In this comprehensive article, we explain how these two tax classification systems work, their differences and similarities, and present practical application cases. If your company is involved in import or export, this content is essential to avoid tax errors and ensure compliance.

What is the relationship between NCM and HTSUS?

Both systems are based on a global framework, but they have important particularities. Let's detail them:

Harmonized Tariff Schedule of the United States (HTSUS)

The HTSUS tracks which items will be impacted by the new US tariffs and which have been exempted. It is a merchandise classification system used in the United States for import purposes. It is essential for determining:

• The applicable customs duties (import taxes).

• Eligibility for free trade programs (such as free trade agreements).

• The collection of business statistics.

• The application of government regulations.

The HTSUS is based on the Harmonized Commodity Description and Coding System (HS), which is a global standard managed by the World Customs Organization (WCO). The HS consists of the first six digits of any HTSUS code.

• Chapters (2 digits): Describe broad product categories.

• Positions (4 digits): Subdivide the chapters into more specific groups.

• Subpositions (6 digits): Further detail the positions (these 6 digits form the international HS code).

• US Subheadings (8 digits): The US adds two digits for greater specificity within its tariff structure.

• Statistical Subheadings (10 digits): The US adds two more digits for statistical and data collection purposes.

Common Nomenclature of Mercosur (NCM)

The Common Nomenclature of Mercosur (NCM) is the merchandise classification system adopted by the Mercosur member countries (Brazil, Argentina, Paraguay, and Uruguay), as well as by Chile, Colombia, and Ecuador, despite not being full members of the bloc.

Like HTSUS, the main objective of NCM is:

• To determine the import tax (II) and the tax on industrialized products (IPI) rates in Brazil, for example.

• To serve as a basis for administrative processing (import licenses, approvals from government agencies).

• Collect and analyze foreign trade statistics.

The NCM is also based on the Harmonized System (HS), and follows the same logic of breakdown.

• Chapters (2 digits): Identify the general product category.

• Positions (4 digits): Specify the nature of the product within the chapter.

• Subpositions (6 digits): These provide further detail about the positions, representing the HS level.

• Item (7th digit): Specific details for Mercosur.

• Subitem (8th digit): Additional details specific to Mercosur.

Similarities between HTSUS and NCM

The main similarity between HTSUS and NCM lies in their origin and basic structure:

• Based on the Harmonized System (HS): Both are derived from the Harmonized Commodity Description and Coding (HS) system of the World Customs Organization (WCO). This means that the first six digits of an HTSUS code and an NCM code for the same product are, in theory, identical. This international uniformity facilitates trade and global understanding of classifications.

• Common Objective: Both systems have as their main purpose the standardized classification of goods for foreign trade purposes, allowing the application of tariffs, the collection of statistics, and customs control.

• Classification Logic: Both follow the same hierarchical and progressive classification logic, moving from the general to the specific, based on the nature, composition, and function of the products.

• Periodic Updates: Both are updated periodically to reflect technological changes, new products, and the evolution of global trade, following the revisions of the WCO's HS.

Differences between HTSUS and NCM

Despite sharing a common base, HTSUS and NCM have significant differences, mainly in the digits following the first six of the HS code:

• Additional Digits and National/Regional Specificity:

  • HTSUS (10 digits): After the 6 digits of the HS code, the US adds 4 digits for its own tariff and statistical needs. This allows the US to set tariffs and monitor trade at a level of detail very specific to its domestic policies and trade agreements.

  • NCM (8 digits): After the 6 digits of the HS code, Mercosur adds 2 digits. The 7th digit is the "item" and the 8th is the "sub-item," used to specify the merchandise within the Mercosur context, mainly for import tax and IPI rate purposes, and for trade control requirements.

• Legislation and Authority:

  • HTSUS: This is determined by the U.S. International Trade Commission (USITC) and enforced by U.S. Customs and Border Protection (CBP).

  • NCM: It is established by Technical Committee No. 1 on Tariffs, Nomenclature and Classification of Goods of Mercosur and implemented by the respective customs authorities of each member country (in Brazil, the Federal Revenue Service).

• Geographic Focus and Trade Policies:

  • HTSUS: Reflects the trade policies, free trade agreements, and economic needs of the United States. Tariffs and regulations are specific to the American market.

  • NCM: Reflects the trade policies and customs union of Mercosur, seeking to harmonize tariffs and regulations among member countries to facilitate intra-bloc trade and trade with third countries.

• Details and Nuances:

  Although both aim to detail products, the way the last digits are used can generate different levels of granularity and classification requirements, making it crucial to consult the specific legislation of each system. A product that can be classified under a single HTSUS code may need a different NCM code, even if the first six digits are the same, due to nuances in the last digits.

Final Considerations

Correct NCM classification is a cornerstone for tax automation and regulatory compliance in Brazil and Mercosur. If you are dealing with imports or exports to the US, understanding HTSUS will be equally indispensable.

An error in classification can result in:

• Incorrect tax payment (too much or too little)

• Delays in customs clearance

• Penalties and fines

• Legal compliance issues

A practical application is exemplified in trade between countries, such as the case of products exempt from the 40% additional tariff imposed this week on Brazilian products by the United States:

1. Agricultural and Food Products

• Brazil nuts in shell, fresh or dried (HTSUS 0801.21.00)

• Orange pulp (HTSUS 2008.30.35)

• Frozen orange juice (HTSUS 2009.11.00)

• Orange juice, not frozen, with a Brix value <20, not concentrated (HTSUS 2009.12.25)

• Orange juice, not frozen, with a Brix value <20, other (HTSUS 2009.12.45)

2. Minerals and Ores

• Raw mica (HTSUS 2525.10.00)

• Iron ore, not agglomerated (HTSUS 2601.11.00)

• Iron ore, agglomerate (HTSUS 2601.12.00)

• Tin ores and concentrates (HTSUS 2609.00.00)

• Unalloyed pig iron with 0.5% or less phosphorus by weight (HTSUS 7201.10.00)

• Unalloyed pig iron with more than 0.5% phosphorus by weight (HTSUS 7201.20.00)

• Alloy pig iron in blocks, ingots or other primary forms (HTSUS 7201.50.30)

• Spiegeleisen in blocks, ingots or other primary forms (HTSUS 7201.50.60)

• Ferronickel (HTSUS 7202.60.00)

• Ferroniobium, with less than 0.02% phosphorus or sulfur or less than 0.4% silicon by weight (HTSUS 7202.93.40)

• Ferroniobium, other (HTSUS 7202.93.80)

• Ferrous products obtained by direct reduction of iron ore (HTSUS 7203.10.00)

• Sponge ferrous products, in granules, pellets or similar forms; iron with a minimum purity of 99.94% by weight in granules, pellets or similar forms (HTSUS 7203.90.00).

For more examples, access this link from the official communication of the American Government.