Wednesday, May 02, 2007

Seminar Question

On Monday, I spoke at a Chicago Bar Association CLE event on customs compliance. It was one of the more fun sessions in which I have participated. I knew most everyone on the panel, the moderator did a good job keeping us in check, and the topic was pretty basic so prep was easy. One question, however, was not so basic.

The question was asked, "Does the value of an assist include the duties and brokerage fees paid on import to the country of production?"

Think that over for a second. It initially stumped the whole panel and we all agreed that we had never been asked that question.

At a break, we huddled and reached the following very lawyerly conclusion: It depends.

Remember that an assist is something of value given buy the buyer to the seller for use in the production of the imported merchandise. Classic examples include tools, dies, and molds. Most people know that the shipping cost is included in the value of the assist. The status of duties and brokerage is a perfectly natural question. Except that it is not.

If you think it through, in few circumstances will the buyer pay the duties and brokerage fees associated with the importation by the producer. More often than not, those expenses will fall to the producer who will, one would hope, recoup them in the piece price. Thus, duties and brokerage are not likely to be provided by the buyer to the seller and, thus, are not included in the value of the assist.

Two questions arise out of that analysis. First, what if the producer pays the transportation? Then there is no cost to the buyer and, again, the seller should be including that expense in its piece price (or just eating it). Second, what if the buyer actually does pay the duty and brokerage (e.g., in a DDP transaction)? Those are costs the seller would normally have to bear and, as a result, would normally pass on in the piece price. Given that the seller did not bear those costs, the piece price is theoretically artificially too low. Thus, it would seem that the duty and brokerage expense covered by the buyer would be included in the value of the assist or separately identified as an indirect payment.

Does that make sense? It's an off the cuff analysis and I specifically reserve the right to change my mind in the right circumstances. Of course, when it comes to what appears in this blog, I always reserve that right.

1 comment:

Professor Howdy said...

Very good posting.
Thank you - Have a good day!!!