How to classify products for international trade

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Product classification is a basic task to export, import or even for domestic trading. A standard product classification serves to facilitate trade negotiations, generate statistics of commerce for governments or other entities and apply customs tariffs, among others. What is used globally is the Harmonized Commodity Description and Coding System or simply Harmonized System (HS). Effective since 1988 it is maintained by the World Customs Organization (WCO) and currently over 200 countries and economies make use of it.

At the Harmonized System the product classification follows a logic organization, going from products economically less elaborated to ones with most added value. Therefore live animals are found at the beginning while machinery and precision instruments are listed in subsequent chapters.  The composition, form and function of the product are part of the classification model. The HS is structured in 21 sections and 97 chapters and those subdivided in approximately 5.000 headings and subheadings.

At the HS all references to a given product are expressed by six digits. The first two digits indicate the HS chapter; the second two digits designate the headings and the next pair of digits the subheadings. Under the Harmonized System, all goods are subject to unique and unambiguous classification. It allows the classification even for merchandises yet to be produced.

Most of the countries that adopted the HS added two or four more digits to the initial six to accommodate specific needs of customs tariffs or for statistical purposes as well as to add their own Explanatory Notes.

The texts for understanding and application of the HS indicated to the reader are: General Rules for the Interpretation of the HS, The Official Explanatory Notes by WCO and other resources depending on the region and country the product is traded.

Properly classify a product is not a simple task and every country counts with specific aid institutions, many times related to Customs activities. Other means are specific short trainings or rely on foreign trade experts. Wrong classification of a product can result in fines and penalties, delays to cross borders, cargo seizure or denial of tax privileges.

Regional agreements or specific international commerce treaties may use other forms of product classification. That is the case of Mercosul the Southern Common Market, sub regional bloc formed by Argentina, Brasil, Uruguai, Paraguai and Venezuela. Mercosul uses the Mercosul Common Nomenclature (MCN), with eight digits, where the first six come from the Harmonized System and the two last digits are specific attributions within the Mercosul countries.

An interactive tool to find buyers and sellers, where the interested party can register or search for products based on the Harmonized System can be found at the Intradebook’s Inbusiness module on this link.

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