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Amending the HS

Background

There is increased sentiment on the part of those in international trade that the HS review process needs to be expedited. A tension exists between the revision of the Harmonized System which takes a minimum of five years and an environment where product cycles are counted in months and no longer in years.

The WCO Secretariat has prepared this information sheet to explain the reasons for the complexity of this important process.

The Drafting period

• The process normally starts with contact between the international trade community and the government agencies charged with determining trade policy in Member administrations. In other words, the private sector often makes requests to Customs or the Trade Ministry for amendments to the Harmonized System. In some countries those requests are published for public comment. The requests are then considered by all of the agencies that may have an interest in the matter, for example, Customs, Finance, Commerce, Trade, Agriculture, Environment, Health, Defence, and so on.

• Following a national government position being agreed the proposal is forwarded to the WCO and considered by the Review Sub-Committee (RSC). If the proposal is a simple one, the Sub-Committee may accept it upon its first review. More commonly, however, proposals are subjected to an initial review by the Sub-Committee and held over for further consideration at a subsequent meeting to resolve questions that may have arisen during the first review or provide Contracting Parties time to undertake national detailed review by their industry and interested government agencies.

• If the proposal is non-controversial the proposal may be approved by the RSC at its second review. If questions remain or the proposal is controversial, additional consultations and lobbying may be necessary, including industry to industry consultations.

• When eventually approved in principle, additional committee time is needed to resolve drafting issues; an exacting but important task as the amendments affect the legal text which provides the basis for Customs tariffs in over 200 countries, territories or Customs or Economic Unions of the world. Following consideration by the Review Sub-Committee the texts are sent to the Harmonized System Committee for final approval.

• The Harmonized System Committee aggregates all of the proposed amendments during a review cycle. At the end of the review period the aggregated amendments are presented to the WCO Council for approval. After approval by the Council any HS Contracting Party has six months to enter a reservation with regard to any of the recommended amendments.

• The process is time consuming but this has much to do with the consultative nature of the process. Additional meetings beyond what is already envisioned would be difficult in view of the time needed for industry and government consultations during the intersession.

• The speed of the review depends largely on the scope of the review and the extent to which international consensus exists on the proposed amendments. As an example, the present review cycle includes a review of the information technology provisions of the HS. It is exactly these provisions which have been the subject of most disputes.

The Implementation period

Determining the length of the HS review cycle is a matter of balancing a number of conflicting interests. On the one hand there is the very important interest of keeping the Harmonized System (and the national tariffs and statistical systems that are based on it) up to date in terms of changes in technology or patterns of international trade. This interest is strongly represented by the private sector.

Conversely, because the Harmonized System provides the universal basis for Customs tariffs and import and export trade statistical systems there is a need for the System to enjoy a degree of long term stability. This interest is largely represented by governments and international organisations, in particular the international statistical community.

Beyond these conflicting interests, there are other practical considerations that need to be taken into account.

• The HS Convention provides for what is, in effect, a two and one-half year implementation period for amendments to the Harmonized System. At first sight this appears to be an extraordinarily long period of time but one-half year is allotted for the entry of reservations by Contracting Parties to the amending recommendation and the remaining two years are set aside for:

• Development of requisite correlation tables between the old and the new versions of the HS

• Drafting of amendments to the Explanatory Notes

• Updating and re-publication of all HS publications (Nomenclature, Explanatory Notes, Classification Opinions, Alphabetical Index, Commodity Database, Harmonizer etc)

• Updating of the WCO Web site

• Translation of the texts into third languages

• Legislative process in Member administrations

• Updating of affected computer databases in Member administrations

• Training of Customs, other affected government agencies and the trade.

• WTO negotiations concerning the possible impairment of tariff concessions

• Revision of the trade statistical systems of the United Nations (for example, the SITC, CPC).

• It involves an immense amount of work by Customs, international organizations and international trade and this is evidenced by the fact that only 45%, 58%, 57% and 51% of Contracting Parties were respectively able to implement the first, second, third and fourth set of amendments to the Harmonized System on time.

What to do?

• One of the major objectives of the Harmonized System is international harmonisation of Customs tariffs. It would be counterproductive if reduction in the length of the implementation period was only to find different version of the HS in use internationally for long periods of time.

• An option of shortening the drafting period from four to three years may be achievable thereby shortening the overall cycle from five to four years. Yet during the present review one year of the allotted four has already been lost.

• A further option is the use of Council Recommendations to amend national tariff and statistical nomenclatures on an interim basis between Article 16 amendments to the Harmonized System. The advantage of such Recommendations is that they can be made annually at the Council Sessions. The disadvantage that they are not binding on Contracting Parties who decide whether and at what speed to implement them.

Conclusions

• The Harmonized System is the legal instrument that is the universal basis for Customs tariffs and the international trade statistical system. For that reason changes must be well thought out, designed for the future, and effectively implemented. It also means that there is a community of interest in achieving a degree of stability in the System, particularly by our member governments and fellow international organisations. It is a difficult balance to strike.

• The issue is not only, or perhaps not even primarily, a Customs issue. Responsibility for tariff policy in many countries falls within the portfolio of the Trade Ministry or the Commerce Ministry and is also of great concern of the private sector.

Updated June 2014