The WCO published its interim report “Explanatory study on a possible strategic review of the harmonized system (HS)” . This is the result of a survey performed among the economic operator. The explanatory study will be checked, in the following analysis, from a environmental point of view. This is the reason for which, i t will be added a point of the fuels from marine plastic littering.
The WCO experts try to understand the questions to be answered and outline the main concepts
About the answers, it is possible to list the following ones:
- How to classify the goods which are environmentally sensistive?
- How to classify goods considering also the problematic plastics?
- How to classify goods considering the non-physical criteria?
- How to asnwer to the need coming from the circular economy and sustainability considered as reaction to “… protection of biodiversity, fight against the plastic pollution, and climate change…”?
In particular, the Lawmaker has to combine these new needs with the aims of uniformity and granularity of the classification process. Moreover should consider that HS provisions are, essentially, based on objective characteristics. While some provisions, for example, “collector’s pieces”, have a degree of subjectivity, in general, the intent within the HSC is to create provisions based on objective characteristics that can either be checked at the border or verified through testing.
In particular for what it is concerning the green economy and circular economy elements, it is interesting to recall the following points.
The explanatory study lists some “… HS and possible responses to emerging demands analysis…”. Indeed, it starts by asking “…as to whether the HS is sufficient for future needs….”. This requires consideration of a larger question on the HS as a whole.
The “Explanatory study on a possible strategic review of the harmonized system (HS)” mention the following aspects:
“…115. The strengthening policy agenda in relation to trade and environmental issues, including those related to the circular economy, biodiversity, plastic pollution, and climate change, has led to an increasing demand to monitor and measure specific products. The pace of new policy development in this area also appears to be increasing. This is increasing expectations that Customs, and the HS, will be able to respond to new global policy imperatives by creating HS provisions.
- These new demands come with specific problems for the HS. For example, in identifying environmentally sensitive goods the challenges include establishing workable criteria for goods of interest and the diffuse nature of the stakeholders.
- The HS provisions are, almost entirely, based on objective characteristics. While some provisions, for example, “collector’s pieces”, have a degree of subjectivity, in general, the intent within the HSC is to create provisions based on objective characteristics that can either be checked at the border or verified through testing….” It is interesting to argue that “…However, with goods that are environmentally sensitive, their status is not always based on their physical characteristics. For some, it is based on external production factors (e.g., the use of sustainable energy sources or the reduction of harm to biodiversity in production) or on end-use (e.g., when used in green energy production rather than polluting energy production)…”.
- Challenging criteria are not an entirely new problem. For example, the HSC is already working on goods that demand a more complex identification, from how to specify the contamination of wastes to how to delineate goods on the borderline of “medicaments” and “general well-being products”, and this has already made for slow and difficult progress on needed and wellsupported proposals. This is a real concern that this trend of complex provisions to negotiate is set to not only continue, but to become the vast majority of proposals.
- The green agenda brings this challenge to a new high level, with the criteria often completely divorced from the discernible physical characteristics.
- The diffuse nature of the stakeholders and their expertise is also challenging.
- When provisions are created in the HS for a specific agreement or convention, then the relevant organization entrusted with the agreement or convention is the single point of contact and can usually provide exact information on what is required to be covered and how it is identified.
- However, requests for the WCO and its Members to create provisions to support emerging policy measures by identifying goods of concern that are relatively non-specific requests (e.g. requests to identify problematic plastics without a clear list of goods to be identified in trade, or to identify goods for humanitarian aid) are becoming more frequent and these are coming from multiple organizations and Members. This means that it can be difficult to have clarity and consensus on what should be covered and even harder to reach consensus on how it should be identified.
- The pandemic also highlighted two other issues that are likely to reoccur. One was the need, in the event of global emergencies, to be able to quickly respond to the need to identify critical goods and inputs in trade. The other was that there is a concerning level of fragility of global value chains in the face of such events and that the pandemic highlighted how difficult it was currently to identify the movement of goods and materials through value chains internationally.
The lack of HS codes for intermediate goods was highlighted, as was the inability to identify certain critical inputs through insufficient granularity in classification.
- As with many environmentally sensitive goods, creating provisions to identify critical goods on the basis of the value chains they participate in (e.g. goods for use in pharmaceutical manufacturing) or when for certain end-uses that must be facilitated (e.g. garments for medical workers), can also be very problematic in establishing criteria for identification at the border.
- One of the issues that arises from these growing concerns around both new policy needs and the potential for shocks to the trading system, is that the desired speed of response to new policy needs is not always compatible with the time it takes to create new provisions. From the introduction of a new proposal to it being in force as part of a new edition takes somewhere between just over 3 years to just over 7 years, depending on the meeting at which it is introduced. This creates difficulties when the need is urgent.
- Finally, there are challenges to the ability of the HS to achieve its underlying goal of promoting a base level of global uniformity in the identification of traded goods. There are two aspects to this. One is where Members differ in their classification of goods, that is, trade faces discrepancies in treatment from Customs. The other aspect is how reliable is the classification of goods by importers and exporters, that is, how much can the data generated from declarations be trusted by Customs and statistical agencies….”.
- In terms of the reliability of classifications on import and export declarations, the changing nature of trade has compounded the already existing problems in this area. The complexity of classification, and, in some cases, the financial incentives to misclassify, have always created issues around the accuracy of classification. However, the move to increasing numbers of e-commerce shipments and the increase in individuals and MSME without any real expertise in classification as exporters or importers are other factors that impact the reliability of declarations.
In particular, it is worth of attention the point n.128 for which “… The major areas raised as requiring consideration for improvement of the HS to meet future needs can be summarised as:
- Greater capacity to identify goods more specifically;
- Ability to identify goods using a broader range of non-physical criteria;
- Improved alignment with the development of global policies and policy analysis needs (both in timing and in consultation); and
- Increased simplicity of use….”.
Finally, for the matters related to the customs classification tecniques, it is important to mention the following points of the Explanatory study on a possible strategic review of the harmonized system (HS)”:
“…156. The initial analysis of what would be required at the HS system wide level to give the HS the ability to better meet emerging demands is ongoing, but the following are some possibilities that were raised in submissions or in verbal discussions with stakeholders. Some of these are not considered feasible but are added for completeness of the current state of consideration. • Greater capacity to identify goods more specifically: – Providing a greater level of granularity in the HS by increasing digits; – Providing a global-level instrument that can be used in conjunction with the HS to collect an additional, more detailed, layer of identification of goods; – Linkages between the HS and other product identification systems; – Creating a replacement system that uses a faceted classification style system (multiple facets of identification). • Ability to identify goods using a broader range of non-physical criteria: – Introduction of a wider range of criteria, such as the certification, life-cycle stage, packaging, or end-use; – Use of a type of “product passport” or other system to record status of goods; – Providing a global-level method/instrument that can be used in conjunction with the HS to collect an additional, more detailed, layer of identification of goods. • Improved alignment with the development of global policies and policy analysis needs (both in timing and in consultation) – Introduction of a variable review cycle lengths for different sections of the HS depending on the needs: – Shortening the review cycle; – Developing greater collaboration between the WCO and other IGOs and between Customs and other national administrations to ensure policy needs from different administrations (e.g., health, environment, trade) are clear; – Increasing the workload capacity of HS bodies by increasing the frequency or length of meetings or creating intersessional work practices. Increased simplicity of use: – Increase in named or clearly described (more specific) provisions; – Significant decrease in the number of provisions to very broad provisions; – Creation of a separate classification system for low-value consignments; – Increased guidance material and education; – Greater access to existing guidance materials; – Development of a simplified classification method i.e., simplified GIRs; – A major restructuring of provision criteria to reduce circumstances in which two or more classifications could apply; – Creation of lists of agreed classifications for goods commonly imported in low-value consignments; – Addition of classification to existing identification systems (e.g., to GS1’s GTIN) with ability of Customs systems to retrieve the classification when the associated product identifier is input or the creation of a new system to register classification at the product level for customs purposes….”.