The Split-Shipment Valuation Puzzle
A US importer buys 10,000 units of a consumer electronic device from a Vietnamese manufacturer at $12.00 per unit FOB Ho Chi Minh City. The manufacturer separately invoices $8,000 for tooling that will remain in Vietnam and be used only for this buyer's product. The importer pays a Hong Kong trading agent a 5% buying commission on the FOB value. Freight to the US port is $14,000 and marine insurance is $2,500. The importer also pays a US-based customs broker $1,200 for entry filing. When the goods arrive, CBP questions the declared transaction value. The importer has no prior relationship with the manufacturer, and the goods are sold to unrelated US retailers at $29.00 per unit. The shipment is entered under a provision with a 3.5% ad valorem duty rate.
1. Identify which of the listed payments are included in the customs value and which are excluded, and explain the statutory basis for each decision.
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Start from transaction value under 19 U.S.C. 1401a(b), which is the price actually paid or payable plus specified statutory additions.
Included:
- Merchandise price: 10,000 × $12.00 = $120,000 FOB. This is the price actually paid or payable.
- Tooling ($8,000): This is an assist under 1401a(b)(1)(C). The buyer supplied, directly or indirectly, an item (tooling/dies) necessary for production of the imported merchandise, and it was consumed in production. Assists are added to the price actually paid or payable even though the tooling stays abroad. Include $8,000.
- Freight and insurance: Under 1401a(b)(1)(E), the cost of transporting the merchandise to the place of importation and related insurance is added. Include $14,000 + $2,500 = $16,500.
Excluded:
- Buying commission (5% × $120,000 = $6,000): A bona fide buying commission is excluded under 1401a(b)(1)(A) and the interpretative note. A buying commission is remuneration paid by the buyer to its own agent for representing the buyer abroad; it is not a selling commission. Exclude $6,000.
- US broker fee ($1,200): Post-importation service cost, not part of the price paid for the goods and not a statutory addition. Exclude.
Computed customs value: $120,000 + $8,000 + $16,500 = $144,500. The $29.00 resale price is irrelevant to transaction value because the parties are unrelated and transaction value is available.
2. CBP challenges the valuation. Explain the tests you would apply to defend transaction value, and what would happen to the analysis if the manufacturer and importer were related parties.
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Transaction value is the preferred method and is valid only if the transaction is a bona fide sale, the goods are sold for export to the US, and there are no restrictions on disposition, no conditions whose value cannot be determined, and no proceeds accruing to the seller. Here the parties are unrelated, so no related-party test is triggered. The defense is documentary: purchase order, commercial invoice, bill of lading, proof of payment, the tooling agreement showing the buyer owns or funded the tooling, and the agent agreement showing the 5% is a buying (not selling) commission. The resale price of $29.00 does not by itself invalidate transaction value when unrelated parties deal at arm's length.
If the parties were related, 1401a(b)(2) requires an examination of the circumstances of the sale to determine whether the relationship influenced the price. The importer could use the test values - transaction value of identical or similar merchandise, or the deductive/ computed value approach - to show the price is close to arm's-length values. The burden shifts to the importer to demonstrate that the relationship did not distort the price; otherwise CBP may reject transaction value and apply the fallback methods in order: identical, similar, deductive, computed, then flexible. Either way, the assist and freight additions are still made to whichever primary value is used.