Methods of Valuation: Prohibited Valuation

We want to thank our loyal readers who indulged us last week as we took a break from our regular blog schedule to post and discuss answers to the most recent Customs Broker Exam. Now, we'll return to our study on "Methods of Valuation." Last week we discussed computed value and derived value. Now that we have covered all of the acceptable methods of appraisement, we will finish this series with a list of methods that are prohibited.

Imported merchandise may not be appraised on the basis of:

a. Selling price in the U.S. of merchandise produced in the U.S.
b. A system that provides for the appraisement of imported merchandise at the higher of two alternative values.
c. The price of merchandise in the domestic market of the country of exportation.
d. The cost of production, other than a value determined under 19 CFR 152.106 for merchandise that is identical merchandise or similar merchandise to the merchandise being appraised.
e. The price of merchandise for export to a country other than the U.S.
f. Minimum values for appraisement.
g. Arbitrary or fictitious values.


Example:
Broker receives an invoice consisting of 5000 chainsaws valued at $20 each for a total of $100,000. In addition, the invoice includes 5 chainsaws and 10 blades free-of-charge. Broker calls Importer and requests values for the free-of-charge items. Importer tells Broker that all of the free-of-charge items are worth $1.00 each because Importer is not required to pay Seller for them.

This is clearly an example of an "arbitrary or fictitious" value. Regardless of the nature of the transaction between Importer and Seller, CBP requires the true value for all merchandise entered into the commerce, not just some arbitrary number. Failure to provide CBP with accurate valuation information will be considered a violation of the "reasonable care" standard and will subject the importer to penalties.

Next week we will start a series covering the various “components” of valuation.