With over US$ 15 trillion worth of goods moving around the world, how do you know what is crossing your border?
This is the issue that the Harmonized Commodity Description and Coding System (popularly known as the Harmonized System or the HS) is designed to address. It is a nomenclature which enables all physical goods moving across borders to be assigned to a class in a uniform manner all over the world.
Thanks to its versatile structure and multipurpose nature, the HS is a true “language of international trade”. It is used, as of December 2018, as the basis for Customs tariffs and for the compilation of international trade statistics, by more than 200 economies and Customs or Economic Unions (of which 157 are Contracting Parties to the HS Convention).
The HS is one of the most successful instruments developed by the World Customs Organization (WCO) because it addresses a fundamental need of governments: the ability to categorize what is being traded. This enables both decisions on immediate actions for specific goods (for example duty collections, restrictions or controls) and the use of the collated information to underpin economic and trade related policies and planning.
Governments and businesses alike use the HS’s identification and coding of merchandise to facilitate international trade and regulation. The HS is, therefore, an important instrument not only for the WCO but also for all institutions, public or private, involved in world trade.
While the HS has many uses, its first and fundamental purpose is the categorisation of goods so that governments can assign and collect import duties and taxes. The WCO has 183 Members (as of December 2018), approximately three quarters of which could be characterized as developing or in transition to a market economy. A large percentage of these Members depend to an important extent on Customs duties for their national revenues. However, the HS is more than just a tool for creating tariffs for duty collection.
It is used within many other areas of government regulation and business practices, for example, rules of origin, monitoring of controlled goods, internal taxes, freight tariffs, quota controls and statistical reporting. The statistical data it provides is developed into national and international trade information that informs trade policy, economic research and analysis, and corporate decisions. Goods need to be properly classified to enable correct revenue collection.
In addition, accurate classification is required to ensure that the use of the HS in regulating trade and in providing the data for trade statistics and policy is not compromised. The more accurate the application of the HS, the more it serves the needs of its users. This serves to emphasize the importance of proper application of the HS for day-to-day Customs work,policy development and trade.