Global trade is estimated to have reached US$32 trillion in 2022. The sheer number of tons of merchandise included in these figures is mind-boggling to think about, to say nothing of the logistics involved in moving all that merchandise around the globe.
Luckily, systems and structures have been built to simplify trade and to support the exchange of goods between countries. An example is the harmonized tariff system (HTS), which offers a categorization and standardization system for all goods that are imported into foreign countries.
Is It a Plane? Is It a Bird? What Is The HTS and How Does It Work?
Customs officials in over 200 countries use these codes to identify the types of goods coming into the country in order to determine the applicable tariffs, taxes, and duties that must be paid.
The system is set up in a way that first classifies all goods into a broad category (i.e. apparel) and then drills down into more detailed subheadings (i.e. men’s cotton t-shirts). For example, a men’s t-shirt made of cotton would be assigned the code 6109.10. The 61 represents apparel, 09 indicates that it’s a t-shirt, and the 10 is for cotton. Using these standard codes, almost every tradeable item can be easily identified in detail.
The six-digit harmonized schedule code (HS) is determined by customs officials who receive a description of the product and its intended use from the importer. These codes are used and recognized by all countries that use the HTS.
Well, Almost: HS Codes vs HTS Codes
Just to complicate things a little bit, many countries (including the US) add additional digits to the original HS code to create a more specific classification system unique to their specific country. In the US, for example, the harmonized tariff schedule (HTS) code is 10 digits long, with an additional 4 digits added to the HS code.
Using the same example as above, the HTS code for men’s cotton t-shirts in the US would be “6109.10.00.12.” The 00 would indicate additional details about cotton garments and the 10 would provide additional information about the style, size, or intended use of the shirts.
Because the last four digits of HTS codes in the US are specific to US tariff policies and regulations, they may be different from those used in other countries.
We Have a Code. Now What?
Determining the code is the easy part. Next, the code is used by the customs officials to apply any duties and regulations to the import. They also have to identify whether or not it’s necessary to consult with any government agencies that have jurisdiction over certain products. These agencies, known as Partner Government Agencies (PGA), include the Food and Drugs Authority (FDA) and the Center for Disease Control and Prevention (CDCP) along with approximately fifty others. It is their responsibility to ensure public health and safety as well as environmental protection, and they oversee the importation of products that may have an impact in these areas.
It is important for importers to be familiar with the PGA that oversees their products as imports can be refused or penalties can be charged if their particular regulations are not followed. Many PGAs require certain permits or additional documentation that the importers must provide.
Keeping Count: How the HTS Assists with Quotas
A second important role that HTS plays is in helping countries to manage and regulate their quotas. Many countries limit the quantity of certain products during specified time periods, and they use HTS codes to keep track of these products and determine when the quota has been reached.
Let’s say there is a textile product with the HTS code 6302.99.10. If the US has set a quota of 10,000 units of this product for the current year, they can use the HTS code to keep track of how many products have been imported. Once the quota is reached, any additional products with the same HTS code will either be refused or (more likely) imported at a higher tariff rate.
The US is one country that regularly uses quotas to regulate imports and ensure that they remain competitive. For example, the US-Mexico-Canada Agreement (USMCA) puts quotas on dairy, eggs, and poultry. The US also has quotas on raw cane and refined sugar, cotton products from China, and certain types of cheese from France. Quotas can be placed on particular goods as well as on certain locations.
What You Need To Know About Classifying Your Goods (HTS Code Lookup ?)
It’s very important that the correct information is supplied to the customs officials so that they can assign the right HTS code. The accuracy and efficiency of trade operations relies on this system working well, so it is critical for importers to understand the HTS system and check and double-check the information they give to the officials.
Because the codes are updated periodically due to changes in technology or industry practices, it is important to stay on top of it and keep track of any changes in the codes related to your goods. This is extra important as providing false or inaccurate information can lead to a product being classified with the wrong HTS code. This, in turn, can result in the wrong amount of duty being assessed as well as the incorrect application of other trade restrictions or regulations. The end result is a nightmare for the importer, including financial penalties, clearance delays, and reputational damage.
The Harmony Comes Afterwards
While the HTS can seem daunting, by investing time and effort into accurately classifying your goods, you can streamline your importing process, reduce risks and costs, and ultimately grow your business. To make your life easier, we’ve developed the BINA classifier, a free text to HTS Code AI tool designed to help you navigate your import business. Want to be among the first to know when BINA becomes available? Sign-up now!