HS codes are standardized nomenclatures containing codes to classify traded products usually at the national or regional level. As it has been highlighted above, the comprehending and appropriate application of HS codes are crucial in the assessment of import/export trade information. This article is a comprehensive guide to understanding the HS codes and how it is feasible to use the codes in the analysis of trade.
What Are HS Codes?
HS codes are a ten digits numeric classification system was created and is updated by the WCO – World Customs Organization. It was launched in 1988 and, as of now, has been implemented in over two hundred countries across the world. The system is designed to provide as much standardization of commodities classifications all over the globe so as to support world trade.
Traded goods get a 6 digit HS code that is used for identification of the product that is being traded in the global market. The code structure starts broad and gets more specific with each additional digit:The code structure starts broad and gets more specific with each additional digit:
- 2 digit chapters (01-99) – Primary divisions such as ‘Live animals’, ‘Meat and edible meat offal’, ‘Vegetable products’, ‘Preparations of vegetables’, ‘Nuts’, ‘Fish and crustaceans’, ‘Coffee, tea, cocoa’, ’Spice and condiments’, ‘Vegetable oils and oleaginous fruits’, ‘Animal oils and fats’, ‘Prepared meals and seasonings’, ‘
- Chapter codes (0101, 0201 etc. ) – subcategories under each chapter code
- 6 digit items (0101. 10, 0201. 20, etc. ) – First level below the subheadings, which identifies specific varieties of the product type.
There are provisions to allow countries to have more than 6 digits for national needs and to apply tariffs down to that level of detail. For instance, India extends the string by two more digits while the US extends beyond the six digits for HS codes by four digits.
HS Codes: Their Relevance in Trade Analysis.
1. Standardize Product Classification
The primary advantage that HS codes offer is that they offer product classification which is consistent around the globe. Before the introduction of HS codes, countries used different systems to classify traded goods. HS implemented a standard that all modern players worldwide use today. This makes cross-country product matching as well as analysis easier.
2. Track Specific Products
Six-digits are specific enough to provide identification of a particular type of a product such as Grapefruit (HS 080540) or Smart Watches (HS 910491). This makes it possible to accurately monitor such categories as part of the trade flows.
3. Incorporation of Right Taxes and Regulation
Import tariffs, restrictions, exemptions etc are tied to HS codes making sure that the right HS codes are applied apply the correct rules. If codes were ambiguous, it would be easier for importers to declare products incorrectly in a bid to pay low duties.
4. Analyze Trend & Statistics
General trade statistics such as determining growth categories, changes in the market and the effects of policies require a clear cataloging of goods. HS codes drive most trade figures since they facilitate the tracing of individual products across different years.
5. Comparing Data Sources
Trade data is sourced from various offices and ministries such as customs, ports, and banks of each country. Achieving such alignments would also be rather difficult if there was no similar product classification such as HS codes.
Analyzing the Use of HS Codes in Trade Analysis Since their inception HS codes have been applied in the following ways in trade analysis.
Trade analysts and managers can leverage HS codes in multiple ways:
- Identify shift of import and export of particular product over years between nations. For instance, examining the changes and shifts in the imports of EVs (HS code 8703) after policy adjustments.
- Classification hierarchies can be used for a more general view of the trends. For instance, comparing growth in all electronics as a single product category rather than analyzing individual products.
- Find the new source and destination locations based on HS coded customs data. Monitor if Indonesia is gaining China’s market share on textile export categories.
- Assess effects of trade policies or change in tariffs for particular product categories or more general segments
- Define a country’s product mix by comparing it to other countries’. For instance, looking at the exports of biotechnology products in Singapore vs Ireland.
Sensitivity to HS Code classification is therefore in essence the foundation of all sound trade data analysis for policy-making and business strategy. Trade professionals should ensure that they make it a point to update themselves with the prevailing HS edition and codes.
