AEB White Paper
Five myths about commodity
codes and product classification
And 3½ reasons to get the facts straight.
Contents
Executive summary
3
Classification – more than just another tool
4
Ten-step process: structure of commodity codes
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Five myths about commodity codes
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1. The commodity code is not all that important. We only export.
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2. We’ve already assigned commodity codes to our products – that should do it.
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3. The responsibility for classifying new goods lies with someone else – it’s not my problem.
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4. There isn’t any commodity code that matches our products, so there’s no point in looking.
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5. Even if the commodity code is in the enterprise-wide ERP system, each country must classify products on its own.
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3½ reasons to get the facts now.
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1. Ignorance of the law is no defense.
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2. Businesses seeking AEO status must document their product classification process.
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3. Ditto if you want to keep your simplified customs procedures.
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3½. The bonus half-reason: software solutions from AEB
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What is a white paper?
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About AEB
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2
Executive summary
Commodity codes are an important component in
international trade. And they are complex: Anyone
classifying products today must sift through a nomenclature
of 21 sections, 96 chapters, and over 5,000 subheadings to
find the right code. This is typically a complicated process
that requires a high level of expertise.
Incorrect product classification can have severe
consequences, so businesses are well advised to
incorporate error-minimizing measures into their risk
management strategy. Support is available from softwarebased solutions that automate the process of product
classification as much as possible.
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Classification – more than just another tool
value-added taxes on imports, and excise duties but also
bans and restrictions, import/export licensing and permit
requirements, special foreign trade statistics (supplementary
unit), documentation requirements, and the obligation to
report certain measures.
Cars, machinery, chemical products, and even daily
consumer goods such as coffee, food, and textiles: Eurostat
(the statistical office of the European Union) reports that
total EU-27 trade with the rest of the world (the sum of
extra-EU exports and imports) was valued at EUR 2 850
539 million in 2010. These movements of goods were and
are monitored by the customs offices in each member state.
One more reason to give some serious thought to the
commodity code, index of goods, and Combined
Nomenclature (CN): commodity codes must be reported in
conjunction with both the movement of goods within the EU
and trade with “third countries” outside the EU. Moreover –
and this gets to the heart of the business issues – the
customs tariff codes play a key role in the authorization of
simplified customs procedures. The Combined
Nomenclature is even applicable outside the European
Union: countries such as Turkey that have bilateral trade
agreements with the EU also use the CN.
This means complying with a host of legal regulations based
on the nature of the goods and implementing various
import- and export-related measures. To ensure a uniform
procedure, all goods are assigned commodity codes.
Commodity codes are the key classifier in international
trade, and they carry more weight than many suspect.
Commodity codes determine the customs duties to which
imports are subject, for example, as well as import and
export restrictions and documentation requirements.
Entering the wrong commodity code in an electronic
customs system can have far-reaching consequences due
to the interlinked nature of the system. The commodity code
affects not only fiscal matters such as customs duties,
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Ten-step process: structure of commodity codes
Individual numerals and combinations of numerals in the
commodity code have specific meanings and are “read” by
the customs office. In general, exports require an eight-digit
commodity code or CN (Combined Nomenclature) code.
This is uniform throughout the EU.
Perform the following steps for optimal results in
determining the commodity code:
Imports are subject to additional regulations based on
national law, such as those governing the value-added tax
on imports. That’s why imports require a ten-digit (or, in
some countries, 11-digit) commodity code known as a
customs tariff code. The first eight digits are the same as
the commodity code required for exports. The ninth and
tenth digits are TARIC subheadings that determine the
customs duty levied on certain goods imported into the EU
based on their origin. These digits also contain information
on EU measures such as anti-dumping regulations, customs
exemptions, or customs contingents. The eleventh digit
used in some countries, is for domestic purposes.
You can search for the right commodity code in the
European Commission’s online customs tariff database
(TARIC), in national systems such as Germany’s electronic
customs tariff (EZT) or the UK’s online Integrated Tariff, or
by applying for a Binding Tariff Information (BTI) decision.

Step 1: Evaluate the attributes of the goods.
This means above all the material attributes and the
designated use and purpose of the goods.

Step 2: Check the precise language and comments.
This is necessary to properly take into account specific
descriptions and remarks.

Step 3: Apply other regulatory content.
This means taking into account so-called general
guidelines that may be applicable to unfinished goods
or special containers, for example, but also the
aforementioned special cases.
Although the significance of commodity codes is beyond
question, they are frequently disregarded or
underappreciated in day-to-day business. In this white
paper, we have put together the five most common myths
about commodity codes and their significance.
Five myths about commodity codes
1. The commodity code is not all that important. We only export.
Unfortunately, it’s not at all that simple. Proper classification
of goods by customs tariff is the foundation of all import and
export processes. This means that product classification is a
key component of risk management.
Businesses that apply for the status of Authorized Economic
Operator (AEO) or authorized exporter are also obligated to
document how they manage their customs-related master
data.
Businesses that assign the wrong commodity codes may
suffer far-reaching consequences. That’s because the
commodity code determines the applicability of bans,
restrictions, and foreign trade measures such as licensing
requirements. The commodity code even determines which
documents need to be submitted. Providing the wrong
commodity code may result in an unauthorized export or
payment of the wrong customs duty. Businesses may
overpay their taxes and duties as a result – or worse yet,
underpay.
It may also qualify as negligent or even punishable conduct,
by the way, to simply accept the customs tariff data from an
upstream supplier without verifying it. The declarant or
exporter is responsible for providing the correct commodity
code. For this reason alone, businesses seeking the AEO
status must document how they determine customs tariff
data. You should also keep in mind when determining the
commodity code that giving the wrong information to your
business partners can have consequences for them – at
least if they accept it without verification.
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2. We’ve already assigned commodity codes to our products – that
should do it.
assigning incorrect commodity codes – with the
aforementioned consequences.
Sadly, it does not. The number of goods and commodity
groups is constantly shifting. As a result, commodity code
updates are regularly announced on October 31 with effect
from January 1. Often, goods are consolidated under a
(sometimes new) commodity code or split up into multiple
commodity codes. It’s also common for CN headings to be
discontinued altogether. This requires that you reclassify
your goods. It may also result in a need to adjust the
authorization for simplified customs procedures.
That’s why you need to regularly review your master data to
make sure your products are properly classified. This is the
only way to be sure that you’re in compliance with all
customs regulations, your goods will flow smoothly, and the
correct duties will be paid.
By the way, the current Combined Nomenclature is
published annually in the Official Journal of the European
Union.
What this means for you is that if you fail to update your
master data at the start of a new year, you may be
3. The responsibility for classifying new goods lies with someone else
– it’s not my problem.

Large enterprises typically leave the classification of new
products to their local entities. In smaller businesses,
however, it is often an individual with experience and
familiarity with the product who manages this task from one
central location. But here, as elsewhere, a team with
collective knowledge is often a quicker route to success
than a solo effort. That’s why it can’t hurt to bring coworkers on board when it comes to product classification.


The complexity of assigning commodity codes to products
means that product classification is still not seamless, but
every effort should be made to bring transparency and
accountability to the process – whether it is managed by a
team or an individual. Sadly, this is seldom the case, even
though businesses that aspire to the AEO status are
required to document their product classification process.
This is especially true when different divisions and sites
work with commodity codes. Large enterprises face the
following challenges in structuring their product
classification processes:

Centralized global product classification (multilingual,
international content providers, etc.)
Integration of product classification into various system
environments (ERP and customs systems)
Accommodation of special provisions at the regional
and national level
Support for – automatic – product classification
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4. There isn’t any commodity code that matches our products, so
there’s no point in looking.
Did you know that the commodity code for shoes begins
with 63 09 ... if the shoes are used? If the shoes contain
asbestos, however, the commodity code begins with 68 12.
Orthopedic shoes are classified under 90 21. In short: there
is a commodity code for everything. To find out what it is,
businesses need to compare the language of the national
tariff/EC TARIC to the material attributes. And the remarks
appended to the sections, chapters, headings, and
subheadings in the national tariff/EC TARIC are also
relevant, as they often describe the details and exceptions
that make the difference.
A variety of special cases complicates the classification
process. Textiles are a good example: The choice of a
commodity code depends on whether the clothes or bed
linens are part of a set, and even the size of an article of
clothing can have an effect. The classification of alcohol
depends on the type of packaging, among other factors.
And parts of assembled products may be classified under
the finished product.
Businesses can find more information on bans, restrictions,
and export authorizations from the EU dual-use list, the
relevant national authority such as Germany’s Federal
Office of Economics and Export Control (BAFA) or the UK’s
Export Control Organisation, and other sources.
Despite all that, precise classification is a complex task –
and not just for used orthopedic shoes containing asbestos.
So the rule of thumb is that when two headings apply,
choose the more precise. If none of the descriptions
matches the goods, choose the heading that is the closest
match.
Those seeking a certain measure of legal security can
contact the customs authorities for binding information
about the customs classification of goods.
5. Even if the commodity code is in the enterprise-wide ERP system,
each country must classify products on its own.
This greatly simplifies product classification – not only for
new products but also for the reclassification of existing
products at the start of a new year. But when all is said and
done, product classification remains a very time-consuming
task with an equally great potential for risk.
Fortunately, this is not the case. Global players can
centralize product classification as long as they take into
account national and EU-wide variances. To put it another
way: the first six digits are identical worldwide. Only the
seventh and eighth digits depend on EU guidelines. When it
comes to imports, the same applies to the ninth, tenth, and
eleventh digits, of course.
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3½ reasons to get the facts now.
You can see that the eight to eleven numerals that make up
the commodity code have quite an impact on businesses.
There are at least 3½ reasons to take a good, hard look at
the subject of commodity codes:
1. Ignorance of the law is no defense.
pay too much tax – if they’re lucky! If not, they may be guilty
of tax evasion. Misclassification can also result in
unauthorized exports with corresponding penalties.
Commodity codes are the basis for determining import
duties, import/export restrictions, and documentation
requirements. Misclassification can mean that businesses
2. Businesses seeking AEO status must document their product
classification process.
Commodity codes are the central taxonomy of international
trade. This means proper product classification is critical,
which is why businesses seeking to attain the status of
Authorized Economic Operator (AEO) must document their
product classification process.
3. Ditto if you want to keep your simplified customs procedures.
Businesses that – knowingly or unknowingly – fail to comply
with current law run the risk of missing out on simplified
customs procedures. Using the incorrect commodity code
can quickly lead to delays in the supply chain – often at
considerable cost. The wrong eight-digit code can result in
an export ban, preventing your goods from shipping. This
can be a painful lesson for businesses. Because more than
ever before, business success depends on efficiency,
flexibility, and on-time performance. And these are precisely
the competitive advantages you jeopardize when you lose
your special customs privileges.
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3½. The bonus half-reason: software solutions
from AEB
and reliable, so you’ll never miss another deadline. All
product classifications are embedded in a transparent, fully
documented workflow.
Electronic customs clearance offers many benefits to
businesses. Now there is one more benefit: softwaresupported classification. ASSIST4 Classification will
accelerate your classification process – and largely
automate it. Seamlessly: All the necessary sources of
information – legislation, EU dual-use list, database links –
are just a mouse-click away. Businesses are alerted when
new commodity codes come into effect at the start of a new
year, and reclassifications based on legacy data are quick
Like all the products in the ASSIST4 series, ASSIST4
Classification can be adapted to meet the specific needs of
your business without compromising your ability to upgrade
linked applications.
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What is a white paper?
analyzed and explained by our experts. A white paper
reflects current understanding at the time it is written –
subsequent changes in the underlying circumstances
cannot be ruled out.
AEB defines a white paper as a document providing
qualified, unbiased information on a particular topic.
White papers may deal with laws and regulations,
standards, technologies, solutions, or processes –
About AEB: Expertise for SCM, customs, and IT
AEB is a global enterprise with over 400 employees and
5,000 customers. AEB helps businesses standardize
and automate supply chain processes with the ASSIST4
integrated software suite and through consulting and
other professional services. AEB solutions integrate
global trade and logistics processes, embedding
customs clearance, export controls, and preference
management in solutions that manage the global supply
chain. The result is a faster, smoother, more efficient
flow of goods. ASSIST4 also brings greater transparency
to the supply chain and makes it possible to monitor and
control shipments all the way to their final destination.
AEB is headquartered in Stuttgart, with offices in Hamburg,
Düsseldorf, Munich, and Soest and development centers in
Mainz and Lübeck. AEB has international offices in the
United Kingdom (Leamington Spa), Singapore, Switzerland
(Zurich), Austria (Salzburg), Sweden (Malmö), the
Netherlands (Rotterdam), the Czech Republic (Prague),
France (Paris), and the United States.
© AEB GmbH
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