AI for HS code allocation

Using Artificial Intelligence for HS code allocation

By Alexander Maasik

HS-code allocation is a key component of customs declaration. It is an important part of transporting goods across borders. And while many companies still assign HS codes manually, this is not a scalable option for the future.

Especially as the number of declarations keeps increasing. Both because of the new trade rules of the EU and the general rapid increase in e-commerce.

To keep up with the growing demand and the increase in the number of declarations required, companies must automate the process of HS code allocation. Alas, that is harder as it sounds.

What are HS codes?

The HS Nomenclature consists of about 5,000 commodity groups which are identified by the 6-digit code and arranged according to a structure based on fixed rules.

Over 98 percent of goods are covered by the HS system. Countries can assign a longer code themselves to have a more specific classification. For instance, the US uses 10-digit codes and China’s codes are 13 digits.

Based on those codes, customs determine the rate of duty and taxes for goods that enter a country. And as the 6-digit code is the same everywhere, there is no confusion, and nothing is “lost in transition”.

How do HS codes get onto a parcel?

The HS code is usually determined and written on a customs declaration based on the product description.

As everyone who has written electronic customs declarations knows, this product data can be very different depending on the seller and the marketplace. Often the data is also incomplete and that makes finding the right HS code even harder.

The second reason assigning HS codes is hard, is how specific the system is. The HS system consists of 99 chapters with 21 427 different declarable codes.

For instance, a common item like a spoon can be either Chapter 82 (metal spoon), chapter 44 (wooden spoon), or Chapter 39 (plastic spoon). Assigning the wrong code means that goods can be stopped and investigated in customs. That doesn’t only mean a time delay but will also mean that the seller needs to pay additional fees.

This can be a confusing task for a human. For an AI, it is even harder. To reliably assign the right HS codes based on product descriptions, the AI must be able to read and understand huge amounts of text in many different formats.

Eurora’s AI can do just that. It has taken years of scientific research and machine learning, but we’ve managed to teach it how to understand vastly different product descriptions and have a very high success rate for assigning the right code.

And our AI can do it much faster and cheaper than any human. Using a reliable automated solution is a sure way to save resources while reliably scaling your business.

How are HS codes used?

Having the right HS code on a parcel is vital for a smooth customs clearance process.

An HS code has two very important purposes. First, it determines the tax rate that is applied to the goods. Secondly, an HS code is used to check against prohibited and restricted item lists and determines if the goods are allowed into the country.

If the customs officer has any reason to doubt that the package has a wrong HS code on it, it may open and examine the package. This of course means both delays and fees for the carrier. Especially if the code is wrong. So, it is very important to get that right.

Eurora’s platform is designed to offer a full solution to companies that move goods across borders.

In addition to assigning HS codes, our platform can, among other services, use the HS code to determine duties and taxes, check the prohibited item lists, and put together the electronic declaration. So if you use Eurora, you can be sure that your goods can move across the globe without issues.