COMMENTARY: To increase trade, sweat the small stuff

Countries should be focusing on updated HS codes to make sure global businesses are able to speak the same “language”    There has been a lot written about President Trump’s trade policy since Inauguration Day. Should we abandon or renegotiate the North American Free Trade Agreement (NAFTA)? What about the Trans-Pacific Partnership? Are bilateral trade deals more advantageous than multilateral ones? How to adjust trade agreements that benefit US exports?
   Readers of my past columns will know where I stand on many of these questions. But this column will not be about any of them. Instead, I want to raise an issue that will still be there, regardless of which direction the United States or other countries go in their overall trade policy. This is the question of trade compliance.
   As anyone involved in importing or exporting knows, the system is only as good as its constituent parts. With companies moving toward more complex, cross-border supply chains and just-in-time delivery, how well you manage the customs and broader trade compliance game can determine the success or failure of your entire enterprise.
   Customs compliance revolves around a lot of things, but a core component is the customs classification of products that move across borders. Classification is an art – a lengthy, complex and detailed process undertaken mainly by companies and national governments, with guidance from key international organizations.
   Companies often forget that the technical, nuts-and-bolts work related to classification, valuation and origin at the global level fall to the World Customs Organization (WCO) and the World Trade Organization (WTO). In the case of classification, most countries base their domestic customs tariffs off the international WCO structure, which is then further augmented at the national level to create additional, more detailed provisions.
   The business world likes certainty. Understanding the factors that go into such landed costs as customs duties are key to assessing production and distribution costs. If there is any uncertainty over the common language of international trade, it can mean headaches, delay and extra cost.
   The WCO serves as the ultimate arbiter of the global customs classification system, the Harmonized Commodity Description and Coding System (commonly referred to by practitioners as the Harmonized System or simply the HS). Think of the Harmonized System as the Dewey decimal system of international trade. If you don’t know the right code, you can’t assess the correct applicable rate of customs duty or even begin to contemplate total landed costs. The whole global supply system breaks down.
   Maintaining and updating the HS, which covers 98 percent of global trade, is a core priority at the WCO. It issues global product classifications, amends the Explanatory Notes that guide classification and addresses country classification disputes. In addition, the WCO also reviews and updates the HS nomenclature every five years. The latest version, HS2017, went into effect at the beginning of this year.
   Many folks in the trade are unaware that the WCO is well into the HS2022 rewrite process, and important deadlines are looming. As for proposing changes to take effect Jan. 1, 2022, the relevant WCO Committee must finalize amendments by March 2019, so any new proposals should be submitted as soon as possible. Finalization of the amendments is just one of the steps in the overall process to adopt what will be become HS2022. While we think that updating internal corporate systems takes a long time, countries must complete all necessary domestic procedures – in the United States, this means a review and mandated hold-over period with U.S. Congress – before implementation of the domestic tariff can even commence.
   The United States is one of a number of countries that have completed domestic processes to implement HS2017 in a timely manner. However, many other countries are lagging, including many still using older outdated versions of the HS (e.g., HS2012). Heck, there are a few countries still using HS2007.
   Companies rely on the timely implementation of the HS for much-needed business predictability. Companies and countries where they do business must speak the same language – that language is the current version of the HS.
   The persistent use of earlier, “zombie” classifications is ironically a reflection of the successful expansion of the international trading system over recent decades. The proliferation of bilateral and multilateral trade agreements negotiated since the 1980s has resulted in, for example, the market access and rules of origin provisions tied to a specific version of the Harmonized System.
   Countries may be hesitant to update these provisions, but much like the use of the current HS to negotiate the provisions, there is a need for companies to maintain their market access and rules of origin predictability as new iterations of the HS are introduced. This is less about opening a trade agreement to updates, and more about making sure that the language keeps pace with the international tools that guide them.
   The urgency for countries to adopt the newer classifications is elevated by the recent entry into force of the World Trade Organization’s Trade Facilitation Agreement (TFA), under which countries agree to reduce and remove technical and other “red tape” barriers to international trade. It’s estimated that the TFA, once implemented, will provide a $1 trillion annual boost to the global economy, and support the creation of millions of new jobs.
   The TFA requires binding rulings for customs classification and origin, tools that don’t exist in all countries. A tangible stepping stone to implementing a rulings program in the customs classification space is the use of the current version of the HS. Further, with the prospect of new U.S. trade deals on the horizon, imagine the complications if we aren’t speaking the same language of trade (i.e., HS2017).
   Going forward, all WTO members should be encouraged to take necessary steps to join the WCO’s Harmonized System Convention, or at least commit to using it as the basis of the national customs tariff. More importantly, they should commit to implementing HS2017 and all future iterations of the HS in a timely manner, seeking technical assistance from the WCO when and where applicable.
   U.S.-based companies, both large and small, can make their views known through participation in the United States Council for International Business, the U.S. affiliate to the International Chamber of Commerce (ICC), whose Customs and Trade Facilitation Committee I chair. Under the umbrella of ICC, USCIB/ICC USA and CompTIA serve as the delegation to the WCO Harmonized Systems Committee and Review Subcommittee for global industry.
   In the end, a country’s failure to implement and use the latest version of the Harmonized System represents, in effect, the imposition of new trade barriers – something the members of the G-20 have pledged not to do. Continued growth in international trade is only guaranteed if we speak the same language and sweat the small stuff.

Jerry Cook is vice president of government and trade relations with Hanesbrands, and chairs the Customs and Trade Facilitation Committee of the U.S. Council for International Business.