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Introduction
As a specialist in tariffs and the World Trade Organization Customs Valuation Agreement (WTO-CVA), I have spent years studying how the value of goods is determined for the purposes of calculating ad valorem tariffs. So when I read the news about Trump’s reciprocal tariffs, I couldn’t help but recall Arthur Levitt’s statement in 1923:
"Let me draft the administrative act, and I don't care who sets the rates of duties."
The administrative act Levitt was referring to was the valuation of goods. The decision to impose higher tariffs was presented as a way to protect domestic industries, repatriate manufacturing jobs, and rebalance trade deficits. However, the real impact of these tariffs, or any other, depends on one critical factor: the value of the goods. In technical terms, the price paid or payable, adjusted according to Article 8 of the WTO-VPA.
Courage: A Moving Target
Working on the front lines of international trade, I have observed how the value of goods is an ever-changing target, especially in today’s digital economy. The WTO Customs Valuation Agreement, established during the Tokyo Round of GATT in the 1970s, was created to standardize the way tariffs are calculated. Article 8 of the WTO VPA specifically addresses the inclusion of intangibles—such as royalties, licensing fees, and resale profits—in customs value.
However, there is a problem: the agreement was designed at a time when trade was dominated by physical goods. Today, its implementation is struggling to adapt to the reality of the digital world. Physical goods are losing value. And I am not just talking about artificial intelligence (AI) embedded in goods or services, but about the loss of conventional value.
Take a smartphone, for example. Its physical components – screen, battery and casing – may represent only a fraction of its total value. The real value lies in the intangibles: the patented technology, the operating system software, the brand and the data that the device can generate. According to Article 8 of the WTO VPA, some of these intangibles, such as royalties on patented technology, should theoretically be included in the customs value. But in practice, customs authorities find it very difficult to quantify these assets, especially when royalties are considered a condition of sale – an extremely complex aspect.
How do you put a monetary value on a brand's global appeal or a device's ability to generate data? Multinationals often structure their operations to minimize disclosure of the value of intangibles, making it even more difficult for customs authorities to capture the true economic value of these goods. As a result, the declared customs value often omits intangibles, diluting the impact of ad valorem tariffs.
This disconnect in international trade, especially in the commercial invoice supporting the import, has profound implications. If a smartphone valued at $1.000 is declared at $500 because intangibles were excluded, a 10% tariff will only generate $50 in duties instead of $100. Against this backdrop, the Trump administration’s higher tariffs might not achieve the desired level of protectionism. Or will the US also impose price and minimum value controls? Will there be a return to the old “black book” that dominated customs controls in the past?
The issue of tariffs and a potential trade war has been well covered in the media, but the issue is more complex. It is not just a question of whether tariffs are high or low, but of the type of goods and whether customs tools for measuring and taxing them are fit for the 21st century.
Consequences
US tariff policy provides an opportunity to observe how digitalisation is altering the impact of tariffs. What will be the main consequences?
- Increase in customs procedures: With more goods subject to tariffs, customs will have to carry out more checks to confirm the actual value of the duties payable. This will inevitably slow down clearance processes, increase bureaucracy and put greater pressure on human and technological resources.
- New challenges for multinationals: Companies will have to deal with the interaction between tariffs, VAT and internal taxes. Depending on the sector, many will have to rethink their strategies to minimize costs. The relationship between customs valuation and transfer prices will become even more critical in this new scenario.
Conclusion
The challenges posed by high tariffs are manifold. While the immediate focus is on protecting domestic industries, the broader implications – from increased red tape to potential trade conflicts – cannot be ignored.
As value continues to shift from physical goods to intangible assets, policymakers must rethink how tariffs are applied. Until then, the real impact of these measures in the medium and long term will remain uncertain.
The author is a CARF (Administrative Council of Fiscal Resources) Advisor, Doctor in International Trade Law, Professor, WCO Specialist and former Technical Officer, as well as former Tax and Customs Attaché.
