Recent Trade & Tariff Perspectives

May 4, 2022  |  Jessica Woltering  U.S. Import Compliance Manager

Undervaluation of Imported Goods—Know the Facts

This article serves as a companion piece to the Trade and Tariff article posted on February 16, 2022, "The Risk of Taking Deductions—Is It Worth the Cost Savings? ", which discussed the details and risks of taking deductions from the Total Entered Value (TEV) of a shipment. In turn, this article reviews the costs U.S. Customs and Border Protection (CBP) considers additions to the TEV of an entry and how to determine if these costs need to be included in the TEV to ensure proper declaration of imported goods to CBP.

Revenue redesignated a priority trade issue by CBP

CBP is the second largest revenue collector for the U.S. government and revenue collection is one of the oldest functions of CBP. Revenue was redesignated a Priority Trade Issue as part of the Trade Facilitation and Trade Enforcement Act (TFTEA) of 2015, which was signed into law in February 2016.

Ensuring that imported goods are properly valued and inclusive of all costs CBP considers part of the TEV is one important focal point in audits on importers, because of attempts to evade duties and fees owed to CBP on imported goods. If irregularities are found during audits or on normal reviews of entry summaries, this gives CBP the foundation needed to dive deeper into financial and manufacturing records to look for additional issues.

According to the Trade Statistics area in CBP’s Newsroom, in Fiscal Year (FY) 2018, CBP performed 435 importer audits and collected an additional $42.2 million of lost revenue. In FY 2021, CBP performed 442 audits and the lost revenue that was collected rose 196% to $132.2 million.

Why have revenue and valuation become more important?

Total Entered Value has become a larger focal point in the last four years with the addition of Section 232 and Section 301 tariffs. In addition to the regular duties and taxes owed, there are other revenue-generating programs and conditions, such as anti-dumping and countervailing duties, Section 201 tariffs on certain items, tariff rate quotas, and most recently the revocation of Russia’s Most Favored Nation status, making Russian goods subject to the higher Column 2 tariff rates.

This list does not include the possible misuse of cost-saving programs for importers, which can decrease the revenue owed to CBP. Use or misuse of these programs can affect the duties and taxes due to the U.S. government.

What does CBP look for when determining total entered value?

There are multiple areas that CBP focuses on during an entry review to ensure that importers are not evading duties and fees:

• Misclassification: Misclassification of goods is one risk to revenue and is one of the first things CBP looks at when reviewing customs entry packets. Verifying goods are correctly classified is the easiest way to minimize audit risks.
• Misuse: Declaring Special Program Indicators (SPIs) or Free Trade Agreements (FTAs) only when goods qualify is an element CBP reviews to confirm the correct duties and taxes are being paid. Is declaring one of these cost-saving options worth the risk? The answer could be different for every situation and importer.
• Undervaluation: If CBP wants to review the valuation of goods, they could issue a Customs Form (CF) 28 Request for Information or perform an audit on that importer. CBP could request all documents substantiating the value of goods including—but not limited to—cost of materials, labor, transportation of materials to the manufacturing location, and assists provided by the importer to the manufacturer. CBP can also compare unit values between different companies importing the same type of good to compare high-duty rate commodities to ensure that there is not a large difference in values.

Charges included in Total Entered Value

Total Entered Value is made up of transaction value, the price actually paid or payable for the merchandise when sold for exportation to the United States, plus:

• Packing costs incurred by the buyer: The cost of all containers and coverings of whatever nature and of packing, whether for labor or materials, used in placing merchandise in condition, packed ready for shipment to the United States.
• Any selling commission incurred by the buyer: A commission paid to the seller’s agent, who is related to, or controlled by, or works for or on behalf of, the manufacturer or the seller.
• The value, apportioned as appropriate, of any assist: Assists can include any items provided by the importer at a reduced rate or free of charge used in the production or sale of the goods for export to the United States. Assists that are incorporated into the imported goods can include:
  • Materials, components, parts, and similar items
  • Tools, dies, molds, and similar items
  • Merchandise consumed in producing the imported goods
  • Engineering, development, artwork, design work, and plans and sketches that take place outside of the United States and are required for the manufacturing of the imported goods.
  • Note: Not included in this are assists performed by a person domiciled within the United States, performed while that person is acting as an employee or agent of the buyer, incidental to other engineering, development, artwork, design work, or plans or sketches created within the United States.
• Any royalty or license fee that the buyer is required to pay, directly or indirectly, as a condition of the sale: Fees that a buyer pays directly or indirectly as a condition of the sale of the imported goods for exportation to the United States. The fees being dutiable depend on whether the buyer had to pay them as a condition of the same and to whom and under what circumstances they were paid.
• The proceeds of any subsequent resale, disposal, or use of the imported merchandise that accrue—directly or indirectly—to the seller.

If any of these costs are incurred, they should be added to the price actually paid or payable and declared to CBP as dutiable additions to the transaction value.

Transaction value does not include:

• Transportation costs
• Insurance
• Related services incident to the international shipment of goods from the export country to the place of importation in the United States
• Any reasonable costs for constructing, erecting, assembling, maintaining, or providing technical assistance with respect to the goods after importation into the United States or transporting the goods after importation
• Customs duties and other Federal taxes, including excise tax for which sellers in the United States are ordinarily liable

How can C.H. Robinson help?

In 2007, CBP renamed its five Strategic Trade Centers, and the Revenue National Targeting and Analysis Group (NTAG) was formed in Chicago. Revenue NTAG uses risk management techniques to support trade security and trade compliance. NTAG also targets and identifies concerns that place revenue at risk through a variety of methods, including—analyzing import data to identify revenue risk, monitoring the effectiveness of targeting programs, investigating referrals received through the e-Allegations system, and ensuring oversight of the drawback process.

C.H. Robinson’s Customs experts are available to discuss any valuation questions or situations importers may have to determine if costs should be added to the Total Entered Value of entries or not. Our customs employees are knowledgeable about the intricacies of customs valuation and can help educate importers on valuation requirements or assist with determining how to declare these costs. Connect with one of our trade policy experts to learn more.

Resources

• U.S. Customs and Border Protection Trade Statistics
• U.S. Customs and Border Protection Revenue PTI
• Customs Informed Compliance – Custom Value
• Customs Valuation Encyclopedia (1980–2005)
• Customs Rulings Online Search System (CROSS)

Our information is compiled from a number of sources that to the best of our knowledge are accurate and correct. It is always the intent of our company to present accurate information. C.H. Robinson accepts no liability or responsibility for the information published herein.