Valuation. A Potentially Complex Question for Which Few Answers May be Found

Knowing what I know now about the complexities of valuation, it struck me as odd that the US Customs booklet regarding value is only 20 pages – cover to cover. Substantively, we're talking only 10 pages (p. 7 to 16). Hmm...

Having directed many an intern to the publication, entitled “Customs Value,” while I recognize that it provides an (extremely) brief overview of valuation, which makes it fitting for an intern, its intended purpose of “clearly and completely informing” the trade community is lacking.

Fortunately, though not updated in over 5 years, Customs does have another publication from 2004 entitled the "Customs Valuation Encyclopedia."

Importers want to comply with Customs regulations and operate in an importing environment that is compliant with the government's mandates. Without clear information however, it is hard to imagine how the mandates of “informed compliance” and “shared responsibility” - two concepts that were put forth in the “Customs Modernization Act” (Pub. L. 103-182, 107 Stat. 2057) and regularly touted by Customs when its alleging negligence or some form of wrongdoing against a party – can be fulfilled when the information to the trade community on complex subjects like valuation is so out of date.

So what is valuation? Generally speaking, as I explained in an earlier post, when goods are imported to the U.S., certain information must be provided to Customs regarding the type of import, its quantity, price, etc., in order to be “entered.” Goods are classified according to type and have a corresponding rate of duty, which is applied across the quantity of the import, rendering what is known as an “appraised value,” and payment is made in this amount to Customs.

All imports are subject to appraisement, the rules for which are codified at 19 USC §1401a, et seq.

The Act sets forth six different methods of appraisement, and their order of preference. Under the Act, the preferred method of appraisement is “transaction value.” Generally, the appraised value of all merchandise imported into the United States is the transaction value of the goods. In the event the merchandise cannot be appraised on the basis of transaction value, the secondary bases are considered in the following order :

- Transaction Value of Identical Merchandise
- Transaction Value of Similar Merchandise
- Deductive Value
- Computed Value
- Values if Other Values Cannot be Determined

Under 19 USC 1401a(b)(1), transaction value is “the price actually paid or payable for the merchandise when sold for exportation to the United States, plus amounts equal to:
A. The packing costs incurred by the buyer.
B. Any selling commission incurred by the buyer.
C. The value, apportioned as appropriate, of any assist.
D. Any royalty or license fee that the buyer is required to pay, directly or indirectly, as a condition of the sale.
E. The proceeds of any subsequent resale, disposal, or use of the imported merchandise that accrue, directly or indirectly, to the seller.

Keep in mind that the factors listed in points A – D are only added when it is not already included in the price and where the amounts can be accurately established.

While the statute appears at first glance to be straightforward, there are applications of this objective definition arising from variations on business transactions which lead to subjective determinations by Customs, which applies its own interpretation of the statutes based on its own regulations found in Chapter 19 of the Code of Federal Regulations Part 152, entitled Classification and Appraisement of Merchandise, and specifically regarding valuation in Subpart E of Part 152 at 19 CFR Part 152.100 to 152.108.

Not only that, but where the parties are related, greater scrutiny (and subjectivity) on the part of Customs is applied in order to “ensure” that the transaction between the parties was an arm's length one, for which the price was unaffected. That is, transaction value may be used as the preferred method of appraisement for related party transactions where it can be shown that the relationship did not influence the price.

To determine this, an examination of whether the transaction between related parties meets either a “circumstances of the sale” or “test values” test must be undertaken. More information on related party pricing can be found in Customs informed compliance publication entitled, “Determining the Acceptability of Transaction Value for Related Party Transactions.”

Aside from being related, other complex questions come up where transaction value is not available for use as an appraisal method, and one of the subsequent bases is used.

What makes merchandise “identical?” Does it have to be exactly identical?

What is “similar” merchandise? How similar is "similar" anyway?

The answer to these questions is often times subjective for which an importer's determination differs from that of Customs. This can raise minor to significant problems for an importer.

Ever have a question raised about the declared value or method of appraisal of your imports? Unsure how to appraise your merchandise?

Questions/comments? Feel free to email me at clark.deanna@gmail.com

Retention of Export Information by a USPPI in a Routed Shipment

In a “routed shipment” the “authorized agent” is not required to give the U.S. Principal Party in Interest (USPPI) the export data. This data was formerly collected in a Shipper's Export Declaration (SED) and is now mandated to be filed through the Automated Export System (AES) or AESDirect. This raised the question of which records must be retained by a USPPI in a routed shipment.

A routed shipment occurs when there is a foreign buyer that makes a purchase from a domestic seller here in the U.S. Rather than have the domestic seller arrange for the transport of the goods to the foreign destination, the foreign buyer (aka, the "Foreign Principal Party in Interest" (FPPI)) finds its own U.S. agent to assist it with the export.

For this type of transaction, the FPPI authorizes a U.S. agent (Authorized Agent) to facilitate the export of items from the U.S. and prepare and file electronic export information (EEI). This electronic export data is filed in AES.

For a routed shipment, the USPPI must retain documentation to support the information provided to the Authoized Agent for preparing the EEI, and provide the agent with certain information to assist in preparing the EEI. This information includes:

(i) Name and address of the USPPI
(ii) USPPI's EIN or DUNS
(iii) State of origin (State)
(iv) FTZ if applicable
(v) Commercial description of commodities
(vi) Origin of goods indicator: Domestic (D) or Foreign (F)
(vii) Schedule B or HTSUSA, Classification Commodity Code
(viii) Quantities/units of measure
(ix) Value
(x) Export Control Classification Number (ECCN) or sufficient technical information to determine the ECCN
(xi) All licensing information necessary to file the EEI for commodities where the Department of State, the Department of Commerce, or other U.S. government agency issues a license for the commodities being exported, or the merchandise is being exported under a license exemption or license exception.
(xii) Any information that it knows will affect the determination of license authorization

The Authorized Agent in a Routed Transaction is responsible for filing the EEI accurately and timely and must retain the documentation to support the EEI reported through AES which includes the following data elements:

(i) Date of export.
(ii) Transportation Reference Number.
(iii) Ultimate consignee. (vii) Country of ultimate destination.
(viii) Method of transportation.
(ix) Carrier identification and conveyance name.
(x) Port of export.
(xi) Foreign port of unloading.
(xii) Shipping weight.
(xiii) ECCN.
(xiv) License or license exemption information.


These regulations provide that upon request, the Authorized Agent shall provide the USPPI with the data elements above.  The reality however, is that even upon repeated request, this information may never be received by the USPPI.

Therefore, under the regulations the USPPI may request a copy of the electronic record or submission from the U.S. Census Bureau. Keep in mind however, that the Census Bureau's retention and maintenance of AES records does not relieve filers from requirements.

Regarding records retention, a USPPI must retain documentation to support the information provided to the authorized agent for filing the EEI when it has authorized an agent to file the EEI on its behalf.

Questions or comments? Feel free to email me at clark.deanna@gmail.com

Made in Taiwan? Turns Out Taiwan is a Hub of Bicycle Manufacturing

The most fascinating conversation I've had regarding international trade so far was with my flight companion who landed himself two seats away from me (literally). As there was no escaping me, we chatted throughout our long haul flight during which time he explained why he was en route to Taiwan. It turns out that Taiwan is a major player in bicycle manufacturing and he's a big wig at a high end bike company (prices range from the $400s to nearly $14K – yowzers!)

As he's done for a number of years, each Fall he travels to a town about an hour away from Taipei for two weeks – every two weeks – in order to sort out the logistics in terms of bicycle production planning. These meetings occur in the Fall because bicycles are a “recreation business” and therefore, planning needs to be finalized this time of year so that the new model can hit the stores right before the peak sales period which is during the summer months.

I wanted to know more about how decisions were made with respect to sales forecasts and price determinations. He explained to me the following.

The forecast is largely based on:

1)The sales history of a comparable prior product
2)The results from a poll of the sales force (via questionnaire), and
3)New features in relation to a proposed price, which is likewise analyzed with the sales force for their input on what can be sold (quantity-wise) and at what price point.

In determining a price, fact based costs are considered, such as raw materials, quotes from assemblers, and the rate of duty (which, though unverified by me, is apparently determined by characteristics of the wheels/tires interestingly enough.) Also considered is the profit margin in relation to the competition.

His tasks in Taiwan therefore, some of them anyway, are to identify material vendors, negotiate component prices with suppliers, and negotiate figures on the labor costs for assembling these parts.

Based on all of the above, the company will place 60 to 70% of its forecasted sales in its first purchase order. Thereafter, based on sales and "sales run" numbers, a decision will be made as to whether or not more will be ordered.

It is not often that I hear about production planning or sourcing though I would enjoy hearing more stories about it. Got a story for me? Post a comment below or email me at clark.deanna@gmail.com.

Business or Pleasure? The Combination Found in Asia

Traveling to Asia has definitely not been my run of the mill journey to say, a European country. Rather than more vacationers or students, the Americans I've run into are here for business like myself.

Take the gentlemen I met yesterday upon returning from a day trip to Macau (pleasure). They're here to find sources to manufacture a “tape gun” in China (business) and will be visiting factories over the next few days which have been found by their agent, Patrick.

I had the opportunity to pick Patrick's brain about buying agents and sourcing, as he took me on the Hong Kong subway back to the vicinity of my hotel (I sort of got lost). His company sources a range of products from hangers to machine components to well, tape gun parts. Whatever the client is seeking, he attempts to connect them with a supplier.

As an aside, having told them what I did for a living, one of the guys asked me about the use of the word "gun" in the name with respect to border issues. I suggested he consider using a different word and talk it over with his marketing department to determine other salesworthy names for the product. I explained that US Customs has been hiring new people (translation: inexperienced) and that anything that can be done to avoid having their shipment flagged would make their importations enter more smoothly.

Coming back to my discussion with Patrick, though short, I found it to be a pretty interesting conversation. Connecting foreign vendors of goods with manufacturing sources in China is a much bigger business than I'd imagined. It's huge! I also was under the impression that sourcing companies focused on a particular industry, such as apparel, so it was interesting to hear from someone in the business that it isn't necessarily limited to a narrow scope.

So how do we got the point where a company that creates a product is actually looking for suppliers to build it? Check out my next post that discusses production planning.

Questions/comments? Post below or email me at clark.deanna@gmail.com