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In order to calculate rates of duty on goods, customs officials need to be able to work out the value of the goods. Without the system of fair, uniform and neutral rules provided by the World Trade Organisation agreement on customs valuation, exporters could be overcharged duty on their exports.
Where an ad valorem tariff applies to goods, customs officials need to know the value of the goods in order to work out the amount of duty the goods are subject to. Customs valuation is the procedure used by customs officials to determine the value of the imported goods for the purposes of calculating the right import duty. The customs value is essentially the transaction value that an importer pays for the goods, but can include other additional costs such as commission, packaging and royalties.
If the wrong value is applied, exporters could be overcharged duty. If exporters are unsure how the value will be calculated, the business of exporting becomes unpredictable. Poor customs valuation procedures can act as a barrier to trade, since exporters need to be sure how much duty their goods will attract in order to decide whether or not a profit could be made by exporting goods to certain markets.
The WTO agreement concerned with customs valuation is the “Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994” [external link to the WTO website, GATT, Article VII]. The Agreement is referred to here as the agreement on customs valuation. The agreement is designed to promote a fair, uniform and neutral system for the valuation of goods for customs purposes that precludes the use of arbitrary or fictitious customs values. The agreement on customs valuation plays an essential part in ensuring that the correct duties are paid on imports, rather than duties based on minimum values .
A key objective of the agreement on customs valuation is to ensure that the basis for valuation of goods for customs purposes is, to the greatest extent possible, the transaction value (the price actually paid or payable for the goods when sold in the importing country).
Some adjustments to this value can be made. Other costs that are incurred by the buyer but are not included in the price actually paid can be included in the customs value. These adjustments can include such costs as commissions and brokerage, royalties and licence fees, and the cost of packing, whether for labour or materials.
Customs administrations have the right to request further information in cases where they doubt the accuracy of the declared value of the goods. If customs officials are still in doubt, despite the extra information, the agreement provides them with a number of options to ensure the declared customs value is correct or reasonably correct. The following options are applied in this order:
(a) Transaction value of identical goods
The value of identical goods can be used to ascertain the transaction value if the goods are the same in all respects. This includes physical characteristics, quality and reputation, production in the same country as the goods being valued and production by the producer of the same goods being valued. If these conditions are met, slight differences in appearance of goods do not necessarily disqualify the goods being used in a comparison to calculate the transaction value.
(b) Transaction value of similar goods
Customs officials can also use the transaction value of similar goods when the transaction value of imported goods is in doubt. Customs officials have recourse to this option if the similar goods:
(c) Deduction value
If there is still doubt after the above two options have been applied, the customs value can be determined on the basis of the unit price at which the imported goods (or identical or similar goods) are sold to an unrelated buyer in the greatest aggregate quantity in the country of importation. The greatest number of units sold at one price represents the greatest aggregate quantity. To determine the greatest aggregate quantity, all sales at a given price are taken together and the sum of all the units of goods sold at the price compared with the sum of all the units of goods sold at any other price.
Because this method entails using the sale price of imported goods, deductions are necessary to reduce the price to the appropriate customs value. Examples of deductions that must be made include commission, the sum of profits and general expenses added in connection with sales, transport costs and corresponding insurance costs.
(d) Computed value
Computed value determines customs value on the basis of the cost of production of the goods being valued, plus an amount for the profit and general expenses usually reflected in sales from the country of exportation to the country of importation of goods of the same class or kind. Computed value is the sum total of production costs plus profit, general and other expenses.
(e) Fall-back method
If doubt still remains about the correct customs value after going through the previous options, customs value may be determined using reasonable means on the basis of data available in the country of importation. The reasonable means must be consistent with the principles and general provisions of Article VII of GATT. Some methods of calculation are determined not to be “reasonable means” under the agreement and are prohibited. They include:
The agreement on customs valuation is incorporated into New Zealand law by the second schedule to the Customs and Excise Act 1996. The New Zealand Customs Service [external link] is the main government agency responsible for implementation of this legislation.
 Where the amount of duty payable on goods is a set percentage of the customs value of the goods. For example, $1 duty would be payable if an ad valorem tariff of 5% was levied on a compact disc valued at $20.
 A minimum transaction value that customs officials use to calculate the customs duty for a product, regardless of whether this is higher than the real transaction value.