The escalating trade war between the United States and China has cast a pall over the global economy since January 2018. As of August 2018, the US has raised tariffs on more than 5,700 kinds of imports from China.
But how do countries clearly define the types of goods covered under their tariff policies? The answer lies in a deceptively simple string of numbers.
The Harmonized System (HS) Code is a standardized system for classifying goods that are shipped around the world. Using a six-digit code, it categorizes these goods by their components or economic purpose. To date, it covers 98 percent of international trade.
Understanding the HS and the relevant customs clearance processes is crucial for freight forwarders, as their goods’ HS codes tell customs authorities which duties, if any, to apply. Inaccurate reporting can result in massive fines, seized goods and delayed operations.
The HS contains 21 sections, which are divided into 99 chapters, 1,244 headings and 5,224 subheadings. The digits in a HS code represent a product’s place in the HS.
Some countries adopt additional digits in their HS codes to fulfill their tariff needs. The US, for example, uses a 10-digit system.Mastering the HS is incredibly difficult, with error rates of up to 30 percent. Fortunately, shippers can now look forward to new technologies that could automate the HS classification process.