: The two digits in the heading identifies headings within the chapter
• Subheading: The last two digits identify the subheading and defines more specific subcategories of the product

Countries can add two to four extra digits in addition to the six digits to further break down the classification and these numbers are called Harmonised Tariff Schedule (HTS) codes.

Note that it is mandatory to provide your product’s HS code in your shipping documents (i.e. shipping bill, packing list, and commercial invoice). By law the exporter or importer is legally responsible to correctly identify their product’s HS code. Failure to provide the right classification can lead to problems.

What is the Harmonised System?

The Harmonised System (HS) is a multipurpose international product nomenclature developed by the World Customs Organisation (WCO).

It is made up of more that 5,000 commodity groups arranged in a legal and logical structure and is supported by well-defined rules to achieve uniform classification. There are 97 chapters and 21 sections.

The Harmonised system code follow certain rules. These rules are as follows.

• General rules for the interpretation of the Harmonised Systems.

This ensures that a specific product is universally associated with a single heading (and subheading) and does not share this heading with another product. There are six hierarchical general rules of interpretation (GRI)

• GRI 1 states that classification should be determined by the terms of the headings and of the section or chapter notes. If classification can not be determined at this point, then classification will have to be determined by GRI 2 TO GRI 6.
• GRI 2 is broken down into GRI 2 (a) and GRI 2 (b). Aside covering the finished products, GRI 2 (a) extends the scope of a heading to cover incomplete, unfinished, unassembled, or disassembled products. The caveat here is that the products must have the essential features of finished product. GRI 2 (b) extends the scope to cover a mixtures or combination of material, which must be classified according to GRI 3.
• GRI 3 provides the rules for classifying goods that fall under more than one heading. Unlike GRI 2, they are broken down into GRI 3 (a),(b), and (c). GRI 3 (a) must have a classification under the heading with the most specific. In the event that two or more headings refer only to a part of the material in the composite product such that these headings are regarded as equally specific, then GRI 3(b) applies. If the product cannot be classified based on GRI 3 (a) and GRI 3 (b), then GRI 3 (c) provides for its classification “in the heading which occurs last in numerical order among those which equally merit consideration in determining their classification”.
• GRI 4 applies to products that are not specifically covered by any heading in HS code, then they will be placed under the heading that is appropriate to the goods to which they are most similar.
• GRI 5 applies to the classification of containers, boxes and cases in which products are packed.
• GRI 6 is the classification of products in the subheading.

• Section, chapter, and Subheading notes.

It is common to see notes accompany certain sections, chapters, and subheadings of the HS code. The essence of these notes is to help interpret specific sections and chapters by precisely defining their scopes and limits. These notes are legally binding and are also known as legal notes.

Importance of Harmonised System

• It is used for customs tariffs worldwide.
• It is used for the collection of internal taxes and duties and value-added tax (VAT).
• It is used to calculate freight and transport tariffs.
• It helps governments to decide their trade policies.
• It helps in collecting international trade statistics.
• It is the basis for the setting of preferential tariffs and Most Favoured Nation (MFN) tariffs under free trade agreements.
• It is used for monitoring controlled goods.