What is a Harmonized Tariff?

A harmonized tariff is the process by which the names and classification system of tariffs are standardized via the international market. All classification procedures for products traded between nations have the same descriptions no matter where they are shipped or delivered. This is true for import tariffs, export tariffs and general customs tariffs. The process was established by the World Customs Organization and is supported by 170 countries trading internationally around the world. The actual documentation of the harmonized tariff system is called the Harmonized Commodity Description and Coding System (HS).

When goods are delivered from one nation to another, they go through a process of customs in order to keep track of the products and determine the correct volume of imports and exports. Every product is issued a code which is labeled on the product and checked by customs officials. Since the system is streamlined between countries, it makes it easier for both parties to check the products and keep records. Essentially, the export country's paperwork is generally identical to the import country.

Member nations of the World Customs Organization must maintain a tariff schedule with names and codes identical to the other nations. The schedule can vary slightly between countries but has to follow certain parameters. HS schedules are divided among 21 distinct sections with 96 chapters, each defining the harmonized tariffs. It takes the most basic product, such as a wood-based good, and then breaks it down to other types of goods. For example, a board will be listed as one item, but a bed post made from that board will be further defined and coded.

By using a harmonized tariff system, international trade is heavily streamlined and made more secure. In addition to making the process easier for both parties, as well as traders, it also helps prevent the illegal trafficking of goods. Items such as narcotics and weapons are defined with certain parameters. This means that these goods are tracked as they cross the borders through legitimate means. If a product is recognized as one of these illegal shipments but claims to be something else, it is more readily identifiable.

One major thing that the harmonized tariff process does not address is the price for any given good. This is because it is up to the country of export and country of import as to what cost they would like to place upon any given product. Certain countries produce more of a given product than others, thereby having a leveraged interest in charging more for that product being imported. For example, one of Slovakia's main products is electronics. This means it will charge more for electronics being imported into the nation to prevent undercutting of its own goods.