The World Customs Organisation (WCO), the intergovernmental body of the world’s customs administrations, is giving serious consideration to reviewing the Harmonised System (HS) of customs tariff coding if there is general agreement that improvements can be made regarding its functioning and usability.

The Harmonized Commodity Description and Coding System, generally referred to as "the Harmonized System" or simply "the HS" is the multipurpose international product nomenclature developed by the WCO. It comprises more than 5,000 commodity groups; each identified by a six-digit code, supported by well-defined rules to achieve uniform classification. The system is used worldwide as the basis for customs tariffs and for the collection of international trade statistics, among other things, promoting a base level of global uniformity in the classification of traded goods.

However, the international trading system, customs, and products have changed significantly since the HS’s introduction in 1988, and it is important that the nomenclature is aligned with these developments so that its effectiveness is maintained for the trade of tomorrow as well as that of today. Therefore, the WCO is canvassing opinion from a wide range of interested parties, in both the public and private spheres, on the possible modernisation of the HS.

Use of the current HS is viewed by many as challenging given the diversity of users, the pace of today’s trade, rapid product changes, and the requirements of policymakers. Therefore, the WCO is seeking to identify and review where improvements might be made (aside from the changes already covered by the existing, typically five-year, review cycles - the next version will be ‘HS 2028’), adopting a holistic approach encompassing not only the codes but also the associated Explanatory Notes, Compendium of Classification Opinions, and related WCO Trade Tools. Any recommendations made following the research undertaken are likely to be carefully considered.

Whilst a work in progress, preliminary indications are that there are improvements that can be made, of benefit to Customs administrations and business users alike.

Main Issues

General Interpretive Rules (GIR)

It is generally felt that the GIRs are difficult to access, understand and use. They are also widely seen as being ambiguous and subjective and therefore unhelpful in that respect. The consensus seems to be that the GIRs or the structure of the HS needs simplifying.

Also, it looks likely that current GIR guidance material in the Harmonised System Explanatory Notes (HSEN) may be reviewed to improve clarity, and consideration may also be given to making certain guidance publicly available.

HS Notes and Their Usability and Relationship to Terms

Where there are legal definitions provided in the notes their clarity and ease of location can vary. Also, non-expert users have difficulty understanding the relationship between the Notes that direct the means of classification, and the GIRs.

The Notes are intended to make classification easier and provide clarity on what goods are covered, however awareness of them, the need to cross-reference a number of areas in some cases, and the fact that notes can seem to contradict one another, is seen as problematic and thereby counter-productive.

It is likely that ways of improving awareness of the HS Notes and their usability, in terms of understanding the interactions between notes, will be looked into. As well as ways of introducing more legal certainty.

Clarity of HS Notes

The language used in the notes can be a barrier for many users. So, consideration is being given to reviewing the language of the HS for consistency and clarity. Thought is also being given as to what extent use should be made of recognised standards and common industry definitions.

Use of Certification

Some would like to use certification to identify some goods at the border on the basis of characteristics where certification is currently the only feasible method to use. However, there are challenges around using standards, where there may be no one globally recognised certification system for any particular commodity, or where standards are changed which change the goods covered by it. There is also the matter of cost.

Consideration is being given to what would be required for such alternative methods of identification and verification to be considered for incorporation into the HS.

Public Policy and Product Identification

There is increasing expectation that Customs and the HS will be able to support governments and international bodies in public policy initiatives requiring the identification of certain categories of traded trade goods, for monitoring, measurement and control purposes. Goods categories such as those considered environmentally sensitive, critical goods based on the value chains involved (e.g. pharmaceutical manufacturing), or the satisfying of certain end uses (e.g. personal protective equipment for medical staff) etc.

However, the HS is a product classification system not a product identification system. The HS does not have classifications that are restricted to specific products, it creates classifications that are for descriptions of a class of products.

Thought has been given to how the HS might work with a product identification system, however as yet there is no single product identification system that covers all tradable goods (GS1’s Global Trade Item Number (GTIN) system is said to come closest).

Expansion of the HS Nomenclature

The existing six-digit nomenclature may be expanded to eight, to allow for greater granularity where required, that is, to increase the capacity to classify goods more specifically.

In general, the requirement the WCO faces HS-wise for the future is to discover a way to balance the need to create broad classes that will ensure the classification of all possible goods, with the need to also create narrowly defined classes that will capture goods of particular interest, without the coverage of these broad and narrow categories overlapping.

The HS is a complex system which, for many goods, requires a high level of skill to use as intended. This complexity creates difficulties for people working in organisations involved in international trade, increasing the time and resources required by both Customs and business to develop and retain knowledgeable staff, and making incorrect classification decisions, and therefore non-compliance, more likely. As if this is not challenging enough, the WCO acknowledges that: ‘In addition, the increasing pace of technological development, the growing volume of multi-functional, multi-purpose or composite goods, and the increasing diversification of product offerings on the market will all contribute to the challenges of classification increasing into the future, putting added strain on the work of Customs and trade.’

This WCO study is therefore reviewing a range of options for either diminishing the complexity of the HS or to provide the means to mitigate a proportion of it. That the HS will not be able to do all that is likely to be asked of it going forward is taken as a given. However, it is reckoned that the HS can be strengthened to better meet the future demands made upon it, and where it may fall short, it may be possible to augment it with existing or new trade ‘tools’ and/or systems.

It is also recognised that there is a need for more public information, guidance and tools on the HS, and better access for what is currently available, so that classifications using the code can become more consistent and predictable, thereby improving international trade compliance and the reliability of classifications on import and export declarations worldwide.

Source: WCO’s ‘Exploratory Study on a Possible Strategic Review of the Harmonised System (HS) – Interim Report (Public Version).’

This article was written by Christopher Starns, Customs & Trade Advisor (BKR Consultants Limited).