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.
International classifications can be divided into three groups, whether they are defined by goods, services, or industries. These identified classifications are the following:
|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.
This table shows a typical example of the same commodity classified using all four categorizations.
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.
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.