January 11, 2022

Export Q & A: 2022 HS Codes

Q: I just watched the recorded webinar “What's New: 2017 Changes to the Harmonized System and Schedule B”. It mentioned these transformational changes are published every five years. What can you share with us now that it is 2022 and there is a new version of the HS?  

A: Every five years, the World Customs Organization (WCO) publishes amendments to the harmonized commodity description and coding system referred to as the “Harmonized System” (HS). The HS also known as the Brussels Tariff Nomenclature or “BTN”, originated in Belgium in 1988. The HS serves as the basis for customs tariffs and for the compilation of international trade statistics in 211 economies (of which 158 are contracting parties to the HS Convention). The Harmonized Tariff Schedule of the United States (HTS) was enacted by Congress and made effective on January 1, 1989, replacing the former Tariff Schedules of the United States.

The HS comprises a hierarchical structure for describing all goods in trade for duty, quota, and statistical purposes.  Changes to the HS are significant as they initiate a domino like reaction within the countries that utilize this coding system for Customs tariffs and international trade statistics.  The “HS 2022”, is the 7th edition of the HS nomenclature, is used worldwide for the uniform classification of goods traded internationally. It has been accepted by all stakeholders to the Harmonized System Convention. It entered into force on January 1, 2022.  The website of the WCO is World Customs Organization (wcoomd.org)

The WCO establishes the first six digits of the HS code. In groupings of two, these digits designate an HS chapter, HS heading, and HS subheading. Participating countries further enhance an HS code with additional digits beyond the six to customize local tariff schedules, satisfying national duty and statistical needs. The U.S. also uses the HS for export purposes, and it is referred to as “Schedule B”. That is the source of our export data we use to evaluate food markets around the world. 

HS 2022 Amendments:

Over 350 amendments were introduced for HS 2022. Changes to the HS are generally made on changes to “product streams” which can either be new and developing an impact on international trade, or changes in existing trade patterns which call for more of a focus on tracking. In some cases, HS codes are eliminated altogether as the products are no longer trading at their pervious volumes and do not justify the existence of their own code. They would be defaulting to “NESOI” for “not elsewhere specified or included, or “other” at the bottom of each string of codes. For 2022 adaption to current trade through the recognition of new product streams and addressing environmental and social issues of global concern are the major features of the HS 2022 amendments.

These amendments have been made to update the HS, taking into consideration public health and safety, protection of society and fight against terrorism, goods especially controlled under various conventions, food security and environment protection, technological progress, trade patterns, and clarification of the HS texts.

The amendments fall into the following high-level categories:

  • New product streams (e.g., e-waste, drones, novel tobacco and nicotine products, smartphones)
  • Technological advances (e.g., glass fibers, metal forming machinery)
  • Health and safety (e.g., diagnostic kits, placebos, clinical trial kits, cell cultures, cell therapy)
  • Human security (e.g., toxins, laboratory equipment)
  • Protection of society (e.g., radioactive materials, detonators)

The HS 2022 amendments are sorted by sectors. There were 77 amendments or 22% of the total in the agricultural sector. In addition, there were 58 to the chemical sector, 31 to the wood sector, 21 to the textile sector, 27 to the base metal sector, 63 to the machinery sector and 22 to the transport sector. And an additional 52 that apply to a variety of other sectors, comprising a total of 1,228 headings identified by a 4-digit code, and 5,612 subheadings identified by a 6-digit code.

The Emergence of Insect as a Protein Source

When evaluating the changes to the HS as published it is important to not only look at the HS code but also the table of contents, chapter titles and headings as well as the chapter notes which serve as disclaimers. When trying to classify products, those training to be customs brokers as well as customs are trained to locate the appropriate chapter as well. In the food industry this is quite important as there are a number of conditions and types of treatment for most products.

Think of any fruit for example. It could be classified as fresh, frozen, dried in bulk or dried and sweetened. It can also be mixed, candy coated, a flour or powder, or provisionally prepared. Those would all be different HS codes. The most notable development in the agricultural sector in the HS 2022 is the introduction as insect such as cricket more specifically which can be used as a source of protein. Edible insects were classified differently, and these new tables should create more harmonization between them to avoid confusion.

This industry has been steadily developing for years now and is considered a product stream that qualifies it as being classified on its own. That means it is being traded in significant amounts internationally and needs to be tracked more specifically not only for marketing but for food security purposes which is most often why there are HS changes in agriculture. There are several locations in the HS 2022 where you would look to find it, almost as many as with fruit.

Chapter 16 of the HS is for meats which have been prepared and preserved. Think of chicken strips or patties instead of a frozen whole chicken, or maple sausage instead of a side of pork. In HS 2022 it now says, “Chapter 16 Preparations of meat of fish, crustaceans, molluscs or other aquatic invertebrates, or of insects.” In the current HS there is only a minor reference to insects being edible or inedible. There is also a new note in 16 which states that all the meats including insects are not included if they have not been prepared or preserved in a meat fashion, but they will be found in other chapters of the HS.

Note 2 of 16 also now will say “Food preparations fall in this Chapter provided that they contain more than 20 % by weight of sausage, meat, meat offal, blood, insects, fish or crustaceans, molluscs or other aquatic invertebrates, or any combination thereof. In cases where the preparation contains two or more of the products mentioned above, it is classified in the heading of Chapter 16 corresponding to the component or components which predominate by weight. The provision also applies to HS 1806.90 (cocoa products) and HS 1904.10 (cereals). These provisions do not apply to the stuffed products of heading 19.02 (pasta) or to the preparations of heading 21.03 (sauces) or 21.04” (soups).

In bulk form it is also mentioned in Chapter 02 of the HS which is for unprepared/preserved meats. Chapter 04 of the HS is for dairy, bird’s eggs, natural honey, and animal products not elsewhere specified or included. HS 2022 now includes a note in 04 that says “For the purposes of heading 04.10, the term “insects” means edible non-living insects, whole or in parts, fresh, chilled, frozen, dried, smoked, salted or in brine, as well as flours and meals of insects, fit for human consumption. However, it does not cover edible non-living insects otherwise prepared or preserved.”

Also, in 04 insects will have their own HS code as the changes include ““04.10 Insects and other edible products of animal origin, not elsewhere specified or included; 0410.10 – Insects; 0410.90 - Other”. It formerly was all “other”. Chapter 05 is for animal products which cannot be consumed by humans and now will include a statement on ““(a) Non-living insects, unfit for human consumption (heading 05.11);” So by the end of the year those with an insect product or one with a significant amount of insect as an ingredient will be able to track the export data and learn about which countries are importing it from the U.S. in value and volume. 

Highlights of Other Changes to Agricultural Sector:

If you export one or more types of seafood from Chapter 03 of the HS (not prepared/preserved) it is a good idea to read through all the changes. Because of all the types of fish and crustaceans, the changes have historically been made the most in 03, for purposes of sustainability and food security. A few changes of note include Headings 03.05 to 03.08 which now do not cover flours, meals and pellets, fit for human consumption (this is a new heading 03.09)”. In addition, there are a number of changes with both tuna and pollack and a change to the heading text which now reads ““03.05 Fish, dried, salted or in brine; smoked fish, whether or not cooked before or during the smoking process”, the last part of the sentence being new in 2022.  The same change applies to HS 0306 for crustaceans, HS 0307 molluscs and HS 0308, other aquatic invertebrates.

There is also a change to the classification of yogurt in HS 04. The new note says, “For the purposes of heading 04.03, yogurt may be concentrated or flavored and may contain added sugar or other sweetening matter, fruit, nuts, cocoa, chocolate, spices, coffee or coffee extracts, plants, parts of plants, cereals or bakers’ wares, provided that any added substance is not used for the purpose of replacing, in whole or in part, any milk constituent, and the product retains the essential character of yogurt”. Yogurt also gets a new HS code 0403.20 and thusly a new Schedule B number as well.

Truffles and mushrooms, also all have new subheadings and Schedule B numbers. This was due to increased volumes in trade between nations. Those are all located under heading 0709. There was also expansion of the scope of subheading 0704.10 in order to group all varieties of broccoli in that subheading. Subheading 0802.90 has been subdivided as a result of the FAO proposal to provide separately in the HS for pine nuts in shell, and shelled, because of the increasing volume of trade in these products.

There have been several changes in HS 15 which is now listed as edible microbial fats and oils. Virgin olive oil and extra virgin olive oil have been restructured due to increased trade, and to align with definitions specified in the IOC trade standard for olive oils and olive pomace oils. There is a new subheading 1515.60 to provide separately in the HS for oils of microbial origin.

How to Prepare for HS 2022 Changes

Transformations in the HS present more work and challenges for importers than exporters. This is because duties and taxes and other tariff treatment are applied, so especially companies who import a long line of products there can be a lot of reorganizing to do. If your products have been affected by these changes, there are a number of steps to take in order to proceed with confidence. The WCO has published a table correlating changes between the 2022 and 2017 HS versions. Analyzing and comparing this information is important as it summarizes all of the amendments. You should be aware that not all modifications result in a new tariff heading; some amendments provide further clarification in the descriptions and nothing more.  

Keep in mind that the WCO tariff (HS) provides tariff numbers only at the 6-digit level and each country that is a party to the HS can add additional digits to their respective tariff schedules, and of course, duty rates are set by each country and not the WCO. For example, Mexico assigns duty rates at the 8-digit level to the HTSUS and Thailand uses an additional 5 digits to the HS classification for a total of 11. It is important to see how a country is implementing the amendments.

Begin Proactive Outreach: Ideally, this is done by to communicate HS codes with your international freight forwarder who should be made aware if there are any changes to the Schedule B number, they use to file the Electronic Export Information or “EEI” on your behalf or on behalf of your customer if the shipment is routed by them.

Proactively you would also want to share any changes with your customers who can alert their customs broker in their market. Experience shows that not all countries around the world will manage the changeover to HS 2022 at the same time, so there may be import delays in individual cases. While unlikely there may be an impact on the tariff treatment, but either way they should be filing their customs clearance entries with the correct code every time.  As far as rules of origin for Free Trade Agreements go, the previous rule of origin must continue to be used as it is unlikely any changes will be made to the existing FTA tariff elimination scheduled.