Customs Valuation: Article VII and the Agreement
Chapter Forty-Eight
Syllabus topic 2, "Trade in Good"
Pages 206 to 211 of 533
In one line
Customs must value an imported good at the price actually paid for it, and may depart from that price only by working down a fixed list of alternatives in order.
In exam wording: Article VII of GATT 1994 and the Agreement on Implementation of Article VII, the Customs Valuation Agreement, require the customs value of imported goods to be the transaction value, that is the price actually paid or payable for the goods when sold for export, with five alternative methods to be applied in sequence where that value cannot be used.
Why valuation is a trade barrier
Because an ad valorem duty is a percentage of a number the customs authority chooses. A bound tariff of ten per cent is worthless if the authority may value the goods at twice their price. Valuation is therefore the point at which every tariff concession can be undone administratively, without any change to the Schedule.
And because the older practice invited it. Before the Tokyo Round code, many countries valued on notional or official price lists, or on the price of like goods in the domestic market, which gave officials a discretion that was arbitrary in principle and often corrupt in practice.
Article VII, the treaty foundation
Article VII:2(a) requires the value for customs purposes to be based on the actual value of the imported merchandise or of like merchandise, and not on the value of merchandise of national origin or on arbitrary or fictitious values.
Article VII:2(b) defines actual value as the price at which, at a time and place determined by the legislation of the importing country, such or like merchandise is sold or offered for sale in the ordinary course of trade under fully competitive conditions.
The six methods, in their order
The order is mandatory and it is the point of the Agreement, so an answer that lists the methods without saying they are sequential has missed it.
| Order | Method | Article |
|---|---|---|
| 1 | Transaction value: the price actually paid or payable for the goods when sold for export to the country of importation, adjusted under Article 8 | 1 |
| 2 | Transaction value of identical goods sold for export at or about the same time | 2 |
| 3 | Transaction value of similar goods | 3 |
| 4 | Deductive value: the unit price at which the goods or identical or similar goods are sold in the importing country in the greatest aggregate quantity, less commissions, transport, duties and other costs | 5 |
| 5 | Computed value: cost of materials and fabrication, plus profit and general expenses usual in sales of the same class, plus other costs | 6 |
| 6 | Fall-back: reasonable means consistent with the principles of the Agreement and Article VII, on data available in the importing country | 7 |
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