Friday, January 26, 2007

Is the 2007 HTSUS Rate Neutral?

I have a tendency to assume that everyone has the big ticket items covered. I have not, therefore, been running around screaming about the impending deadline for implementing the 2007 changes to the HTS. Most everyone I have spoken to is aware of the changes and is working diligently to update databases. For the record, the new tariff schedule goes live February 3 and Customs and Border Protection expects everyone to have it implemented by February 20.

The tariff schedule is an extremely odd beast. It is statutory in nature in that it fits in the U.S. Code at 19 U.S.C. sec. 1202. Unfortunately, if you click the link you will discover that this section of code is blank. That is because the tariff schedule migrated out of the U.S. Code and into a separate International Trade Commission publication. If you want to check the HTSUS online, you go here. Making it even odder, Congress does not really get involved in the process of drafting the vast majority of the document. Rather, the U.S. works with its trading partners at the World Customs Organization to update the international components of the tariff and then the ITC completes the U.S.-specific work. When that is all done, the President "proclaims" it to be the law. It's probably not what the founding fathers had in mind, but it works reasonably well. And, by the way, despite being odd, it is a legal delegation of authority to the President.

There are several checks on the ITC to make sure it does not engage in policy making that really should be left to Congress. One of those checks is that ITC is supposed to make changes to the tariff schedule that are rate neutral. In other words, changes to the HTS should not result changes in duty rates. This is explicitly stated in 19 U.S.C. sec. 3005(d)(1)(c), which requires that the ITC "ensure substantial rate neutrality."

Granted, there is a little room to maneuver in there because rate neutrality has to be "substantial" rather than "absolute." And, the next section says that "Any change to a rate of duty must be consequent to, or necessitated by, nomenclature modifications that are recommended under this section." So clearly some rate changes are permitted.

What does all this mean to importers? Take a look at your updated 2007 HTSUS database. Did the changes in the tariff schedule result in any rate changes for your products? If so, you need to consider whether the rate change is a necessary result of the change in the nomenclature. If your product moved from one relatively discrete classification to another and there was a rate increase, or you moved from a discrete tariff item to a basket provision with no breakout for your product, you might be able to fight the change.

I'm not saying you will necessarily win. Nevertheless, there are rules the ITC needs to follow and in any project as big as this round of modifications, there are bound to be examples of things that did not work exactly as planned. If you are about to be on the receiving end of one of those odd cases, consider what it might cost you and whether you are interested in challenging the rate. You might be in a position to make a point and save your employer to money.

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