Customs Clearance: Save Money with Correct HS Codes

Global freight forwarder Forceget shares why having correct HS codes is crucial for customs clearance in this guest article.

In the world of international trade, customs clearance is a crucial aspect of the process. Every shipment that crosses international borders must undergo customs clearance, and the correct classification of goods is paramount.

In this article, we will delve into the importance of using accurate Harmonized System (HS) codes and how they can save you money in the customs clearance process.

What are HS Codes?

Before we dive into the cost-saving aspects, let's understand what HS codes are. HS codes, short for Harmonized System codes, are a globally recognized classification system for products. They are used to standardize the classification of goods to streamline international trade and customs procedures.

Each product is assigned a unique HS code, consisting of a series of numbers and sometimes letters.

Importance of Customs Clearance in International Trade

Customs clearance holds significant importance for several compelling reasons. This process serves as a critical checkpoint to guarantee that goods are accurately declared and correctly valued. Furthermore, it ensures that all relevant duties and taxes are duly paid, contributing to the safeguarding of the government's essential tax revenue and thwarting illicit activities like smuggling.

Additionally, customs clearance plays a pivotal role in protecting consumers and the environment. Through rigorous inspection of goods, customs officials can verify that they conform to safety and environmental standards. This proactive approach helps in maintaining the well-being of consumers and the preservation of the environment, upholding the quality and safety of products entering a country's market.

Role of HS Codes in Customs Clearance

HS codes play several roles in customs clearance. Check out the most recent HS code list to learn more about how items are classified.

1) Simplifying Customs Procedures

HS codes simplify the customs clearance process. When a shipment arrives at a port, customs officials refer to the HS code to determine the applicable duties and taxes. Using the correct HS code ensures that your goods are processed smoothly through customs without unnecessary delays.

2) Accurate Duty Assessment

Utilizing the appropriate HS code is not only essential but also ensures that you accurately calculate and remit the precise amount of duty and tax owed. When an incorrect code is employed, it can lead to an overpayment, potentially exerting a substantial impact on your overall expenses. This emphasizes the significance of accurate HS code classification to optimize cost efficiency and compliance with customs regulations.

3) Minimizing the Risk of Delays

Incorrect HS codes can lead to delays as customs officials may need to inspect and verify the shipment. This not only consumes time but also increases costs associated with storage and demurrage charges.

Consequences of Using Incorrect HS Codes

Incorrect HS codes can harm businesses in several ways:

• Incorrect duties and taxes: Using the wrong HS code can result in overpayment or underpayment of duties and taxes.
• Customs clearance delays: Incorrect HS codes can cause delays in customs clearance, potentially leading to lost sales and increased expenses.
• Penalties: In certain instances, businesses may face penalties for using inaccurate HS codes.

Save Money with Accurate HS Codes

Accurate HS codes offer several financial advantages for businesses:

• Avoiding incorrect duties and taxes: Correct codes ensure the accurate payment of duties and taxes, saving businesses substantial amounts, especially for high-value imports and exports.
• Preventing customs clearance delays: Proper codes contribute to efficient customs clearance, reducing costs and enhancing business efficiency.
• Avoiding penalties: Businesses using the correct HS codes can steer clear of penalties associated with code misuse.

Here's How Incorrect HS Codes Cost Businesses

We're sharing three short case studies to highlight why having correct HS codes is important.

Case Study 1: Overpayment of Duties

A business imports laptops but misuses the HS code for desktop computers, leading to an overpayment of duties.

This happens because HS codes are used by customs authorities to determine the applicable duties and taxes for imported goods. The HS code for desktop computers is higher than the HS code for laptops, which means that the business is charged a higher duty on its laptops.

Case Study 2: Customs Clearance Delays

A business importing clothing mistakenly uses the wrong HS code, causing delays in customs clearance.

This occurs because customs authorities rely on HS codes for the identification and categorization of imported goods. If a business employs an incorrect HS code, customs authorities may find it necessary to conduct a more thorough inspection of the goods to ascertain the accurate HS code. As a consequence, this can result in customs clearance delays.

Case Study 3: Penalties

A business exporting medical devices faces penalties due to the use of incorrect HS codes, impacting its bottom line.

This occurs because HS codes are the global standard for customs authorities to identify and evaluate goods, calculate duties and taxes, and enforce trade regulations. In the United States, the CBP (U.S. Customs and Border Protection) enforces trade regulations, collects duties and taxes, and can penalize businesses for trade regulation violations, including incorrect HS code usage.

How to Ensure Correct HS Codes are Used

Consulting with a Customs Broker: Engaging a licensed customs broker is a prudent choice for businesses involved in customs clearance and international trade. These professionals possess expertise in the intricacies of trade-related matters. Customs brokers can assist businesses in identifying the precise HS codes applicable to their goods and ensuring the completeness and accuracy of their customs documentation.

Utilizing an HS Code Search Tool: Accessible both online and in libraries, various HS code search tools are at businesses' disposal. These tools simplify the process of discovering the appropriate HS codes for their goods by allowing searches based on keywords, product descriptions, or other relevant criteria. These user-friendly resources facilitate the accurate classification of products.

Staying up-to-date on HS code changes: HS codes undergo regular updates to align with evolving global trade patterns and accommodate new products. Businesses must maintain awareness of these changes to guarantee the correct utilization of HS codes for their goods. Staying informed about updates is crucial for trade compliance and precision in customs procedures.

Proper Documentation is Key

HS codes play an important role in international trade. Businesses that employ the right HS codes can sidestep costly delays and penalties, ensuring the accurate payment of duties and taxes.

A company that is well-versed in global logistics, such as Forceget, can help you ensure accuracy through every step of your supply chain.