Classification and Appraisement in International Shipping

Classification and Valuation in international shipping built around GATT (General Agreement on Tariff and Trade. USA joined GATT in 1979. Customs Simplification Act.)

Group of authorities met to develop a uniform standard of evaluation of international shipping gods. Now the meet every year to keep it updated. It set standards around the world of what is value of pieces of internationally shipping merchandise. Most of industrial countries around the world now use GATT.

VALUATION IS BASED ON THE FAIR MARKET VALUE AT A TIME OF IMPORT. Everything has a value, states in the Tariff Act of 1940 (section 4). Customs does not except noncommercial value and no value of international shipments declared.

CUSTOMS VALUE SHOULD BE BASED ON UPON THE "ACTUAL VALUE" of the internationally shipping imported merchandise and NOT on the value of the products in the country of origin. The "ACTUAL VALUE" of internationally shipping goods was defined as the price at which, at a specific time and place, in the ordinary course of trade, imported merchandise or similar goods are sold or offered for sale under fully competitive conditions.

In international shipping customs value is NOT always equal to invoice value.

Customs has rights to appraise internationally shipping goods and asses the value.
(Examples: 1. Invoice says that a piece of jewelry costs $100. However Customs can disagree with the invoice and value an asses the invoice as $10,00; or 2. RELATED. Company ABC in France sells goods to XYZ in the USA for special price. In this event the invoice value is NOT a NET value for customs; etc)

CUSTOMS VALUE IS A NET ENTERED VALUE. THAT VALUE IS THE VALUE THAT WILL BE USED TO DETERMINE DUTY.

 

VALUATION IS BASED ON UPON COUNTRY OF EXPORT AND DATE OF EXPORT. The first thing Custom Broker has to do is DETERMINE A COUNTRY OF EXPORT AND DATE OF EXPORT.

Important: If the ship left a port on Saturday, even though the DATE OF EXPORTATION is considered Saturday, however the RATE OF EXCHANGE will be the last business day that happened before the date of export.

Example that valuation is based on the country of export: If internationally shipping good had been made in France, after that resold to Germany, after that resold in Japan and after all exporting to the USA, the valuation will be based ON JAPAN! France, Germany etc are not considered.

International Insurance and Freight are NOT a part of value. It should be deducted. When CB use NDC or AMMV he appraises the shipment for Customs Duty purposes. The purpose of this that: ALL IMPORTERS PAY THE SAME DUTY ON THE SAME COMMODITY.

 

APPRAISEMENT:

All products contain:

  1. Materials
  2. Labor
  3. Overhead
  4. GNA - General Administration (office, sales, advertisement etc.)
  5. Packing
  6. Profit etc...

...If any of this are missing then you must add it to invoice to get your appraise value!

Appraisement methods:

In international shipping appraisement is specific defined sequence the customs uses for appraising internationally shipping merchandise. First you have NET entered value (transaction value), what customs base the duty on.

1. INVOICE VALUE: Sometimes the INVOICE VALUE can actually be an invoice.
Example: A clear invoice for goods, which had been bought EX Warehouse.

2. TRANSACTION VALUE: The Customs value of most merchandise imported into the United States will be the TRANSACTION VALUE. I.e. you have an invoice, but other things have to be added or subtracted to the invoice for international shipment. It is called TRANSACTION VALUE.

3. TRANSACTION VALUE OF IDENTICAL MERCHANDISE: The same kind and class FROM THE SAME COUNTRY. It must be from the same country!

4. NET ENTERED VALUE FOR THE SIMILAR MERCHANDISE: It must be from the same country COMMERCIAL INTERCHANGEABLE.

5. DEDUCTIVE VALUE METHOD: In international shipping the selling price in the USA; and after that deduct all the cost associated to that items that happened AFTER the goods arrived into the USA. I.e. duty, trucking, warehousing, clearness at the port, profit, advertisement etc.

6. COMPUTED VALUE METHOD: Combine all the methods above, put it all together and provide it all accrued BEFORE the goods arrived into the USA.

7. If any from above are failed then use ANY REASONABLE METHOD to calculate the NET value.

 

TRANSACTION VALUE OF MERCHANDISE

In international shipping you have an invoice, but other things have to be added or subtracted to the invoice.

  1. Customs Value = NET Entered Value = Appraised value (All the same things).
    ALL OF THOSE DEPENDING AND STARTING WITH AN INVOICE.
  2. Then you will ADD certain items to it, if those items are not already added to the invoice.
  3. After that SUBTRACT certain items from the invoice, it it is not subtracted already.

Use those acronyms for easy to remember:

*** ADDING ***

S - Selling Commission giving to a selling agent, if not included in invoice already
C
R - Royalty (or License Fee) paid to 3rd party outside of the USA. I.e. for trade marks, logos etc.
Very important: to 3rd party OUTSIDE THE USA. If you have to pay to a U.S. 3rd party (Mickey Mouse for example) after the goods arrived in the USA, then IT IS NOT a Royalty.
A - Assist. Most complicated. The explanation is below.
P - Packing. Non U.S.
Very important: Non U.S. packing. I.e. is crates, boxes etc are made in the USA, then it is NOT dutiable. Dutiable FOREIGN packing only.
P - Proceeds of subsequent sale.
Example: If you pay .75c for goods, but an agreement says that after you sold it you must to pay to the seller additional .25c, then duty must be calculated on $1.00.

*** SUBTRACTING ***

B - Buyer commissions. However it must be a contract.
I - International Insurance and Freight.
Very important: Freight, which included in through bill of lading. I.e. including inland etc freight in foreign country.
D - Discounts.
For example: Quantity discounts or if you pay within certain amount of days.

Once again: Most important! It can be deducted if it is included in a commercial invoice. If it is not, then it cannot be deducted, since it is a part of appraised value.

Finally, you as U.S. Customs Broker must sit and look at the commercial invoice and physically write that must be added and can be deducted.

ASSIST:

In order to be an assist it must be 3 things:

  1. Has to be a value. If no value then it is no assist;
  2. Must be free or at e reduced price;
  3. Must be used to make or in making articles.

(1) Has to be a value:
The idea is that you have to add the value. I you not supply it the seller go somewhere and buy it.

(2) Must be free or at e reduced price:
Example: A company in France assembles dolls for you and you send them hair to attach to the dolls.
Because you give it them for free or at reduced price the dolls (product) will cost you less.

(3) Must be used to make or in making articles:
Example: You supply a machine to make goods. Either it can be:
- Materials to make goods;
- Parts (airplane or PC parts, etc);
- Moulds, machinery, tools, tests, equipment etc;
- Items to make the production. Example: You supply rubber gloves, which must be used to make a product. Then it is assist.
- Engineering and design working employees.
* Engineering - If it is not a public domain, i.e. you have exclusive rights for the engineering; then it is assist. You must have exclusive rights;
* Engineering - If it is U.S. origin, then it is NOT an assist;
* Employees - If you supply employees to make products it depends on what the employee does.
~ if it is U.S. Resident, then NOT an assist.
~ if you hired a foreign resident, then it depends on what type on work he does:
a. if quality control, then NOT an assist.
b. if it is a management or supervision to make those product, the it IS assist.

Assists can be:

  1. DUTY FREE AS RETURNED TO THE USA.
    Example: An assist had been physically made in USA and sent aboard and then returned. It is considers as American goods return.
  2. DUTIABLE.
    If get outside of the USA.
    Example of paying duty THREE times:
    1st duty - Bought a mashie aboard and bring to the U.S.
    2nd duty - Send it aboard and use for assembling goods. Pay duty on assist.
    3rd duty - Bring it back to the USA and pay duty, since it is foreign made mashine.

What is the value of assists?
- If it made or purchased to make value, then the cost is the value;
- If it leased, then the leas is the value;
- If it is used and depreciated, then the rest of depreciated value is the value. It can be "0".
NOTE: All transportation costs, foreign and domestic must be included in the value of assist.

Methods of paying duty on assists:

  1. You may pay 100% duty upfront with the first shipment of goods. Thereafter you do not have to worry about paying duty on assist.
  2. You pay a part of duty on value of the assist with every single shipment until it is paid in full.
  3. You can depreciate and predict and pay duty before the shipment arrives into the USA.

VERY IMPORTANT: How do you value assists for duty purpose?
- ASSIST IS VALUE AT A PRODUCT IT PRODUCED.
Example: You imported into the USA a machine of value $10,000. Then you pay 5% duty on import of the mashie.
However, if you send it aboard to produce products, then it becomes a part of the product and you must pay, let's say 15% on the product.

Finally: Why assists are so important?
- Customs values assists as a part of the product that ultimately sent to U.S. and dutiable at that rate.

 

WHEN TRANSACTION VALUE CANNOT BE USED?

  1. Restrictions on sale in international shipping. Except geographic. Especially automobiles;
  2. Purchased on consignment;
  3. Barter;
  4. God will. Means pricing is considering on something will sold or bought;
  5. Related (covered in 152.101):
    - Family. Father/son/brothers etc.
    - Employee/employer.
    - Officers of the same corporation.
    - Partnership.
    - Stocks related companies (customs considers if it is 5% of stocks. Exemption for NAFTA countries - 25%)
    - Controlling interest. I.e. if one company owns 51% of other company, which buys and sells to each other, then it is related.
    HOWEVER, IF YOU CAN PROOF THAT RELATION DOES NOT AFFECT ON PRICE, THEN YOU CAN USE TRANSACTION VALUE. Example: you can proof that you sell goods to related company for exactly the same price as to non-related.

 

TRANSACTION VALUE OF IDENTICAL or SIMILAR MERCHANDISE

GENERAL RULE (TEST QUESTION) - ALWAYS USE PRICE FOR HIGHEST QUANTITY.

 

DEDUCTIVE VALUE

deduct all the cost associated to that items that happened AFTER the goods arrived into the USA.

Example of Deductive Value calculation:

RETAIL PRICE IN THE U.S.A. $10.00
Deductions as following:  
Duty .15
G/A .50
Profit .50
Transport .03
Packing .01
Labor .01
TOTAL DEDUCTIONS: $2.28
Then DUTIABLE RATE is: $7.72

You can deduct assist in this method as well.

CUSTOMS REQUIREMENTS FOR THE DEDUCTIVE VALUE METHOD: It must be sold in 90 days from the importation. The reason is Customs needs to know what the value for duty purpose of products is quickly.

 

COMPUTED VALUE

Combine all the methods above, put it all together and provide it all accrued BEFORE the goods arrived into the USA.

Materials $2.00
Labor .60
G/A .20
Profit .50
Taxes .04
Assist .51
Packing .12
TOTAL COMPUTED VALUE: $3.97

International Freight and Insurance are DUTY FREE.

DUTY ON INTEREST:
- It is dutiable if charged by seller.
- If interest is charged by a bank THEN IT IS DUTY FREE.

Anything that is done AFTER goods arrived into the USA in NOT DUTIABLE!
That may include: Assembly, testing, transport, storage etc.

REBATE is NOT deductible (Example: Seller says: I give you a rebate if you sell the goods)

 

Terms (Acronyms):

G.R.I. - General Rules for Interpretation

G.N. - General Notes.

G.S.N. - General Statistical Notes

Read G.N. #12 concerning NAFTA

 
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