2017 on the horizon and already full of challenge

This article first published in Air Cargo Asia Pacific magazine: Issue 245, November 2016

As we edge inexorably towards 2017, it is worth considering some of the developments which are already in place for those in the supply chain and which will have an immediate impact from the start of 2017.

HS 2017

Many would be aware of the ‘Harmonized Commodity Description and Coding System’ (or HS) which is a system that identifies all traded goods and commodities, both for imported and exported goods. The HS is developed, administered and reviewed by the World Customs Organization (WCO) and then each member country has an obligation to implement it domestically, although, in practice the implementation is not done in an identical manner. Australia has adopted the HS since 1988 and it forms the basis for the classification of goods on import under the Customs Tariff Act and for exports under the Australian Harmonized Export Commodity Classification (AHECC).

There have been a number of iterations of the HS and following a fifth review, Australia is obliged to implement changes on 1 January 2017, which means an exciting holiday period for freight forwarders and licensed customs brokers (LCB) as they spend New Year’s Eve in front of their computers making sure that the updates to their reporting software kick in at the right time.

The changes for HS 2017 affect a large number of the chapters in Schedule 3 to the Customs Tariff Act, with extensive revisions to Chapters 3, 29, 38, 44, 84–87 and 96 and the changes were effected by legislation which has recently been passed through Parliament.

A useful summary of the changes and consequential issues can be found in DIBPN 2016/34, available online, which warrants close review. However the main consequential issues are as follows:

1. Those in the supply chain who report based on the HS and AHECC should ensure that their providers of reporting software have developed the necessary changes which are loaded to commence on 1 January 2017.
2. There are changes both to the classification of goods on import (as in the Customs Tariff Act) and for export (as in the AHECC which is actually administered by the ABS). The ABS will also publish the 2017 Harmonized System to Trade Import Statistics which are based on the HS and AHECC.
3. The changes will have significant consequential impact on ‘instruments and advices’ administered by the Deprtment of Immigration and Border Protection (DIBP), which covers Tariff Concession Orders (TCOs), Tariff Precedents, Tariff Advices (TAs) and Origin Advices. While the DIBP will revoke and reissue affected TCOs and will revoke TAs, parties who hold affected TAs will have to apply for new TAs. The DIBP will provide further information on instruments and advice affected on the ‘HS 2017’ part of its website.
4. The changes will affect some Product Specific Rules under FTAs and potentially other rules of origin which will impact advance rulings (or Origin Advices). Changes to the rules of origin are to be negotiated with FTA partners and until those negotiations are completed and the relevant regulations changed, the origin advices will remain intact.

WTO Expanded Information Technology Agreement

While many have been sceptical about the work of the WTO in light of the lack of progress with the Doha round of negotiations, the WTO has achieved a number of other successes such as developing the Trade Facilitation Agreement and the Expanded ITA. The intent behind the Expanded ITA is to ensure that duties on relevant ‘Information Technology’ goods are removed. Each country which is a party to the Expanded ITA is implementing the tariff reductions according to its own timetable with, for example, the US and Canadian authorities having already started the process.

In our context, the 2016–2017 Federal Budget contained a commitment to implement the Expanded ITA and Bills to effect those changes by way of amendments to the Customs Tariff Act and the Customs Act were introduced into Federal Parliament on 20 October 2016 with the intent that the rates of duty on relevant goods would be reduced to ‘free’ but only incrementally, not immediately.

Again the DIBP has provided some details of the amendments and ‘staging’ of reductions in DIBP 2016/36, available here. This includes a ‘concordance’ of changes to tariff classifications to relevant goods based on the HS 2017 changes as well as a table of ‘staging categories’ reflecting different levels of tariff reductions depending on tariff classifications. The process here would be to commence with the correct tariff classification of the goods according to HS 2017 and then apply the correct ‘staging category’ so that the correct rates of duty would apply.

The need for certainty

As those in the supply chain would be aware the DIBP (and the ABF) largely operates a ‘self-assessment’ regime in which importers, exporters and their service providers are expected to exercise due diligence and care in ensuring that their reporting is accurate and takes into account legislative and practice changes. In this case, if there are errors in reporting through not adopting the HS 2017 changes or Expanded ITA properly there are risks that transactions will be unable to be processed or be subject to penalty or infringement notice and, at the least, will require amendment following audit. Further, with the Expanded ITA, errors could lead to overpayment or underpayment of customs duty requiring additional financial adjustments.

In all cases, this places a premium on ‘informed compliance’ and I would strongly recommend that parties review these changes in detail to ensure that necessary changes to practice and procedure are implemented to manage risks of non-compliance. Then we all need to get ready for the changes to the law value threshold for GST on 1 July 2017!