Classification and Appraisement in International Shipping

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

A Group of authorities met to develop a uniform evaluation standard of international shipping gods. Now, they meet every year to keep it updated. It sets standards worldwide for the value of pieces of internationally shipped merchandise. Most industrial countries around the world now use GATT.

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

CUSTOMS VALUE SHOULD BE BASED ON UPON THE "ACTUAL VALUE" of the international shipping of 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 the invoice value.

Customs have the right to appraise internationally shipping goods and assess their value.
(Examples: 1. Invoice says a piece of jewelry costs $100. However, Customs can disagree with the invoice and value and assess the invoice as $10,00; or 2. RELATED. Company ABC in France sells goods to XYZ in the USA for a 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 THE COUNTRY OF EXPORT AND DATE OF EXPORT. The first thing the Custom Broker has to do is DETERMINE A COUNTRY OF EXPORT AND DATE OF EXPORT.

• The currency is based on the date of export. I.e., the last day in the country of export.
  It is most important to determine the country of export. In international shipping, transshipments are not considered as a country of export.
• The rate of duty depends upon the country of origin.
• Valuation is based upon the (1) Country of Export and (2) Date of Export.

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

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

International Insurance and Freight are NOT a part of the value. It should be deducted. When CB uses NDC or AMMV, he appraises the shipment for Customs Duty purposes. This is because 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 is missing, add it to the invoice to get your appraised value!

Appraisement methods:

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

1. INVOICE VALUE: Sometimes, the INVOICE VALUE can be an invoice.
Example: A clear invoice for goods bought from 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 from 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 is in the USA; after that, deduct all the costs associated with the items that happened AFTER the goods arrive in 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 arrive in the USA.

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

TRANSACTION VALUE OF MERCHANDISE

You have an invoice for international shipping, but other things must be added or subtracted from the invoice.

1. Customs Value = NET Entered Value = Appraised value (All the same things).
   ALL OF THOSE DEPEND ON AND START WITH AN INVOICE.
2. Then, you will ADD certain items to it if they have not already been added to the invoice.
3. After that, SUBTRACT certain items from the invoice that have not been subtracted already.

Use those acronyms for easy remembering:

• For adding: SCRAPP
• For subtraction: BID

*** ADDING ***

*** SUBTRACTING ***

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

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

ASSIST:

To be an assistant, it must be 3 things:

1. It has to be a value. If there is no value, then it is no assist;
2. Must be free or at a reduced price;
3. It must be used to make or in making articles.

(1) Has to be a value:
The idea is that you have to add value. If you do not supply it, the seller buys it somewhere.

(2) Must be free or at a 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 to them for free or at a 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 produce 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 create a product. Then, it is assisting.
- 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 assisting. 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 a U.S. Resident, then NOT an assist.
~ if you hired a foreign resident, then it depends on what type of work he does:
a. If it is quality control, then it is NOT an assist.
b. if it is a management or supervision to make those products, then it IS assist.

Assists can be:

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

What is the value of assists?
- If it is made or purchased to make value, then the cost is the value;
- If it is 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 the assistance.

Methods of paying duty on assists:

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

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

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

WHEN TRANSACTION VALUE CAN NOT BE USED?

1. Restrictions on sale in international shipping. Except geographic. Especially automobiles;
2. Purchased on consignment;
3. Barter;
4. God will. This means pricing is considering something will be 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 consider if it is 5% of stocks. Exemption for NAFTA countries - 25%)
   - Controlling interest. For example, if one company owns 51% of another, which buys and sells to each other, it is related.
   HOWEVER, IF YOU CAN PROVE THAT THE RELATION DOES NOT AFFECT PRICE, THEN YOU CAN USE TRANSACTION VALUE. Example: you can prove that you sell goods to a related company for precisely the same price as a non-related.

TRANSACTION VALUE OF IDENTICAL or SIMILAR MERCHANDISE

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

• When unequal quantity comparisons, use the HIGHEST AGGREGATE (Quantity) value.
• When amounts compared are equal, USE LOWEST VALUE.

DEDUCTIVE VALUE

deduct all the costs associated with that item after the goods arrive in the USA.

Example of Deductive Value calculation:

You can deduct assistance in this method as well.

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

COMPUTED VALUE

Combine all the methods above, put them all together, and provide it all accrued BEFORE the goods arrive in the USA.

International Freight and Insurance are DUTY-FREE.

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

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

REBATE is NOT deductible (Example: Seller says: I give you a refund 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