Customs valuation is the process of determining the declared value of imported goods for customs purposes. When ad valorem duties (calculated as a percentage of value) apply, customs authorities use this valuation to assess the correct amount of import duty and taxes.
Customs valuation ensures fair trade practices and accurate tax collection. It prevents the use of arbitrary or manipulated values and aligns with global trade standards under the WTO Customs Valuation Agreement.
The foundation of modern customs valuation comes from Article VII of the GATT. It states that customs value must reflect the actual value of the imported goods or similar goods, not fictitious or domestic-based values. However, early valuation practices varied widely, leading to the establishment of the WTO Customs Valuation Agreement. It standardized procedures and set a hierarchical framework of six accepted methods.
When the transaction value is unavailable or not acceptable (e.g., due to pricing distortion), customs officials apply the following methods in order:
- Transaction value: The actual price paid or payable for the goods.
- Transaction value of identical goods: Based on the sale of identical products under similar conditions.
- Transaction value of similar goods: Based on the sale of goods with similar characteristics and functions.
- Deductive method: Based on the resale price of the goods in the importing country, minus costs and profits.
- Computed method: Based on the cost of production, materials, and profit in the country of origin.
- Fallback method: A reasonable customs value derived from available data when other methods are inapplicable.
