Customs Valuation Encyclopedia

U.S. Customs and Border Protection Valuation Encyclopedia (1980 ? 2015)

An Informed Compliance Publication June 2016

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NOTICE: This publication is intended to provide guidance and information to the trade community. It reflects the U.S. Customs & Border Protection (CBP) position on or interpretation of the applicable laws or regulations as of the date of publication, which is shown on the front cover. It does not in any way replace or supersede those laws or regulations. Only the latest official version of the laws or regulations is authoritative.

Publication History #0536-1616 First Issued: 1990

Revised: January 2001, January 2004, December 2010, May 2016

PRINTING NOTE: This publication was designed for electronic distribution via the CBP World Wide Web site (() and is being distributed in a variety of formats. It was originally set up in Microsoft Word 2003?. Pagination and margins in downloaded versions may vary depending upon which Word version or printer you use. If you wish to maintain the original settings, you may wish to download the .pdf version, which can then be printed using the freely available Adobe Acrobat Reader?

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PREFACE

On December 8, 1993, Title VI of the North American Free Trade Agreement Implementation Act (Pub. L. 103-182, 107 Stat. 2057), also known as the Customs Modernization or "Mod" Act, became effective. These provisions amended many sections of the Tariff Act of 1930 and related laws.

Two concepts that emerged from the Mod Act are "informed compliance" and "shared responsibility," which are premised on the idea that in order to maximize voluntary compliance with the laws and regulations of U.S. Customs and Border Protection, the trade community needs to be clearly and completely informed of its legal obligations. Accordingly, the Mod Act imposes a greater obligation on CBP to provide the public with improved information concerning the trade community's rights and responsibilities under CBP's regulations and related laws. In addition, both the trade and CBP share responsibility for carrying out these requirements. For example, under Section 484 of the Tariff Act as amended (19 U.S.C. ?1484), the importer of record (IOR) is responsible for using reasonable care to enter, classify and determine the value of imported merchandise and to provide any other information necessary to enable U.S. Customs and Border Protection to properly assess duties, collect accurate statistics, and determine whether other applicable legal requirements, if any, have been met. U.S. Customs and Border Protection is then responsible for fixing the final classification and value of the merchandise. An IOR's failure to exercise reasonable care could delay release of the merchandise and, in some cases, could result in the imposition of penalties.

The Office of Trade, Regulations and Rulings, has been given a major role in meeting the informed compliance responsibilities of U.S. Customs and Border Protection. In order to provide information to the public, CBP has issued a series of informed compliance publications, and videos, on new or revised requirements, regulations or procedures, and a variety of classification and valuation issues.

The Valuation and Special Programs Branch has prepared this Customs Valuation Encyclopedia (1980-2015) to assist the trade community. We hope that this publication, together with seminars and increased access to U.S. Customs and Border Protection rulings, will help the trade community to improve, as smoothly as possible, voluntary compliance with customs laws. The decisions in this summary are organized by subject and by date of issuance of the decision. In order to reduce the volume of the 2015 edition, excerpts have only been placed in the subject categories where they are most applicable and exact duplicate entries in various categories have been deleted, noting only a citation and location of the full excerpt. Additions from the previous edition are indicated in the color red. Most of the newer decisions (after 1989) are available in their entirety at the CBP website in the Customs Rulings Online Search System (CROSS) at the following link: . In the search box, type the decision number and the blue "W" symbol at the top of the decision if the entire decision is not displayed. Please note that over the years, decisions were given a six digit number, then they were preceded by the letter "W", and they are now preceded by the letter "H". It is important to use the exact letter and numbers in order to retrieve the decision in CROSS.

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The material in this publication is provided for general information purposes only. Because many complicated factors can be involved in customs issues, an importer may wish to obtain a ruling under CBP's Regulations, 19 CFR Part 177, or to obtain advice from an expert who specializes in customs matters, for example, a licensed customs broker, attorney or consultant. Reliance solely on the information in this publication may not be considered reasonable care.

Comments and suggestions are welcomed and should be addressed to the Executive Director, Regulations and Rulings, Office of Trade, U.S. Customs and Border Protection (CBP), 90 K Street, N.E., Washington, D.C. 20229.

Alice A. Kipel Executive Director, Regulations and Rulings Office of Trade

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TABLE OF ABBREVIATIONS

CCC CFR FTZ GAAP GATT GSP TAA TD U.S.C.

Customs Co-operation Council Code of Federal Regulations Foreign Trade Zone Generally Accepted Accounting Principles General Agreement on Tariffs and Trade General System of Preferences Trade Agreements Act Treasury Decision United States Code

Table of Contents

ASSISTS ....................................................................................................................................................................15

INTRODUCTION ........................................................................................................................................................ 15 APPORTIONMENT OF ASSISTS.................................................................................................................................20 ASSIST DEFINITION..................................................................................................................................................24 COMPONENTS WHICH ARE DESTROYED, SCRAPPED, OR LOST..............................................................................26 CONSUMED IN THE PRODUCTION ............................................................................................................................27 COSTS OF ACQUIRING ASSISTS ..............................................................................................................................28 DEPRECIATION OF ASSISTS ....................................................................................................................................30 DIRECTLY OR INDIRECTLY.......................................................................................................................................30 DRAWBACK ON ASSISTS .........................................................................................................................................32 ENGINEERING, DEVELOPMENT, ARTWORK, DESIGN WORK NECESSARY FOR THE PRODUCTION...........................32 H235895 DATED AUG. 22, 2014. .........................................................................................................................41 EQUIPMENT .............................................................................................................................................................42 FREE OF CHARGE OR AT A REDUCED COST............................................................................................................43 INSPECTION SERVICES............................................................................................................................................45 MANAGEMENT SERVICES, SALARIES ......................................................................................................................45 MATERIALS, COMPONENTS, PARTS, AND SIMILAR ITEMS INCORPORATED IN THE IMPORTED MERCHANDISE.......47 OFFSETTING OVERPAYMENT OF DUTIES.................................................................................................................49 PAYMENT TO SELLER ..............................................................................................................................................49 PRORATION OF ASSISTS .........................................................................................................................................50 SUPPLIED BY THE BUYER........................................................................................................................................50 TESTING COSTS.......................................................................................................................................................51 TOOLS, DIES, MOLDS, AND SIMILAR ITEMS USED IN THE PRODUCTION..................................................................52 TRANSPORTATION COSTS.......................................................................................................................................55 USE IN CONNECTION WITH THE PRODUCTION OR THE SALE FOR EXPORT .............................................................56 VALUE OF ASSISTS, I.E., COST OF ACQUISITION OR COST OF PRODUCTION..........................................................58

BUYING COMMISSIONS........................................................................................................................................60

INTRODUCTION ........................................................................................................................................................ 60 BONA FIDE BUYING COMMISSIONS..........................................................................................................................65 COMMISSIONS PAID TO AGENT FOR ACQUIRING ASSISTS ......................................................................................70 CONTROL OVER AGENT...........................................................................................................................................70 DEDUCTING BUYING COMMISSIONS ........................................................................................................................72 DUTIABLE AS PART OF THE PRICE ACTUALLY PAID OR PAYABLE ..........................................................................73 FACTORS TO CONSIDER..........................................................................................................................................75 IDENTITY OF SELLER ...............................................................................................................................................78 TOTALITY OF CIRCUMSTANCES...............................................................................................................................80

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CANCELLATION PAYMENTS ..............................................................................................................................92

INTRODUCTION ........................................................................................................................................................ 92 CONTRACT TERMINATION FEE ................................................................................................................................92 GOODS NOT IMPORTED ...........................................................................................................................................92 LIQUIDATED DAMAGES AND/OR PENALTIES ...........................................................................................................93 MINIMUM QUANTITY CANCELLATION CHARGES ......................................................................................................94

COMPUTED VALUE................................................................................................................................................96

INTRODUCTION ........................................................................................................................................................ 96 ASSISTS ................................................................................................................................................................. 100 COST OF FABRICATION .........................................................................................................................................100 ELECTION BY IMPORTER BETWEEN COMPUTED AND DEDUCTIVE VALUE.............................................................102 ELEMENTS OF COMPUTED VALUE .........................................................................................................................103 MERCHANDISE OF THE SAME CLASS OR KIND ......................................................................................................105 PROFIT AND GENERAL EXPENSES ........................................................................................................................106 SEVERANCE PAY ...................................................................................................................................................111

CONDITIONS OR CONSIDERATION FOR WHICH A VALUE CANNOT BE DETERMINED ..................112

INTRODUCTION ...................................................................................................................................................... 112 TRANSACTION VALUE INAPPLICABLE ...................................................................................................................114

CONFIDENTIALITY ...............................................................................................................................................116

INTRODUCTION ...................................................................................................................................................... 116

CONSIGNMENTS................................................................................................................................................... 117

INTRODUCTION ...................................................................................................................................................... 117 TRANSACTION VALUE INAPPLICABLE ...................................................................................................................117 TRANSACTION VALUE OF IDENTICAL OR SIMILAR MERCHANDISE ........................................................................121

COUNTERTRADE .................................................................................................................................................. 122

INTRODUCTION ...................................................................................................................................................... 122 PRICE ACTUALLY PAID OR PAYABLE ....................................................................................................................124

CURRENCY CONVERSION.................................................................................................................................125

INTRODUCTION ...................................................................................................................................................... 125 COMPUTED VALUE ................................................................................................................................................125 FORMULAS USED IN DETERMINING THE PRICE ACTUALLY PAID OR PAYABLE .....................................................126

DEDUCTIVE VALUE .............................................................................................................................................129

INTRODUCTION ...................................................................................................................................................... 129 DEDUCTION FOR COMMISSIONS ............................................................................................................................133 DEDUCTION FOR USUAL PROFITS AND GENERAL EXPENSES ...............................................................................133 DUTIES CURRENTLY PAYABLE ..............................................................................................................................135 ELECTION BY IMPORTER BETWEEN DEDUCTIVE AND COMPUTED VALUE.............................................................135 RELATED PARTY TRANSACTIONS .........................................................................................................................136 RESALE IN THE UNITED STATES...........................................................................................................................137 SALES TO UNRELATED PERSONS .........................................................................................................................140 SIMILAR MERCHANDISE.........................................................................................................................................140 SUPERDEDUCTIVE VALUE .....................................................................................................................................141 TRANSPORTATION COSTS.....................................................................................................................................141

DEFECTIVE MERCHANDISE ..............................................................................................................................143

INTRODUCTION ...................................................................................................................................................... 143 ALLOWANCE IN PRICE...........................................................................................................................................148 DEFECTIVE PARTS RETURNED TO THE U.S. .........................................................................................................153

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