The Harmonised Commodity Description and Coding System, commonly known as the ‘Harmonised System’ or ‘HS’, is a multipurpose global product classification system created by the World Customs Organisation.

--BY KRISHNA RAJ BAJGAIN

The World Customs Organisation reports that more than 200 countries and economies rely on the Harmonised System (HS) as the basis for their customs tariffs and collection of international trade data. Over 98% of all goods traded internationally are classified according to the HS. Furthermore, the HS is widely used by governments, international organisations, and the private sector for diverse purposes such as internal taxes, trade policies, controlled goods monitoring, rules of origin, freight tariffs, transport statistics, price monitoring, quota controls, compilation of national accounts, and economic research and analysis. As such, the HS serves as a universal economic language and goods code, and an essential instrument for international trade.

The Harmonised System undergoes updates through a five-year review cycle managed by the World Customs Organisation. The latest version of the system was approved in June 2019 and came into effect on January 1, 2022.

Countries have the flexibility to subdivide the HS nomenclature beyond 6 digits and add extra digits to meet their own tariff and statistical requirements as a National tariff line. Typically, statistical suffixes are added to the 8-digit tariff code, resulting in a 10-digit code.

The United States of America arranges the classification of goods based on several criteria, including season, size, purpose, and quality of the traded commodity. For instance, tomatoes are assigned three HS codes (07109040, 07109045, 07109050) based on the season. The customs rate of 2.9 cents per kg applies to tomatoes entering the United States from March 1 to July 14 and from September 1 to November 14 under HS code 07109040. Meanwhile, the rate of 2.1 cents per kg applies to tomatoes entering the United States from July 15 to August 31 under HS code 07109045. Similarly, the customs rate of 2.1 cents per kg is maintained for tomatoes entering the United States from November 15 to February under HS code 07109050.

Nepal can benefit by adopting the practice of commodity classification based on season, size, price, purpose, and quality of trading goods, similar to the system used in the United States. The Integrated Customs Tariff 2022/23 of the Department of Customs currently classifies 959 commodities at the 8-digit level, while the remaining 5,078 codes are classified at the 6-digit level. This means that approximately 84% of goods traded by Nepal are classified under the 6-digit code, with only 16% of goods classified under the 8-digit HS code.

The prevalence of 6-digit classification in Nepal has obscured the true picture of Nepal's foreign trade. For instance, Nepal exports over 70 types of medicinal herbs, but only two classification numbers are assigned to these products. Given this scenario, Nepal should consider adopting an 8-digit classification system for tariff purposes and a 10-digit classification system for statistical purposes to achieve the following objectives:

1. Improved transparency in the customs clearance process
2. More accurate representation of Nepal's foreign trade
3. Protection of domestic industries, consumers, and the environment
4. Increased revenue generation
5. Enhanced promotion of exports
6. Better utilisation of preferential market access opportunities
7. Implementation of progressive tariffs
8. Evidence-based policy inputs for trade management
9. Mainstreaming of indigenous Nepali products with proper identification in the international market.

(Bajgain is a Senior Officer with the Trade & Export Promotion Center. The views expressed here are his personal.)