Among industry classification systems, Harmonized System (HS) Codes are commonly used throughout the export process for goods. The Harmonized System is a standardized numerical method of classifying traded products.
The HS is administrated by the World Customs Organization (WCO) and is updated every five years. It serves as the foundation for the import and export classification systems used in the United States and by many trading partners.
The United States uses a 10-digit code to classify products for export, known as a Schedule B number, with the first six digits being the HS number. There is a Schedule B number for every physical product, from paper clips to airplanes. The Schedule B is administered by the U.S. Census Bureau’s Foreign Trade Division.
You will need both the U.S. Schedule B number and the foreign country’s version of the HS code for your product during the export process. You use it to:
- Classify physical goods for shipment to a foreign country;
- Report shipments in the Automated Export System (AES) when the value is more than $2,500, or the item requires a license.
- Complete required shipping documentation such as shipper’s letter of instructions, commercial invoice or certificate of origin;
- Determine import tariff (duty) rates and figure out if a product qualifies for a preferential tariff under a free trade agreement;
- Conduct market research and obtain trade statistics;
- Comply with U.S. law, where applicable.
The Census Bureau offers a free, widely used online Schedule B search tool that can help you classify your products. The Schedule B search tool is the most commonly used method for classifying products. The site provides training resources to help you better identify for your Schedule B number, as well as contact information for assistance.
If your product is difficult to classify, the Customs Rulings Online Search System (CROSS) database can help you find its Schedule B code. CROSS contains official, legally binding rulings from other exporters’ and importers’ requests for Schedule B codes. Use this database to determine whether other exporters or importers requested a ruling on the same or a similar product and, if so, what that ruling was.
Shipping multiple items as a set: For the most part, determining a product’s Schedule B code is straightforward. For example, an unassembled bicycle that is sold in a box containing the bicycle frame, handlebars, pedals, and seat is classified as a bicycle (because the item is sold as one unit) and not as several different components. Some sets, however, are harder to classify. Rule 3 of the General Rules of Interpretation (GRI) of the Harmonized Tariff Schedule addresses composite goods, mixtures, and items that are sold in a set. The GRI has established a three-step process for determining the Schedule B code in such situations; the introduction to the official Schedule B publication contains the relevant passage.
To determine what the HS Code for your product is in another country, you can use a lookup tool in a foreign tariff database, such as the Customs Info Database.
A tariff or duty (the words are used interchangeably) is a tax levied by governments on the value including freight and insurance of imported products. Different tariffs applied on different products by different countries.
National sales and local taxes, and in some instances customs fees, are often charged in addition to the tariff.
The tariff, along with the other assessments, is collected at the time of customs clearance in the foreign port. Tariffs and taxes increase the cost of your product to the foreign buyer and may affect your competitiveness in the market. So knowing the final cost to your buyer can help you price your product for that market. In addition, your buyer may ask you to quote an estimate of these costs before making the purchase. This estimate can be made via email, phone, or in the pro forma invoice.
Some countries have very high duties and taxes, and others relatively low duties and taxes. If your product is primarily made in the U.S. of domestic originating components, it may qualify for duty-free entry into U.S. free trade agreement (FTA) partner countries. The U.S. has FTAs with more than 20 countries, and targeting FTA countries is a competitive market entry strategy. That’s because foreign buyers pay fewer tariffs for goods made in the U.S. compared with similar goods from countries without FTAs. Below are steps for finding and calculating estimated tariffs and taxes. Only the customs officers in the country where the goods clear can make the final determination.
Once you know the classification number or an HS (harmonized) code for the product you are exporting, look up the corresponding tariff (duty) rate by consulting the tariff resources listed below. If you need help with locating your HS code, “Look up your HS code” at the end of this page.
At the international level, the Harmonized System consists of approximately 5,000 article descriptions which appear as headings and subheadings. These descriptions are arranged into 97 chapters grouped into 21 sections. Chapter 77 is reserved for future use.
Merchandise may be specifically provided for or identified by its common, commercial or technical name in an article or product description (i.e., the text to a heading or subheading) in the Harmonized System. When merchandise is not so specifically provided for in the Harmonized System, the article description covering such merchandise is generally considered to be a “residual provision” (sometimes also referred to as a “basket provision”) by use of the phrase “not elsewhere specified or included” or by the use of the term “other.”
As indicated previously, the tariff classification of merchandise under the Harmonized System is governed by the principles set forth in the General Rules of Interpretation (“GRIs”). The GRIs are intended to be consulted and applied each time merchandise is to be classified under the Harmonized System. Accordingly, it is the GRIs that are the single set of legal principles that always govern the classification of merchandise under the Harmonized System. There are six GRIs in all.
EXAMPLE: An electric toothbrush could potentially be classified in heading 8509 as an electromechanical domestic appliance with self-contained motor and in heading 9603 as a brush. Within heading 9603, subheading 9603.21 provides for “toothbrushes.” No consideration should be given to this subheading when comparing the terms of the headings to determine the appropriate heading for classification of the electric toothbrush (as merchandise must first be classified in the Harmonized System at the heading level by the terms of the headings).
In interpreting the Harmonized System, one may at times need to resort to extrinsic interpretative aids. Chief among them are (1) The Harmonized Commodity Description and Coding System Explanatory Notes (Explanatory Notes) and (2) the Harmonized System Compendium of Classification Opinions.
Tariffs are taxes or duties imposed on a particular class of imports or exports, such as lumber or soybeans. There are a couple types of these taxes:
- A unit tariff is a fixed dollar amount on a specific item, such as steel. These tariffs are expressed as a dollar amount.
- An ad valorem tariff is proportional to the value of imported goods. These tariffs are expressed as a percentage and are the most common.
Tariffs are typically paid by the buyer of the imported good, though there could exist a private agreement between buyer and seller in which the seller pays the tax.