An issue that all SMEs (small and medium enterprises) should take into account upon trading products in the international market is that just knowing regular name of the merchandise being sold (such as, “apples” or “oranges”) is not sufficient. It is also necessary to indicate the “code” identifying the particular good. This “code” will appear recurrently on all export and import documentation and will be essential for determining applicable tariffs and quotas on the product.

Over 200 countries and 98% of world trade use this product nomenclature system

What is this code? How did it originate? It is a combination of six digits that classifies different products. Over 200 countries and 98% of world trade use this product nomenclature system – known as “Harmonized System” – regulated by the World Customs Organization (WCO).

The Harmonized System (HS) is none other than an international product nomenclature catalog. According to the United Nations Economic Commission for Europe, the objective of this system is to “facilitate trade and information exchange by harmonizing the description, classification and coding of goods in international trade.” 

Six digits

The HS is based on a scheme of chapters, headings and subheadings denoted in the six digits assigned to each commodity group:

• The first two digits correspond to the “chapter” within the catalog. For example, 01 denotes “live animals”, 02 denotes “meat and edible meet offal”, 03 “fish and crustaceans, molluscs and other aquatic invertebrates,” etc. 
• The following two digits correspond to the “heading” within the chapter. For example, within chapter 01 (“live animals”), heading 01 is “live horses, asses, mules and hinnies,” 02 is “live bovine animals”, 03 is “live swine”, etc. Generally, a residual heading is included, which in this case is 06, “other live animals.”
• The last two digits correspond to the “sub-heading” within the heading. For example within heading 01.02 (“live bovine animals”), there are two sub-headings: 10, “pure breeding animals” and 90, “others”. When a sub-heading is residual (as in this case: “others”), it contains a number 9 in any or both digits. When there is no sub-heading, the two digits are replaced by two zeros (00): e.g., heading 37.04 (“photographic plates, film, paper, paperboard and textiles, exposed but not developed”) does not have a sub-heading, whereby all products within this category fall under code 37.04.00.

To give you a full product example, let’s suppose that a Colombian producer wishes to export coffee beans to another country. He should first start by chapter 09, which refers to “coffee, tea, mate and spices”. He should then look under the coffee heading, which is 01. Finally, he should look under the coffee not decaffeinated sub-heading, which is 11. The harmonized code for his product will then be 09.01.11.

Additional digits

Producers will often find that the required code does not contain six digits but rather eight, or even ten. Why? This is because a country can add more digits to the six prescribed by the WCO in order to obtain more detailed specification of a product. 

Peggy Chaplin, an expert attorney in these matters, explains that “the HS is designed as a ‘nucleus’ system, which compels parties to the treaty to use the international six-digit nomenclature as a basis for national import and export tariffs and for statistical purposes. However, the treaty also allows countries adopting the HS to further subdivide its own tariffs based on descriptive or statistical needs. The United States, for example, uses a 10 digit classification.”   

General rules 

However, this system does not fully resolve all issues. For example, what happens if a product can fall under two different categories at the same time?  How can we determine its location? If, for example a product is unassembled but packaged together, must it be considered as the whole product or be determined by each separate piece? 

These questions are not resolved by the chapter, heading, sub-heading system and therefore the HS contains a series of “general rules of interpretation”, for solving these issues.  For example a rule stipulates that if a product is delivered unassembled it should be considered as the complete article, except when there is a specific heading for unassembled or unfinished parts.  

Resolving disputes

Even with the general rules it still may not be clear which code should be applied to a product. In that case, the businessman has two alternatives. One option is to refer the matter to the state courts, seeking correct interpretation of the HS. A second option is to refer the matter to the country of origin to initiate a settlement procedure before the WCO, requesting the country where the problem exists to reconsider its position.