Understanding customs valuation methods

Customs valuation determines the value on which import duties are calculated. The World Trade Organization (WTO) Agreement on Customs Valuation establishes six methods, applied in order of priority.

The Six Methods

1. Transaction value — The price actually paid or payable for the imported goods. This is the primary method and is used in over 90% of cases.
2. Transaction value of identical goods — If the transaction value cannot be used, customs looks at the value of identical goods imported at the same time.
3. Transaction value of similar goods — Same approach but with goods that are similar in characteristics and function.
4. Deductive method — Based on the selling price in the importing country, minus domestic costs and duties.
5. Computed method — Based on the cost of production plus profit and general expenses.
6. Fall-back method — A flexible application of any of the above methods with reasonable adjustments.

What Counts in the Transaction Value

The value includes the price of goods plus any assists (tools, dies, molds provided by the buyer), royalties, and the cost of packing. Under CIF Incoterms, freight and insurance are included in the value; under FOB, they are excluded.

Why It Matters

Undervaluing goods to reduce duties is illegal and can lead to penalties, seizure, or criminal prosecution. Always declare the true transaction value.