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MANDATORY HS CODE - EVALUATION STUDY
EXECUTIVE SUMMARY
In March 2002, a study of the implementation of Phase One of Mandatory HS Code1 reporting was initiated to determine the extent to which the initiative objectives were met. These objectives were to prepare the trading community for full HS code reporting at time of release (as part of the Advance Commercial Information Initiative) and to contribute to improved Customs targeting effectiveness for commercial shipments.
With respect to the objective of preparing the importing community for full HS code reporting, we found that the transition to mandatory HS Code reporting at time of release was smooth for both the private sector and Customs and that a strong foundation had been set for expanding HS Code reporting requirements. We found that Phase One of Mandatory HS code reporting was successful in preparing the private sector for further implementation of HS code reporting and for increased reporting under the Advance Commercial Information initiative. Customs' consistent promotion of relationship management within the trading community was a contributing factor to this success.
With respect to improving targeting effectiveness, use of HS code for targeting purposes remains limited mainly because of officer concerns about the limited reporting requirements under Phase One and the accuracy of the information being provided by the trading community. While the quality of HS code reporting has improved, there was a lack of monitoring of the accuracy of HS code reporting at time of release. An underlying concern remains, however, about the overall classification of goods that generally serves as the basis for HS code reporting.
As a result of these findings, recommendations were made with respect to expanding and monitoring HS code reporting, validating the accuracy of tariff classification for goods likely to be targeted at release, and increasing the strategic use of HS code for targeting purposes. Customs has prepared an action plan that addresses the recommendations made in this report.
PURPOSE
This study was undertaken in line with the Customs Action Plan (CAP) Evaluation Strategy as one element of the evaluation of the Advance Commercial Information Initiative. Terms of reference for this study were approved by the Internal Audit/Program Evaluation Committee in June 2002.
The main objective of the Mandatory HS Code initiative is to improve Customs targeting capabilities. Phase One implementation was intended to contribute to an improvement in targeting effectiveness and to prepare the importing community for increased HS code reporting requirements as well as other requirements under the Advance Commercial Information (ACI) initiative. The purpose of this evaluation study is to assess whether the objectives of Phase One of Mandatory HS Code initiative have been met.
BACKGROUND
The Customs Actions Plan is a multi-year plan consisting of seventeen different initiatives. The CAP was developed by Customs after consultations with its stakeholders following the publication of the "Customs and Trade Administration Blueprint - A Discussion Paper" (Blueprint) in October 1998. The Blueprint made four commitments, one of which is to intensify efforts to stop illegal activity and threats to Canadian health and safety. Customs expects to achieve this commitment in part through the implementation of the Advance Commercial Information (ACI) initiative. ACI is designed to provide Customs with more information and risk management tools to increase its ability to interdict contraband and health and safety threats at the first point of arrival. A key element of the ACI design is the requirement that traders provide Customs with certain mandatory admissibility data, including the Classification number, for all their shipments electronically in advance of the arrival of the goods at the border. This will allow CCRA to use automated targeting to identify shipments of high or unknown risks that require examination or other secondary inspection action.
Electronic targeting within ACROSS2 provides for the use of a number of data elements provided by traders on which targets can be based. The most widely used targeting element for release purposes has been, and continues to be the Business Number. Other elements that are frequently used include the cargo control number, country of origin, and country of export. To date, HS Code has only been used for targeting in limited situations.
Prior to the Mandatory HS Code initiative, apart from some goods with other government department (OGD) requirements, traders were not obliged to provide tariff classification of goods at the time of their release. Instead, they could provide this information at the time of full accounting of the imported goods. Tariff classification was often provided at release, however, especially in the electronic environment, as it is generally more efficient for importer/broker operations. In addition, tariff classification of all goods of a shipment at release is required to be eligible for the Machine Release process within ACROSS, designed to expedite the release process for qualified importers. As a result, even prior to the introduction of Mandatory HS Code, tariff classification was provided for most imports, including about 78% of Electronic Data Interchange (EDI) releases. The Mandatory HS Code initiative is intended to ensure that classification information is provided for all shipments so that it could be used with confidence as one of the key elements for release targeting.
Phase One of the Mandatory HS Code initiative requires traders to provide the 10-digit Harmonized System tariff classification (HS code) for at least one of the goods in a shipment prior to, or at the time of, the arrival of the shipment at the border. The HS code must be provided to Customs, regardless of whether data regarding the transaction is submitted in an electronic or paper format. For shipments consisting of more than one type of commodity, tariff classification must be provided for either the highest value commodity in the shipment, or the commodity that most reasonably represents the shipment as a whole. With full implementation of Mandatory HS Code, traders will have to supply Customs with tariff classifications of all goods in the shipment. Within the implementation of ACI, tariff classification of all lines will be but one part of a newly defined mandatory data element set that traders will have to transmit electronically in advance of the arrival of the goods.
GENERAL METHODOLOGIES
Methodologies used for this evaluation included a review of Agency and Customs program/project files and documentation, management reports and statistical data obtained from electronic databases. Interviews were conducted at headquarters with officials in the Customs Branch from the following directorates: Contraband and Intelligence Services, Trade Policy and Interpretation, Major Projects Design and Development, and Operational Policy and Coordination. Interviews were also conducted with various regional customs operations management and staff, and with Release Commercial Analysts. In addition, interviews were conducted with importers, customs brokers and industry associations.
STUDY FINDINGS
1.0 TARGETING EFFECTIVENESS
While improved targeting is the main objective of the Mandatory HS Code, Phase One was not designed to deliver full benefits immediately. Rather, this phase was intended to be a transition period for the importing community to allow them to adjust to the new requirement of having to provide HS code at time of release. As a result, Phase One of Mandatory HS Code has not had a significant impact on targeting.
While there may be significant targeting benefits with full implementation of Mandatory HS Code, significant improvement was not realistic for Phase One. Rather the success of this phase can be judged better by the extent to which it realized its objective of preparing the importing community for full implementation of the initiative thereby setting the stage for major improvements in targeting capabilities.
1.1 Use of HS Code Remains Limited for Targeting Purposes
Since the introduction of Mandatory HS Code, there has not been an appreciable change in the use of HS code for targeting purposes. Prior to implementation of the Mandatory HS Code Initiative (April 2002), there were 6926 active targets in ACROSS. Of these only 96 (1.4%) used HS code as a targeting element. Since implementation, while the total number of active ACROSS targets has increased by 40% to 9,700, the number of active ACROSS targets utilizing HS code increased only 23% from 96 to 118. It should also be noted that the total inventory of HS code targets maintained in ACROSS has remained constant throughout the analysis period at 899. This indicates that few, if any, new targets containing HS code were entered into ACROSS and that the changes in active HS code targets came from the existing inventory of targets.3 It is clear, then, that while there has been a significant increase in the number of active targets in ACROSS, HS code continues to be used only in a limited fashion for targeting purposes.
During our review we noted that, overall, the most commonly used targeting element is Business Number, either alone or in conjunction with other elements. We found that HS code, while helpful in many cases, has limitations for targeting purposes and is not effective in all situations. HS code is used for programs such as machine release and for commercial trade and admissibility (health and safety) programs. It is also used for pre-established targets in the priority areas of the Compliance Improvement Plan. These areas would seem to be the most fertile areas for expanded use of HS code for targeting.
We found that HS Code is rarely used for contraband targeting as other data elements have been found to be more effective than HS code in identifying high-risk transactions for contraband purposes. Also, while 10-digit targeting provides for a significant degree of specificity, in some cases, such as those involving the Convention on International Trade in Endangered Species (CITES), it is not specific enough to identify the required products.
1.2 Increase in Use of HS Code for Targeting Dependent Upon Greater Coverage
In our interviews one of the factors that helped to explain targeting officers' reluctance to embrace fully HS code as a key targeting element at this point in time was the limited requirement for HS code in Phase One. Customs staff is concerned that targeting on a data element that is not yet required for all lines. Based on an analysis of entry data in Customs Commercial System, we estimate that about 30% of shipments entering Canada contain multiple commodities that involve multi-line invoices. While in many cases, the HS code is provided for all lines at release, targeters are still concerned that targets that focus on HS classification may not yet prove to be effective in all cases.
It is felt that HS code not yet being required on all lines limits its value as a valid targeting element. As a result, in most cases, the effectiveness of HS code as a targeting element may only realize its potential once the requirement is fully implemented. Broader coverage of HS code at time of release would help to allay these concerns. To establish a foundation for an increased use of HS code as a targeting element, further development and implementation of the initiative in terms of coverage of HS code need to be addressed.
Expanding the requirement for HS Code reporting to 3 or 5 lines would help to increase the coverage. An expansion to 3 lines would cover approximately 88% of goods while 5 lines would cover approximately 93%. This should be considered as a further interim step should current plans for full implementation of Mandatory HS Code be delayed.
Establishing reasonable expectations for the future use of HS code as a targeting element would help to determine the success of further implementation of the Mandatory HS Code initiative. In order to maximize the benefits of further interim implementation steps, it may be necessary to determine specific situations where HS Code could be used without adversely effecting targeting effectiveness.
1.3 Accuracy of Classification at Release has Improved Significantly
In order to assist in monitoring the accuracy of HS code information provided at release, Customs is generating Exception Reports that compare the classification data provided by importers at release with the data provided at the time of accounting. An examination of the exception reports indicates that the consistency of classification provided at release and accounting has been improving since the implementation of the Mandatory HS Code initiative. The importing community is adjusting to the new requirement and has taken remedial actions to improve the quality of the classification data that they are providing to Customs at time of release. In May 2002, the month when the Mandatory HS Code Initiative was implemented, the HS code provided at time of release by the top 1000 importers was consistent with the classification provided at time of accounting in 76.1% of shipments. The consistency rate increased significantly in August 2002 and has risen consistently since then to 94.8% during the first month of 2003.4
The most significant improvement has been with paper transactions, which still, however, account for the majority of the exceptions. The consistency rate for paper transactions by the top 1,000 importers improved from 30% in May 2002 to 89.9% in January 2003. Consistency for their EDI transactions increased from 93.7% to 95.7% during the same period. While the higher exception rate for paper transactions is not necessarily unexpected, it does remain a concern and supports the need to move towards a fully electronic environment under ACI.
Notwithstanding these improvements in the consistency, there is still the concern that there is no validation of the HS code at time of release. Targeters are unaware of consistency being achieved and feel that they have no assurance that shipments containing goods that Customs is attempting to target will actually be identified at the border. Assurances that accurate HS codes are being provided at release would provide targeters with more confidence in using this element for targeting.
It is noted that Customs' verification of the accuracy of HS code at time of release will be carried out through a review of the Exception Report. While the Exception Report is now available, there was a significant delay in the delivery of the systems to produce the report. At the time of the writing of this evaluation report, responsibility for monitoring the Exception Report on an on-going basis had not been established. Furthermore, Customs had not decided how to respond to discrepancies identified in the report. AMPS penalties have not yet been applied for HS code violations at release and it is uncertain what approach to penalties will be taken.
While there has been significant improvement in the rate of consistency between release and accounting classification information, some attention must be given to the remaining level of inconsistency to ensure that importers and brokers continue with their efforts to improve and maintain the accuracy of classification information provided at release. Monitoring the exception report would help customs to identify key areas of inconsistency that need to be addressed and to develop a compliance strategy for ensuring HS code compliance at time of release.
1.4 Classification Accuracy at Time of Accounting Remains an Underlying Concern
Notwithstanding the fact that the rate of consistency between release and accounting has improved significantly, the accuracy of classification at time of accounting (which generally serves as the basis for the HS code provided at release) remains a concern. At the time when HS code was being built into ACROSS as a targeting element, concerns were raised about the accuracy of classification data provided by importers and brokers. It was recognized that inaccurate classification would have an adverse impact on the effectiveness of targeting activity focused on HS code. Since that time, there has been little focus given to the impact of targeting resulting from the inaccurate classification of goods. This may well reflect the limited use to date of HS classification as a broadly used targeting element.
While it is advantageous to be able to target on a classification number - especially in an environment in which text-based targeting is not practical - serious consideration must be given to ensuring the accuracy of classification especially for sensitive commodities or in key sectors where the classification is likely to be used for targeting. Without some assurance that the classification provided at time of release is accurate, there will be little confidence in the use of it as a targeting element.
Extensive use of classification for targeting, therefore, must be supported by a strategy that focuses on improving compliance levels in the area of classification. Developing verification and client service strategies within the Compliance Improvement Plan that focus on the validation and improvement of tariff classification, including coverage of key areas where classification is most likely to be used for targeting, would help to improve compliance and the confidence that targeters have in the information provided at release.
During our interviews, importers and brokers did advise us that they have been attempting to improve the accuracy of HS classification since the introduction of mandatory HS code. They indicated that the main driver to improve accuracy, however, was introduction of the Administrative Monetary Penalty System (AMPS) and the desire to avoid penalties associated with inaccurate accounting generally and with HS code at release specifically.
2.0 PREPARATION OF THE IMPORTING COMMUNITY FOR THE FULL IMPLEMENTATION OF MANDATORY HS CODE
As an initial step in the process of implementing full Mandatory HS code, Phase One was successful in providing a transitional step and allowing the importing community a period of adjustment. The operational impacts on the community were not significant and the community has generally taken necessary steps to establish the necessary trade chain partner relationships to ensure their ability to provide HS code at time of release with few negative impacts on the release of goods.
2.1 Impact on Private Sector Operations has not been Significant
Phase One of the transition to Mandatory HS Code at time of release has been relatively easy for most importers and brokers. Prior to implementation they were concerned about the potential for delays in release of shipments and the need to send shipments inland for clearance. Their primary concern related to the lack of information on HS code at time of release and their ability to accurately classify the goods to the 10-digit level. They were also concerned about the impact on release times - relating either to the additional time taken by customs inspectors for keying paper release information or to their ability to provide information in a timely fashion. From our interviews with staff and the importing community, we have concluded that, for the most part, these problems have not occurred to any considerable degree. Release times have not been significantly impacted and there has been limited, if any, increase in the number of shipments sent inland for release.
After-Hours Releases Can be Problematic - Importers and brokers advised us that, given the need for research and consultation that often arises in classifying goods, providing HS code information is most difficult in situations in which the goods have not been previously classified, such as new or seasonal goods, and in modes of transportation where there are short lead times for clearing goods. The most significant difficulty experienced with respect to HS code is the lack of available quality classification information, especially for shipments arriving after normal business hours. While such situations did not pose significant difficulties during normal business hours, except in cases of tight timeframes after-hours shipments placed brokers in a difficult position.
To ensure that their clients have access to 24/7 service for release, brokers generally have working agreements with agents at ports where they are not located to handle after-hours releases. The introduction of the Mandatory HS Code initiative has raised agent concerns over the potential for liability for possible AMPS penalties. As agents are unwilling to classify products based on limited information, brokers are put in the position of having to respond directly. As a result, many brokers have had to change their business practices to provide a more comprehensive 24/7 service to their clients. In many cases, especially for smaller brokers, this service is limited to responding on an as-required basis to HS code problems, with the agent handling the more routine work.
As a result of the various changes made to their operations, importers have generally been able to respond well to exceptions where specific intervention is required. This, in turn, has minimized the number of shipments that have been delayed or which have had to be shipped inland for clearance. While these situations do arise, importers and brokers advised that the number is not generally significant and it is not a major concern at this time. This view is supported by a review of the number of inland releases effected since the introduction of Mandatory HS Code. The data shows no trend towards a greater number of inland releases. In fact, immediately after implementation the number of releases at most inland ports actually declined.
Broker Costs Were Manageable- Brokers indicated that responding to the new HS code requirements has increased their costs of doing business. In adapting to the new requirements, brokers indicated that investments were required for computer programs and equipment, database changes, and additional staff. Large brokers also incurred costs related to opening or expanding 24/7 service centres to support their border release operations. Smaller brokers also required existing staff to be on-call for problematic after-hours releases. All brokers indicated that they had invested in client education in order to ensure that their customers were aware of the new requirement and how they could play a role in ensuring that the HS code requirements are met without impacting negatively on the release of goods.
While many of these investments were made with respect to the new HS code requirement, it was evident that the driving force behind the investment decisions was the concern over accuracy because of potential AMPS penalties. Notwithstanding the investments made, the overall impact of these costs, even for smaller brokers, was not generally seen to be a significant burden in the overall business context.
2.2 Private Sector Success is Dependent on Importer Involvement and Relationship Management
From our interviews with brokers and importers it is evident that importer involvement in the release process is seen as the key to success in meeting the Customs requirement for increased information at release. While some importers are fully engaged in the process, others rely on their brokers and others in the trade chain to ensure successful release of goods.
We found that the key to success for the private sector in being able to meet Customs requirements is their relationship management. With the importer at the centre, the key relationships are the importer/vendor and the importer/broker. We found that the more active the importer is in the process, the greater likelihood that difficulties at release can be minimized. Recognizing the importance of the importer in the process, brokers have been communicating with the importers they represent in an attempt to sensitize them to the new requirements and the potential impacts on release operations. Brokers' management of this relationship has been instrumental for them in adapting to the new requirement and to the after-hours release situations.
The other key relationship is that between the importer and the vendor. We visited some importers who have well developed vendor relationships and have very sophisticated processes to ensure that all goods that they import are properly classified for Customs purposes prior to the actual importation of the goods. Importer involvement in obtaining information from vendors, and providing that information to their trade chain partners, is instrumental in making the import process seamless or at least delay-free. While this relationship may be difficult to nurture in some cases, the rewards to the importer can be significant. We found several examples of closer working relationships being developed as a result of the HS code initiative.
Relationship management is important for the success of the Mandatory HS Code initiative and for ACI. For ACI, however, importers will need to further cultivate relationships with all trade chain partners. While it is not Customs' responsibility to ensure that appropriate trade chain partnerships are established, Customs should continue to encourage and support the development of effective cooperation among trade chain partners.
3.0 NO SIGNIFICANT IMPACT ON REGIONAL OPERATIONS
The implementation of the Mandatory HS Code initiative has been quite smooth and has not had any significant adverse impact on regional operations. At the outset, there were regional concerns regarding the amount of time that would be required for Customs Inspectors to key HS codes for paper releases and that this new requirement might create delays in the release process. There was also a concern over the role that the inspectors would have in validating HS codes at time of release.
Regional staff we interviewed advised that there have been no significant problems associated with Phase One of the implementation of Mandatory HS Code. While the electronic environment is, for all intents and purposes, seamless for the customs inspectors, the paper environment does require that they also input HS code when keying paper releases. According to regional staff, however, keying of this additional data element has not had an appreciable impact on the process and has not generally resulted in delays in the release of goods.
Some additional time is required by the CIs to process multi-line transactions to ensure that the HS code is provided for the highest value line when the HS code for that line does not appear on the top of the first page to facilitate cross-referencing as is required. Again, this is not seen as a significant difficulty within the context of single-line reporting.
4.0 EXPANSION OF HS CODE REQUIREMENTS MAY BE PROBLEMATIC IN THE PAPER ENVIRONMENT
One of the most significant factors contributing to the success of the initiative is the design requirement making HS code mandatory only for a single line. Notwithstanding the fact that many importers provide HS code for all lines, the single line requirement provided the importing community with a transition stage to ease their way into an environment of increase reporting requirements. The single line requirement has allowed importers and brokers time to adjust to new HS code requirements and to establish the necessary business process changes to cope with the specific challenges that result from this requirement.
Expansion of the HS code requirement, however, may be more problematic for the community and will require further refinement on the part of importers and brokers in the way they conduct their importing business and develop their relationships with trade chain partners. Within the context of ACI implementation, however, HS code will represent but one element in an expanded data requirement package that must be provided to Customs electronically in advance of the arrival of the goods. Adjustments required to accommodate further HS code requirements will also likely be required for full ACI implementation. As a result, another interim step before full implementation of mandatory HS code will provide the importing community with a further opportunity to adjust to increased reporting requirements.
The main concerns raised by the private sector with respect to expansion of the HS code requirement centred on the paper environment. While HS code information can be applied automatically for electronic releases, providing this information on paper releases can be labour intensive. Additional HS code requirements will increase this work and raise the possibility of delays in presenting release data. As is the case under today's requirement, it is expected that situations involving inadequate information for classifying new products - especially for after hours shipments - and short time frames will be most problematic. Increasing the requirement will increase the potential for delays or for inland clearance of goods.
From a customs operational perspective, the paper environment again represents the greatest challenge to expansion of the HS code requirement. While the regions have been able to cope with the requirement of keying a single HS code for paper transactions, expansion to 3 or 5 lines may have a greater impact on their service levels and release times. Any expansion strategy, therefore, must take into consideration the additional impact on major land border ports resulting from additional keying requirements.
While the ACI end state envisages pre-arrival electronic transmission of release data, an interim step towards that state may pose difficulties for major ports with a high paper ratio of release transactions. As a result, notwithstanding relatively tight timeframes associated with airports, the most impact will be felt in land border ports. Approximately 51% of total releases at Canada's 22 Designated Commercial Offices5 are paper releases. This could exacerbate existing congestion at major ports if a significant number of shipments are delayed as a result of importers and brokers having to determine the classification of goods or Customs Inspectors having to key additional data elements.
For the most part, however, brokers generally feel that expanding the HS code requirement to 3 or 5 lines would be a feasible next step. One suggestion that was made was to incrementally increase the requirement until the importing community feels that the breaking point had been reached. Given the relative minor impacts from Phase One, there is no reason to believe that expansion to 3 or 5 lines would be an unreasonable next step. Given the desire to reach a point when all HS codes are provided at time of release, a reasonable transition strategy would seem appropriate to allow the community to continue to adjust and to prepare them for full implementation of ACI.
CONCLUSIONS
While the initial implementation of Mandatory HS Code has set the stage for further implementation of HS code requirements, it has not yet made a significant contribution to improved targeting. This is due, in part, to the fact that the HS code requirement is not yet required for all lines. Customs targeters are hesitant to use HS code on a broad scale and it is therefore used infrequently and only in very specific situations. Full implementation of the initiative will be necessary to support the use of HS code for targeting and to permit the evaluation of its effectiveness for targeting purposes. Expectations for the use of HS code as a targeting element need to be established to maximize the benefit from the initiative. Success criteria also need to be established to be able to determine the extent to which the initiative objectives have been met.
While accuracy of HS code at release has reached almost 95%, based on the concordance between HS code used for release and for accounting, the accuracy of HS classification used for accounting remains suspect. Every effort should be made to increase the accuracy of the HS code at release, in part through the on-going monitoring of the Exception Report and the implementation of compliance improvement strategy. Increased use of HS code for targeting purposes, however, needs to be supported by a higher compliance rate in the classification of goods for accounting purposes as this classification is used as the basis for HS code used at time of release. Until there is an assurance that ACROSS is targeting on the right HS codes the effectiveness of HS code as a targeting element will be limited. With the introduction of HS code for targeting purposes on a broad scale, a focus on classification accuracy for accounting purposes becomes more strategically important and needs to be reflected in the priorities established in the Compliance Improvement Plan.
Phase One of the Mandatory HS Code initiative has met its objective of preparing the private sector for further implementation of Mandatory HS Code and the eventual implementation of ACI. The implementation of Phase One has been relatively smooth and the importing community has adjusted well to the new requirements. The community has made the necessary changes to business practices to accommodate the new requirements with little impact on their overall business. While further changes and investments will be required to accommodate more HS code and ACI requirements, the initial implementation of HS code has helped the importing community to establish a foundation for the expansion of HS code requirements at time of release and eventually for ACI. Further implementation needs to build on the progress made by the importing community in managing relations among trade chain partners.
RECOMMENDATIONS
In order to continue to prepare the way for implementation of ACI, and to ensure the usefulness of HS code as a valid targeting element, it is recommended that Customs:
1. Expand the requirement for reporting HS code from a single line to 3 or 5 lines to provide another interim step should current plans for the introduction of full implementation be delayed;
2. Assign responsibility for monitoring the Exception Report and develop a compliance strategy for ensuring HS code compliance at release;
3. Develop border, post-release, and client service strategies within the Compliance Improvement Plan that focus on the validation and improvement of tariff classification presented at accounting, for key areas where classification may be used for release targeting;
4. Develop and implement a plan for increasing the use of HS code for release targeting;
5. Establish expectations and success criteria for the use of HS code targeting and develop a strategy for making best use of HS code at various stages of implementation; and
6. Ensure that promotion of relationship management among private sector stakeholders continues to be a key element of the marketing strategy for implementation of further HS code requirements and ACI.
ACTION PLAN
1. Expansion of Mandatory HS to 5 invoice lines will be undertaken effective May 2004.
2. Customs will undertake a pilot-monitoring program in the Southern Ontario Region to assess compliance and to identify risk management issues for future compliance improvement plans, beginning early in 2004/2005. Target completion date for the pilot is proposed for July 31, 2004.
3. In conjunction with the pilot under Action Item #2, and as part of the Compliance Improvement Plan in 2004/2005, Customs will develop strategies to improve tariff classification accuracy for those commodities subject to release targeting.
4. Customs has developed a plan to increase the use of HS-based release targeting to May 2004 when 5 line mandatory HS is introduced. On an ongoing basis, we continue to provide written advice and guidance to the field outlining the benefits of using HS as a targetable data element. We have also implemented a monthly monitoring regime, which captures the number of active targets developed using HS. We continue to deliver the national Commercial Targeting Course with an increased emphasis on HS based targeting, Participants are encouraged to expand their targeting methodologies to include developing targets based on HS where feasible, and instructed on how to do so.
5. Customs will establish expectations and success criteria for HS Code targeting, for each stage of implementation.
The timing and nature of this response is contingent upon management decisions on the timing and content of the transitional phases of implementation.
6. As part of Customs' on going ACI consultations, Customs will continue to address and promote relationship management.
Acknowledgments
We wish to thank Customs managers and staff in Headquarters and the Pacific, Prairie, Southern Ontario and Northern Ontario regions for their support and input into this study. Special thanks is also extended to the various companies and organizations in the importing community who also provided valuable input into the study.
Members of the Project Team
Bruce Irving, Program Evaluation Manager
Donna Keough, Evaluation Officer
Program Evaluation Division
1 HS code stands for Harmonized System code. It consists of a series of 6 numbers which is used for international trade purposes to identify imported commodities and is recognized and used internationally. Each traded commodity is assigned this number by the World Customs Organization. The code is used primarily for determining appropriate rates of duty and for maintaining national trade statistics. Individual countries may assign additional digits beyond the 6-digit level to commodities, which are unique to that country and serve additional purposes. Canada uses 10 digits in total. This 10 digit number is properly called the classification number for the goods. The term HS code is generally used within this report, however, as this is the terminology commonly used within customs to describe the classification number when provided at time of release.
2 The Accelerated Commercial Release Operational Support System (ACROSS) is the automated system used to process Customs release transactions and includes electronic targeting capabilities.
3 ACROSS has an inventory of active and in-active targets. Active targets are those that ACROSS draws from on at any given time while inactive targets form part of the inventory but are not currently being used for targeting.
4 The Customs Management Reporting System currently contains information on exceptions for only the top 1,000 importers. A change request has been submitted to include information for all importers.
5 Designated Commercial Offices represent Canada's highest volume land border ports. In 1999, these offices processed 55% of the total value of imports into Canada.
