The Valuation of Imported Merchandise

• Author: Heather K. Pinnock
• Pages: 67-88

CHAPTER 4

The Valuation of Imported

Merchandise

HEATHER K. PINNOCK1

H INTRODUCTION TO THE VALUATION OF IMPORTED

MERCHANDISE

Under U.S. Customs law, all merchandise imported into the United States must

be valued for customs purposes. The customs value of imported merchandise

determines the amount of ad valorem or compound duties that an importer may

owe to U.S. Customs and Border Protection (CBP). However, even if imported

merchandise has a “Free” rate of duty or its duty is determined on a per-unit

basis, the customs value of the merchandise is important for several other rea-

sons. First, under the Customs Modernization Act, importers are obligated to

use “reasonable care” to enter, classify, and value all merchandise imported into

the United States.2 Failure to comply with U.S. Customs laws and regulations,

including the requirement that all imports be correctly valued, may result in the

assessment of f inancial penalties against the importer. In addition, the calculation

of cer tain fees paid by importers, such as the Merchandise Processing Fee (MPF),

is based on the customs value of the goods they import.3 Finally, customs value

is a statistic collected by the U.S. government.

The valuation of imported merchandise, similar to classif ication pursuant to

the Harmonized Tariff Schedule of the United States (HTSUS), is undertaken

pursuant to an international agreement, the World Trade Organization (WTO)

Agreement on the Implementation of Article VII of the General Agreement on

Tariffs and Trade (994), commonly known as the Customs Valuation Agreement

(CVA), codified by the Trade Agreements Act of 979.4 The goal of the CVA is to

establish a degree of inter national uniformity in the valuation of imported mer-

chandise. With the implementation of the CVA into the domestic laws of each of

the 60 WTO member countries, importers and customs administrations around

the world are able to value importations using an essentially, but not perfectly,

uniform method.

U.S. valuation law, as based on the CVA, provides for merchandise to be

appraised according to one of six methods: () the transaction value of imported

merchandise; (2) the transaction value of identical merchandise; (3) the transac-

tion value of similar merchandise; (4) deductive value; (5) computed value; or

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68 CHAPTER 4

(6) any of the previous methods “reasonably adjusted to the extent necessary to

arrive at a value,” commonly known as the “fallback” method.5 The methods are

hierarchical, which means that they must be applied sequentially until a customs

value is determined. Accordingly, an importer must first attempt to value mer-

chandise using transaction value and, if merchandise can be valued using that

method, another method of valuation cannot be used. However, if transaction

value is not applicable because, for example, the importer does not have all the

information needed for that method, the importer must use the next applicable

method in the hierarchy to determine a customs value. The only exception to

the requirement of the sequential application of valuation methods is that an

importer may choose to use the computed value method before using the deduc-

tive value method, provided that the importer is unable to use any valuation

method that precedes the deductive and computed value methods in the hier-

archy.6 This choice must be made at the time that the entry summary is filed.7

H METHOD 1: TRANSACTION VALUE

The transaction value method is the first method of appraising imported mer-

chandise and is the method by which the vast majority of all goods imported

into the United States are appraised. While the transaction value method is not

without its complexities, it is, generally speaking, the easiest method to apply.

“Transaction value” is the “price actually paid or payable for imported mer-

chandise when sold for exportation to the United States,” plus amounts for certain

payments or assistance specified by law, usually referred to as “statutory addi-

tions” or as “dutiable additions” to the price paid or payable.8 The term “dutiable”

is often used even when referring to duty-free entries. The statutory additions to

the price actually paid or payable (PAPP or “price”) are () packing costs incurred

by the buyer; (2) selling commissions incurred by the buyer; (3) the value, appor-

tioned as appropriate, of any assist;9 (4) royalties and license fees related to the

imported merchandise that the buyer is required to pay, directly or indirectly, as

a condition of the sale;0 and (5) the proceeds of any subsequent resale, disposal,

or use that accrue, directly or indirectly, to the seller.

PRACTITIONER’S TIP: Transaction value is often thought of as just the invoice price, but

this oversimplifies the method. It begins with reference to a sale or invoice price, but may be

adjusted to include or exclude certain costs, such as a royalty payment (which may be added) or

international shipping (which may be deducted).

Price Actually Paid or Payable

The initial step in ascertaining the transaction value of imported merchandise

is determining the price actually paid or payable for the merchandise, which is

defined as:

[T]he total payment (whether direct or indirect, and exclusive of any costs,

charges, or expenses incurred for transportation, insurance, and related

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