FAQs: Customs Valuation Part 2

The CA Resource Project

2 Feb 202105:05

Summary

TLDRThe script discusses global customs valuation rules, emphasizing that WTO member countries must adhere to WTO agreements, including Article 7 of GATT and the Agreement on Implementation. It outlines the five-year grace period for new WTO members to implement customs valuation agreements. It contrasts the Brussels Definition of Value with the WTO's transaction value-based system and details six valuation methods, including transaction value and fallback methods. The script also notes the possibility for importers to request a reversal in the application order of certain valuation methods.

Takeaways

🌍 Customs valuation of imported goods must comply with national laws, but WTO member countries must base their laws on specific WTO instruments.
📜 The relevant WTO instruments include Article 7 of the General Agreement on Tariffs and Trade, the Agreement on Implementation of Article 7, and the Uruguay Round Ministerial Decision.
⏳ A WTO member country is generally required to implement the Agreement on Customs Valuation as soon as it becomes a member but can delay for up to five years.
📏 Some countries still use the Brussels Definition of Value from the 1953 Convention, which differs from the WTO's valuation system.
⚖️ The Brussels Definition of Value is based on an estimated or normal market value, whereas the WTO's system relies on the actual price paid or payable for the goods.
📐 The WTO's customs valuation principles, under Article 7 of the 1994 GATT, emphasize that customs values should not be arbitrary or fictitious and must reflect the actual value of goods or comparable goods.
🔍 If the actual value of goods is not ascertainable, the customs value should be based on the closest ascertainable equivalent.
🔢 The Agreement on Customs Valuation outlines six valuation methods: transaction value, comparative value (identical goods), comparative value (similar goods), deductive value, computed value, and fallback method.
🔄 Article 4 of the Agreement allows for altering the sequence of applying deductive and computed value methods upon the importer's request, with developing countries needing customs approval for such changes.
📊 The Agreement on Customs Valuation aims to provide a fair, uniform, and neutral system for determining customs value, reflecting the actual transaction value of goods to the greatest extent possible.

Q & A

What is the basis for customs valuation in WTO member countries?
-In WTO member countries, customs valuation must be based on the instruments under the WTO, including Article 7 of the General Agreement on Tariffs and Trade (GATT), the Agreement on Implementation of Article 7, and decisions of the WTO Committee on Customs Valuation.
How soon must a WTO member country implement the Agreement on Customs Valuation?
-WTO member countries are required to implement the Agreement on Customs Valuation as soon as they become members, but they may delay its application for up to five years from the date of accession.
What are the key principles of customs valuation under GATT Article 7?
-The key principles are that the customs value should not be arbitrary or fictitious, should not be based on indigenous goods' value, and must reflect the actual value of goods imported or similar goods under competitive business conditions.
What are the main differences between the Brussels Definition of Value and the WTO Agreement on Customs Valuation?
-The Brussels Definition of Value is based on a national concept of what a good would fetch in the open market, whereas the WTO Agreement is based on the actual price paid or payable for the goods, making it more positive and transaction-focused.
How is the 'actual value' of goods determined when it cannot be ascertained?
-When the actual value cannot be determined, customs valuation should be based on the nearest ascertainable equivalent value derived from similar transactions under comparable conditions.
What are the six methods of customs valuation provided under the Agreement on Customs Valuation?
-The six methods are: 1) Transaction Value Method, 2) Comparative Value Method (identical goods), 3) Comparative Value Method (similar goods), 4) Deductive Value Method, 5) Computed Value Method, and 6) Fallback Method.
Can an importer request a change in the order of customs valuation methods?
-Yes, under Article 4 of the Agreement on Customs Valuation, importers can request the reversal of the order between the Deductive Value Method and the Computed Value Method, but developing countries may require customs authority approval for this.
What is the role of the transaction value method in customs valuation?
-The transaction value method is considered the primary basis for customs valuation, as it focuses on the actual price paid or payable for the goods being imported.
What flexibility does the fallback method of customs valuation offer?
-The fallback method allows greater flexibility by using previous valuation methods but adapting them where necessary to determine the customs value when other methods cannot be applied.
Which countries still follow the Brussels Definition of Value for customs purposes?
-Some countries still adhere to the Brussels Definition of Value, which is based on the 1953 Convention on the Valuation of Goods for Customs Purposes.

Outlines

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🌍 Global Rules for Customs Valuation

Customs valuation rules are determined by national laws, but WTO member countries must base their customs valuation on specific WTO instruments. These include Article 7 of the General Agreement on Tariffs and Trade (GATT), the Agreement on Implementation of Article 7, and the Uruguay Round Ministerial Decision. This framework ensures uniformity in assessing the value of imported goods across countries.

⏳ Implementation of the Customs Valuation Agreement for WTO Members

When a country joins the WTO, it is required to implement the Customs Valuation Agreement. However, newly joined member countries may delay applying this agreement for up to five years. This grace period provides flexibility for countries to adapt their national customs laws to WTO standards.

⚖️ Alternative Customs Valuation Systems

Some countries still follow the Brussels Definition of Value, established under the 1953 Convention on Valuation of Goods for Customs Purposes. This system contrasts with the WTO valuation system as it focuses on an estimated 'normal value' a good might fetch in the open market, rather than the actual price paid for the goods.

🔍 Differences Between Brussels Definition of Value and WTO Agreement on Customs Valuation

The main difference between the Brussels system and the WTO’s customs valuation system lies in their approach. The Brussels system uses a national concept of an ideal value, while the WTO’s agreement relies on the actual price paid or payable for the imported goods, making it more objective and transparent.

📜 Key Principles of WTO Customs Valuation

Article 7 of the GATT (1994) outlines the principles of customs valuation, emphasizing that customs values must not be arbitrary, fictitious, or based on domestic goods' values. Instead, values should reflect the actual price of imported or similar goods in a competitive market. The WTO agreement provides guidelines to ensure these principles are upheld.

🔢 Methods of Customs Valuation under the WTO Agreement

The WTO Agreement on Customs Valuation provides six methods to determine customs value, starting with the 'transaction value' method, followed by comparative methods for identical or similar goods, deductive value (based on the local resale price), computed value (based on production costs), and a fallback method, which allows more flexibility.

🔄 Flexibility in Customs Valuation Methods

Article 4 of the WTO agreement allows importers to request the reversal of the deductive and computed value methods. However, in developing countries, customs authorities must approve this reversal. This flexibility provides importers with the option to choose the method that best suits their circumstances while maintaining transparency.

Mindmap

Keywords

💡Customs Valuation

Customs valuation refers to the process of determining the value of imported goods for the purpose of assessing customs duties. It is a critical component of international trade as it affects the amount of duties and taxes collected by a country. The World Trade Organization (WTO) Agreement on Customs Valuation provides a standardized system for this process, primarily based on the transaction value of goods, which is the price actually paid or payable for the goods when sold for export to the importing country. This system aims to prevent arbitrary or fictitious valuation and ensure fairness and transparency in international trade.

💡WTO Agreement on Customs Valuation

The WTO Agreement on Customs Valuation, formally known as the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade (GATT) 1994, establishes a uniform system for determining the value of imported goods. It is based on the transaction value method, which uses the actual price paid or payable for the goods. The agreement also outlines alternative methods to be used when the transaction value cannot be determined, such as the value of identical or similar goods, deductive value, computed value, and fallback methods. This agreement ensures a fair, uniform, and neutral valuation system that conforms to commercial realities and is in line with the national laws and regulations of WTO member countries.

💡Transaction Value

The transaction value method is the primary basis for customs valuation under the WTO Agreement on Customs Valuation. It is the price actually paid or payable for the goods when sold for export to the country of importation, with certain adjustments. This method is preferred as it is the most direct reflection of the market value of the goods and provides predictability and transparency for businesses involved in international trade.

💡Brussels Definition of Value

The Brussels Definition of Value is an older system of customs valuation based on the 1953 Convention on the Valuation of Goods for Customs Purposes. It is based on the national concept of an 'ideal' or 'normal' value that a good would fetch in the open market. This differs from the WTO's valuation system, which relies more on the actual price paid or payable for the good being valued. Some countries still follow the Brussels Definition, but it is not as widely accepted as the WTO's system.

💡General Agreement on Tariffs and Trade (GATT)

The General Agreement on Tariffs and Trade (GATT) is a multilateral agreement on trade that was the precursor to the WTO. It was established in 1947 with the aim of reducing tariffs and other trade barriers and promoting the liberalization of international trade. The GATT also included provisions on customs valuation, which were later replaced by the WTO Agreement on Customs Valuation in 1994. The GATT's principles and agreements form part of the 'GATT acquis' and are still relevant within the WTO framework.

💡Uruguay Round

The Uruguay Round was a series of multilateral trade negotiations held under the auspices of the GATT between 1986 and 1994. It resulted in significant reforms to the global trading system, including the creation of the World Trade Organization (WTO) in 1995. The round also led to the Agreement on Customs Valuation, which replaced the previous GATT Valuation Code, and other key agreements on services, intellectual property, and dispute settlement.

💡Article 7 of the GATT

Article 7 of the GATT refers to the section of the General Agreement on Tariffs and Trade that deals with customs valuation. It sets out the principles and methods for determining the value of goods for customs purposes. The WTO Agreement on Implementation of Article 7 of the GATT was adopted during the Uruguay Round and is now the basis for customs valuation in WTO member countries.

💡WTO Committee on Customs Valuation

The WTO Committee on Customs Valuation is a body within the WTO that oversees the implementation of the Agreement on Customs Valuation. It provides a forum for member countries to consult on issues related to customs valuation, exchange information, and resolve disputes. The committee also monitors the operation of the valuation system and makes decisions on matters such as the interpretation of valuation rules.

💡Deductive Value Method

The deductive value method is one of the alternative methods for customs valuation allowed under the WTO Agreement on Customs Valuation. It is used when the transaction value cannot be determined. This method involves calculating the value of the goods by deducting the costs of selling, general expenses, and profits from the price at which the goods are sold in the country of importation to an unrelated buyer.

💡Computed Value Method

The computed value method is another alternative for customs valuation under the WTO Agreement. It is based on the cost of production, including the cost of materials, fabrication, and other expenses, plus an amount for profit and general expenses. This method is used when the transaction value and the value of identical or similar goods cannot be determined.

Highlights

Customs value of imported goods must be determined according to national laws, except for WTO member countries, where national laws must align with WTO customs valuation rules.

The WTO instruments that guide customs valuation include Article 7 of the General Agreement on Tariffs and Trade (GATT) and the Agreement on Implementation of Article 7 of the GATT.

WTO member countries must implement the Agreement on Customs Valuation as soon as they become members, but they are allowed up to five years to delay its application.

Some countries still follow the Brussels Definition of Value (BDV), based on the 1953 Convention, which differs from the WTO system.

The BDV is based on a national concept of an 'ideal' or 'normal' value that a good would fetch in the open market, whereas the WTO valuation system is based on the actual price paid or payable.

The GATT principles of customs valuation emphasize that customs value should not be arbitrary or fictitious and should be based on the actual value of imported goods or like goods.

The customs value must be derived from a sale or offer of sale under fully competitive conditions in the ordinary course of business.

If the actual value is not ascertainable, the customs value should be based on the nearest equivalent that can be ascertained.

The Agreement on Customs Valuation outlines six methods of valuation to be applied in a specific order, starting with the transaction value method.

The six methods are: transaction value method, comparative value method based on identical goods, comparative value method based on similar goods, deductive value method, computed value method, and fallback method.

The transaction value method is the preferred basis for customs valuation wherever possible.

An importer can request to reverse the order between the deductive value method and the computed value method, as per Article 4 of the Agreement on Customs Valuation.

Developing countries are allowed to make a reservation, subject to customs authorities' approval, for reversing the order of valuation methods.

The Agreement on Customs Valuation ensures that customs value should be based on real, tangible value rather than on theoretical or hypothetical numbers.

The fallback method provides greater flexibility by allowing the use of previous valuation methods in case none of the earlier ones apply.