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A harmonized system tariff refers to a tariff that is categorized by the Harmonized Commodity Description and Coding Systems, also called the Harmonized System (HS). The HS has categories for over 5,000 commodities and is used by approximately 200 countries around the world in their harmonized tariff schedules. The HS governs approximately 98% of all international trade interactions. The HS is maintained and updated by the World Customs Organization (WCO), based in Brussels, Belgium.
The HS works by classifying all commodities that cross an international boundary. Each commodity classified in the harmonized system tariff code is given a unique six digit classification number. A commodity is usually classified according to its substance or use. The first four numbers are called the heading, and the next two digits are the subheading. For example, all coffee is given the heading number, 0901, but decaffeinated coffee has a subheading of 22, making its full harmonized system tariff code 0901.22.
This six digit classification number is used in full and without change by all the countries that use the HS in their tariff schedules. Even though the affiliate countries cannot change the base six digits, they will often add between two and six digits to the end of the tariff number for their own tariff rate system, and for statistical research purposes. As a result, all participating HS countries are able to share a common naming system, while still tracking country-specific customs information.
Harmonized system tariff classification came into existence in the early 1970s. With the rise of international trade and global communications, countries needed a way to classify international trade in a common, or harmonized, manner. The HS strives to meet this need for a common catalog of commodities with its harmonized system. The HS is updated every five or six years in order to keep up with changes in technology and commerce.
The harmonized system tariff can be utilized by countries and organizations for a variety of purposes. First, the HS can be a useful tool in tracking trends in international trade and customs tariffs. This information can be useful for governments in creating policies that govern international trade and customs tariff law. For example, it may be useful in conducting trade negotiations or drafting trade agreements. The HS may also be useful for monitoring controlled substances and their components, such as chemicals that could be used to manufacture illicit drugs.