HS dispute settlement plays an important role in the facilitation of international trade. While the Harmonized System (HS), as a multipurpose trade classification system, 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".

When classifying at a national level, to the domestic classifications, it is done against a background of national considerations. As well as the national policies which affect the duty rates, the treatment of goods of particular classifications and the wording of the domestic provisions available, there are also the case law precedents and previous decisions that have been made in that country and which affect the understanding of the intent and scope of provisions. The national background varies from country to country and this means that, at times, countries may come to different classifications for like goods.

For resolving such classification differences between Customs administrations internationally, at the HS level, the classification needs to be acceptable across nations and hence the process needs to be based only on the internal rules of the HS Nomenclature itself and allow for the involvement of all Members to the HS Convention.

The HS Convention, in Article 10, has set up the Harmonized System Committee (HSC) as an international dispute settlement body and Members can choose to bring disagreements between Customs administrations on classification to the HSC for resolution.

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 only some of the more recent examples:

• Whether high-fat cream cheese is cheese or a dairy spread?
• Whether a tobacco capsule designed for use in a specialized, electrically heated device falls in the category of cigarettes or other manufactured tobacco?
• Whether a wearable battery-operated devices, commonly known as a “smart watch” falls within the category of communication apparatus or wrist-watches?
• The demarcation line between monitors capable of directly connecting to an automatic data processing machine and other monitors.
• The demarcation line between passenger motor vehicles and vehicles for the transport of goods.

Thus, the HSC, plays a tremendously important role in the facilitation of international trade.