Wednesday, January 20

How Hs Codes Have Defined International Trade

HS Codes have defined international trade since 1988, yet only a small group of logisticians around the world know how to apply them correctly.

In most countries, importers are required to determine the correct HS codes for their products on their own. Erroneous declarations of HS codes can result in importers paying the wrong amounts of duties and taxes, which in turn can lead to penalties and fines. When coupled with the fact that the large majority of importers have no clue of how to go about classifying their products correctly, this leads to a challenging problem for authorities and traders alike.

HS codes are determined using the 6 rules of classification published by the WCO (World Customs Organization). These rules are more than just guidelines or recommendations, instead they MUST be followed when attempting to classify a product. However, interpretation of these rules can oftentimes be subjective. They also heavily involve the application of the concept of “essential character” which is very open to interpretation.

As a result, traders often look for short cuts to assign the correct HS codes for their products. Some simplified HS code guides have been published online that do seem to work accurately some of the time, but upon closer inspection, one would realize that these models do not work well when the product itself is complicated.

HS code lookups are also available on many sites. Be warned that these have extremely low usability. No single entity in the world holds a large enough database of correct HS codes to build a database that can cover all the goods that cross borders internationally. Instead, would you probably be very much better off searching for HS code information using a general search on the internet. Some countries also publish the outcomes of HS classification rulings on their websites for the general public to take reference.

Some traders exercise due diligence and hire experts to classify their products for them. Unfortunately, this does not always work out well either! Many self-proclaimed experts have simply attended a course on HS classification and have never really dealt with Customs directly to address a HS classification challenge. True expertise in HS classification can only come about by sheer quantity of quality exposure across industries. Even former Customs officers will not have this level of experience unless they spent extended time in the branch of Customs that deals with HS classifications.

What can traders do?

Short of applying for a tariff classification ruling (which many traders try to avoid for various reasons), traders should prepare a defense plan when they use HS codes that they know may be challenged by Customs in future audits. This involves preparing a dossier with product information, collecting relevant international decisions, any WCO classification opinions that can support their determination and any ruling they may have applied for in other countries.

Although the Customs authorities may not accept their determination, the dossier will be a show of proof that the company had indeed undertaken a genuine effort to classify products correctly. In some cases, if the dossier has more information that Customs has, it may influence authorities to revisit the basis of their challenge!

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