Customs Valuation

DEFINITION
CUSTOMS VALUATION is a customs
procedure applied to determine the
customs value of imported goods. If
the rate of duty is ad valorem, the
customs value is essential to
determine the duty to be paid on an
imported good.

SPECIFIC and AD VALOREM

customs duties
SPECIFIC DUTY
A concrete sum is charged for a
quatitative description of the good.
Customs value of the good does not need
to be determined, as duty is not based on
the value of the good but on the other
criteria.

SPECIFIC and AD VALOREM

customs duties
AD VALOREM DUTY
depends on the value of a good
customs valuation is multiplied by an ad
valorem rate of duty in order to arrive at
the amount of duty payable on an
imported item

Short Historical Overview

Article

VII GATT

It stipulated that the value for

customs purposes of imported
merchandise should be based on the
actual value of the imported
merchandise on which duty is
assessed, or of like merchandise, and
should not be based on the value of
merchandise of national origin or on
arbitrary or fictitious values.

Short Historical Overview

Brussels

definition of value

1950s
Under this method, a normal market
price, defined as the price that a
good would fetch in an open market
between a buyer and seller
independent of each other, was
determined for each product,
according to which the duty was
assessed.

Short Historical Overview

Tokyo

Round Valuation Code -

1979
Based on the transaction value, it was
intended to provide a fair, uniform and
neutral system for the valuation of goods
for customs purposes, conforming to
commercial realities. This differs from the
notional value used in the Brussels
Definition of Value (BVD).
As a standalone agreement, the Tokyo
Round Valuation Code was signed by more
than 40 contracting parties

Short Historical Overview

The

new Agreement

The Tokyo Round Code was replaced by the WTO

Agreement on Implementation of Article VII of the
GATT 1994 following conclusion of the Uruguay
Round.
This Agreement is essentially the same as the Tokyo
Round Valuation Code and applies only to the
valuation of imported goods for the purpose of
levying ad valorem duties on such goods.
It does not contain obligations concerning valuation
for purposes of determining export duties or quota
administration based on the value of goods, nor does
it lay down conditions for the valuation of goods for
internal taxation or foreign exchange control.

Basic Principles: Transaction

Value
The

agreement stipulates that

customs value shall, except in
specified circumstances, be
based on the actual price of the
goods to be valued, which is
generally shown on the invoice.

6 Methods of Customs
Valuation
For

cases in which there is no

transaction values, or where the
transaction value is not
acceptable as the customs value
because the price has been
distorted as a result of certain
conditions.

Method 1: Transaction
Value
Price

actually paid or payable for

the goods when sold for export to
the country of importation, and
which shall be adjusted according
to Article 8.
Payments made as a condition of
sale of the imported goods by the
buyer to the seller or by the
buyer to a third party to satisfy
an obligation of the seller.

Method 1: Transaction
Value
CONDITIONS

TO BE FULFILLED:

Evidence of sale
There must be evidence of a sale for export
to the country of importation

No restriction on the disposition or use

Other than restrictions which:
Are imposed or requires by law in the country of
importation
Limit the geographic area in which the goods may
be resold
Do not substantially affect the value of the goods

Method 1: Transaction
Value
CONDITIONS TO BE FULFILLED

Not subject to additional conditions

The sale or price must not be subject to conditions
or considerations for which a value cannot be
determined with respect to the goods being
valued

Method 1: Transaction
Value
CONDITIONS

TO BE FULFILLED:

As provided in Article 8, the following shall be

added to the price actually paid or payable for
the imported goods:
The additions are grouped into five categories
(i) the following, to the extent that they are incurred
by the buyer and not included in the price actually
paid or payable;
a) commissions and brokerage, except buying commissions
b) the cost of containers which are treated as being one, for
customs purposes, with the goods in question.
c) the cost of packing, comprising the cost both of labour and
materials.

Method 1: Transaction
Value
CONDITIONS

TO BE FULFILLED

(ii) items sometimes known as assists may be

supplied, directly or indirectly and free or at a
reduced cost, by the buyer for use in the
production and sale of the goods.
(a) materials, components, parts and similar items
incorporated in the imported goods;
(b) tools, dies, moulds and similar items used in the
production of imported goods;
(c) materials consumed in the production of the imported
goods; and
(d) engineering, development, artwork, design work, and
plans and sketches (other than research and preliminary
design sketches) carried out elsewhere than in the
Community and necessary for the production of the
imported goods.

Method 1: Transaction
Value
CONDITIONS

TO BE FULFILLED

(iii) royalties and licence fees relating to the goods

being valued that the buyer must pay, either
directly or indirectly, as a condition of sale of the
goods being valued.
(iv) the value of any part of the proceeds of any
subsequent resale, disposal or use of the imported
goods that accrues, directly or indirectly to the
seller;
(v) (a) the cost of transport and insurance of the
imported goods; and (b) loading and handling
charges associated with the transport of the
imported goods to the place of introduction of the
goods into the customs territory of the Community.

Method 1: Transaction
Value
CONDITIONS

TO BE FULFILLED:

Buyer and Seller not related

The buyer and seller are not related, but
even if so, the use of the transaction
value is acceptable if the importer
demonstrates that:
the relationship did not influence the price, or
the transaction value closely approximates a
test value.

Method 1: Transaction
Value
CONDITIONS

TO BE FULFILLED:

Related Parties
they are officers or directors of one another's
businesses;
they are legally recognized partners in business;
they are employer and employee;
any person directly or indirectly owns, controls or
holds 5 per cent or more of the outstanding voting
stock or shares of both of them;
one of them directly or indirectly controls the
both of them are directly or indirectly controlled
by a third person; or
they are members of the same family.

Method 1: Transaction
Value
CASES

where customs
administrations have reasons to
doubt the truth or accuracy of the
declared value
Customs valuation based on the
transaction value method is largely
based on documentary input from
the importer
Customs may ask the importer to
provide further explanation that the
declared value represents the total

Method 1: Transaction
Value

X Company in Dayton, Ohio pays $2,000 to

Y's Toy Factory in Paris, France for a shipment
of toys. The $2,000 consists of $1,850 for the
toys and $150 for ocean freight and insurance.
Y's Toy Factory would have charged X
Company $2,200 for the toys; however, since
Y's Toy Factory owed X Company $350, Y's
Toy Factory only charged $1,850 for this
particular shipment of toys. Assuming the
transaction is acceptable, what is the
transaction value?

Method 1: Transaction
Value
The transaction value of the
imported
merchandise is $2,200, that is, the
sum of
the $1,850 plus the $350 indirect
payment.
Because the transaction value
excludes
C.I.F. [Cost Insurance Freight]
charges, the $150 ocean freight

Method 1: Transaction
Value
However, if a buyer performs an
activity on his own account, other
than those
listed in the foregoing A through E,
then the activity is not
considered an indirect
payment to the seller, and is not
part of the transaction value. This
applies even though
the buyer's activity might be

Method 2: Transaction value of

identical goods
Transaction

value is calculated in the same

manner on identical goods if the goods are:
The same in all respects including physical
characteristics, quality, and reputation
Produced in the same country as the goods being
valued
and produced by the producer of the goods being
valued.

For

this method to be used, the goods must be

sold for export to the same country of
importation as the goods being valued. The
goods must also be exported at or about the
same time as the goods being valued.

Method 2: Transaction value of

identical goods
EXCEPTIONS:

Where there are no identical goods

produced by the same person in the
country of production of the goods
being valued, identical goods produced
by a different person in the same
country may be taken in to account
Minor differences in appearance would
not preclude goods which otherwise
conform to the definitions from being
regarded as identical

Method 2: Transaction value of

identical goods
Identical refers to goods which are
identical n all respects to the goods
being valued, including the following
features:

Physical characteristics
Quality
Reputation in the market
Country of origin
Manufacturer

Method 2: Transaction value of

identical goods
EXAMPLE:

Sony TV Model KV-M2100 is not the same

as Sony KV-25R1R, since one of the main
parameters of consumer TV sets is the
size of the diagonal [from which mainly
the price depends]. The first model being
21 inch and the second 25 inch. A Sony
TV Model KV-M2100 is not the same as
Funai 2100 A MK8, although both are of
the same size because Sony and Funai
have unequal market reputation.

Method 3: Transaction value of

similar goods
Transaction

value is calculated in the same

manner on similar goods if:
Goods closely resembling the goods being valued
in terms of component materials and
characteristics
Goods which are capable of performing the same
functions and are commercially interchangeable
with the goods being valued
Goods which are produced in the same country as
and by the producer of the goods being valued.
Goods must be sold to the same country of
importation as the goods being valued. The goods
must be exported at or about the same time as the
goods being valued.

Method 3: Transaction value of

similar goods
Determination

Physical Characteristics
Materials from finished products
Function and Scope
Commercial Interchangeability

Method 3: Transaction value of

similar goods
EXAMPLE

Pepsi Cola and Coca Cola

Methods

2 and 3 are rarely used

because:
Defined by strict requirements for
their use
For the correct choice of compared
items and suitable adjustments to
the declarant and the customs
officer requires special knowledge of
the goods themselves
Must be continuously updated,
reliable, comprehensive price base