INTERNATIONAL TRADE LAW
Customs Valuation 101: How Duty Is Calculated
Customs valuation is how the dutiable value of imported goods is determined — and it matters because duty is the value times the rate. Get the classification right but the value wrong, and you still owe the wrong duty. U.S. law (19 U.S.C. § 1401a, implementing the WTO Customs Valuation Agreement) sets out six methods in a strict order, and the first — transaction value — applies to the vast majority of imports. This guide explains transaction value, what must be added to the price, and the fallback methods when transaction value can’t be used.
Transaction Value: The Primary Method
Transaction value is the price actually paid or payable for the goods when sold for export to the United States, plus certain statutory additions. It’s the default and governs most entries. But “price on the invoice” isn’t always the full dutiable value — the law requires adding several items if they aren’t already included.
What Gets Added to the Price
Transaction value includes the price paid plus these statutory additions, to the extent not already in the price:
| Addition | What it is |
|---|---|
| Packing costs | Costs incurred by the buyer for packing the goods |
| Selling commissions | Commissions the buyer pays to sell the goods (not buying commissions) |
| Assists | Things the buyer provides free or at reduced cost for production — tooling, dies, molds, materials, design work done abroad |
| Royalties / license fees | That the buyer must pay as a condition of sale |
| Proceeds of resale | Any later proceeds that accrue to the seller |
Assists are the classic trap: if you supply your overseas manufacturer with free molds or designs, their value must be added to the customs value even though they’re not on the invoice.
When Transaction Value Can’t Be Used
Transaction value is unavailable in certain cases — for example, where buyer and seller are related parties and the relationship influenced the price, or where there are restrictions on the goods. When it can’t be used, the law applies the next method in order (you can’t skip to a more convenient one):
- Transaction value of identical merchandise — the value of identical goods previously imported.
- Transaction value of similar merchandise — same, for similar goods.
- Deductive value — derived from the U.S. resale price, working backward.
- Computed value — built up from production cost plus profit and expenses.
- Fallback method — a reasonable adjustment of the above when none fits.
(Importers may, on request, switch the order of deductive and computed value.)
Why It Matters
The importer of record certifies the declared value under a duty of reasonable care, so undervaluation — even unintentional, like omitting assists or dutiable royalties — can mean underpaid duties recovered with interest, plus penalties. Related-party pricing draws particular scrutiny. Getting valuation right goes hand in hand with correct classification and country of origin; together they determine the duty owed on every entry.
Frequently Asked Questions
What is the primary method of customs valuation?
Transaction value — the price actually paid or payable for the goods when sold for export to the U.S., plus statutory additions like assists, certain commissions, royalties, and packing. It applies to most imports and is the first method in the legal hierarchy.
What are “assists” in customs valuation?
Items the buyer provides to the producer free or at reduced cost for use in making the goods — tools, dies, molds, materials, or design/engineering done outside the U.S. Their value must be added to the customs value even though they don’t appear on the commercial invoice.
What happens if transaction value can’t be used?
The law applies the next method in order: transaction value of identical goods, then similar goods, then deductive value, then computed value, then a fallback method. The methods must be used in sequence, though deductive and computed value can be switched on request.
Why does customs valuation matter?
Because duty equals value times rate — an inaccurate value means inaccurate duty. The importer certifies value under a duty of reasonable care, so undervaluation (including omitted assists or royalties) can lead to recovered duties, interest, and penalties, with related-party pricing drawing extra scrutiny.
Accurate valuation is half of getting your duties right. Reidel Law Firm advises importers on valuation, assists, related-party pricing, and reasonable care on flat-fee terms. Get an import compliance memo.
