What is a Harmonized System?
Harmonized System (HS) codes are frequently applied to the export of goods. The harmonized system is a numerical system used to classify traded goods uniformly. It is employed by customs administrations all over the world to categorize goods for determining taxes and duties and for the purpose of compiling statistics.
Significance of Harmonized System in E-commerce Logistics
In order to reduce shipping costs and facilitate international trade, harmonized system codes assist customs officials in identifying the items and applying the appropriate levies.
The benefits of the HS code include –
- The emergence of new trade models – The HS model incorporates a change that recognizes freshly established sales models. It refers to high-profile commodities and raises awareness of the flow of these products.
- Customs clearance – In order to facilitate a quick customs clearance process, goods can be categorized and placed in a general framework.
- Dissipates catalog confusion – Both importer and exporter can avoid unwelcome catalog-based uncertainty that is produced during exchange because product information is simple to interpret through HS codes.
- Security standards – These mainly refer to the changes to HS tariff codes of multifunctional products that can be used without authorization, like radioactive substances, biosafety cabinets, and other potentially dangerous items. It ensures that international trade goes along with safe borders and anti-terrorism campaigns around the world.
Prerequisites to Calculate Harmonized System and How it Works
The harmonized system is controlled by the World Customs Organization(WCO). Updated every five years, the HS codes are widely used to determine and calculate trade tariffs to systemize global commerce statistics. The prerequisites to calculate a harmonized system include –
- Tariff rates for imports and exports based on the product category
- Calculating internal taxes and obligations to be paid
- Analyzing and gathering data on global trade
According to WCO, the general length of an HS code is six digits. However, additional digits might be incorporated to further classify Harmonized Tariff Schedule (HTS) numbers for different countries.
Use Case With Harmonized System
Let us assume an HSN code as 0123456789.
Thus, in a 10-digit HS code, the first six digits represent the WCO codes, and the last digits represent chapters, subheadings and HTS numbers.