Harmonized System (HS)

What is the Harmonized System (HS)?

The Harmonized Commodity Description and Coding System (HS) is an internationally standardized system of names and numbers for classifying traded products. Developed and maintained by the World Customs Organization (WCO), the HS is used by more than 200 countries as a basis for their customs tariffs and for the collection of international trade statistics. It encompasses approximately 5,300 commodity groups, each identified by a six-digit code, structured in a legal and logical framework to ensure uniform classification across different countries. This system serves as a universal economic language and coding system for goods, playing a critical role in facilitating international trade.

The HS is governed by "The International Convention on the Harmonized Commodity Description and Coding System," which provides the legal foundation for its implementation globally.

Administration of the Harmonized System

The World Customs Organization administers the international Harmonized System, which serves as the foundation for import and export classification systems used in various countries, including the United States. In the U.S., the Harmonized Tariff Schedule (HTS) is utilized for imports and is managed by the U.S. International Trade Commission (USITC). For exports, the Schedule B system is administered by the U.S. Census Bureau’s Foreign Trade Division. Both systems rely on the HS codes for their 4- and 6-digit headings and subheadings, ensuring consistency in classification.

The WCO updates the HS System approximately every five years to accommodate changes in trade patterns. The most recent revision occurred in 2022, reflecting the dynamic nature of global trade and the need for updated classifications.

The Harmonized Tariff Schedule of the United States is a comprehensive list of tariffs imposed on all products imported into the country. It is a vital tool for businesses involved in international trade, as it determines the applicable duties on imported goods.

Decoding an HS Number

Understanding how to read an HS number is crucial for businesses engaged in international trade. Each HS number consists of several components that provide specific information about the product:

• Section: Represents a broad category of goods.
• Chapter: Specifies a more detailed classification within the section.
• Heading: Further narrows down the product category.
• Subheading: Provides the most detailed classification, often indicating the material composition or specific use of the product.

Example:

What is a Schedule B Number?

A Schedule B number is a 10-digit code used in the United States to classify physical goods for export to other countries. This system is based on the international HS framework and is essential for export documentation. Each physical product, from golf shoes to helicopters, is assigned a unique Schedule B number, facilitating accurate export reporting and compliance with trade regulations.

Applications of the Harmonized System

The HS is a versatile tool used for various purposes in international trade and beyond:

• Customs Tariffs: More than 200 countries utilize the HS as the basis for their customs tariffs, ensuring consistency in tariff application.
• Trade Statistics: Over 98% of international trade merchandise is classified using the HS, enabling precise data collection and analysis.
• Harmonization of Procedures: The HS contributes to the harmonization of customs and trade procedures, reducing documentation and administrative costs.
• Non-Documentary Data Interchange: Facilitates the electronic exchange of trade data, streamlining international transactions.

The HS is also extensively used by governments, international organizations, and the private sector for:

• Internal taxes
• Trade policies
• Monitoring controlled goods
• Rules of origin
• Freight tariffs
• Transport statistics
• Price monitoring
• Quota controls
• Compilation of national accounts
• Economic research and analysis

Importance of Knowing Your Product's Schedule B and HS Number

For exporters, understanding their product's Schedule B and HS number is critical for several reasons:

• Import Tariff Rates: Determines applicable import duties and eligibility for preferential tariffs under Free Trade Agreements.
• Export Documentation: Required for filing Electronic Export Information in the Automated Export System (AES) and completing shipping documents like certificates of origin.

Why is the Harmonized System Important?

• It classifies all goods according to the international Harmonized Commodity Coding and Classification System (Harmonized System) which has been established by the World Customs Organization.
• Virtually all countries base their tariff schedules on the Harmonized System, making it easier to conduct international trade.

For more information, you can visit the World Customs Organization's page on the Harmonized System: What is the Harmonized System?

For more on how classification systems like SIC and NAICS codes relate to specific industries, you can explore:

• Pharmaceutical Preparations (SIC Code 2834)
• Pharmaceutical Preparation Manufacturing (NAICS Code 325412)