Client Memorandum
Corporate
June 2006
Customs & International Trade Practice
Proposed Changes to the Harmonized Tariff Schedule:
Opportunity to Update and Review Your Tariff Classification Database
In light of the proposed changes in the international
Harmonized System (HS) nomenclature recently made by the
World Customs Organization (“WCO”), the United States
International Trade Commission (“ITC”) has proposed
complementary changes to the Harmonized Tariff Schedule of
the United States (“HTSUS”). The proposed changes to the
HS will become effective January 1, 2007, and the changes to
the HTSUS are tentatively scheduled to go into effect on the
same date.
example: changes in the tariff classification of
semiconductor manufacturing equipment will place these
articles under one heading (8486), and multifunctional office
machinery will be included under the heading for printing
machinery (8443). The comment period for these changes at
the WCO has closed and the amendments to the HS will take
effect January 1, 2007.
For a complete list of changes to the international
Harmonized System, please visit the WCO website:
http://www.wcoomd.org/ie/En/Topics Issues/
HarmonizedSystem/HS2007-net-Eng.pdf
Although the ITC’s proposed amendments are pending
approval by Office of the United States Trade Representative
(“USTR”) and Congress, it is anticipated that the final
changes will be substantially similar to those currently
proposed and now is a good opportunity for importers to
review their existing tariff classification databases and
prepare for the anticipated amendments. As noted below, the
ITC proposed amendments to the HTSUS can be found at:
http://hotdocs.usitc.gov/docs/tata/hts/Pub3851.pdf.
I.
III. Effect of Tariff Classification Changes on
U.S. Duty Rates and Free Trade Agreements
In order to maintain compatibility with the international
Harmonized System, the U.S. will be implementing changes
to the HTSUS that map to those proposed by the WCO. Of
its 97 chapters, 83 chapters and 240 headings in the HTSUS
will contain some form of amendment. U.S. changes to
classifications must be duty-neutral and therefore the
proposed classification amendments to the HTSUS will not
impact an item’s duty rate, either up or down. However, the
anticipated changes may affect an item’s eligibility for
preferential treatment under the various U.S. Free Trade
Agreements that are based in large part on tariff shift
analysis to determine eligibility for preferential treatment.
Background on the WCO and the Harmonized
System
The WCO is an international organization created to aid the
fluidity and ease of international trade. To reach this goal, the
Harmonized System was developed as a basis for the
collection of duties and trade statistics by almost all countries,
with the HTSUS originally implemented by the United States
in 1988. The tariff codes in the HS are harmonized to the sixdigit subheading level. Every five years, the WCO reviews
the HS and recommends and implements changes to the
headings and subheadings. After the most recent review, the
WCO announced many significant changes to the HS
nomenclature.
The HTSUS utilizes a 10-digit tariff classification code to
enable the tracking of trade statistics and support of certain
preferential duty rates. Proposed modifications to the
HTSUS, however, will be implemented at the 8-digit level.
Once the Presidential Proclamation is issued, the
modifications typically carry over from the old system to the
new system at the 10-digit level. This will only pose a
problem where there are radical changes made to specific
chapters. For 2007, this will likely be the case for certain
headings within HTSUS chapters 84, 85, and 90, where
extensive changes have been made.
II. Proposed Tariff Classification Changes
The tariff classification changes that will be occurring are
comprehensive. Many current HS headings and subheadings
are being deleted, added, broken up, or merged into new tariff
headings.
The goal for these changes is an overall
simplification of the HS. The areas most affected are those
dealing with industrial and high-technology products, for
In addition to the proposed modifications to the HTSUS, it
should be noted that the Committee for Statistical
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Annotation (comprised of members of the ITC, the United
States Customs and Border Protection, and the United States
Census Bureau) has the authority to add or delete 10-digit
items in the HTSUS when they feel it is appropriate to do so.
This Committee is currently in the process of reviewing 30-50
items in the HTSUS for elimination in 2007. Once they have
finalized their list of proposed HTSUS numbers for
elimination, there will be a Federal Register notice published
for comment. The notice is expected sometime this summer.
The proposed changes to the HTSUS are tentatively
scheduled to take effect on January 1, 2007. The HTSUS
changes must first go through the legislative process and then
have a Presidential Proclamation issued before becoming
effective. The Proposed Modifications to the HTSUS (ITC
Publication 3851) is undergoing continuing review by the
USTR and has not yet been forwarded to Congress. Once
there, Congress is granted a minimum 60 legislative day
window for consideration. Once Congress passes the
legislation, there is a 15-day window prior to the
Proclamation.
However, since it is not anticipated that there will be a
significant departure from the ITC’s proposed draft, we
strongly recommend companies begin independent analysis
and review of the anticipated changes to ensure continuity in
their trade compliance obligations, as well as to anticipate the
potential impact for duty preference eligibility. The potential
negative effects of delaying implementation of the revised
tariff codes is significant as incorrect classifications could
result in noncompliance, lost duty benefits, rejection of
shipments by Customs, and perceived failure to exercise
reasonable care. A current list of the ITC proposed
amendments to the HTSUS can be found at:
http://hotdocs.usitc.gov/docs/tata/hts/Pub3851.pdf.
IV. Conclusion
While it is important to note that the proposed modifications
to the HTSUS are still subject to change and modifications
can take place any time up to the point of the Presidential
Proclamation, prior proposed modifications have typically
left the process with very little change. Accordingly, for
those importers looking to be proactive in preparing for
changes in 2007, they should begin to review their tariff
classification databases to identify impacted provisions. Use
of the ITC Publication 3851 as guidance is recommended to
the 8-digit level.
In most of the cases, if importers use the cross-reference
tables provided, it can be presumed at this preliminary stage
that the 10-digit number will carry over on January 1, 2007,
with the exception of the three chapters noted above.
Additionally, importers should review the expected Federal
Register notice as it will identify additional items that could
be eliminated from the HTSUS that are not currently noted
in ITC Publication 3851.
If you have questions regarding this information or would
like assistance with analyzing the changes to the HTSUS and
how these changes may impact your company, please
contact any member of GCD’s Customs and International
Trade Practice group accessible from our website.
Customs & International Trade Practice:
Kathleen M. Murphy
Chair, Partner
312-569-1155 ph
kmurphy@gcd.com
Joan Koenig
Counsel To
(312) 569-1163 ph
jkoenig@gcd.com
Randy Rucker
Attorney
312-569-1157 ph
rrucker@gcd.com
Therese Ignich
Trade Specialist,
Licensed Customs Broker
312-569-1582 ph
tignich@gcd.com
Karen Lobdell
Global Trade and Supply
Chain Specialist
Customs Broker
312-569-1066 ph
klobdell@gcd.com
James Sawyer
Partner
312-569-1156 ph
jsawyer@gcd.com
Beata Spuhler
Attorney
312-569-1158 ph
bspuhler@gcd.com