HS Dispute Settlement

HS dispute settlement plays an important role in the facilitation of international trade. While the Harmonized System (HS), as a multipurpose trade classification, has many different applications, its primary use for now and the foreseeable future is still the collection of import duties and taxes for revenue and/or trade policy purposes (including the protection of domestic industries). This monetary function, of course, creates the potential for disputes between duty collection authorities and persons liable for duty.

Under the Harmonized System, commodities must be clearly distinguished from one another. For each commodity or category of commodities, only one heading or subheading should be applicable, thereby precluding classification in any other heading or subheading. Generally speaking, once the classification of a good is identified in the nomenclature, the duty rate is automatically determined. Therefore, "in the beginning there was classification."

At national level, classification is designed to carry out specific government polices and it is quite rare that classification takes place purely for the sake of classification. However, classification at international level is quite different and therefore international HS dispute settlement is different. Once the classification of a good is identified in the HS Nomenclature, it must be applied uniformly all over the world. Its impact, and in particular its economic impact, may be different from country to country. The same product may be subject to low duties in one administration and high duties in another. For this reason, as well as the technical nature of the Harmonized System, disputes in the HS Committee are settled from a purely classification point of view.

However, it should be noted that this does not mean that the persons responsible for classification (the importer, the officers in charge in administrations, the WCO Secretariat, etc.) should be ignorant of the tariff and other government polices with regard to the relevant classification. Classification decisions are taken within the context of these policies and the correctness of decisions must be verified with regard to such policies and should be persuasive to various stakeholders whose expectations with regard to the decisions may vary. Such decisions should, in particular, be defensible in national courts.

The HS Convention has set up the HS Committee as an international dispute settlement body. To date, the HS Committee has solved many disputes, thus contributing to achieving uniform classification and ensuring transparency with regard to HS classification. Some of these disputes have had a huge impact on the economies of member administrations. The following are examples:

  • Whether LAN equipment falls within the category of a computer or telecommunications equipment?
  • Whether high-fat cream cheese is cheese or a dairy spread?
  • Whether a mixture of tobacco leaves and manufactured tobacco falls in the category of non-manufactured tobacco?
  • Whether half a car (the front section of a used motor vehicle) should be considered to be part of a car or an incomplete car?
  • The demarcation line between passenger motor vehicles and vehicles for the transport of goods.
Thus, the HS Committee, which acts as a kind of "international court for HS classification disputes", has played and continues to play (twice a year) a tremendously important role in the facilitation of international trade. 

Jørn Hindsdal
Deputy Director,
Tariff and Trade Affairs Directorate,
World Customs Organization