Substantially all countries follow the Harmonized System (HS) of tariff classification developed and maintained by the Word Customs Organization (WCO) under an agreement among its 180 members known as the International Convention on the Harmonized Commodity Description and Coding System. The HS has many uses, but there are three principal ones:
- Customs duties or tariffs on imported goods are generally applied to specific categories of goods, known as headings, subheadings or tariff items.
- Rules of origin in free trade agreements are often based on a “tariff shift” between the HS classification of raw materials and the HS classification of a finished good.
- Most countries gather trade statistics according to HS codes.
The HS is organized into 21 sections and 98 chapters (2 digits), generally in ascending order of the sophistication and complexity involved in producing a good. For example:
- Cattle are in Chapter 1; beef in Chapter 2; sausages in Chapter 16; raw hides and leather in Chapter 41 and leather jackets in Chapter 42.
- Iron ore is in Chapter 26; flat-rolled steel in Chapter 72; pipes, nuts and bolts in Chapter 73, tools in Chapter 82 and automobiles in Chapter 87.
The Chapters are divided into 1,244 headings (4 digits) and 5,224 subheadings (6 digits) collectively known as the “Nomenclature”. Each subheading describes a narrow range of goods. The Nomenclature is identical to the subheading level for all countries. Each country adds up to four extra digits to subdivide goods into narrower categories for tariff and statistical purposes. Most countries have around 10,000 different “tariff items”, each with a separate duty rate for each category of origin.
This link takes you to a listing of the chapters provided by the WCO. Beside each chapter is another link that takes you to the headings, subheadings and legal notes for that chapter. The WCO also publishes detailed Explanatory Notes, available by subscription, which provide interpretation as to what is included and excluded under the various sections, chapters, headings and subheadings. These Notes are generally used by customs and trade professionals, and would rarely be practical for traders dealing in a narrow range of goods. A more practical alternative for most traders is the Explanatory Notes to the Combined Nomenclature of the European Union, a 392 page document published in PDF format by the European Commission. It goes out to 8 digits, so it includes some tariff item categories unique to the EU, but it is useful everywhere.
HS classificartion is often straightforward once one has reasonable knowledge of the good and experience with the Nomenclature. However, it is not uncommon to find that more than one tariff item might apply. The General Rules for the Interpretation of the Harmonized System may be used to resolve many of these conflicts, but mistakes and disagreements are not uncommon. The Canadian International Trade Tribunal and its predecessors have heard hundreds of cases involving disputes over tariff classification between importers and the CBSA.
When using the HS it is important to read the section and chapter notes, which may include definitions, exclusions or inclusions for specific goods or classes of goods. Within the headings you will often see a number of dashes. Two dash subheadings are subsidiary to one dash subheadings; i.e., you compare one dash subheadings first, and then, if necessary, two dash subheadings (and so on if there are three or more dashes).
Sources of Information and Education
The WCO publishes the HS Classification Handbook, which provides detailed information on the subjects discussed above, and many others.
The United States International Trade Commission publishes an online course that takes the reader through all the steps of interpreting the American HTS in about three hours. The examples are excellent.
An article by Taichi Kawazoe entitled The Fundamentals of HS Classification provides another excellent source of examples of how the HS is applied in practice.