A customs authority does not charge duty on a factory's cost, or on a buyer's retail price; it charges duty on one specific figure called the customs value, read from the shipment's own commercial invoice. This lesson mainly teaches the money flow: turning an invoice's own price and quantity into the one number a duty rate is later applied to. Meridian Sourcing, the agent handling paperwork between Delta Garments and Northline Apparel, must get this figure right before any duty question can even be asked, since a wrong customs value produces a wrong duty however correct the rate itself is.
You need: lessons 3.1 (what an HS code is) and 3.2 (classifying a garment from its construction).
By the end of this lesson you can:
Not covered here: calculating duty owed from a rate and a customs value (lesson 3.4), and building a complete classification and valuation sheet (lesson 3.5).
| Term | Meaning |
|---|---|
| Customs value | The value of a shipment that a country's customs authority applies its duty rate to, most often the transaction value shown on the commercial invoice. |
| Transaction value | The price actually paid or payable for goods sold for export, the most common basis a customs authority uses to set the customs value. |
| FOB value | The value of a shipment at the point it is delivered on board the ship at the factory's own port, before freight and insurance to the destination are added. |
| CIF value | The value of a shipment including cost, insurance and freight to the destination port, used as the customs value basis by some countries instead of FOB. |
| Freight | The cost of transporting goods from the port of shipment to the destination, added to FOB value to reach a CIF value. |
| Commercial invoice | The document that states the price and value of the goods being shipped, used by customs and by the bank. |
A customs authority applies its duty rate to a defined customs value, most commonly the transaction value: the price actually paid or payable for the goods, as shown on the commercial invoice. This figure has nothing to do with what it cost Delta Garments to make Order A's T-shirts, and nothing to do with what Northline Apparel later charges its own shops; it is the invoice price for the specific shipment crossing the border. Getting this figure wrong changes every duty calculation that follows from it, even if the duty rate itself is correctly identified.
| What can differ | The shapes you will meet | Why it matters to you |
|---|---|---|
| FOB basis or CIF basis | Some countries use the FOB value, delivered on board the ship, as the customs value directly. Others require a CIF value, adding freight and insurance to the destination port, before duty is applied. | The same shipment can carry two different customs values depending only on which basis the destination country's own rules require. |
| Export or domestic movement | Order A's export shipment to Northline Apparel needs a calculated customs value, since it crosses a border. Cedar & Co.'s own domestic orders never need a customs value calculated at all, since no customs authority is ever involved. | Calculating a customs value is only a step in an export shipment's paperwork, never a domestic one's. |
| Who prepares the figure | A factory's own merchandiser can calculate the customs value from its own commercial invoice. An agent like Meridian Sourcing, handling paperwork on behalf of both sides, often calculates and checks the same figure independently. | Whoever prepares the figure, it must trace back to the same invoice price and quantity, not to a different internal cost sheet. |
| Multi-line invoices | Order A's invoice states one product line at one price. A mixed shipment with several styles at different prices states one line per style, and the customs value is the sum of every line, not any single line alone. | A person reading only the invoice's first line on a multi-style shipment will undercount the true customs value. |
| Product family beyond basic apparel | A shipment of socks, towels, or bedding sets is valued exactly the same way, price per unit times quantity from its own commercial invoice; the method does not change even though the product and its own unit of sale do. | A person moving between product families can reuse this lesson's method unchanged, since it depends on the invoice, not on what the product itself is. |
Meridian Sourcing, the agent handling documentation between Delta Garments and Northline Apparel, prepares Order A's customs value ahead of shipping. Order A's commercial invoice states one line: 15,000 pieces at an FOB price of USD 3.20 each. Northline Apparel's own destination country uses an FOB basis for its customs value, so Meridian Sourcing multiplies the invoice's own price by its own quantity directly, with no freight or insurance added.
Every dollar of this figure traces back to a number already printed on the invoice; nothing is estimated or assumed.
The methodA person unfamiliar with customs valuation can assume the customs value is whatever the goods cost to make, or whatever they eventually sell for in a shop; neither is correct. A common mistake is quoting Delta Garments' own cost build-up, fabric, trims, making, overhead and profit, as if it were the customs value, when the actual customs value is the invoice price the buyer pays for the shipment, a separate figure entirely. Order A's own case makes this trap easy to miss, since its cost build-up total and its FOB invoice price happen to be the same USD 3.20 per piece; a different order, where the two figures genuinely differ, exposes the mistake at once, once a customs authority compares the declared value against the actual document it is entitled to see.
A customs authority does not charge duty on what it cost to make a shipment, or on what it later sells for; it charges duty on one figure called the customs value, taken from the shipment's own commercial invoice. For Order A, this is simply the invoice's own FOB price per piece times its own quantity, USD 3.20 times 15,000 pieces, equal to USD 48,000. Some countries add freight and insurance to reach a CIF value instead, but the number still comes from the invoice and the shipping documents, never from a factory's own cost or a shop's own selling price. Getting this one figure wrong changes every calculation that follows it.
A new colleague at Meridian Sourcing, preparing paperwork for Order A's shipment, suggests using Delta Garments' own cost build-up sheet, fabric 1.15, trims 0.20, making 1.10, overhead 0.49 and profit 0.26, to calculate the customs value, reasoning that it shows exactly what the shipment is really worth to make.
Here is the fact the colleague is looking at:
Should Delta Garments' own cost build-up sheet be used to calculate Order A's customs value? Decide before opening the answer.
No, it should not. Two facts decide this together.
First, what a customs value is actually defined as. A customs value is the transaction value, the price actually paid or payable for the goods, read from the commercial invoice, not an internal cost breakdown showing how a factory built up that price.
Second, that Order A's cost build-up sheet and its commercial invoice happen to total the same number here. Both come to USD 3.20 per piece in this case, purely because Order A's FOB price equals its own cost build-up total; this coincidence does not make the cost sheet the correct source. A different order, where FOB price and cost build-up differ, would expose the mistake immediately.
The colleague's instinct that the cost sheet is informative is reasonable, but the customs value must always be sourced from the commercial invoice, the document customs and the bank actually rely on, not from an internal document that happens to agree with it this time.
Framed qualitatively, a habit of pulling the customs value from an internal cost sheet works only as long as that sheet happens to match the invoice; the first order where they diverge produces a wrong customs value with no warning, since nothing on the cost sheet says it is unsuitable for this purpose. Correcting a declared customs value after a shipment has already been checked by customs costs real time re-filing paperwork, on top of any duty already miscalculated from it.
Reading the correct document once, the commercial invoice, costs nothing extra; correcting a customs authority's records afterward does.
Open the Classification and valuation sheet workbook linked below. Its FOB price and quantity rows multiply automatically into a calculated customs value row, using Order A's own fixed figures as the worked example. Fill in the yellow "Your shipment" column with your own invoice's price and quantity to see your own shipment's customs value calculated the same way, checking first whether your destination country uses an FOB or a CIF basis.
[Download the Classification and valuation sheet](../../templates/T14-C03-classification-valuation-sheet.xlsx)
1. What two numbers does Order A's own commercial invoice need to calculate its FOB-basis customs value of USD 48,000?
2. A different shipment of 2,000 pieces at an FOB price of USD 6.00 per piece ships to a country requiring a CIF basis, with USD 800 of freight and insurance added. What is that shipment's customs value?
| EN | AR | FR | TR | Meaning |
|---|---|---|---|---|
| Customs value | القيمة الجمركية | Valeur en douane | Gümrük kıymeti | The value of a shipment that a country's customs authority applies its duty rate to, most often the transaction value shown on the commercial invoice. |
| Transaction value | قيمة المعاملة | Valeur transactionnelle | İşlem değeri | The price actually paid or payable for goods sold for export, the most common basis a customs authority uses to set the customs value. |
| FOB value | قيمة FOB | Valeur FOB | FOB değeri | The value of a shipment at the point it is delivered on board the ship at the factory's own port, before freight and insurance to the destination are added. |
| CIF value | قيمة CIF | Valeur CIF | CIF değeri | The value of a shipment including cost, insurance and freight to the destination port, used as the customs value basis by some countries instead of FOB. |
| Freight | أجرة الشحن | Fret | Navlun | The cost of transporting goods from the port of shipment to the destination, added to FOB value to reach a CIF value. |
| Commercial invoice | الفاتورة التجارية | Facture commerciale | Ticari fatura | The document that states the price and value of the goods being shipped, used by customs and by the bank. |
You now know how to calculate a shipment's customs value from its commercial invoice. The next lesson teaches how to apply an HS code's own duty rate to that value to find the duty actually owed. Back to the course map