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Unit 9: Valuation of Custom Goods

has been accorded to developing countries for changing over to the system established by the Notes
Agreement
Customs duties are levied on an ad valorem basis (e.g. 20% of the value of the imported product)
or as specific duties (e.g. $2 per kilogram or per litre). Combined or mixed duties containing
both ad valorem and specific rates are also levied (10% of the value + $2 per kilogram) on some
products. With a few exceptions, most countries levy ad valorem duties. Governments prefer to
levy such duties for three broad reasons. First, it is easier for the authorities to estimate collectable
revenue from ad valorem duties, which are assessed on the basis of value, than revenue from
specific duties, which are levied on the basis of volume or weight. Second, ad valorem duties are
more equitable than specific duties as their incidence is lower on cheaper products and higher
on more expensive goods. For instance, a specific duty of $2 per litre would have an incidence of
50% on a bottle of wine costing $4, and 10% on a higher-priced wine costing $20 a bottle. An ad
valorem duty of 10% would have an incidence of $0.20 on the cheaper bottle and $2 on the more
expensive bottle. Third, in international negotiations for reductions in tariffs it is far easier to
compare the level of tariffs and negotiate reductions if the duties are ad valorem.

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Caution When the transaction value is not accepted by Customs, the Agreement lays down
five methods for establishing value. In determining value on the basis of these methods,
Customs is required to consult the importers and take their views into account.
However, the incidence of ad valorem duties depends to a large extent on the methods used to
determine dutiable value. Thus, if Customs determines the dutiable value at $1,000, an ad
valorem duty of 10% will result in a duty of $100.

If, on the other hand, it determines value at $1,200, the importer will have to pay an import duty
of $120 for the same goods. The benefits to the trade arising from tariff bindings could fall
considerably if Customs uses prices other than invoice prices for determining values for customs
purposes. The rules that are applied for the valuation of goods are therefore of crucial importance
in ensuring that the incidence of duties as perceived by the importer is not higher than that
indicated by the nominal rates shown in the importing country’s tariff schedules.

Did u know? A number of developing countries currently use valuation systems based on
the Brussels Definition of Value, developed by the World Customs Organization (WCO).

9.1 Rules of the Agreement on Customs Valuation

The detailed WTO rules on the valuation of goods for customs purposes are contained in the
Agreement on Customs Valuation (full title: Agreement on Implementation of Article VII of
GATT 1994). The Agreement’s valuation system is based on simple and equitable criteria that
take commercial practices into account. By requiring all member countries to harmonize their
national legislation on the basis of the Agreement’s rules, it seeks to ensure uniformity in the
application of the rules so that importers can assess with certainty in advance the amounts of
duties payable on imports.

9.1.1 Main Standard: Transaction Value

The basic rule of the Agreement is that the value for customs purposes should be based on the
price actually paid or payable when sold for export to the country of importation (e.g. the
invoice price), adjusted, where appropriate, to include certain payments made by buyers such as

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