An outline of the main methods in place for customs valuation, using an approach adopted globally.
Alongside identifying the origin of goods and the assigned tariff, establishing a correct customs valuation is a primary requirement for international trade. To meet legal needs and confirm costs for those involved.
Value is an ambiguous concept, from person to person, or place to place. To bring consistency, customs value is defined according to a set of rules laid down in the World Trade Organisation (WTO) Valuation Agreement.
The Marrakesh Agreement
Signed by 123 countries in 1994, the WTO treaty is also known as the Marrakesh Agreement. This provides a hierarchy of methods for valuation, to establish the amount of duties and taxes payable:
1. Transaction Price – The actual price of goods is a core principle of valuation and applies in the majority of cases.
2. Identical Goods Price – For a repeat transaction, where the goods are the same and move between the same countries.
3. Similar Goods Price – Akin to identical goods with a little more leeway, where characteristics and purpose are the same.
4. Deductive Value – Where the goods are not deemed identical, or similar, a unit price is aggregated from closely matched sales.
5. Computed Method – A rare method, where customs value is based on production cost, plus an amount for profit and expenses.
6. Fall Back Method – Valuation based on the principles of the agreement, where customs value can not be otherwise determined.
Customs value can also incorporate adjustments for commissions, brokerage, the cost of containers, or packing, royalties, or licence fees. The cost of international freight and insurance may be included, as happens in the UK and EU.
A Rational Approach
The Marrakesh Agreement created oversight bodies, for customs valuation rules and dispute settlement on valuation issues. They are however meant to consider matters at a national, or international level, rather than individual shipments.
The burden of proof in all cases lies with the importer, with customs officials able to challenge any valuation, or request further information. They must still explain their revaluation and are required to offer an appeals process.
Being rational in the approach to valuation should avoid any dispute. If resale proceeds are in part paid back to the seller, that is an aspect of value, neither is supplying goods of value free of charge a way around paying duty.
A WTO technical committee continues to look at improving the system but the core need is to follow the principle of fair value. If the Dynamic team can advise on any apsect of this, please get in touch at any time.
