Guidelines on Insurance and Freight in Customs Valuation

Purpose and coverage

The Order consolidates relevant Customs laws and regulations on Insurance and Freight Charges.
The Order ensures that proper duties and taxes are collected under the WTO Valuation System, implemented through Customs Administrative Order (CAO) 4-2004.
The Order guides all concerned parties on the declaration and checking of Insurance and Freight charges as components of dutiable value.
The Order applies to importations processed under Customs systems that use the IEIRD and SAD.

Definitions used for valuation

An Airway Bill (AWB) is a non-negotiable instrument issued by an air carrier or freight forwarder to a shipper evidencing the contract of carriage by air.
A Bill of Lading (B/L) is a negotiable instrument forged between the shipper and the carrier evidencing receipt of commodities and constituting a title of ownership over the goods.
CFR (Cost and Freight) is an incoterm where the seller pays costs and freight necessary to bring goods to the named port of destination.
CIF (Cost, Insurance and Freight) is an incoterm where the seller pays costs and freight to the named port of destination and procures marine insurance against the buyer’s risk of loss of or damage during carriage.
CIP (Carriage and Insurance Paid To) is an incoterm where the seller delivers goods to the carrier nominated by him, and also pays carriage to the named destination and contracts for insurance and pays the premium.
FOB (Free On Board) is an incoterm where the seller fulfills delivery when goods pass the ship’s rail at the named port of shipment; from then on, the buyer bears costs and risks, and the buyer clears the goods for export.
House Air Way Bill (HAWB) is the document issued by a freight forwarder/consolidator to the individual consignee/importer.
Master Airway Bill (MAWB) is the document issued by the air forwarder covering a shipment that could be consolidated or not.
IATA is an international air carrier rate bureau established in 1945 that helped establish and standardize international airfares.
IEIRD (Import Entry and Internal Revenue Declaration) is a seven (7) page set of official documents (BC Form 236) used in Customs clearance and containing details of a particular import entry.
Insurance Premium is the amount paid to an insurer to indemnify the importer for loss of the latter’s cargo during transport.
Local Insurance Premium is the amount paid in local currency to an insurer located in the Philippines applicable only for shipments where agreed terms are CFR, FOB, FAS, and other non-CIF terms, and requires attachment of certification of the premium actually paid to the entry.
SAD (Single Administrative Document) is a set of uniform documents derived from European Community practice (1988) used to process shipments through Customs.
The Order’s defined terms govern the valuation standards for insurance and freight charges.

Core valuation rule for dutiable value

Insurance and freight charges are components of dutiable value.
The operative linkage is stated through Section 201 of the Tariff and Customs Code of the Philippines as amended.

Who must disclose and verify

The importer, declarant, and broker must properly disclose the actual freight and insurance incurred in the importation.
The Chief and Principal Appraiser of the Port’s Formal Entry Division or its equivalent unit must check the accuracy and truthfulness of the declaration on freight and insurance.
Customs officers and personnel must perform their responsibilities as required by the Order.
Failure of Customs officials and personnel to perform their respective responsibilities is a ground for disciplinary action pursuant to the Civil Service Rules and Regulations.
The District Collector must ensure smooth, proper, and effective implementation of the Order in the district within jurisdiction where it applies.
All signatories to any certificate/report required under the Order are liable for misrepresentation and shall be proceeded against under Sections 3602 and 3604 of the TCCP, as amended.

Insurance component: thresholds and documents

If the terms of sale are CIF/CIP, Customs uses the actual insurance premium in assessment.
If the actual insurance premium under CIF/CIP is lower than 2% of the FOB value for general cargo or 4% of the FOB value for dangerous/inflammable goods, chemicals and other high risk cargoes, the insurance amount is subject to further verification by the BOC.
If a shipment is covered by local/domestic insurance, Customs may accept the insurance premium actually paid.
If the local/domestic premium is lower than 2% (general cargo) or 4% (dangerous/inflammable, chemicals, other high risk cargoes), the importer must submit a certification from the insurance company stating the actual premium paid together with the Original Official Receipt, and the Official Receipt copy must be certified as a true copy by the assigned Customs Appraiser/Examiner and attached to the original Working Entry.
If a shipment is not covered by local insurance, Customs may accept the insurance declared on the Entry.
If the declared insurance is lower than 2% (general cargo) or 4% (dangerous/inflammable, chemicals, other high risk cargoes), the insurance amount is subject to further verification by the BOC.
For direct importations by the government, the importer must present the original Marine Open Policy issued by GSIS together with a true copy, certified by GSIS, addressed to BOC (Attn: Import Assessment Service).
For government direct importations, the Bureau must apply the actual GSIS insurance premium rate.
If insured by a surety company other than GSIS, apply the rules for local/domestic insurance acceptance as stated for such coverage under Section 3.1.2.
If not covered by a local insurance, apply the rules for acceptance of declared insurance under Section 3.1.3.
The insurance amount must be declared in IEIRD box no. 90 and the equivalent appropriate box in the SAD for electronic lodgement.

Freight charges: basis, ratios, and evidence

The freight charge to be applied is based on the amount indicated in the Airway Bill (AWB) or Bill of Lading (B/L).
If no freight charge is indicated on the AWB, B/L, and/or Invoice, the declared freight charge on the IEIRD/SAD may be considered.
If the declared freight (where no AWB/B/L/invoice freight is indicated) is lower than 70% of either the IATA rate (airfreight) or Conference rate (sea freight), the freight amount is subject to further verification by the BOC.
If the freight charge is lower than 70% of either the IATA (air) or Conference (sea) rate, the importer must present a Certification from the Carrier/Forwarder and/or Official Receipt showing the actual freight charges paid.
For bulk shipments, the importer must present a certified copy of the Charter Party document or Freight Contract and the Stowage Plan to show the actual freight charge.
The bulk shipment documents must be attached to the working copy of the Entry.
For bulk/general cargo shipments made by the National Food Authority (NFA), the freight charge may be accepted if it is not lower than 10% of the CFR value of the commodity.
For refrigerated shipments, a certification from shipping lines as to the freight paid must be presented for Customs verification.
If there is no certification from shipping lines for refrigerated shipments, Customs may use the following freight charges as reference:
- Shipments coming from China should not be lower than:
  - $1,700.00/40 ft Reefer Container (Guangshou, China)
  - $1,300.00/20 ft Reefer Container (Guangshou, China)
  - $1,500.00/20 ft Reefer Container (Xiamen, China)
  - $1,800.00/40 ft Reefer Container (Xiamen, China)
  - $1,800.00/20 ft Reefer Container (Shanghai, China)
  - $3,200.00/40 ft Reefer Container (Shanghai, China)
  - $3,200.00/40 ft Reefer Container (Shanghai, China)
  - $1,350.00/20 ft Reefer Container (Dalian, China)
  - $1,680.00/40 ft Reefer Container (Dalian, China)
- Shipments coming from Hongkong should not be lower than:
  - $1,600.00/40 ft container reefer van
- Shipments coming from Singapore should not be lower than:
  - $900.00/20 ft container reefer
  - $1,850.00/40 ft container reefer
  - Plus: BAF ($70/20 and $140/40)
- Shipments coming from Los Angeles, USA should not be lower than:
  - $3,050.00/20 ft Reefer Container
  - $6,100.00/40 ft Reefer Container
For reefer containers, if it is a 20 ft container reefer van, the freight should be 50% of the freight charge of a 40 ft container; if lower, the amount is subject to further verification by the BOC.

Disciplinary, misrepresentation liability, and enforcement

Misrepresentation in required certificates/reports triggers proceedings under Sections 3602 and 3604 of the TCCP, as amended.
Non-performance by Customs officials and personnel in their required duties constitutes a ground for disciplinary action under the Civil Service Rules and Regulations.
The Order requires Customs to check truthfulness and accuracy for freight and insurance declarations through the Chief and Principal Appraiser and through Customs verification processes tied to the stated thresholds.

Separability, supersession, and duration

Section 4 provides separability: if any provision is declared invalid, the remaining provisions not affected remain in full force and effect.
Section 5 supersedes inconsistent Customs Memorandum Orders, memoranda, or parts thereof, by deeming them superseded, amended, or modified accordingly.
Section 6 makes the Order effective immediately and continuing until revoked.