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FIVS-22 (Customs Classification)
There has been recent debate over the proper Customs classification of certain types of alcohol beverages within the World Customs Organisation's (WCO) approach to classifying products -- the Harmonised System (HS). HS Chapter 22 covers the categorization of alcohol beverages. Currently, HS Chapter 22 is set up so that fermented alcohol beverages, whether subject to further filtration processes or supplemented with alcohol, retain their customs classifications as fermented products. An emerging question revolves around whether the "essential character" of fermented products has been so altered in the production process that they should be reclassified as "distilled." This question has led to inconsistent classifications of the same product by different countries, as well as by European Union member states which are in the same customs territory. The impetus for reclassification lies in the fact that fiscal treatment of alcohol beverage products in the EU and other countries is based on customs classifications; fiscal rates for distilled products are normally higher than those for fermented ones. Despite some inconsistent classification decisions, the current situation based on a bright line distinction between distilled and fermented products has proven workable for the trade. The reclassification by some countries of fermented products as distilled under the theory that they are akin to distilled has however blurred the historically clear demarcation between fermented and distilled products. This development in turn has led to considerable uncertainty for the trade. Recent DevelopmentsAt its 2010 Autumn meeting, the WCO's Harmonised System Committee (HSC) will be considering the proper classification of three "test" products and possible revisions to relevant Explanatory Notes in Chapter 22. There is consideration of classifying fermented products that have undergone purification techniques (e.g., reverse osmosis, ultra-filtration, etc.) under headings that have hitherto been exclusively reserved for distilled beverages. The following industry report, including some particular annexes, describe the high degree of uncertainty such reclassifications would result in for the trade. The legal analysis (both in summary and complete forms) below discusses the pitfalls of making any decisions inconsistent with the long-standing architecture of this customs chapter.
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