WCO Says 2012 Tariff Changes on Track, Seeks Comments for 2017

(The HS Nomenclature is the WCO's standardized system to uniformly classify products in international trade. The HS sets forth all international nomenclature through the six-digit level. To ensure harmonization, Contracting Parties to the HS Convention, such as the U.S., must employ all four and six-digit level provisions, international rules, and notes, without deviation, but are free to adopt additional subcategories and notes. Contracting Parties are also required to base their tariff schedules on the HS; however, can set their own duty rates.)

2012 HS Changes

U.S. to Conform HTS to 2012 HS Changes

In June 2010, the International Trade Commission issued its final report on proposed changes to the U.S.' Harmonized Tariff Schedule (HTS) to reflect the WCO's HS, as well as other changes, which could be effective as soon as January 1, 2012.

(The U.S. will try to implement its HTS changes on January 1, 2012, by proclamation; however, ITC sources state that there could be a delay, as HTS modifications can take effect no sooner than 30 days after the proclamation is published in the Federal Register.)

2012 HS Includes 225 Amendments, Many on Food Products

At a June 27-28, 2011 WCO event, a WCO Deputy Director stated that there were a total of 225 amendments (affecting 5,205 tariff numbers) to the 2012 HS, some of which were made to facilitate the use of the HS for the compilation of food security data and agriculture (including forestry and fisheries) statistics. The largest volume of such amendments arose from a single request by the Food and Agriculture Organization (FAO) for separate identification of food products in Chapters 1-21.

Hygiene Absorbent Products (e.g. Diapers) also Affected

The 2012 HS also creates a new heading for hygiene absorbent products, such as infant diapers, adult incontinence products, feminine sanitary products, etc. Currently, these products are classifiable in the 2007 HS under headings 48.18, 56.01, 61.11 or 62.09 according to their constituent materials. However, as of January 1, 2012, these hygiene absorbent products, of any material, will fall in the 2012 HS under heading 96.19.

(WCO notes that as technology continues to evolve, with various materials from differing HS chapters and headings being combined into composite products, difficulties in future tariff classification will likely be encountered.¹)

As well as Biodiesel Fuels, Batteries for Hybrid Motor Vehicles

According to the ITC's final report on the 2012 HS, amendments of particular economic and technological importance include those providing separate identification in the HS for biodiesel fuels, nickel-metal hydride batteries (used in hybrid motor vehicles), and lithium-ion batteries (used to power consumer electronics products).

(Other amendments were made to take into consideration technological progress, changes in trade patterns, trade practices, and to clarify certain texts. For a series of summaries on how these 2012 HS changes affect the US. HTS, see ITT's Online Archives or 06/09/11, 06/10/11, 06/13/11, 06/14/11, 06/15/11, 06/16/11, 06/17/11, and 06/20/11 news, 11060918, 11061006, 11061301, 11061411, 11061508, 11061607, 11061717, and 11062006.)

2017 HS Changes

Trade Encouraged to Submit Suggestions

The WCO encourages interested parties involved in international trade to send their suggestions for 2017 HS amendments to their national Customs administration or to any other appropriate intergovernmental organization. Customs administrations should be aware of the areas where they frequently encounter problems and submit proposals to simplify and clarify the provisions governing classification in such areas. They can then ask the WCO Secretariat to place issues on the HS Committee's (HSC) agenda.

WCO May "Rethink" its Rules on Deleting Low Volume Headings

As in previous review cycles, the WCO Secretariat will undertake a review of the HS on the basis of trade statistics to simplify the HS by deleting low trade volume subheadings and headings, consisting of $50 million and $100 million, respectively. However, because lower international trade volumes due to the global financial crisis will be reflected in trade statistics, the Secretariat has invited the HSC to consider whether the same basic rules concerning the establishment of new or deletion of subheadings and headings should continue to apply.

Scope of Sports Clothing, "Infant" Could be Amended

As in previous review cycles, the WCO will start its 5th review cycle by considering the left-over items from the last review cycle for the 2012 HS. One such issue is the possible amendment of legal texts to clarify the scope of heading 95.06 with respect to sports clothing of textiles, of Chapter 61 or 62, incorporating protective components such as pads or padding in the elbow, knee or groin areas. New issues are also being examined, such as defining the scope of the term "infant" for the purposes of subheading 1901.10, and considering a possible modification of HS provisions for monitors.

HS Changes Can Account for Tech Evolution, Evolving Consumer Habits

The WCO notes when a nomenclature remains unchanged (does not take into account the evolution of technology and changes in consumer habits), there is a serious risk of difficulties and disputes arising when classifying products. As a result, HS amendments in the following areas may be desirable:

• High technology -- Updating the high technology area will be necessary as a result of rapid developments. Classification of products manufactured by the information technology, consumer electronics and telecommunications industries continue to create difficult and complex situations due to the convergence of these industries and the development of new products capable of performing several functions (e.g. smart phones and media players).
• Pharma, chemicals, & textiles -- Certain sectors of the HS, such as pharmaceuticals, chemicals and textiles, might lend themselves to clarification and thus contribute to further simplification of national Customs tariffs.
• "Green cars" -- Another consideration for modification of the HS arises from the fact that newly developed products often cannot be identified in the structured nomenclature. The classification of a motor vehicle with a hybrid power system and other such "green cars" are not identified in the HS.

Though Many Duty Rates Falling, Public Welfare May Dictate More Codes

It has been advocated that the HS should be simplified significantly due to the downward trend in duty rates, but WCO notes that it must be taken into account that the HS is increasingly of interest to many other organizations, particularly those involved in the environment, food safety, public health, and security.

In the past, exceptions were almost always provided for thresholds for: (i) products of social or environmental importance; (ii) products of importance for developing countries; (iii) residual headings or subheadings whose deletion would adversely affect the structure of the HS or lead to classification problems; (iv) any subheading whose retention was requested by a Contracting Party and endorsed by the HS Review Sub-Committee (RSC).

WCO Expects 2017 Revisions to be Completed by June 2014

The work on the 5th HS Review Cycle commenced in November 2009 with a view to make sure that the HS Nomenclature reflects trade needs. This revision is expected to be completed by June 2014 and the revised version will enter into force on January 1, 2017. Each Review Cycle typically lasts five years.

¹See ITT's Online Archives or 07/22/11 news, 11072214, for BP summary of a recent Court of International Trade ruling that an adult diaper making machine is properly classified in HTS heading 8441 (which specifically covers machines used for making up paper pulp articles) as diapers are classified as paper pulp products according to the essential character of their constituent materials. However, after implementation of the 2012 HS changes, diapers will be classified in the new heading 9619.

(See ITT's Online Archives or 02/01/10 news, 10020110, for BP summary of the WCO requesting proposals to amend the HS for 2017.)

Press release on the 2017 version of the HS is available here.

WCO "Open Day for Trade" event presentations are available here.