Harmonized system (HS) of tariff nomenclature:
The Harmonized Commodity Description and Coding System, also known as the Harmonized System (HS) of tariff nomenclature is an internationally standardized system of names and numbers to classify traded products. It came into effect in 1988 and has since been developed and maintained by the World Customs Organization (WCO) (formerly the Customs Co-operation Council), an independent intergovernmental organization based in Brussels, Belgium, with over 200 member countries.
Fundamentally, the HS is organized logically by economic activity or component material. For example, animals and animal products are found in one section of the HS, while machinery and mechanical appliances are found in another. The HS is organized into 21 sections, which are subdivided into 96 chapters. The 96 HS chapters are further subdivided into approximately 5,000 headings and subheadings.
The HS code consists of 6-digits. The first two digits designate the HS Chapter. The second two digits designate the HS heading. The third two digits designate the HS subheading. HS code 1006.30, for example indicates Chapter 10 (Cereals), Heading 06 (Rice), and Subheading 30 (Semi-milled or wholly milled rice, whether or not polished or glazed).
In addition to the HS codes and commodity descriptions, each Section and Chapter of the HS is prefaced by Legal Notes, which are designed to clarify the proper classification of goods.
To ensure harmonization, the contracting parties to the Convention on the Harmonized Commodity Description and Coding System, have agreed to base their national tariff schedules on the HS nomenclature and Legal Notes. Parties are permitted to subdivide the HS nomenclature beyond 6-digits and add their own Legal Notes according to their own tariff and statistical requirements. Parties often set their customs duties at the 8-digit “tariff code” level. Statistical suffixes are often added to the 8-digit tariff code for a total of 10 digits.
HS Chapter 77 is reserved for common use by the parties internationally. Chapters 98 and 99 are reserved for national use. Chapter 98 comprises special classification provisions, and chapter 99 contains temporary modifications pursuant to a parties’ national directive or legislation.
Since its creation, the HS has undergone several revisions – ostensibly, to either eliminate headings and subheadings describing commodities that are no longer traded, or to create headings and subheadings that address technological advancements and environmental concerns.
- HS code are used by Customs authorities, statistical agencies, and other government regulatory bodies, to monitor and control the import and export of commodities through:
- Customs tariffs
- Collection of international trade statistics
- Rules of origin
- Collection of internal taxes
- Trade negotiations (e.g., the World Trade Organization schedules of tariff concessions)
- Transport tariffs and statistics
- Monitoring of controlled goods (e.g., wastes, narcotics, chemical weapons, ozone layer depleting substances, endangered species)
- Areas of Customs controls and procedures, including risk assessment, information technology and compliance.
HS classification is not always straight forward. In many jurisdictions, traders alone bear the legal responsibility to accurately classify their goods. Depending on the severity of the infraction, incorrect classification can result in the imposition of non-compliance penalties, border delays or seizures, or denial of import privileges.