Importing foreign goods can be a useful way to slash costs or diversify your company’s product line. The latticework of U.S. trade barriers and tariffs can be confusing, though, and sometimes deter businesses from taking the leap, especially those with fewer than 500 employees (small and medium-sized enterprises, or SMEs). Understanding tariff codes that are used to organize, categorize and label products for import can help. In fact, doing so is well worth your time.

HS (Harmonized System) Codes

The basic importing classification system used worldwide, the Harmonized System (HS), consists of six-digit codes.

The first two digits, known as chapters, are the broadest categories. Let’s take the HS code 0101.21. The first two digits, 01, refer to live animals. The second two digits provide specificity; in this case, the second “01” refers to horses, donkeys and mules. The last two digits provide even greater detail. Here, “21” refers to purebred horses for breeding.

The U.S. International Trade Commission (ITC) offers a guide to the HS designations.

HTS (Harmonized Tariff System) Codes

The U.S. Harmonized Tariff System (HTS) classification expands on the global HS classifications by adding four additional digits – in effect, two more subcategories. Let’s take the HTS code 00 0101.21.0010. In the United States, the final digits, 0010, refer to male purebred horses for breeding.

HTS codes are generated by the ITC, which updates the classifications on a biannual basis. Current coding schedules can be researched on the ITC’s website.

The ITC also hears arbitration regarding tariffs.

A basic understanding of HTS codes is essential if your company plans to become an importer. If you misclassify your product, you are committing fraud and your business could face delays, penalties or forfeiture. That’s why it’s also important to work with your foreign partner to ensure that products are labeled correctly before they reach U.S. Customs.

Knowledge Can Translate to Business Advantage

It can work to your company’s advantage to understand the nuances of HTS classifications. For example, different codes have different tariffs associated with them. One product might have $2-per-kilogram tariff associated with it, while a similar product might have a $1-per-kilogram tariff. By substituting one product for another using the list of codes, your company might be able to reduce operating costs. 

Substituting one product for another using the list of codes might reduce operating costs.

[tweetthis]Substituting one product for another using the list of codes might reduce operating costs[/tweetthis]

It’s also possible negotiate the HTS classifications of certain products and benefit financially as a result. In a surprisingly amusing podcast, Radiolab discusses the efforts Marvel Comics took to re-classify its imports. Marvel had been importing X-Men action figures as “dolls” (human figures) with tariffs at approximately double the rate of “toys” (non-human figures). Marvel’s lawyers were able to reclassify the X-Men action figures as “toys” by arguing that mutants, having undergone powerful transformations, were no longer human representations.

Although HTS classifications are a little-thought-about aspect of transnational business, they play a key role the U.S. system of regulating imports. Understanding the basics about HTS codes, and knowing where to research them, can help your company begin the process of importing goods. The long list of classifications seems daunting at first, but the system is actually intuitive and easy to learn.

About the author

Cole Pfeiffer

Cole Pfeiffer

Cole spent two years at King & Spalding LLP where he worked as a Project Assistant for matters involving the Department of Commerce, International Trade Commission and the U.S. Court of Appeals for the Federal Circuit. Before that, he was a legislative intern for Congressman Blumenauer and a U.S. Embassy Intern. Cole is a now a member of the Georgetown University Law class of 2019.

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