United States — Customs Valuation

Transaction value is the primary method for appraising imported merchandise under United States customs law. Under 19 U.S.C. § 1401a(b)(1), transaction value is defined as "the price actually paid or payable for the merchandise when sold for exportation to the United States," plus five specific statutory additions enumerated in subsections (b)(1)(A) through (E).

This framework implements the WTO Agreement on Implementation of Article VII of GATT 1994 (the Customs Valuation Agreement), which the United States adopted through the Trade Agreements Act of 1979, effective July 1, 1980. The statute and its implementing regulation at 19 C.F.R. Part 152 replaced the prior American Selling Price and other pre-1980 methods with a unified, transaction-based approach used by nearly all WTO members.

Four conditions for transaction value acceptability

Transaction value can serve as the appraised value only if four conditions under 19 U.S.C. § 1401a(b)(2)(A) are satisfied:

1. No restrictions on disposition or use of the imported merchandise by the buyer, other than restrictions (i) imposed or required by law or public authorities, (ii) limiting the geographic area of resale, or (iii) not substantially affecting the value.

1. No conditions or considerations for which a value cannot be determined with respect to the merchandise being appraised. If the sale is subject to a condition—for example, that the buyer also purchase other unrelated merchandise—and the condition's effect on price cannot be quantified, transaction value cannot be used.

1. No proceeds of subsequent resale, disposal, or use accrue directly or indirectly to the seller, unless an appropriate addition can be made under 19 U.S.C. § 1401a(b)(1)(E). "Proceeds" means any payment or benefit the seller receives from the buyer's downstream activity with the imported goods.

1. Buyer and seller are not related, or if related, the transaction value is acceptable under one of two tests: (i) the "circumstances of sale" test (the relationship did not influence the price), codified at 19 U.S.C. § 1401a(b)(2)(B), or (ii) the "test value" method (the declared value closely approximates the transaction value of identical or similar merchandise sold to unrelated buyers at or about the same time).

The price actually paid or payable

The "price actually paid or payable" is the total payment made or to be made by the buyer to (or for the benefit of) the seller for the imported merchandise, determined without regard to its method of derivation. Under 19 C.F.R. § 152.103(a)(1), it may result from discounts, negotiations, or a formula (such as a commodity-exchange price on the date of export), and may be paid directly, indirectly, by letters of credit, or other negotiable instruments. The term "payable" covers prices agreed upon but not yet remitted at the time of importation.

Hierarchy of methods

If transaction value cannot be determined or cannot be used because one of the four conditions fails, CBP must appraise the merchandise using the remaining methods in statutory order: transaction value of identical merchandise (19 C.F.R. § 152.104), transaction value of similar merchandise (§ 152.104), deductive value (§ 152.105), computed value (§ 152.106), or the fallback method (§ 152.107). The importer may request that computed value be applied before deductive value by making that election at the time of entry summary filing under 19 C.F.R. § 152.101(c).

Reasonable care and informed compliance

Under the Customs Modernization Act of 1993 (19 U.S.C. § 1484), importers bear the statutory duty to use "reasonable care" to declare the correct value. CBP is responsible for fixing the final appraisement under 19 U.S.C. § 1500, and an importer may request a written explanation of how value was determined within 90 days after liquidation under 19 C.F.R. § 152.101(d).

Source: 19 U.S.C. § 1401a Source: 19 C.F.R. § 152.103 Source: 19 C.F.R. § 152.101 Source: CBP Informed Compliance Publication, What Every Member of the Trade Community Should Know About: Customs Value

Transaction value under 19 U.S.C. § 1401a(b)(1) is the price actually paid or payable for merchandise when sold for exportation to the United States, plus five categories of statutory additions. These additions are mandatory when the buyer incurred the cost and the amount is not already included in the price actually paid or payable. Under 19 C.F.R. § 152.103(c), additions are made only if there is sufficient information to establish their accuracy and the extent to which they are excluded from the price.

The five statutory additions

The statute enumerates five additions at 19 U.S.C. § 1401a(b)(1)(A) through (E):

1. Packing costs incurred by the buyer with respect to the imported merchandise (subsection (A)).

1. Any selling commission incurred by the buyer (subsection (B)). Under 19 C.F.R. § 152.102(b), a "selling commission" means any 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. Buying commissions paid by the buyer to the buyer's own agent are not added.

1. The value, apportioned as appropriate, of any assist (subsection (C)).

1. Any royalty or license fee related to the imported merchandise that 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 (subsection (D)).

1. Any proceeds of any subsequent resale, disposal, or use of the imported merchandise that accrue, directly or indirectly, to the seller (subsection (E)).

Assists — definition and four categories

An "assist" is defined at 19 U.S.C. § 1401a(h)(1)(A) and 19 C.F.R. § 152.102(a)(1) as any of the following, if supplied directly or indirectly and free of charge or at reduced cost by the buyer of imported merchandise for use in connection with the production or the sale for export to the United States:

• (i) Materials, components, parts, and similar items incorporated in the imported merchandise;
• (ii) Tools, dies, molds, and similar items used in the production of the imported merchandise;
• (iii) Merchandise consumed in the production of the imported merchandise;
• (iv) Engineering, development, artwork, design work, and plans and sketches that are undertaken elsewhere than in the United States and are necessary for the production of the imported merchandise.

The fourth category (engineering and design work) contains an important exception: such work is not treated as an assist if it (a) is performed by an individual domiciled within the United States, (b) is performed by that individual while acting as an employee or agent of the buyer, and (c) is incidental to other engineering, development, artwork, design work, or plans or sketches undertaken within the United States (19 U.S.C. § 1401a(h)(1)(B); 19 C.F.R. § 152.102(a)(2)).

Valuation of assists

The value of an assist depends on how it was acquired or produced. Under 19 C.F.R. § 152.103(d)(2):

• If the assist was purchased or leased by the buyer from an unrelated person, the value is the cost of the purchase or lease.
• If the assist was produced by the buyer or a person related to the buyer, the value is the cost of production.
• For engineering, development, artwork, or design work described in category (iv): if the assist is available in the public domain, the value is the cost of obtaining copies; if production occurred in the United States and one or more foreign countries, the value is the value added outside the United States (19 C.F.R. § 152.102(a)(3)).

In all cases, the value of the assist includes transportation costs to the place of production abroad (19 C.F.R. § 152.103(d)(2)).

Apportionment of assists

The value of an assist must be apportioned to the imported merchandise in a reasonable manner appropriate to the circumstances and in accordance with generally accepted accounting principles. The total value of the assist may be apportioned over:

• the first shipment (if the importer wishes to pay duty on the entire value at once),
• the number of units produced up to the time of the first shipment, or
• the entire anticipated production.

The importer may also request another method of apportionment consistent with GAAP. If the anticipated production is only partially for exportation to the United States, or if the assist is used in several countries, the method of apportionment will depend on the documentation submitted by the importer (19 C.F.R. § 152.103(e)).

Royalties and license fees — the two-prong test

Royalties and license fees are dutiable under 19 U.S.C. § 1401a(b)(1)(D) only if both of the following conditions are satisfied:

1. The payment is related to the imported merchandise, and
2. The payment is made as a condition of the sale of the imported merchandise for exportation to the United States.

CBP articulated guidance on this two-prong analysis in its General Notice, "Dutiability of Royalty Payments," published in the Customs Bulletin and Decisions on February 10, 1993. The Statement of Administrative Action to the Trade Agreements Act of 1979 provides that "additions for royalties and license fees will be limited to those that the buyer is required to pay, directly or indirectly, as a condition of sale of the imported merchandise for exportation to the United States." Payments to the seller or a party related to the seller create a rebuttable presumption that the royalty is part of transaction value.

Factors CBP considers include: the type of intellectual property at issue (e.g., patents covering processes to manufacture the merchandise are more likely to be dutiable than trademark licenses for post-importation resale), whether the royalty is paid to the seller or a related party, whether the purchase agreement and the royalty agreement are linked or cross-referenced, and whether the importer could purchase the imported merchandise without paying the royalty.

Proceeds of subsequent resale

Proceeds that accrue to the seller from the buyer's subsequent resale, disposal, or use of the imported merchandise in the United States are added to transaction value under 19 U.S.C. § 1401a(b)(1)(E), but only to the extent an appropriate addition can be made. This addition is rarely applied in practice because most commercial arrangements do not provide for such pass-through payments.

Source: 19 U.S.C. § 1401a Source: 19 C.F.R. § 152.103 Source: 19 C.F.R. § 152.102 Source: CBP Informed Compliance Publication, What Every Member of the Trade Community Should Know About: Customs Value

When the buyer and seller of imported merchandise are related persons, transaction value is subject to special scrutiny under 19 U.S.C. § 1401a(b)(2)(B). The statute and regulations impose an additional evidentiary burden to ensure that the related-party relationship did not inflate or depress the declared price. However, CBP may not disregard a transaction value solely because the parties are related; the importer may demonstrate that the price is acceptable under one of two alternative tests.

Definition of "related persons" — six statutory categories

Under 19 U.S.C. § 1401a(g)(1), persons are treated as related if they fall within any of the following six categories:

(A) Members of the same family, including brothers and sisters (whether by whole or half blood), spouse, ancestors, and lineal descendants.

(B) Any officer or director of an organization and such organization.

(C) An officer or director of an organization and an officer or director of another organization, if each such individual is also an officer or director in the other organization (interlocking directorates).

(D) Partners.

(E) Employer and employee.

(F) Any person directly or indirectly owning, controlling, or holding with power to vote, 5 percent or more of the outstanding voting stock or shares of any organization and such organization.

(G) Two or more persons directly or indirectly controlling, controlled by, or under common control with, any person.

The sixth category (subsection (G)) captures most corporate affiliate relationships, including parent-subsidiary, subsidiary-parent, and sibling entities under common control.

General rule — relationship alone does not disqualify transaction value

Under 19 C.F.R. § 152.103(l)(1), the port director shall not disregard a transaction value solely because the buyer and seller are related. Congress and the WTO Valuation Agreement recognize that many legitimate commercial transactions occur between affiliates, and the statute does not presume that related-party prices are unreliable. Instead, the importer bears the burden of demonstrating that the relationship did not influence the price.

Two alternative tests for acceptability

When buyer and seller are related, transaction value is acceptable under 19 U.S.C. § 1401a(b)(2)(B) if the importer establishes either:

1. Circumstances of sale — an examination of the circumstances of the sale indicates that the relationship did not influence the price actually paid or payable; or

1. Test values — the transaction value of the imported merchandise closely approximates one of three statutory test values:

• (i) the transaction value in sales of identical merchandise or similar merchandise to unrelated buyers in the United States at or about the same time;
• (ii) the deductive value of identical merchandise or similar merchandise (19 C.F.R. § 152.105); or
• (iii) the computed value of identical merchandise or similar merchandise (19 C.F.R. § 152.106).

Under 19 C.F.R. § 152.103(j)(2)(iii), if the importer demonstrates that one of the test values closely approximates the declared transaction value, CBP shall not seek to determine whether the relationship influenced the price. In practice, most related-party import transactions are evaluated under the circumstances-of-sale test because test-value data (especially sales to unrelated U.S. buyers of identical or similar merchandise at the same time and commercial level) is often unavailable.

The circumstances-of-sale test — regulatory framework and illustrative examples

Under the circumstances-of-sale test, CBP examines all relevant aspects of the transaction, including the way the buyer and seller organize their commercial relations and the way in which the price was determined. The regulation at 19 C.F.R. § 152.103(l)(1) provides three illustrative (not exclusive) examples of evidence that may show the relationship did not influence the price:

(i) Normal pricing practices of the industry — the price was settled in a manner consistent with the normal pricing practices of the industry in question.

(ii) Way the seller settles prices with unrelated buyers — the price was settled in a way consistent with the way the seller settles prices for sales to buyers who are not related to the seller. CBP generally requires comparison sales to unrelated buyers in the United States, though it will consider sales to unrelated buyers in other countries if the importer presents an adequate explanation of their relevance and accounts for differences in commercial level, quantity, or market conditions.

(iii) All costs plus a profit — the price is adequate to ensure recovery of all costs plus a profit that is equivalent to the firm's overall profit realized over a representative period of time (e.g., on an annual basis) in sales of merchandise of the same class or kind.

These examples are drawn from the Statement of Administrative Action (SAA) to the Trade Agreements Act of 1979 and codified at 19 C.F.R. § 152.103(l). However, CBP rulings make clear that the list is not exhaustive; other factors may be relevant depending on the transaction. For example, CBP will evaluate whether the price was determined under a formula in place before importation, whether the buyer and seller documented arm's-length negotiation, and whether the parties' commercial arrangement mirrors arrangements the seller has with unrelated parties.

Relationship to IRS transfer-pricing rules

Many importers that are part of multinational groups maintain transfer-pricing policies under Internal Revenue Code § 482 and Treasury regulations to ensure that intercompany prices satisfy the arm's-length standard for U.S. income-tax purposes. Some importers seek to rely on IRS Advance Pricing Agreements (APAs) or transfer-pricing studies as evidence that the customs transaction value is acceptable under the circumstances-of-sale test.

CBP has stated that while transfer-pricing studies and APAs may be relevant evidence, they do not eliminate the need for CBP to examine the circumstances of the sale. The customs valuation inquiry under 19 U.S.C. § 1401a differs in purpose, timing, and methodology from the income-tax transfer-pricing inquiry under IRC § 482. CBP may consider whether the importer's transfer-pricing methodology results in prices that fall within an arm's-length range, but the importer must still present evidence specific to the customs valuation factors enumerated in the statute and regulation—for example, invoices showing that the seller charges the same prices (or applies the same discount schedule) to unrelated buyers, or documentation showing that the seller's profit margin on sales to the related importer equals or exceeds its overall profit margin on sales of the same class or kind of merchandise.

Close approximation under the test-values method

When an importer elects to use the test-values method rather than the circumstances-of-sale test, the declared transaction value must "closely approximate" one of the three statutory test values. The regulation does not define a numerical threshold for "closely approximates." CBP guidance and practice suggest that a variance of plus-or-minus five percent may be accepted as "close" in many cases, though each determination depends on its facts and the availability of adjustments for differences in commercial level, quantity, or other factors under 19 C.F.R. § 152.104(e). If the importer can demonstrate close approximation to a valid test value, CBP will accept transaction value without further inquiry into whether the relationship influenced the price.

Practical note — documentation and informed compliance

Under the reasonable-care standard of 19 U.S.C. § 1484, importers dealing with related sellers should maintain and be prepared to produce: (1) invoices and price lists showing sales to unrelated buyers (if relying on illustrative example (ii)); (2) financial statements and profit analyses by product line or class-or-kind grouping (if relying on example (iii)); (3) contemporaneous documentation of the pricing methodology or formula used to set transfer prices; and (4) any IRS transfer-pricing study or APA, with an explanation of how the customs transaction value fits within the arm's-length range. CBP may request this documentation during entry review, in a request for information (CF 28), or in the course of a focused assessment or compliance audit.

Source: 19 U.S.C. § 1401a(b)(2)(B), (g)(1) Source: 19 C.F.R. § 152.103(j), (l) Source: CBP Informed Compliance Publication, Determining the Acceptability of Transaction Value for Related Party Transactions

When the transaction value of imported merchandise cannot be determined or cannot be used because one of the four statutory conditions under 19 U.S.C. § 1401a(b)(2) fails, U.S. Customs and Border Protection must appraise the merchandise using a strict hierarchy of alternative valuation methods. The statute mandates a sequential application: CBP proceeds down the list in order and may not skip a method or select one out of sequence, except where the importer exercises the statutory option to reverse the order of deductive and computed value.

The six-method statutory hierarchy

Under 19 U.S.C. § 1401a(a)(1) and 19 C.F.R. § 152.101(b), merchandise is appraised on the basis of:

1. Transaction value (19 U.S.C. § 1401a(b); 19 C.F.R. § 152.103) — the price actually paid or payable for the imported merchandise when sold for exportation to the United States, plus the five statutory additions (packing, selling commissions, assists, royalties, and proceeds), provided that the four conditions in § 1401a(b)(2) are satisfied.

1. Transaction value of identical merchandise (19 U.S.C. § 1401a(c); 19 C.F.R. § 152.104), if the transaction value of the imported merchandise cannot be determined or cannot be used by reason of § 1401a(b)(2).

1. Transaction value of similar merchandise (19 U.S.C. § 1401a(c); 19 C.F.R. § 152.104), if the transaction value of identical merchandise cannot be determined.

1. Deductive value (19 U.S.C. § 1401a(d); 19 C.F.R. § 152.105), if the transaction value of similar merchandise cannot be determined and the importer does not request alternative valuation under § 1401a(a)(2).

1. Computed value (19 U.S.C. § 1401a(e); 19 C.F.R. § 152.106), if deductive value cannot be determined.

1. Fallback method (19 U.S.C. § 1401a(f); 19 C.F.R. § 152.107), if computed value cannot be determined.

Each method may be applied only if the preceding method cannot be determined or, in the case of transaction value, cannot be used because one of the four conditions is not satisfied.

Identical merchandise and similar merchandise — definitions

Under 19 C.F.R. § 152.102(d), "identical merchandise" means merchandise identical in all respects to, and produced in the same country and by the same person as, the merchandise being appraised. If merchandise produced by the same person cannot be found, CBP may consider merchandise produced in the same country by a different person. "Similar merchandise" under § 152.102(e) means merchandise produced in the same country and like the merchandise being appraised in characteristics and component material, and commercially interchangeable with it. Minor differences in appearance do not disqualify merchandise from being similar. Both identical and similar merchandise must have been exported to the United States at or about the same time as the merchandise being appraised, though 19 C.F.R. § 152.107(b) permits this "same time" requirement to be interpreted flexibly.

Deductive value — the resale-minus method

Deductive value under 19 U.S.C. § 1401a(d) and 19 C.F.R. § 152.105 is based on the unit price at which the merchandise concerned (the imported merchandise, identical merchandise, or similar merchandise) is sold in the United States in the greatest aggregate quantity, at or about the time of importation of the merchandise being appraised, to persons not related to the seller. From that unit price, CBP deducts: (i) commissions or profit and general expenses usually reflected in sales of imported merchandise of the same class or kind; (ii) the usual costs of transportation and insurance incurred in the United States; (iii) the customs duties and other federal taxes payable on the imported merchandise; and (iv) if the merchandise has been further processed after importation, the value added by that processing. The regulation at 19 C.F.R. § 152.105(c) provides that merchandise concerned must be sold within 90 days after importation, though § 152.107(c) permits this time limit to be administered flexibly. Deductive value is rarely applied in practice because it requires detailed U.S. resale data by the importer or by unrelated importers of identical or similar merchandise, and it requires agreement on the appropriate deductions for profit, general expenses, and (if applicable) further processing.

Computed value — the build-up method

Computed value under 19 U.S.C. § 1401a(e) and 19 C.F.R. § 152.106 is the sum of: (1) the cost or value of the materials and fabrication and other processing employed in producing the imported merchandise; (2) an amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind as the imported merchandise that are made by producers in the country of exportation for export to the United States; (3) any assist, if its value is not already included in (1) or (2); and (4) packing costs. Computed value requires the producer's cost and profit data. Under 19 C.F.R. § 152.106(e), the "merchandise of the same class or kind" used to determine usual profit and general expenses must be from the same country as the merchandise being appraised. Computed value is rarely applied in practice because many foreign producers decline to provide detailed cost-of-production and profit data to CBP, and CBP cannot compel such disclosure from a foreign entity. When the producer's own figures for profit and general expenses are inconsistent with those usually reflected in sales of the same class or kind for export to the United States, CBP may base the profit-and-general-expenses component on other reliable and quantifiable information.

The importer's option to reverse deductive and computed value

Under 19 U.S.C. § 1401a(a)(2) and 19 C.F.R. § 152.101(c), if the transaction value of similar merchandise (method 3) cannot be determined, the importer may request that computed value (method 5) be applied before deductive value (method 4). The request must be made at the time the entry summary for the merchandise is filed with CBP, either at the port of entry or electronically. This option allows the importer to choose the more favorable or more workable method when both would otherwise be available. For example, an importer who has access to the producer's cost and profit data but lacks U.S. resale data may elect computed value ahead of deductive value. Once the importer makes the election, CBP applies computed value first; if computed value cannot subsequently be determined, CBP reverts to deductive value if deductive value can be determined under § 152.105. If neither method can be determined, CBP applies the fallback method under § 152.107.

Fallback method — reasonable adjustment of prior methods

The fallback method under 19 U.S.C. § 1401a(f) and 19 C.F.R. § 152.107 is the method of last resort. If the value of imported merchandise cannot be determined under any of methods 1 through 5, the merchandise is appraised on the basis of a value derived from those methods, reasonably adjusted to the extent necessary to arrive at a value. The regulation specifies that only information available in the United States may be used. For example, CBP may use transaction value of identical or similar merchandise from a different time period (relaxing the "at or about the same time" requirement), or may use deductive value based on sales occurring more than 90 days after importation, or may use a computed value based on producer cost data for a related product. The fallback method does not permit CBP to use certain bases of appraisement that are expressly prohibited by 19 U.S.C. § 1401a(f) and listed at 19 C.F.R. § 152.108: (i) the selling price in the United States of merchandise produced in the United States; (ii) a system providing for appraisement at the higher of two alternative values; (iii) the price of merchandise in the domestic market of the country of exportation; (iv) a cost of production other than computed value for identical or similar merchandise; (v) the price of merchandise for export to a country other than the United States; (vi) minimum customs values; or (vii) arbitrary or fictitious values.

Practical note — burden on the importer and the risk of CBP's alternative determination

Under 19 U.S.C. § 1484(a), the importer of record has the statutory duty to use reasonable care to declare the correct value. When transaction value is not available or not acceptable, the importer should provide CBP with all information reasonably available to support valuation under the next applicable method in the hierarchy. CBP's authority to appraise merchandise under an alternative method often requires the importer's cooperation: for example, transaction value of identical or similar merchandise may require invoices and sales data from other importers; deductive value requires detailed U.S. resale records; and computed value requires the producer's cost and profit data. If the importer cannot or does not provide the information necessary for the next method, CBP moves to the subsequent method. When the importer has a choice — for example, whether to provide producer cost data to enable computed value or to provide U.S. resale data to enable deductive value — the importer's decision to elect one method over the other (under § 1401a(a)(2)) can significantly affect both the administrative burden and the resulting appraised value. Under 19 U.S.C. § 1401a(a)(3) and 19 C.F.R. § 152.101(d), the importer may request a written explanation of how the value of the merchandise was determined.

Source: 19 U.S.C. § 1401a Source: 19 C.F.R. § 152.101 Source: 19 C.F.R. § 152.105 Source: 19 C.F.R. § 152.106 Source: 19 C.F.R. § 152.107

When imported merchandise changes hands through a series of sales before reaching the United States importer, the importer may elect to declare transaction value based on the price paid in an earlier sale in the chain — typically the price paid by a middleman to the foreign manufacturer — rather than the price the U.S. importer paid to the middleman. This practice, known as "first-sale" or "first-sale-for-export" valuation, can yield substantial duty savings when the middleman adds a markup. However, the importer bears the burden of demonstrating that the earlier sale qualifies under the statute and controlling case law.

Statutory foundation and the default presumption

Under 19 U.S.C. § 1401a(b)(1), transaction value is defined as "the price actually paid or payable for the merchandise when sold for exportation to the United States," plus the five statutory additions. The statute does not explicitly define which sale in a multi-tiered transaction constitutes "the" sale for exportation. U.S. Customs and Border Protection presumes that transaction value is based on the price paid by the importer — the last sale occurring before the merchandise enters the United States. An importer who wishes to use the price from an earlier sale must affirmatively establish that the earlier transaction meets the first-sale standard.

**The Nissho Iwai three-prong test**

The legal framework for first-sale valuation was established by the U.S. Court of Appeals for the Federal Circuit in Nissho Iwai American Corp. v. United States, 982 F.2d 505 (Fed. Cir. 1992). The case involved a three-tiered transaction: a Japanese manufacturer (Kawasaki Heavy Industries) sold rapid-transit passenger cars to a Japanese trading company (Nissho Iwai Corporation), which in turn resold them through its U.S. subsidiary to the New York Metropolitan Transportation Authority. The Court of International Trade had held that valuation should be based on the MTA purchase price. The Federal Circuit reversed, holding that the manufacturer-to-middleman price was the proper basis for transaction value because the cars were clearly destined for export to the United States at the time of that sale.

CBP rulings applying Nissho Iwai articulate a three-prong test. To use first-sale valuation, the importer must present sufficient evidence that the earlier sale satisfies all three of the following requirements:

1. Bona fide sale — The transaction between the manufacturer and the middleman must be a genuine sale involving a transfer of title and risk of loss, not a consignment, an agency arrangement, or a sham transaction. CBP examines whether the parties negotiated terms, whether invoices and payment records reflect an arms'-length commercial arrangement, and whether the middleman assumed the ordinary risks and benefits of ownership (for example, inventory risk, warranty obligations, or exposure to price fluctuations). Transactions in which the middleman makes no profit, holds title only momentarily, or acts as a mere conduit for the manufacturer raise red flags and may be found not to constitute bona fide sales.

1. Arm's-length transaction, free from non-market influences — The price paid in the earlier sale must be negotiated at arm's length and must not reflect distortive factors such as related-party influence (unless the importer satisfies the related-party tests under 19 U.S.C. § 1401a(b)(2)(B)), government subsidies, or other non-market considerations. When the manufacturer and the middleman are related persons, the importer must demonstrate that the price is acceptable under either the circumstances-of-sale test or the test-values method, as discussed in the guide's section on related-party transactions. CBP has expressed particular concern in recent rulings about whether prices paid to manufacturers in non-market economies (such as China) can satisfy the arm's-length requirement, though this remains an evolving area of enforcement.

1. Goods clearly destined for export to the United States — At the time of the earlier sale, the merchandise must have been clearly destined for the United States. Nissho Iwai emphasized that the subway cars had no alternative destination; they were custom-built to MTA specifications and shipped directly to New York. CBP guidance and rulings require evidence that the manufacturer and the middleman understood, at the time of their transaction, that the goods would be exported to the United States — for example, purchase orders referencing a U.S. customer, shipping documents showing a U.S. destination, or specifications unique to the U.S. market. Merchandise produced for general inventory or for multiple export markets and later allocated to a U.S. customer may not satisfy this prong.

Elements of transaction value remain applicable

Even if the importer establishes that the first sale qualifies under the Nissho Iwai test, the declared value must still satisfy all conditions for transaction value under 19 U.S.C. § 1401a(b)(2). The four statutory conditions — no impermissible restrictions on use or disposition, no unquantifiable conditions affecting the sale, no unaccounted-for proceeds of subsequent resale, and (if the parties are related) satisfaction of the related-party tests — apply to the manufacturer-to-middleman transaction. In addition, the importer must add to the first-sale price any statutory additions under § 1401a(b)(1)(A) through (E) that were not already included in that price. For example, if the U.S. importer provided an assist (tools, dies, design work, or materials) directly to the manufacturer for use in production, the value of that assist must be added to the first-sale price, apportioned in accordance with 19 C.F.R. § 152.103(e), even though the assist was not provided by the middleman.

Documentation and compliance burdens

CBP rulings make clear that the importer bears the burden of documenting all three prongs of the Nissho Iwai standard and the continued satisfaction of transaction-value conditions. Importers using first-sale valuation should maintain and be prepared to produce: (1) contracts, purchase orders, and invoices for both the manufacturer-to-middleman sale and the middleman-to-importer sale; (2) proof of payment at each tier; (3) shipping documents and bills of lading showing the merchandise's routing and destination; (4) documentation of the parties' commercial relationship (for example, distribution agreements, pricing policies, or correspondence establishing that the goods were ordered for U.S. export); (5) evidence of transfer of title and risk of loss; (6) if the manufacturer and middleman are related, documentation supporting the circumstances-of-sale or test-values analysis; and (7) calculations and apportionment schedules for any assists or other statutory additions.

Under the reasonable-care standard of 19 U.S.C. § 1484, failure to maintain adequate documentation or to respond to CBP requests for information (for example, via CBP Form 28) may result in CBP rejecting the first-sale claim and appraising the merchandise on the basis of the last sale (the importer's purchase price) or, if that transaction value is also unacceptable, under one of the alternative methods in the statutory hierarchy.

Declaration requirement and current enforcement environment

The Food, Conservation, and Energy Act of 2008 (the "Farm Bill," 19 U.S.C. § 1484 note) required importers, for a one-year period beginning August 20, 2008, to declare to CBP at the time of entry whether transaction value was determined on the basis of a first or earlier sale. CBP implemented this requirement at 73 Fed. Reg. 49939 (August 25, 2008) by requiring an "F" indicator on CBP Form 7501 (or the electronic equivalent at the line level in ACE). Although the mandatory declaration period expired in August 2009, the "F" indicator remains available in ACE, and many importers continue to use it to signal first-sale claims. CBP may use entry data flagged with the "F" indicator as a basis for targeted compliance reviews or Focused Assessments.

As of 2026, first-sale valuation remains permissible under Nissho Iwai and CBP guidance, though proposals to eliminate the practice have been introduced in Congress. Importers relying on first-sale programs should monitor legislative developments and ensure that their documentation and internal controls satisfy the three-prong Nissho Iwai standard and the full transaction-value framework.

Source: Nissho Iwai American Corp. v. United States, 982 F.2d 505 (Fed. Cir. 1992) Source: 19 U.S.C. § 1401a Source: CBP Headquarters Ruling H255442 (Oct. 9, 2014) Source: CBP Headquarters Ruling H097035 Source: CBP First Sale Declaration guidance

Under 19 U.S.C. § 1401a(b)(4)(A), the term "price actually paid or payable" is defined as the total payment made or to be made by the buyer to the seller for imported merchandise, exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States. This statutory exclusion reflects the WTO Valuation Agreement's principle that transaction value should be based on the commercial value of the goods themselves at the point of export, not the landed cost in the importing country.

International freight and insurance charges are therefore not dutiable under the transaction-value method, provided that the importer can establish the actual cost of those charges and that they are genuinely incident to the international shipment. The exclusion does not apply to estimated costs or to transportation and packing costs incurred before the merchandise was sold for export to the United States.

Statutory and regulatory framework

The exclusion is codified at 19 U.S.C. § 1401a(b)(4)(A) and elaborated in 19 C.F.R. § 152.102(f), which defines "costs, charges, or expenses incident to the international shipment of merchandise" to mean those costs incurred from the time the merchandise is placed with a carrier for export to the United States until it arrives at the U.S. port of entry, including loading, unloading, handling, and transportation charges, as well as insurance premiums.

CBP has consistently held that the amounts deductible are the actual costs paid to the international carrier, freight forwarder, or insurance company, not estimated costs. If actual costs cannot be verified, CBP will not permit the exclusion, and the entire invoice price (including embedded freight and insurance) will be treated as dutiable. This actual-cost requirement was emphasized in CBP General Notice published February 19, 1997, 31 Cust. Bull. & Dec. No. 8, and confirmed in numerous headquarters rulings.

Ocean freight and air freight — always excludable if separately identified

Charges for ocean freight, air freight, and marine or air cargo insurance incurred to transport merchandise from the foreign port of loading to the U.S. port of entry are excludable from transaction value under 19 U.S.C. § 1401a(b)(4)(A), provided that:

1. The charges are separately identified in the invoice, bill of lading, or other commercial documentation;
2. The importer presents evidence of the actual cost paid or payable to the carrier or insurer (for example, a freight invoice, bill of lading showing freight charges, insurance certificate or premium invoice, proof of payment via letter of credit or bank statement); and
3. The charges are genuinely for services performed after the merchandise was sold for export to the United States.

Under 19 C.F.R. § 152.103(a)(1), Example 4, if a U.S. buyer pays $2,000 for a shipment consisting of $1,850 for merchandise and $150 for ocean freight and insurance, the transaction value is $1,850. The regulation states explicitly: "Because the transaction value excludes C.I.F. charges, the $150 ocean freight and insurance charge is excluded."

Foreign inland freight — the ex-factory exception and the through-bill-of-lading test

Foreign inland freight presents a more complex analysis than ocean or air freight. Under 19 C.F.R. § 152.103(a)(5), the treatment of foreign inland freight (transportation from the seller's factory or warehouse in the country of exportation to the port of export) depends on the terms of sale and the timing of the freight arrangement.

Ex-factory sales (EXW Incoterms): If the price actually paid or payable does not include any charge for foreign inland freight because the sale was made on ex-factory terms (the buyer took possession at the seller's loading dock), foreign inland freight charges incurred by the buyer or a third party will not be added to the price. Under 19 C.F.R. § 152.103(a)(5)(i), "If the price actually paid or payable by the buyer to the seller for the imported merchandise does not include a charge for foreign inland freight and other charges for services incident to the international shipment of merchandise (an ex-factory price), those charges will not be added to the price."

Sales other than ex-factory (FOB, CIF, CFR, etc.): As a general rule, when the price actually paid or payable includes a charge for foreign inland freight—whether itemized separately on the invoice or embedded in the total—that charge is part of the dutiable transaction value. Under 19 C.F.R. § 152.103(a)(5)(ii), "in those situations where the price actually paid or payable for imported merchandise includes a charge for foreign inland freight, whether or not itemized separately on the invoices or other commercial documents, that charge will be part of the transaction value to the extent included in the price."

However, foreign inland freight may be excluded from transaction value if both of the following conditions are satisfied:

1. The charges are identified separately on the invoice or other commercial documents; and
2. The charges occur after the merchandise has been sold for export to the United States and placed with a carrier for through shipment to the United States.

The through-bill-of-lading requirement

Under 19 C.F.R. § 152.103(a)(5)(iii), a sale for export and placement for through shipment to the United States must be established by means of a through bill of lading presented to CBP, either at the port of entry or electronically. A through bill of lading is a single transport document issued by one freight forwarder or carrier covering the entire journey from the point of origin in the foreign country to the U.S. destination, with no change of custody or re-booking at an intermediate point.

Only in situations where it would be impossible to ship merchandise on a through bill of lading (for example, shipments via the seller's own conveyance) will CBP accept other documentation satisfactory to the Center director showing a sale for export to the United States and placement for through shipment.

The through-bill requirement was judicially interpreted in All Channel Products v. United States, 787 F. Supp. 1457, 16 CIT 169 (1992), aff'd 982 F.2d 513 (Fed. Cir. 1992). The Court of International Trade held that 19 C.F.R. § 152.103(a)(5)(ii) and (iii) establish "a tightly circumscribed exception to the general rule (i.e., that inland freight charges included in a CIF or other non-ex-factory sales price are dutiable) where the importer can satisfactorily document that the [foreign inland freight] charges were 'incident to the international shipment of the merchandise.'" The court emphasized that the merchandise must be "placed with one freight forwarder or carrier for through shipment from the factory to the United States documented by a through bill of lading."

Practical application — FOB factory versus FOB port

If the invoice states "FOB port of Shanghai" or "FOB Hong Kong," the sale price under Incoterms 2020 includes all costs necessary to deliver the goods on board the vessel at Shanghai or Hong Kong, including foreign inland freight from the seller's factory to the port. Under 19 C.F.R. § 152.103(a)(5)(ii), those foreign inland freight charges are dutiable because they were incurred before the merchandise was placed with a carrier for through shipment.

By contrast, if the invoice states "EXW Shenzhen" (ex-works at the seller's factory in Shenzhen) and the buyer arranged for a freight forwarder to pick up the goods at the factory and issue a through bill of lading covering transport from Shenzhen to Los Angeles, the foreign inland freight from Shenzhen to the port of export may be excludable under § 152.103(a)(5)(ii) and (iii), if the importer can demonstrate that the merchandise was sold for export to the United States at the time of pickup and a through bill of lading was issued.

Rebuttable presumption when foreign inland freight appears on the seller's invoice

CBP rulings establish that when foreign inland freight charges appear on the same invoice as the price of the merchandise—even if itemized separately—there is a rebuttable presumption that the sale was made on terms other than ex-factory and that the foreign inland freight is part of the transaction value. To overcome this presumption, the importer must show that the separate line-item for foreign inland freight was included as an accommodation and that the sale was genuinely ex-factory or that a through bill of lading was issued at the time the merchandise was placed with the carrier for export.

Post-importation transportation

Charges for transportation and insurance incurred after the merchandise arrives at the U.S. port of entry—for example, domestic trucking or rail charges from the port to the importer's warehouse—are excluded from transaction value under 19 C.F.R. § 152.103(i). The regulation permits an adjustment for "any reasonable cost or charge that is incurred for … transportation, insurance, and related services incident to the international shipment of the imported merchandise … from the place of importation to the place of delivery in the United States, if such costs … are not included as a general expense under paragraph (b) and are identified separately." Unlike international freight, post-importation transportation costs may be deducted based on "any reasonable cost or charge," not necessarily the actual invoiced cost, though actual cost is preferred.

Evidence requirements and reasonable care

Under the reasonable-care standard of 19 U.S.C. § 1484(a), importers seeking to exclude international freight, insurance, or foreign inland freight from transaction value must maintain and be prepared to produce:

• Commercial invoices separately identifying freight, insurance, and related charges;
• Bills of lading, airway bills, or sea waybills showing the actual freight charges;
• Insurance certificates or policies and premium invoices;
• Freight forwarder invoices itemizing charges for booking fees, terminal handling, documentation, customs clearance at the port of export, and other services;
• Proof of payment (letters of credit, bank statements, cancelled checks, wire-transfer confirmations);
• For foreign inland freight exclusions under § 152.103(a)(5)(ii)–(iii): a through bill of lading or equivalent documentation showing that the merchandise was sold for export to the United States and placed with one carrier or freight forwarder for continuous shipment.

CBP may request this documentation at the time of entry, via CBP Form 28 (Request for Information), or in the course of a compliance audit or Focused Assessment. Failure to provide adequate documentation may result in CBP treating the entire invoice price (including any stated freight or insurance amounts) as dutiable.

Charges incident to international shipment — CBP ruling guidance

CBP has issued numerous headquarters rulings identifying specific freight-forwarder and carrier charges that qualify as "incident to the international shipment" and may be excluded from transaction value when separately identified and supported by actual-cost documentation. Excludable charges include: ocean or air freight, marine or air cargo insurance, carrier agent booking fees, carrier bill of lading fees, AMS (Automated Manifest System) recording fees, documentation fees, terminal handling charges, port security charges, supply chain security fees, container seal fees, customs clearance fees at the foreign port of export, wharfage fees, and telex release fees.

Charges that CBP has found not excludable (because they relate to preparing the goods for shipment rather than transporting them) include: export packing costs (dutiable under the packing addition at 19 U.S.C. § 1401a(b)(1)(A)), warehouse storage fees before the goods are placed with the carrier for export, and certain container-loading or consolidation fees when performed before the merchandise is sold for export.

Source: 19 U.S.C. § 1401a(b)(4)(A) Source: 19 C.F.R. § 152.103(a)(5) Source: 19 C.F.R. § 152.102(f) Source: All Channel Products v. United States, 787 F. Supp. 1457, 16 CIT 169 (1992) Source: CBP Informed Compliance Publication, Proper Deductions for Freight & Other Costs

Under the statutory definition of "price actually paid or payable" in 19 U.S.C. § 1401a(b)(4)(A), transaction value excludes any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States. This exclusion means that when merchandise is sold on a delivered or CIF (Cost, Insurance, and Freight) basis and the international freight and insurance charges are included in the invoice price, those charges must be deducted to arrive at the dutiable value for appraisement. Conversely, when merchandise is sold on an ex-factory or FOB foreign-port basis and international freight and insurance are billed separately to the importer, those charges are not added to transaction value.

Statutory exclusion — international freight and insurance

The statute at 19 U.S.C. § 1401a(b)(4)(A) defines "price actually paid or payable" as the total payment made, or to be made, by the buyer to or for the benefit of the seller for the imported merchandise, exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States. This exclusion is mandatory and applies whether or not the freight and insurance charges are separately stated on the invoice. If the price includes CIF or other delivered-terms charges, the actual cost of international freight, insurance, and related services must be excluded (deducted) from the price actually paid or payable to determine transaction value.

The implementing regulation at 19 C.F.R. § 152.102(f) further defines "costs, charges, and expenses incident to the international shipment of merchandise" as those costs incurred in the placement of merchandise on the carrier, ocean or air freight charges (including charges for chartering vessels or aircraft when the imported merchandise is the sole cargo), necessary forwarding and loading charges, lighterage, and handling charges incident to placing the merchandise on the carrier, the cost of containers and other coverings which are not of a kind ordinarily reusable, the cost of coverings (e.g., ocean containers) of a kind ordinarily reusable if the cost is included in the invoice price and not shown separately, and insurance.

Two typical sale terms — ex-factory versus CIF

Under 19 C.F.R. § 152.103(a)(5)(i), when merchandise is sold on an ex-factory basis — that is, when the price actually paid or payable by the buyer to the seller does not include a charge for foreign inland freight or for other charges for services incident to the international shipment — those charges will not be added to the price. This follows from the statutory exclusion: charges not included in the price need not be deducted, and charges for international freight and insurance are among the categories the statute excludes from the price actually paid or payable even when included in that price.

When merchandise is sold on a CIF or delivered-to-U.S.-port basis, the invoice price includes international freight, insurance, and related charges incident to the international shipment. In those cases, 19 U.S.C. § 1401a(b)(4)(A) requires that those charges be excluded (deducted) from the price actually paid or payable to determine the dutiable transaction value. CBP requires that the deduction be based on actual costs — the amounts ultimately paid to the international carrier, freight forwarder, insurance company, or other provider of such services — rather than estimated or pro-rated amounts. Evidence of actual cost includes invoices or written contracts separately listing freight and insurance costs, through bills of lading, and proof of payment such as letters of credit, checks, or bank statements.

Foreign inland freight — the "sold for export and through shipment" rule

Under 19 C.F.R. § 152.103(a)(5)(ii), as a general rule, when the price actually paid or payable for imported merchandise includes a charge for foreign inland freight (freight from the manufacturer's factory or other origin point in the country of exportation to the foreign port of loading), whether or not itemized separately on the invoices or other commercial documents, that charge will be part of the transaction value and may not be deducted, because it is not a charge "incident to the international shipment" within the meaning of 19 U.S.C. § 1401a(b)(4)(A). However, the regulation provides an exception: charges for foreign inland freight and other services incident to the shipment of the merchandise to the United States may be considered incident to the international shipment — and therefore excluded from transaction value — if both of the following conditions are satisfied:

1. The charges are identified separately (from the price actually paid or payable), and
2. The charges occur after the merchandise has been sold for export to the United States and placed with a carrier for through shipment to the United States.

Under 19 C.F.R. § 152.103(a)(5)(iii), a sale for export and placement for through shipment to the United States shall be established by means of a through bill of lading to be presented to CBP, either at the port of entry or electronically. Only in those situations where it clearly would be impossible to ship merchandise on a through bill of lading (for example, shipments via the seller's own conveyance) will other documentation satisfactory to the Center director showing a sale for export to the United States and placement with a carrier for through shipment be accepted. This through-bill-of-lading requirement is strictly enforced; absent a through bill, foreign inland freight is presumed to be part of the manufacturing and sales cost and is not deductible.

Post-importation (U.S. domestic) transportation costs

Costs incurred for transportation, insurance, and handling within the United States — from the U.S. port of entry to the importer's warehouse, distribution center, or final destination — are not part of transaction value if they are identified separately from the price actually paid or payable. These post-importation transportation costs are distinct from the five statutory additions enumerated at 19 U.S.C. § 1401a(b)(1)(A) through (E) and are neither added to nor deducted from the price actually paid or payable; they simply do not enter the valuation equation. However, if such U.S. inland freight charges are included in the price actually paid or payable to the seller and cannot be separately identified, they remain part of transaction value.

Related charges incident to international shipment — the CBP General Notice and rulings

CBP published a General Notice on March 29, 2000 (TD 00-20, 34 Customs Bulletin No. 13, at 85), reaffirming that the amounts to be deducted from the price actually paid or payable for freight, insurance, and other costs incident to the international shipment of merchandise, including foreign inland freight meeting the "sold for export and through shipment" test, are the actual costs as opposed to estimated costs. CBP considers "actual costs" to constitute those amounts ultimately paid to the international carrier, freight forwarder, insurance company, or other appropriate provider of such services. The notice followed an earlier February 19, 1997 General Notice that had raised the same principle in the context of ocean-freight contracts under the Ocean Shipping Reform Act of 1998 (OSRA).

Subsequent CBP rulings applying the statutory exclusion and the regulation have addressed the treatment of numerous ancillary charges that freight forwarders and carriers include in their invoices. In CBP Headquarters Ruling H312640 (November 13, 2018) and H249096 (January 6, 2014), CBP determined that the following charges may be excluded from the price actually paid or payable as costs incident to the international shipment when separately identified and actually incurred: carrier agent booking fee, carrier bill of lading fee, documentation fee, port security charge, supply chain security fee, terminal handling charge, wharfage fee, CFS (container freight station) receiving, customs clearance (foreign customs export clearance), CY monitoring, FCR/house bill of lading issuance, LCL handling, port construction charge, AMS (Automated Manifest System) fee, telex release fee, and fuel surcharge.

By contrast, charges incurred in order to place the imported merchandise in condition, packed ready for shipment to the United States — for example, repackaging services, container loading, container seal fees, and certain equipment management fees related to moving a container from the factory to the port of export — are treated as packing costs under 19 C.F.R. § 152.102(e) and may not be excluded from transaction value; if not already included in the price actually paid or payable, they must be added under 19 U.S.C. § 1401a(b)(1)(A).

Practical compliance — documentation and entry procedures

Under 19 C.F.R. § 141.61(e) and General Statistical Note 1 to the Harmonized Tariff Schedule of the United States, importers filing entry documentation (CBP Form 7501 or its electronic equivalent in the Automated Commercial Environment) must report the value of the merchandise exclusive of international freight and insurance charges. The aggregate cost of freight, insurance, and all other charges incident to the international shipment must be listed separately in column 33 of Form 7501 (or the corresponding ACE data element). Importers bear the burden under 19 U.S.C. § 1484(a) to use reasonable care to obtain and maintain evidence of the actual cost of international freight, insurance, and related charges. If exact amounts are not readily available at the time of entry, CBP will accept reasonable estimates, but the importer must subsequently provide actual costs during the entry-summary reconciliation process or in response to CBP requests for information (CF 28). Acceptance of an estimate for a particular transaction does not relieve the importer from obtaining the necessary information for similar future transactions.

Distinction from valuation additions and other dutiable charges

The exclusion of international freight and insurance from the price actually paid or payable is separate from and operates before the five statutory additions enumerated in 19 U.S.C. § 1401a(b)(1). After excluding international freight and insurance, the importer must add (if not already included in the price) packing costs incurred by the buyer (subsection (A)), any selling commission incurred by the buyer (subsection (B)), the apportioned value of any assist (subsection (C)), any royalty or license fee related to the imported merchandise that the buyer is required to pay as a condition of the sale (subsection (D)), and any proceeds of subsequent resale, disposal, or use that accrue to the seller (subsection (E)). The resulting sum is the transaction value for appraisement.

Source: 19 U.S.C. § 1401a(b)(4)(A) Source: 19 C.F.R. § 152.102(f) Source: 19 C.F.R. § 152.103(a)(5) Source: CBP Informed Compliance Publication, Proper Deductions for Freight & Other Costs Source: CBP Headquarters Ruling H312640

When an importer discovers that the declared customs value on an entry or entry summary was incorrect—whether because of a clerical error, a mistake of fact, newly determined assist values, a final royalty calculation, or a related-party price adjustment—United States law provides two principal mechanisms for correction after the entry has been filed: (1) a request for reliquidation under 19 U.S.C. § 1520(c)(1) on the ground of clerical error, mistake of fact, or other inadvertence, and (2) reconciliation under the ACE (Automated Commercial Environment) Reconciliation Prototype, authorized by the Customs Modernization Act of 1993 and codified in the entry-summary regulations at 19 C.F.R. Part 142. Both mechanisms apply to valuation errors; the choice between them depends on the timing, the nature of the error, and whether the importer flagged the entry for future adjustment at the time of filing.

19 U.S.C. § 1520(c) — clerical error, mistake of fact, or other inadvertence

Under 19 U.S.C. § 1520(c)(1), U.S. Customs and Border Protection may reliquidate an entry or reconciliation to correct a clerical error, mistake of fact, or other inadvertence, whether or not resulting from or contained in an electronic transmission, not amounting to an error in the construction of a law, adverse to the importer and manifest from the record or established by documentary evidence, when the error, mistake, or inadvertence is brought to the attention of CBP within one year after the date of liquidation or exaction.

This provision applies to valuation errors that meet three statutory requirements:

1. Nature of the error: The error must be a clerical error, mistake of fact, or other inadvertence. Common valuation scenarios that qualify include: mis-keying an invoice amount, applying the wrong exchange rate on the date of export, omitting a separately stated freight or insurance charge that should have been excluded under 19 U.S.C. § 1401a(b)(4)(A), incorrectly allocating an assist over the wrong number of units, or applying an estimated royalty amount when the final royalty invoice (received post-importation) shows a different figure. The error must not amount to an error in the construction of a law—for example, a disagreement over whether a royalty is dutiable under the two-prong test in § 1401a(b)(1)(D) or whether a related-party price is acceptable under the circumstances-of-sale test is a legal conclusion, not a clerical error, and cannot be corrected under § 1520(c)(1). Such disputes must be addressed by filing a protest under 19 U.S.C. § 1514 within 180 days after liquidation or the decision at issue.

1. Adverse to the importer: The error must have resulted in the importer paying more duty than was legally owed. Section 1520(c)(1) does not authorize CBP to reliquidate an entry to increase duties on the government's initiative under the clerical-error standard; CBP may increase duties through a voluntary reliquidation under 19 U.S.C. § 1501 (within 90 days of liquidation) or, if fraud or gross negligence is found, through other statutory mechanisms.

1. One-year time limit: The importer must bring the error to CBP's attention within one year after the date of liquidation or exaction. If the entry has not yet liquidated, the request may be made at any time before liquidation or within one year thereafter. Liquidation generally occurs automatically under 19 U.S.C. § 1504 unless CBP extends liquidation or the entry is subject to suspension (for example, pending an antidumping or countervailing duty investigation under 19 U.S.C. § 1504(d), or pending resolution of a protest or court litigation).

Procedure for requesting § 1520(c) relief

The implementing regulation at 19 C.F.R. § 173.4 (applicable to entries made before December 18, 2004) and the current practice under ACE for post-December 2004 entries require the importer to submit a written request to the CBP Center director or port director, identifying the entry number, the nature of the error, the correct dutiable value, and the amount of the refund sought. The request must be supported by documentary evidence—invoices, bills of lading, payment records, assist allocation schedules, royalty agreements, or other commercial documents—establishing that the error occurred and that the importer is entitled to the claimed refund.

For entries made on or after December 18, 2004, the Customs Modernization and Informed Compliance Act amendments to 19 U.S.C. § 1514(a) provide that any clerical error, mistake of fact, or other inadvertence adverse to the importer in any entry, liquidation, or reliquidation may be corrected by protest only, except as provided in sections 1501, 1516, and 1520. In practice, this means that clerical errors meeting the § 1520(c)(1) standard remain eligible for administrative correction without filing a formal protest, but errors that do not meet the standard—or that involve a legal issue—must be protested under § 1514 within 180 days of liquidation.

Reconciliation — the ACE Reconciliation Prototype

The Customs Modernization Act of 1993 (Mod Act, title VI of Pub. L. 103-182) authorized CBP to establish a National Customs Automation Program (NCAP) that permits the electronic submission of entry data and the reconciliation of certain data elements after the filing of the entry summary. The ACE Reconciliation Prototype, published on February 6, 1998, and migrated from the legacy Automated Commercial System (ACS) to ACE in February 2018, implements this authority.

Reconciliation allows an importer to file an entry summary using the best information available at the time of entry, to flag one or more data elements (value, classification, country of origin, antidumping or countervailing duty rate, or other specified issue) as estimated or subject to future adjustment, and then to file a Reconciliation entry (Entry Type 09) to correct those flagged elements once final information is available—typically within 15 months of the date of entry of the underlying merchandise, though CBP may grant extensions.

Flagging at the time of entry

To use the reconciliation process for a valuation adjustment, the importer (or the importer's broker or filer) must flag the entry summary at the time of filing by including a reconciliation issue code in the appropriate ACE data field. The ACE Entry Summary CATAIR (Customs and Trade Automated Interface Requirements) defines the available reconciliation issue codes; for valuation, the most commonly used codes are:

• V (Value): for entries where the transaction value cannot be finally determined at the time of entry—for example, because assists have been provided but not yet fully valued or apportioned, or because royalties are subject to a formula that will not be calculated until the end of a reporting period, or because the price is subject to a post-importation adjustment (such as a rebate, discount, or volume incentive) that is contingent on future events.

• RV (Related-party value): a specialized flag indicating that the buyer and seller are related persons under 19 U.S.C. § 1401a(g)(1) and that the importer will reconcile the value after obtaining additional evidence to satisfy the circumstances-of-sale or test-values analysis.

An entry flagged for reconciliation must be covered by a valid continuous Customs bond and a Reconciliation bond rider on file with CBP at the time the entry is filed. Without the rider, the ACE system will reject the flagged entry.

Filing the Reconciliation entry

The Reconciliation entry (Entry Type 09) is filed electronically via ACE. It may cover a single flagged entry or up to 9,999 flagged entries (an "aggregate" reconciliation) filed by the same importer of record under the same bond. The Reconciliation entry must be filed within 15 months of the date of entry of the underlying merchandise, unless CBP grants an extension. If the importer fails to file the Reconciliation entry by the deadline, CBP will liquidate the flagged entries using the estimated data originally declared, and the importer may lose the opportunity to claim a refund or may be assessed additional duties based on the declared estimate.

The Reconciliation entry reports the corrected or reconciled value and compares it to the originally declared value. ACE automatically populates the original amounts from the flagged entry summaries; the filer submits only the reconciled amounts. If the reconciled value is lower than the estimated value originally declared (because, for example, the final royalty calculation was less than the estimate, or the assist apportionment was spread over more units than initially anticipated), the importer is entitled to a refund. If the reconciled value is higher, additional duties are due, and the importer must pay them via ACH, check, or periodic monthly statement at the time the Reconciliation entry is filed.

Reconciliation versus § 1520(c)(1): when to use which mechanism

An importer should use reconciliation when:

• The entry element is inherently indeterminable at the time of entry (for example, assists that must be valued and apportioned, royalties calculated under a variable formula, or related-party prices subject to annual true-up), and the importer flags the entry for reconciliation at the time of filing.

• The importer wants to avoid the one-year post-liquidation deadline under § 1520(c)(1) by flagging the entry and filing the Reconciliation entry within the 15-month reconciliation window (before liquidation).

An importer should use § 1520(c)(1) when:

• The entry was not flagged for reconciliation at the time of filing, and a clerical error, mistake of fact, or other inadvertence (not a legal dispute) is discovered after liquidation but within one year of liquidation.

• The error is of a type not covered by the reconciliation issue codes (for example, a simple data-entry mistake in keying the invoice value).

• The importer wants a simpler administrative process and does not need the structure of a formal Reconciliation entry.

Reconciliation is voluntary

Participation in the ACE Reconciliation Prototype is voluntary. There is no application process; any importer with a valid continuous bond and a Reconciliation bond rider on file may flag entries for reconciliation. CBP strongly encourages importers to use reconciliation for entries involving complex valuation issues (assists, royalties, related-party prices, or contingent price adjustments) because it provides legal certainty, reduces the risk of undervaluation penalties, and permits CBP and the importer to defer final valuation until accurate data is available.

Penalties and reasonable care

Under the reasonable-care standard of 19 U.S.C. § 1484(a), an importer who knows that an element of value (such as an assist or a royalty) cannot be accurately determined at the time of entry is expected to either (i) flag the entry for reconciliation and file a timely Reconciliation entry with the final figures, or (ii) estimate the value conservatively (erring on the side of overpayment) and request a refund under § 1520(c)(1) after liquidation if the final figures are lower. An importer who declares an artificially low estimated value, does not flag the entry for reconciliation, and does not timely correct the error may face penalties for negligence under 19 U.S.C. § 1592(a) if CBP later determines that the importer failed to exercise reasonable care.

Relationship to protests

Neither § 1520(c)(1) nor reconciliation may be used to re-litigate a legal conclusion about the correct method of valuation. If CBP denies a § 1520(c) request or a Reconciliation entry on the ground that the issue is not a clerical error but a disputed question of law (for example, whether a particular payment is a dutiable royalty or whether a related-party price satisfies the circumstances-of-sale test), the importer's recourse is to file a protest under 19 U.S.C. § 1514 within 180 days of the denial (or, if the entry has already liquidated, within 180 days of liquidation). The protest may then be the subject of further review by CBP Headquarters and, if denied, may be appealed to the U.S. Court of International Trade under 28 U.S.C. § 1581(a).

Current status as of June 2026

The ACE Reconciliation system became fully operational in February 2018 when CBP migrated all reconciliation functionality from the legacy ACS platform to ACE. As of June 2026, reconciliation remains a cornerstone of CBP's informed-compliance strategy under the Mod Act. CBP has not published aggregate statistics on reconciliation usage, but trade-press reports and practitioner experience suggest that hundreds of importers use the reconciliation process for complex valuation scenarios, especially multinational corporations with related-party supply chains, ongoing royalty obligations, or global assist programs.

Source: 19 U.S.C. § 1520(c)(1) Source: 19 C.F.R. § 173.4 Source: 19 U.S.C. § 1514(a) Source: CBP ACE Reconciliation Frequently Asked Questions Source: CBP Reconciliation Program Overview