Harmonized System FAQs
- What is the HS?
HS stands for Harmonized Commodity Description and Coding System. The HS is the international standard for reporting goods to customs and other government agencies. It is a numeric language that is used by more than 200 countries worldwide, and covers 98% of international merchandise trade. The HS was created and is administered by the Brussels-based World Customs Organization (WCO).
- What are HS codes?
HS codes are essentially the language of international trade. They are the 6-digit numerical codes that describe “what” is being shipped to and from countries worldwide, HS code form the basis upon which all modern customs management systems operate. Most customs authorities require HS codes to be provided on import and export declarations.
- Is there a difference between HS codes and Tariff Codes?
The first 6 digits of the HS code are common to all countries. Each country is permitted to add additional numbers to suit its own tariff and statistical needs, creating 8, 10, and sometimes 12 digit national codes.
- What is HS classification?
HS classification is the process of assigning numerical HS codes to products for import or export.
- Why is HS classification important?
In most countries, importers and exporters are legally required to declare their goods to Customs using HS codes. HS codes identify the rates of duty and tax that will be assessed, prohibitions or restrictions that might be imposed, and permits or licenses that might be required. In many countries, importers are required to report HS codes to Customs before their goods are loaded for export. In the United States, this mandatory advanced cargo reporting program is called the “Importer Security Filing” (“ISF”, or “10+2”).
- How do companies use HS codes?
HS codes are used by companies to comply with trade regulations, to calculate the true and total landed cost of imported articles and components, to identify selling and sourcing opportunities abroad, and to link the procurement and compliance elements of the supply chain.
- Is HS classification difficult?
HS classification is extremely difficult. Several government studies have shown that 1 out of every 3 entry lines is misclassified.
These high rates of error are caused by two main factors.
First, the HS nomenclature and the rules governing the classification process (i.e. the General Rules of Interpretation and HS Legal Notes) are very complex. The average national tariff schedule is more than 2,000 pages and, although many millions of products are theoretically classifiable, only a few thousand are explicitly described in the nomenclature.
Second, there is a profound gap between how products are described in the HS nomenclature and how they are expressed in normal commercial terms. For example, in order to properly classify an “electric toothbrush”, it must somehow be recognized as an “Electro-mechanical domestic appliances, with self-contained electric motor, other than vacuum cleaners of heading 85.08. Other.”
These factors mean that it is nearly impossible to find most products by a simple keyword search.
- Do HS codes ever change?
Yes, HS codes are subject to revision every 5 years. National tariff codes change more frequently — sometimes several times per year.
Customs Compliance FAQs
- What are the consequences of misclassification?
Improper classification can mean loss of profits, penalties, or worse – either because of improperly calculating the true landed cost of finished articles and parts, or because of non-compliance penalties.
Most governments apply some form of monetary penalty for classification errors. In the United States, penalties are assessed based on Customs’ determination of negligence, gross negligence or fraud. For the most benign kind of classification error, US Customs and Border Protection will assess a civil penalty amounting to either:
(A) the lesser of -
(i) the domestic value of the merchandise, or
(ii) two times the lawful duties, taxes, and fees of which the United States is or may be deprived, or
(B) if the violation did not affect the assessment of duties, 20 percent of the dutiable value of the merchandise.
- Who is responsible for HS classification?
In most countries, the importer of record is solely responsible for the accuracy of the HS codes declared to customs. This poses a serious problem for companies that rely on third party experts for HS classification.
Recently, the United States Court of Appeals has ruled that any person acting on behalf of a corporate importer of record could be held personally for errors on entry declarations made to Customs. This means that anyone involved with the import process is at risk.
Important and exporters must remember that you can outsource function, but not responsibility.
- What is meant by “Reasonable Care”?
“Reasonable Care” is the standard that every importer must meet in order to satisfy U.S. Customs and Border Protection (CBP) compliance regulations. In terms of HS classification, CBP expects declarants to demonstrate that they have established reliable procedures to ensure that merchandise has been properly classified, especially if such classification has been done by an outside entity.
“The Reasonable Care Checklist" published in the U.S. Federal Register warns “importers should not rely exclusively on their customhouse broker to process their imports”.
- How can an importer demonstrate Reasonable Care?
Most Customs authorities have not provided an explicit checklist for what may constitute reasonable care. It is generally accepted that reasonable care can be demonstrated by having procedures in place to ensure that submissions made to Customs - whether by the importer directly or by someone on their behalf - are accurate.
For HS classification, this means maintaining audit trails of classifications done in house, and regularly reviewing classifications done by 3rd party contractors such as Customs Brokers or classification service providers.
- What is “10 + 2”?
“10 + 2”, which is officially known as the “Importer Security Filing” or “ISF”, is a mandatory reporting requirement by U.S. Customs and Border Protection (CBP). As of January 1, 2009, importers have been required to report 10 data elements to CBP prior to their shipments being loaded for export to the US. Their carriers are required to report the 2 additional data elements.
- How does 10+2 work?
This reporting requirement must be fulfilled and submitted at least 24 hours prior to the loading of the goods at the foreign port of embarkation.
- What if the ISF was not completed or filed in time?
Customs may deny loading of the shipment.
- Why do I need an HS code for the ISF/10+2?
One of the 10 data elements that importers are required to submit before their goods are loaded for export to the United States is its proper HS code.
- Why was the 10+2 program created?
It was created so that Customs and Border Protection (CBP) can use enhanced electronic cargo data to assess risk and target cargo before it is shipped to the United States.
- Will my transmitted ISF/10+2 data remain confidential?
Yes, it is treated as law enforcement sensitive, and will be protected under the Trade Secrets Act.
Electronic Single Window FAQs
- What is meant by “Electronic Single Window”?
Import and export compliance is extremely complex. The average crossborder transaction can involve dozens of government agencies, each of which exercise some control over the admissibility of a shipment.
Electronic Single Window (or simply “Single Window”) is a trade facilitation initiative that provides traders the ability to obtain all the information they require to import or export their goods from a single source. This includes tariff and tax rates, documentary requirements, and admissibility directives.
- Why are HS classification tools important to Single Window projects?
HS codes are the key that unlocks the vault containing a multitude of complex requirements of many government agencies that regulate the importation and exportation of goods. The first step in every crossborder shipment is classification. The success of any Single Window or Trade Hub will rest on whether or not all requirements have been linked to HS codes, and whether or not traders are provided tools that enable easy, accurate and immediate HS classification.
- What does 3CE mean?
3CE stands for the “Commodity Code Classification Engine”.
- Why was 3CE created?
3CE was created to fill a much needed demand for fast, easy and accurate HS classification and HS code verification. It has been designed to eliminate the complexities of customs compliance — reducing the high cost of manual classification and ensuring that importers and exporters always pay the correct amount of duty.
- How is 3CE used?
The technology that powers 3CE is used in a variety of ways.
It is used as an ad hoc HS classifier, providing accurate answers to decision-makers and technicians who need answers immediately.
It is used as a large-volume batch classifier, capable of processing millions of records per hour and reducing the need for human intervention by as much as 80%.
Finally, it is used in an audit and oversight environment - providing real-time monitoring and enforcement functionality, and ensuring proper duty payments.
- Is 3CE affiliated with any government agencies?
3CE has been providing HS classification and HS verification solutions for over ten years as an independently owned and operated company. We are not affiliated with any government agencies, but our clients do include several national governments.
- What makes 3CE different from other HS classification tools?
3CE is the only tool that has been designed specifically for HS classification. Other HS classification tools use keyword operators to deliver long lists of “potential matches” - forcing users to read through an overwhelming amount of mostly irrelevant, often erroneous information.
3CE is an expert system that was built in close collaboration with experts from customs and industry. 3CE is uniquely able to read and understand everyday commercial goods descriptions – no matter how they are expressed- and deliver a single correct code. 3CE reasons its way through the HS classification process – applying HS General Rules of Interpretation and taking into account HS Section and Chapter Notes.
3CE demonstrates diligence by maintaining a comprehensive audit trail that is automatically generated by the system. This audit trail includes; the user’s original goods description, 3CE system inferences, user answers to 3CE questions, and HS classification rationale citing GRI’s and Legal Notes.
Most importantly, despite being very easy to use, 3CE reliably delivers accurate results...period.
- How often is 3CE updated?
3CE is constantly updated by a team of devoted software engineers and custom experts to ensure that ever-changing HS codes and related traded data are up to date and accurate.
- Does 3CE provide duty and tariff information?
Yes, 3CE provides the latest available duty information (including preferential and special rates of duty) from the official tariff schedules of the world’s most active trading nations.
- Who uses 3CE?
3CE is a highly effective tool for anyone looking to classify goods that are being traded internationally. It is equally effective as an auditing tool for those looking to audit the accuracy of past transactions.
3CE is used by a variety of organizations involved in international trade, including multinational importers and exporters, customs brokers, international logistics service providers, e-commerce companies, postal agencies and Governments.
- How long does it take to get up and running on 3CE?
Our team of professionals can usually get clients up and running within a few days. Training is seldom required, as 3CE is extremely easy to use.