Among industrial classification systems, the Harmonized System (HS) Code is commonly used throughout the entire process of exporting goods. The Harmonized System is a standardized numerical method for classifying traded products. It is used by customs authorities worldwide to identify products when assessing duties and taxes and to compile statistics.
Understanding the HS Code
An HS Code is a six-digit code specific to various classifications and commodities. Countries are permitted to add longer codes to the first six digits for further classification.
The HS Code is managed by the World Customs Organization (WCO) and updated every five years. It serves as the basis for the export and import classification systems used in the United States and by many trading partners.
The HS uses 10-digit codes to classify products for export, known as Schedule B numbers, with the first six digits being the HS number. There is a Schedule B number for every physical product, ranging from paper clips to airplanes. Schedule B is administered by the Foreign Trade Division of the U.S. Census Bureau.
How to Use HS Codes
The HS uses numerical codes to classify goods. These numerical codes are a systematic description of the goods. The HS numbering system is divided into Chapters (2 digits), Headings (4 digits), and Subheadings (6 digits), as explained below:
For example, the HS code 0101.11.xx.xx is taken from the BTBMI (10 digits)
01 01 11 xx xx
__ Chapter 1
_____ Position 01. 01
________ Subposition 0101. 11
___________ Subheading ASEAN, ASEAN Harmonized Tariff Nomenclature (AHTN)
______________ To the Indonesian Customs Tariff Book (BTKI)
Explanation:
- Chapter, where the classification is represented by the first two digits; the example above shows that the goods are classified under Chapter 1.
- The next two digits, or the first four digits, indicate the heading within each chapter; in this example, the goods are classified under heading 01.01.
- The first six digits indicate the subheading of each heading and chapter. In the example above, the goods are classified under subheading 0101.11.
- The first eight digits are the heading from the AHTN text.
- The ten digits indicate the national tariff heading taken from the BTKI; the tariff heading specifies the amount of the levy (BM, PPN, PPnBM, or import duty) and trade regulations.
Benefits of the HS Code
The HS uses a six-digit numbering system for classification. Each country that has signed the HS Convention or a contracting party may develop a more specific six-digit classification in accordance with its respective government’s policies, while remaining within the provisions of the six-digit HS system.
In Indonesia, the classification system uses a 10-digit numbering system in the Indonesian Customs Tariff Book (BTKI), which provides a further breakdown of the subheadings in the six-digit HS.
You will need the foreign country’s version of the HS code for your products during the export process. You can use it to:
- Classify physical goods for shipment abroad;
- Report shipments in the Automated Export System (AES) if the value exceeds $2,500, or if the items require a license;
- Complete the required shipping documentation, such as a shipper’s instruction letter, commercial invoice, or certificate of origin;
- Determine import duties and find out whether a product qualifies for preferential rates under a free trade agreement;
- Conduct market research and obtain trade statistics;