Customs Valuation and Duty Calculation
The six methods
Valuation follows a strict sequence under the WTO Valuation Agreement: transaction value, then transaction value of identical goods, similar goods, deductive value, computed value, and fallback. Transaction value requires a bona fide sale for export, and adjustments are made for assists, royalties and license fees related to the imported goods, selling commissions, packing, and proceeds of resale, while international freight and post-importation costs are generally excluded from customs value in many jurisdictions.
Concepts to master
Related-party transactions are acceptable only if the relationship did not influence the price. Assists include materials, tools, and engineering supplied free or at reduced cost. Know how to compute ad valorem duty, specific duty, and compound duty, and how to add merchandise processing or similar fees where applicable. Preferential origin claims can reduce or eliminate duty and require supporting documentation.
Traps
Adding international freight to customs value when the jurisdiction uses a free-on-board basis is a frequent error. Another trap: treating a buying commission as dutiable - buying commissions paid to an agent acting for the buyer are generally excluded, while selling commissions are included. Do not accept a related-party price without testing influence.
Rule of thumb
Build the value from the price actually paid or payable, then add only the statutory additions and subtract nothing unless the law allows it.
Worked example
Invoice price 10,000, plus a buyer-supplied mold worth 500 and a selling commission of 300, with freight of 800 excluded. Customs value is 10,800; at a 5 percent rate, duty is 540.