lectura n°2 - valoracion aduanera

8/12/2019 LECTURA N2 - VALORACION ADUANERA

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Deutsche Post World Net

International CustomsTraining Program

Principles of Customs Valuation


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Deutsche Post World Net

Prepared on behalf of DPWN by the Centre for Customs & Excise StudiesUniversity of Canberra ACT 2601AUSTRALIA

Copyrighted materials reproduced herein are used under the provisions of the CopyrightAct 1968 as amended, or as a result of application to the copyright holder.

While every effort has been made to contact copyright holders (when relevant), in theevent of accidental infringement, the University of Canberra will be pleased to come to asuitable arrangement with the rightful owner.

No part of this publication may be reproduced, stored in a retrieval system or transmittedin any form or by any means electronic, mechanical, photocopying, recording, orotherwise without prior permission.

This learning package, including its online components, is provided solely for the purposeof private study and must not be copied or resold or used by anyone not enrolled in thecourse.


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Contents

Introduction ...............................................................................................................5 Administration of Customs Valuation........................................................................ 5 Background to the WTO Valuation Agreement ........................................................5 Concepts Associated with the Administration of Valuation ......................................6 Transparency of the Administration of Customs Valuation ......................................7

Administrative Obligations Conferring Rights to the Importer ................................10 Technical Rules of the WTO Valuation Agreement................................................12 Transaction Value...................................................................................................14 Limitations on use of Transaction Value.................................................................15 Price Actually Paid or Payable ...............................................................................24

Additions to the Price Actually Paid or Payable .....................................................26 The Second/ Third Methods ...................................................................................32 Identical and Similar Goods....................................................................................33 Method 4.................................................................................................................34 Method 5.................................................................................................................36 Method 6.................................................................................................................37


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IntroductionThe proper implementation and management of Customs Valuation is one of the mostimportant issues for Customs administrations around the world. The Agreement onCustoms Valuation of the World Trade Organization (WTO) requires the full cooperationof both Customs and the trade/business community in order to operate effectively.

The Agreement on the Implementation of Article VII (Customs Valuation) wasdeveloped during the Tokyo Round of GATT negotiations (1973-1979) in response toCustoms valuation having been identified as a non-tariff barrier (NTB) to trade. With thecreation of the WTO on 1 January 1995, the Valuation Agreement became compulsoryfor all WTO members, as did all the individual (GATT) trade agreements that make upthe overall WTO Agreement 1994.

The Customs Valuation Agreement establishes a fair, uniform and neutral system for thevaluation of goods for customs purposes. It precludes the use of arbitrary of fictitiouscustoms values and requires that the basis for the valuation of goods for customs purposes

should, to the greatest extent possible, be the transaction value of the goods being valued.In adopting these principles, the Agreement is consistent with commercial reality.

The workshop includes theoretical and practical components in the followings areas:

General Administration of Customs valuation

Technical Requirements Methods for Determining Customs value

Administration of Customs Valuation

ObjectiveOn completion of this module it is intended that course participants will have anappreciation of the importance of their role in the facilitation of international trade and inachieving compliance with national Customs laws as they apply to Customs valuation.The participants will understand how it is intended that Customs laws in relation to thevaluation of goods are to be administered, based on the recommendations and practicesadopted by most modern Customs administrations.

Background to the WTO Valuation Agreement

Principles affecting the Governance of International Trade The Agreement on the Implementation of Article VII (Customs Valuation) of the

General Agreement on Tariffs and Trade 1994 (the Agreement) is one of a number ofindividual trade Agreements that form the overall World Trade Organization (WTO)Agreement. The WTO Agreement takes its origins from the General Agreement onTariffs and Trade (GATT).

GATT is (was) a contract between the trading nations by which countries agree that,in their international trading partnerships, they will adhere to a specific set of rulesthat have been agreed to by them all. Since the WTO (and the GATT before it) set outto devise rules for both Tariffs and Trade.


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GATT NegotiationsThe General Agreement on Tariffs and Trade (GATT) was established in 1947:

Article VII deals with Customs valuation

It established certain principles to be employed.

GATT Rounds The Tokyo Round (1973-1979) examined Customs valuation as a barrier to trade (non-tariff barrier/NTB) due to the fact that countries had dissimilar rules and practices inCustoms valuation.

It was recognized that a completely new system had to be developed. The result was theAgreement on the Implementation of Article VII of the General Agreement on Tariffs andTrade (GATT Valuation Agreement).

This Agreement came into effect in 1981. The WTO Agreement is based on principles of

fairness, neutrality and uniform treatment and is rules-based, designed with simple andequitable criteria with the purpose of facilitating trade.

Concepts Associated with the Administ ration ofValuation

Self-Assessment System for Declaring Goods and their Value forDuty

One of the basic concepts under modern Customs procedures is to place more and moreonus on those that utilize the services of Customs for carrying out the basic formalitiesfor declaring goods and calculating the amount of duties and taxes owing. In order toimprove the efficiency of its operation, Customs must share the administrative burdencaused by the need to account for all imported goods with the trading public.

Self-assessment is essential to direct trader input (electronically) of declarations. Anelectronic declaration directly to the Customs computer systems enables a more certainanalysis of the circumstances of the importation. It places the responsibility for theaccuracy of the information directly with the person who has the information at hisdisposal. For self-assessment to work, the trader must be fully aware of his obligations incorrectly declaring Customs value.

Generally Accepted Accounting Principles (GAAP)

One of the principles of WTO Valuation is that all information necessary for thedetermination of value must be available within the country of importation.

Similarly, any information of a financial nature that is to be used in determining Customsvalue or any element necessary for the determination of Customs value must be preparedand presented in accordance with Generally Accepted Accounting Principles asrecognized in the country of importation.

This element will become important in relation to value only if the importer were to usean element of value obtained from a source outside the country of importation. It would

be expected that information sources within the country of importation would be incompliance with the GAAP of that country.


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Use of Objective and Quanti fiable Data

Once again, this term is one that is fundamental to the proper application of Valuationunder the WTO Agreement. This term must be contained in the national law of eachcountry.

Instruments of the WCO Technical Committ ee on Customs ValuationThe guidelines incorporated in the Instruments of the Technical Committee on CustomsValuation are intended to explain what are best practices for Customs officials toensure uniform interpretation and application of the national laws. The guidelines do not,in themselves, have a force of law. However, since they have been prepared by Customsofficials who have long experience in administering the WTO valuation system, theymust be persuasive. Furthermore, these practices are recommended for use by the WCOto its members. Without the inclusion of such interpretations by Customs in theiradministrative instructions, the application of the Law could give rise to misinterpretation

between the importer and Customs administration, and even among Customsadministrators.

The instruments are classified by the Technical Committee as follows:

Advisory Opinions.

Commentaries.

Explanatory Notes.

Case Studies.

Studies.

Transparency of the Administration of CustomsValuation

What do we mean by Transparency?In principle, transparency in Customs valuation means that the value of imported goods isdetermined using clear, precise, rules based methods. Values always have a basis in factand the facts are supported by law, regulation and procedure on the basis of evidence,objective and quantifiable data. That is why the WTO system is termed to be a positivesystem of valuation. The value is built by the addition of precise elements making up thevalue of the goods. At each step, any amount to be included in the value must besupported by documentary evidence.

Currency ConversionArticle 9 of the WTO Valuation Agreement requires the publication of rates of exchangeused to convert amounts expressed in currencies other than that of the country ofimportation.

Another issue that arises with respect to this matter is the time at which the conversiontakes place. This time also has legal implications. Legislation must identify when the actof importation is deemed to take place. For some countries, it is when the importedgoods enter the territory of the country (e.g. European Union); for others, it is when theCustoms declaration is submitted to Customs and date-stamped.


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Publication of LawsArticle 12 of the Valuation Agreement requires governments to publish and/or otherwisemake available to interested parties all laws, regulations, administrative directives andother legal instruments concerning Customs valuation.

Over the more than 20 years of application of the system by many countries, it has beenfound that following a strategy of openness and full disclosure by a government leads toimproved compliance.

Explanation in WritingArticle 16 of the Valuation Agreement states that it is an obligation of Customs to

provide an importer with an explanation in writing of the manner in which a Customsvalue has been determined.

The principle is that the importer declares and Customs determines. If Customs rejectsany part of a declaration made by an importer, they are under the obligation to provide a

written explanation of the decision.The importer will need to have a basis on which to appeal the Customs decision if hewishes to. This provision should not be confused with Customs asking the importer forevidence to support the declaration. For this, Customs is not required to provide anyreason. In fact, doing so may compromise any investigation of wrongdoing.

Declaration of ValueMany national Customs administrations have adopted the use of a valuation declarationform as an important transparency measure.

A Value Declaration is a separate declaration made by the importer or his agent on thefacts relating to the imported goods. Information on the declaration enables Customs tohave a more complete picture of the terms of sale under which the goods are imported.This declaration of facts provides a number of particulars that are of importance forCustoms when determining the customs value of the imported goods, such as the natureof the transaction, terms of payment, costs to be adjusted to the price as well as costs to

be deducted.

Another objective for the use of a Value Declaration is to obtain further information fromthe importer on the elements of value that are not shown on the invoice, for example,transport/shipping cost, insurance costs, etc. The status of the separate Value Declarationis merely as a supplement to the import declaration.

The principle utility of the Valuation Declaration form is that it acts as a checklist for both Customs and the importer as to what is required to ascertain the Customs value ofimported goods. Some other advantages are:

Importer or agent must certify as to the truth and accuracy of the information presented.

Leads to more rapid Customs clearance as all facts of transaction are at the disposal ofCustoms.

Supporting data may be kept separately for Customs review, if and when required.

Document serves as important evidence where noncompliance is determined.

Supports the self assessment system.


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It may not be necessary to require a valuation declaration in all cases. Some administrationsrequire the form in respect of each supplier of an importer whilst others require a valuationdeclaration only if Customs specifically asks the importer to prepare it.

Valuation Advice and Valuation RulingsAnother facility that contributes significantly to transparency in the administration ofvaluation and to the facilitation of trade is the practice by Customs administrations of

providing valuation advice to an importer before the fact and valuation rulings after thegoods have been imported and duties and taxes paid.

Valuation Advice

In the course of self-assessment, importers may encounter valuation issues about whichthey have no prior experience, and they may be uncertain as to how to properly interpretand declare the Customs value.

Example For example, in the importation of project aid goods consisting of complicatedmachinery, the goods are sent free of charge and the importer may not know the propermethod to be used to value them for Customs valuation purposes. Or, a sample of anew product is imported and there is no information on the value of the goods. Toassist the importer in such situations, Customs should provide an opportunity to theimporter to request a valuation advice. A valuation advice may be issued either prior toor following the importation of the goods.

Participants should be clear on the fact that Valuation advice is definitely not adetermination of the customs value prior to the importation. It is basically an explanationon how to address the specific valuation problem encountered by the importer. Theimporter remains free to decide whether he will follow the advice or not when he makesthe formal declaration of Customs value.

Therefore, the use of the valuation advice system is considered to be simply acomplement to the self-assessment system. It should be noted that valuation advice isfurnished to importers for goods that have not yet been formally imported. Valuationrulings are a step beyond the advice procedure.

Valuation Rulings

When goods have been imported and declared, Customs may, for whatever reason, decideto carry out, on a post-entry basis, the verification of the value declared. This process mayinvolve a detailed review of the facts of the declaration, including all of the terms andconditions with respect to the sales transaction between the buyer and the seller, themethod under which the value was declared, additions to be made to the price actually

paid or payable and so on. Customs might also decide that the circumstances warrant amore detailed examination in the form of a comprehensive audit of the importers booksand records.

The conclusion of the above procedures would be for Customs to present the result oftheir findings to the importer. These findings would take the form of a determination ofvalue, i.e. a ruling. The importer would be informed of the customs value determined forthe goods, the manner in which the value was arrived at as well as any subsequent actionrequired of the importer. The ruling would further state that, in the case of all future


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importations made by the importer from the same supplier, under the same terms andconditions, the same method for declaring value would be in effect.

The ruling would remain in effect until the company changed the way it conducted its business with the supplier. The imported goods, under such a ruling, would normally beadmitted under a fast-track process (green channel, for example), subject as always to

random checks to ensure that the ruling was being followed.The ruling would be part of the Customs risk assessment criteria. This process has beenfound to quite effective by many administrations as a means to allow Customs toconcentrate its efforts on declarations that have more chance of being noncompliant.

Administrative Obligations Conferring Rights to theImporter

Introduction The WTO Valuation Agreement imposes obligations and confers rights to both partiesinvolved in the import transaction Customs and the Importer. Certain of these are meantto specifically address questions regarding the transparency of the valuation process as

practiced by Customs administrations others are intended to assure that an importersrights are respected.

Appeal procedures Article 11 of the Agreement provides that an importer or any other person liable for

payment of the duty shall have the right to appeal, without penalty, to an authority withinthe Customs administration or to an independent body. All countries applying the WTOsystem must provide, in its Law, for the right of appeal without penalty to a judicialauthority. Basically, what this means is that, if the person filing the appeal does not agreewith the administrative decision handed down by Customs, he may then take the issue toa court of law.

One of the problems with this is that Courts (i.e. judges) often are not sufficientlyfamiliar with business practice to deal with such cases expeditiously. Many governmentshave established special courts or Tribunals that have judicial powers but are staffed by

persons with the background necessary to deal with appeals to Customs decisions.Examples are:

Administrative Trade Tribunal (Australia)

Canadian International Trade Tribunal (CITT) International Trade Commission (USA)

The importers right of appeal under Article 11 of the Agreement is in respect ofdecisions taken by Customs administration with regard to the determination of Customsvalue. Cases involving Customs infractions (e.g. fraud, deliberate undervaluation, etc.)fall outside of the scope of Article 11 of the Agreement. This means that prior to theappeal, subject to national legislation; Customs can require full payment of any penalty aswell as fully assessed duty and taxes.

A decision made on an appeal will usually result in a valuation ruling being provided tothe importer that would apply to future importations having the same facts andconditions.


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Release of Goods on Guarantee One of the prime examples of the trade facilitating aspect of the Valuation Agreement isthe provision in Article 13 of the Agreement that allows an importer to withdraw theimported goods from Customs when the process of valuation has not yet been finalized.The Article states that imported goods may not be detained by Customs simply becausethe valuation process has not been completed.

Some of the more common situations where the issue of release might arise include:

Price actually paid or payable cannot be determined

No sale has taken place

The method declared by the importer is other than transaction value

Elements under Article 8 are unavailable at the time of importation

Special situations prevail such as split shipment, importation is subject to priceescalation

Goods on consignment Declarant has submitted a test value.

Customs is required to release the goods to the importer as long as the importer or hisagent provides sufficient guarantee or surety to cover whatever duties and taxes might beowed when value is finally determined.

What the guarantee does is enable the Customs to hold the issuer of the bond or suretyliable for the payment owed by the importer. If the importer were to default on paymentof duties, taxes, etc, Customs would recover the money from the issuer of the guarantee.

When the goods are released under these circumstances, the importer obtains full use ofthe goods to use them in production, to resell them, to export, etc. His only requirement

is to maintain and make available to Customs any documentation necessary for thecorrect determination of Customs value.

Key Point Implications to Customs of providing the facility to release goods on guarantee.

Customs must have certain knowledge of the importer as a legal entity: Place of business, address, importer registration number Importer must have records and books that are accessible to Customs

Officers and managers names must be providedCustoms must be able to track and account for the Customs entry documents followingcargo release.

Customs must be able to track and account for the debts owed.

Customs must maintain a follow-up system to enable final acquittal of the entry orcashing of the bond or surety.

The requirement to provide for release of goods is one of the main trade facilitationfeatures that sets the WTO valuation system apart from other valuation systems.Traditionally, Customs have always had retention of the goods as their fallback positionwhile awaiting resolution of value issues. The implications that result from this one

provision are enormous.


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Some countries do not have banking or insurance systems that are sufficiently developedto enable guarantee or surety systems to be used. In the interim, many have introducedadministrative arrangements allowing importers certain latitude to delay full payment ofduties and taxes (e.g. on their own recognizance), yet still have full use of the importedgoods, while the dispute resolution process is in progress.

Treatment of Confidential InformationArticle 10 of the Agreement states that commercial information that Customs obtains inthe course of determining the Customs value must be maintained confidential, except asmay be needed in a court of law.

It should be noted that the confidentiality provision might not apply to situations wherethere is evidence or suspicion of unlawful activities. For example, Customsadministrations, by means of international Agreements, regularly share informationamong themselves to interdict Customs offences. Similarly, most governments haveinformation-sharing arrangements among government ministries. E.g. Customs toRevenue or Trade.

Burden of Proof Provisions Article 17 of the Agreement provides authority to Customs to conduct reviews andenquiries into declarations of value, WTO negotiators during the Uruguay Round addedemphasis to the Article by issuing a decision to clearly place the onus or burden for

proving the facts of a transaction on the declarant.

The problem for many Customs administrations in making inquiries is to establish areason to doubt the truth and accuracy of the value declared through particulars or thedocuments. There is wide latitude in this area with no parameters being established withinthe Agreement. Discretion would rest with the Customs to decide through its own riskassessment criteria to what extent further enquiry is warranted. A reason to doubt could

be, for example, based on a comparison of known prices observed in previousimportations.

By comparing the value declared with the prices obtained from other sources (e.g.database of historical data obtained from any number of sources), one could observe thatthere are significant differences to the value declared. Such differences might warrantfurther investigation. On the other hand, the Customs must not abuse theirresponsibilities and authority. Every care must be taken that well-founded reasons are putforward in conducting enquiries. This is not meant to hinder the initiative of Customsofficers in dealing with importations that their own personal experience lead them to wantto question.

Technical Rules of the WTO Valuation Agreement

Objective This part of the module is intended to provide participants with a detailed understandingof the various methods of valuation. They will have an understanding of how the variousmethods are applied and of the rules governing movement from one method of valuationto the next. They will gain an appreciation of the way WTO Principles are applied and ofthose valuation methods that are prohibited.


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Readings WTO Valuation Agreement:

Article VII of the General Agreement on Tariffs and Trade (GATT) General Introductory Commentary Articles 1 to 8 Interpretative Notes to Articles 1 to 8

The Agreement provides that the primary basis for customs value is to be the transactionvalue of the imported goods. The transaction value is the price actually paid or payablefor the goods when sold for export to the country of importation. The price actually paidor payable is to be adjusted where necessary to take account of certain specific elements.These elements represent the various charges, costs, and expenses incurred by the buyer

in the importation process but not already included in the price actually paid or payablefor the imported goods.

The adjusted transaction value represents the customs value of the goods, provided thatcertain conditions specified in the Agreement are met.

Where no transaction value can be determined, or where the stipulated conditions cannot be met, the Agreement provides five alternative methods for determining the customsvalue of the goods.

Where the customs value cannot be determined based on the transaction value method(Method I), the customs value is to be determined based on the transaction value ofidentical imported goods (Method II).

If the customs value cannot be determined using the transaction value of identical goods,then the customs value shall be determined based on the transaction value of similarimported goods (Method III)

If the customs value cannot be determined on the basis of the transaction value of theimported goods or of identical or similar imported goods, it shall be determined basedon the deductive value method (Method IV). Under the deductive value method, thecustoms value is determined on the basis of a unit price at which the goods are sold inthe condition as imported to an unrelated buyer in the country of importation.

When the customs value cannot be determined based on the deductive value method, thenext method is the computed value method (Method V). Under this method, thecustoms value is essentially calculated using the sum of the cost of materials and

fabrication and an amount for profit and general expenses. If the WTO membercountry chooses to base the customs value on Cost, Insurance, and Freight (CIF), thenthe computed value also includes the cost of transportation and its related costs andinsurance for transportation.

If the customs value cannot be determined under any of the five methods, the customsvalue shall be determined using reasonable means consistent with the principles andgeneral provisions of the Agreement and of Article VII of the GATT 1994 (Fall BackValue Method; Method VI).


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Activ it y 1 Customs Valuation

Read the Articles of the WTO Valuation Agreement. List the six methods of valuinggoods for Customs purposes and the relevant Articles of the WTO ValuationAgreement.

Upload your answer in the Assignments Dropbox.

Transaction ValueIntroduction

Transaction Value is intended to be the primary method of determining value for customs purposes, viz:

The first and principal method of determining Customs value is the transaction value

The transaction value is the price actually paid or payable for the goods when sold forexport to the country of importation and adjusted in accordance with the provisions ofArticle 8.

The General Introduction to the Agreement on Implementation of Article VII of the GATTstates that the Members to the Agreement recognize that the basis for valuation of goods forCustoms purposes should be, to the greatest extent possible, the transaction value.


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Key PointThe transaction value method is outlined below:

Transaction value method: Identify import sales transaction Determine price paid or payable Make allowable deductions (adjusted price) Make allowable additions (Article 8 additions) Convert currency

Al lowable addit ions (Art icle 8 additions): Commissions and brokerage except buying commissions, Containers and packing costs and charges for export preparation Production assist costs Royalties and licence fees Overseas freight and insurance Proceeds of subsequent use, resale or disposal of goods that accrue to the seller

Other costs and expenses that are not added: Financing costs Assembly, erection, construction or maintenance or any technical assistance costs

incurred after importation Inland Freight and Insurance in the country of importation Duties and Taxes of the country of importation Costs, charges and expenses undertaken by the buyer on the buyers own account

Limitations on use of Transaction ValueThere are four situations where Transaction Value cannot be used to determine Customsvalue:

a) The imported goods have not been sold for export into the customs territory of theimporter

b) The transaction value does not meet the four basic conditions/requirements to beaccepted and determined as the customs value

c) Any adjustment that should be made to the price actually paid or payable is notsupported by objective or quantifiable data

d) The customs official has adequate reason to question the correctness and accuracyof the declaration of the transaction value.


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Situation 1 - No sale for expor tThe situation preventing use of the Transaction Value Method is merely a consequence ofthe rules for that method. Method I can be applied only for the goods subject to a sale. Ifthere is no sale, automatically there is no transaction value.

The definition of sale for export and the ways to identify a relevant sale are covered inModule 3.

Introduction

The three requirements that must be met to apply the transaction value of Article 1:

There must be a sale for export

The sale must be for export to the Country of Importation

It must be possible to determine the price actually paid or payable

If one of the above requirements is not met, transaction value of Article 1 is unacceptableand another method of valuation must be used.

Sale

Generally a sale involves the transfer of property from one party to another for financialconsideration and that a valid sale requires:

A buyer

A seller

An agreed price

Transfer of title or ownership.

Title to the Goods

In determining whether property or ownership has been transferred, you can considerwhether the buyer:

Has assumed the risk of loss

Is liable for goods when lost or damaged during shipment

Acquired title to, or legally possesses or owns the imported goods.

Terms of Trade

In situations where no other pertinent evidence has been made available, you can usuallyreach a conclusion concerning a sale based on an analysis of the terms of sale, such as:

Ex-Factory

Free On Board (FOB)

Cost Insurance Freight (CIF)

Delivered Duty Paid (DDP).

Based on the analysis of the terms of sale, Customs can determine who acquired title andassumed risk of loss.

Buyer/Seller versus Agent /Principal

It is a characteristic of a buyer-seller relationship for the parties to maintain independencein their dealings. On the other hand, in a principal-agent relationship, the principal willcontrol the actions of the agent.


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Evidence that a buyer-seller relationship exists can be demonstrated by whether the potential buyer:

Provided (or could provide) instructions to the seller

Was free to sell the items at any price he or she desired

Selected (or could select) his or her own customers without consulting the seller Could order the imported goods and have them delivered for inventory.

If a potential buyer does not carry out such tasks, it generally is a firm indication that the party is serving solely as an agent.

Situations where no sale exists

While we cannot be more precise about defining what a sale is, WCO TechnicalCommittee Advisory Opinion 1.1 provides general situations where imported goodswould not be deemed the subject of a sale. These situations include:

Gifts, samples and promotion items furnished free of charge

Goods shipped on consignment which will be sold after importation for the account ofthe supplier

Goods imported under a leasing contract

Goods which are loaned.

Key Point Sale for export

The first step in determining customs value using the Transaction Value Method is toestablish that a sale for export to the country of importation has occurred. If no sale forexport to the country of importation can be identified, then the Transaction ValueMethod is not appropriate.

ExampleIdentification of sold for export.

Seller S in the exporting country X enters into a contract to sell electric appliances toimporter A in the importing country I at a price of USD 5.75 per piece. S concludes anagreement with manufacturer M also in country X to manufacture the goods.

Manufacturer M, on behalf of S, ships the goods to A in country I.

Ms selling price to S is USD 5 per piece. Is there a sale for export?

Answer

In this case, the transaction between S and A involves an actual international transfer ofgoods and constitutes a sale for export to the country of importation.


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Example Both Buyer and Seller are in a country of importation.

Buyer B in country of import I purchases goods from seller S in the same country I.The goods are stocked by S in country X.

Necessary arrangements for shipments and export of the goods from country X arecompleted by S and the goods are imported by B into country I. Is there a sale forexport?

Yes. It is not necessary that the sale takes place in a specific country of exportation.Whether seller S is located in country X or I or a third country is not a relevant factor.The transaction between seller S and buyer B is a sale for export to the country ofimportation

Example Sale on the high seas.

Seller S in country X sells goods to buyer A in country I and accordingly ships thegoods. While the goods are on the high sea, buyer A informs seller S that he is unableto make the payment and take delivery of the goods. The seller is able to locate another

buyer B also in country I and arranges the sale and delivery of the goods to buyer B.Accordingly B imports the goods into country I. Which is the sale for export?

The sale between seller S and buyer B results in the importation of the goods which, inturn, establishes it as being a sale for export. The transaction constitutes aninternational transfer of goods and would be the basis for valuation of the goods underArticle 1.


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Activ it y 2 Sale for Export

Question 1: Sold goods are packed at transit port in third country

Seller Sam in USA sells goods to buyer Bob in India. The goods are shipped from USAin bulk and are subsequently wrapped and put into packages by Sam at a transit portlocated in Singapore, before being imported into India.

Is there a sale for export?

Question 2: Purchase by multinational hotel chain

The head office of a multinational hotel chain located in USA purchases supplies for itsoperation. At the beginning of each year, chain hotels in England, France and Germanysubmit purchase orders to the head office for their supplies. The head office then addsup and issues purchases orders to various suppliers in the USA.

The supplies are either sent directly by the supplier to each of the hotels in the chain or

are shipped to the head office and subsequently shipped to the hotels. In either case, thesuppliers bill the head office in the USA, which then separately bills each hotel in thechain. Is there a sale for export?

Which is the sale for export?

Provide reasons for your answers.


Situation 2 - Four condi tionsThe conditions to be met are stipulated in Article 1 of the Agreement. Although theimported goods have been subject to a sale, their price cannot be automatically acceptedas the customs value. That sale or price must meet the four conditions stipulated underArticle 1 of the Agreement. When valuing an importation, Customs must check whetherthe goods have been sold, and then they must check whether each of the four conditionsare actually met by that sale or transaction in question.

The four conditions are:

there are no restrictions as to the disposition or use of the goods by the buyer otherthan restrictions which: are imposed or required by law or by the public authorities in the country of

importation

limit the geographical area in which the goods may be resold; or do not substantially affect the value of the goods

the sale or price is not subject to some condition or consideration for which a valuecannot be determined

no part of the proceeds of any subsequent resale, disposal, or use of the goods by the buyer will accrue directly or indirectly to the seller

the buyer and seller are not related, or, where the buyer and seller are related, therelationship did not influence the price.


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Key Point Where there has been a sale for export, the existence of one or more of the four pointsabove will constitute the ONLY reason(s) for not using the transaction value method indetermining the Customs value of the imported goods.

This serves to once again emphasize the point made in the General Introduction to theAgreement that Members to the Agreement recognize that the basis for valuation ofgoods for Customs purposes should, to the greatest extent possible, be the transactionvalue.

Restrictions

Sellers will sometimes impose restrictions to restrain the way in which the buyer maydispose of or use the imported goods.

Paragraph 1 (a) of Article 1 of the Agreement provides that there are some restrictions on

the disposition or use of the goods that are acceptable. The first two of these allowablerestrictions,

Those imposed by law or

Those limiting the geographical area of resale are not uncommon in the normal courseof trade and generally would have minimal effect on value.

An example of imposed or required by the law or by the public authorities in the countryof importation is when goods require a license prior to any sale (e.g. firearms), labelingrequirements, some form of inspection prior to release of the goods, etc.

An example of limitation on the geographical area in which the goods may be resold iswhere the seller imposes a territorial restriction, such as regional distributorship, and

resale is only permitted in a given geographical area.The third acceptable restriction, those that do not substantially affect the value of thegoods requires some elaboration of the term. WCO Commentary 12.1 suggests that, todetermine whether a restriction has substantially affected the value, the following factorsshould be taken into consideration:

The nature of the restriction

The nature of the imported goods

The nature of the industry and its commercial practices

Whether the monetary effect is commercially significant.

An example of a restriction which would not substantially affect the value of the goods is: a seller requires a buyer of automobiles not to sell or exhibit them prior to a fixed date

which represents the beginning of a model year.

the imported goods must be sold through door-to-door sales.

Condition or Consideration

The second condition is where the sale or price is subject to some condition orconsideration for which a value cannot be determined. Paragraph 1 (b) of Article 1 of theInterpretative Notes to the Agreement provides further examples as follows:

The seller establishes the price of the imported goods on condition that the buyer will

also buy other goods in a specified quantity


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The price of the imported goods depends on the price(s) at which the buyer of theimported goods sells other goods to the seller of the imported goods

The price is established on the basis of a form of a payment extraneous to the importedgoods, such as where the imported goods are semi-finished goods that have been

provided by the seller on condition that he will receive finished product in a specified

quantity.Subsequent Proceeds

The transaction value method may be used to determine the customs value as long asthere are no proceeds of any resale or use of the goods which will be sent to the seller thatare not accounted for in determining the Customs value.

Article 8.1 (d) provides for the addition of the value of any part of proceeds of anysubsequent resale that accrues to the seller, to the price actually paid or payable.Therefore if value of the proceeds can be determined then this restriction on the use of thetransaction value does not apply.

Related part ies

The transaction value can be accepted as long as there is no relationship between the buyer and the seller that has an influence on the price.

Article 15.4 of the Agreement provides the following definition of related parties:

they are officers or directors of one anothers businesses

they are legally recognized partners in business

they are employer and employee

any person directly or indirectly owns, controls or holds 5 percent or more of theoutstanding voting stock or shares of both of them

one of them directly or indirectly controls the other both of them are directly or indirectly controlled by a third person

together they directly or indirectly control a third person; or

they are members of the same family.


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WCO Advisory Opinion 21.1

Source:

WCO 1997

INTERPRETATION OF THE EXPRESSIONPARTNERS IN BUSINESS IN ARTICLE 15.4 (b)

1. Are sole agents, sole distributors and sole concessionaires legally recognized partners in

business in terms of Article 15.4 (b) of the Agreement?* *

2. The Technical Committee on Customs Valuation expressed the following view.

The Technical position in regard to sole agents, sole distributors and sole concessionaires isset out in Article 15.5 of the Agreement, which provides that persons associated in business assole agents, sole distributors or sole concessionaires are only deemed to be related personsunder the Agreement if they fall within the criteria of Article 15.4.

Article 15.4 (b) deems persons to be related if they are legally recognized partners in business.The Websters Dictionary defines the word partner as:

One who is associated with one or more persons in the same business and shares withthem its profits and risks; a member of a partnership.

The word partnership is in turn defined as:

An association of two or more people who contribute money or property to carry on a joint business and who share profits and losses in certain proportions.

In commercial law, the simple definitions set out above are usually backed up by a complex setof legal provisions and principles intended to define, interpret and codify through contract, taxand other laws the legal relationship implied in the term partner.

An association would be a partnership only where the national legal requirements for thecreation of a partnership are satisfied. Thus, persons are not related under the Agreementsimply because one person is the sole agent, sole distributor or sole concessionaire of theother.

While it is true that sole agents, sole distributors, etc. may have a close association with theirsuppliers, this fact alone would provide no reason to treat them differently from any otherunrelated party.

For the purpose of clarification, a Member may choose to incorporate or refer to its national lawof partnership in the valuation provisions of i ts Customs law. However, it would not beappropriate for a Member to devise a different definition of partnership specifically for theinterpretation of the valuation provisions of its Customs law.

WCO Advisory Opinion 21.1 provides clarification on the interpretation of the expressionpartner in business and its application to sole agents, sole distributors, and the like. Thefact that sole agents may have close associations with their suppliers does not in itself

provide reason to treat them as related parties. Article 15.5 makes it clear that sole agentsshould be treated as related only if they fall into one of the relationships defined in

Article 15.4.


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The WCO Technical Committee has provided an interpretation of the word control inExplanatory Note 4.1. Any contractual situation always places some degree of restraint ordirection by one party over another; however, for one person to control another person,that person must be legally or operationally in a position to exercise restraint or directionover another. So it would appear that the buyer and seller are not related when they are:

free to negotiate or not negotiate free to enter or not to enter into a contract

free to terminate the contract by action specified in the contract or by choosing not torenew the contract.

A branch office is normally related to the parent company. In some countries, branchoffices are not considered to be separate legal entities. In such cases, since the branchoffice cannot be considered as a legal entity, there is no sale occurring, and there would

be no transaction value. The transaction value method could not be used to determine thecustoms value.

In interpreting the expression the same family, the determination of those who are

members of the same family is normally a matter for national consideration. Thefollowing are examples:

husband and wife uncle and nephew

parent and child uncle and niece

brother and sister aunt and nephew

step-brothers brothers-in-law

step-sisters sisters-in-law

grandparent and grandchild adoptive parent and adoptive child.

The Agreement makes it clear that the fact alone that the buyer and seller are related givesno grounds for rejecting the transaction value as the customs value. If the buyer and sellerare related, the transaction value will be accepted, provided the relationship does notinfluence the price.

The question here is how to determine, and demonstrate, whether or not the relationship between the buyer and the seller has influenced the price. This question, and the difficultyin providing conclusive evidence, can provide problems for both importers and customsadministrations. The Agreement in paragraph 2 (a) and (b) of Article 1 makes twosuggestions on how this might be accomplished:

firstly, in consultation with the importer, by an examination of the circumstances ofsale to determine whether the price was influenced by the relationship

secondly, by a comparison with sales between an unrelated buyer and seller, or withcustoms values of identical or similar goods.

Situation 3 - Objective and quanti fiable dataAny additions to the price must be based on documented evidence and absolute amounts.Additions based on estimates or past experience should be avoided. Therefore, forvaluation, the importer must be prepared to assist Customs by providing evidence insupport of his declaration to enable Customs to verify the declaration when they decide todo so.


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Without the availability of objective and quantifiable data, Customs is unable to makeany confirmation, and consequently, the amount of the transaction value cannot beverified.

Situation 4 - Customs rights to reject low valuesThe Customs right to reject low values is based on Ministerial Decision 6.1, taken as aresult of the Final Act of the Uruguay Round/GATT 1994. The WTO recognised thatCustoms administrations need to be empowered, in a practical sense, to combat Customsinfractions such as undervaluation at the first clearance stage. The decision has beenincorporated into the Agreement at Article 17.

Article 17 Nothing in this Agreement shall be construed as restricting or calling into question therights of customs administrations to satisfy themselves as to the truth or accuracy of anystatement, document or declaration presented for customs valuation purposes.

The degree of information required by Customs before rejection of a declared value is amatter to be considered on a case-by-case basis, taking all relevant circumstances intoaccount. Concepts of risk management and compliance management are relevant whenaddressing this decision. These concepts are not covered in this Course.

Price Actually Paid or PayableIntroduction

The following points are of importance: Customs value should be based on simple and equitable criteria consistent with

commercial practices

Commercial reality is best represented by the transaction between the buyer and sellerof the imported goods

In determining the price actually paid or payable reference prices, market values, orany other standards that are external to the buyer-seller transaction are irrelevant

Provided the price actually paid or payable is set between buyer and seller incircumstances that satisfy the conditions required by Article 1 and the adjustmentsallowed by Article 8 can be made, then that price will be acceptable for determiningCustoms value

Low prices below normal market values are acceptable (WCO Advisory Opinion 2.1)

Subsidized and dumping prices are acceptable bases for valuation and the Agreementis not to be used to combat subsidies or dumping (Commentaries 2.1 and 3.1).

Key Point The price actually paid or payable and the transaction value method account forapproximately ninety-five percent of all value determinations and involve the most

issues raised when determining value under the WTO Agreement


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Total Payment The term total payment. means:

Total payment made or to be made as a condition of sale

Payments by the buyer to the seller

Payments by the buyer to third parties

Indirect payments

Advance payments

Payments other than the transfer of money, letters of credit, negotiable instruments,settlements of debts.

The important issue is that the payments are made as a direct condition of the sale of theimported goods. The total payment may well be different than the invoice value of thegoods. Any payment made by the buyer to the seller or to another party as a requirementimposed by the seller is part of the transaction value for the imported goods.

Activities on the buyer's own accountInterpretative Note to Article 1 that provides further guidance in respect of the priceactually paid or payable. Paragraph 2 provides that the value of activities undertaken bythe buyer for his own account, other than those for which an adjustment is made underArticle 8, are not to be added to the price actually paid or payable. Some examples :

Market studies and market research

Advertising the brand or trade mark under which the goods are going to be sold

Preparation of showroom

Participation in trade fairs and exhibitions

Testing

Cost to obtain a letter of credit

Post Importation chargesCertain post importation costs do not form part of the customs value, provided that theycan be separately distinguished from the price of the imported goods.

Charges for construction, erection, assembly, maintenance or technical assistance,undertaken after importation on imported goods such as industrial plant, machinery orequipment

The cost of transport after importation

Duties and taxes of the country of importation.

DiscountsThe transaction value would generally take account of any discounts offered by the sellerto the buyer. The fact that discounts are allowable follows from the definition of the priceactually paid or payable, i.e., if the price reflects a discount, the discount should beallowed since the discounted amount represents the total payment made to or for the

benefit of the seller for the imported goods.Common discounts: cash, trade level, quantity, loyalty and so on.


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There may be situations where the price of the imported goods are subject to pricingarrangements made between the buyer and the seller that are somewhat out of theordinary. These include, among others:

Price review clauses

Package deals

Split consignments.

In any of these situations, the importer must be able to justify the value declared on the basis of the price actually paid or payable supported by objective and quantifiable data.

Activ it y 3 Price Actually Paid or Payable

Question 1: Settlement of a debt.Smith Company in Dayton, Ohio pays US$ 1,850 to Pierre Toy Factory in Paris, Francefor a shipment of toys. Pierre Toy Factory would have charged Smith Company US$2,200 for the toys; however, since Pierre owed Smith US$ 350, Pierre charged only US$1,850 for the toys.

Wha t is t he p ric e a c t ua l ly pa id o r p a yab le?

Question 2: Settlement for damage on previous shipment.

Smith Company in Dayton, Ohio pays US$ 3,500 to Pierre Toy Factory in Paris, Francefor a shipment of toys. During a previous shipment of toys from Pierre to the JonesCompany, a new customer in Cleveland Ohio, US$ 500 in damage had occurred.. Basedon their long-standing relationship, Pierre asked Smith to make an immediate settlementof the damage claim with Jones, and Pierre Toy would then deduct US$ 500 from thenext invoice. The price of the shipment being valued reflects this US$ 500 deduction.

Wha t is t he p ric e a c t ua l ly pa id o r p a yab le?


Upload your answers in the Assignments Dropbox.

Additions to the Price Actually Paid or Payable

IntroductionThe transaction value is the price actually paid or payable adjusted by the addition ofcertain elements under the provisions of Article 8 of the Agreement. Additions may notalways be necessary. It actually depends on the facts of the sale and transaction itself. So itis a matter to be determined on a case-by-case basis. The adjustment to the price actually

paid or payable must be made only if:

The sale or transaction covers cost or charge of that certain element (s);

The price actually paid or payable has not included the element (s);

The cost or charge is incurred by the buyer; and

There is objective and quantifiable data to form the basis for the addition.


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The additions under the Article 8 of the Agreement to the price actually paid or payablefalls under two categories, compulsory and optional adjustment. The compulsoryadjustments are additions that must be made to the price actually paid or payable in orderto arrive at the customs value. They are:

Selling commissions and brokerage

Cost of containers and packing

The value of assist

Royalties and license fees

Proceeds of resale or use.

Under the Agreement, countries are given the option to either include or exclude the costsof overseas freight and insurance in the customs value. For those countries that havechosen to include overseas transportation costs, the following additions to the price arealso required:

the cost of transport of the goods to the port or place of importation

loading, unloading and handling charges associated with the transport of the importedgoods

the cost of insurance.

Article 8 makes it clear that the costs listed are the only additions to be made to the priceand that those additions can only be made on the basis of objective and quantifiable data.Where objective and quantifiable data is not available, then the Transaction ValueMethod cannot be used.

Commissions and Brokerage

A commission is a form of financial consideration usually paid to intermediaries in atransaction (agents). An agent is a person or firm who buys and sells goods for the accountof a buyer or seller, represents either the buyer or the seller but does not take title to thegoods.

An agent who acts on behalf of the seller is called a selling agent, while an agent for the buyer is called a buying agent.

Article 8 establishes the rule that all commissions are to be added to the price with oneexception, buying commissions.

Brokerage is a term that describes the fee paid to a broker and is usually a percentage of the business concluded as a result of the brokers action. A broker is an Agent to a transactionwho acts for both the buyer and seller with the role of putting the parties, i.e., buyer andseller, in touch with each other brokers, usually, specialize in certain types of commodities,i.e., oil, sugar, grains, etc.

Key Point Commissions

Apart from buying commissions, all commissions and brokerage paid to intermediariesin the transaction are to be added to the price if the amount is not already included bythe seller. Claims by importers that a commission is a buying commission should beexamined in detail to confirm that the agent is acting solely for the buyer.


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Selling Commissi on

The payment the selling agent receives for services rendered in the conclusion of acontract is usually termed selling commission. Goods sold through the sellers agentusually cannot be purchased without payment of the selling agents commission.

Foreign suppliers who deliver their goods pursuant to orders placed through a sellingagent usually pay for the agents services themselves and quote inclusive prices to theircustomers. In such cases, it is not necessary to adjust the invoice price to take account forthese services.

However if the terms of the sale require the buyer to pay, usually direct to theagent/intermediary, a commission that is additional to the price invoiced for the goods thecommissions must be added to the price when determining transaction value.

Buying Commission

Because buying commissions are the only commissions that are not required to beadded, customs administrations will often receive claims that commissions paid are

buying commissions. It is therefore often the case that customs will need to examine therole and function of the agent and evidence of the relationship between the buyer and theso-called buying agent. Attention is drawn to WCO Commentary 17.1. Customsadministrations will need to consider the following factors consistent with theCommentary:

The role and function of the agent may be found in a written contract or agreement.

Does the agent act in a manner consistent with the role defined in the contract.

Does the importer have control over the purchasing process

Does the manner of payment illustrate that the agent only purchases the goods at thedirection of the importer.

Are the agents actions primarily for the benefit of the importer/buyer. Does the relationship, especially financial, indicate that the parties actually are acting

as a principal and agent.

Is the importer/buyer is at risk for damaged, lost or defective goods.

Does the agent profits from the transaction beyond the commission paid by the buyer.

Is the buyer entitled to complete disclosure from the agent of any transactionsundertaken by the agent on the buyers account.


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Activ it y 4 Addi tions t o the Pr ice

Selling commission and advertising cost

Indigo in Singapore imports colour film in rolls. Goldie in Japan sells the film onlythrough selling agent Amber, who is located in Singapore. Amber is Goldie's sole agent, but they are not otherwise related.

According to the terms of the sales contract, the exporter requires all importers of hiscolour film to pay an additional 2 % of the invoice value directly to selling agent Amber.

To maximize the benefits of his advertising efforts, importer Indigo tasks agent Amberwith a nation-wide advertising campaign to promote the sale of this film. He separately

pays agent Amber an additional 1.5 % of the invoice price to cover Amber's marketingexpenses on his behalf.

What is the Customs value of a shipment of 2,000 rolls of colour film imported by Indigo at an invoice price of CIF US$ 20.00 per roll?



Containers and packing and transportation costs

Containers and packing

The cost of containers, which are treated as being one for customs purpose with the goodsin question, and the cost of packing, whether for labour or materials, shall be added to the

price actually paid or payable.

In this context, the cost of containers does not refer to the cost of large shippingcontainers, pallets, drums or other means for the conveyance of cargo in internationaltrade. Costs and charges for those types of containers used, as a means of transport, arecovered as optional adjustments under Article 8.2 of the Agreement.

Assists

Definition of Assists

Article 8.1 (b) provides for the addition of the value of goods and services supplieddirectly or indirectly by the buyer to the seller, free of charge or at a reduced cost, for usein connection with the production and/or sale for export of the imported goods, to theextent that these have not been included in the price actually paid or payable.

These costs are usually described collectively as production assists, or just as assistsalthough these terms are not used in the Agreement.

The words used to describe assists in Article 8 are as follows:

Materials, components, parts and similar items incorporated in the imported goods

Tools, dies, moulds and similar items used in the production of in the imported goods

Materials consumed in the production of the imported goods

Engineering, development, artwork, design work, plans and sketches, undertakenelsewhere than in the country of importation and necessary for the production of theimported goods.


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Engineering, development, artwork, design work, plans and sketches, undertaken withinthe country of importation, are NOT to be added. The Agreement provides this exceptionto the general rule as a device to promote developmental work in the country ofimportation.

Example An importer of shirts provides to the shirt manufacturer (seller) Bolts of material to bemade up into shirts. The cloth is supplied free of charge. The cost of the material, inaddition to the transportation costs from the country of importation and any taxesassociated with either the exportation or importation into the country of manufacture,will form part of the customs value of the shirts .

Valuation of assists

In determining the value of an assist, the following elements should be considered:

For all categories of assist: If the assist was supplied free of charge by the buyer to the seller, the full value of the

assist should be added

If the assist was supplied at a reduced cost, the value of the assist to be added is anamount equal to the total value of the assist minus any amount paid by the seller

If the assist was acquired from a seller not related to the importer, the value of theassist will be the cost to acquire it

If the assist was produced by the importer or someone related to him, or, if purchasedfrom a related source, its value would be the cost to produce it

The value of all categories of assists should also include transportation costs to the place of manufacture, import and export clearance charges, and duties and taxes,which are not refunded.

Royalties and License Fees

Conditions for incl usion in Customs Value

The following four conditions that must be satisfied before royalties and licence fees can be included:

The royalty or license fee must be paid directly or indirectly by the buyer. It does not

matter to whom the royalty is paid, the important thing is that the buyer is obliged to pay. Payment of the royalty or license fee must be a condition of sale of the imported

goods. Whether the payment of Royalties or License Fees is a condition of sale of theimported goods is a key point when considering this issue. General understanding onthis point is based on the question, can you import the said goods without payingroyalties or license fees? If you can, then it is not a condition of sale. If you cannot,then it is a condition of sale.

The royalty or license fee must be related to the imported goods being valued. Thismeans that the royalty or license fee must bear directly on the goods being imported

The royalty or license fee must not already be included in the price actually paid or

payable.


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The Interpretative Notes to Article 8.1 (c) provide some additional guidance relatingto the treatment of royalties and license fees.

Royalties and license fees may include payment in respect to patent, trademark andcopyright

Payments, however termed, for the right to reproduce the imported goods in thecountry of importation shall not be added

Payments by the buyer for the right to distribute or resell the imported goods will not be added, provided such payments are not a condition of a sale for the goods.

Subsequent Proceeds

Proceeds of subsequent r esale, disposal or use of the importedgoods

An addition to the price actually paid or payable will be made for the value of any part ofthe proceeds of any subsequent resale, disposal or use of the imported goods that accrue,directly or indirectly, to the seller.

Subsequent proceeds must be added to the price actually paid or payable as long as theyare:

Paid by the buyer to the seller

Are based on the resale, disposal or use of the imported goods.

Proceeds are different from royalties because of the fact that proceeds must be paid bythe buyer to seller


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Activ it y 5 Valuation Exercise

Valuation Of Conveyor

F. E. Steel Pty Ltd, a mining company, imports six conveyors, each conveyor being60 metres in length. In order to facilitate ease of transport the conveyors are importedin an unassembled condition, on one vessel. The conveyors are imported withoutconveyor belting as the mining company is aware that the belting can be sourced fromlocal suppliers.

The importer presents an invoice from the supplier for US$350,000 and a copy of thesales contract. The contract indicates that the purchase of the conveyors involves:

two companies that are not related;

a total sales price of US$500,000;

a progress payment at the midpoint of construction of $150,000;

the supply of special purpose tooling and designs by F. E. Steel;

technical assistance to be provided by the conveyor manufacturer inassembling the conveyors.

After further enquiries the importer provides the following additional information.

The special purpose tooling was provided free of charge to the manufacturer to ensurethe conveyors met strict quality control standards. The tooling was delivered to themanufacturer at an all inclusive cost to F. E. Steel of US$45,000. On completion ofthe construction the tooling was sold off in the country of export for US$10,000. Thisamount was remitted to F.E. Steel.

F. E. Steel employed designers within the company to draw up the plans and designs.He estimated the cost of designs at US$5,500. These were also supplied to themanufacturer free of charge.

The manufacturer is to provide an engineer during the time it takes to assemble theconveyors in order to ensure that they are correctly working. The importer provides anexchange of correspondence with the manufacturer confirming this arrangement andincluding the agreement that an allowance of US$12,000 will be included in the purchase

price to cover this technical assistance.

Assume the invoice cost is at CIF which is the point at which your country determinesCustoms Valuation.

What is the Customs Value of the Consignment?


Upload your answer in the Assignment Dropbox.


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The Second/ Third Methods - Identical and SimilarGoods

IntroductionThese two methods for determining the Customs Value are dealt with together as there isno difference in the application of the methods other than the definition of identical andsimilar.

The use of the identical and similar goods methods are governed by the following factors:

if transaction value cannot be used as the basis for valuation, the Agreement requiresthat the value be determined using the first alternative basis of value, Article 2, whichis the transaction value of identical goods.

if a value cannot be determined under Article 2, the Agreement requires that value bedetermined using the second alternative basis of value, Article 3, which is the

transaction value of similar goods.

Key PointThe hierarchal and sequential application of the methods of valuation is a requirementof the WTO Valuation Agreement.

While also involving transaction value, Articles 2 and 3 are quite different from Article 1in the following way:

Article 1 determines transaction value based on the price actually paid or payable forthe imported goods;

Articles 2 and 3 seek to determine valuation using substitute imported goods based onanother transaction, previously accepted under Article 1.

Using Articles 2 and 3, Customs must seek a previously accepted transaction value ofidentical or similar goods.

An effective process of consultation between Customs and the importer must occur,whenever any of the alternate methods are used. In the case of identical or similar goods,it may be, for example, that the importer has information about the transaction value ofidentical or similar goods that is not immediately available to the Customs. Likewise,Customs may have such information already on hand. Consultation may enable Customsto determine what, if any, goods might be considered as identical or similar.

Defini tion of terms identical goods or simi lar goods To apply the identical goods method to the imported goods being valued:

The goods must be identical to the imported goods

The goods must be produced in the same country as the goods being valued

They must have been exported at or about the same time as the goods being valued(For a practical application, "about" means 30 days before and after the importation)


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The sale of the identical goods must have been in substantially the same quantity andat the same commercial level as the goods being valued. (Adjustment can be made tocompensate for any differences in quantity and commercial level)

Where there are two or more transaction values for identical goods, the lowest of suchvalues will be used. This is an important principle in the administration of the WTO

Valuation Agreement.Similar goods are goods, although not alike in all aspects, have:

Like characteristics

Like component materials that enable them to perform the same functions and to becommercially interchangeable with the imported goods.

The transaction value of identical or similar goods can be used as the basis fordetermining customs value provided that:

The transaction value of the identical or similar goods has been previously accepted by the Customs

The date of exportation of the identical or similar goods is within a period of 30(thirty) days before or after the date of B/L or AWB of the goods being valued

The commercial level and the quantity of the identical or similar goods are the same asthose of the goods being valued. If the commercial/quantity level is not the same, thenan adjustment must be possible in order to compensate for any differences.

Method 4

Deductive Value Method

Overview of the Method

The deductive value method is based on the unit price at which the imported goods areresold by the importer in the country of importation.

The unit price is that at which the imported goods, or identical or similar imported goods:

Are sold

In the greatest aggregate quantity

At or about the time of the importation of the goods being valued

To persons who are not related to the persons from whom they buy such goods.

Once the unit price is established the customs value is determined by making thefollowing deductions:

Either the commission usually paid or agreed to be paid or the deductions usuallymade for profit and general expenses in connection with sales in country ofimportation of imported goods of the same class or kind

The usual costs of transport and insurance and associated costs incurred within thecountry of importation

Where appropriate, the cost and charges referred to in Article 8.2

The Customs duties and other national taxes payable in the country of importation.

If there is no sale at or about the time of the importation of the goods being valued, thenthe Agreement allows the customs value to be determine based on the price at which the


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imported goods, or identical or similar goods, are resold in the condition as imported, atthe earliest date after importation but before the expiration of 90 days after suchimportation.

There must be a sale in the country of importation (domestic sale) of the importedgoods, or of identical or similar goods

The imported goods, or identical or similar goods, when sold, should be in the samecondition as they were when first imported

The resale to be taken, for deductive value purposes, must be to an unrelated buyer, atthe first commercial level after importation

The unit price from which deductions will be made is the price at which the greatestnumber of units have been resold (greatest aggregate quantity)

The imported goods, or identical or similar goods, must also be resold at or about thedate of importation of the goods being valued

Any sale in the importing country to a person who supplied an assist (Article 8.1 (b))to the seller should not be used

If there is no sale of the imported goods, or of identical or similar goods, at or aboutthe date of importation of the goods being valued, such a sale which occurs at theearliest date after importation, but before the expiration of 90 days after theimportation can be used.

Basically the method seeks to establish a unit price for the goods sold on the domesticmarket and then to make appropriate deductions for expenses and profit in the country ofimportation to bring the price back to the point of importation.

Deductions

In addition to the costs and charges listed above, the deductive value method provides forthe deduction of either of commissions or profit and general expenses

CommissionsGenerally speaking a deduction for commissions will occur when the goods have beenconsigned to an agent / sales representative who imports the goods and is paid acommission for performing selling agency functions on behalf of the vendor locatedoutside of the importing country.

Profit and General Expenses A deduction for profit and general expenses will occur when the goods are resold in

the country of importation by a buyer/reseller

The importer incurs expenses and earns profit on the resale of the goods in the countryof importation

Transaction value method is not applicable because one of the conditions of Article1.1 is not met.

The amount of the deduction should be based on figures supplied by or on behalf of theimporter unless these figures are inconsistent with "profits usually made" in the industry.

The determination of what is usual profit and general expenses for goods of the same

class or kind is what renders the Deductive value method effective


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Method 5

Computed ValueThe basics of the Computed Value Method are as follows:

The computed value method determines the customs value by totaling the cost orvalue of the following elements that make up the customs value of the imported goods

The cost or value of materials and fabrication or other processing employed in producing the imported goods

An amount for profit and general expenses equal to that usually reflected in sales ofgoods of the same class or kind as the goods being valued which are made by the

producers in the country of exportation for export to the country of importation

The cost or value of all other expenses necessary to reflect the valuation option chosen by the Member under paragraph 2 of Article 8 of the Agreement. (cost oftransportation from the port of loading to the place of importation, including the costof loading, unloading and handling charge related to the transportation of the importedgoods, and the cost of insurance.

The following points are also of relevance to determining the computed value

The customs value is determined on the basis of information readily available in thecountry of importation

The use of the computed value method will generally be limited to those cases wherethe buyer and the seller are related (due to the commercially confidential nature of theinformation that must be provided.)

The producer of the goods is prepared to supply the authorities in the country ofimportation the necessary costs and related information for any subsequentverification

Information on the cost or value of the imported goods is to be based upon thecommercial accounts of the producer, and those accounts must be consistent withgenerally accepted accounting principles

Information on the amount for profit and general expenses must be consistent withthat usually reflected in sales of goods of the same class or kind as the goods beingvalued

No contracting party to the Agreement may require or compel any person not resident

in its own territory to produce for examination, or to allow access to, any account orother record

Goods of the same class or kind are defined in Article 15 of the Agreement as beinggoods which fall within a group or range of goods produced by a particular industry orindustry sector and includes identical or similar goods. The goods of the same class orkind must be from the same country of exportation. The determination whether goodsare in the same class or kind must be done on a case-by case basis.

In the experience of countries applying the Valuation Agreement, this is the least-used ofthe six methods provided within the WTO Agreement, for the reasons listed above.


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Method 6

Fallback Method

Overview of the MethodIf the value cannot be determined under any of the previous methods then the value shall

be determined:

Using reasonable means consistent with the general provisions of the Agreement andArt. VII of GATT 1994

On the basis of data available in the country of importation

The Interpretative Note to Article 7 gives direction on the use of reasonable means bystating that, to the greatest extent possible, the Customs value is to be based on previouslydetermined Customs values. Articles 1-6 are to be applied with reasonable flexibility.

In keeping with the general provisions of the Agreement, the hierarchical order should befollowed (WCO Advisory Opinion 12.2). Where a value cannot be determined using aflexible application of Article 1 through 6, other reasonable methods may be used exceptmethods prohibited by Article 7.2 (WCO Advisory Opinion 12.1).

Nevertheless, under this method, customs value shall be determined on the basis of dataavailable in the country of importation. WCO Advisory Opinion 12.3 states that when acertain amount of data comes from foreign sources, this fact would not in itself precludethe use of that data for purposes of establishing a value under the Fallback method.

WCO Advisory Opinion 12.3 provides guidance, that, in brief, Article 7 of theAgreement is silent as to the original source of information to be used in its application,merely requiring that such data be available in the country of importation. The source of

information would be not in itself be a bar to its use for the purposes of Article 7, provided that the information was available in the country of importation, and Customswas able to satisfy the truth and accuracy of that data.

Key PointProhibited MethodsThe following methods of valuation are prohibited under Article 7.2:

The selling price in the country of importation of goods produced in suchcountry

A system which provides for acceptance for customs purposes of the higher oftwo alternative values

The price of goods on the domestic market of the country of exportation; The cost of production other than computed value that have been determined for

identical or similar goods in accordance with the provisions of Article 6; The price of goods sold for export to a country other than the country of

importation Minimum customs values Arbitrary or fictitious values.


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Useful LinksWorld Customs Organization Valuationhttp://www.wcoomd.org/home_wco_topics_valoverviewboxes.htm

World Trade Organization WTO Valuation Agreement http://www.wto.org/english/tratop_e/cusval_e/cusval_e.htm Organization for Economic and Commercial Development Centre for Tax Policyhttp://www.oecd.org/document/4/0,3343,en_2649_33753_37756100_1_1_1_1,00.html

Canada Border Services Agency Valuation Instructions D-13 serieshttp://www.cbsa.gc.ca/import/valuation-valeur/pol-eng.html

Informed Compliance Publications Customs Valuehttp://www.cbp.gov/xp/cgov/toolbox/legal/informed_compliance_pubs/

lectura n°2 - valoracion aduanera

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