The trade community will be required to implement a broad range of new changes to the U.S. tariff schedule on February 3, 2007 (referred to as the “HS 2007” Changes). Given the scope and substance of the changes and the dramatic impact the changes could have on the trade community, Customs and Border Protection (CBP) is allowing a “grace period” through February 20, 2007. During the grace period, CBP will allow for the re-filing of entries that were rejected due to any classification errors resulting from World Customs Organization (WCO) changes.
The “HS 2007” Changes
Every five years, the WCO reviews the “code numbers” comprising the “International Convention on the Harmonized Commodity Description and Coding System” to ensure that the harmonized system is kept up to date in the light of changes in technology, patterns of international trade, change in trade patters, clarification of texts to ensure uniform application, adaptations to reflect trade practice, and amendments related to the social and environmental fields (e.g. to facilitate the monitoring and control of certain fish, products of bamboo, pesticides, ozone-depleting substances, and products containing asbestos). The HS 2007 Changes are the result of this five-year review process, and will be adopted by 128 Harmonized System Convention Contracting Parties. The WCO document is often referred to as the Harmonized System “Nomenclature” or, more commonly, as the “HS.” Every member of the WCO is involved in the identification of changes to the HS, and is obligated to implement them in their national or common external systems. The third major set of revisions was completed in a process that began in 2004.
In the United States, these changes have been integrated into the Harmonized Tariff System of the United States (HTSUS). On January 4, 2007, the U.S. government published President Bush’s Proclamation implementing the most recent changes promulgated by the WCO. Changes Take Effect in the U.S. on February 3
The President’s Proclamation provided for a 30-day implementation period to allow the government and the trade community to prepare for the HS 2007 Changes. In addition, CBP is providing an additional two-week grace period, between February 3 and February 20, to address rejected entries and prevent the assessment of penalties for entries that were misclassified because of the WCO changes. In summary, the trade community must make entries using the new HTSUS provisions effective February 3. But for entries filed prior to February 21, 2007, no penalties or liquidated damages will be levied as the result of post-entry classification amendments or rejected entries that are re-filed later than the normal 48-hour period, as long as filers are able to substantiate that the HS 2007 Changes were the reason that post-entry corrections were necessary or that the additional time for re-filing was needed.
Timely Changes Needed to Import Databases
The trade community faces significant logistical and compliance challenges associated with the HS 2007 Changes. Classification and inventory databases must be updated and personnel must be trained before transactions involving any affected article can be completed so as to avoid the possible imposition of liquidated damages or penalties. During the grace period, rejected entries must still be re-filed, although with relaxed deadlines as noted above. However, after the grace period has expired on February 21, importers will have to re-file within the required 48-hour period and may face penalties for post-entry amendments.
Principle of “Substantial Rate Neutrality” – Duty Rates Should Not Increase
Under the U.S. statute authorizing the president to proclaim the HTS changes, any revisions must have “substantial rate neutrality,” meaning that the new provisions should not result in an increase in the applicable rate of duty for imported merchandise. However, because so many revisions have been made, it is quite possible that some merchandise will be subject to higher duties. Companies should check carefully to see whether their tariff rates may have increased as a result of the HS 2007 Changes.
It should also be noted that the 2007 changes might affect the eligibility of imported merchandise for preferential treatment under free trade agreements (such as NAFTA) if they are based on a tariff-shift rule of origin.
Possible Lower Duty Rates
To the extent the HS 2007 Changes may result in the application of a lower duty rate, and to allow importers to take advantage of any such lower duty rate, CBP has provided a blanket authorization for the use of immediate delivery procedures for merchandise released between January 22, 2007, and February 2, 2007, so that post-February 3, 2007, duty rates will apply to such goods. To invoke this procedure, the importer must draw a line through the word “entry” if filing a paper CBP 3461 (or 3461ALT) or, in the case of an ABI entry transmission, by using the estimated entry date in the summary transmission (“EI” transmission). This will identify the change from “Entry” to “Immediate Delivery” and will allow filers to elect a date of entry after February 3 in order to take advantage of tariff changes or special programs.