Tariff classifications play a critical role in the flow of goods across borders, serving as a cornerstone of international trade. Every product that crosses national borders is assigned a specific classification that determines how it will be taxed and regulated under each country’s tariff schedule. For companies engaged in global trade, understanding how tariff classifications work is essential to comply with customer requirements. 

Ultimately, a clear comprehension of tariff classifications also helps maintain compliance, manage costs, and streamline the shipping process to ensure uninterrupted operations. This article demystifies tariff determinations so that well-informed companies can engage in smoother trade operations. 

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Tariff classifications and the Harmonised System (HS) 

A tariff classification is a system used to categorise goods traded internationally according to a standardised code, which determines the taxes, duties, and regulatory requirements that apply to them. These classifications are based on the Harmonised System (HS), an internationally recognised system of names and numbers developed by the World Customs Organisation (WCO) that is used by over 200 countries worldwide. 

Let’s decode — what is an HS code? 

The Harmonised System classifies all products into categories. These categories are signified by a six-digit code called the HS code. Every product has an HS code that will be used by customs officials across the world to identify products and apply the appropriate tariffs in a globally standardised way. 

Each HS code consists of: 

• Two digits for the chapter, which broadly categorises the product (e.g. 01 for live animals) 
• The next two digits represent the heading, which defines the product category in more detail (e.g. 01.01 for horses)
• The final two digits represent the subheading, which further specifies a particular product type (e.g. 01.01.21 for thoroughbred horses) 

It’s worth noting that some countries extend these codes beyond the standard six digits to eight or ten digits for even more specific product classifications. For instance, the European Union uses an eight-digit Combined Nomenclature (CN) code, and the United States has the Harmonised Tariff Schedule (HTS), which uses ten-digit codes. 

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What are tariff classifications used for in international trade? 

The accurate tariff classification of goods is essential for businesses seeking to expand into global regions and markets, as they impact various touch points in the product’s journey from one point to another. Tariff classifications affect the following aspects of import and export: 

• Duty rates: Customs duties are calculated according to the HS code assigned to a product. Misclassification of a product can result in paying higher tariffs or incurring penalties for underpayment
• Regulatory compliance: Some products, including pharmaceuticals and electronics, require specific certifications or permits based on their classification. Incorrect classification can lead to non-compliance, significant operational delays, and heavy fines
• Trade agreements and tariff reductions: Certain products may qualify for reduced tariffs under free trade agreements (FTAs), but proper classification is required to claim these preferential tariffs 

Understanding tariff schedules and properly classifying goods can save a considerable amount in business costs and administrative headaches, though it is a significant effort to undertake alone.

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Common challenges and best practices regarding tariff classification

Ascertaining the correct tariff classification can be challenging, especially for products that could be classified under multiple categories. Here are some insightful tips to ensure that you are classifying your goods correctly: 

1. Consider the product’s composition first. Goods made from more than one material are often classified by the primary material or function. For example, a leather watch strap would be classified differently from a plastic one, even if they both serve the same purpose. 

2. Keep up to date with the latest changes in tariff schedules. The WCO periodically updates the HS system, and national tariff schedules are also subject to change. 

3. Maintain accurate and detailed records. Keeping an updated database of product classifications along with supporting documentation is an administrative investment, but it can streamline future shipments and maintain operational consistency. 

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Steps to take to determine the correct tariff classification

Accurately determining the correct tariff classification for the goods you want to ship internationally depends on the specifications of the product itself. Nevertheless, here is a generalised step-by-step approach to tariff classification: 

1. Identify the product: Products may be classified by material, purpose, or design, so understanding what the product is, what it’s made of, and its intended purpose helps narrow down the appropriate HS code.

2. Find the right HS code: The official Harmonised System database is the most reliable resource for referencing the proper code. 

3. Consult a trade specialist. For complex goods that defy easy classification, consulting with an expert can prevent misclassification — especially for products that are subject to high duties or strict regulatory requirements. 

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Import, transport, and export complex goods with confidence using a tech-driven compliance solution 

re:TRADE specialises in simplifying the process of moving complex goods across borders, from pharmaceutical technology and robotics to art. If it has a battery, we know how to move it while you rest assured that your goods have been classified in full compliance with the relevant tariff schedule. 

Partnering with a trade specialist — especially one that simplifies trade intricacies with a user-friendly, tech-backed portal — is a robust strategy for ensuring that your goods are correctly classified and your trade operations remain undisturbed.