Product Categorization

As volumes of data become larger and larger, an increasing need for classifications of goods and services, as well as for systems to compare among different regions has emerged for solving several purposes: standardize names of goods, analyse trends, establish fees or for generating local and/or international statistics.

Organizations such as the United Nations (UN), World Customs Organization (WCO), and United Nations Economic Commission for Europe (UNECE) have created different classifications in order to seek harmonization and standardization of data among countries.

Classifications

International classifications can be divided into three groups, whether they are defined by goods, services, or industries. These identified classifications are the following:

Classification Definition Type Entity
HS Harmonized Commodity Description and Coding System Goods World Customs Organization
SITC Standard International Trade Classification Goods United Nations
CPC Central Product Classification Product (Good+Service) United Nations
ISIC International Standard Industrial Classification Industry (Economic activity) United Nations

 

The international classifications (HS, SITC, ISIC and CPC) have been established as references of the different categories of products and services. The diagram below shows the relationship among these classifications.  The blue lines represent classifications that were used as reference to generate others and green lines to show if there is compatibility (correlation) between codes. A correlation table is a chart that translates a given code from one classification to the other.  For example: when CPC was generated, it used as reference the HS and the SITC. Additionally, CPC has correlation tables with the HS, SITC and ISIC.

Classification Differences

This table shows a typical example of the same commodity classified using all four categorizations.

Pineapple
Detailed commodity list General good classification Good+Services Industry of Origin
Vegetables have an entire assigned section Vegetables are a division within a section Vegetables belong to a division within a section Only refers to the industry of activity, no detail at the commodity level
HS SITC CPC ISIC
0804.30 057.95 01318 0122
Section II: Vegetable products Section 0: Food and live animals Section 0: Agriculture, forestry and fishery products Section A: Agriculture, forestry and fishing
Chapter 08: Edible fruits & nuts, peel of citrus/melons Division 05: Vegetables and fruit Division 01: Products of agriculture, horticulture and market gardening Division 01: Crop and animal production, hunting and related service activities
Heading 0804: Dates, figs, pineapples, avocados, etc., fresh or dried Group 057: Fruit and nuts (not including oil nuts), fresh or dried Group 013: Fruit and nuts Group 012: Growing of perennial crops
Sub-heading 0804.30: Pineapples Subgroup 057.9: Fruit, fresh or dried, n.e.s. Class 0131: Tropical and subtropical fruits Class 0122: Growing of tropical and subtropical fruits
  Basic heading 057.95: Pineapples, fresh or dried Subclass 01318: Pineapples  

 

HS Code

The Harmonize System (HS) is an international good nomenclature used by customs authorities around the world to identify products for the application of duties, taxes and regulations, and as a basis for the collection of international trade statistics.  Over 98% of the world’s merchandise is classified in terms of the HS.

The number of digits determines the level of granularity of the classification. The first six digits are the most detailed level used in international nomenclature. Further subdivisions (from 8 to 12 digits) are applied locally by countries and trading blocs according to their specific tariff and statistical needs.

HS Code has 21 sections, 97 chapters and 1,241 headings at the four-digit level (930 of these headings are further divided in sub headings, at the six-digit level).

There are approximately 5,000 product categories internationally.

HS Panama

Currently, Panama subdivides the HS structure to 8 digits. This subdivision is used to register more detailed data on commodities, considered as key by government entities for data collection.

Here below is an example on Panama’s subdivision:

Panama has now become part of the Central American Trade Bloc (SIECA) which means that there are products that will need to be classified at a less or more detail in order to become equal to the other Central American countries.

HS Code throughout the Supply Chain

HS codes can be used to track product demand across the supply chain. In the example below, two different products are imported, each with a different HS code. After the manufacturing process, both product turn into one and the new product to be exported receives a new HS code.

By using trade data classified into HS coding, researchers can identify how much product is imported, manufactured, and exported.