Q200: Must I put my HS (tariff) codes on a commercial invoice?

A200: There is a massive downside to this practice, and it should be avoided except where a law makes it impossible to do so.

(The HS code is perhaps better known as the tariff code. It is a sequence of numbers that identifies a product at a customs level. HS codes are regulated by the World Customs Organisation and, as a general proposition, member states will each use the same first six digits when describing identical goods.)

The key word in the question is “must” –

Must I put my HS codes on a commercial invoice?

The only time the seller (as exporter) “must” put the HS code for the goods on a commercial invoice is when they are directed to do so by an applicable law.

If it comes up as a request in the negotiation (or as a contractual condition in a documentary credit, for example) I would caution the seller/beneficiary to seek alternatives before accepting the proposal.

Given that a commercial invoice plays a major role in the clearance process (export and import) the starting point is to consider whether it is a requirement of the Customs Act, which it is not.

In the ordinary course of business, the importer (or exporter) directs a clearing agent by completing a Clearing Instruction.

While a Clearing Instruction captures basic logistics data, a specific section of it is mandated by the Customs Act. This mandatory section includes the tariff heading that the agent will use when compiling the customs entry.

Given the clearing agent’s expertise in customs affairs, the importer/exporter may ask the agent for an opinion on the correct tariff code to use, however the burden is on the client to complete the instruction and (crucially) sign it off.

The importer/export takes ultimate responsibility for the tariff code used, regardless of who ‘recommended’ it.

It is inappropriate (and contrary to the law) for the clearing agent to take the tariff code from the invoice. There ‘must’ be a clearing instruction, it ‘must’ be signed by the principal, and it ‘must’ include the tariff code to be used.

For the importer, the downside of using the exporter’s endorsement on their commercial invoice is severe.

Firstly, it is naïve in the extreme for the importer (or their agent) to assume that the exporter is skilled enough to be right.

Secondly, there’s the very practical aspect that the code used for export is possibly not accepted by the import authorities.

This would be a raised risk if the importer’s local tariff code for the article exceeded six digits (and in certain cases, as few as four).

The importer should know the tariff codes applicable to their product. It is the importer who is ultimately accountable for the consequence of any error.

But the exporter is also strongly cautioned against endorsing their commercial invoice with a tariff code, particularly one given to them by the buyer/importer.

This misdirection may happen in the negotiation between the buyer and seller, but it might come about indirectly, such as when the beneficiary is obligated by the terms of a documentary credit to endorse a specific tariff code on the commercial invoice.

(As an aside, it is wrong to assume that the commercial invoice used for customs is the commercial invoice to be submitted under the credit.)

The fines and penalties for deliberately misleading customs with the intention of avoiding duties or taxes are onerous to say the least.

Tariff codes are susceptible to abuse as merely changing a single digit in a string of (say) 10-digits can change the dutiable nature of the supply from (say) 30% duty to Duty Free.

An importer caught deliberately using the wrong code is committing a criminal offence.

What an exporter needs to be alert to is the unscrupulous buyer directing them to use a particular tariff code on the commercial invoice, with the single aim of reducing or avoiding duties and taxes through a misdeclaration.

And, with the intention of passing the blame for this offence on to the exporter, should the matter come to light –

“I’m sorry I used the wrong tariff code, officer, but I took it from the commercial invoice: my supplier misdirected me.”

While this line is unlikely to reduce any applicable fine or penalty, it might defend them from a criminal charge.

However, given the reciprocal authority granted under various trade agreements, it is wrong to assume that the exporter would not be caught up in the matter, and if not subject to fines and penalties imposed by the destination import authority, then they will certainly be on the radar during their future trading with that country.

If, as the exporter or seller, you are being instructed to endorse a tariff code on your commercial invoice because of a ‘law’ in the buyer/importer’s country, then at least be skeptical enough to ask for some evidence of this law.

Business is not the coming together of benign forces for the greater good of mankind. There are some corrupt people in business; you may have missed that memo.

If the request cannot be avoided, then perhaps seek guidance from your freight forwarder or carrier, requesting that they get confirmation from their destination agent that the code you are being asked to use is at least probably the correct one.

You are in an industry which has many complexities. But you are not alone. Lean on your service-providers for their support, open yourself to learning, and commit to your profession.

The next 2-day course dealing with Export Exchange Control and VAT will be held on Tuesday 23rd and Wednesday the 24th of July, in Dowerglen, Gauteng. (more information)

The next 2-day course dealing with Commercial Terms and Incoterms 2020 will be held on Monday 19th and Tuesday 20th August, also in Dowerglen, Gauteng. (more information) (A version of this course is also offered online.)

If you have not already booked, then mail me if you are interested and note that I also offer inhouse workshops. [email protected] / [email protected]