Harmonized System

The harmonized system, or as it is more formally known, the harmonized commodity description and coding system, is an international classification system designed to facilitate the collection of trade statistics as well as to assist in the collection of tariffs and customs duties. For decades, individual nations used their own systems for classifying goods and services. Without a universal standard, it was difficult or impossible to categorize correctly merchandise for collecting tariffs, customs duties, or for reporting purposes. To resolve this problem, the World Customs Organization (WCO) developed the harmonized system. In this system, the WCO describes all products [Page 805]through a standardized six-digit harmonized system (HS) code. The six-digit number classifies goods by chapter, heading, and subheading. The United States and other developed countries have added additional commodity codes increasing the number to 10 digits.

The system is quite complex; the complete harmonized tariff schedule has approximately 5,000 item descriptions grouped into 22 sections and 97 chapters (the U.S. version has 99 chapters). In addition to customs use, HS codes provide a data set for international market research. HS codes are not the only system for comparing data on industry structure and trade. In the United States, the Standard International Trade Classification (SITC) and North American Industry Classification are also used. For purposes of trade documentation and trade data, however, the harmonized system is the world standard.

History

Prior to the development of the harmonized system, each country maintained its own system. Exporters needed specialized staff whose role was to properly code goods for entry into different markets. Specialty publishers created concordances that linked one country's system to another. The complexity of the system made it difficult for small companies to trade without employing customs brokers or other intermediaries.

In 1970 a group known as the Brussels Tariff Nomenclature Group published a study that found that a uniform system of coding was both desirable and possible. That original group became the Customs Cooperation Council (CCC) and, with the help of more than 45 countries, implemented the first Harmonized Commodity Description and Coding System. In 1994 the CCC changed to its current name, the World Customs Organization. The WCO engages representatives from its nearly 200 member countries to maintain and update the HS code system and to provide advice and policy recommendations for national customs services.

System Organization

The 10-digit HS code number classifies goods by chapter, heading, subheading, and commodity codes. Each chapter begins with a domain statement that describes goods that are included in the chapter and then goods one would exclude. As an example, Chapter 92 of the code describes musical instruments and accessories. The domain indicates the instruments are acoustic (not amplified), are not toys, would not be considered collectibles or antiques, and do not include any instrument cases. Under Chapter 92 are discrete four-digit headings (e.g., HS 9201 for pianos, HS 9202 for stringed instruments, HS 9205 for wind instruments).

The WCO refers to the six-digit HS code as the subheading—a classification that provides more information. If we consider the heading HS 9202 for stringed instruments, we discover that HS 9202.10 describes instruments played with a bow (violin, viola, cello), where HS 9202.90 describes non-bowed instruments (guitars). The last digits help provide very specific information for use with the importing country's tariff schedule. For example, HS 9202.90.20 informs a customs official that the acoustic guitar in question costs less than $100.

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