New tariff code streamlines global trading system - Harmonized Commodity Description and Coding System

New Tariff Code Streamlines Global Trading System

The Harmonized System (HS) is an international goods classification system designed to be used by manufacturers, transporters, exporters, customs officials and statisticians, among others. It was developed under the auspices of the Customs Cooperation Council (CCC) in Brussels, Belgium and is based on the Customs Cooperation Council Nomenclature (CCCN), formerly known as the Brussels Tariff Nomenclature (BTN). The HS is more detailed and contains many new subdivisions to reflect changes in technology, trade patterns, and user requirements.

When the United States adopts the Harmonized System, it will replace the Tariff Schedules of the United States Annotated (TSUSA) and Schedule B. The U.S. import and export schedules under the HS will be nearly identical and completely compatible. The only differences will occur with regard to level of detail; in some areas, such as textiles, the import schedule will need to be subdivided in much finer detail than is necessary for exports.

In addition, both the U.S. import and export schedules will be identical through the first six digits with those of our trading partners adopting the Harmonized System.

Under the current system, a product may be given one code when it is imported, a separate code when it is exported, and various other codes in foreign countries. If the Harmonized System were applied on a worldwide basis, any single product would share a common six-digit base code. National subdivisions beyond the six-digit level are possible for tariff and statistical purposes.

The system will also provide U.S. exporters with information concerning the tariff classification of their goods in other countries as well as a procedure for bringing goods classification disputes before an international customs council. While the above changes will result from adoption of the Harmonized System, existing importer /exporter judicial rights will remain unchanged.

The international trading community, both the public and private sector, has for years had to confront the application of diverse classification systems. Use of so many different systems has complicated the preparation of documents, hampered the analysis of trade data, created uncertainty in the negotiation and interpretation of trade agreements, impeded the development of standardized forms, and slowed the use of electronic data processing in international transactions. The use of one common system would eliminate many of these problems. Use of a common system would also accelerate the movement of goods and their associated paperwork. International traders would no longer have to redescribe and re-code goods as they moved through the international marketplace. Finally, the elimination of the above-mentioned obstacles would save time and money.

Origin and Development of the Harmonized System

In June 1973, a Customs Cooperation Council (CCC) Study Group, after two years of deliberation, recommended the development of an international goods classification system. As a result of the recommendation, the CCC established the Harmonized System Committee (HSC) to develop the new system. The Harmonized System Committee was truly an international group, composed of representatives from many countries and international organizations, which enabled it to assess the interests of various countries, organizations, and industries in developing the Harmonized System (HS).

Both the U.S. Government and the U.S. private sector contributed considerable time and energy to the development and preparation of the U.S. comments on the various chapters of the Harmonized System. The International Trade Commission (ITC) held three separate hearings on groups of draft chapters. It received approximately 270 written comments from numerous industries, associations, individuals, and various government agencies, including the Departments of the Treasury (Customs Service), Commerce (International Trade Administration and the Bureau of the Census), and Agriculture (Foreign Agricultural Service). The HSC adopted many of the U.S. proposals and incorporated them into the Harmonized System.

U.S. Customs officials chaired the U.S. delegations to the Harmonized System Committee sessions. The U.S. delegations included government officials from other agencies, too, such as the Departments of Agriculture and Commerce (both the Bureau of the Census and the International Trade Administration), the U.S. International Trade Commission, and the Office of the U.S. Trade Representative. Experts from the private sector were also part of the delegation, including representatives from the electronics, footwear, glass, paper, steel, and textile industries.

Basics of the Harmonized System

The Harmonized System was opened for signature in June 1983. It is designed as a core system which can serve as an entire goods classification system for a country or, as in the case of the United States and most developed countries, as the basis for an expanded national goods classification system at the international level. It is divided into 21 Sections and 97 Chapters, with Chapters 98 and 99 being reserved for national use. In the United States, there will be a 22nd Section containing two national chapters. Chapter 98 will contain special U.S. classification provisions currently found in Schedule 8 of the TSUSA, and Chapter 99 will contain temporary legislation, temporary modifications pursuant to trade agreements, and additional import restrictions proclaimed pursuant to Section 22 of the Agricultural Adjustment Act, as amended.

As with the present tariff schedules, the HS starts with agricultural products and ends with industrial high-technology products. It attempts to group together all goods of a single industry in a single chapter or group of chapters. It classifies, in the same chapter, all goods obtained from the same raw materials and arranges them progressively within each chapter, starting with the raw material and progressing to the finished product. There are exceptions to this principle, particularly when an industry uses a variety of raw materials.

The Harmonized System consists of 5,019 four-digit headings and subheadings. Developing countries will be able, under certain circumstances, to adopt the system at the four-digit level; developed countries, however, must use all six digits. The first two digits represent the chapter in which the goods are found, the next two digits represent the place within the chapter where the goods are described, and the next two digits represent the international subdivisions within the heading. The United States will further subdivide the 5,019 six-digit international headings and subheadings into approximately 8,800 eight-digit rate lines, or classification lines, and into approximately 12,000 ten-digit statistical reporting numbers. This represents an increase in rate lines of about 1,500 and a decrease of about 2,000 in the statistical reporting numbers from the present system.

The Harmonized System proper will consist not only of the four and six-digit headings, but also of Chapter and Section Notes as well as General Rules of Interpretation. All of these will be part of the legal system and will be legally binding in countries accepting the Harmonized System Convention. They must be followed in determining how goods are to be classified in the system, whether it be for export or import purposes. These legal notes and interpretative rules are similar to the Headnotes to the current TSUSA.

Adoption of the Harmonized System will not affect the judicial review rights that importers and exporters now have. An importer will still be able to litigate a question in U.S. Courts, and an exporter will still be able to have his agent in the importing country take the case before the courts of that country. Adoption of the Harmonized System will neither circumscribe nor enlarge the judicial rights of importers and exporters.

Benefits to International Traders

Exporters and importers will benefit from the adoption of the Harmonized System in many ways. For example, the use of one worldwide classification system, in which all products have the same six-digit code, will facilitate the collection of reliable trade statistics, thus simplifying market analysis. Under the current system, one product may be reported in several different codes.

Exporters will find it easier to track the tariff treatment that other countries are applying to their goods since, under the Harmonized System, the product will have the same six-digit code in both countries. Agencies such as the Department of Commerce, the Bureau of the Census, and the U.S. Customs Service can supply exporters with the six-digit code.

U.S. businesses can now use the same six-digit code for their exported and imported goods. An exporter who does not know the full export code can use the import code on the Shippers Export Declaration.

Worldwide use of the same coding system will facilitate the monitoring of trade agreements and trade concessions. The use of a common classification system will help U.S. exporters determine whether their exported goods are receiving the treatment agreed upon. By the same token, importers can more easily monitor the treatment of competitive goods.

Under the Harmonized System, U.S. traders will, for the first time in trading history, have a voice regarding the classification of U.S. exports by foreign governments. Any controversy over the classification of goods can be brought before the Harmonized System Committee and the Customs Cooperation Council in Brussels where contracting countries to the Harmonized System can present written views and documentation, make oral arguments, and finally, vote on goods classification.

Both government and the private sector would benefit from the adoption of the Harmonized System. It will lower costs and simplify the coding, description, movement, and tracking of goods traded in the international marketplace.

Photo: The Harmonized System of goods classification will assign any single product a common six-digit base code. International traders will no longer have to redescribe and re-code goods as they move through the international marketplace.

COPYRIGHT 1987 U.S. Government Printing Office
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