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Amending the HS

Background

Questions regularly arises in discussions about the Harmonized System (HS) on how is it amended and why does it take as long as it does.  The length of time is sometimes questioned by the private sector in particular, given that the revision of the Harmonized System runs in a five year cycle, while product cycles are shortening within the trade environment.

The WCO Secretariat has prepared this information sheet to further explain the process and its complexity and timings.

The drafting period

The review period for a new cycle starts once Council approval is gained for the edition just completed.  So for example, the 2022 edition was approved in June 2019 (for entry into force in 2022), so in the second half of 2019, the review cycle for the 2027 edition started.

The process for an individual amendment or set of amendments, often 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 Trade Ministries 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). The speed of the review of a particular proposal depends largely on the scope of the proposal and the extent to which international consensus exists on the proposed amendments. If the proposal is a simple one, the RSC may accept it upon its first review. More commonly, however, proposals are subjected to an initial review by the RSC and held over for further consideration at a subsequent meeting to resolve questions that may have arisen during the first review or to 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 negotiations 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 RSC the texts are sent to its parent body, the Harmonized System Committee (HSC), for final approval.

The HSC is a voting body. For a proposal to be approved by the HSC, it must achieve a 2/3rd majority or better of the vote.  Therefore the HSC may still choose to undertake further negotiations on aspects of the proposal prior to the vote and it may take more than one HSC meeting to finalise a particular proposal.

The Harmonized System Committee aggregates all of the amendments that have been successful 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 legal complexity of making changes which affect national legislation globally and the consultative nature of the process, both between Members and in the intersessional consultations between Members and industry.

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 consideration 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, the international statistical community and international organizations.

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 may appear to be an extraordinarily long period of time but the HS amendment involves an immense amount of work by Customs, international organizations and international trade. 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 WCO HS publications (Nomenclature, Explanatory Notes, Compendium of Classification Opinions, Alphabetical Index, HS Database, E‑Learning Courses, 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
  • Updating of publications, websites, procedures and other affected materials and processes 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).

This length of time is set within the HS Convention and hence could not be changed without a change to the HS Convention itself, a process that would require the agreement of all Members.

What if an international agreement requires an urgent change?

An option in the case of an urgent need is the use of a Council Recommendation 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 is that they are not binding on Contracting Parties, who decide whether or not to implement them and when such an implementation would happen, which can lead to inconsistent implementation globally.

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 organizations. 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. Therefore, any change to the frequency of HS editions is a matter which would require a decision by the Council of the WCO.