Shipping internationally is a complex process with many moving parts. Any trader that intends to get involved in such activities must make himself/herself familiar with various concepts in order to maintain compliance and keep controls predictable. In this article we explore 2 such critical concepts.
The HS code assigned to a product is the way Customs authorities will identify what the product is. Effectively, it is equivalent to the product description. This information is entered into every single Customs entry for inbound and outbound shipments.
The Harmonised System (HS) of codes for the categorization of goods is globally aligned to the 6-digit level (for example – 1234.56). In ASEAN, the HS code of goods is aligned to the 8-digit level (for example -1243.56.78). The ASEAN HTS book would be aligned to the US HTS book at the first 6 digits.
HS codes have a minimum of six digits. WCO’s HS code systems divide commodities into 5000 groups. These are further split into 99 chapters. These 5000 groups also span 21 sections. The whole tariff book is loosely arranged in a logical structure. HS classification rules published by the WCO, allow countries to implement the use of HS code systems in a uniform way.
Many Customs and other government agencies use HS codes for various purposes. It is utilized to monitor, review, and facilitate control over regulated commodities, tariffs, country of origin, trade policies, transport statistics, quota controls, cost tracking, freight statistics, and business analysis.
Unfortunately, traders cannot simply apply common sense to the text of HS code systems and guess at HS classifications. HS classification involves the use of 6 General Rules that must be completed in consecutive order. These rules are published by the World Customs Organization or WCO. When attempting to assign a HS code to a commodity, traders may sometimes find it difficult to do it, as the classification rules are difficult to use. The problem is made more complex due to differences in interpretation of tariff book text. Improper usage of the HS code could result in wrong tariffs being applied by Customs, which can increase the cost of imports to the customer exponentially. When it doubt it makes sense to reach out to Customs or to seek the help of an experience professional.
International Commercial Terms
The Incoterms can be said to be the world’s point of reference that defines responsibilities of contracted trade for the sale of goods across borders. It doesn’t matter if you’re preparing some freight for shipment and are in the process of labelling and packaging or getting ready, providing the relevant certificates at the port of origin or filling out your purchase order, the Incoterms rules have been created to advise you. The Incoterms rules offer general guidance to traders involved in the import and export of goods.
Here are some interesting facts about the various Incoterms:
Free On Board (FOB): This price is often used in FTA evaluations.
Free Carrier (FCA): Delivery point must be clearly defined when using this Incoterm as it can either be at the warehouse or a secondary agreed place.
FAS (Free Alongside Ship): This term is really only useful for bulk cargo shipped on chartered vessels.
EXW (Ex Works): This term puts the highest responsibility on the buyer.
DDP (Delivered Duty Paid): This term put the highest responsibility on the buyer.
DAP (Delivered At Place): A good term to use if the buyer is going to act as importer of record, but the seller has to arrange door step delivery.
DPU (Delivered At Place Unloaded): This is a new term introduced in the 2020 version of the Incoterms.
CPT (Carriage Paid To): Under this term the seller has to deliver goods to a carrier or a nominated person.
CFR (Cost and Freight): CFR or Cost and Freight means that the seller is responsible for delivering suitably packed goods, clearing them for export, safely loading them on the ship at the agreed shipping port, and pre-paying the freight charges mention in the contract.
CIP (Carriage and Insurance Paid To): Under the 2020 version, the seller must get the highest insurance level in the Institute Cargo Clauses (A) or (Air).
CIF (Cost, Insurance, and Freight):
CIF Incoterms 2020 states that the seller delivers goods on board or obtain the goods already so delivered. This term is important, because it is often used in many countries as the basis for Customs evaluation.