Special Report

The ASEAN Harmonized Tariff Code Overview Projected Average Tariff Levels of ASEAN Countries in 2002 and 2004  (In Percent) 2002 2004 ASEAN 3.25 2.68 Brunei 0.94 0.87 Indonesia 4.20 3.71 Lao 5.00 5.00 Malaysia 2.38 2.06 Myanmar 3.31 3.19 Philippines 4.80 3.75 Singapore 0.00 0.00 Thailand 6.02 4.64 Vietnam 2.89 2.02 The 10 member countries of the Association of Southeast Asian Nations (ASEAN), with a combined population of over 600 million people, are seeking to transform the region into a common market where products and services freely flow and where all ports adopt similar customs procedures. Brunei Darussalam, Cambodia, Indonesia, Lao People's Democratic Republic, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam form the ASEAN group. As identified by the Asian Development Bank (ADB), the larger region of "East Asia" includes ASEAN plus Korea, China, Taiwan and Hong Kong. Japan, the world's second largest economy, is usually treated as a separate market. AFTA and CEPT In January 1992, the ASEAN member countries agreed to the formation of a trade bloc that would compete and trade more efficiently with the larger markets such as those of China, Japan, the United States, Latin America, and the European Union. Known as the ASEAN Free Trade Area (AFTA), this market bloc seeks to reduce all tariff levels imposed on products from member countries at a faster rate than each country's commitment under the broader Asia Pacific Economic Cooperation (APEC) forum and the World Trade Organization (WTO). Such a gradual tariff reduction under AFTA is known as the Common Effective Preferential Tariff (CEPT), a mechanism by which "tariffs on goods traded within the ASEAN region, which meet a 40 percent ASEAN content requirement, will be reduced to 0 to 5 percent by the year 2003 (2006 for Vietnam, and 2008 for Laos and Myanmar)". AHTN Another important initiative taken by the ASEAN countries is the harmonization of each member country's customs nomenclature, valuation, and procedures. In March 1997, ASEAN finance ministers agreed to adopt a new 8-digit commodity nomenclature by 2002.  Later billed as the ASEAN Harmonized Tariff Nomenclature (AHTN), this code is intended to replace each member country's current six-digit tariff nomenclature with a common 8-digit nomenclature, which - like its predecessor - is also to be based on the Harmonized Commodity Description and Coding System (HS) of the World Customs Organization (WCO). The WCO requires countries to use the 6-digit HS Code as the basis for their national customs tariff and statistics nomenclature. HS is considered as an international language and code for customs procedures. The Philippines began implementing the harmonized tariff coding system back in 1988 - the 104th country to do so. Since then, the country has adopted three amendments to the HS, the latest of which was in January this year when new subheadings were introduced for goods of social and environmental concern. The AHTN would also reflect changes in the HS. The AHTN Protocol, by which the new system is to be implemented, was scheduled for signing by the finance ministers of each ASEAN member country in April this year. However, ASEAN members have yet to resolve differences over the administrative procedures surrounding the signing of the protocol. Malaysia, for example, wants to clarify whether their finance minister or their customs commissioner should sign the protocol. Latest reports, as conveyed by the Philippine Tariff Commission, claim that Thailand wants the AHTN Protocol implemented by 2005 at the soonest. Under the 1997 ASEAN Finance Ministers' meeting, the AHTN was originally to be implemented by 2002. Even with the delay and opposition of Malaysia and Thailand, efforts are being made to have it introduced by October. Citing the advantages of the new system, the Philippine Tariff Commission says that the adoption of the AHTN will bring about a greater flow of goods between ASEAN and the world. The tariff body clarified that once implemented; AHTN will apply to all imports both from within ASEAN and outside the region. The only difference between the new and the current system is that ASEAN countries will henceforth have a common tariff nomenclature and will therefore be treated as a single market bloc. Whether this would result in more goods flowing into the region remains to be seen. Proponents of the AHTN claim that this move will harmonize and even simplify the present tariff nomenclature. This, however, is not entirely accurate since after the implementation of AHTN the number of tariff lines in the Philippines will increase from the present 5,639 to around 10,800. This is because new tariff lines, which were not previously used in the Philippines but used in other ASEAN countries, will be incorporated in the AHTN. When dealing with cross-country comparisons however, the new code will indeed be easier to work with because once a code is assigned in one country it will be common throughout the region. There are also concerns that the implementation of AHTN comes too late and will have minimal practical use once the ASEAN countries remove all tariff barriers - supposedly within the next ten years. The prime use of a tariff nomenclature system is to institutionalize the determination of the level of tariff to be imposed on a particular import item thereby reducing the level of ad hoc decisions. In a full free trade regime, products would be allowed into the market free of all duty. By then, a tariff nomenclature system would be used as a statistical instrument, for cataloging purposes and to determine the amount and source of specific products that flow into the market. At present, AFTA views AHTN as something that would: ·         Establish uniformity of application in the classification of goods in within ASEAN; ·         Enhance transparency in the classification process for goods in the region; ·         Simplify the tariff nomenclature system of ASEAN member countries to facilitate trade in the region With AHTN, classifications of tariff lines should be made to reflect a single, unique code for each pre-defined commodity. An example given by the Tariff Commission is the list of tariff lines for live bovine animals. The publication of AHTN is scheduled for the second quarter of 2002. However, there are fears that the AHTN, once implemented, could be subject to numerous amendments. For example, it would need to reflect any changes in the HS code and description, which is amended every four years. Beyond that, it would also be subject to constant revision in the ASEAN subheadings once a member country redefines its requirements. With 10 individual countries participating in the system, each country's requirements and proposed changes will have to be shared by all. Under the proposal currently on the table, the ASEAN Directors-General (ADG) of Customs working through the ASEAN Secretariat will determine the amendments to the  AHTN by convening a panel of experts from all member countries. At the very least, this will be a test of leadership for the ASEAN Secretariat, which would finally have a role for itself in regional decision making. As a guiding principle, the following criteria have been adopted as bases for classification in AHTN: ·         Classifications should not be provided where the tariff rates for groups of ASEAN subheadings are already equal in the respective member countries; ·         Classifications should be provided where the significance in trade for a subheading for a member country is high; ·         Classifications should reflect a single, unique code for a defined commodity to avoid ambiguous criteria for classification; ·         Classifications can be based on those criteria, which have been already utilized by a majority of member countries; ·         Classifications for national statistical and other non-tariff purposes may be dealt with at the national level, 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 member countries. Most analysts agree that the AHTN will further unite ASEAN as it moves towards a common market. However, issues have been raised about member countries' preparedness to embrace each other in such a market. Many of these countries produce almost the same electronic and agricultural commodities and share common trading partners - the United States and Japan. The good thing is that the AHTN is about goods flowing into or within the region.  One serious concern already noted is that in individual customs jurisdictions the system will not necessarily simplify procedures. According to some local experts AHTN is actually far more complex than the current Tariff and Customs Code of the Philippines. Such complexity can be traced to the high number of tariff lines that will be introduced by the new system and new terminologies from other countries, which have not been previously used in the Philippines. In essence, the AHTN will reflect the totality of the national requirements of each ASEAN member country. Such complexity may even further reduce company compliance rates even if the company proactively manages tariff classification. Adoption of the AHTN would also involve entirely changing the tariff codes in the database not only of the Bureau of Customs but also of individual companies belonging to the Port Users Confederation Inc. (PUC) and the Common Bonded Warehouse Operators as well as individual corporate databases that use the code for their own purposes. There is a fear that that there is little time for preparation before the proposed implementation of AHTN in October this year and that, as a result confusion and customs delays will be the inevitable result.  Click PDF Icon to download PDF Version.