Technology to Customs: Catch me, if you can
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The WTO and the WCO are probably two of the most important players in the international trade sector. They are engaged in conventions designated to facilitate the international trade. The HS convention wishes to set rules for customs classification. The ITA goal is to enhance the duty free treatment of technological products. Occasionally, a frontal dispute between the two conventions occur, when classification of alleged ITA products is appealed, as was happened in Israel also in 2021, concerning STB. While the worldwide trend is to innovate and create new technological products, and the ITA purpose is to encourage using such products, it seems that too many obstacles for this goal exist, while the main one, perhaps, is the customs classification disputes. Possible solutions for reducing classification disputes, may be developing softwares and applications to help classify goods automatically, and not by a human being. Alternatively, having more recent updating of the ITA, once every year (for products descriptions), and coordinate these updates with the HS updates. The world of technology products is changing in a rapid speed. If the ITA wishes to survive in this era, it must make adaptations; otherwise, it may stay behind and become irrelevant.
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References
Peter Oliver, Xenophon Yataganas, The Harmonised System of Customs Classification, Yearbook of European Law, Volume 7, Issue 1, 1987, Pages 113–129.
https://doi.org/10.1093/yel/7.1.113
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See also an explanation about the HS, within a WTO dispute settlement body's decision: "The preamble of the HS Convention sets out the objectives of the HS including "to facilitate international trade", "to facilitate the collection, comparison and analysis of statistics", "to reduce the expense incurred by re-describing, reclassifying and recoding goods as they move from one classification system to another in the course of international trade", and "to facilitate the standardisation of trade documentation and the transmission of data. The HS Convention aims to achieve these objectives through the HS, which establishes an international standard for product nomenclature for more than 5,000 commodity groups, and includes approximately 1,200 headings that are grouped into 21 sections comprising 99 chapters". Page 35, paragraph 7.32 to the WTO Panel report – European Communities and it member States – Tariff treatment of certain information technology products (16.8.10)- WT/DS375/R, WT/DS376/R, WT/DS377/R.
https://doi.org/10.30875/a23b2ce6-en
World Trade Organization: Agreement on the Implementation of the Ministerial Declaration on Trade in Information Technology Products.
https://doi.org/10.1017/S0020782900019549
WTO, The road to the Information Technology Agreement.
https://doi.org/10.30875/2636c9db-en
Portugal-Perez, Alberto, Reyes, Jose-Daniel, Wilson, John S. Beyond the Information Technology Agreement: Harmonisation of Standards and Trade in Electronics, World Economy 33:1870-1897 (2010).
https://doi.org/10.1111/j.1467-9701.2010.01300.x
The authors mentioned that the trade in information technology is rising, but they are calling to expand the agreement.
WTO, ITA expansion. https://doi.org/10.30875/ce99614b-en
See also: "Pursuant to Article 3.1(a)(ii) of the HS Convention, each contracting party also undertakes to apply the "General Rules for the Interpretation of the Harmonized System and all the Section, Chapter and Subheading Notes, and that it shall not modify the scope of the Sections, Chapters, headings or subheadings of the HS". Under Article 7(1)(b) of the HS Convention, the HS Committee prepares HS Explanatory Notes (HSEN), classification opinions and other advice as guidance to secure uniformity in the interpretation of the HS. The HSEN provide guidance for interpreting the terms of a specific HS heading. Classification opinions are opinions of the HS Committee regarding the customs classification of a specific product." page 68, paragraphs 7.34-7.35 to the WTO Panel report – European Communities and it member States- Tariff treatment of certain information technology products (16.8.10)- WT/DS375/R, WT/DS376/R, WT/DS377/R.
https://doi.org/10.30875/a23b2ce6-en
The WTO Panel report – European Communities and it member States – Tariff treatment of certain information technology products (16.8.10)- WT/DS375/R, WT/DS376/R, WT/DS377/R
https://doi.org/10.30875/a23b2ce6-en
The STB Issue is discussed from page 262 paragraph 7.764 to the decision. For example, the Panel ruled that a STB can have many functions and the communication function may not be its primary (paragraph 7.861): "Accordingly, based on our preliminary assessment of the terms "set top boxes which have a communication function", we conclude that the terms "which have" in isolation do not necessarily limit the breadth of coverage of the concession to set top boxes which only have a communication function. However, we also find that the coverage of the concession was not intended to extend to devices which have set top boxes incorporated into them along with other functions in a way that they may no longer be described as, in essence, a "set top box which ha[s] a communication function". In other words, we determined that the concession covers set top boxes which have a communication function, but not necessarily only a communication function. In addition, the Panel notes that while "which have" does not necessarily imply an exclusive functionality, it is clear that the drafters chose to emphasize functionality, and a communication function in particular, in defining this narrative product description."
Many articles have been written about the WTO decision:
Filip Tack, 'Caught by the ITA? From Inception to Current Dilemmas – The EU’s Angle', (2010), 5, Global Trade and Customs Journal, Issue 2, pp. 57-69. https://doi.org/10.54648/gtcj2010006
The author discusses the relationship and the tension between the EU and the implementation of the ITA agreement.
Tsai-Yu Lin, 'Systemic Reflection on the EC-IT Product Case: Establishing an ‘Understanding’ on Maintaining the Product Coverage of the Current Information Technology Agreement in the Face of Techn', (2011), 45, Journal of World Trade, Issue 2, pp. 401-430.
https://doi.org/10.54648/trad2011014
The author discuss the WTO decision and claim the this case: "..has opened up Pandora's box: would original ITA products, after technological change, still be included in the ITA?". The author claim that the WTO dispute settlement body isn't the suitable jurisdiction to resolve these issues.
Davide Rovetta, 'Some Thoughts about European Communities and Its Member States: Tariff Treatment of Certain Information Technology Products', (2011), 6, Global Trade and Customs Journal, Issue 3, pp. 143-148. https://doi.org/10.54648/gtcj2011020
The author believes that the WTO decision is quite problematic and makes the legal situation more complex, rather than solving it.
John Grayston, 'The Panel Report on Tariff Treatment of Certain Information Technology Products: Classification Is the Key to Effective Implementation', (2011), 6, Global Trade and Customs Journal, Issue 3, pp. 149-155. https://doi.org/10.54648/gtcj2011021
The author claims, for example, that a STB with har drive, apparently, falls under the scope of the ITA, but the EU customs explanatory notes exclude such a product from the exempted classification. The author calls for a revision of classification rules in the EU.
Conconi, P., & Howse, R. (2012). Panel Report on EC–IT Products. World Trade Review, 11(2), 223-255.
https://doi.org/10.1017/S1474745611000504
The authors claim that the panel's decision and wide interpretation of the products description, helps in achieving the ITA purpose, which is: ".maximum freedom of world trade in information technology products’ and ‘encourage the continued technological development of the information technology industry on a world-wide basis’."The authors claim that:" In our view, the Panel's ruling helps to achieve this goal, by effectively expanding the list of duty-free products to all newly developed multifunctional products that combine features of products that are in the ITA with features of other products that were left out of the ITA. "Nevertheless, the authors estimate that trade disputes concerning the ITA coverage shall continue.
Article II: Schedules of Concessions, paragraph 1(b) of the General Agreement on Tariffs and Trade (GATT 1947).
https://doi.org/10.1017/cbo9780511818424.007
"The products described in Part I of the Schedule relating to any contracting party, which are the products of territories of other contracting parties, shall, on their importation into the territory to which the Schedule relates, and subject to the terms, conditions or qualifications set forth in that Schedule, be exempt from ordinary customs duties in excess of those set forth and provided therein. Such products shall also be exempt from all other duties or charges of any kind imposed on or in connection with the importation in excess of those imposed on the date of this Agreement or those directly and mandatorily required to be imposed thereafter by legislation in force in the importing territory on that date." And is defined in another place – Handbook on Accession to the WTO.
https://doi.org/10.30875/71bba149-en
Chapter 5, Substance of Accession Negotiations, paragraph 5.2 rules, it is defined: "This section deals with any duties or charges levied on imported goods but not on domestically produced goods, other than charges equivalent to internal taxes, anti-dumping duties, countervailing duties and fees and charges for services rendered (for which, see below). Other duties and charges (ODCs) provide revenue for the government and protection to domestic production and therefore, like customs duties, directly affect access to markets. The WTO provides that if the customs duty on an item is bound in a Member’s Schedule, then any other duties and charges on that item are also bound."
Nellie Munin, Israeli Purchase Tax on Commercially Imported Cars: An Illegal Barrier to International Trade or a Legitimate Domestic Policy Instrument? Global trade and customs journal, Kluwer, Volume 12, Issue 9 (2017), pp. 350-359.
https://doi.org/10.54648/gtcj2017047
WTO - Panel - Philippines– taxes on distilled spirits, WT/DS396/R, 15.8.2011. https://doi.org/10.30875/ffff3b70-en
Appellate body which upheld most of the Panel findings- WT/DS396/AB/R - 21.12.11.
https://doi.org/10.30875/bceec667-en
Another example: WTO - Japan – Taxes on Alcoholic Beverages (Panel report, 11.7.96, Appellate Body report, 4.10.96).
https://doi.org/10.1017/9781108378611.006
https://doi.org/10.1017/9781108378611.005
For comparison, please see the conjucntion between the ITA and another WTO agreement, the Technical Barrieres to Trade (TBT) agreement- Mahdi Ghodsi, Impact of TBTs on Trade in ICT Goods: Differentiating by Regulatory Objectives, Central European Economic Journal, Volume 11 (2024): Issue 58 (January 2024).
https://doi.org/10.2478/ceej-2024-0009
As to crossing the red sea: In short, the Israelites, led by Moses, have escaped from Egypt, and when came across the red sea, a miracle has happened, so the sea was divided into two parts, the Israelites have escaped between those two sea parts, and the Egyptian have drowned as the sea was gathered into one piece when they crossed, again (The Bible, Exodus, Chapter 14). https://doi.org/10.5040/9780567701145.ex
The WTO used to publish a comprehensive review of the ITA issues every few years. For example: WTO – 15 years of the Information Technology Agreement- trade, innovation and global production networks (2012). https://doi.org/10.30875/1bbd6c67-en
WTO – 20 years of the Information Technology Agreement- boosting trade, innovation and digital connectivity (2017).
https://doi.org/10.30875/b7183408-en
It is intersting to note, that STB classification is still disputed between the member states, as noted in Chapter 3, page 57 of this report: Annex Table 3.3: "Attachment B" products with remaining classification divergencies in HS 2007:
ITA Item No. Product Description
Set top box which have a communication function: a microprocessorbased device incorporating a modem for gaining access to the internet, and having a function of interactive information exchange.
The ITA expansion (sometimes called "ITA II") is disucussed in the literature. For example:
Rostam J. Neuwirth, The Information Technology Agreement (ITA), Annex 21 from the book: Richieri Hanania, L. and Norodom, A.-T. (2016) Diversity of Cultural Expressions in The Digital Era, Buenos Aires. https://doi.org/10.55778/ts096909018
The author claims that despite the expansion, the ITA will continute to raise customs classification disputes, since the rapid evolving technology.
Winslett, G. (2018). Critical Mass Agreements: The Proven Template for Trade Liberalization in the WTO. World Trade Review, 17(3), 405-426. https://doi.org/10.1017/S1474745617000295
The author discusses the factors that cause the ITA to expand, and considers what can be learned from the ITA with regard to other international agreements.
Bijit Bora and Xuepeng Liu, Evaluating the Impact of the WTO Information Technology Agreement (2008).
https://doi.org/10.1142/9789814299404_0002
The authors present a statistical analysis which shows that when a technological product is being traded, the import volume of such as product will raise, if the product is bought from an ITA member state. Mann, Catherine & Liu, Xuepeng. (2009). The Information Technology Agreement: Sui Generis or Model Stepping Stone?.
https://doi.org/10.1017/CBO9781139162111.008
The author claims that the ITA is a hugh success, and there is no other customs international agreement which was more successful than the ITA. The author discusses the option of duplicating the ITA in other sectors and comes to a conclusion that it will be impossible.
Henn, C., & Gnutzmann‐Mkrtchyan, A. (2015). The layers of the IT Agreement's trade impact. Econstor.
https://doi.org/10.30875/92CD71F9-EN
The authors claim that every ITA member state has gained from the ITA membership, the imports and exports were raised. A statistical analysis is presented.
Ernst, Dieter, The Information Technology Agreement, Manufacturing and Innovation – China's and India's Contrasting Experiences (February 23, 2016). East-West Center Workshop on Mega-Regionalism - New Challenges for Trade and Innovation.
https://doi.org/10.2139/ssrn.2737082
The author claims that an international agreement which reduces duties on technologic products, may facilitate developing countries to promote innovation.
Khanderia, S. (2018). The Information Technology Agreement and the ‘Make-in-India’ Initiative: Weighing the Better Alternative for India. Foreign Trade Review, 53(2), 98–115.
https://doi.org/10.1177/0015732517734749
This article describes that India, for example, is a member of the original ITA, but was not member of the ITA expansion, since India had doubts whether the expansion will have a positive or negative influence on the economy. The article discusses whether India's choice was correct or not. It should be also noted, that the WTO panel ruled, that discussions concering ITA II before it was signed, cannot influence the interpreation of the original ITA (Page 217, paragraph 7.591). the WTO Panel report- European Communities and it member States – Tariff treatment of certain information technology products (16.8.10)- WT/DS375/R, WT/DS376/R, WT/DS377/R.
https://doi.org/10.30875/a23b2ce6-en
Sara Nordin, 'CJEU Judgment in BskyB and Pace Cases on Customs Classification of Set-Top Boxes', (2011), 6, Global Trade and Customs Journal, Issue 9, pp. 439-442. https://doi.org/10.54648/gtcj2011053
For example, the WTO ruled that a technological development which occurs on a product after the ITA, which adds a product another feature, does not preclude the product from being covered under the ITA. An example of multimedia displays which were later equipped with a DVI connector, is given. (Page 219, paragraph 7.600). the WTO Panel report – European Communities and it member States – Tariff treatment of certain information technology products (16.8.10)- WT/DS375/R, WT/DS376/R, WT/DS377/R. https://doi.org/10.30875/a23b2ce6-en
WTO disputes for imposing duties on ITA alleged products are still ongoing, some of them were ruled. For example: DS582: India — Tariff Treatment on Certain Goods in the Information and Communications Technology Sector (April, 2023).
https://doi.org/10.30875/25189832-582
DS584: India — Tariff Treatment on Certain Goods (2023).
https://doi.org/10.30875/25189832-584
DS588: India — Tariff Treatment on Certain Goods in the Information and Communications Technology Sector (2023).
https://doi.org/10.30875/25189832-588
Michael Lux et al, Classification of Goods: What are the Hurdles and Pitfalls in the Use of Automation or IT Support? Global Trade and Customs Journal, Volume 16, Issue 6, page 237 (2021).
https://doi.org/10.54648/gtcj2021027
Liya Ding, ZhenZhen Fan, DongLiang Chen, Auto-Categorization of HS Code Using Background Net Approach, Procedia Computer Science, Volume 60, 2015, Pages 1462-1471.
https://doi.org/10.1016/j.procs.2015.08.224
Singh, R. K. (2022). Role of Vocational Education and Skill Training to Stimulate Human Development. In Indian Journal of Social Science and Literature (Vol. 2, Issue 1, pp. 31–36). https://doi.org/10.54105/ijssl.a1030.092122
Ibarra, P. B. (2020). Development of Trade Relations Between Mexico and China Under Non-Bilateral Trade Treaties. In International Journal of Management and Humanities (Vol. 4, Issue 10, pp. 190–223). https://doi.org/10.35940/ijmh.j0958.0641020
Marhwal, V., Bamel, P., & Agarwal, T. (2019). Predicting Crisis in Global Trade Network: An Enhanced Decision Tree Based Methods. In International Journal of Engineering and Advanced Technology (Vol. 9, Issue 1s3, pp. 314–314). https://doi.org/10.35940/ijeat.a1059.1291s319