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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.
The process of assigning HS codes is known as "HS Classification". All products can be classified in the HS by using the General Rules for the Interpretation of the Harmonized System (GRI). HS codes can be determined by a variety of factors including a product's composition, its form and its function. An example of a product classified according to its form would be whole potatoes. The classification will also change depending on whether the potatoes are fresh or frozen. Fresh potatoes are classified in position 0701.90, under the Header Potatoes, fresh or chilled, Sub header Other, while frozen potatoes are classified in position 0710.10 under the Header Vegetables (uncooked or cooked by steaming or boiling in water), frozen, Subheader Potatoes.
An example of a product classified according its material composition is a picture frame. Picture frames made of wood are classified under subheading 4414.00, which provides for Wooden frames for paintings, photographs, mirrors or similar objects. Picture frames made of plastic are classified under subheading 3924.90, which provides for Tableware, kitchenware, other household articles and hygienic or toilet articles, of plastics. Other. Picture frames made of glass are classified under subheading 7020.00, which provides for Other articles of glass. And so on.
An example of a product classified according to its form is personal hygiene soap. When in the form of a bar, cake or moulded shape, such soap is classified under subheading 3401.11, which provides for Soap and organic surface-active products and preparations, in the form of bars, cakes, moulded pieces or shapes, and paper, wadding, felt and nonwovens, impregnated, coated or covered with soap or detergent: For toilet use (including medicated products). Conversely, liquid personal hygiene soap is classified under either 3401.20, which provides for Soap in other forms, or 3401.30, which provides for Organic surface-active products and preparations for washing the skin, in the form of liquid or cream and put up for retail sale, whether or not containing soap.
An example of a product classified according to its function is a carbon monoxide (CO) detector. If the CO detector captures and displays gas measurements, then it is properly classified under subheading 9027.10, which provides for Instruments and apparatus for physical or chemical analysis (for example, polarimeters, refractometers, spectrometers, gas or smoke analysis apparatus; instruments and apparatus for measuring or checking viscosity, porosity, expansion, surface tension or the like; instruments and apparatus for measuring or checking quantities of heat, sound or light (including exposure meters); microtomes. Gas or smoke analysis apparatus. If the CO detector does not capture and display gas measurements, then it is properly classified under subheading 8531.10, which provides for Electric sound or visual signaling apparatus (for example, bells, sirens, indicator panels, burglar or fire alarms), other than those of heading 85.12 or 85.30. Burglar or fire alarms and similar apparatus.
Although every product and every part of every product is classifiable in the HS, very few are explicitly described in the HS nomenclature. Any product for which there is no explicit description can be classified under a "residual" or "basket" heading or subheading, which provide for Other goods. Residual codes normally occur last in numerical order under their related headings and subheadings.
An example of a product classified under a residual heading is a live dog, which must be classified under heading 01.06, which provides for Other live animals because dogs are not covered by headings 01.01 through 01.05, which explicitly provide for live equine, live bovine, live swine, live sheep and goats, and live poultry, respectively.
As of 2015, there were 180 countries or territories applying the Harmonized System worldwide.
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:
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, wildlife trade.
Areas of Customs controls and procedures, including risk assessment, information technology and compliance.
Companies use HS codes to calculate the total landed cost of imported products and parts, and to identify selling and sourcing opportunities abroad.
Challenges in classification for companies
HS classification is not always straightforward. Many automotive parts, for example, are not classified under heading 87.08, which provides for Parts and accessories of the motor vehicles of headings 87.01 to 87.05. Automotive seats are classified as articles of furniture under heading 94.01, which provides for Seats (other than those of heading 94.02), whether or not convertible into beds, and parts thereof, and more specifically under subheading 9401.20, which provides for Seats of a kind used for motor vehicles.
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.