Key Concept: Ad Valorem Duty
Context:
U.S. President Donald Trump recently signed an executive order on April 2, announcing the imposition of a 100% ad valorem duty on the import of certain patented pharmaceuticals and their associated pharmaceutical ingredients.
This executive action builds upon a Section 232 investigation that was formally launched on May 1, 2025, which cited the heavy dependence on foreign drug supplies as a significant national security risk.
Impact on India:
Despite the steep 100% duty, trade analysts at the Global Trade Research Initiative (GTRI) note that India remains largely protected from this specific tariff shock.
This protection stems from India's overwhelming dominance in the export of low-cost, generic medicines rather than expensive patented drugs.
For context, India successfully exported pharmaceutical products worth $9.7 billion to the United States in the year 2025.
Ad Valorem Duty and Customs Valuation:
An ad valorem duty is a tariff levied based on the assessed value of an item rather than on its specific weight or quantity.
In international trade, establishing a precise "Customs Value" is crucial for calculating and levying these ad valorem duties.
Determining 'Actual Value':
Under international customs valuation frameworks (such as Article VII), the "actual value" of imported merchandise is generally presumed to be the standard invoice price.
However, this baseline can be officially adjusted by adding non-included charges that represent legitimate costs, or by factoring in any abnormal discounts that significantly deviate from the ordinary competitive price.
Valuation Standards and Independence:
To ensure fairness in the collection of an ad valorem duty, countries are required to determine the customs value under "fully competitive conditions" in the ordinary course of trade.
Consequently, customs authorities are permitted to exclude transactions where the buyer and seller are not independent of each other, or instances where the declared price is not the sole consideration.