What Are Harmonized Tariff Schedules?

by Source Intelligence

on April 23, 2020

Harmonized Tariff Schedules (HTS) are a classification system for goods imported into the U.S. based on name, composition, and intended use/function. Centuries of various levels of protectionism and retaliation between countries have finally led to the adoption of HTS to homogenize the classification of goods destined to international trade.

In this article, we present a summary of Harmonized Tariff Schedules:

    • What they are,
    • What their purpose is,
    • Why an incorrect code means non-compliance,
    • And how an automated system can make huge improvements in accuracy and efficiency.

 

Regulation History and Background

 

The word tariff comes from the Italian “tariffa,” meaning list of prices, thought to itself derive from the Arabic word “ta’rif,” or “inventory of fees to be paid.” Generally speaking, a tariff is a foreign trade regulation that levies a tax on exports and imports between countries. Its purpose is two-fold:

    • be a source of revenue and 
    • act as protection of national production against global competition.

At the turn of the 20th century, most countries had developed their own nomenclature to tax imported goods, creating a rather complex landscape for traders. Despite several attempts to reach a consensus and agree on an international system, it wasn’t until 1950 that these efforts came to fruition with the creation of the Customs Cooperation Council in Brussels, Belgium. Its objective was to unify customs administrations around the world, for better efficacy and higher exchange efficiency. Several revisions were necessary to accommodate modern ways of doing business and allow more countries to join.

The new harmonized system was widely adopted by members of the World Trade Organization. In 1989, the U.S. switched from its Tariff Schedules of the United States to the Harmonized Tariff Schedule of the United States.

 

How Harmonized Tariff Schedules Work

 

Harmonized Tariff Schedules are primarily intended for importers, and it is their responsibility to ensure goods are properly coded for customs clearance. It does, however, still apply to exporters as well.

The classification system is an 8 to 10-digit code that much resembles the Dewey Decimal System (the US uses a 10-digit nomenclature)

    • Chapters – 2 digits
    • Headings – 2 digits
    • Subheadings – 2 digits
    • Suffix – up to 4 country-specific extra digits to further break down the categories, or for statistical purposes.

 

harmonized tariff code number definition

 

Why Is HTS Important?

 

The purpose of the tariff code is to ensure the right duty rate is applied or determine if a product qualifies for preferential tariff (trade or free trade agreement with the country of origin). 

As an importer, reporting accurate information to the Customs and Border Protection agency is a matter of compliance, as well as the assurance you are not paying more taxes than you should. The companies you import from may supply information as a courtesy, but you should not solely rely on them. Incorrect classification could either lead to (1) underpaying and exposing you to penalties or (2) overpaying and spending unnecessary amounts. Should you realize you have been using incorrect classification, you can:

    • File a post-entry amendment and pay additional duties or request a refund
    • File an administrative process up to 180 days after the entry has been liquidated

Because technologies change, and because new materials and new products are created, HTS undergoes frequent revisions, suspensions, or additions. This year only, HTS has already been revised 7 times. It is therefore important to keep up-to-date and review your product classifications at least once a year.

 

harmonized tariff schedule example

 

How Source Intelligence Can Help

 

At Source Intelligence, it’s our mission to help businesses reach compliance. In view of the multiplication of regulations aimed at supporting more ethical and sustainable practices, staying on the right side of the law requires a centralized system that approaches compliance in a holistic manner.

Our dynamic platform provides a one-stop solution for over 50 compliance programs, along with features to increase efficiencies in document and data collection, supplier intelligence, risk-mapping, and analytics reporting. Our programs include:

    • Conflict Minerals
    • Reach & RoHS
    • California Prop 65
    • SCIP Database 
    • Safety Data Sheets
    • Virtual Supplier Audits
    • Ethical Materials Sourcing (Cobalt, Palm Oil, Mica)
    • And more

All of our regulation programs feature our Harmonized Tariff Schedule solution. We automatically search HTS codes for products so you can ensure you have the right codes for compliance. With continuous updates both on regulatory compliance requirements and classification changes, we save you time and administrative burden and facilitate your shipping documents needs.

A tour is worth a thousand words, so request a demo and see what our platform can do for you. 

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