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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 for classifying traded products which came into effect in 1988, developed and maintained by the World Customs Organization (WCO) (formerly the Customs Co-operation Council), an independent intergovernmental organization with over 170 member countries based in Brussels, Belgium.
Under the HS Convention, the contracting parties are obliged to base their tariff schedules on the HS nomenclature, although parties set their own rates of duty. The HS is organized into 21 sections and 96 chapters, accompanied with general rules of interpretation and explanatory notes. The system begins by assigning goods to categories of crude and natural products, and from there proceeds to categories with increasing complexity. The codes with the broadest coverage are the first four digits, and are referred to as the heading. The HS therefore sets forth all the international nomenclature through the 6-digit level and, where needed, contains added subdivisions assigned 2 more digits, for a total of 8 at the tariff-rate line (legal) level. Two final (non-legal) digits are assigned as statistical reporting numbers if warranted, for a total of 10 digits to be listed on entries.
To ensure harmonization, the contracting parties must employ all 4- and 6-digit provisions and the international rules and notes without deviation, but are free to adopt additional subcategories and notes. The two final chapters, 98 and 99, are reserved for national use. Chapter 77 is reserved for future international use only. Chapter 98 comprises special classification provisions, and chapter 99 contains temporary modifications pursuant to a parties' national directive or legislation.
All existing products can be classified into the existing HS utilizing the General Rules of Interpretation. This structure allows for placement through research of the products form and function. An example of the former would be whole potatoes, while an example of the latter would be a resistance heated electric oven
The classification will 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, Subheader 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.
The classification for an electric oven depends on whether the oven is for domestic or industrial use. An electric oven for domestic use is classified in position 8516.60 under the Header Electric instantaneous or storage water heaters and immersion heaters; electric space heating apparatus and soil heating apparatus; electrothermic hairdressing apparatus and hand dryers; electric flatirons; other electrothermic appliances of a kind used for domestic purposes; electric heating resistors, other than those of heading 8545; parts thereof, Subheader Other ovens; cooking stoves, ranges, cooking plates, boiling rings, grillers and roasters.
Industrial electric ovens are classified in position 8514.10 under the Header Industrial or laboratory electric furnaces and ovens (including those functioning by induction or dielectric loss); other industrial or laboratory equipment for the heat treatment of materials by induction or dielectric loss; parts thereof, Subheader Resistance heated furnaces and ovens .
This applies to all products for classification and is able to accept new products for which there is no current classification through the use of the Other classification. This term encompasses all products of the nature in which the Header and Subheader describe.
The potatoes in the first example fall into this category, as they can also describe genetically modified potatoes, which were not available during the elaboration of the first HS.
Codes have been revised through the years. If it is necessary to reference a code related to a trade issue from the past, one must make sure the definition set being used matches the code.
So a proper classification can save huge amount of money for the company which is why nowadays importers and exporters are dying to find a perfect way to solve those problems above.