Have you ever taken a good look at a customs form before? If you’re new to the global trade game, there’s a lot of things on there that can get confusing. This is especially true if you’re a new business trying to expand overseas. You’ll find there may be a lot of unknown terms and cryptic numbers. Today, let’s help you clarify a big one: harmonized codes.
For every international shipment there is a commercial or proforma invoice that explains the contents and value of the shipment. Each commodity on your invoice has a number associated with it. This number could be either an HS code, HTS code, or a Schedule B code. Before you start getting stressed out, let’s start by defining each code and what it is used for.
What is a HS Code (Harmonized System Code)?
Simply speaking, an HS Code is a 6-digit number that identifies a commodity. To help improve global trade efficiency, the World Customs Organization has created a universal system to classify various products. It’s very similar to a SKU number on a product that you would see in a supermarket. That number is scanned into a computer, enabling you to check out much faster than if the store had to process everything by hand. A harmonized code works the same way. A customs agent looks at your invoice and runs your harmonized codes through their computers. That tells them immediately what they’re dealing with. Therefore, your shipment is able to clear customs all the faster. Whether you are exporting or importing, you will always use an HS code since they form the foundation for both HTS and Schedule B codes. These 6 digits are consistent internationally.
An Example Number for a Bowling Ball:
Chapter: Think of this as a product category. For example, Chapter 95 for for example would refer to: “Toys, games and sports requisites; parts and accessories thereof” Harmonized Tariff Schedule PDFs (usitc.gov)
Heading: This further will describe the product. For our example, the heading 04 narrows our scope down to games.
Subheading: Gets even more specific with the product. 90 narrows our scope further down to physical games (board games included).
What is an HTS Code (Harmonized Tariff Schedule Code)?
This is a special United States code for importing. It starts off with the normal 6-digit HS code, but includes four extra numbers. To explain why, let’s look at some history as to why this is the case. This all started in 1989 with the birth of the US Import Classification System. They added these extra four digits to provide additional product information that the US government wanted to start collecting. They’re designed to help enforce tax laws and to further classify the product beyond what most the rest of the world requires. This is all enforced by the Bureau of Customs and Border Protection. Below is an example of what this looks like as well as what each pair of digits mean:
Bowling Ball Example Continued
Subheading (Tariff Rate Lines): US Specific. These are meant to establish duty rates. In our example, the second 90 zeroes our focus on bowling related materials.
Statistical Suffix: US Specific. Made to collect trade data to track statistics. Our example of 40 narrows this down to bowling balls.
Find your own: Harmonized Tariff Schedule PDFs (usitc.gov)
What is a Schedule B Code?
While an HTS code is made for importing to the United States, a Schedule B code is made for exporting from the United States. It always starts off the same as an HS code. Most of the time, if there are any differences, it’ll be in the last four digits. The Schedule B Code for our bowling ball example happens to be the same as the HTS code. That may not be the case with the product you’re looking to ship. That’s something you’ll have to keep in mind if you search this up for yourself.
Tying it all Together
Info from: Census Bureau Schedule B Search Engine (3ceonline.com)
How do I find the right HTS or Schedule B Code?
Let’s keep using our previous example. Say you manufacture these pristine bowling balls. You would have to write up a proforma invoice (here's a blog that explains the difference between that and proforma invoices) and find the harmonized code for a bowling ball using the following options:
1. Use an online harmonized code database
Here is a website that is commonly used to find harmonized codes. All you need to do is search for “bowling ball.” You’ll get a few follow up questions, and then you’ll have your harmonized code, which we showed in the example above.
Harmonized System (HS) Codes (trade.gov)
2. Google is your best friend
Sometimes all you have to do is Google “What is the Harmonized/Schedule B code for a bowling ball?” and the vastness of the internet spits out your answer. This does run the risk of getting inaccurate or outdated information. This is the internet after all. Like with any internet search, you need to be confident in where you’re getting your information.
3. The More Information, the Better
Something to remember is that you’ll need to know not just what the product is, but also what it’s made of. That last part is important. Two products can look alike, but their material can produce two different harmonized codes. Take this example:
Going with the bowling ball again; let’s say one is professional and one is a cheap, plastic children’s toy. Though they look similar, they’re obviously very different. The professional ball has synthetic material inside and a hard outer shell. The toy is just a hunk of plastic that a child will readily throw across the living room at anything that bears the slightest resemblance to a pin. Naturally, these result in two different numbers.
What’s the Point of Harmonized Codes?
When your package goes through customs there will be a customs agent that says “Hey, receiver of this package, you need to pay taxes because you purchased a foreign good”. Tax laws are often commodity and country specific. If each country had their own numbering system, international trade would quickly become confusing since customs agents would have to reference over 220 different systems. This is why a globally accepted index was created; it streamlined the customs clearance process and decreased transit times.
If you want to learn more about duties and taxes, check out our blog on that topic.
What if I Assign the Wrong Harmonized Code?
That could definitely get your package held up in customs. If your harm code does not match the description on your invoice, then the shipment will get red flagged and inspected more closely. This happens because the agents need to make sure the right duties and taxes are applied to a commodity. Sometimes, businesses like to put a code on an item that has cheaper duties and taxes (don’t do this by the way, that’s a great way to get fined). If it was just an innocent mistake, your shipment will probably take longer. That’s why it's a good idea to keep good records of your commodities and their associated harmonized codes. The easiest thing you can do is to make sure your numbers are right before shipping.
All of those numbers may seem like a lot to handle, but it starts to make sense when you learn the meaning behind the code and also the history that led to their creation. The good news is that there are several great resources out there to help you resolve your specific situation. If you don’t want to do all of that leg work on your own, our customer service team here at OptimalShip is more than happy to help you with your situation. You can reach us at 972-383-9901