The logistics industry is like a finely tuned watch, with every business, supplier, carrier, regulation and process playing its part in keeping global supply chains ticking, customers happy and businesses thriving.
Among those processes is the Harmonised System (HS) of codes that classify and organise the $19 trillion of goods traded internationally every year. In 2022, the latest update will come into force, so what is changing and what does it mean for your business? Let’s start from the beginning…
What is a Harmonised System (HS) code?
Among industry classification systems, Harmonised System (HS) Codes are commonly and universally used throughout the export process for goods. The Harmonised System is a standardised numerical method of classifying traded products. It is used by customs authorities around the world to identify products when assessing duties and taxes and for gathering statistics.
The clue to this is in the name. With so many goods moving around the world, it’s important to know what they are and how to separate them, so that customs authorities can easily identify goods and apply the correct tariffs – reducing costs and keeping international trade moving harmoniously.
Established in the 1980s by the World Customs Organisation (WCO) – the HS codes are updated two times every year, with a bigger review every five years to reflect new technologies, trends and goods that have entered the global market. Through the WCO, 211 countries including the EU, use the HS code system to classify goods.
What does an HS code look like?
In practice, an HS code is a 6-digit code that represents a Chapter, Heading and Sub-heading that together defines the good being imported/exported.
Let’s look at an example of a company shipping rear-view mirrors for vehicles:
The first two digits in the HS code are the Chapter – this is the broad categorisation of your good. In our case, this would be Glass and glassware (Chapter 70)
The second two digits are the Heading, which offers another layer of separation. In this case, we would need the Glass mirrors sub-heading (09).
The final two digits are the Sub-heading – which offer a final layer of clarification. In the case of our glass example, there is a sub-heading specific to rear-view mirrors for vehicles, which adds a final two digits (10).
Bringing all these components together gives you the HS code: 7009.10. Sometimes, a sub-heading isn’t needed, in these cases, the final two digits are 00.
The WCO has a handy tool that allows you to search and explore goods and commodities to identify the right HS code.
What are Harmonised Tariff Schedule (HTS) codes?
If you’re new to shipping, you may have heard Harmonised Tariff Schedule codes – or HTS codes – mentioned alongside, or instead of HS codes. Where the 6-digit HS code is a global standard – on a country-to-country basis, the WCO allows nations to use an additional two to four digits for country-specific categorisations.
So, the difference between an HS code and an HTS code is in how many digits are included. The term ‘HTS code’ is used particularly for US imports and is usually between 8 and 10 digits. In the EU, as an alternative, you may hear TARIC mentioned – which is the 10-digit code for EU imports.
All you need to know is what additional digits/codes are required from the country you’re importing to.
What are the changes coming in 2022?
Since establishing them in 1988, the WCO has updated HS codes every five years to reflect these changes. With each change, some HS codes are removed, others have changes to their definitions – with some definitions expanding to include more goods.
The changes in the HS system will come into effect on a global level on January 1st – with all 211 countries incorporating the updates. It’s important to understand how the HS codes for your goods are changing so you can be compliant in the new year. There are a lot of changes in the latest update, over 300 amendments in fact, with 12% of all EU codes set to be impacted in some form.
Here are some headlines:
New chapters and headings have been created to give increased visibility for high-profile products. For example, unmanned aerial vehicles (drones) and smartphones.
Reconfigurations have been made to provide better representation for new technologies. As an example, where once 3D printers were hard to categorise and could sit under numerous codes; now they have their own heading – Machines for additive manufacturing – with different sub-headings for the materials used in the printing.
Perhaps following the Covid pandemic, there is recognition that delaying the deployment of tools for the diagnosis of infectious diseases can be costly. As a result, alterations have been made for these kind of diagnostic kits to be classified more simply – increasing the focus on health.
”The changes to the HS system reflect our changing desires, trends and concerns as a society – recognising new technologies and priorities that have emerged in the last five years. While there are many updates to consider, if you have a clear understanding of your own goods, you can get organised today and in good time. This will ensure that you’re able to hit the ground running in the new year.”
5 steps how you should prepare for the HS changes
If we were to cover every change in the new HS update, this would be a very long article! You can find the WCO’s overview of the amendments on their website.
It’s worth noting that while global 6-digit HS codes have been updated and published, changes to the additional 2-4 digits from individual countries will be shared by each country and these aren’t all published yet. This adds another layer to your preparations – but you can still get largely prepared with the 6-digit codes available. Here’s how to get started:
1. Gather your current HS codes: You will have been using HS codes to date with your current cargo. Gather all the HS codes you use on a regular basis.
2. Check them against the new codes for changes: Using the WCO tools, or their full publication of changes, check whether your HS codes have changed.
3. Make your changes:
If your HS codes have been removed, then handle this and select the most appropriate code to replace it.
If the definition of your HS code has changed, check that it still accurately covers your goods and change if necessary
4. Wait for the additional codes to be shared by your import country: If it hasn’t happened already, wait for additional codes to be shared and add these to your HS code once published.
5. Gather all this new data and share: If you use a customs specialist like you can through Twill’s customs clearance, then share your new HS codes with them. Or have them on hand if you handle the process yourself.
Maersk is also offering a fixed price HS 2022 review assessment for companies that want help to analyse the effects of the changes. You can find more information about the service here. For more insights and updates like this, take a look at our Knowledge Hub!