<p>On the 23rd of March 2021, the shipping world was presented with a rather absorbing image of the Evergreen megaship &ldquo;<a href="https://en.wikipedia.org/wiki/Ever_Given" target="_blank" rel="noopener">Ever Given</a>&rdquo; stranded in the middle of the Suez Canal. It&rsquo;s not every day that you come across a 220,000 tonne ship lose course and get beached. At first it seemed like an episode of Fast &amp; Furious gone bad, a captain not particularly great at drifting their gear. But there&rsquo;s more at play here. It seems like a number of different factors came together to bring us where we are today. Murphy&rsquo;s Law and reverse serendipity!</p>
<figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center">
<div><img style="width: auto; height: auto;" src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/605dac5f5de02876e6ee31bb_210325111828-01-satellite-image-suez-canal-container-ship-exlarge-169.jpeg" alt="Satellite Images of the Evergiven blocking the Suez Canal" width="auto" height="auto" loading="lazy"></div>
<figcaption>Satellite Images of the Evergiven blocking the Suez Canal</figcaption>
</figure>
<p>&zwj;<br>The ship has now been blocking two-way traffic on the Suez for the last 3 days, with reports that it <a href="https://edition.cnn.com/2021/03/25/middleeast/suez-canal-ship-blockage-intl-hnk/index.html" target="_blank" rel="noopener">may take weeks</a> for the ship to be un-beached. Reportedly there are <a href="https://www.theguardian.com/world/2021/mar/25/suez-canal-blocked-ship-ever-given-stuck" target="_blank" rel="noopener">206 ships</a> waiting for traffic to resume, on what is one of the busiest trade routes in the world. Excavating ships out a canal, I presume, is a fairly challenging endeavour. Especially when you have a lone excavator and some puny Egyptian tugboats. David vs Goliath doesn&rsquo;t always play out in David&rsquo;s favour.</p>
<p><a href="https://api.whatsapp.com/message/N4CI7UNDFE2ZM1?autoload=1&amp;app_absent=0&amp;utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank" rel="noopener"><img style="width: auto; height: auto;" src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog Banner WA 3.png" width="auto"></a></p>
<p>There&rsquo;s also clearly a lack of ideas as to how to deal with this situation. As discussed, one doesn't come across a beached megaship on a daily basis. Here are some other ships that have run <a href="https://dictionary.cambridge.org/dictionary/english/aground" target="_blank" rel="noopener">aground</a> in the past:</p>
<ul>
<li>In 2016 the 19,000 TEU ultra-large container vessel <a href="https://en.wikipedia.org/wiki/CSCL_Indian_Ocean" target="_blank" rel="noopener">CSCL Indian Ocean</a> ran aground in the Elbe river while approaching Hamburg in Germany. At that point in time, it took about 6 days to get the vessel refloated.</li>
</ul>
<ul>
<li>In 2016, the 12,500 TEU container ship <a href="https://en.wikipedia.org/wiki/MSC_Fabiola" target="_blank" rel="noopener">MSC Fabiola</a> ran aground at Great Bitter Lake after experiencing engine problems, forcing canal officials to temporarily suspend all northbound convoys and stop all southbound convoys in the canal. It took about 2 days to get the vessel refloated and continued through the canal.</li>
</ul>
<ul>
<li>In 2017 the 13,000 TEU ultra-large container vessel CSCL Jupiter ran aground near Bath, Netherlands shortly after departing from the port of Antwerp and it took less than a day to refloat.</li>
</ul>
<h2><strong>Importance of Suez canal</strong></h2>
<p>Built in 1869, the <a href="https://en.wikipedia.org/wiki/Suez_Canal" target="_blank" rel="noopener">Suez canal </a>is an artificial sea-level waterway in Egypt, connecting the Mediterranean Sea to the Red Sea. It is one of the <a href="https://www.suezcanal.gov.eg/English/Navigation/Pages/NavigationStatistics.aspx" target="_blank" rel="noopener">World&rsquo;s busiest waterways</a>. It allows for the shortest trade route possible by water between Europe and Asia and thus, saves billions of dollars for the industry. The Egyptian government is said to have spent about <a href="https://www.businessinsider.in/defense/egypts-authoritarian-president-is-celebrating-the-completion-of-an-8-billion-suez-canal-expansion-that-nobody-asked-for/articleshow/48367705.cms" target="_blank" rel="noopener">$8 billion in 2015</a> for the renovation of the canal to attract more business. Large volumes of goods from China and South Asia to Europe, India to Europe, Europe to Asia, Persian Gulf to US Gulf etc cross the canal.</p>
<figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center">
<div><img style="width: auto; height: auto;" src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/605dab196141bfbb1faa04ed_1024.jpeg" alt="605dab196141bfbb1faa04ed_1024.jpeg" width="auto" height="auto" loading="lazy"></div>
<figcaption>An earth mover trying to dislodge the beached ship. Source: Reuters</figcaption>
</figure>
<p>&zwj;<br>Under the routine setup, an average of 52 vessels of all types and 13 container vessels pass through the Suez canal per day. The World Shipping Council report shows the maximum throughput of the Suez canal as 106 vessels each day. Which means that if the canal is closed for 1 day, the resultant queue can be cleared within the 1st opening day using the daily surplus capacity. If it is closed for 2 days, it will take 2 additional days after re-opening to clear the queue; given that more vessels will arrive for normal transits every day. The canal has thus far been closed for 3 consecutive days and we are therefore now in the phase where the queue continues to stretch further into the future.</p>
<p><a href="https://cogoport.com/signup/en-IN/?utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank" rel="noopener"><img style="width: auto; height: auto;" src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog-Banner-Portal-2.png" width="auto"></a></p>
<h2><strong>What does this blockage mean for trade?</strong></h2>
<p>The impact on movement of goods would be enormous since both north and south bound convoys are stuck. The longer this situation continues, the longer the queue. There have been some reports that some carriers may divert traffic around Africa to avoid delays. But most are expected to wait it out in the hope that this issue will be resolved in a couple of days. Regardless, it will take at least a few more days to clear the canal. While the 1st order effects of such a situation are visible to all, the second order effects are going to be huge too. There are cascading repercussions for trade between more than half the world&rsquo;s population, affecting millions of commodities and billions of people.</p>
<figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center">
<div><img style="width: auto; height: auto;" src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/605dacaf15704a4cc90aecab_210325101923-02-suez-canal-container-ship-0325-exlarge-169.jpeg" alt="605dacaf15704a4cc90aecab_210325101923-02-suez-canal-container-ship-0325-exlarge-169.jpeg" width="auto" height="auto" loading="lazy"></div>
<figcaption>The ships bulb trapped in the earth. Source: Reuters</figcaption>
</figure>
<p>&zwj;<br>&ldquo;If you delay this vessel at Suez anchorage, it means you are making the ship owner lose <a href="https://www.theguardian.com/world/2021/mar/24/suez-canal-traffic-jam-builds-as-work-to-move-megaship-continues" target="_blank" rel="noopener">$60,000</a> [&pound;44,000] per day or $3-4000 per hour of delay,&rdquo; said Sayegh, the Beirut agent for the shipping journal Lloyd&rsquo;s.</p>
<p>From an Asia-Europe perspective alone, the canal sees approximately 30 <a href="https://sionow.com/what-is-a-headhaul/" target="_blank" rel="noopener">head haul</a> passages per week with a capacity around 380,000 TEU. The exact data may fluctuate from week to week due to the blank sailings and inconsistencies in the vessel sizes.</p>
<p>If the vessels are at their full capacity, they carry <a href="https://www.maritimegateway.com/suez-canal-blockade-could-cause-european-port-congestion-crisis/" target="_blank" rel="noopener">55,000 TEU</a> of cargo from Asia to Europe daily. And as per current expectation it will take <a href="https://www.bqprime.com/business/suez-canal-blockage-closer-to-resolution-on-efforts-to-move-ship" target="_blank" rel="noopener">5-6 days</a> to clear the canal. This will result in a delayed delivery for nearly 2,75,000 TEUs of cargo, causing a spike of cargo into the main ports in Europe once the Suez is opened again. We fully expect increased congestion on European ports in the very near future, similar to the one seen on the <a href="https://www.porttechnology.org/news/ports-must-improve-visibility-to-end-vicious-congestion-cycle/" target="_blank" rel="noopener">US West Coast</a> once COVID-19 restrictions were lifted.</p>
<p>At the same time this incident will delay the movement of 55,000 TEUs worth of containers coming back to Asia per day, further adding to the container shortage issues faced by shippers in this part of the world. This may force carriers to blank a raft of Asia - Europe sailings for late April and early May, creating temporary capacity shortages for the shippers. Hopefully this does not come to pass, but shippers ought to consider the potential risk now.</p>
<p>Ofcourse, other trade lanes and services plying on the Suez Canal will also be affected. We are expecting trade from MEA to Europe and Asia to the US East Coast to be affected severely over the coming weeks.</p>
<figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center">
<div><img style="width: auto; height: auto;" src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/605dabadee9e8d70920fd8b4_260321_Cogoport_Infographic_Container_Economic%20Impact-05.jpg" alt="Suez canal closure's economic impact on container shipping" width="auto" height="auto" loading="lazy"></div>
</figure>
<p>&nbsp;</p>
<h2><strong>Will the container freight charges increase or Stay constant</strong></h2>
<p>A delay of 3 days, in the current market scenario is not a big deal. For the Asia-Europe trade lane, data points from Ocean insights shows that 2 out of 3 vessels arrive late, and the variance is 4 days.</p>
<p>If the canal is re-opened soon, operational delays caused by Evergiven will not be as significant. However, If this drags out for a couple of weeks, the situation changes. It effectively removes vessel capacity from the market and also delays the process of replenishing empty containers in Asia. Normally this would cause an upwards pressure on freight rates. But (and sigh!), the circumstances are far from normal. Freight rates are already at their peak. The freight market fundamentals are under such severe stress due to ripple-effects of the pandemic that the added impact of the Suez blockage is very hard to isolate and attribute.</p>
<figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><a href="https://api.whatsapp.com/message/N4CI7UNDFE2ZM1?autoload=1&amp;app_absent=0&amp;utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank" rel="noopener"><img style="width: auto; height: auto;" src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog Banner WA 1.png" width="auto"></a></figure>
<p><strong>&nbsp;</strong></p>
<h2><strong>Update at the Suez Canal</strong></h2>
<p>There were 3 vessels sitting behind Evergiven out of which 2 vessels have already been reversed by tugboats to the southern end of the Suez canal. Movement through the canal is temporarily suspended so that Evergiven can be refloated.</p>
<p><strong>26th March:</strong> Shipping companies are now contemplating diverting their vessels to take the long route south around Africa on Asia-North Europe and Asia-USEC services. This will take approximately one week to 10 days more than using the Suez, resulting in increased fuel consumption, and higher subsequent costs.&nbsp;</p>
<p>The carriers started to issue <a href="https://www.one-line.com/sites/g/files/lnzjqr776/files/2021-03/SUEZ%20CANAL%20INCIDENT%20STATUS%20UPDATE%20-%2026%20MARCH%202021%20AM.pdf" target="_blank" rel="noopener">advisories</a> related to the Suez Canal blockage. In essence they are stating the obvious i.e; they don&rsquo;t know how long it would take for the situation to normalise and therefore cannot advice the customers "when their cargo will be delivered."</p>
<p><strong>27th March:</strong> Several specific vessels were seen to have been diverted round Africa in the past 36 hours. It is now becoming a structured trend across the carriers.</p>
<figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center">
<div><img style="width: auto; height: auto;" src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/605dfa6ef7a57126cae90d1e_260321_Cogoport_SuezCanal_Infography.jpg" alt="Alternate shipping route to Suez Canal" width="auto" height="auto" loading="lazy"></div>
<figcaption>Ships stuck at the Suez Canal have started a detour thousands of miles around Africa.</figcaption>
</figure>
<p>&zwj;</p>
<figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center">
<div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/605f65285c49e754c1f8bf6d_Ever%20given.jpeg" alt="Operation to free Evergiven stuck in the Suez Canal" width="auto" height="auto" loading="lazy"></div>
<figcaption>An operation to free Evergiven stuck in the Suez Canal. Source: BBC</figcaption>
</figure>
<p>&zwj;</p>
<p><strong>Early 29th March:</strong> Preliminary indications this morning is that the Evergreen vessel has been refloated.</p>
<p>*Preliminary indications as there is no official statement yet.</p>
<p><strong>Late 29th March:</strong> Ever Given has been <a href="https://edition.cnn.com/2021/03/29/africa/suez-canal-refloating-intl-hnk/index.html" target="_blank" rel="noopener">dislodged</a> in the Suez Canal and is now fully floating. It is expected that the vessel will be moved to the Great Bitter Lake. Once the vessel is safe at anchorage, the vessels currently at anchorage in the lake will sail out of the canal in a convoy. The canal could be opened within the next 12-24 hours, but the current situation remains that the canal is not yet free for passage.</p>
<h2><strong>End Notes</strong></h2>
<p>The Suez Canal has been supposedly freed after a closure of 6 days due to the grounding of Evergiven. After continuous efforts to float the vessel it has finally moved. There is no news on the traffic resumption yet.&nbsp;The vessels which have already been diverted to go around Africa are likely to proceed on their journey as it will take a while before the queues are cleared and the canal is back to normal flow of operations.</p>
<p>The metaphorical dominoes have already been toppled and we will continue to see the unfolding of congestion issues in Europe as the cargo arrives, blank sailings resulting from the severe delay of many vessels as well as a deterioration of the equipment situation. These ripple effects will take several months to be fully worked through.</p>

Suez Canal Block Deepens Global Container Crunch

COVID-19 lockdowns trigger container crisis

RoDTEP: A WTO-Compliant Export Incentive Scheme

<p>If you are in the business of exporting and importing goods, you would be familiar with the Harmonised Commodity Description and Coding System, better known as the Harmonised System (HS) or Harmonised System of Nomenclature (HSN). It is a universally accepted method of classifying traded goods. Its main function is to help customs authorities identify products and assess the right duties and taxes on them. In the Harmonised System, each product is assigned a unique numerical code called the HS code. This code has a minimum of six digits and can typically go up to 10 digits<strong> (</strong>though China has a 13-digit code<strong>)</strong>. While exporting or importing, it is mandatory to include your product&rsquo;s HS code in your shipping documents, such as your commercial invoice, packing list and shipping bill. And as an exporter or importer, it is your legal responsibility to correctly identify your product&rsquo;s HS code. Incorrect classification can lead to problems that you&rsquo;d be better off avoiding.</p>
<p>Given the importance of the Harmonised System and its correct application in international trade, this article contains all the relevant information you require, including:</p>
<ul>
<li>What is the Harmonised System?</li>
<li>What is an HS code?</li>
<li>Why are they important?</li>
<li>What is the ITC (HS) code?</li>
<li>How do you use HS codes correctly?</li>
<li>What happens when you use them incorrectly?</li>
<li>What is HS Code under GST - New rule?</li>
<li>How to find the HS code for your product&nbsp;&nbsp;&nbsp;</li>
</ul>
<p>&zwj;</p>
<figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center">
<div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/606c3cc70c4fb69eefd70f86_060421_Cogoport_HS_Code.jpg" alt="All about HS Code " width="auto" height="auto" loading="lazy"></div>
</figure>
<p>&nbsp;</p>
<p><a href="https://api.whatsapp.com/message/N4CI7UNDFE2ZM1?autoload=1&amp;app_absent=0&amp;utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank" rel="noopener"><img style="width: auto; height: auto;" src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog Banner WA 3.png" width="auto"></a></p>
<h2><strong>What is the Harmonised System?</strong></h2>
<p>The Harmonised System was a solution to the complications and costs associated with having different product classification systems for different countries. Before its creation, a single product could be classified as many as 17 times in a single transaction, according to this<a href="http://harmonizedsystem.wcoomdpublications.org/pdfs/WCOOMD_MSH_EN.pdf" target="_blank" rel="noopener"> report</a>. The Harmonised System came into effect on<a href="http://harmonizedsystem.wcoomdpublications.org/pdfs/WCOOMD_MSH_EN.pdf" target="_blank" rel="noopener"> January 1, 1988</a>. It is administered and updated every five years by the Belgium-headquartered World Customs Organisation (WCO). The system is used by more than 200 countries and economies and covers more than 98% of goods in international trade.</p>
<p>The Harmonised System comprises more than 5,000 groups of goods. These are grouped into 97 Chapters and 21 Sections. Each chapter is divided into headings and, where appropriate, sub-headings. As a rule, goods are arranged in order of degree of manufacture &ndash; raw materials first, then unworked products, semi-finished products and, finally, finished products. So, Chapter 1 is &ldquo;Live Animals&rdquo;, Chapter 41 is &ldquo;Raw Hides and Skins (other than Furskins) and Leather&rdquo; and Chapter 64 is &ldquo;Footwear&rdquo;.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
<p>In the Harmonised System, each product is identified by a six-digit code, arranged in a legal and logical way based on certain rules. The six digits of an HS code can be broken down into three parts:</p>
<ul>
<li>The first two digits identify the chapter the goods fall in. Example: 09 (Coffee, Tea, Mat&eacute; and Spices)</li>
<li>The next two digits identify a heading within that chapter. Example: 0901 (Coffee, whether or not roasted or decaffeinated; coffee husks and skins; coffee substitutes containing coffee in any proportion)</li>
<li>The last two digits denote a sub-heading that makes the classification even more specific. Example: 090111 (Coffee, not roasted, not decaffeinated). In the absence of a subheading, the last two digits will be indicated by zeroes.</li>
</ul>
<figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center">
<div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/6068ceae9a578d23c672b4e3_1.jpg" alt="HS Code Structure" width="auto" height="auto" loading="lazy"></div>
<figcaption>Source: World Customs Organization</figcaption>
</figure>
<p>&zwj;</p>
<p>There are certain rules that govern the Harmonised System and HS codes. These are:</p>
<p><strong>1. General Rules for the Interpretation of the Harmonised System: </strong>These ensure a specific product is universally associated with a single heading (and subheading) and not with any other. There are six general rules of interpretation (GRI) and they are hierarchical, as in GRI 1 takes precedence over GRI 2 and so on.</p>
<ul>
<li><strong>GRI 1</strong> states that &ldquo;classification is determined by the terms of the headings and of the section or chapter notes&rdquo;. If classification cannot be thus determined, then GRI 2 to GRI 5 are applied.</li>
<li><strong>GRI 2</strong> has two parts. <strong>GRI 2 (a) </strong>extends the scope of a heading to cover not just finished products but also &ldquo;incomplete&rdquo;, &ldquo;unfinished&rdquo;, &ldquo;unassembled&rdquo; or &ldquo;disassembled&rdquo; products, provided they have the &ldquo;essential character&rdquo; of the finished product. <strong>GRI 2 (b) </strong>extends the scope of a heading to cover mixtures or combinations of materials or substances, which must then be classified according to GRI 3.</li>
<li><strong>GRI 3</strong> lays down the rules for classifying goods that fall under more than one heading. <strong>GRI 3 (a) </strong>calls for classification under the heading with the most &ldquo;<a href="http://harmonizedsystem.wcoomdpublications.org/pdfs/WCOOMD_MSH_EN.pdf" target="_blank" rel="noopener">specific description</a>&rdquo;. But if two or more headings refer to only a part of the materials or substances in the composite product, then these headings are regarded as &ldquo;<a href="http://harmonizedsystem.wcoomdpublications.org/pdfs/WCOOMD_MSH_EN.pdf" target="_blank" rel="noopener">equally specific</a>&rdquo;. In this case, <strong>GRI 3 (b) </strong>applies, which<a href="http://harmonizedsystem.wcoomdpublications.org/pdfs/WCOOMD_MSH_EN.pdf" target="_blank" rel="noopener"> says</a> the product will be placed in the &ldquo;heading applicable to the material or component which gives them their essential character&rdquo;. If the product cannot be classified on the basis of GRI 3 (a) and GRI 3 (b), then GRI 3 (c)<a href="http://harmonizedsystem.wcoomdpublications.org/pdfs/WCOOMD_MSH_EN.pdf" target="_blank" rel="noopener"> provides</a> for its&nbsp; classification &ldquo;in the heading which occurs last in numerical order among those which equally merit consideration in determining their classification&rdquo;.</li>
<li><strong>GRI 4</strong> applies to goods not specifically covered by any heading (perhaps because they are newly introduced). These will then fall in the &ldquo;heading appropriate to the goods to which they are most akin&rdquo;.</li>
<li><strong>GRI 5</strong> applies to the classification of boxes, containers and cases in which products are packed (cases for cameras, guns, jewellery, etc). The classification of any packaging that doesn&rsquo;t fall under GRI 5 is left to the discretion of countries.</li>
<li><strong>GRI 6</strong> applies to the classification of goods in the sub-headings.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li>
</ul>
<p>&nbsp;&nbsp;<a href="https://cogoport.com/signup/en-IN/?utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank" rel="noopener"><img style="width: auto; height: auto;" src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog-Banner-Portal-3.png" width="auto"></a>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
<p><strong>2. Section, chapter and subheading notes: </strong>Certain sections, chapters and subheadings of the Harmonised Systems come with notes. These notes help interpret the specific sections and chapters by precisely defining their scope and limits. Like the GRIs, these notes are legally binding and are therefore also called &ldquo;legal notes&rdquo;.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
<h2><strong>Importance of the Harmonised System</strong>&nbsp;&zwj;</h2>
<p>The primary function of the Harmonised System is to act as a basis for customs tariffs worldwide. But it has other uses as well, such as:</p>
<ul>
<li>The collection of international trade statistics</li>
<li>The collection of internal taxes such as excise duties and value-added tax (VAT)&nbsp;</li>
<li>As a basis for freight and transport tariffs</li>
<li>As a basis for<a href="https://www.wto.org/english/tratop_e/roi_e/roi_info_e.htm" target="_blank" rel="noopener"> rules of origin</a> (which are the criteria to determine the national source of a product)&nbsp;</li>
<li>As a basis for the setting of preferential tariffs and MFN (most favoured nation) tariffs under free trade agreements</li>
<li>As a basis for governments to decide their trade policies&nbsp;</li>
<li>For the monitoring of controlled goods (narcotics, chemical weapons, endangered species, waste, etc)</li>
<li>As a facilitator of customs controls and procedures such as risk assessment and compliance</li>
</ul>
<h2><strong>What is the ITC-HS code?&nbsp;</strong>&zwj;</h2>
<p>As mentioned earlier, an HS code can go beyond the WCO-prescribed six digits. This is because countries are allowed to add more digits to the original six-digit code for further classification. These additional digits typically vary from country to country.</p>
<p>The United States uses a 10-digit code where the first six digits are the WCO-provided HS code. The US code is called a<a href="https://help.cbp.gov/s/article/Article-236?language=en_US" target="_blank" rel="noopener"> Schedule B number</a> for export goods and a Harmonised Tariff Schedule (HTS) code for import goods.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
<p>Similarly, in India, goods for export and import have an eight-digit code called an<a href="https://www.dgft.gov.in/CP/?opt=itchs" target="_blank" rel="noopener"> ITC (HS) code</a>, where ITC stands for Indian Trade Classification and/or Indian Tariff Code. This system has two schedules &ndash; Schedule I for imports and Schedule II for exports. Schedule I has 21 sections and 98 chapters. The chapters are further divided into headings and subheadings. Schedule II has 97 chapters. The ITC (HS) codes are developed, maintained and updated by the Directorate General of Foreign Trade (DGFT).</p>
<p>An ITC (HS) code comprises the six-digit HS code plus a two-digit national &ldquo;tariff item code&rdquo;. For example, if the ITC (HS) code is 09011111, then</p>
<ul>
<li>09 &ndash; Coffee, Tea, Mat&eacute; and Spices</li>
<li>0901 &ndash; Coffee, whether or not roasted or decaffeinated; coffee husks and skins; coffee substitutes containing coffee in any proportion</li>
<li>090111 &ndash; Coffee, not roasted, not decaffeinated</li>
<li>09011111 &ndash; Arabica plantation: A Grade</li>
</ul>
<figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center">
<div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/6068cfb40f990c23f15add78_2.jpg" alt="ITC (HS) Code Structure India" width="auto" height="auto" loading="lazy"></div>
<figcaption>Source: Indian Customs</figcaption>
</figure>
<p>&zwj;<a href="https://api.whatsapp.com/message/N4CI7UNDFE2ZM1?autoload=1&amp;app_absent=0&amp;utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank" rel="noopener"><img style="width: auto; height: auto;" src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog Banner WA 1.png" width="auto"></a></p>
<h2><strong>How to use HS codes, and the consequences of incorrect usage</strong></h2>
<p>HS codes are used by governments, customs authorities, statistical organisations, regulatory bodies and traders. As an importer/exporter, you are legally bound to classify your goods correctly and enter the correct HS code in your shipping documents.</p>
<h3>Using the correct HS code ensures:</h3>
<ul>
<li>You pay the right duty</li>
<li>You receive the benefits you are eligible for, such as a suspension of customs duty</li>
<li>You are informed of whether your product attracts anti-dumping duty, requires a special licence to be shipped or comes under a trade quota&nbsp;&nbsp;</li>
</ul>
<h3>Incorrect HS code usage means you end up paying a higher or lower rate of duty. When discovered, this can result in:</h3>
<ul>
<li>Steep fines and penalties imposed by customs authorities</li>
<li>Denial of import-export privileges</li>
<li>Denial of refund or a lengthy process to claim a refund if you have paid a higher rate of duty&nbsp;</li>
<li>Payment of duty difference plus interest if you have underpaid</li>
<li>Confiscation of goods if you have underpaid, which is the practice in some countries. The goods are released only after the fine has been paid and certain documents submitted&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li>
<li>Rejection of input credit tax (ITC) claim under the Goods and Services Tax (GST)&nbsp;</li>
<li>Shipping delays and the effects of that on your business</li>
<li>Additional expenses (demurrage/detention/storage charges, etc) as a result of the delay&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li>
</ul>
<h2><strong>HS Code under GST &ndash; New rule</strong></h2>
<p>As of April 1, the Indian government has made it mandatory for Goods and Services Tax (GST) taxpayers with a turnover of Rs 5 crore or more to include the international six-digit HS code in invoices they issue for the sale of taxable goods and services. The earlier requirement was a four-digit code. Similarly, taxpayers with a turnover of up to Rs 5 crore must include a four-digit HS code on B2B (business to business) invoices. The earlier requirement was a two-digit code. Thus far, many GST taxpayers have been voluntarily including six-digit HS codes on their invoices and GST returns. The objective behind the move, according to this <a href="https://www.livemint.com/news/india/6digit-hsn-code-mandatory-in-invoices-for-biz-with-over-rs-5-crore-turnover-11617260839364.html" target="_blank" rel="noopener">report</a>, is to make taxpayers furnish a more precise HS code so that tax officials can &ldquo;arrest tax evasion from fake invoices and irregular tax credit claims&rdquo;.</p>
<figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center"><a href="https://cogoport.com/signup/en-IN/?utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank" rel="noopener"><img style="width: auto; height: auto;" src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog-Banner-Portal-2.png" width="auto"></a></figure>
<h2><strong>How to find the right HS code for your product</strong></h2>
<ul>
<li><strong>Use search tools: </strong>In India, you can use the ITC (HS) code search tools on Icegate, which is Indian Customs&rsquo; electronic data interchange platform, or on the<a href="https://www.indiantradeportal.in" target="_blank" rel="noopener"> Indian Trade Portal</a>, which is the property of the Commerce Ministry. In both search tools, you need to enter part of the ITC (HS) code, if you know it, or a brief description of your product. Similarly, to move goods in and out of the US, you can use the US Census Bureau&rsquo;s<a href="https://uscensus.prod.3ceonline.com" target="_blank" rel="noopener"> Schedule B search tool</a> or the US International Trade Commission&rsquo;s<a href="https://hts.usitc.gov" target="_blank" rel="noopener"> HTS search tool</a>. For the UK, you can use the Trade Tariff tool, provided you&nbsp; know the type of your product, the material used to make it, and its production method.</li>
<li><strong>Go through HS code lists: </strong>A simple Google check is all it takes to find one of these lists. The current version of the Harmonised System, which is the 2017 edition or HS 2017, is available on the WCO website. In India, you can search the<a href="http://www.dgft.org/itc_hs_code.html" target="_blank" rel="noopener"> DGFT</a> website or several non-governmental portals for the ITC (HS) code list. In the US, you can look up the Harmonised Tariff Schedule on the<a href="https://hts.usitc.gov/current" target="_blank" rel="noopener"> ITC website</a>. Once you get to the list, click on the relevant chapter and search through the headings and subheadings to find the right HS code for your product.</li>
</ul>
<h3><strong>But keep in mind&hellip;</strong></h3>
<ul>
<li>HS codes vary from country to country. If you are exporting, for example, find out the correct HS code for your product in the country of import, as it might be different from the HS code for the same product in your country. A single digit might be all that is different but it could lead to your goods getting stuck, delayed or even rejected.&nbsp;</li>
<li>HS 2022 has been approved and will come into effect from January 1, 2022. With 351 amendments, it makes several major changes to HS 2017. Rules governing the classification of certain goods &ndash; including electronic waste, tobacco and nicotine-based products and smartphones &ndash; will reportedly change. Traders must familiarise themselves with these changes before the new system kicks in.</li>
<li>Look out for updates and amendments. In June 2020, for example, the Indian government made<a href="https://content.dgft.gov.in/Website/Noti%2010%20dated%2011.06.2020%20-%20SCOMET%20update_0.pdf" target="_blank" rel="noopener"> amendments</a> to Appendix 3 of Schedule II of the ITC (HS) Classification system, which deals with the export of SCOMET (Special Chemicals, Organisms, Materials, Equipment and Technologies) items. These include controlled substances such as nuclear material, toxins, aerospace systems, electronics and even computers. The amendments included changes in headings, new entries, the deletion of some entries and the addition of some notes, among others.</li>
<li>Most traders leave the classification of their products to their customs agents. Make sure you pick a professional with experience in this field. Remember, customs will hold the owner of the goods (exporter or importer) and not the agent responsible for any classification violation.&nbsp;</li>
</ul>

Learn and Discover with Cogoport

Latest posts