What Changed
- ICC published a policy paper on aligning FTA rules of origin with changing tariff classifications.
- Identified HS 2028 entry into force date of 1 January 2028 and the alignment window through the end of 2027.
- Highlighted that around US$1 trillion in eligible preferential trade was underutilised in 2022 due in part to outdated HS references.
Businesses trading internationally under free trade agreements (FTAs) face administrative burdens, increased compliance costs, and potential loss of preferential tariff treatments when tariff classifications fall out of step with global standards. On 5 October 2026, the International Chamber of Commerce (ICC) published a policy paper titled "Keeping rules of origin aligned with changing tariff codes," addressing the systematic alignment of FTAs with upcoming revisions to the global Harmonized System (HS).
Background and the Problem of Misalignment
The Harmonized System serves as the standardized global nomenclature for classifying traded goods. Free trade agreements rely on product-specific rules of origin (PSRs) tied to these HS codes to define where products originate and whether they qualify for preferential, lower tariff rates. However, as the HS is periodically updated globally, the references embedded within existing FTAs often remain unchanged, creating a widening mismatch between current customs classification codes and older FTA provisions.
When customs declarations and FTA rules of origin utilize different editions of the Harmonized System, importing and exporting businesses are forced to manually reconcile the disparate versions to demonstrate eligibility for trade preferences. This friction adds substantial compliance burdens, financial costs, and administrative uncertainty. According to the ICC policy paper, outdated HS references in FTAs represent a primary driver of FTA underutilisation. The economic scale of this issue is immense: across existing free trade agreements worldwide, more than 50,000 product-specific rules of origin may require technical alignment when the Harmonized System is updated. In 2022 alone, approximately US$1 trillion worth of trade eligible for preferential treatment failed to receive it. This burden impacts cross-border trade generally, but falls particularly heavily on micro-, small-, and medium-sized enterprises (MSMEs) as well as enterprises operating across multiple overlapping FTAs.
What Alignment and Technical Rectification Require
To resolve these operational bottlenecks without disturbing delicate international trade balances, the process of technical rectification must be employed. Technical rectification refers to updating HS code references within an existing FTA so that they match the latest HS edition without altering the underlying substance or strictness of negotiated origin criteria.
With the next iteration of the classification system—HS 2028—scheduled to enter into force on 1 January 2028, customs administrations worldwide have been presented with a critical opportunity. The period leading up to the end of 2027 provides a clear timeline for governments and customs authorities to systematically update and align FTA rules of origin prior to the implementation of HS 2028.
The Four Priorities Established by the ICC
To maintain the intended benefits of free trade agreements and lower trade barriers, the ICC calls on customs administrations to adopt four fundamental priorities:
1. Maintain Neutral Technical Rectification: Customs authorities should ensure that technical updates remain strictly neutral. Updates to HS references must be administrative, preserving the substance of negotiated commitments without modifying original origin criteria.
2. Build Dedicated Capacity in Collaboration with the Private Sector: Authorities need to establish focused institutional capacity and collaborate directly with private sector stakeholders to identify and resolve alignment challenges efficiently.
3. Leverage Existing Tools, Transparency, and Technology: Customs administrations should fully utilize available digital platforms, legal tools, public transparency measures, and technological solutions to streamline technical rectification processes.
4. Embed Technical Rectification Mechanisms into Future FTAs: Negotiators should design future free trade agreements with built-in, automated, or simplified technical rectification mechanisms, avoiding future backlogs when subsequent HS revisions take effect.
Frequently Asked Questions
Question 1: What are rules of origin in free trade agreements?
Answer: Rules of origin are the explicit criteria used in trade agreements to determine where a product is manufactured or produced, establishing whether that good qualifies for preferential tariff treatment under an FTA.
Question 2: When does HS 2028 enter into force, and what is the alignment window?
Answer: HS 2028 enters into force on 1 January 2028. Customs administrations have a dedicated timeframe until the end of 2027 to align FTA rules of origin with the updated HS classification system.
Question 3: How large is the economic impact of outdated HS references in FTAs?
Answer: In 2022, approximately US$1 trillion of trade eligible for preferential treatment did not benefit from it due to underutilisation, driven significantly by outdated HS references. Globally, over 50,000 product-specific rules of origin across FTAs may need alignment during HS revisions.
Question 4: What is technical rectification?
Answer: Technical rectification is the process of updating HS code references within free trade agreements to align with revised global tariff classifications, performed in a neutral manner that preserves negotiated origin requirements without changing their substance.
Question 5: Which types of businesses are most severely impacted by HS code misalignments?
Answer: While all cross-border traders are affected, the administrative and cost burdens fall especially heavily on micro-, small-, and medium-sized enterprises (MSMEs) and businesses that operate across multiple free trade agreements.
Who May Be Affected
Customs administrations, international traders, micro-, small- and medium-sized enterprises (MSMEs), and businesses operating across multiple free trade agreements.
Cross-Border Context
Applies to global cross-border trade mechanisms affecting importers and exporters across China, Switzerland, the EU, and other jurisdictions operating under free trade agreements.
What to check next
- Monitor national customs authority announcements regarding technical rectification processes for HS 2028.
- Review specific product-specific rules of origin (PSRs) in relevant FTAs for potential code misalignments.
This article provides general information and does not constitute legal advice. Consult the official text and obtain advice appropriate to your circumstances where needed.