Philippine Tariff Reform Program PDF

**II. The Tariff Reform Program / Comprehensive Review of the MFN Tariff Structure** **[A. The Tariff Reform Program]** **The Tariff Reform Program (TRP)** - is the review/restructuring of the Philippine tariff system that government undertakes on a continuing basis to make the tariff structure re...

**II. The Tariff Reform Program / Comprehensive Review of the MFN Tariff Structure** **[A. The Tariff Reform Program]** **The Tariff Reform Program (TRP)** - is the review/restructuring of the Philippine tariff system that government undertakes on a continuing basis to make the tariff structure responsive to the needs of the economy taking into account changing patterns of trade and advancements in technology.\ \ Four (4) TRPs were undertaken from 1980. **What was the rationale of TRP-I?** The rationale behind the Tariff Reform Program (TRP-I) was to address the negative consequences of excessive protectionism in the Philippines during the 1970s. The overprotection of certain domestic industries led to market distortions that hindered exports, investments in agriculture, and the production of intermediate and capital goods. To address these issues, the government shifted its policy focus from import-substitution to export promotion. The TRP-I was a key component of this structural adjustment program, aiming to make Philippine industries more efficient and competitive both domestically and internationally. The two (2) main instruments of structural adjustment pursued by government were the TRP and the Import Liberalization Program. **When was TRP-I undertaken? What was its coverage?** The Tariff Reform Program I (TRP-I) was implemented from 1981 to 1985. It aimed to reduce excessive protective tariffs on imported goods across various industries in the Philippines. The program focused on removing or phasing out tariffs that were no longer beneficial to the economy and shifting the composition of imported raw materials towards more basic or crude forms. Additionally, TRP-I sought to promote inter-industry and inter-sectorial linkages within the Philippine economy. **What was the impact of TRP-I on the protection structure?** [On Nominal Tariffs]\ The tariff band was narrowed from 10%-100% to 10%-50%. The average nominal tariff fell from 42% in 1981 to 28% at the end of TRP-I\ \ [On Effective Protection Rates (EPRS)]\ TRP-1 resulted in the overall reduction and evening out of EPRs across industries. On the average. EPR for primary and agricultural industries continued to receive a low of 3%. EPR for manufacturing industries declined from pre-TRP level of 66% to 36%. ** What was the rationale(why) of TRP-112** The rationale behind TRP-II was to further reduce tariffs and distribute protection more evenly across industries. By lowering tariffs, TRP-II aimed to improve resource allocation, reduce costs for industries, provide consumers with more affordable and higher-quality goods, and enhance the competitiveness of local industries both domestically and internationally. **When was TRP-II undertaken? What was its coverage?**\ The new package of tariff adjustments under TRP-II was promulgated under Executive Order (EO) 470 signed on 20 July 1991 and took effect on 24 August 1991.\ EO 470 covering about 80% of the total number of tariff lines incorporated a five-year phase-in period from 1991 to 1995 and transition rates to provide local industries reasonable time to make the necessary adjustments. **What was the impact of TRP-II on the protection structure?**\ [On Nominal Tariffs] - Almost 95% of total tariff lines were dutiable at 3%, 10%, 20% and 30% in July 1995 and the rest at 0%, 5%, 15%, 25% and 50%. - Average nominal tariff reduced from 28% before EO 470 to 20% at the end of the review. Tariffs in the manufacturing sector registered the biggest reduction at 30% (from 27% before EO 470 to 19%) as against the drop in agricultural tariffs of 20% (from 35% before EO 470 to 28%) in 1995. Sensitive agricultural products retained their tariffs at 50%, resulting to a more moderate reduction in agricultural tariffs. - The number of Harmonized Commodity Description and Coding System or Harmonized System (HS) lines was reduced by 10%, from 6,193 tariff lines to 5,561 lines due to the simplification of the tariff nomenclature, e.g., tariff lines that would eventually have the same rates of duty were combined into a single line, for ease of customs administration. [On EPRS] - The overall average EPR level declined substantially from 25% before EO 470 to 19% five (5) years after the final duties were implemented. - EPRs for selected manufacturing industries which thrived under a highly protected regime were reduced to more reasonable levels. **What were the objectives of TRP-III?**\ TRP-III further liberalized the trade environment by reducing the level and spread of tariff rates towards a uniform level of protection across all sectors. It aimed to (i) promote global competitiveness, (ii) simplify the tariff structure for ease of customs administration, and (iii) provide a level playing field for local manufacturers vis-à-vis foreign competition.\ \ As indicated in EO 264, the final rate structure under TRP-III will consist of a uniform tariff rate of 5% in 2004, to be reached after a penultimate stage of only two tariff rates: 3% (for raw materials and intermediate goods) and 10% (for finished products) in 2003. **When was TRP-III implemented?**\ The issuance of EO 189 on 18 July 1994 marked the onset of TRP-III. Other EOs issued were: (i) EO 264 (effective 28 August 1995) which contained the tariff modifications on industrial products; (ii) EO 288 (effective 15 January 1996) which set in place the tariff reductions on non-sensitive agricultural products (those not covered by quantitative restrictions); (iii) EO 313 (effective 07 May 1996) which provided interim tariff protection to sensitive agricultural products as part of the country\'s commitment being a member of the World Trade Organization (WTO), and identified a total of 170 tariff lines subjected to tariff quotas; and (iv) EO 461 (effective 04 January 1998) which imposed 3% duty on imported crude oil and refined petroleum products.\ \ **What was the impact of TRP-III on the protection structure?**\ [On Nominal Tariffs] - More than 95% of total tariff lines were dutiable at 3%, 10%, 20%, and 30% from 1995 to 1997. - The average nominal tariff declined from 20% in 1994 to 13% in 1997. Tariffs for the agricultural sector were consistently above the overall tariff average due to the higher tariff protection accorded to sensitive agricultural products. [On EPRS] - EPRs not only fell but the bias against the agricultural/fishery/forestry sectors relative to the manufacturing sector was also reduced. **What was the rationale of TRP-IV? When was it undertaken?**\ TRP-IV was initiated to review and evaluate the impact of the pace of tariff reductions on the competitiveness of local industries. It was intended to smoothen the pace of the schedule of tariff reduction for deserving industries and to correct any remaining distortions in the tariff structure.\ \ The Commission adopted a tariff recalibration scheme to serve as framework. This scheme provided for a more flexible tariff structure of 3%, 5%, 7%, 10%, 15%, 20%, 25%, and 30% in place of the earlier structure of 3%, 10%, 20%, and 30% set in place under TRP-II and followed in TRP-III\ \ Twenty-two (22) industries identified as \"Philippine Winners\" were initially targeted for re-calibration of tariff rates. The products covered by these industries, selected on the basis of their global competitiveness, employment, and inter-industry linkages, were: copper products, fertilizer, motor vehicle parts and components, iron and steel products, jewelry, electronics; ceramics, marble products; marine products; processed foods; petrochemical and oleochemical products, leather goods; footwear, lumber, particle board; fiberboard; veneer and plywood; textiles and garments; basketwork; seaweeds and carageenan; holiday decor: furniture; and fresh fruits.\ \ [TRP-IV was concluded with the issuance of the following EOs:] - EO 465 (took effect on 22 January 1998) provided the re-calibrated tariffs for the Philippine Winner products: - EO 486 (took effect on 10 July 1998) - provided the re-calibrated tariffs for the residual items not covered by the Philippine Winners; and reduced the number of tariff lines subject to tariff quotas from 170 under EO 313 to 144; and - EO 334 (took effect on 03 January 2001) - provided the tariff schedule from 2001 to 2004 for all products (excluding meat products under HS Chapter 2, rice, corn and sugar); and provided the tariff band of 0%-5% (except for some sensitive agricultural products at 30%) in 2004. **What was the government\'s position on the Most-Favoured Nation (MFN) tariff structure to level the playing field for domestic industries vis-à-vis unbridled globalization?**\ \ The government was fully aware of the need to further provide assistance to the agriculture and manufacturing sectors. Tariff modifications were undertaken to help domestic industries to be globally competitive vis-a-vis foreign counterparts and to remain viable in the face of economic difficulties.\ \ Beginning January 2003, the government adopted the policy of slowing down the pace of the TRP to the ASEAN Free Trade Area (AFTA) and WTO minimums, and intended to take full advantage of all exception windows allowed. In addition, plans to support critical industries such as the steel, textile and shipping industries were formulated. B. **[Comprehensive Review of the MFN Tariff Structure]** **Why is comprehensive review undertaken? When was it undertaken?**\ A comprehensive review of the MFN tariff structure was undertaken to lay down the MFN tariff structure of all products falling under Chapters 1 to 97 of Section 104 of the TCCP (now Section 1611 of CMTA). This periodic review aims to provide transparency and predictability for industries to undertake strategic business planning over a spread of five (5) years\ \ A comprehensive tariff review was carried out in 2005 to set the tariff structure from 2006 to 2010. The results of this review took effect in 2007 with the issuance of EO 574, which provided a dynamic landscape leading to the recalibration of the Philippine tariff structure consistent with the promotion of Philippine industries.\ \ In 2010, another round of comprehensive tariff review was undertaken to put in place the MFN tariff structure from 2011 to 2015. Said review was intended to assist the business community, plan their trade strategies; enhance certainty in trade facilitation; and create opportunities for growth and greater employment.\ \ The review was concluded with the issuance of EO 61 on 17 October 2011, which took effect on 14 January 2012\ \ In general, tariff rates under EO 61 were maintained at 2010 levels for 96% of tariff lines which include, among others, ethanol and flat-rolled steel products. Tariff rates were reduced for 193 tariff lines including petrochemicals/plastic resins to address tariff distortion, promote consumer welfare and enhance the competitiveness of local industries. On the other hand, tariffs were increased on obstacle detection devices and electric transformers with capacity exceeding 20,000 kVA but not exceeding 30,000 kVA to provide temporary assistance to local producers.\ \ **When was the latest comprehensive review undertaken and what was the outcome?**\ Another review was undertaken in 2015 to lay down the MFN tariff structure for 2016 to 2020. Said review was concluded upon the issuance of EO 20 on 27 April 2017 which promotes the local industry competitiveness and addresses the issue of tariff distortion on raw materials and finished goods, compliance with international tariff commitments and preservation of policy flexibility for international trade negotiations, and adoption of tariff modifications previously approved by the Committee on Tariff and Related Matters (CTRM).\ \ The 2015 review also reinstated the zero tariffs on agricultural inputs due to the expiration of Republic Act (RA) 8435, otherwise known as \"The Agriculture and Fisheries Modernization Act of 1997\" (AFMA), as amended by RA 9281. C. **[The Current MFN Tariff Structure]** **What is the current tariff structure?**\ From 41% in 1980, the average MFN tariff has fallen by 83% to 8% in 2020.\ \ EO 20, s. 2017 maintained the tariff rates for 85% of total tariff lines (8,460 lines). Tariff rates were reduced for 722 tariff lines including for live breeding animals, seeds for sowing. food preparation for infants, steel billets, liquid dielectric transformers, lithium-ion batteries, life jackets and belts, cables and other insulated electrical conductors and various capital equipment, spare parts and accessories. However, two tariff lines on high-impact polystyrene (HIPS) were increased to 10% to align with the rates of duty of other polystyrene. Additional tariff line was mandatory created for electrical energy under AHTN Code 2716.00.00 with a tariff rate of 0%.  **III. The Rice Tariffication Law** **What is \"The Rice Tariffication Law?**\ On 14 February 2019, the President signed into law RepublioN AND TRAD 11203 entitled 14 FebrIBERALIZING THE IMPORTATION, EXPORTATION RESTRIDING OF TAN ACT LIBERAL PURPOSE THE QUANTITATIVE IMPORT RESTRICTION ON RICE AND FOR OTHER PURPOSES Taking effect on 5 March 2019, this new law amends RICE. AND FOR OTHER PUR as the \"Agricultural Tarification Act.\" It provides for the repeal of all other Tavel and provisions of law, prescribing quantitative import and export restrictions or granting government agencies the power to impose such import restrictions on agricultural or granting hindering the liberalization of the importation, exportation trading of rice (Sections 3 and 9) and the tariffication of quantitative import restrictions (Section 5),\ \ **What are the objectives of The Rice Tariffication Law?**\ \ Popularly known as the \"The Rice Tariffication Law\", the objectives of RA No. 11203 are as follows: - fulfill the country\'s international commitment to the World Trade Organization. Replace the QR on rice with tariff, another form of protection that is more transparent and generate revenues to support the sector - ensure the availability of rice in the domestic market for the accessibility of the majority of the population by allowing private traders (big or small) to participate in importing rice lower domestic rice prices to levels that would be affordable to the majority of the population - make domestic market function effectively and efficiently with reduced/no government intervention. - provide farmers equivalent protection with the imposition of 35% or higher tariff rates on rice imports and preferential assistance to rice farmers, adversely affected by tariffication. provide opportunity for farmers to earn more in the world market. The law also lifted the restriction on rice exports to encourage farmers to produce much better-quality heirloom/ traditional rice geared to exports. **What was the role of the Tariff Commission in the implementation of this law?**\ Section 5 of RA No. 11203 provides for the tariff equivalent of the quantitative import restrictions (QRs) that were lifted. Among others, said Section prescribes that the bound rate on rice imported outside the Association of Southeast Asian Nations (ASEAN) region shall be 180% or the [tariff equivalent calculated by the Tariff Commission] in accordance with a World Trade Organization (WTO) methodology and approved by the National Economic and Development Authority (NEDA) Board, whichever is higher. The Commission submitted its Report On the Calculation of the Tariff Equivalent of the Quantitative Import Restrictions For Rice Originating From All Member States of the World Trade Organization Except From the Member States of the Association of Southeast Asian Nations to the NEDA Board in March 2019.\ \ **When were the IRRs of this law issued?**\ Joint Memorandum Circular No. 01-2019 of the National Economic and Development Authority (NEDA), Department of Agriculture (DA), and Department of Budget and Management (DBM) was issued on 05 April 2019.\ Among the salient provisions in the IRR are guidelines on the President\'s powers and the enforcement of safeguard measures in case of emergency situations like the sudden rise or drop in domestic prices.\ It is noted that RA No. 11203 already took effect on 05 March 2019 with its self- executing provisions such as on applicable tariff rates. **IV. Jewelry Industry Development Act of 1998** **What is the Jewelry Industry Development Act of 1998?**\ Republic Act (RA) 8502, otherwise known as the \"Jewelry Industry Development A of 1998 epubli signed on 13 February 1998 to promote the development of the jewe manufacturing industry in the country and provide incentives therefor.\ RA 8502 took effect on 09 July 1998 while the Implementing Rules and Regulations (IRR) of RA 8502 promulgated by the Department of Gustoms (BOC) took effect on 25 January 1999. Finance (DOF) and the Bureau\ \ **What are the incentives granted under RA 8502?** - Zero duty on imported raw materials (e.g., precious metals, loose gems, precious stones, jewelry parts, accessories and supplies) for use by a jewelry enterprise; - Exemption from the imposition of excise tax on all goods commonly or commercially known as jewelry, whether real or imitations thereof; all goods made of, or ornamented, mounted or fitted with precious metals or imitations thereof; - Zero duty on imported capital equipment, including spare parts and toolings thereof: - Additional deduction from taxable income of 50% of expenses incurred in training schemes approved by the appropriate agency which shall be deductible during the financial year the expenses were incurred; - Gold and silver sales by the Bangko Sentral ng Pilipinas to jewelry enterprises wider minimal margins; - Authority for jewelry enterprises to buy gold and silver directly from other sources; - Inclusion of locally manufactured jewelry in the government\'s tourist duty free shops including the promotion, advertisement, and sale thereof; and - Availment of incentives provided by other special laws, e.g., RA 7844 (Export Development Act of 1994), RA 7916 (Special Economic Zone Act of 1995), and EO 226 (BOI Omnibus Investment Code); provided, that the activity is export-oriented and that there is no double availment of the same incentives. **What is a jewelry enterprise and how can it avail of the incentives under RA 8502?**\ A jewelry enterprise refers to any enterprise engaged in any aspect in the manufacture of goods commonly or commercially known as fine and imitation jewelry, including those producing, cutting and polishing, shaping, refining, forming or fabricating real or imitation pearls, precious and semi-precious stones and imitations thereof, goods made of precious metal and imitations thereof, and other raw materials and parts used in the manufacture of jewelry.\ Section 4 of RA 8502 expressly provides that to qualify for the assistance, counseling and other incentives, jewelry enterprises must be duly registered with the Board of Investments. **What was the role of the Tariff Commission in the implementation of RA 8502?**\ The Commission provided the technical expertise in the tariff classification and preparation of the list of products and equipment entitled to tax and duty exemption under the Act. It continued to assist in the tariff classification of products and equipment eligible for duty- free treatment. **[PART II - TARIFF NOMENCLATURE]** I. **[The World Customs Organization]** **What is the World Customs Organization?**\ The World Customs Organization (WCO) is an independent intergovernmental organization dedicated exclusively to international customs and border control matters. It works in areas covering the development of intemational conventions, instruments, and tools on topics such as commodity classification, valuation, rules of origin, collection of customs revenue, supply chain security, international trade facilitation, customs enforcement activities, combating counterfeiting in support of intellectual property rights, integrity promotion, and delivering sustainable capacity building to assist with customs reforms and modernization.\ Established in 1952 as the Customs Co-operation Council (CCC), the WCO maintains the Harmonized Commodity Description and Coding System (HS), an internationally accepted goods nomenclature, and administers the technical aspects of the WTO Agreements on Customs Valuation and Rules of Origin. It adopted the informal working name \"World Customs Organization\" to indicate more clearly its nature and world. wide status. However, the Convention establishing the CCC has not been amended, thus Customs Co-operation Council remains its official name.\ The WCO has worldwide membership of 182 Customs administrations across the globe that collectively process approximately 98% of world trade. As the global center of Customs expertise, the WCO is the (only) international organization with competence in customs matters and (can rightly call itself) the voice of the international customs community. It has its headquarter in Brussels, Belgium.\ \ **What are the vision and objectives of the WCO?**\ The WCO is internationally acknowledged as the global center of customs expertise and plays a lead role in the discussion, development, promotion and implementation of modem customs systems and procedures. Its primary objective is to enhance the efficiency and effectiveness of member customs administrations, thereby assisting them to contribute successfully to national development goals, particularly revenue collection, national security, trade facilitation, community protection and collection of trade statistics.\ \ **What are the main functions of the WCO?**\ a) To study all questions relating to cooperation in customs matters\ b) To examine the technical aspects, as well as the economic factors related thereto, of customs systems with a view to proposing to its Members practical means of attaining the highest possible degree of harmony and uniformity\ c) To prepare draft Conventions and amendments to Conventions and to recommend their adoption by interested Governments\ \ d) To make recommendations to ensure the uniform interpretation and application of the Conventions concluded as a result of its work as well as those concerning the Nomenclature for the Classification of Goods in Customs Tariffs and the Valuation of Goods for Customs Purposes and, to this end, to perform such functions as may be expressly assigned to it in those Conventions in accordance with the provisions thereof\ e) To make recommendations, in a conciliatory capacity, for the settlement of disputes concerning the interpretation or application of the Conventions referred to in paragraph (d) above\ f) To ensure the circulation of information regarding customs regulations and procedures\ g) On its own initiative or on request, to furnish interested Governments information or advice on customs matters within the general purposes of the present Convention and to make recommendations thereon\ h) To cooperate with other intergovernmental organizations as regards matters within its competence\ \ **How does the WCO fulfill its mandate?** - Establishes, maintains, supports and promotes international instruments for the harmonization and uniform application of simplified and effective customs systems and procedures governing the movement of commodities, people and conveyances across customs frontiers, thus contributing to the development of trade and the economic and social well-being of nations - Reinforces its Members\' efforts to secure, through control and enforcement, compliance with their legislation, by endeavoring to maximize the level and effectiveness of the Members\' co-operation with each other and with international agencies to combat customs offenses - Assists its Members in their efforts to meet the challenges of the modern environment and adapt to changing circumstances, thus promoting communication and co-operation among Members and with other international organizations - Helps foster human resource development and improve management and working methods of customs administration **How does the WCO operate?**\ The WCO is the only international organization dealing exclusively with customs matters. It provides for a forum where delegates representing a large variety of members could tackle customs issues on equal footing. Each member has one representative and is entitled to one vote. **What are the different working bodies in the WCO?**\ a. **Council** - highest body composed of the Directors-General of Customs from all members and is assisted by the Finance Committee (17 members) and by the Policy Commission (24 members). The Council meets once a year with the aim of securing the highest degree of harmony and uniformity in the customs systems of Member Governments, and especially to study the problems inherent in the development and improvement of customs techniques and customs legislation in connection therewith\ **b Policy Commission** - established to act as a dynamic steering group to the Council\ **c. Finance Committee** - acts under the overall direction of the WCO Council with administrative support provided by the WCO Secretariat\ d. Tariff and Trade Affairs: - Harmonized System Committee administers the International Convention on the Harmonized System to ensure that the HS keeps abreast of technical progress and international trade developments resolves specific classification problems, and acts as an arbitrator in customs disputes between countries and makes decisions regarding the tariff code applicable to goods - Harmonized System Review Sub-Committee - acts under the overall direction of the Harmonized System Committee on the review and amendments of the HS having regard to the needs of the users and to changes in technology or in patterns of international trade, and on the preparation of consequential amendments to the Explanatory Notes and Compendium of Classification Opinions - Scientific Sub-Committee assists the Harmonized System Committee and the Review Sub-Committee in their technical work. particularly on the draft HS legal texts and Explanatory Notes involving scientific issues, and with regard to questions involving the classification of chemical products and those involving scientific issues - Harmonized System Working Party - under the overall direction of the Harmonized System Committee, drafts the texts of possible amendments to the HS Nomenclature. Explanatory Notes and Compendium of Classification Opinions before their final adoption by the Harmonized System Committee - Technical Committee on Rules of Origin together with the WTO Committee on Rules of Origin, is charged with the implementation of the work program on the harmonization of rules of origin; examines specific technical problems arising in the day-to-day administration of the rules of origin of Members and gives advisory opinions on appropriate solutions based upon the facts presented; and furnishes information and advice on any matter concerning the origin determination of goods as may be requested by any Member - Technical Committee on Customs Valuation responsible for matters pertaining to customs valuation; and prepares opinions, commentaries, explanatory notes, case studies and surveys - Focus Group on Transfer Pricing. **e. Procedures and Facilitation -** consists of the Permanent Technical Committee, Information Management Sub-Committee, the Revised Kyoto Convention Management Committee, SAFE Working Group, Istanbul Convention Administrative Committee, Contracting Parties to the ATA Convention, Air Cargo Security Technical Experts Group, the Contact Committee for the WCO/IATA/ICAO Guidelines on Advanced Passenger Information (API) and Passenger Name Record (PNR) Data, the UPU/WCO Contact Committee, the Administrative Committee for the Customs Convention on Containers, 1972, and Ad Hoc Group on Globally Networked Customs (GNC)\ **f. Enforcement and Compliance -** consists of the Enforcement Committee, Working Group on Commercial Fraud, Global Information and Intelligence Strategy Project Group, Customs Enforcement Network Management Team, WCO Counterfeiting and Piracy Group, Electronic Crime Expert Group and Global RILO Meetings\ **g. Capacity Building** - consists of the Capacity Building Committee and Integrity Sub-Committee **II. The Harmonized System** **What is the Harmonized System?**\ The Harmonized Commodity Description and Coding System, or simply Harmonized System (HS), is a multipurpose product nomenclature designed to serve as an integrated internationally standardized and accepted coding system of classifying traded products to facilitate international trade, It was developed and is being maintained by the WCO. It is also the amalgamation of the Customs Co-operation Council Nomenclature (CCCN) and the Standard International Trade Classification (SITC) Revision 2. The HS is used by more than 200 countries for customs tariff purposes and for collection of international trade statistics. It is also used as a: - tariff nomenclature; - statistical nomenclature; - base for the harmonization of economic classification, e.g., market surveys. and data collection; - multipurpose nomenclature by international unions of shipping and transport organizations; - international language and code for customs purposes; - base for the determination of the Rules of Origin (ROO) for non-preferential trade purposes such as MFN treatment, anti-dumping and countervailing duties, safeguard measures and origin marking; and - basis for trade negotiations. **What is the structure of the Harmonized System?**\ All traded products can be classified in the HS utilizing the General Rules for the Interpretation of the HS (GIR). The product listing in the HS is generally arranged according to the degree of processing categories, with increasing complexity. The HS is organized into 21 Sections subdivided into 97 Chapters (with Chapter 77 reserved for future international use).\ The product listing is number coded. The first four digits having the broadest coverage are referred to as the heading which is further subdivided into the 6-digit level called the subheading. The first two digits in the subheading indicate the Chapter number, while the next two digits indicate the numerical position of the heading in the Chapter. The last two digits indicate the subheading number within the heading.\ It is mandatory for WCO member countries to adopt the HS up to the 6-digit subheadings. Any modifications should be done beyond the 6-digit level. In particular, to ensure harmonization, the Contracting Parties must employ all 4- and 6-digit levels, the GIRs, and legal notes without deviation, but where needed, are free to assign two more digits, for a total of eight (8) at the tariff-rate line (legal) level. Two final (non-legal) digits are assigned as statistical reporting numbers if warranted, for a total of 10 digits to be listed on the entries. **What are the legal texts that comprise the Harmonized System?** - General Rules for the Interpretation of the Harmonized System (GIR) - provide six (6) rules that establish classification principles throughout the HS to ensure uniform classification of goods in one and the same heading (and subheading). They should be applied in hierarchical order - Section and Chapter Notes, including Subheading Notes form an integral part of the HS and have the same legal force as the GIR. The Notes provide definitions of the terms used in the nomenclature, criteria for classification within each chapter, heading or subheadings, and enumeration of products that are classifiable or excluded within the chapters, headings, or subheadings - A list of headings arranged in systematic order, generally according to degree of processing and, where appropriate, further subdivided into subheadings **What is the International Convention on the Harmonized System?**\ The International Convention on the Harmonized System (HS Convention) is the intergovernmental commitment of the contracting parties to abide by its provisions, one of which is to agree to use the HS up to the 6-digit level as the basis for their national customs tariff and statistics nomenclature. **What is the Harmonized System Committee?**\ A working body of the WCO, the Harmonized System Committee is composed of representatives from each of the WCO contracting parties and is convened by the Secretary General twice a year to update the HS regularly. Its functions are as follows: - prepare amendments to the Convention having regard to the needs of users and to changes in technology or in patterns of international trade; - prepare explanatory notes, classification opinions or other advice or guides to the interpretation of the HS; - prepare recommendations to ensure uniformity in the interpretation and application of the HS; - collate and circulate information concerning the application of the HS; - furnish information or guidance on any matters concerning the classification of goods in the HS to contracting parties, members of the Council and to such intergovernmental or other international organizations as the committee may consider; - present reports to every session of the council concerning committee activities, including proposed amendments to the Explanatory Notes, classification opinions and other advices; and - exercise such other powers and functions in relation to the HS as the council or the contracting parties may deem necessary. Administrative decisions of the Harmonized System Committee having budgetary implications shall be subject to approval by the Council. **Is the Philippines a contracting party to the HS Convention?\\**\ Yes. The Philippine Instrument of Accession to the HS Convention was signed on September 23, 1998 and was concurred in by the Philippine Senate on February 5, 2001. The Instrument of Accession was formally deposited to the WCO on June 25, 2001.\ \ **Why did the Philippines adopt the Harmonized System?**\ The Philippines, before the approval of its Instrument of Accession, opted to adopt the HS on a de facto basis for the conduct of trade with the rest of the world to keep abreast of the latest internationally-accepted nomenclature in goods classification.\ \ **When did the Philippines adopt and implement the HS and what is the legal basis?**\ The Philippines formally adopted the HS on July 1, 1988 and implemented the same in October 1988. This is in accordance with a NEDA Board Resolution dated November 25, 1987 and EO 688 dated May 1, 1981 mandating the Tariff Commission to align the TCCP (now CMTA) with all future amendments to the CCCN (now HS).\ \ **What is the significance of the HS in the Customs Modernization and Tariff Act?**\ The HS is reflected in Sections 1610 and 1611 of the CMTA which provide for the GIR and the list of headings with corresponding rates of import duty, respectively. The HS effects uniformity in the classification of goods and standardizes commercial documents which ultimately promote trade facilitation.\ \ **Why is the Philippines using 8-digit codes in its tariff lines?**\ Every country using the HS is allowed to assign its own coding system beyond the HS 6-digit level to accommodate specific nomenclature for the purpose of reflecting national requirements (e.g., differences in tariff rates, incentives).\ The ten (10) ASEAN Member States (AMSs), including the Philippines, adopted in 2004 the 8-digit ASEAN Harmonized Tariff Nomenclature (AHTN) reflecting AMSS requirements.\ \ **How do countries provide for national subdivisions?**\ Although no changes can be made to the HS itself, nothing prevents a contracting party from establishing additional subdivisions in its nomenclature to identify certain goods which are not given separate status in the HS Nomenclature. It must, however, ensure that the mandatory subdivisions (ie., up to the six-digit level subdivisions) remain unchanged. Example: In the case of HS heading 17.04, AMSs further subdivided subheading 1704.90 to provide separate lines for medicated pastilles and drops, white chocolate, and soft candies containing gelatin.\ \ **How are the amendments implemented and how often?**\ The preamble to the International Convention on the Harmonized System emphasizes the importance of ensuring that the HS is kept up to date in the light of changes in technology and patterns of international trade. Article 7 of the HS Convention further states that it is for the Harmonized System Committee to propose such amendments to the HS Convention as may be considered desirable, having regard to the needs of users.\ At its first Session, the Harmonized System Committee decided to set up the Harmonized System Review Sub-Committee, which has the task of revising the HS in accordance with the Committee\'s general Indications and preparing the necessary amendments to the HS Nomenclature. The Committee also agreed to allow an interval of four (4) to six (6) years between each recommendation amending the HS Nomenclature under Article 16 of the HS Convention. **What are the amendments to the HS and when were they approved for adoption by the NEDA Board?**\ \ Table 2.2 HS Amendments Approved by the NEDA Board: 1992-2017 ------------------ ------------------------------- ------------------------ Amendments to HS Date of Approval for Adoption NEDA Board Resolution 1992 February 14, 1995 No. 3 (s. 1992) 1996 October 25, 1995 No. 26 (s.1995) 2002 March 20, 2003 No. 2 (s.2003) 2007 September 18, 2007 No. 9 (s.2007) 2012 September 18, 2012 No. 6 (s. 2012) 2017 June 27, 2017 File No. 291-062717-12 ------------------ ------------------------------- ------------------------ **What are the changes in the HS 2017 nomenclature?**\ \ There are 233 sets of amendments in the HS 2017 which covered:\ \ a. environmental and social issues use of the HS as the standard for classifying and/or monitoring (i) goods of importance to the food security information for action programme of Food and Agriculture Organization (FAO); (ii) anti malarial commodities; (ii) bamboo and rattan products as 500 2000 requested by International Network for Bamboo and Rattan (INBAR); (iv) chemicals controlled under the Chemicals Weapon Convention (CWC); (v) hazardous chemicals and pesticides in international trade controlled under the Rotterdam Convention, (vi) persistent organic pollutants (POPs) controlled under Stockholm Convention, and (vii) precursors requested by the International Narcotics Control Board (INCB): b\. advances in technology, such as the creation of lines for light-emitting diode (LED) lamps, multi-component integrated circuits (MCOs), and hybrid, plug-in hybrid, and all-electric vehicles; c\. reflection of current trade practices and patterns; d\. simplification including the deletion of subheadings with a low volume of trade; e\. alignment between the English and French versions of the text, and f\. editorial amendments / clarifications. **\ How are changes in the HS implemented? When did the Philippines implement the HS 2017 amendments?**\ The amendments are subjected to the process stipulated in Section 1608 of the CMTA. A public consultation is conducted to disseminate the adoption of the amendments to the HS Nomenclature. A NEDA Board resolution is issued to formally adopt the HS amendments. Following NEDA Board approval of the adoption of the HS 2017 amendments on June 27, 2017, and pursuant to the provisions of EO 688 (s. 1981), the Philippines implemented the 2017 version of the HS starting July 28, 2017.\ \ **What other publications and databases complement the HS Nomenclature?**\ **Explanatory Notes** - consists of five (5) volumes in English and French. They do not form an integral part of the HS Convention, but they constitute the official interpretation of the HS at international level. They must always be read in strict conformity with the texts of the HS, from which they cannot be dissociated, and in particular with the Interpretative Rules and the Section, Chapter and Subheading Notes. Together with the HS nomenclature, amendments to the Explanatory Notes are also made when necessary.\ **Alphabetical Index -** an alphabetical list of the articles and products mentioned in the HS and its Explanatory Notes. It facilitates the location of references in the HS Nomenclature or in the Explanatory Notes to any of the products or articles mentioned therein.\ **Compendium of Classification Opinions -** includes a list of the most significant/difficult classification decisions taken by the Harmonized System Committee and adopted by the WCO in order of the headings and subheadings of the HS Nomenclature.\ **HS Database online** - available online by subscription, it allows for fast access and flexible search routines. It contains the HS Nomenclature (2002, 2007, 2012 and 2017 versions), the HS Explanatory Notes for each edition of the HS Nomenclature, the Classification Opinions, the Alphabetical Index, the Classification Decisions (from 2001 to the most recent available), the amendments to the HS, and the correlation tables.\ **Classification Decisions -** contains all classification decisions taken by the Harmonized System Committee and is presented in tabular form **III. The ASEAN Harmonized Tariff Nomenclature** **What is the ASEAN Harmonized Tariff Nomenclature?**\ The ASEAN Harmonized Tariff Nomenclature (AHTN) is an 8-digit commodity nomenclature that is based on the HS of the WCO. It was conceptualized by the ten (10) ASEAN Member States (AMSS), namely, Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Viet Nam, in order to have a common tariff nomenclature to facilitate trade within the region. The first AHTN Code using the HS 2002 edition was adopted in 2004, incorporating products that are significantly traded by AMSS.\ \ **The AHTN is used as a:** - uniform tariff nomenclature within ASEAN; - base for preferential tariff purposes in the ASEAN Free Trade Area (AFTA) and other free trade areas; and - base for the collection of trade statistics. **What is the structure of the AHTN?**\ The AHTN is comprised of the (i) General Rules for the Interpretation of the HS, (ii) Section and Chapter Notes, including Subheading Notes, and (iii) a list of headings arranged in systematic order and, where appropriate, subdivided into subheadings. Adhering to the 6-digit level of the HS, the 7th and 8th digits of the AHTN Code are assigned to ASEAN subheadings. The 8-digit subheadings reflect the products of interest to the ten (10) AMSs. However, national subheadings required by Member States that were not included in the AHTN shall be dealt with beyond the 8-digit codes.\ Since the AHTN adheres to the structure of the HS, any proposed HS amendments are adopted in toto. Hence, the AHTN 2017 edition incorporates the HS 2017 amendments, as was previously done in 2004, 2007 and 2012. The total number of Philippine AHTN 2017 tariff lines (including those with alpha-numeric codes) is 11,058.\ \ **What are the advantages of the AHTN?** - Establishes uniformity of application in the classification of goods in ASEAN - Enhances transparency in the classification process for goods in the region - Simplifies the tariff nomenclature system of AMSs to facilitate trade in the region **What is the AHTN Protocol?** - Defines the legal framework governing the implementation of the AHTN and its implementing rules and explanatory notes - Signed by the Governments of Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Viet Nam on 07 August 2003 in Manila - The Second Protocol to amend the Protocol Governing the Implementation of the AHTN was signed on 08 April 2010 in Viet Nam **What institutional arrangements oversee the AHTN Protocol?** - ASEAN Directors-General of Customs - responsible for monitoring, reviewing, and supervising all aspects relating to the implementation of the AHTN Protocol - ASEAN Finance Ministers Meeting forum for all decisions relating to the implementation of the AHTN Protocol - ASEAN Secretariat provides the necessary support for supervising. coordinating, and reviewing the implementation of the AHTN Protocol and assists the ASEAN Directors-General of Customs on matters relating thereto; and responsible for assisting the experts\' panel and AMSs in monitoring and reviewing the AHTN **What are the obligations of ASEAN Member States?**\ Each AMS shall abide by the HS Code and shall apply the AHTN up to the 8-digit level for all trade transactions for tariff, the collection of statistical data, and other purposes. Amendments to the AHTN shall only be made in accordance with Article 5 (Amendments of the AHTN) and Article 6 (Amendment Procedures) of the Protocol. **How do AMSs provide for national subdivisions?** - Beyond the 8-digit AHTN level, each AMS can create national tariff lines through its domestic procedures. - The Philippines assigris alpha-numeric codes to denote its national tariff lines, - To incorporate newly created national subheadings in the AHTN, proposals for amendments shall be made by an AMS to the ASEAN Directors-General of Customs through the ASEAN Secretariat. - The ASEAN Directors-General of Customs shall be the forum to allow amendments to the AHTN. They may convene an experts\' panel consisting of representatives from all the AMSs. The decisions of the ASEAN Directors General of Customs shall be made by consensus. **In what instances may the AHTN be amended?**\ The AHTN may be amended when there are (i) amendments to the HS Nomenclature and (ii) amendments to the ASEAN Codes for purposes of simplification arising from the requirements of AMSs; and to reflect changes in technology and trade among others.\ \ **What are the criteria used for providing a subheading in the AHTN?** - The MFN or ASEAN Trade in Goods Agreement (ATIGA) rates of duty across the products within the heading or subheading are different - Import and/or export for the product amount to at least US\$1million for the last three (3) years preceding the review - Subheadings should reflect a single, unique code for a defined commodity to avoid ambiguous criteria for classification - classifications can be based on the criteria which have been utilized by a majority of AMSS - Classifications for national statistical and other non-tariff-purposes may be dealt with at the national level, i.e., at the 8-digit level and beyond - Classifications should take into account international conventions - Classifications based on seasonal tariff rates should be dealt with through domestic procedures of the affected AMS - Classifications, other than the above, for tariff purposes, and which are country-specific should be dealt with in accordance with the procedures in Articles 5 and 6 of the Protocol. In this case, efforts should be made to establish common regional criteria for affected subheadings to avoid proliferation of tariff lines. - Classifications can be created for purposes of tariff reduction and these may be reflected as an extraction of the AHTN subheading as a transitional measure **What is the legal basis of the Philippines for the implementation of the AHTN?**\ The Tariff Commission is mandated by EO 688, dated 01 May 1981, to align the Philippine Tariff Nomenclature with all future amendments to the Customs Co-operation Council Nomenclature (CCCN). Further, the Philippines is bound by Article 4 of the ASEAN Agreement on Customs, dated 01 March 1997, and the AHTN Protocol signed by all AMSs.\ Amendments to the tariff nomenclature are subjected to the process prescribed in Section 1608 of the CMTA. A public consultation is conducted to disseminate the adoption of the amendments to said nomenclature and the Commission submits a report to NEDA for consideration by the Committee on Tariff and Related Matters. A NEDA Board resolution is issued to formally adopt the AHTN amendments.\ Following NEDA Board approval of the adoption of the 2017 version of the AHTN on 27 June 2017, and pursuant to the provisions of EO 688 (s. 1981), the Philippines implemented AHTN 2017 starting 28 July 2017.\ \ **What actions were taken by the Tariff Commission in spearheading Philippine adoption of AHTN 2017 and ensuring its smooth implementation?** - Notification to the Secretary of Finance and the BOC Commissioner about Philippine adoption/implementation of AHTN 2017 and the consequent non- validity of tariff classification rulings based on the old nomenclature - Publication of notice in two (2) newspapers of general circulation about the implementation of AHTN 2017 and the consequent non-validity of tariff classification rulings based on AHTN 2012; uploading of notice to the Commission\'s website at [[www.tariffcommission.gov.ph]](http://www.tariffcommission.gov.ph) - Transposition from AHTN 2012 to AHTN 2017 of the Philippine MFN tariff schedule, ensuring that there were no changes in MFN tariff rates and that Philippine requirements were provided for, i.e., AHTN 2017 Codes beyond the 8-digit level were assigned for Philippine lines (e.g., in-quota/out-quota) - Transposition from AHTN 2012 to AHTN 2017 of all Philippine tariff reduction schedules under the different FTAs, ensuring that there were no changes in tariff concessions - Correlation of Schedule LXXV-Philippines under the WTO to AHTN 2017 to ensure that Philippine binding commitments are faithfully reflected - Update of the Supplementary Explanatory Notes - Preparation of two (2)-way correlation tables between AHTN 2012 and AHTN 2017, which were uploaded to the Commission\'s website - Publication of Tariff Book containing the latest nomenclature, which was also uploaded to the Commission\'s website **IV. Advance Rulings on Tariff Classification** **What is tariff classification?**\ Tariff classification is the act or process of assigning an appropriate HS or AHTN code to traded goods. It requires special skills and knowledge regarding products as well as the rules and tools of classification.\ \ **What is a tariff classification ruling?**\ Under Section 1100 of the CMTA, an importer or exporter may file a written application for an advance ruling on the tariff classification of goods with the Commission. The Commission shall render a ruling within thirty (30) days from receipt of a properly documented application.\ When a declared tariff classification of goods, not subject of a pending application for advance ruling, is in dispute, the importer, exporter, or the Bureau of Customs (BOC) shall submit the matter to the Commission for a ruling, without prejudice to the application of Section 1106 of the CMTA on \"Protest\".\ Section 1100 further provides that rulings of the Commission on commodity classification shall be binding upon the BOC, unless the Secretary of Finance shall rule otherwise.\ \ **What is an advance ruling on tariff classification?**\ An advance ruling (AR) on tariff classification is an official written decision issued by the Commission which provides the applicant with the appropriate tariff classification of goods under the AHTN prior to an importation or exportation.\ It contains a ruling number, date of issue, name and detailed description of the good, the 8-digit AHTN Code under which the good is properly classified, the applicable MFN and preferential rates of duty, the legal justification for the Commission\'s classification, and the validity period of the ruling.\ **What is the importance of correct tariff classification of goods?**\ Whether for import or export, a product needs to be properly classified to identify the applicable tariff duty (MFN or preferential) and ensure a correct customs declaration. Delays in the clearance and release of goods, overpayment of duties, and avoidance of other penalties, including seizure, can result from faulty customs declarations.\ \ **What is the procedure for filing an application for an AR?**\ The Commission has issued Commission Order No. 2017-01 or the Procedure on Application for an Advance Ruling on Tariff Classification Related to Importation and Exportation of Goods (Annex B). Said Order aims to add certainty and predictability to international trade, help traders make informed decisions based on legally binding rules, and increase the level of stakeholders\' compliance through an informed customs compliance regime. Approved by Secretary of Finance Carlos G. Dominguez III and published in The Manila Times on 20 September 2017, said Gommission Order took effect on 5 October 2017.\ \ Among the salient provisions of the Order are the following:\ a An applicant (ie, an importer or exporter) or his/her authorized representative may apply for an AR with the Commission\ b. An application for an AR shall cover only one product or good, as determined by the Commission.\ c. Under Section 1103 of the CMTA, the application for an AR shall be filed at least ninety (90) days before the date of importation or exportation of the product or item.\ d Applicants shall submit three (3) copies of the filled-out application form prescribed by the Commission together with supporting documents and samples of the good, if required. The Commission shall assess the sufficiency of the filled-out form and its supporting documents before payment of appropriate fees and assignment of a unique application reference number.\ e. An application for AR may not be accepted in any of the following cases: - the application is not in the prescribed application form; - it is not possible to determine tariff classification based on the presented information/documents; the request pertains to multiple goods under different subheadings as ascertained by the Commission; - the application is filed less than ninety (90) days before importation or exportation; or - Non-payment of filing fee. f\. Within ten (10) calendar days, the Commission shall acknowledge receipt of the application and notify the applicant of the need for additional information and on-site verification. However, should the Commission deem that more information/verification is required; it may request information/verification from the applicant anytime during the prescribed period to issue a ruling. The applicant should submit additional information or allow on-site verification within ten (10) calendar days from the receipt of notice. Pending submission of the additional information or on-site verification, the running of the 30-day period to issue a ruling shall stay., g\. The Commission shall issue the AR within thirty (30) days from the receipt of the application, sufficient in form and substance, or upon the submission of all additional documents required. h\. The Commission may not issue an AR in any of the following cases: - when the applicant fails to provide any additional information requested within the reasonable period required by the Commission, without prejudice to the filing of a new application; - the goods involved are subject of a pending court litigation or of an administrative review or an appeal involving tariff classification; - the applicant did not allow the Commission to conduct on-site verification; - misrepresentation; or - other similar cases. In all cases, the Commission shall promptly notify the applicant in writing, setting out the reasons therefor.\ \ i. An AR shall be effective from the date it is issued.\ j. The AR shall be valid for a period of five (5) years from the date of its issuance unless it is earlier revoked or modified due to changes in facts or circumstances on which the AR is based.\ k. An AR may be modified whenever there is an error, change in material facts/circumstances, change in the law or judicial decision, or change in policy. Modification of an AR is of prospective application.\ The AR may be revoked by the Commission upon discovery of any false or misleading material information provided in the application, without prejudice to the filing of criminal, civil and/or administrative cases against the applicant.\ In case a ruling is revoked or modified, the Commission shall give a written notice to the applicant or issue a public notice setting out the relevant facts and the basis for the revocation or modification.