Information on the NCM
I. What is the Harmonized System (HS)?
The Harmonized Commodity Classification and Coding System (HS), or simply Harmonized System, is an international method of product classification based on a code structure and related descriptions.
This System was created to promote international trade development and to improve the collection, comparison and statistical analysis, especially on foreign trade. Besides, HS facilitates international trade negociations, develops freight costs and statistics related to different modalities of product transportation and also generates other information used by the the intervenients on foreign trade.
The composition of SH code by six digits is based on a fundamental principle that goods are classified by what they are, by their specific characteristics, such as origin, component material and application. Products are hierarchically organized in a logical numerical order, hierarchically organized by their degree of processing and sophistication.
The Harmonized System (HS) is composed by:
Nomenclature – Divided into 21 Sections, composed by 96 Chapters, and also by Section, Chapters and Sub-position Notes. Chapters are divided into positions and sub-positions, which are characterized by numerical codes each of them. While Chapter 77 was reserved for an eventual use in future, Chapters 98 and 99 were reserved for special use of the Contratant Parts. Brazil, for example, uses Chapter 99 to register special operations of exportation;
General Rules for the Interpretation of the HS – Establish general rules for the classification of products within the Nomenclature;
Explanation Notes on the Harmonized System (NESH) – Provide clarifications and interpret the Harmonized System, establishing, in details, the range and the contents of the Nomenclature.
II. Structure and Composition of Mercosur Common Nomeclature (NCM)
Brazil, Argentina, Paraguay and Uruguay adopt, since 1995, the Mercosur Common Nomenclature (NCM), which is based on the Harmonized System. O NCM is composed by 8 digits: the first six-digits are from the Harmonized System (HS); and the seventh and eighth digits were created according to a definition set up by bloc members.
The system of code classification within Mercosur Common Nomenclature (NCM) rely on the following structure:
Example: Code NCM: 0104.10.11
Ewes, in lamb or with their young
This code is the result of the following datailment:
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III. Simplified Directions for Product Classification
Simplified directions in order to classify products in different levels are presented below:
a) Take a look at the General Rules for Interpretation of the HS and the General Complementary Rules of NCM (item IV);
b) Identify the appropriate Section and Chapter, available on item VII table;
c) Click on the Chapter selected to see the table of product codes and descriptions within NCM;
d) Classify the product, following the order of the NCM classification (position, sub-position, item and sub-item), in accordance with product specific characteristics, as stated on item II;
Note: For product classification is essential to consider, when applicable, Section and Chapter Notes, available in the table of item VII. When a Section has notes, click on “See Section Notes”, at the end of Section description. Chapter Notes come before the codes and descriptions of each of them.
IV. General Rules for Interpretation of the HS and General Complementary Rules of NCM
Product classification within the Nomenclature is based on the following rules:
1. Titles of Sections, Chapters and Sub-chapters have just an indicative value. For legal matters, the classification is defined by the positions and by the Section and Chapter Notes. When it is not discrepant with the position and Notes, the classification can also be defined by the following rules.
2.a) A product can be classified in a specific position even if the product is still incomplete or unfinished. In this situation the product needs to have, in the form it is presented, at least the essential characteristic of the completed and finished product. This rule also applies to products that need fitting up.
b) Any reference to a substance in a specific position regards this substance in a pure situation, mixed or as a component of a product together with other substances. Also, any reference to by-products includes by-products formed partly or entirely by a specific substance. The classification of those mixed articles or of a composition is made in accordance with the principles of Rule number 3.
3. When the product seems to be classified in two or more positions by application of Rule 2.b) or by any other reason, the classification should be made in the following way:
a) A more specific position prevails on the more generical. However, when two or more positions refer, each one of them, to just a part of the constituent material of a mixed product or of a composed article, or also to a component of a product to be sold at retail; those position should be considered in relation to the products or articles as also specific, even if one of them presents a more complete description of the product.
b) Mixed products, products composed by different materials or by the combination of different articles and products to be sold at retail which classification cannot be made under the application of Rule 3.a), are classified by the substance or article that gives them the essential characteristic, when it is possible to determine this characteristic.
c) In case that Rules 3.a) and 3.b) do not apply to a product, this product should be classified in the last position (considering a numerical order) of the ones that should be taken into consideration.
4. Products that cannot be classified under the Rules stated above should be classified in the position that most reflects the nature of the product.
5. Beyond the definitions above, products listed bellow should be classified under the following Rules:
a) Cases for photographical equipments, for musical instruments, for guns, for drawing instruments, for jewelry and similars, especially made to store these products for a long time, when presented together and normally sold with them, are, as a result, classified with them. However, this Rule does not apply to receptacles that give them the essential characteristic.
b) Confirming what is stated on Rule 5.a), products package classify together with the products when they are used to wrap up them. Nevertheless, this rule is not obligatory when the package is clearly used repeatedly.
6. The classification of products in a sub-position of a same position is stated, in legal matters, by the texts and Notes of these sub-positions, as well as by “mutatis mutandis”, former Rules. One can only compare sub-positions of the same level. Under the same logic of the rule just stated, Section and Chapter Notes can also be applied.
General Complementary Rules of NCM (GCR)
1. The General Rules for the Interpretation of the Harmonized System is used for, “mutatis mutandis”, the definition, under each position or sub-position, of the applicable item and, considering this last one, the definition of the related sub-item. The regional detailment (item and sub-item) is only comparable if they have the same level.
V. Explanation Notes on the Harmonized System (ENSH)
The Explanation Notes on the Harmonized System (ENHS) includes the Section, Chapter and Sub-position Notes. It is an great and detailed text that establish the range and content of the HS Nomenclature. The publication is available for consultation in the Section of Trade Information – NUCEX, in the following address:
Ministry of Development, Industry and Foreign Trade
Secretariat of Foreign Trade
Foreign Trade Operation Departament
Trade Information Section
Praça Pio X, nº 54 – Loja – Centro
Rio de Janeiro – RJ – Brazil
Legal Basis: Decree nº 97.409, of 12/23/1988 (DOU of 12/28/1988), that promulgated the International Convention on the Harmonized Commodity Classification and Coding System, as well as the corrections afterwards.
VI. Doubts on the Classification
The attendance of consultations about product classification is faculty of the Secretariat of Federal Reserve (SFR), through the General-Coordination of Taxing System and by the Regional Superintendence of the Federal Reserve.
In case of doubt about the correct classification of the product, please contact the Federal Reserve Unity of your region, and elaborate a written consultation, in accordance with directions on the website of the Secretariat of Federal Reserve:
VII. Abbreviation and Symbols used by NCM