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Reflections on the Harmonised System

25th January 2019

By: Riaan de Lange

     

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In last week’s instalment of this column, I alluded to the three things that any business involved in inter- national trade should be doing as a matter of course.

If you missed the article, the three things are easy to remember. Visualise yourself standing in front of a shelf of products in your favourite shop, looking at a product that you have never seen before or heard of. There are three questions that you should ask of the product. These would be exactly the same questions that every business involved in international trade should be asking too. Spoiler alert: the questions are stated in the next paragraph.

The first question is: What is it? The second: What is its price? The third: Where is it from? These are also the three pertinent considerations in international trade, where the questions help determine the product’s tariff classification (what it is), its customs valuation (its price), and its origin (where it is from). These are also the three key considerations in terms of customs debt, but that is a topic for another column. As a parting thought on this, all three considerations have been subjected to international harmonisation, which has effectively elevated it to an international competence, rather than a national consideration. And then there are those among us who believe that governments have a say in the way in which international trade is conducted. Think again.

This article is concerned with the first of the considerations, namely the tariff classification of products, for which there is an international convention, to which South Africa is a signatory. This is called the Harmonised Commodity Description and Coding System. It is commonly known as the Harmonised System, or the HS. If you import or export goods, or intend to do so, you need to state an HS code on the customs clearance documentation.

Although you might well be surprised to learn that the HS, which is the “universal language for international trade”, celebrates 31 years of existence this year, its history can be traced back to 1853. However, real progress with the international harmonisation of what became the HS started in all earnest in 1931 through the League of Nations’ Sub-Committee of Experts for the Unification of Customs Tariff Nomenclature.

What makes the HS such revolutionary and enduring nomenclature is that, essentially, it is simply not humanly possible to name or describe every product traded, so a list of products is not feasible. The HS is a numeric product classification system. It is, essentially, a multipurpose nomenclature that serves, among others, as a basis for customs tariffs; for the collection of international trade statistics; for rules of origin; and for international trade negotiations.

The HS2017 iteration of the HS is currently in operation, having been introduced on January 1, 2017. Since the HS is revised every five years, the HS2022 is currently under deliberation and consideration, and will be introduced on January 1, 2022.

The HS2017 consists of 21 sections, 97 chapters, 1 222 tariff headings (four digits) and 5 387 tariff subheadings (six digits). Then there are almost 10 000 pages of explanatory notes, more than 2 000 tariff classification decisions (by the World Customs Organisation Harmonised System Committee) and there were 1 500 HS amendments from HS2012 to HS 2017. If nothing else, this emphasises just how comprehensive the HS is.

As a business, you should be 100% certain that your products carry the correct tariff classification. If you are in any doubt, you should apply for tariff determinations, written tariff determinations. Written tariff determination can be obtained, on application, from the South African Revenue Service.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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