Classification and CBAM

How importing goods at a different stage of processing can affect your CBAM obligations

Your HS code can change for the same commodity after some processing, but did you know that this can also change your obligations? Simone Creviari explains classification and CBAM in this article.

What’s a HS commodity code? 

An HS commodity code is a 10 digit (for imports) number that classifies your goods.  

This code is entered on your import clearance and dictates the duty and VAT you pay, rules of preferential origin, and any additional obligations you may have – such as the need to generate CBAM reports

What is the Carbon Border Adjustment Mechanism (CBAM)? 

The Carbon Border Adjustment Mechanism (CBAM) is a customs initiative in the EU which aims to levy taxes on imported goods for embedded carbon emissions.  

This is to ensure that goods imported into the EU are held to climate goals, alongside the EU Emissions Trading System (ETF) mechanism which is applied to internally produced goods. 

To start with, only commodities of the following sectors will apply for CBAM measures: 

  • Cement 
  • Articles of iron and steel 
  • Fertiliser 
  • Articles of aluminium 
  • Electricity 
  • Hydrogen 
  • Chemicals  

From 1st October 2023 until 31st December 2025, importers of these products will need to report on their trade activity for these products. Full measures and CBAM credits will become applicable from 1st January 2026. 

How does HS classification affect CBAM and vice versa? 

Your commodity code will dictate how many CBAM credits you need to buy to offset the carbon; it is not the same for every product. Also, goods at different stages of production will have different CBAM obligations because of the changing commodity code. 

What this means is that you can weigh up the total cost involved for purchasing, CBAM, processing, and ETF, and decide whether there is now a financial benefit for importing products that have been processed more. 

It is important to note that changing the commodity code incorrectly to give more favourable obligations is noncompliant and cannot be done.  

To avoid risk of noncompliance and to ensure that any CBAM calculations you make are not a waste of time, it is worth working with your customs consultant to apply for binding tariff information (BTI) from customs. BTI can take several weeks to get, depending on your location.  

You need to use the HS code advised in binding tariff information for at least three years, but the transition period is long so it is worth getting. 

What about when special procedures change the HS classification on a CBAM product? 

If you are using a special procedure such as Inward Processing Relief (IPR), then your HS commodity code can change between the import clearance and the closing of the procedure. 

In some cases, the final HS code will have no CBAM obligations, but the raw materials imported will. For example, the transformation of metal bars into insulated wires.  

In these cases where your commodity code changes before the release into free circulation, it is important to note that it is the code used when placing goods under the inward processing procedure that you have CBAM obligations for. You cannot circumvent CBAM by processing the goods before releasing into free circulation. 

Where does origin come into this? 

There are some countries that have partnership agreements with the European Union when it comes to climate policies. These countries already hold manufacturers to environmental standards and tax them for not meeting them, so the cost of the goods already has a climate-tax element to it. 

In these cases, the CBAM is not leveraged as it would be classed as a double tax. 

However, this doesn’t mean that you can move goods from a third country to one of these partners, and then into the EU without taxation. Not all commodities will count as pre-taxed, either. 

There are currently very few exceptions to CBAM obligations, so it is best to assume that you are obligated to report a product unless you have checked with customs and been advised otherwise. 

Need help preparing for CBAM? 

Customs Support is here for you. Providing import clearance and customs consultation to businesses like yours throughout the EU, we’re ready to help you prepare for the Carbon Border Adjustment Mechanism. Speak to one of our experts about getting ready for CBAM today.