Customs Valuation

The primary method is the transaction value: the price actually paid or payable for the goods when sold for export to the country of importation, adjusted as the rules provide. It is preferred because it is the real price of the real goods, evidenced by the commercial documents the parties created for their own purposes.

It is not available unconditionally. The framework sets out conditions that must be satisfied — broadly, that there are no restrictions on the buyer’s disposition of the goods beyond those the rules permit, that the sale is not subject to conditions whose value cannot be determined, that no part of the proceeds of resale accrues to the seller unless it can be adjusted for, and that the buyer and seller are not related in a way that influenced the price. Where a condition fails, the method fails with it, and the sequence moves on.

The price on the invoice is rarely the customs value without more, because the framework specifies elements that must be added where they are not already included and are quantifiable on objective data. The categories are defined, and an administration cannot invent additions outside them.

• Certain commissions and brokerage incurred by the buyer, with buying commissions treated differently
• The cost of containers and of packing, where treated as part of the goods
• Goods and services supplied by the buyer for use in producing the imported goods, apportioned as the rules provide
• Royalties and licence fees related to the goods, where they are a condition of the sale
• Any part of the proceeds of a subsequent resale that accrues to the seller

Transport and insurance are a separate matter, and one that catches people out. Whether the customs value includes the cost of getting the goods to the importing country is a choice the framework leaves to national law, and jurisdictions differ. Two countries applying the same agreement to the same consignment can therefore reach different customs values, entirely legitimately, because one includes freight and insurance in the base and the other does not. This is also why the delivery term a contract names does not determine the customs value: the term allocates who pays for carriage, while the valuation rules decide whether that carriage is in the base.

Where transaction value cannot be used, the framework provides alternatives in a fixed order. The order is not advisory: each method is reached only when the one before it cannot be applied, which is what prevents an administration from selecting whichever basis yields the most duty.

1. Transaction value of identical goods — the value already accepted for identical goods sold for export to the same country at about the same time
2. Transaction value of similar goods — the same idea, applied to goods that are closely similar rather than identical
3. Deductive value — derived from the price at which the goods are sold in the importing country, with defined deductions working backwards to a border value
4. Computed value — built up from the cost of materials and production, plus profit and general expenses
5. Fall-back method — a value determined by reasonable means consistent with the principles of the framework, using data available in the importing country, and subject to specific prohibitions

The order of the deductive and computed methods can be reversed at the importer’s request in the circumstances the framework provides. The fall-back method is a residual: it permits flexibility in applying the earlier methods but does not license the administration to use bases the framework rules out — arbitrary or fictitious values, minimum values, the selling price in the exporting country, or the price of goods in the exporting country’s domestic market.

Two features of commodity trade make valuation less mechanical than it appears. Prices move sharply and are frequently agreed by reference to something other than a flat figure, and cargoes are commonly sold and resold before they arrive.

• A price fixed against a futures market or an index, rather than stated as a number, still has to yield a determinable value at the relevant moment
• Quality adjustments settled after arrival — on protein, moisture, oil content, or defects — mean the final price may not be known when the goods are declared
• A cargo sold more than once in transit presents the question of which sale is the sale for export to the importing country
• Where a duty has a specific element, valuation is not the operative question at all: measured quantity is, on the basis the tariff specifies

Where the value is not final at the time of declaration, administrations generally have a mechanism for provisional or incomplete declaration with later adjustment. Whether one is available, on what conditions, and with what security is a matter for the jurisdiction concerned. The point to hold onto is that the difficulty is recognised and procedural, not a reason to guess.