Developed by the World Customs Organization (WCO), the Harmonized System (HS) serves as a universal economic language for goods—an indispensable tool for global trade. It’s used by more than 200 countries and territories as a basis for customs tariffs. The HS is also used extensively by governments, international organizations, and the private sector for many other purposes: internal taxes, trade policies, monitoring of controlled goods, rules of origin, tariffs, price monitoring, quota controls, economic analysis.¹
What happened January 1, 2017?
Every four to six years, amendments to the HS are released by WCO. The most recent set of amendments went into effect on January 1, 2017. More extensive than the 2012 updates, the 2017 amendments represent a significant overhaul of the foundation of global trade. Importers, exporters, manufacturers, and Logistics Service Providers (LSPs) must review the changes to ensure expedient compliance. Without a system in place to transition efficiently to the revised nomenclature, companies risk non-compliance penalties, shipment delays, duty and tax issues, supply chain bottlenecks, and operational inefficiencies.
What is changing and why?
The HS 2017 reform includes 233 sets of amendments: agricultural sector 85; chemical 45; wood 13; textile 15; base metal 6; machinery 25; transport 18; other sectors 26. It also comprises 5,387 separate groups of goods compared to 5,205 in 2012.
Global environmental and social issues are the major drivers of the HS 2017 amendments.² Revisions are also led by:
- the need to introduce new subheadings for specific chemicals;
- changing international trade patterns;
- the need to keep pace with technology and remove outdated products.
Why is this important?
The HS standard is critical for ensuring customs rules are properly followed, improving the flow of goods internationally, facilitating better trade communication, and confirming that proper duties and taxes are remitted at the national level.
The cascading effect of 2017 amendments—impacting 200+ countries and territories, tariff schedules, trade agreements (e.g., NAFTA), government agency (e.g., U.S. FDA) regulations, multiple systems of record—can lead to a rocky transition for unprepared companies.
What challenges do businesses face?
HS 2017 will impact a vast amount of business data, straining already limited global trade compliance resources. With more than 230 amendments, the reform could trigger a chain reaction of thousands of country-level amendments, affecting items in a range of databases, spreadsheets, and systems across the enterprise. For example, a new group code has been created for monopods, bipods and tripods (9620.00). This change will require the reclassification of all items that may contain pods, affecting up to 16 individual anchor codes (e.g., 3926.90, Other articles of plastics; 9006.91, Other parts of cameras). With this ripple effect, identifying and reclassifying items is a significant challenge.
Companies must ensure that ERPs are updated at the same time that each customs administration modifies its tariffs, trade agreements, and regulations—for every country where business is transacted. For multinational companies, this is not a one-time event; each customs administration and government agency operates on its own release schedule. If not managed successfully, the rollover could slow supply chains and negatively affect the bottom line.
Businesses must also be vigilant to ensure they are not negatively affected by duty shifting. Under the new nomenclature, items previously incurring no duty may be subject to an increased rate.
How can technology help?
Given the cascading effects of the changes to multiple countries, systems of record, trade agreements, and other government regulations, a manual review of each national tariff schedule would be extremely inefficient. Technology can provide visibility into changing HS codes as countries publish their tariffs, helping companies ensure compliance with the most up-to-date item classification information at their fingertips.
To mirror operational requirements, businesses are seeking solutions that can easily deliver updated trade information via multiple methods. Some companies may find a simple web-based delivery system is adequate, while others may require a more robust online workbench and mapping solution that can jumpstart updated codes to multiple countries; companies with more complex global trading requirements may need comprehensive system-to-system connectivity.
Given the considerable scope of HS 2017, it is critical to ensure that a system is in place to offset the challenges posed by the transition. Solutions that can effectively transition affected items, while serving as a springboard for long-term efficiency, are highly valuable.
For up-to-the minute information on what is happening globally, please follow our industry blog at: http://www.customsinfo.com/industry-blog.
Preston Barton is Vice President, Sales, Content Business at Descartes Systems Group. He is responsible for North American sales of the global trade content and compliance software business at Descartes. Preston has over 17 years of software sales experience, previously working for organizations such as Infor and Element K.