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against a party – can be fulfilled when the information to the trade community on complex subjects like valuation is so out of date.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