January 1, 2017 marked the date when the World Customs Organization (WCO) Harmonized System (HS) reform went into effect for many locations. The HS is an international classification standard for goods in current or anticipated use by more than 207 custom administrations worldwide. It 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.
Every four to six years, WCO releases amendments to the HS. The 2017 amendments are more extensive than previous updates in 2012 and, as such, represent a significant overhaul of the foundation of global trade. Individual countries, importers, exporters, manufacturers, and Logistics Service Providers (LSP) are impacted by HS reform, and must review the changes to ensure compliance.
This year, HS reform includes 233 sets of amendments: agricultural sector 85; chemical 45; wood 13; textile 15; base metal 6; machinery 25; transport 18; and other sectors 26. Global environmental and social issues are the major drivers of the amendments.1 Revisions are also led by the need to introduce new subheadings for specific chemicals; changing international trade patterns; and keeping pace with technology and removing outdated products.
As the world works to reharmonize with WCO changes, the cascading effect of the amendments—impacting more than 200 countries and territories, tariff schedules, trade agreements (e.g., NAFTA), government agency (e.g., U.S. FDA) regulations, and multiple systems of record—can make for a rocky transition for unprepared companies. 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). Given this ripple effect, identifying and reclassifying items is a significant challenge.
Every business with affected items must respond by reviewing tariff codes, duty rates, and customs data for hundreds, thousands, or even tens of thousands of items in their parts master databases or Enterprise Resource Planning (ERP) systems. These items must be updated for every country where business is transacted, and on the effective date each country activates its changes. 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.
Given the scope of the changes to multiple countries, systems of record, trade agreements, and other government regulations, manually reviewing each national tariff schedule would be extremely inefficient. Technology, however, 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 that can jumpstart updated codes to multiple countries; companies with more complex global trading requirements may need comprehensive system-to-system connectivity.
Although the move to HS 2017 is extensive, technology can help to offset the challenges posed by the transition. Solutions that can effectively transition affected items, while serving as a platform for long-term efficiency, can help companies to minimize risk and boost productivity.