Meaning
Classification systems used by customs authorities categorize all traded goods into a hierarchical structure for the purpose of assessing duties. The harmonized tariff schedule provides a ten digit code for every item, from raw materials to finished machinery. Each code corresponds to a specific tax rate and a set of import regulations.
Category Hierarchy
Codes are organized into sections and chapters based on the material composition and the function of the product. The first six digits are standard globally, while the final four are specific to the country of importation. Finding the correct classification requires a technical understanding of the product and the legal rules of the schedule.
Duty Rate
Taxes are calculated as a percentage of the value of the goods or as a flat fee per unit of measure. Some categories are eligible for lower rates under trade agreements or special government programs. The harmonized tariff schedule is the source of truth for these calculations.
Legal Application
Importers are legally responsible for choosing the correct code for their shipments. Using an incorrect classification leads to audits, penalties and the seizure of goods. Because the harmonized tariff schedule is updated twice a year, companies must constantly verify that their product database is current.
