Meaning
Valuation techniques determine the eligibility of a product for preferential tariff treatment under regional trade agreements by subtracting non-originating material costs from the transaction value. The build down method focuses on starting with the adjusted value of the finished good and removing the value of imported materials used in production. If the resulting regional value content meets the threshold, the good qualifies for duty reduction.
Calculation Sequence
Deduction begins with the free-on-board transaction value of the exported commodity as the baseline. Manufacturers calculate the value of non-originating materials using purchase invoices or customs declarations at the time of import. The difference between these two figures represents the originating portion of the product.
Material Classification
Accurate trace-back is required for every imported component to confirm its non-originating status. The build down method relies heavily on supplier declarations and customs entry documents to prove the direct purchase price of those foreign parts. Errors in classifying these inputs can lead to post-clearance audits and retroactive duty assessments by customs authorities.
Qualification Threshold
Compliance managers select this approach when the final product contains high-value local assembly and labor but uses well-defined imported sub-assemblies. This choice isolates the imported inputs directly, simplifying the calculation.
