Automated HS Code Classification With AI

Global trade keeps increasing, as does the complexity of the regulations associated with it. To successfully navigate the world of exporting or importing products, you must comply with Harmonized System (HS) code regulations. AI is revolutionizing this process, offering businesses a way to streamline operations and enhance accuracy.

Quick access:

• What are HS codes?
• The Complexities of HS Code Classification
• The Rise of AI in Customs and Trade
• How AI Automates HS Code Classification
• The Importance of Precision
• Get in touch with Squadra

What are HS codes?  

Harmonized System (HS) codes are an internationally standardized system, used to classify traded products. Developed in the 1980s by the World Customs Organization (WCO), they are used in over 200 countries to identify products, determine tariff rates, enforce trade regulations and gather trade statistics.

HS codes are essential when importing or exporting goods. Each product has a unique 6-digit code, which helps authorities to identify goods, apply tariffs and facilitate trade. These 6 digits can be extended, depending on for example the region. For instance, the EU extends this with 2 more digits, known as GN codes. Businesses need to use the correct codes to comply with customs and tax obligations.

The Complexities of HS Code Classification  

HS codes are structured in a hierarchical nomenclature, requiring selection of the most appropriate code based on product characteristics. This can lead to ambiguity, making manual classification time-consuming, resource-intensive and prone to human error. It also necessitates specialized knowledge.

Selecting the correct and most specific HS code for a product and documentation of the decision-making process is essential, especially in case of audits. Missteps in classification can result in significant delays, financial penalties and reputational harm.

The Rise of AI in Customs and Trade  

AI is playing an increasingly important role in automating aspects of customs and trade. It also addresses limitations of manual HS code classification by processing large volumes of data, learning patterns and adapting to changing regulations. This reduces errors and improves compliance.

By processing descriptions, images and more, AI models can identify the most suitable HS code. Next to classification, AI can also assist in real-time validation. For example, it can flag anomalies or inconsistencies in the data, like mismatches between product descriptions and proposed codes. This proactive approach can already correct errors before the classification. Predictive analytics powered by AI can anticipate whifts in trade patterns or regulatory updates, which empowers businesses to proactively adjust their strategies and minimize disruptions.

How AI Automates HS Code Classification  

AI automates HS code classification using techniques like Machine Learning (ML), Natural Language Processing (NLP) and image recognition. ML algorithms, which are trained on labelled data, identify patterns and can predict codes as they learn from previous classifications. NLP can extract features from text descriptions, while image recognition analysis visual features.

With this, AI offers benefits such as: increased accuracy, reduced costs, faster classification, improved compliance and enhanced insights into trade patterns. It also continuously improves by learning from new data and feedback. Data quality and expert validation are crucial here to ensure accuracy.

The Importance of Precision  

Accurate HS code classification is fundamental to international trade. Proper classification ensures correct tariff payments, compliance with trade regulations and efficient customs clearance. This leads to improved supply chain efficiency, reduced costs and enhanced customer satisfaction.

Incorrect classification, on the other hand, can lead to financial penalties, delays, reputational damage as well as legal issues. It can therefore disrupt business operations and result in additional charges or refunds.

In conclusion, automated HS code classification with AI offers numerous benefits, including increased accuracy, efficiency and compliance. It simplifies global trade, helps businesses avoid penalties and facilitates smooth customs clearance.

Squadra helps your organization with HS code classification!  

Do you want to know more about the possibilities of AI in HS-code classification? Get in touch! At Squadra, we can assist you with AI-powered HS code classification. Our expertise can help your business navigate the complexities of international trade and optimize your customs processes.