Understanding Trade Terms

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  • What is the HS Code?
  • How do we use the HS Code?
  • How is the global trade in services classified?
  • What are the international trade incoterms?
  • What is a customs tariff?

01What is the HS Code?

An HS code is a World Customs Organization (WCO) system of code numbers used to classify cross-border trade products. The HS code has 99 chapters grouped in 21 sections.

The first six digits of the HS Code are standard in all countries; beyond those numbers, countries can introduce their national distinctions.

12
Chapter
11
Heading
90
Sub-heading
00
Regional Tarrif
00
National Tarrif

Example

Moringa Seeds HS 121190–

 

Six-Digit HS Code Description                                             

 

HS 12

Oilseeds and oleaginous fruits; miscellaneous grains, seeds, and fruit, industrial or medicinal plants; straw and fodder

 

HS 1211

Plants and parts of plants (including seeds and fruits), of a kind used primarily in perfumery, in pharmacy or for insecticidal, fungicidal, or similar purposes, fresh, chilled, frozen, or dried, whether or not cut, crushed, or powdered

 

HS 121190

Plants and parts (including seeds and fruits) n.e.c. in heading no.1211, of a kind used primarily in perfumery, in pharmacy or for insecticidal, fungicidal, or similar purposes, fresh, chilled, frozen, or dried, whether or not cut, crushed, or powdered

 

02How do we use the HS Code?

The HS code identifies the commodity to export, so it is used to:

 

  1. Identify the national and international customs tariff applicable to the exported product
  2. Identify rules of origin requirements for the product
  3. Identify technical and quality standards that apply to the product
  4. Conduct statistical trade analysis

03How is global trade in services classified?

The WTO classifies global trade in services under four modes:

 

Mode 1: Cross-border supply

Cross-border supply covers service flows from one member’s territory into another member’s territory (e.g., banking, or architectural services transmitted via telecommunications or mail).

Example: A user in country A receives services from abroad through its telecommunications or postal infrastructure.

 

Mode 2: Consumption abroad

Consumption abroad refers to situations where a service consumer (e.g., tourist or patient) moves into another member’s territory to obtain a service.

Example: Nationals of country A have moved abroad as tourists, students, or patients to consume the respective services

 

Mode 3: Commercial presence

Commercial presence means that a service supplier of one member sets up a territorial presence, including through ownership or lease of premises, in another member’s territory to provide a service (e.g., domestic subsidiaries of foreign insurance companies or hotel chains).

Example:    The     service     is    provided     within     country      A    by    a locally established affiliate, subsidiary, or representative office of a foreign-owned-and-controlled company (e.g., bank, hotel group, construction company).

 

Mode 4: Presence of natural persons

Presence of natural persons consists of persons of one member entering the territory of another member to supply a service (e.g., accountants, doctors, or teachers).

However, the Annex on Movement of Natural Persons specifies that members remain free to permanently operate measures regarding citizenship, residence, or access to the employment market.

Example: A foreign national provides a service within country A as an independent supplier (e.g., consultant, health worker) or employee of a service supplier (e.g., consulting firm, hospital, construction company).

04What are the international trade incoterms?

International trade incoterms are the world’s essential terms of trade for the selling of goods. They are issued and updated by the International Chambers of Commerce (ICC).

The ICC also provides online training on using these incoterms such as FOB, Ex-Works, CIF, and CIP in the ICC manual.

These terms are essential when agreeing on the export shipment’s price and terms (see Annex I- 2020 Incoterms).

05What is a customs tariff?

A customs tariff is a tax levied on goods imported at the customs border. An exporting company should firstly identify the HS code for their product and then check whether there are any preferential trade agreements signed with the importing country that may reduce or drop customs tariffs and other fees imposed at customs borders.

The International Trade Centre (ITC) market access map database provides a simple search engine tool on HS codes tariff barrier by product and country according to the trade agreement.

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