JIG Comments to USITC on Draft HTS Simplification--June 30, 1999

June 30, 1999

Ms. Donna R. Koehnke
Secretary
United States International Trade Commission
500 E Street, SW
Washington, DC 20436

Re: Investigation No. 332-388, Simplification of the Harmonized Tariff Schedule of the United States – Release of Proposed Changes for Public Comment

Dear Ms. Koehnke:

In accordance with the notice of the United States International Trade Commission (ITC) published in the March 31, 1999, Federal Register (64 FR 15376), the Joint Industry Group (JIG) submits these comments on the Commission’s draft simplified Harmonized Tariff Schedule of the United States (HTS).

JIG is a coalition of more than one hundred and fifty members representing Fortune 500 companies, brokers, importers, exporters, trade associations, and law firms actively involved in international trade. JIG membership represents over $350 billion in annual trade.

JIG supports the goal of modifying the HTS to make it simpler, transparent, and easier to use and understand. We understand the difficulty in achieving this goal in light of the increasing complexity of the HTS since its adoption in 1989. While we applaud the overall objective, we are disappointed with the Commission’s conservative approach to simplification. The Committee on Ways and Means has given the Commission the opportunity to be bold and creative. We urge the Commission to seize the opportunity to shape the HTS into a more manageable tool for the simple, efficient and accurate classification of imports.

Specific Comments

· Simplification Begins with a Reduction in the Number of HTS Digits

The size and complexity of the HTS would be greatly reduced if tariff numbers beyond the sixth digit were eliminated wherever possible. The seventh and eighth digits could then be used to

distinguish between goods that are assigned different rates of duty within the same subheading and to collect statistical information. With the implementation of the Uruguay Round tariff reductions, the rates of duty for many items within a tariff heading are the same and the separate subheadings could be combined or eliminated. The statistical breakouts at the ninth and tenth digit level create many customs compliance problems that translate into costs for industry and Customs. Yet, most of these problems arise out of differences of opinion as to the correct classification that have no impact on duty whatsoever.

· Simplify the HTS by Dropping Unnecessary Statistical Breakouts

The Commission has merged and eliminated several statistical breakouts at the ninth and tenth digit level, but much remains to be done. The size and complexity of the HTS would be greatly reduced if a moratorium was imposed on new statistical breakouts and unneeded statistical breakouts were eliminated. One way to reduce breakouts would be to raise the dollar threshold; that is, if a statistical breakout can only be eliminated if trade in that product drops below a certain threshold, then raise that threshold. Also, create different thresholds for different products based on their value. For example, $10 million worth of trade in baseballs would have greater significance than $10 million in trade in crude oil. Finally, we do not believe that business and government need trade information so specific that it requires stratifying the HTS into numerous sublevels of commodity classification that are difficult and costly to apply accurately.

We urge the Commission to recommend to the Committee on Ways and Means that the procedure for adopting and eliminating statistical breakouts be overhauled. We suggest that the customs law be amended to:

require public participation in any proposal to expand the gathering of trade statistics by publishing a notice in the Federal Register that identifies the requester of the information, presents the rationale for the collection of the data, and invites public comment;
restrict the creation of breakouts to those that are needed to implement and administer trade programs, such as quotas, antidumping and countervailing duties, duty suspensions, and specific articles eligible for reduced duty treatment under preferential trade programs;
require the party making the request for a breakout to provide a cost/benefit analysis justifying its need; and,
insure that breakouts are subject to “sunset” provisions or deleted when no longer necessary.

Unless action is taken now to stem the growth of new statistical breakouts and remove old, unnecessary breakouts, the size and complexity of the HTS will continue to grow.

· Converting Tariff Rates from Specific to Ad Valorem Rates

Where appropriate, JIG supports the conversion of tariff rates from specific to an ad valorem basis. In many instances, such a conversion would simplify tariff calculations. However, we question the wisdom of such a conversion with respect to high value merchandise and commodities whose price is volatile. We believe the Commission should carefully assess the economic impact on individual products before recommending such a change.

· Addition of Notes to the US Version of the HTS

In the first draft of a simplified HTS, the Commission has eliminated certain Additional U.S. Notes that it had determined to be unnecessary. We believe this approach should be expanded by adding clarifying notes to the US version of the HTS where a note will make the HTS more transparent and easier to understand. We suggest that the Commission consult with the US Customs Service and the trade community to determine where a note would aid the classification process.

· Improving Importer Compliance Through a Simpler HTS

As the size and complexity of the HTS has increased, the level of classification accuracy has decreased. In many instances, classification accuracy is directly related to the number of statistical breakouts that an importer must consider in classifying its goods. Streamlining the HTS by reducing the number of breakouts, particularly where there is no tariff rate difference, would assist importers in more accurately classifying their goods, thereby avoiding costly fines and penalties and increased inspections and examinations due to incorrect classifications.

· “Simplification” Should not Result in the Need to Obtain Even More Information

In some cases, where tariff numbers have been eliminated, the “simplification” will result in the need to gather information that has not to date been needed and thus will increase administrative and compliance burdens. The Commission needs to ensure that “simplification” does not create additional work.

· “Simplification” Should not Require Massive Reprogramming

Many of the proposed changes are primarily cosmetic in that statistical breakouts have merely been merged and renumbered. In other instances, a breakout will be deleted and all the other breakouts renumbered. Changes to the HTS numbers will negatively impact many companies because it will require them to update/change their HTS databases, a major, costly administrative burden. A statistical numbering change should only occur if it is absolutely essential. A better solution is to delete the statistical breakouts altogether and truly simplify the tariff schedule.

· Limit Future Growth of the HTS

Upon completion of the Commission’s investigation we expect the HTS to be much easier to use and apply. This work will be of little value, however, if the HTS is allowed to expand in the future. As noted above, the law needs to be amended and procedures and policies need to be adopted to bring greater public involvement and rationality to the inclusion and deletion of new statistical breakouts.

· Seek HTS Simplification at the Sixth Digit Level

JIG recognizes that HTS headings and subheadings to the sixth digit level have been agreed to at the international level and are administered by the World Customs Organization (WCO) in Brussels. We believe that the US efforts in simplifying the HTS should not be limited to this country, but should be an issue for negotiation in the global arena. Efforts to simplify the HTS can be furthered by simplification of the HS Convention internationally at the sixth digit level.

The Joint Industry Group urges the Commission to be more aggressive and creative in its simplification efforts. We believe that more can be done to make the HTS easier and more transparent for the import community and the government. JIG appreciates the opportunity to be involved in the effort to simplify the Harmonized Tariff Schedule and would be pleased to assist the Commission in its work.