Delivery and several adjustments were added to the price of another party's goods - and the customs value of your shipment increased. Under the fall-back method, an error may arise both in selecting the goods for comparison and in the calculation itself. Even suitable goods will produce the wrong result if the same transport is counted twice.
The fall-back method is called method 6. It allows reasonable flexibility in using the preceding customs valuation methods, but it retains the requirements that the source data and the calculation be justified. So the same code under the EAEU Commodity Nomenclature for Foreign Economic Activity does not by itself explain why the price of another shipment is suitable for yours. One tariff heading may contain models with different characteristics, configurations and values.
| May be examined | Reasonable flexibility in earlier methods’ criteria |
|---|---|
| Cannot be substituted | An arbitrary price for a supported calculation |
Method 2 requires identical goods. Under Article 37 of the Customs Code of the Eurasian Economic Union (EAEU Customs Code), these are goods that are the same in all respects, including physical characteristics, quality and reputation. Minor differences in appearance are permitted.
Method 3 uses similar goods. They may differ, but they must have similar characteristics and components, be made of the same materials, perform the same functions and be commercially interchangeable. Quality, reputation and trademark are also taken into account.
So two pumps with the same EAEU tariff code still need to be compared on their substance. Casing material, capacity, permitted temperature and pressure, configuration and the manufacturer's reputation may materially affect price. Technical passports, catalogues and specifications for the particular models are useful here.
Goods of the same manufacturer are considered first. A different manufacturer is used if suitable information about goods of the same manufacturer is unavailable or cannot be used. The reason is straightforward: even with similar technical parameters, products of different manufacturers may occupy different price segments.
Under ordinary methods 2 and 3, the comparable goods must be produced in the same country as the goods being valued. This means the country of production specifically. The country from which the goods were shipped may be different. For example, goods may be produced in China and shipped to Russia from a warehouse in Türkiye.
Article 37 contains other conditions as well, including a restriction for goods in respect of which certain design, artistic design, engineering, engineering-design and similar work was carried out in the territory of the EAEU. Product characteristics and production information must therefore be checked against the documents, not only against a brief description in the declaration.
For ordinary methods 2 and 3, there is a time interval: the identical or similar goods must have been sold for export to the EAEU and imported in the same or a corresponding period, but not earlier than 90 calendar days before the importation of the goods being valued.
The fall-back method allows more flexibility. Article 45 of the EAEU Customs Code permits, among other things, a reasonable departure from the time interval and, in the cases provided for, the use of goods produced in another country. But the source must still make it possible to determine the customs value of the goods being valued on a justified basis.
Paragraphs 7 and 8 of the Rules approved by Decision No. 138 of the Board of the Eurasian Economic Commission (EEC) dated 06.08.2019 require economic factors and market conditions to be taken into account. If the comparable shipment is materially older than the current one, it is necessary to assess whether prices changed. For seasonal goods, the season also matters.
When there is no information about identical and similar goods, Rules No. 138 allow, subject to the prescribed conditions, comparison with goods of the same class or kind. In that case, comparable quality, reputation and consumer characteristics that determine the price range are examined. Paragraph 16 of the Rules does not permit the use of an average price for a broad anonymous group of goods.
After checking the comparable goods themselves, it is necessary to understand exactly which value customs used as the starting point of the calculation. For ordinary methods 2 and 3, this is the accepted customs value of identical or similar goods determined under method 1. Under the fall-back method, Article 45 of the EAEU Customs Code also allows the customs value of identical or similar goods determined under methods 4 or 5 to be used.
The composition of the starting amount is critical for the adjustments. If transport is already included in the customs value of the comparable shipment, the new transport cost cannot simply be added on top in full. First, identify what transport amount is already included in the base, and then calculate the difference between the shipments.
The terms of sale are then compared. Article 41 and Article 42 of the EAEU Customs Code first look to the same commercial level and substantially the same quantity of goods.
The commercial level shows where the transaction sits in the chain of sales. The price at which a factory sells a large batch to a wholesale distributor may differ from the price of a small batch to an end buyer. If there is no suitable transaction at the same level and in a comparable quantity, documented adjustments are allowed.
Batch size is also checked against the documents. Suppose the comparable shipment contained 150 units and the current shipment contains 250. If the price list in force set one price for all orders from 100 to 300 units, the quantity difference does not create a price adjustment. If a discount applied to batches of 200 units or more, its amount must be supported by the price list or other sales data.
Significant differences in the costs of transport, loading, transshipment and insurance caused by distance or mode of transport are taken into account separately. This is an area where it is especially easy to count the same amount twice.
Consider a hypothetical example. 200 pumps are being imported. Customs uses a previously accepted customs value of 100 identical pumps - RUB 110,000. That amount already includes RUB 10,000 for transport to the place of arrival in the EAEU.
The comparable shipment was imported 120 days before the current one. For purposes of the example, assume that using method 6 is already justified, a reasonable departure from the usual time interval is permissible, market stability is documented, and the manufacturer and commercial level are the same. There are no other differences requiring an adjustment. These assumptions are made solely for this instructional calculation.
For each pump in the earlier shipment, the customs value is RUB 1,100, including RUB 100 for transport. The price list in force shows that for a batch of 200 units, the goods component of the price falls from RUB 1,000 to RUB 950. So the documented quantity adjustment reduces the customs value by RUB 50 per pump.
Transport for the new shipment by a different route costs RUB 14,000 for 200 pumps, or RUB 70 per unit. In the starting customs value, transport was RUB 100 per pump. The transport adjustment therefore reduces the customs value by another RUB 30.
The result is:
1,100 - 50 - 30 = RUB 1,020 per pump.
For 200 pumps:
1,020 × 200 = RUB 204,000.
Check it another way:
950 × 200 + 14,000 = RUB 204,000.
Double-counting transport produces a different result. If the old RUB 100 transport cost per pump is left in the price and the entire new transport charge is added, the result is:
(950 + 100) × 200 + 14,000 = RUB 224,000.
The difference is RUB 20,000. It arose because part of the transport cost remained in the starting base while the new transport cost was added at the same time.
In the DTS-2 customs value declaration under Decision No. 160 of the EEC Board dated 16.10.2018, the starting value, decreases, increases and the calculation for the quantity of imported goods are recorded. The number of the other party's declaration and the item number in it link the amount to a particular model. The unit of measurement and exchange rate explain its conversion.
If, after the necessary adjustments, there are several genuinely suitable customs values of identical or similar goods, Articles 41 and 42 require the lowest one to be used. This rule applies after the suitability of each customs value has been checked. Method 6 also directly prohibits a system under which the higher of two alternative customs values is chosen for customs purposes.
If customs has not disclosed the source of the price of the comparable goods or the calculation of the adjustments, paragraph 6 of Article 45 of the EAEU Customs Code provides for the declarant to be informed of the sources of information and the calculations made. The declarant is the person who declares the goods or on whose behalf the goods are declared.
A request for the sources does not prevent the amounts already disclosed from being checked. In the pump example, adding transport twice increased the customs value from RUB 204,000 to RUB 224,000 - that error is visible from the arithmetic itself. If the characteristics of the comparable goods or the composition of the starting value are unknown, those gaps can be identified in the request and the customs response can then be compared with the importer's own calculation.
Andrey Bernev, customs lawyer