Industry Blog

The Fundamentals of Product Classification

Determining your product’s export classification is one of the most important steps toward export compliance. Understanding the differences behind Commodity Jurisdiction determinations and Commodity Classifications is central to creating effective business processes and achieving economic growth.

Traders around the world must pay attention to the process of product classification. This is because classifying your products correctly goes a long way in ensuring full compliance with trade regulations. In case your products are not classified accurately, you could face serious actions such as fines or penalties. Therefore, you must be familiar with the product classification methodology and ensure that you are adhering to the requirements prescribed by the authorities. This blog focuses on discussing the fundamentals of product classification.

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Basics of Product Classification

Before understanding the product classification process, it is important that traders know about the jurisdictions that they fall under. Although the UK has withdrawn from the EU and become a third country, traders based there are still covered by EU laws. This is because the Brexit transition period extends up to 31st December 2020. Therefore, all traders based in the UK and the EU are expected to adhere to the guidelines that have been issued under the EU Product Classification System.

This system categorises products on the basis of tariff codes. These tariff codes contain key details such as the duty rates, the protective measures under which the product is covered, external trade statistics, as well as import/export formalities. The EU Product Classification System has been developed in such a manner that it allows traders to access a range of information sets at one glance. Under the system, a product can be assigned a unique 10-digit code. This system includes three integrated components: The Harmonized System (HS), the Combined Nomenclature (CN), and the Integrated Tariff (TARIC). The first six digits are covered under HS, the next two under the CN, and the final two under TARIC.

Harmonized System

The Harmonized System was designed by the World Customs Organization and covers more than 5000 commodity groups. The HS includes four major categories, i.e., Sections, Chapters, Headings, and Sub-headings. The sections include a broader categorisation of products. Let us study the example of unfermented green tea. It comes under one of the sections under the HS is known as Vegetable Products. It is important to note that sections do not have any codes assigned to them. Under the Vegetable Products section, Coffee, Tea, Mate & Spices form a single chapter. Products that fall under this chapter are assigned the digits 09.

Further, the next two digits indicate the type of tea or coffee that is being exported/imported. For example, code 0902 indicates tea that is flavoured or unflavoured. The final two digits indicate the specific type of tea that is being traded. Thus, in the case of unfermented green tea, the HS code is 090210.

Combined Nomenclature and TARIC

The CN and TARIC systems help traders in categorising the products even further. Continuing the example of unfermented green tea, if the product is traded in immediate packings of a content not exceeding 3 kg, then the final 10-digit classification code would be 0902100000. This specific code helps traders, customs authorities, as well as auditors to verify the actual product that is being traded.

How We Can Help

Classifying your products correctly can prove to be a complex task. If traders are not sure about the categorisation, then it is advisable to seek help from industry specialists. At OCR we specialise in product classification software that could simplify the entire process. This software could help you with a range of activities such as export classification, import classification, as well as global trade management. Further information about the company and its key offerings is available here.