When Domestic Materials or Components Increase or Decrease Valuation of Imports: Assists Rules

Many U.S. companies believe that shipping their own materials or components to a Chinese manufacturer reduces what they owe in customs duties when the finished goods come back. Sometimes it does. More often, it does the opposite — and companies that fail to account for those materials in their import declarations are quietly underpaying duties on every shipment. That underpayment is a False Claims Act violation, and employees who know about it can be paid to report it.

It is a common arrangement in global manufacturing: a U.S. company designs a product, sources the raw materials or key components, ships them to a factory in China, pays for the labor and assembly, and then imports the finished goods. The logic seems straightforward — by controlling the inputs, the U.S. buyer reduces the price it pays the Chinese factory, which should reduce the dutiable value of the imported goods.

That logic is not wrong, exactly. But it is dangerously incomplete. U.S. customs law has a specific set of rules for exactly this situation, and those rules frequently require importers to add the value of the materials they shipped abroad back into the declared value of the finished goods. When importers fail to do that — whether through ignorance or intent — they underpay duties on every shipment. With Section 301 and antidumping duties now running as high as 25 percent or more on many Chinese-origin goods, the cumulative underpayment can be substantial.

Understanding how these rules work — and why so many companies get them wrong — is the first step in recognizing whether a potential False Claims Act case is sitting inside a company’s supply chain.

What the Law Actually Requires: Assists Under 19 U.S.C. § 1401a

U.S. customs duties are assessed on the “transaction value” of imported merchandise — a concept defined by 19 U.S.C. § 1401a. Transaction value is not simply the price on the commercial invoice. It is the price actually paid or payable, plus a series of mandatory additions. One of those mandatory additions is the value of any “assist.”

The statute defines an assist as anything supplied directly or indirectly, and free of charge or at reduced cost, by the buyer of imported merchandise for use in connection with the production of that merchandise for export to the United States. The definition covers four categories: materials, components, parts, and similar items incorporated in the imported goods; tools, dies, and molds used in production; merchandise consumed in production; and engineering, development, or design work performed outside the United States.

The materials and components category — the focus of this post — is the one most likely to affect manufacturers and importers sourcing from China. When a U.S. buyer ships fabric to a Chinese garment maker, sends steel wire to a Chinese cable assembler, or provides electronic components to a Chinese contract manufacturer, and those inputs end up incorporated in the finished goods that come back to the United States, the value of those inputs is an assist. It must be added to the transaction value declared to CBP, apportioned as appropriate across the shipments that benefit from it.

The Exception: When Chapter 9802 Actually Reduces Duties

There is a circumstance in which supplying U.S.-origin components genuinely can reduce duties on the returning finished goods. Chapter 98 of the Harmonized Tariff Schedule — specifically heading 9802.00.80 — provides a partial duty exemption for articles assembled abroad from fabricated components that are products of the United States. When the provision applies, duties are assessed only on the value added abroad, not on the value of the U.S. components themselves.

The catch is that the 9802 exemption has strict eligibility requirements. The U.S. components must be exported in condition ready for assembly, without further fabrication. They must retain their physical identity in the finished product — they cannot be melted down, chemically transformed, or otherwise lose their discrete character. And they must not be advanced in value abroad except by the assembly process itself. When those conditions are met, the importer can deduct the value of the U.S. components from the dutiable value of the finished article.

But here is the critical distinction: 9802 is a legitimate duty-reduction mechanism that requires proper documentation, specific eligibility, and a formal claim at the time of entry. It is not a general principle that sending American materials abroad lowers the customs bill. When goods do not qualify for 9802 treatment — because the components are transformed in production, because the finished article involves Chinese-origin materials as well, or because the importer simply never files the required claim — the assist rules apply in full, and the value of the U.S.-supplied materials must be added back in.

Why Companies Get This Wrong — and Why It Matters

The error pattern is consistent across industries. A U.S. company begins shipping materials to its Chinese manufacturer. The invoice from the Chinese factory reflects only the cost of labor and any foreign-sourced inputs — it does not include the value of the materials the U.S. buyer supplied, because the factory did not pay for them. The importer’s customs broker files entries based on that invoice. No one adds back the assist value. The result is systematic undervaluation on every shipment where U.S.-supplied materials were incorporated.

This is not always intentional. Assists of materials and components frequently do not appear on commercial invoices, because the factory never charged for them. That creates a structural gap between what the invoice shows and what the law requires to be declared. Companies that rely on their invoices alone, without a system for tracking and adding back assist values, will undervalue their imports even if no one inside the company has made a deliberate decision to cheat.

Where it becomes a False Claims Act matter is when the company knows about the gap and does nothing to fix it — or, more commonly in the cases we see, when a compliance officer, accountant, or supply chain manager raises the issue internally and is told to let it go. At that point, the knowing underpayment of customs duties is a false claim against the United States on every subsequent entry.

Real Cases, Real Recoveries

Assist-based undervaluation has generated some of the larger customs fraud False Claims Act recoveries in recent years. In one case, a Miami apparel importer paid $7.6 million to resolve allegations that it omitted the value of fabric and trim it supplied to its Chinese manufacturers from the values declared to CBP. The importer also ran a parallel double-invoicing scheme, but the assist omissions were a distinct and independently significant component of the liability.

In another matter, a multinational industrial company paid $22.28 million to resolve FCA allegations that included, among other things, failure to include assists in the declared value of goods imported for use in natural gas and chemical manufacturing projects. That case involved materials and engineering inputs supplied to foreign manufacturers — precisely the category of assist that is most commonly overlooked.

CBP and DOJ treat undeclared assists as a serious compliance failure, and the False Claims Act’s per-claim penalty structure means that companies filing hundreds or thousands of affected entries face aggregate exposure well beyond the unpaid duties themselves.

What a Potential Whistleblower Should Look For

The employees most likely to recognize an undeclared materials assist are those who sit at the intersection of procurement, supply chain, and finance. If you work at a company that imports finished goods from China and you know that your company regularly ships raw materials, components, or other inputs to the foreign manufacturer, there are specific questions worth asking.

Does the customs entry value reflect only the invoice from the Chinese factory, without any addition for the materials your company shipped? Has anyone in compliance, accounting, or legal ever raised the question of whether those shipped materials need to be declared as assists — and if so, what happened to that question? Does the company’s internal cost accounting treat the shipped materials as part of the cost of goods, while the customs declarations reflect only the factory invoice?

A mismatch between internal cost records and customs declarations is the evidentiary foundation for an assist-based False Claims Act case. As we have seen in our practice, the internal financial records of U.S. importers frequently tell a more complete story than the customs filings — and a single page of cost accounting data can establish that the values declared to CBP were systematically understated.