With the volume of goods that cross our national borders and the onset of potential new tariffs on those items, the time has come to improve border customs. It has become imperative to link the ordering process between POs (EDI ANSI X12 850) and Invoices (EDI ANSI X12 810) into a fully integrated solution for companies at the US border. Assuming most of you reading our blogs are familiar with ECGrid and already know the value of EDI, you are probably already benefiting from automated data exchange and fewer errors. However, as compliance and border activities change with new tariffs, we believe the standard Harmonized System codes will play a key role. Let’s take a closer look at the tariff trifecta: Harmonized System Codes, EDI, and QR Codes.
What are Harmonized System (HS) Codes?
Harmonized System codes are internationally standardized numerical codes used to classify traded goods for customs and tariff purposes. Developed and maintained by the World Customs Organization (WCO), the HS system is widely used by customs authorities, businesses, and governments worldwide to ensure uniformity in the classification of products.
Key Features of Harmonized System Codes
1. Structure
HS codes typically have 6 digits:
- First 2 digits: Identify the chapter (broad category of goods).
- Next 2 digits: Define the heading (more specific category).
- Final 2 digits: Provide the subheading (specific product classification).
Example: 8703.21 = Passenger motor vehicles with an engine capacity not exceeding 1,500cc.
2. Extensibility of HS Codes
Countries can extend the HS code by adding more digits for greater specificity. For example, a country may use 8-digit or 10-digit codes to account for domestic requirements.
3. The Universality of the Standard
The HS system covers over 98% of goods traded globally. It is used in over 200 countries and economies today.
Typical Uses of Harmonized System Codes
- Tariff Calculation: Determine the applicable import or export duties based on the classification of goods.
- Trade Agreements: Facilitate preferential tariffs under free trade agreements (FTAs).
- Customs Declarations: Ensure accurate and consistent descriptions of goods in import/export documentation.
- Statistical Analysis: Provide governments with data for economic planning and trade policy.
- Regulatory Compliance: Identify products subject to specific regulations or restrictions, such as quotas or safety standards.
Harmonizing product codes across the supply chain with your suppliers and partners is critical and represents the starting point for custom clearance and tariff management.
How Do Harmonized System Codes Work with EDI?
The ANSI X12 standard supports multiple EDI messages that incorporate Harmonized System codes for classifying goods in international trade. These messages are used for customs declarations, freight management, and other trade-related processes. Below are the ANSI X12 EDI messages where HS codes are typically used:
1. EDI 850 Purchase Order
Purpose: Communicates purchase order details from a buyer to a supplier.
HS Code Usage: Describes the classification of products being ordered to ensure they meet international trade requirements.
2. EDI 856 Advance Ship Notice (ASN)
Purpose: Provides shipment details from the supplier to the buyer and customs authorities.
HS Code Usage: Includes HS codes for goods in transit, helping customs prepare for clearance processes before the shipment arrives.
3. EDI 810 Invoice
Purpose: Sends the billing details from the supplier to the buyer.
HS Code Usage: Specifies HS codes for the invoiced items to aid in tariff calculations and compliance checks during customs clearance.
4. EDI 940 Warehouse Shipping Order
Purpose: Directs a warehouse to ship goods.
HS Code Usage: Includes HS codes for items to streamline customs and shipping documentation.
5. EDI 945 Warehouse Shipping Advice
Purpose: Provides confirmation of the shipment.
HS Code Usage: Lists HS codes to confirm product classifications as they leave the warehouse.
6. EDI 110 Air Freight Details and Invoice
Purpose: Communicates shipment details and costs for air freight.
HS Code Usage: Includes HS codes to classify items for customs and tariff purposes in air cargo shipments.
7. EDI 309 Customs Manifest
Purpose: Communicates shipment details to customs authorities.
HS Code Usage: Essential for classifying goods accurately to ensure proper duties and taxes are applied.
8. EDI 315 Status Details (Ocean)
Purpose: Provides updates on the status of an ocean shipment.
HS Code Usage: Used to classify goods and track their movement through customs.
9. EDI 750 Response to Request for Routing
Purpose: Responds to a request for routing instructions.
HS Code Usage: Helps determine the best shipping routes based on customs and tariff classifications.
10. EDI 601 Customs Export Shipment Information
Purpose: Used to transmit export shipment details to customs authorities.
HS Code Usage: Includes HS codes to ensure proper documentation and compliance with export regulations.
Placement of Harmonized System Codes in the ANSI X12 Message Structure
HS codes are often included in the Product/Item Description Segment (PID) or related item-level detail segments. They help customs systems, freight forwarders, and trading partners quickly identify and classify goods.
By incorporating HS codes, ANSI X12 messages ensure accuracy in product classification, efficient customs clearance, and compliance with global trade regulations.
EDIFACT also uses HS codes. The typical use cases are the same as in X12 and related to the following messages, among others:
CUSDEC (Customs Declaration Message)
CUSRES (Customs Response Message)
INVOIC (Invoice Message)
PREADV (Pre-Arrival Notification)
IFTMIN (Instruction for Transport Message)
CUSCAR (Customs Cargo Report)
DESADV (Dispatch Advice)
Segments Where HS Codes Are Typically Included
- TAX Segment: Specifies tax or duty information based on the HS code classification.
- FTX Segment: Provides free-text descriptions of goods, often including HS codes for clarity.
- GID Segment: Groups item details, including HS codes, to link classification with quantity and weight.
QR Codes and Managing Customs with Harmonized System Codes
HS codes are similar to Global Trade Identification Numbers (GTINs). GTINs (also known as UPCs) are product-specific codes often used to create bar codes, the most common scannable items today in procurement and shipment activities. In some ways, GTINS could be refactored to support trade activity, but the information contained in the bar code is far less than what can be put into a QR code.
(https://www.premierelectronics.com/blog/barcode-types-identificaton-understanding)
Bar Codes can represent up to 48 characters, while QR codes can hold over 7000 characters, which can help manage imports and tariffs better. Some of the typical data which can be stored are:
- URLs
- Payment information
- Shipping Data
Data capacity isn’t the only benefit of the QR code. Other efficiencies help scale activities for busy ports and millions of shipments annually. Here are a few:
- More compact and can hold more information in a smaller space.
- Less errors in harsh conditions where physical damage is possible.
- Can be used in multiple initiatives, including marketing, e-commerce, and logistics.
- Readability from multiple angles for quicker scanning.
As uncertainty arises with customs and tariffs, it is never too soon to start thinking about solutions. Based on the current technology options and existing productive implementation in EDI, we seem to have a great place to start. To that end, HS codes, EDI, and QR codes will work together to make tariff compliance seamless by automating the classification and processing of goods and ensuring accuracy and speed in customs declarations.
It can be this simple – EDI transmits HS code data directly to customs systems, while QR codes link shipments to their digital records for instant verification and payment tracking. This integration eliminates manual errors, reduces delays, and simplifies adherence to complex trade regulations, making tariff compliance practically effortless.
Contact the experts at ECGrid for any EDI-related questions.
You may also be interested in:
EDI and US Customs and Border Compliance
5 Ways to Prepare Your Supply Chain and Business for Potential Tariffs
Can QR Codes and EDI Streamline Tariff Management with Customs and Border Patrol