FEBRUARY 2017 ABOUT THE AUTHORS ALIJON ALIEV, Working with Tajikistan to Develop Its a Trade Logistics Consultant supporting several components of the Central Asia Trade First National Commodity Nomenclature Logistics Project, joined the World Bank Group in 2016. Prior of Foreign Economic Activities to that, Alijon, who has experience in international trade and logistics, worked for One of the most important instruments of trade facilitation is the commodity eight years at the Customs nomenclature, which provides a definition of all goods subject to foreign Service of the Republic of Tajikistan as head of division in trade. The correct classification of goods forms the basis for determining the the International Customs Cooperation Department. appropriate value of a good and for determining the customs duties imposed on a good on import or export. Customs statistics on foreign trade are derived VIOLANE KONAR-LEACY, a Private Sector Development from it, and those statistics in turn serve as a tool for the determination and Specialist with the World Bank’s Trade and Competitiveness Prac- implementation of customs policy. Commodity nomenclature is used not only at tice, based in Dushanbe, Tajikistan, is manager of the the national level, but also by the World Trade Organization, the World Customs Central Asia Trade Logistics Organization, the United Nations, and other international entities. Importers Project, which supports Tajikistan and the Kyrgyz and exporters or investors in other countries visit customs nomenclature Republic in aligning with the WTO Trade Facilitation websites thousands of times a day to see the types and levels of customs duties Agreement. She also serves as the regional coordinator for and other charges and trade policy measures that particular countries apply. trade facilitation advisory in Europe and Central Asia. Trade policy regulations, rules of origin, and trade statistics in almost all of the developed and developing countries are designed and compiled on the basis of APPROVING MANAGER customs nomenclatures. This SmartLesson discusses how the Central Asia Trade Lisa Kaestner, Practice Manager, Logistics Project worked with the Customs Administration of the Republic of Europe and Central Asia, Trade and Competitiveness Global Tajikistan on the development of its first national commodity nomenclature. Practice. Border crossing point at Kulma on the Tajikistan-China border. (Photo from the Customs Service of Tajikistan) SMARTLESSONS — FEBRUARY 2017 1 LESSONS LEARNED Lesson 1: Successful implementation depends on clearly understanding the client’s request. When T&C received this request, we first had to edu- cate ourselves on what exactly we were being asked to do, and to determine whether this work would further our agenda. We consulted with our team ex- perts to understand the task. National commodity nomenclatures are based on the Harmonized Commodity Description and Coding Sys- tem, generally referred to as “Harmonized System,” or simply “HS,” which describes and encodes internation- al shipping cargo passing through customs. The HS of tariff nomenclature is an internationally standardized system of names and numbers to classify traded prod- The Harmonized Commodity Description and Coding System ucts. It came into effect in 1988 and has since been book. (From the World Customs Organization website) developed and maintained by the World Customs Or- ganization (WCO). This system is widely used by more BACKGROUND than 200 countries. The Trade and Competitiveness Global Practice The HS code consists of six digits: the first two dig- (T&C) began operating the Central Asia Trade Lo- its designate the HS chapter; the second two digits gistics Project (CATLP) in Tajikistan and the Kyrgyz designate the HS heading; and the third two digits Republic in early 2016. Its aim is to streamline the designate the HS subheading. HS code 1006.30, for clearance process for goods to enable traders to get example, indicates Chapter 10 (Cereals), Heading 06 their goods to market faster and at a lower cost. The (Rice), and Subheading 30 (Semi-milled or wholly project works with border management agencies (customs, sanitary and phytosanitary agencies) to milled rice, whether or not polished or glazed). Fig- simplify the procedures for clearing goods—through ure 1 illustrates how the HS code works. business-process improvements, more rigorous use Maintenance of the HS is a WCO priority. This activity of risk management, and the development of a trusted traders program. includes measures to secure uniform interpretation of the HS and to ensure that it is periodically updated in The project also provides technical assistance on light of developments in technology and changes in related initiatives that support the countries’ align- trade patterns. The WCO manages this process through ment with the WTO Trade Facilitation Agreement. the Harmonized System Committee (representing the For example, the project is supporting the establish- contracting parties to the HS Convention), which ex- ment of the National Trade Facilitation Committee, amines policy matters, takes decisions on classification which is a requirement of this agreement, in both questions, settles disputes, and prepares amendments countries. Tajikistan established this committee in updating the HS every five years. Currently, the 2012 December 2016. version of the HS is in use. The 2017 version was imple- mented on January 1, 2017. In the spring of 2016, the project re- ceived a request from the Customs Ser- Figure 1: Example of the Hierarchical Structure of the Harmonized System vice of Tajikistan to provide assistance with the development of the country’s first National Commodity Nomencla- ture of Foreign Economic Activities according to the Harmonized System Code of 2012. This request had been presented to other donors active in trade facilitation, but none was ready to provide this support. T&C agreed to help. Source: Chart from Wikipedia: https://en.wikipedia.org/wiki/Harmonized_System#Structure 2 SMARTLESSONS — FEBRUARY 2017 The Customs Administration of Tajikistan used the Figure 2: HS Nomenclature Chapters commodity nomenclature of the Eurasian Econom- ic Community (EurAsEC), which included countries • 01–05 Animal & Animal Products such as Belarus, Kazakhstan, Kyrgyzstan, Russia, and • 06–15 Vegetable Products Tajikistan. It was last updated in accordance with • 16–24 Foodstuffs HS2007. • 25–27 Mineral Products • 28–38 Chemicals & Allied Industries Tajikistan did not join the Eurasian Customs Union— • 39–40 Plastics/Rubbers which was established in 2010 and first included Be- • 41–43 Raw Hides, Skins, Leather & Furs larus, Kazakhstan, and Russia, adding Armenia and • 44–49 Wood & Wood Products Kyrgyzstan in 2015. The commodity nomenclature of • 50–63 Textiles the Customs Union is in accordance with HS2012. • 64–67 Footwear/Headgear Instead, Tajikistan continued to use the EurAsEC ver- • 68–71 Stone/Glass sion of HS2007, which became increasingly outdated. • 72–83 Metals Tajikistan’s ambition was to develop a national no- • 84–85 Machinery/Electrical menclature aligned with the HS2012 version—in the • 86–89 Transportation Tajik and Russian languages. • 90–97 Miscellaneous Lesson 2: Without experienced experts, Source: HS Code. challenging assignments are at risk of not Union nomenclature to ensure that the new national achieving their objective. Tajik nomenclature was aligned to the extent practi- cable with those of its neighbors and important trad- To achieve successful results, it is always important to ing partners. attract competent professionals. In our case, it was challenging to identify an experienced expert to help In addition to this international expert, the project with the HS update. The HS code has 97 chapters, engaged two former officers of the Tajik Customs which cover all product categories from live animals Service with deep experience in goods classification. to works of art. (See Figure 2.) We also engaged a third former officer to ensure that the Russian and Tajik technical products terms were The HS code classification needs to be compliant with translated correctly. the WCO HS code, up to a level of six digits. Coun- tries may then create their own subcategories up to a Lesson 3: Close collaboration with the 10-digit level. (See Figure 3.) The entire code is a big book of at least 1,000 pages. Attention to detail and client and interested stakeholders ensures an intimate understanding of the different product engagement, buy-in, and a good final categories and their classifications—to the 10-digit product. level—are of utmost importance, and miscategoriza- tion or misclassification can have an adverse impact Our international expert first conducted an extensive on the state budget through the incorrect levying of detailed review of the nomenclature currently used duties and incorrect trade statistics. by Tajikistan. He provided detailed comments for dis- To gain a better understand- Figure 3: Chapter, Heading, Subheading, and Subdivisions ing of the system, CATLP sought advice from our glob- al team as well as from cus- toms experts with WCO back- grounds. Eventually we were referred to a former Turkish customs official and former WCO officer, who had the experience necessary to help us and was available for this task. He proposed that we compare the existing Tajik (EurAsEC) nomenclature, the nomenclature of the EU, and the current Eurasian Customs Source: (Internet search). SMARTLESSONS — FEBRUARY 2017 3 cussion for each chapter, to align the cur- During these workshops, stakeholders rent version with version HS2012. The ex- became familiar with the principles of pert undertook two missions to Tajikistan, the HS structure and its significance for which included meetings with the man- international trade. Furthermore, they agement of the Customs Administration had the opportunity to provide com- of Tajikistan as well as experts on tariffs ments on areas that were of particular who were involved in the development importance to them and to discuss with of the nomenclature. During these meet- the experts the appropriate classifica- ings, the international and local experts tion of particular goods. This provided and the responsible officers from the Cus- a validation of some of the category toms Administration reviewed the code, determinations made by the experts. line by line, and agreed on how to revise These workshops also contributed to the classifications where needed. efforts on the part of Tajik Customs to reach out to the business community The expert also offered two workshops and to inform and involve them in this to inform government and private sector new initiative. Sharing information stakeholders about the principles of the and soliciting feedback brings people HS code and the changes from HS2007 together and makes them stakehold- to HS2012 as well as the changes from ers instead of critics, and it improves HS2012 to HS2017, which will be imple- the quality of the final product. The mented, starting in January 2017, by project also used print and online me- those countries that already completed dia sources to disseminate this infor- the upgrade. mation more widely. CONCLUSION The development of this nomenclature as a joint initiative of the Tajik Cus- toms Administration and the Central Asia Trade Logistics Project is an im- portant milestone for the Republic of Tajikistan. The nomenclature will help the Customs Administration improve its ability to clas- sify and value goods, and it contributes to Tajikistan’s alignment with the WTO Trade Facilitation Agree- ment article on interna- tional standards. It will be DISCLAIMER the first time in the 25-year SmartLessons is an awards history of independent program to share lessons learned in development-oriented Tajikistan that it has had advisory services and investment its own national, indepen- operations. The findings, dently developed product interpretations, and conclusions expressed in this paper are those nomenclature—and of a of the author(s) and do not quality vouchsafed by in- necessarily reflect the views of ternational experts. This IFC or its partner organizations, the Executive Directors of The is a great example of how World Bank or the governments development partners and they represent. IFC does not government agencies can assume any responsibility for the completeness or accuracy of the join forces and work to- information contained in this May 6, 2016, Workshop on the Harmonized System Code gether as a team to deliver document. Please see the terms in Dushanbe, Republic of Tajikistan. Participants included a first-rate product that and conditions at www.ifc.org/ representatives from government agencies and the private smartlessons or contact the sector. (Photos by CATLP) will have a lasting positive program at smartlessons@ifc.org. impact for the country. 4 SMARTLESSONS — FEBRUARY 2017