HS codes are the building block of international trade. One sure thing, if you want to get your cross-border activities off to a flying start in 2023, you need to make sure your business masters HS code allocation.
“The data not only has to be available but also has to be of very good quality for purposes like customs, import duty, transport security, product safety,” commented Walter Trezek, a well-known e-commerce expert, on the biggest challenges ahead. With increasing pressure on businesses to provide high-quality data on packages, it will be more crucial than ever to allocate the correct HS codes in 2023.
To make sure your business is not caught off-guard by HS code requirements in 2023, we’ve put together 4 quick tips for you.
What are HS codes and why are they so important?
First things first, to be on top of HS code allocation, it is important to understand their key role in cross-border trade. HS code stands for Harmonized System Code. It is a standardized coding system developed by the World Customs Organization (WCO) in 1988. The system helps identify and classify internationally traded goods for import and export with no language hurdle, as it uses numbers. It categorizes over 200,000 types of products in international trade, and it is used by more than 200 countries internationally.
In addition to breaking down language barriers when trading internationally, HS codes are especially used by customs authorities around the world to assess duties and taxes. That is why HS codes are at the beating heart of global trade, and an essential element of trade compliance. If you do not include HS codes on the commercial invoice and other shipping documents, your receiver might pay the wrong tax, and the shipment can also be delayed.
Tip 1: Be aware of the country-specific codes
Even though the HS nomenclature is globally harmonized, countries are allowed to use country specific codes to have more targeted tariff policies. The first 6 digits of an HS code are standardized and the same everywhere. However, countries can extend codes with an extra 2 to 6 digits. That is why you may have heard of different names such as HTS codes, or TARIC codes.
In practice, The United States uses the HTS codes system that comprises 4 extra digits in addition to the 6 harmonized HS digits. The EU uses a CN code for exports, which has 2 extra digits, and a TARIC code for EU imports with 10 digits in total (HS6+ 2+2). As you can see, there are differences depending on the country, but also on imports and exports. That is why the first step to successfully allocate HS codes is to know what country-specific version of the HS System you need to use.
Tip 2: Mind the nomenclature updates
As a cross-border player, you may know from experience that trade rules are not set in stone. The HS nomenclatures are no exception. The global HS nomenclature is updated every 5 years, the latest update being HS 2022. On its side, the EU publishes an updated version of its Combined Nomenclature (CN) every year. The new version was published on October 31, 2022 and will take effect on January 1, 2023.
If you are not using an automated solution to allocate HS codes to your EU packages, you therefore need to timely evaluate the effects of the changes to prevent any surprises, delays, and incorrect declarations. At a glance, the 2023 update contains new subheadings to better monitor particular items. Eurora’s AI engine, which can automatically assign HS codes in real time, has already been trained with the nomenclature updates and is ready for January 1, 2023, when the changes will come into effect.
Tip 3: Know the trade regulations impacting HS codes
It is now clear that HS codes are at the heart of global trade compliance, especially when it comes to customs clearance. This means that when there are new regulations coming, they can directly or indirectly impact HS codes. HS codes will be impacted in 2023 by the ICS2 second release in the EU. The ICS2 is a new customs electronic import system that requires carriers transporting packages into or through the EU to provide a complete set of data on the goods prior to arrival.
This new model will impact all businesses shipping to the EU because as of March 1, 2023, HS codes will be required on customs forms for all EU-bound goods. If retailers do not provide HS codes with their shipments, the carrier or logistics provider will have to assign them. This is an additional challenge for the carrier who won’t know the products and may unintentionally use incorrect HS codes. With this in mind, retailers should assign the correct HS codes on their packages themselves, so they can avoid delivery delays and errors.
Tip 4: Use an automated solution to allocate HS codes
As we saw, the HS nomenclature comprises over 200,000 types of products, each country can apply a country-specific code, and there are regular updates. Trying to manually handle this amount of data isn’t scalable and beyond the human brain’s capabilities. “Humans make human errors, and each person knows only a small part of the huge nomenclature world. A machine has a wider horizon than one person. With AI, all the knowledge coming from different people is in one machine together,” shared Kristi Helekivi, Head of Data Science at Eurora.
Given the complexity and the increasing pressure for high-quality data, why not put your HS code allocation on autopilot in 2023? Eurora’s HS code allocation service is powered by a proprietary AI engine that allocates HS codes in real time and supports country-specific nomenclatures. Our database is constantly updated with the latest changes, and our engine can process up to 5,000 requests in less than 100 milliseconds with 98% accuracy – the highest level of accuracy, speed, and automation available on the market. You can save countless hours of labor with the peace of mind that no manual error will occur.