Today, 7 April 2018 is a memorable day for Sri Lanka’s foreign relations, particularly with regard to functions directly related to Sri Lanka Customs, because, they are completing 20 years on acceding to the world famous International Convention on Harmonized Commodity Description and Coding System, the international nomenclature popularly known as the Harmonized System or simply the HS.
On 7 April 1988, Dr. A.C.S. Hameed, the then Minister of Foreign Affairs, on behalf of the Government of Democratic Socialist Republic of Sri Lanka, signed and stamped the official instrument of accession to the said International Convention. It was duly lodged with the Secretary General of the World Customs Organisation, WCO Head Quarters, through the Embassy of Sri Lanka, Brussels, vide letter dated 29 April 1988, and had been accepted.
The very approval to accede to the HS Convention had been obtained from the Cabinet of Ministers vide Cabinet Memorandum No. 107 of 1988 dated 21.01.1988, approved on 17 February 1988. Initially, Sri Lanka envisaged to implement the Harmonized System Nomenclature in Customs Tariffs with effect from 01.01.1989. However, the actual implementation got delayed due to the massive nature of migrating from the CCCN (the Customs Cooperation Council Nomenclature) that Sri Lanka was using until then.
The number of headings had been increased from 1011 in the CCCN to 1241 in the HS, and the number of Chapters had been reduced to 96. As for Sri Lanka, it was necessary to transpose over 6,500 tariff items, one-to-one, and that gigantic task was handled by the then senior staff of Customs, and approved by the Presidential Tariff Commission, initially appointed during President J.R. Jayewardene’s time. In addition to migrating from the CCCN to HS, the multitude of tariff rates that prevailed was reviewed and reduced to a four band by the Presidential Tariff Commission.
The approval to implement the Customs Tariff based on the HS was obtained vide Cabinet Memorandum dated 17 June 1989, submitted by the then Finance Minister D.B. Wijetunga. The Customs Tariff based on the HS nomenclature was implemented through Revenue Protection Order No: 564/7 of 30 June 1989. That was later absorbed into the Customs Ordinance (Chapter 235) as an amendment to Schedule “A” under Section 10, by Resolution by the Parliament.
As of March 2018, there were 176 countries who had acceded to the HS Convention (those are known as Contracting Parties to the Convention), but about 204 countries all over the world were following the HS Nomenclature, and therefore it is estimated that 95% of the world trade is presently transacted based on that classification system, demonstrating the truly global nature of the HS nomenclature. Only an isolated minority like North Korea has still not adopted the HS Nomenclature.
The above position reveals the fact that there is no hard and fast rule that the country should become a contracting party to adopt the HS nomenclature in its tariffs. However, by acceding to the Convention, the country becomes entitled for various technical support and capacity building assistance rendered by the World Customs Organization.
HS Nomenclature is a creation of the World Customs Organization. It is periodically reviewed and revised to keep abreast of the world trade, so that new commodities coming into the market (e.g., hybrid motor vehicles, LED bulbs) are absorbed and obsolete products (e.g., manual type writer) are weeded out. The latest version of the HS is 2017 edition, which Sri Lanka adopted in mid 2018.
HS-2017 consists of 1259 four-digit headings, that are further divided to create 5381 six-digit HS Codes. Sri Lanka has created more subdivisions under those HS Codes to identify commodities of national importance, identified by eight-digit numeric codes. (In the ASEAN region, a very detailed common tariff of ten-digit codes developed from the HS is used). Presently, all the goods imported are classified according to the said nomenclature, and the applicable code is determined, and then the respective tax rates assigned for that code (by the Parliament) are applied on the imported commodity.
Basically, it is the role of the Customs Appraisers to check the classification codes declared by the importers and ensure that the goods are correctly declared, valued and due taxes are paid. Since the automation of the verification of customs import goods declarations (CusDecs), the calculation of taxes had become an automated function based on the basic data (i.e., the HS Code, the value, the quantity).
In addition to that, the HS Codes are used to enforce the Import and Export Control Regulations, the Sri Lanka Standards, and several other regulations directly related to external trade. It is the primary tool in collecting external trade statistics. Customs Department uses it to identify high risk cargos and various other enforcement activities to safeguard the socio-economic interests of the country.