HS Traders must provide HS codes to Customs authorities when they want to import or export products into a country. This information is usually declared on the import declaration. These are legal documents and failure to declare the correct HS code to Customs can result in penalties or fines. In some extreme cases, Customs may also seize cargo. However, there is often confusion about who is supposed to provide the HS codes in the first place.
The reason for confusion is usually this:
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The Customs brokers are familiar with the process of HS classification. The importer or exporter is not. However, the responsibility of providing the correct HS code to Customs is that of the importer or exporter.
As a result, traders expect Customs brokers to determine the correct HS code for their products and are usually willing to pay fees for them to do so. However, brokers do not know or understand the product as well as the trader.
There are several solutions to this problem:
- The trader can upskill himself or herself and learn to do HS classification.
- The trader can hire a consultant to determine the HS codes for the product.
- The trader and the broker can work together to determine correct HS codes for the product
Since the liability arising from declaring wrong HS codes to Customs will fall on the trader, it is always recommended for the trader to learn the process of HS classification and validate those outcomes with a consultant. Depending on the broker to do HS classification is not usually a good idea due to a conflict of interest, that we describe below.
Customs brokers want to clear shipments as quickly as possible and may be tempted to declare HS codes with the least import/export restrictions as possible. They may also want to reduce administrative work so they may be tempted to declare HS codes that attract the least amount of import duties. Such practices will put the trader in a spot during post clearance audits, even if the decisions were made by the Customs broker. Of course, many honest Customs brokers exist who are able to advise classifications correctly. If you wish to depend on a Customs broker, you should at least conduct audits of their classification annually to manage risks.
A final note
HS classification and the determination of HS codes is a big and complicated topic. It can take individuals several years of experience and practice to gain competency in this area. Yet, it is a highly sensitive piece of information that needs to be correct when provided to Customs. Hence, any trader involved in cross border trader has to allocate the necessary resources to ensure compliance in this area. The good news, is that if the range of products traded does not change frequently, the trader will only have to thoroughly review his/her HS codes once every 5 years, as that is the frequency in which World Customs Organization publishes revisions to the HS nomenclature.