How to Save Money on Import Duties with HS Codes

If you are an importer, you know how important it is to pay the correct amount of import duties for your goods. Import duties are taxes that governments charge on products that cross their borders. They vary depending on the type, value, and origin of the goods.

But did you know that you can save money on import duties by using HS codes? HS codes are a global system of classification for traded products. They are used by customs authorities around the world to identify products and apply the appropriate tariffs and statistics.

HS codes stand for Harmonized System codes. They consist of six digits that are assigned to different categories and subcategories of products. For example, the HS code for coffee is 0901, and the HS code for roasted coffee beans is 0901.21.

By using the correct HS code for your product, you can ensure that you pay the right amount of import duty and avoid overpaying or underpaying. Overpaying can result in unnecessary costs and reduced profits, while underpaying can lead to penalties, fines, or even confiscation of your goods.

How do you find the HS code for your product?

There are several ways to do this:

You can use online tools such as the Schedule B search engine from the U.S. Census Bureau or the HTS search engine from the U.S. International Trade Commission. These tools allow you to search for your product by name or description and find the corresponding HS code.
You can consult the Harmonized Tariff Schedule (HTS) of the United States, which is a detailed list of all the products and their HS codes that are imported into the U.S. The HTS is based on the international Harmonized System, but it also includes additional digits for further classification. The HTS is updated every year and can be accessed online or in print.
You can ask your supplier or manufacturer for the HS code of your product. They should be able to provide you with this information, as they are also required to use HS codes for their exports.
You can hire a customs broker or a freight forwarder to help you with the classification of your product. They are experts in international trade and can assist you with finding the correct HS code and handling the customs clearance process.

Using HS codes can help you save money on import duties, but it is not enough. You also need to consider other factors that affect the amount of duty you pay, such as:

The value of your product

The value of your product is usually based on the transaction value, which is the price paid or payable for the goods when sold for export. However, there may be other costs or adjustments that need to be added or deducted from the transaction value, such as freight, insurance, commissions, royalties, discounts, etc.

The origin of your product

The origin of your product is the country where it was wholly obtained or produced, or where it underwent its last substantial transformation. The origin of your product determines whether it qualifies for preferential tariff treatment under a free trade agreement (FTA) or a special program such as the Generalized System of Preferences (GSP) or the African Growth and Opportunity Act (AGOA). These programs allow certain products from certain countries to enter the U.S. at reduced or zero duty rates.

The type of your product

The type of your product refers to its physical characteristics, quality, composition, function, end use, etc. Some types of products may be subject to additional duties or restrictions based on their nature or purpose. For example, some agricultural products may be subject to tariff rate quotas (TRQs), which limit the quantity that can enter at a lower duty rate. Some textile products may be subject to rules of origin that require a certain percentage of content or processing in the FTA partner country. Some steel products may be subject to Section 232 tariffs that impose an additional 25% duty on imports that threaten national security.

As you can see, finding and using HS codes is an essential step in saving money on import duties, but it is not the only one. You also need to be aware of other factors that affect your duty rate and comply with all the rules and regulations that apply to your product. By doing so, you can avoid unnecessary costs and risks and optimize your import operations.

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HS Code Duty and Global Demand

HS code duty is the tariff rate that applies to products imported or exported based on their harmonized system (HS) classification. The HS is a global product classification system that assigns specific six-digit codes for varying classifications and commodities. It is used by customs authorities around the world to identify products when assessing duties and taxes and for gathering statistics .

In this article, we will examine how HS code duty affects the global demand for certain industries, using data from the United States International Trade Commission (USITC) . We will focus on three industries: pharmaceutical products, civil aircraft, and automotive products.

Pharmaceutical Products

Pharmaceutical products are classified under HS chapter 30, which covers preparations of chemicals or biological substances for human or veterinary use. According to the USITC, the United States imported $132.4 billion worth of pharmaceutical products in 2020, an increase of 9.4% from 2019. The United States also exported $55.6 billion worth of pharmaceutical products in 2020, a decrease of 2.5% from 2019.

The top five sources of U.S. imports of pharmaceutical products in 2020 were Ireland ($29.3 billion), Germany ($21.7 billion), Switzerland ($18.8 billion), India ($10.8 billion), and Canada ($8.4 billion). The top five destinations of U.S. exports of pharmaceutical products in 2020 were Belgium ($8.6 billion), Canada ($7.9 billion), Japan ($5.8 billion), Germany ($5.6 billion), and China ($4.3 billion).

The HS code duty for pharmaceutical products varies depending on the product type and the country of origin or destination. For example, the general duty rate for medicaments containing antibiotics (HS 3004.10) is free for imports from most countries, but ranges from 0.6% to 6% for imports from some countries that do not have a preferential trade agreement with the United States . Similarly, the general duty rate for medicaments containing hormones (HS 3004.40) is free for exports to most countries, but ranges from 0% to 15% for exports to some countries that do not have a preferential trade agreement with the United States .

The HS code duty for pharmaceutical products can affect the global demand for these products by influencing their prices and competitiveness in different markets. For example, lower duty rates can make imported products more affordable and attractive to consumers, while higher duty rates can make exported products more expensive and less competitive.

Civil Aircraft

Civil aircraft are classified under HS chapter 88, which covers aircraft, spacecraft, and parts thereof. According to the USITC, the United States imported $19.1 billion worth of civil aircraft in 2020, a decrease of 48% from 2019. The United States also exported $59.8 billion worth of civil aircraft in 2020, a decrease of 33% from 2019.

The top five sources of U.S. imports of civil aircraft in 2020 were Canada ($7 billion), France ($4.3 billion), Brazil ($2 billion), Germany ($1.5 billion), and Italy ($1 billion). The top five destinations of U.S. exports of civil aircraft in 2020 were China ($12 billion), France ($7.7 billion), Canada ($5.9 billion), Germany ($5 billion), and Japan ($4.3 billion).

The HS code duty for civil aircraft is generally free for both imports and exports under the Agreement on Trade in Civil Aircraft (ATCA), which is a plurilateral trade agreement among 34 countries that covers civil aircraft, engines, flight simulators, and related parts and components . The ATCA eliminates customs duties on these products among its signatories, which account for about 90% of world trade in civil aircraft .

The HS code duty for civil aircraft can affect the global demand for these products by creating a level playing field for producers and consumers in different markets. For example, free duty rates can encourage trade and cooperation among civil aircraft manufacturers and suppliers, while also reducing costs and increasing choices for airlines and passengers.

Automotive Products

Automotive products are classified under HS chapters 87 and 40, which cover vehicles and parts thereof, and rubber tires and tubes respectively. According to the USITC, the United States imported $191.7 billion worth of automotive products in 2020, a decrease of 20% from 2019. The United States also exported $113 billion worth of automotive products in 2020, a decrease of 23% from 2019.

The top five sources of U.S. imports of automotive products in 2020 were Mexico ($85.6 billion), Canada ($46.7 billion), Japan ($29.9 billion), Germany ($17.4 billion), and South Korea ($12.4 billion). The top five destinations of U.S. exports of automotive products in 2020 were Canada ($51.4 billion), Mexico ($36.5 billion), China ($9.8 billion), Germany ($6.8 billion), and Saudi Arabia ($4.1 billion).

The HS code duty for automotive products varies depending on the product type and the country of origin or destination. For example, the general duty rate for passenger vehicles (HS 8703) is 2.5% for imports from most countries, but ranges from 0% to 25% for imports from some countries that have a special trade status or a trade dispute with the United States . Similarly, the general duty rate for rubber tires (HS 4011) is 4% for exports to most countries, but ranges from 0% to 30% for exports to some countries that have a special trade status or a trade dispute with the United States .

The HS code duty for automotive products can affect the global demand for these products by influencing their prices and competitiveness in different markets. For example, lower duty rates can make imported products more affordable and attractive to consumers, while higher duty rates can make exported products more expensive and less competitive.

References:

http://www.wcoomd.org/en/topics/nomenclature/overview/what-is-the-harmonized-system.aspx

http://www.wcoomd.org/en/about-us/wco-members/membership.aspx

https://www.science.org/doi/10.1126/science.aaa3141

https://www.trade.gov/harmonized-system-hs-codes
https://hts.usitc.gov/

https://www.trade.gov/harmonized-system-hs-codes

https://hts.usitc.gov/

https://wise.com/us/import-duty/hs-code

https://www.ups.com/us/en/supplychain/logistics-solutions/customs-brokerage/importers-guide-to-hts-codes.page

https://help.incodocs.com/en/articles/2106707-how-to-find-hs-codes-and-calculate-import-duties-taxes-and-landed-costs