So you want to import products that you have sourced or manufactured abroad into the United States. Small businesses and major companies alike often take advantage of lower production, labor, and material costs abroad. Unfortunately, inexperienced importers who do not employ the services of a sourcing agent and rely on an un-reputable Chinese export company may not consider the true cost of manufacturing and importing their product until it is too late.
The cost that buyers should consider is the landed cost, which includes the cost of the products themselves, freight costs, as well as any tariffs or duties that go along with importing those products into the U.S. This leaves us with the question, what taxes and duties are associated with importing my product? To answer this question we have to look at the Harmonized System (HS) and Harmonized Tariff Schedule (HTS), and HS Codes, Schedule B and some other classification terms. Now, I know that sounds scary but Rad Sourcing is able to help you make sense of it. I can not stress the importance of understanding these codes and systems enough because too often businesses are unprepared. Furthermore, if your products are not properly classified your company, you may be subject to legal penalties or you can have your goods seized at customs, which can single handedly sink your business.
With that necessity in mind let us continue but please remember we are just going over the basics and this article does not replace the guidance and help from a good product sourcing agent. HS and HTS codes certainly feel complex and convoluted at first which is why we have prepared this simple guide to understanding them. This article will help you understand both systems, how to apply them, and why they are important.
What Is The International Harmonized System (HS)The HS is a commodity-classification system, which was developed in 1988 and is maintained by the World Customs Organization, and is also an independent government body. It is one of the internationally accepted systems used to classify traded products that uses both names and numbers. This code is used by all countries to globally classify all imported and exported goods. Now how does this system apply to you? Well, whenever you are exporting or importing a product overseas, it is a legal requirement to have the six digit HS code assigned to your product. This applies to any products, it doesn’t matter if you are shipping toys, electronics, or jeans.
This code is split into three groups of two, in what is often referred to as the HS code list: The first two state the category of the product, the second two define the classification and the third specifies the product in more detail. For example, the first two numbers may say that your product is cutlery, the next two may say it is a spoon, and the final two might say it is a stainless steel spoon. Some countries enhance this system further enhanced by adding Schedule B or GHS numbers on to the existing ones.
In the United States, products are assigned a supplementary four digit code, known as the Schedule B number, which helps classify them further. This along with the HS code means all products imported into the U.S. or exported from it have a 10 digit code. Schedule B numbers are used by the US Census Bureau, Commerce Department, and Foreign Trade Division. Then the data they collect is used to create US export statistics. Now here is the most important part for you, To check what your Schedule B number is, you can use an HS Code Finder, like this free online search tool. This can entail a lot of work and research depending on the product so alternatively you can speak to a fulfillment provider who should be able to find the information for you.
Another important regulatory point that we would be remiss not to mention is, in the US, when you are shipping inventory that is valued over $2500 or the item has to be licensed, you are required to report the schedule B number to the Automated Export System. There are additional requirements governing the shipment of chemicals that runs concurrently to the GS System, which is called the Globally Harmonized System of Classification and Labelling of Chemicals (GHS).
Taxes, Tariffs and Duties
Now you are probably wondering how does this system affect my products, and my bottom line. Well, tariffs and duties are generally imposed on imports and exports based on their classification code. This means you have to understand this system well enough to find out what the taxes you will owe on your products at the port. Furthermore, it is essential not to assign the wrong code to your shipment. Making this mistake can be incredibly costly as you may end up paying higher duties, as well as be subject to fees, delays, suspension of your import privileges, or you may even have your shipment seized.
It Is A Complex System
Okay, do not assign the wrong code to my products, that sounds simple enough. Even if I do have to figure which 10 digit code it is classified by, I can totally do that. Well you can, but it is important to understand that the HS code alone is organized into 21 sections, with 96 chapters in each section, and each chapter includes roughly 5,000 headings and subheadings. This means things can get incredibly detailed, very fast because of the vast amount of products that must be classified under the HS. Classification is not done simply by the product, rather it is determined by a plethora of factors, including use, form, material, and composition. For example, carrots depending on whether or not they are fresh or frozen are given two distinct codes.
Resources To Help Navigate the HS SystemLuckily, there are a few helpful resources online to help you determine which HS code corresponds with your product:
- The US Census Bureau Schedule B Search Engine
- The U.S Customs Rulings Online Search Engine
- Export Training Videos from US Census Bureau
The Harmonized Tariff Code Schedule (HTS) An American AdditionThe HTS is a 10-digit classification system that is only used when importing goods into the United States. The first six numbers of the code are drawn from the international HS code and then the U.S. adds another four digits for further classification. Then to further complicate things, U.S. Exporters must also use Schedule B codes, which again are 10-digit subset of HTS codes. As we have already mentioned failure to properly classify your products, is effectively committing fraud which can prove to be very costly so feel free to reach out for help.
You can access all sections of the Harmonized Tariff Schedule here and you can search the HTS here.
If you have any other questions about sourcing, manufacturing or shipping your products from China or anywhere else abroad please reach out to us at RadSourcing.com or email me directly at [email protected].