The language of international trade
Every day, millions of pounds worth of goods are traded from every corner of the world. These goods come from every sector and origin imaginable and are traded between both neighbouring nations and countries oceans away.
There are approximately 6,500 different languages spoken in the world and, with more than £19 trillion worth of goods traded every year across the globe, businesses and customs authorities must be able to communicate. This is why the universal language of international trade was introduced: the Harmonised System.
In 1988, the ‘Harmonised System’ (HS), also known as the ‘Commodity Code System’ was brought about by the World Customs Organization (WCO) as they recognised the importance of establishing a tool to help traders and regulatory authorities worldwide communicate. Currently, only 160 countries and the European Community have officed contracted the system, but more than 212 countries actively use it to facilitate their everyday trading. This means that HS is currently used to classify more than 98% of all international trade.
What is the Harmonised System?
The Harmonised System is a multipurpose international product language system. It was developed to help traders and customs authorities identify the traded goods through a shared nomenclature system, which removes barriers in trading and speeds up the import and export process.
The system has expanded its reach and purpose over the years and now is used for purposes such as collection of trading statistics, monitoring controlled and dual-use goods, identification of preferential and non-preferential origins, and follow-up trade negotiations.
Simply put, the Harmonised System is a classification system in which every product is assigned an individual code which is then used by trading parties to avoid confusion caused by language or even varying definitions. This is why it is important for all businesses looking to explore foreign markets to become familiar with the Harmonised System and the tariff codes relevant to their traded goods.
How does the Harmonised System work?
The system is arranged in a logical structure which allows users to classify goods. This classification is organised by categories and subdivisions known as chapters, headings, and sub-headings. Each of these is represented by a two-digital number, that when put all together forms a six-digit set known as a ‘commodity code’ or ‘tariff number’.
There are 21 sections, 99 chapters, 1,244 headings and 5,224 subheadings; the higher the number of digits in the commodity code, the more detailed the category will be.
For example:
Although the codes are worldwide standard up to six digits, some countries apply further subdivisions, expanding the codes up to eight to ten digits long. This allows these countries to create national tariff lines, in which the first six digitals will be identical worldwide, but any further digits are for local use only. In the UK, for example, the national tariff comprises eight digits for exports and ten digits for imports.
To classify goods traded with the UK as well as to determine what duties, taxes and restrictions will apply to the imported and exported goods, traders can use the UK Integrated Online Tariff Tool. This information will also depend on the country of origin of the goods. Please refer to our Learning Module: Rules of Origin – Key access to preferential duty rates for more information on this subject.
Why is it important to get the classification right?
The Harmonised System has several different uses and benefits, but the one that correlates the most with traders is that of the accurate calculation of payable duties and taxes, and any other applicable restrictions (such as anti-dumping duties, safeguarding measures, tariff quotas and licences required). The correct classification of goods means the declaration made to customs authorities will be correct, the duties accurately paid and the trade compliant.
Declaring an incorrect tariff code can be perceived as a lack of compliance and can have severe consequences for the traders, such as the retroactive recovery of any unpaid duties or the confiscation of the goods and high fines imposed on the trader.
Where can I get help?
Navigating the Harmonised System can be daunting and at times difficult to understand. This is why traders often rely on experts to ensure their goods are correctly classified. It is important to note that the important and exporter are each responsible for the correct classification, even if the goods were classified by a specialist or the declaration was submitted through a third party (i.e., a customs agent).
There are several sources of support available:
For more information or support, please visit the LCCI website or email us
Produced by Elizabeth Skewes - Trade Services and Business Development Executive at LCCI.
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