Commodity codes chosen in China could impact your profits

Liam Cai is the founder of Supplymo and runs sourcing and pre-payment checks out of Yiwu, China, through United Profit Import and Export Co. , Ltd.

Six years sourcing out of Yiwu, after five years building software, today Liam discusses commodity codes and why the code your Chinese supplier gives you might not be the one you need to use and could result in unexpected customs duties down the road: I’m at the China end of this.

In Yiwu I watch export declarations get filled in, and the commodity code that goes on that form is picked by whoever is doing the paperwork that morning. It has to be defensible to Chinese customs. It does not have to match what your own customs authority would call the same goods. That number then travels. It gets copied onto the commercial invoice.

From there your forwarder lifts it into the customs entry, unchanged, because nobody downstream has a reason to question a code that arrived on an official form. By the time the goods clear it is sitting in your own records looking like somebody qualified chose it. Nobody did. For years this only cost you at the first border and only on bulk. Not any more.

De minimis thresholds are on the way out. Parcels that used to slip through in ones and twos arrive now as consignments. The name on that entry is yours. That makes you the importer of record. Classification is no longer background paperwork. Get it wrong and the bill is yours, not your supplier’s. The code follows the goods when you resell across a border.

Say your stock cleared into the UK. Four months later a pallet of it goes to a buyer in Ireland. Or your inventory moves into a US fulfilment centre. Either way that is a fresh import, into a tariff schedule that is not the one you cleared under. In practice somebody opens the original file.

There is a ten digit number sitting there on an official looking document. It gets reused. The catch is that only part of the number is international. Those first six are the same everywhere. Digit seven onward belongs to whichever country the goods are entering, and the rate lives down there.

So the UK can split a heading where the US schedule does not split at all. The same box can therefore be two different tariff lines depending on which way it is travelling. That pallet going to Ireland gets read against the EU’s TARIC, not against the tariff you cleared under. It will still look right to you either way.

A ten digit number off a real customs document is a hard thing to argue with. A wrong classification usually is not stopped at the border. It surfaces later, in a post clearance check, and the authority can reopen entries from months back. By then your stock is sold.

The price you sold it at was built on the old number, and you cannot reprice something that shipped last quarter. So the bill arrives against inventory that no longer exists. Nobody upstream will take it back either. Your supplier’s obligation ended the day the container left. The products that get bitten are the ones that could sit in two places.

Anything sold as a kit. A phone stand that ships with a cable is one SKU to you and possibly two headings to a customs officer, and the test for which component gives the set its essential character is applied differently in different places. Anything with a lithium cell in it.

Whether the battery is the product or an accessory to the product moves the heading, and it drags a separate pile of transport rules along with it. Anything where the rate turns on material mix. If the duty depends on the dominant fibre or the dominant metal, you need the actual composition, not the supplier’s product title.

Get the code in writing before the purchase order goes out. Then go and look it up yourself, in the tariff of the country the goods are actually entering, and read what the description says. Does it describe the object in front of you? If it does not, you have found the problem while it is still free to fix.

Our landed cost calculator will show you what a code change does to the number, though the official tariff is the authority here and the calculator is not. When stock crosses a second border, classify it again from the goods rather than from the file. Pull the spec.

Material and function are what decide the heading, plus how the thing is packaged for retail sale. The old paperwork only records a decision somebody else made, in another country, for a purpose that was not yours. None of this means your supplier is doing anything wrong.

A Chinese export declaration is a Chinese document, filled in to satisfy Chinese customs on the day the container leaves. It was never a duty forecast for your market. It just happens to be the only number in the file, so it becomes one.