The World Customs Organization (WCO) revisits its Harmonized Tariff Schedule (HTS) every five years. And whenever they do, changes are inevitable. It turns out that the next round of changes is scheduled to be effective as of January 1, 2022. Like it or not, new HTS codes are coming in 2022.
HTS codes do not mean much to the average consumer. They shouldn’t. The codes are used to classify imports and exports for duty and tariff purposes. Consumers ultimately carry the burden of duties and tariffs, but they don’t encounter HTS codes at checkout. The codes matter only to importers, exporters, Customs officials, and taxing authorities.
Hundreds of Participating Countries
The whole point of implementing the HTS in 1952 was to make global trade more efficient. Once implemented, the WCO began recruiting countries for participation. According to Vigilant Global Trade Services, a trade management provider based in Ohio, there are now hundreds of participating countries. The last estimate was somewhere around two hundred.
Most countries use the HST codes provided by the WCO as-is. But some countries, including the U.S., add more characters to the harmonized code for tracking purposes. For example, international HTS codes are six-digit codes. The U.S. adds four more digits that are applicable to exports only. The additional digits allow the U.S. Census Bureau to more accurately track exports.
Getting the Codes Right
It is imperative that both importers and exporters get the codes right. When exporting from the U.S., the correct codes tell Customs officials and the Census Bureau what is leaving the country. Goods classified with certain codes are subject to special permits as well, so Customs officials will check to make sure permits are in place when those codes are displayed on export paperwork.
Goods imported into the U.S. display HTS codes for purposes of assessing duties and tariffs. The codes contain information that helps Customs officials identify what is in a particular shipment. They then combine that information with additional data supplied by the importer to determine the taxes due.
In both cases, it is important to get the codes correct. Vigilant says that, at the very least, incorrect codes slow things down at the border. If Customs officials believe that incorrect codes have been intentionally reported, they could seize a shipment and hold it until a thorough investigation is completed. Prosecutions could follow.
Contracting with Third Parties
The most discouraging thing about the HTS is that it seems to get more complicated every year. With some two hundred participating countries and literally tens of thousands of goods being shipped around the world, keeping up with it all is challenging. Every time the WCO comes out with an updated HTS schedule, the potential for classification errors only increases.