Customs compliance tips: A brief guide to HS codes

The Harmonised System is a global coding structure used to classify and categorise goods shipped across international borders. Over 200 countries (comprising approximately 98% of world trade) use Harmonised System (HS) codes.

In this article, we’ll provide an overview of some key information about HS codes that you need to keep in mind when trading abroad, including:

• An overview of HS codes 
• The benefits of applying the correct HS codes
• Country-specific commodity codes, like HTS codes
• The importance of staying up to date with customs compliance rules

A typical HS code comprises six numbers split into three pairs, representing a chapter, heading, and subheading (in that order). The Harmonised System nomenclature itself is split into sections, each containing a variety of chapters, headings, and subheadings. Section numbers are not part of an individual HS code and are only used to organise the nomenclature.

There are:

• 21 sections
• 96 chapters 
• 1,244 headings
• 5,224 subheadings

Let’s create an example of a basic six-digit HS code. Say we’re looking to ship apples abroad: 

• First, we’ll go to Section 2, ‘Vegetable Products’.
  • Then Chapter 08: ‘Edible fruit and nuts; peel of citrus fruit or melons’.
    • The chapter has 14 headings, but we’re looking for Heading 08: ‘Apples, pears and quinces, fresh’.
      • Finally, we’ll go to Subheading 10, helpfully titled ‘Apples’.

So the HS code we want is 0808.10. Understanding the characteristics of the product is crucial for getting the correct code. 

Understanding how HS codes work can help your business become customs compliant. By applying the correct codes, you can:

• Reduce the risk of delays: Customs authorities use HS codes to identify shipments. Incorrect codes could delay your items in customs while authorities determine what kind of goods you’re shipping. Using the correct codes helps lower the chances of such delays.
• Pay correct customs duties: Without the correct HS codes, customs authorities won’t know what duties to apply to your shipment. You could be charged a higher level of customs duty. Applying the correct codes means you pay the correct amount.
• Please your customers: Using the correct HS codes helps your goods cross borders without unforeseen delays. This means timely deliveries that can improve customer satisfaction and increase the chances of repeat business and positive reviews.

While HS codes are intended to be universal, some countries have their own set of commodity codes with additional digits. Examples are: 

The U.S. International Trade Commission uses HTS codes, which are 10 digits long. The first two of the four additional digits specify the duty rate, and the second two are used for trade data. The final two don’t actually classify the product and aren’t always necessary — but instead of being removed entirely, they’ll be listed as ‘00’.

Let’s take apples as an example again: the HTS nomenclature further divides apples into three more categories:

• 30: Valued not over 22¢ per kg
• 45: Valued over 22¢ per kg/Certified organic
• 65: Valued over 22¢ per kg/Other

If our apples are expensive, high-grade organic apples, they’d be 0808.10.45.00. In the nomenclature (Section 2, Chapter 8), this code means no customs duty is due on these items.

An additional layer of complexity comes from U.S. businesses having to use an entirely different set of commodity codes for exporting, called Schedule B numbers. If you trade with the U.S., remember that HTS codes are only for imports into the country.

The EU has two coding systems for importing: Combined Nomenclature and EU TARIC.

Combined Nomenclature (or CN) works like the Harmonised System: it helps customs authorities identify goods and apply the correct customs duty rates. It’s also used for collecting international trade data. 

The CN divides the code ‘0808.10’ into two sections: 10 (for cider apples) and 80 (for everything else). Our high-grade organic apples would use the CN code ‘80’. If you have the weight and price of a shipment, the Combined Nomenclature also has codes for calculating customs rates. 

TARIC codes refer to the trade rules affecting the import of goods. If you’re transporting potentially hazardous chemicals or pharmaceuticals, there will likely be trade legislation concerning their sale. However, with our apple example, there’s no related legislation. As such, the TARIC code is ‘00’.

Using both systems, the code for shipping our apples into a European Union member country would be 0808.10.80.00. 

Chinese customs codes are longer than the previous two country-specific codes we’ve listed. A standard Chinese code contains a basic six-digit HS code as well as:

• 2 additional digits to identify the product
• 2 digits for a Customs Supervision number
• 3 digits for an Inspection and Quarantine number.

China uses customs codes for more than just importing goods. If you set up a business entity in China, you must detail your ‘business scope’, which requires the customs codes for the goods you plan on importing, exporting, and trading domestically. Using our apple example, the code we’d need would be 0808100000999.

It’s hugely important to stay as up to date as possible with any changes to the customs compliance landscape as rules and legislation can change, and failing to adapt could mean business disruption and penalties for noncompliance.

Prior to 2002, the World Customs Organisation made small, frequent adjustments to the Harmonised System whenever necessary. It now undergoes a comprehensive review every five years, with the most recent update in 2022.

It’s also vital to keep an eye on region- and country-specific customs updates as individual countries are likely to change their regulations more often.  

One example is ICS2, the new EU Import Control System. ICS2 is intended to increase the effectiveness of EU customs authorities through automation, particularly in areas like national security. As such, getting goods through ICS2 will require a much higher level of compliance than its previous iteration.

Navigating the Harmonised System is a challenge for any business. 

Avalara automation can save you time and reduce the risk of human error when applying HS codes. Our classification tools can instantly identify your products and add any country-specific codes, making it much easier to become customs compliant when shipping overseas. It also automatically accounts for updates to national customs nomenclatures and the Harmonised System, and is easily integrated into your existing software. 

If you’re interested in a deeper dive into HS codes, read The ultimate guide to HS code classification.