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The main goal of a harmonized tariff schedule is to create a common reference point for international trade. It gives countries a standard naming system for classifying goods and commodities that cross their borders. Approximately 200 countries around the world base their harmonized tariff schedules on the Harmonized Commodity Description and Coding Systems, also known as the Harmonized System (HS). In addition to the HS, most countries keep their own supplemental tariff information to help track duty rates and trade statistics.
In a harmonized tariff schedule based on the HS, goods and commodities are separated into sections and chapters, according to their use or substance. For example, section 11 includes textiles and textile articles. Section 11, chapter 52 contains all raw material items made from cotton, including thread, yarn, and fabric, but clothes made of cotton are classified in section 11, chapter 62 with other articles of apparel and clothing accessories, not knitted or crocheted.
Each item is then assigned a classification number, part of which is determined by the World Customs Organization (WCO). The WCO is the international trade organization that manages and updates the HS. All participating countries use the same base HS number, so their individual tariff schedules can be harmonized with the rest of the world.
The Harmonized Tariff Schedule of the United States may be considered, for the most part, representative of most international tariff schedules. There are over 17,000 items in the U.S. schedule, each with a unique ten digit classification code. Each digit of the U.S. tariff schedule code represents some aspect of the good or commodity. Digits one through six are set by the WCO and are common to all schedules abiding by the HS. The first through fourth digits are called the heading, while the fifth and sixth are called the subheading.
Individual countries typically then add as many as six digits to the base HS classification in order to gather their own trade information. The U.S. harmonized tariff schedule adds four digits. Digits seven and eight, together with the HS code, indicate the general rates of duty, or general tariff fees, applied to an item. Digits nine and ten designate any special circumstances in the rate schedule, also called statutory rates. Statutory rates often refer to preferential tariff rates applied to particular countries.
A harmonized tariff schedule not only allows countries to categorize and charge duty fees for all manner of goods and commodities, but it also allows them to gather information about international trade. Many countries use the raw data provided by the HS and any additional country codes to study statistically significant trends. They usually use this information to follow trends in imports and exports, to help set tariff rates, and to track and even limit potentially dangerous commodities crossing their borders.