Inclusion of International and Domestic Transportation Charges in Dutiable Value
This Memorandum discusses the dutiability, for United States tariff purposes, of ocean freight, foreign inland freight, and related charges incident to the transportation of imported merchandise.
Merchandise imported into the United States is usually appraised for Customs duty purposes according to its “transaction value”. Section 402 of the Tariff Act of 1930, as amended, [19 U.S..C. Section 1401a(b)] defines “transaction value” as “the price actually paid or payable for the merchandise when sold for exportation to the United States, plus amounts equal to –
- Packing costs incurred by the buyer with respect to the imported merchandise;
- Any selling commission incurred by the buyer with respect to the imported merchandise;
- The value, apportioned as appropriate, of any assist;
- Any royalty or license fee related to the imported merchandise which the buyer is required to pay, directly or indirectly, as a condition of the sale of the imported merchandise for exportation to the United States; and
- The proceeds of any subsequent resale, disposal, or use of the imported merchandise that accrue, directly or indirectly, to the seller.
The United States is a signatory to the Valuation Code of the General Agreement on Tariffs and Trade (GATT). Under that Code, signatory nations have the option to determine whether “transaction value” should include: (a) the cost of transporting the imported goods to the port or place of importation; (b) loading, unloading and handling charges associated with the transportation of the imported goods to the port or place of importation; and (c) insurance costs. The United States has elected to exclude these charges from its definition of dutiable value.
As a general rule, the United States excludes from dutiable “transaction value” any charges relating to the international transportation of goods. Thus, ocean freight and marine insurance charges are not dutiable. Related charges, such as the cost of loading merchandise onto a ship and stowing it aboard, are also in all cases excluded from dutiable value. See, e.g., Customs Headquarters Ruling 543518 of September 3, 1985.
Whether foreign inland freight charges are included in the dutiable value of merchandise depends on the terms and conditions of the sale for exportation to the United States. Where goods are sold for exportation on an F.O.B. foreign port or C.I.F. basis, and the F.O.B. or C.I.F. price includes foreign inland freight charges, then these charges are part of the “price paid or payable” for the goods, and cannot be excluded from the dutiable transaction value. Where goods are sold for exportation on an ex factory basis, foreign inland freight charges will be excluded from dutiable value in certain situations.
A. Ocean Freight and Marine Insurance Charges
Ocean transportation and marine insurance charges incurred with respect to imported merchandise are not included in the dutiable “transaction value” of that merchandise. This is true, regardless of whether ocean freight charges are paid by the buyer or seller of the merchandise.
B. Foreign Inland Freight Charges
The treatment of foreign inland freight charges in the calculation of dutiable value has proven extremely troublesome for the United States Customs Service.
As noted above, where the goods are sold for export to the United States on an F.O.B. or C.I.F. basis, and the price includes foreign inland freight charges, such charges are included in dutiable transaction value. However, where goods are sold for exportation on an ex-factory basis, Customs has held that foreign inland freight charges can be excluded from dutiable value in certain cases:
[Foreign inland freight] charges may be considered incident to the international shipment of the merchandise, if they are identified separately [from the price for the goods] and occur after the merchandise has been sold for exportation to the United States and placed with a carrier for through shipment to the United States 19 C.F.R. 152.103(a) (5)(ii). A sale for export and placement for through shipment shall be established by a through bill of lading presented to the District Director [of Customs]. Only where it would clearly be impossible to ship merchandise on a through bill of lading will other documents satisfactory to the district director be accepted. Sturm, Customs Law & Administration, 3rd ed. (1990), at Section 47.3.
Thus, to the extent that an importer purchases goods on an “F.O.B. foreign port” basis, all costs of foreign inland freight are included in the dutiable value of the merchandise.
Importers might conceivably be able to exclude foreign inland freight costs from dutiable value if they:
- Purchase the imported goods on ex-factory sales terms;
- Place the goods for shipment with a carrier after sale for exportation to the United States, on a through bill of lading.
The Customs Service’s position concerning the dutiability of foreign inland freight charges has been upheld by the United States Court of International Trade and the United States Court of Appeals for the Federal Circuit. Those courts rejected an importer’s assertion that whenever goods are sold on an “ex-factory” basis, foreign inland freight charges should be excluded from dutiable value if they can be separately stated and verified.
C. Packing Charges
Goods are appraised for Customs purposes “in condition packed ready for exportation”. Thus, the cost of packing the goods so that they are ready for shipment — for example, the cost of materials and labor for crating, bagging, shrink-wrapping and/or pelletizing the goods — are included in the dutiable value of imported merchandise. Generally, the sales price for the merchandise includes these charges. However, where the importer/buyer pays for these charges separately from the payment for the goods, the amounts paid by the importer/buyer must be added to the “price paid or payable” for the merchandise in order to arrive at the dutiable “transaction value”.
On the other hand, charges for containerization of merchandise — that is, stuffing otherwise packed merchandise into 20-foot or 40-foot ocean shipping containers — are not considered a dutiable “packing charge”.
D. Foreign Consolidation and Warehousing Services
Whether the costs of foreign consolidation and/or warehousing services are included in the dutiable value of imported merchandise depends significantly upon the conditions of sale. Once again, if the goods are sold for exportation on an F.O.B. or C.I.F. basis, and these prices include the warehousing and consolidation charges, those charges become part of the price “paid or payable” for the goods. However, where charges for warehousing or consolidation are incurred after the goods have been sold for exportation, a good argument can be made for excluding the costs of foreign warehousing and consolidation from the dutiable “transaction value”.
Thus, where goods are warehoused abroad after being sold to a United States importer, but prior to exportation to the United States, payment for warehousing services cannot be viewed as having been made directly or indirectly to the seller, or for his benefit. Accordingly, such costs are not dutiable.
In some cases, goods are purchased on an ex-factory basis, and temporarily warehoused or stored at the port of exportation prior to arrival of the export vessel. These charges are generally viewed as being “incident” to the international transportation of the goods, and are therefore not dutiable.
Note: The information contained in this memorandum is for general information only, and is not intended as advice or counsel regarding any specific situation. If you have an issue relating to the subject matter discussed in this memorandum, you should consult with counsel or your customs advisers concerning the proper course of action to be followed in your case. Entire contents copyright 1998 by Neville Peterson LLP. For additional information concerning the subjects discussed in this Neville Peterson LLP background memorandum, please contact our offices at (212) 635-2730 or (202) 861-2959, or e-mail using the mailbox on this Website.
Entire contents copyright 1998 by Neville Peterson LLP.
For additional information concerning the subjects discussed in this Neville Peterson LLP background memorandum, please contact our offices at (212) 635-2730 or (202) 861-2959, or e-mail using the mailbox on this Website.