Toolbox: Learn the Lingo – The Codes of International Business
Earlier this year, World Trade Center Utah launched its "10 Tips to Help you Think, Act and Succeed Globally." Since the launch, we have featured corresponding articles in the export toolbox section of our newsletter. We are pleased to revisit these "10 Tips" and dig deeper into topics that will be important as you pursue international business opportunities.
Our third tip, "Learn the Lingo," stressed the importance of learning the terminology of international business. The aim of this article is to simply and concisely explain the international business language of harmonized codes.
Did you know more than 200 countries in the world follow a standard of coding? Did you know every product has a specific code assigned to it? Keep reading to learn how this coding works and why it is important to you.
The Harmonized Commodity Description and Coding System, more commonly known as Harmonized Codes or HS Codes, is the international standard of product classification. These codes clarify to people (especially foreign governments) exactly what a product is. Every product of yours will fit under an HS code classification.
Why do Harmonized Codes matter to me?
Taxes. How you classify your product will determine the types of taxes that will be charged at customs. A slight change in the classification of your product can change the customs tax from 5 percent to 15 percent.
Penalties. If you have misclassified your product, a customs office might not allow your product through, or worse, detain it until you have paid penalty fees for misclassification.
Trade Data. While it might be inconvenient to figure out the classification of your product, having the codes can help you access useful trade data. For example, by knowing the HS classification of your product, World Trade Center Utah can access trade databases and see where products like yours are being purchased.
The Format of Harmonized Codes
What does an HS code look like? Each HS code consists of a 10-digit number. For example, below is the HS Code for grated cheese with a breakdown of what the numbers represent:
|Dairy Produce; Birds' Eggs; Natural Honey; Edible Products of Animal Origin, Not Elsewhere Specified or Included||Cheese and curd||Grated or powdered cheese, of all kinds|
What do the numbers mean? Every two digits in an HS code represent a specific product category, with each additional two-digit section representing a more detailed product sub-section. For example, in regards to grated cheese, here is the breakdown of how each two-digit section further specifies what the product is:
Does an HS code mean the same thing in every country? Kind of. The first six digits are universal and standardized. So, for grated cheese, all countries would use at least the first six digits 0406.20. However, the last four digits are specific to each country, allowing each country to further specify a product if they would like.
|Standard Internationally||Country Specific|
As an example of how the last four digits of an HS code are used, a country might want further specification of a grated cheese (to clarify the specific type of cheese, the process of preparing the cheese, etc.). The country might want this further classification of the grated cheese to prevent the importing of a specific type of grated cheese that they domestically produce and want to protect. So, while grated parmesan cheese might be classified in the US as HS 0406.20.0000 with all other grated cheeses, it might be classified in another country as HS 0406.20.5060, with the last four digits (0506) specifying that it is parmesan. Again, it is important to get the correct ten digit code when you export so that going through customs is as easy as possible.
US.-specific HS Coding
The HS codes that are specific to the United States are referred to as the Schedule B numbers (for export) or Harmonized Tariff Schedule of the United States (for import). These coding schedules specify how the U.S. classifies those last four digits for each imported/exported product. Because there are different regulations depending on whether you export or import, there are the two different coding schedules.
How do I find the HS classification for my product?
The best way to classify your product is to contact the customs offices that you will be exporting out of and to. From these offices, you can get a binding document declaring the classification of your product before you ship it to ensure there will be as few headaches at customs as possible.
To lookup your product's HS codes specific to the United States with your Schedule B number, click here. If you click on the "Search" option, it will take you through a guided process to find out what your product is classified as.
For importing products, visit usitc.gov to figure out your HTSUS codes.
Remember that looking on the website is no guarantee of what the code actually is. It is wise to contact a customs office and talk to your local Export Assistance Center, run by the United States Commercial Services.
Aside from the HS Codes, Schedule B Codes and HTSUS Codes, there is one other significant classification system that will be useful in your international business pursuits. North American Industry Classification System, or NAICS, describes the type of activity a business is engaged in through a six digit code. This is in contrast to the HS, Schedule B and HTSUS codes that describe a product. NAICS codes can be obtained from the U.S. Census Bureau website.
To get further help understanding the codes of international trade, or to receive any of WTC Utah's other free services, please email WTC Utah's trade services team at firstname.lastname@example.org.