Classification of Goods
When exporting, it is vitally important to classify goods correctly to avoid delays.
Classification of goods has four major steps:
- Knowledge and understanding of the correct amount of duty payable
- Payment of the correct amount
- Application for preferential rates of duty
- License requirements
It depends upon the size of your business whether this operation is done on a case by case basis by a specialist firm, outsourced, or handled by a specific in-house department. Outsourcing is the most common arrangement, where a firm becomes your export department, with access to the entire operation rather than on an invoice by invoice basis. This can provide value for money since such a company may be able to suggest process changes that go well beyond merely classifying goods.
Classification of goods for export is controlled by an international body known as The Bureau of Industry and Security … which is supported by the World Trade Organization (WTO). When exporting, a harmonized code system (HS codes) has been developed under which every detail of the product and its components, if applicable, is logged for security, statistical and logistics purposes. Tariff codes were first developed simply to record movement of goods, but with advances in expertise, their use has been expanded and now encompasses some of the latest technologies such as Blockchain.
The Harmonized Commodity Description and Coding System, also known as the Harmonized System is now the internationally accepted standard that all manufacturers and producers comply with.
A Harmonized Tariff Code (HTS Code) is a further classification of goods for export. This is the HS code with further digits added by the importing country. The additional digits provide a complete digital record of the goods, allowing for registration, tracking and security. An International HS Classification Number provides customs and security officials in the importers country a means of ensuring the correct duty has been paid.
Commodity codes and regulations listed in the EU TARIC and UK Trade Tariff are updated daily. This means that importers and exporters get the same standards and treatment across the EU. This is another Brexit area where the UK is negotiating with the EU. Following its departure from the EU, Britain wishes to remain part of the network. This is unlikely to happen since International HS codes and classifications are used by Brussels to provide a significant amount of data on intra-EU trade. The UK, as part of the Chequers proposals, has requested methodology whereby it will be able to record its own information as to what the final destination of UK exports to the EU is.
An HS code is made up of six digits. For an international HS Classification numbers, a further four digits are added.
For example, a shipment of dictionaries would be made up of the following:
49 – The high-level sector of the product, in this case printed matter.
01 – Denotes the type of printed matter i.e. a book
91 – The type of book. In this case a dictionary
So, the internal classification for a dictionary within its country of origin is 4901.91
Where that dictionary is to be exported, further codes are added:
The next two digits denote duty rates. In this case it is designated 00.
The final two digits provide trade data to the WTO. These are non-item-specific but relate to trade between two countries. In this case 20 for trade between U.S and EU.
Therefore, for the export of a dictionary from the U.S. to the EU is 4901.91.0020
In summary, when dealing with international bureaucracy, it pays to understand the regulations and be accurate. Most customs departments treat the documentary requirements as a binary outcome. They are either right or wrong with no middle ground or room for negotiation, so be sure that you get your codes right!
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”