Valuation Agreement

Jan 2, 2023
3 min read

Written by Sudipta Bandyopadhyay, Advocate

Introduction

An agreement is made between parties for legal purposes under the guidance of the Indian Contract Act and other laws. Other laws vary on the objects of this agreement. The objects can be about assessing the value of goods. Valuation and evaluation are two words used to assess the value of goods, whether it is tangible or intangible. If parties enter into an agreement while doing trade of goods, it is known as a valuation agreement. When parties enter into an agreement to test software, whether they are applicable for business or not is known as an evaluation agreement. If the results are good, then the deal is renewed for another term.

Definition of Valuation Agreement:

A Valuation Agreement is done to value goods in accordance with the commercial valuation or market value. To escape the arbitrary valuation, this agreement is done under the vigilance of proper authorities.

Example of Valuation Agreement:

A Custom Valuation Agreement is the best example of a valuation agreement. The World Trade Organization often uses Custom Valuation Agreements to make a trade between parties or countries. The Committee on Customs Valuation of the Council for Trade in Goods (CGT) uses this agreement to work under WTO. Companies involved in international trade use this agreement to make business deals. There are many terms associated with a Custom valuation from the beginning. Customs Cooperation Council in 1952 adopted Brussels Definitions of Value which valued time, quantity, commercial level, and price before valuing products. Later Tokyo and Uruguay round developed GATT.

Japan and Singapore entered into such an agreement. According to the agreement, the countries had to follow some objectives. They both signed to promote a good environment for doing trade which will reduce customs duties. Some definitions were accordingly followed as per the rules of GATT. They primarily focused on originating goods and valued the word " Customs value of goods". As per the definition of law, it means the value of goods for the purposes of levying ad valorem customs duties on imported goods.

Important points concerning Custom Valuation Agreement:

A custom valuation agreement is done to empower the economic relationship of countries entered as parties in the agreement.
Its main aim is to reduce or prevent the customs duties that hinder trade.
Parties of such agreement shall abide by all international laws and cooperate in every form of transaction.
Both parties should not offend public morality in the course of business. That means this law does not permit any illegal business.
The agreement states that the fundamental strategy for calculating the customs value of imported goods shall be the transactional value of goods.
The price which is to be actually paid or is payable for the goods sold for export is the transactional value of the goods.
The buyer shall pay the value of Royalties and License fees.
The buyer must pay the cost of transporting the goods to a port.
The agreement should declare the cost of loading, unloading, and handling
The cost of insurance is necessary to be mentioned in the agreement.
When it is impossible to determine the transaction value of imported goods, the agreement provides for other valuation methods.
The first option is to set the customs value on the basis of the transaction value of identical goods. The proper authorities must find such identical goods, which were sold for export to the same country, and then calculate the value.
If there are no identical goods, the customs authorities shall use the transaction value of similar goods which are sold for export to the same country.
If there are neither identical nor similar goods sold for export to the same country, then the authorities will look for another method. The authorities can calculate the value of identical or similar goods sold in the importing country.
When either of the methods does not work, then customs authorities shall use reasonable means according to law to determine the value of the imported goods.
As every country has its own currency, so there is a necessity for currency exchange while exporting and importing. The competent authorities of the country of importation shall daily publish the rate of exchange for the determination of the customs value.
If there is any serious injury or loss which occurred during the course of business, then there is always an option for the Right to Appeal.

Conclusion:

The benefit of this agreement is to determine the accurate duty to be paid on imported goods. This may help to boost the economy of every country.

References:

World Trade Organization, Customs Valuation (WTO)