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The World Customs Organizations (WCO) created the harmonized system after World War II, in order to create a standardized classification of global commodities. The general concept was to create a system where all goods that are traded globally, are classified uniformly across countries. This in turn, makes it easier for countries to trade with one another, and allows countries to apply applicable duty rates to the products that they are importing. HS codes are assigned to all products worldwide, to create this uniformity.
The harmonized tariff system is comprised of 10 digit codes. The first 6 digits of the tariff are the same for all countries worldwide. The last 4 digits are specific to individual countries. The 10 digits are comprised of the following parts:
Example Harmonized Tariff Code: 8421.31.90.10 – Air filter for a motorized vehicle:
84 – Chapter Level
21 – Header Level
31 – Sub header Level
90 – Canadian specific classification number (The duty rate for products coming into Canada is determined from this number. This is the 7th and 8th digit of the 10 digit classification number
10 – These are specific for Canadian statistical purposes. The government uses this trade data.
The best option here is to find a similar description of the commodity in Recap as a starting point. You can also use the ctrl find function and search by the commodity key word in the customs tariff document. Also, keep in mind that the higher the chapter number, the more complicated the commodity is. If the commodity has many component parts, it’s likely a higher chapter number. [1] [2] Use the footnotes indicated below, to access the customs tariff, and start your search on getting to the right chapter header.
Don’t classify your commodity until you have read the notes detailed at the beginning of the chapter you are in. These notes take precedent over the other parts of the tariff. For example: You may think that you can classify a pet toy in chapter 95. Everything can look fine until you read the last note in the chapter!! Although everything else lines up, the notes trump all!
Once you have identified the first 2 digits of the tariff classification, you need to find the next 2 digits. The header looks like the highlighted part below. There are no dashes next to it and it will have the full four digits indicated (84.21).
Once you have identified the first 4 digits of the tariff classification, you need to find the next 2 digits. The sub header looks like the highlighted part below. Cream separators, clothes dryers and other, all pertain to 84.21, but are distinctly different.
Once you have identified the first 6 digits of the tariff classification, you need to find the next 2 digits.
Once you have identified the first 8 digits of the tariff classification, you need to find the next 2 digits.
To identify the correct duty rate you need two things. The HS code for the product, and the products country of origin. You need to start by looking at the link below to determine which trade agreements apply for the country of origin of the specific commodity you are classifying.[3] Once you have determined this, you look at the right hand side of the customs tariff to decide what duty rate is applied. For example, if the following example is part of one of the highlighted trade agreements the duty rate is free. Otherwise the importer has to pay 6% duty.
Hurray! You’ve learned the basics on how to classify an item. Now just remember…there are exceptions. Don’t worry we’ll learn about some of those in the next lesson.
Link to full customs tariff: http://www.cbsa-asfc.gc.ca/trade-commerce/tariff-tarif/2015/01-99/01-99-t2015-2-eng.pdf
Link to chapter by chapter customs tariff: http://www.cbsa-asfc.gc.ca/trade-commerce/tariff-tarif/2015/html/tblmod-2-eng.html
Link to determine trade agreement application: http://www.cbsa-asfc.gc.ca/trade-commerce/tariff-tarif/2015/01-99/countries-pays-1-eng.pdf
[1] Link to chapter by chapter customs tariff: http://www.cbsa-asfc.gc.ca/trade-commerce/tariff-tarif/2015/html/tblmod-2-eng.html
[2] Link to full customs tariff: http://www.cbsa-asfc.gc.ca/trade-commerce/tariff-tarif/2015/01-99/01-99-t2015-2-eng.pdf
[3] Link to determine trade agreement application: http://www.cbsa-asfc.gc.ca/trade-commerce/tariff-tarif/2015/01-99/countries-pays-1-eng.pdf
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