Written by Ricia Vinelli Octavo, 8 February 2007
In the context of globalisation, managing the day-to-day affairs of businesses engaged in trade includes the ability to handle and adapt to constant changes. From local regulations to national legislations as well as international trade regulations, change is the only constant variable.
In this regard, one of the most significant changes in the area of international trade that took effect in January 2007 is the Harmonised System 2007 (HS 2007). This event affected approximately 350 classification numbers of commodities being traded world-wide as changes in both their classification codes and customs duty rates have been mandated.
Since the implementation of the HS in 1998, three major reviews have already been undertaken, resulting to the adoption of HS 1996 and 2002 versions. HS 2007 the most recent revision is the third major change to the tariff nomenclature. As of today, there are 170 signatory countries to HS. As such, the implications of HS 2007 will affect virtually all countries engaged in international trade – although some countries may delay implementation under certain conditions.
Most of the Asian countries have implemented HS 2007. However, the Philippines, together with Australia and Indonesia, while committed to implement - has yet to determine a roll-out date when it shall proceed.
While the “lull time” allows Philippine companies to document their importations as provided under the previous version of the nomenclature, it does not accord them opportunity for complacency. This comes about because the country, being a member of the Association of the South-east Asian Nations (ASEAN), has to adopt the ASEAN Harmonised Tariff Nomenclature (AHTN) which requires each member country to align its tariff nomenclature within the AHTN.
Although, the change under HS 2007 is designed to be tariff-neutral, companies which used to pay zero duties on their import products may find that, upon the date of its implementation, their products will be subject to new classification numbers and/or possibly increased customs duties.
These changes have an impact on a company’s compliance with the Bureau of Customs and their products’ eligibility to preferential treatment arrangements. Moreover, the changes would also have ramifications on compliance to government-automation projects [e.g. Automated Systems for Customs Data (ASYCUDA), PEZA Electronic Import Permit Systems, etc.] which require the appropriate tariff headings to be indicated for imports as they pass thru the automated systems.
The World Customs Organization (WCO) based in Brussels is the Inter-Governmental Organisation tasked with developing standards, providing technical support and upholding the nomenclature of the Harmonised Commodity Description and Coding System. The WCO revises the system at regular intervals to ensure it reflects changes in technology and addresses new trends in international trade. Considering that significant technology leaps have happened in the electronics and semiconductor sector, it is expected that significant tariff heading adjustments will also come to the fore for this sector.
It is good news though that Philippine companies can implement various strategies to anticipate the impact of the HS 2007. For example, companies participating under Free Trade Arrangements (e.g. ASEAN CEPT, AFTA, etc), can implement proactive customs savings strategies by identifying new benchmarks that will be used for FTA origin criteria.
The other critical issue is on customs compliance. Companies importing goods unknowingly under wrong classification numbers may result in possible customs penalties, cargo delays and even seizures of merchandise. Such surprise sanctions can also possibly happen to those enrolled in import releases facilitated thru automated systems, since the necessary tariff headings must be declared as they are posted on the databases.
Thus, proactive companies must consider putting in place internal controls and procedures for managing tariff classification. For multinationals, it is paramount to create tariff classification databases as well as implementing strict controls over their corresponding customs brokers and freight forwarders.
Like all changes on international trade, HS 2007 presents both an opportunity and a risk. Thus, for Philippine companies, it is time to act quickly.
