International trade is a dynamic tool to increase market share, increase profitability, or lower manufacturing costs for businesses large and small. International trade regimes and free trade agreements facilitate the movement of goods and services across borders, but all trade accords, multilateral or national, require documentation. Getting that documentation right – the key, internationally recognized codes – can be a force multiplier for exporters and importers.
In our last blog, Exporting 101: The differences between HS Codes and Schedule Bs, we explained and defined Harmonized System (HS) Codes and the Census Bureau’s Schedule B Codes. To recap:
The HS is an internationally standardized nomenclature for the description, classification, and coding of goods, and is used by more than 200 countries and economies as a basis for their Customs tariffs and for the collection of international trade statistics. Every member nation of the World Customs Organization (WCO) has some form of HS Code listing. When goods enter the United States, the US Customs and Border Protection (CBP) uses the Harmonized Tariff Schedule of the United States (HTSUS) to assess tariffs.
The Schedule B is, in a sense, a subset; a distinctive list of product codes that is maintained by the US Census Bureau, used to track the amount and type of goods that are being exported from the U.S, based on headings and subheadings from the HS and is critical to export documentation.1
Why is Understanding the Codes Important?
Inside the international regime of HS codes, there are approximately 5,300 core commodity groups. Countries then take that list and break commodities into more granular items. As an example, the HTSUS expands that commodity list by breaking down commodity groups resulting in 19,000 codes, whereas only 9,000 codes are found in Schedule B (it being a less granular list).2 Understanding the two regimes and proactively classifying products, goods, and services under the two systems, can drive effective pricing strategies, improve documentation accuracy, comply with US and importing nations’ regulatory requirements and save time for exporters doing business in competitive markets.
A major advantage to knowing the HS Code classification directly relates to Free Trade Agreements (FTAs). Free Trade Agreements are dependent on the correct HS code in many cases. Companies that have a firm grasp of HS code identification are more likely to benefit from preferential trade treatment, possibly reducing or even eliminating duties.
The key to exporting is to know how your good is classified in the market to which it is being exported, not just your home market. Each country has statistical data it assigns to the imports it brings into its country, so the HS Code is likely to be different than the US applies through the HTSUS. Errors create delays and bottlenecks leading to increased costs and lost export opportunities.
As for the Schedule B number, it is important to know how your goods are classified as they leave the US market for foreign destinations. Correctly classifying your product and then uploading it into the Electronic Export Information (EEI) under the Automated Export System (AES) is essential if the items included in that Schedule B number exceed $2500 or require a license, with few exceptions.
Consequences of Misclassification:
An incorrect HS Code and/or Schedule B number can prove to be a painful mistake.
On the HS Code side of the equation, the goods can be held up at the importing nation’s port or the shipment can be rejected. An incorrect duty assignment can lead to additional charges after the goods enter that market. A common mistake is for American exporters to use U.S. codes. Remember, the HTSUS system is for goods entering the United States. Each country has its own set of codes beyond the 6-digit HS Code System. Applying the HTSUS code to a shipment going to another country can be a costly mistake. Using the wrong codes can also erode the seller’s standing when their goods next enter that customs authority in terms of audits, additional inspections, and the like.
Schedule B numbers are required by the United States on articles being exported. Ensuring that the goods are properly classified will assist the exporter in getting their goods to market. The customs process can prove easier, as delays don’t tend to occur. Determining the Schedule B for the entire shipment will determine whether you have to file an EEI/AES and secure an AES Proof of Filing and Internal Transaction Number (ITN) that should be affixed to the export documents. Finally, if the EEI/AES is done incorrectly, including incorrect classification, or filing does not occur when it is required, a large fine per transaction can be imposed by the US government and could result in other penalties including but not limited to being barred from exporting.
Investing the time and resources to correctly understand the significance of and the ability to accurately classify your product against the Harmonized System and Schedule B can only benefit your international trade activities.
1 Schedule B number / Export number (cbp.gov)
2 Exporting With Import Classification Numbers (census.gov)