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The WTO's Rules of Origin

  • The WTO's rules of origin, according to the WTO's website, requires WTO members "to ensure that their rules of origin are transparent; that they do not have restricting, distorting or disruptive effects on international trade; that they are administered in a consistent, uniform, impartial reasonable manner; and that they are based on a positive standard." (In other words, they should state what does confer origin rather than what does not.)

To break it down simply: the rules must be clear and not secretive, must be steady and unbiased and must explain what qualifies as being an article from that country.

What the Rules of Origin Do NOT Do

  • The rules of origin only explain how to define what the product of another country is. Therefore the actual creation of rules of origin is left up to each individual member country; however, so long as the member country's rules of origin adhere to the WTO's definition of the rules of origin, then it is in compliance. Additionally the WTO's Rules of Origin do not restrict or prohibit trade agreements. Quotas, antidumping duties and countervailing duties still exist as a way of attempting to even out unfair trade practices. Preferential trade programs also exist to encourage trade between certain countries.

Definitions

  • Rules of origin: As the WTO's site explains, "the criteria used to define where a product was made."

Quotas: A way of limiting a certain product into a country. Quotas can come in two forms: absolute (aka quantitative) quotas, which only allow a certain number of units of a specific item into the country during a specific time period; or tariff quotas, which allow for a certain amount of merchandise to be entered into a country during a specific time period for a set duty rate. After the limit is reached of an item that has a tariff-rate quota, then usually a higher duty rate comes into effect for the rest of the quota time period.

Anti-dumping duty: Also known as ADD. ADD is assessed in addition to any duties that a product might have on it, and added onto certain products in response to the low-priced imports.

Countervailing duty: Also known as CVD. CVD is charged in addition to any duties that a product might have on it, in response to any subsidies that the exporting country's government might have.

Preferential tariff: A lower duty rate for exports from certain countries.

Read more: WTO Rules of Origin | eHow.com http://www.ehow.com/about_5389749_wto-rules-origin.html#ixzz2AvCeNXyj

“Rules of origin” are the criteria used to define where a product was made. They are an essential part of trade rules because a number of policies discriminate between exporting countries: quotas, preferential tariffs, anti-dumping actions, countervailing duty (charged to counter export subsidies), and more. Rules of origin are also used to compile trade statistics, and for “made in ...” labels that are attached to products. This is complicated by globalization and the way a product can be processed in several countries before it is ready for the market.

The Rules of Origin Agreement requires WTO members to ensure that their rules of origin are transparent; that they do not have restricting, distorting or disruptive effects on international trade; that they are administered in a consistent, uniform, impartial and reasonable manner; and that they are based on a positive standard (in other words, they should state what does confer origin rather than what does not).

For the longer term, the agreement aims for common (“harmonized”) rules of origin among all WTO members, except in some kinds of preferential trade — for example, countries setting up a free trade area are allowed to use different rules of origin for products traded under their free trade agreement. The agreement establishes a harmonization work programme, based upon a set of principles, including making rules of origin objective, understandable and predictable. The work was due to end in July 1998, but several deadlines have been missed. It is being conducted by a Committee on Rules of Origin in the WTO and a Technical Committee under the auspices of the World Customs Organization in Brussels. The outcome will be a single set of rules of origin to be applied under non-preferential trading conditions by all WTO members in all circumstances.

An annex to the agreement sets out a “common declaration” dealing with the operation of rules of origin on goods which qualify for preferential treatment.

Agreement on Rules of Origin back to top

The agreement aims at long-term harmonization of rules of origin, other than rules of origin relating to the granting of tariff preferences, and to ensure that such rules do not themselves create unnecessary obstacles to trade.

The agreement sets up a harmonization programme, to be initiated as soon as possible after the completion of the Uruguay Round and to be completed within three years of initiation. It would be based upon a set of principles, including making rules of origin objective, understandable and predictable. The work would be conducted by a Committee on Rules of Origin (CRO) in the WTO and a technical committee (TCRO) under the auspices of the Customs Cooperation Council in Brussels.

Much work was done in the CRO and the TCRO and substantial progress has been achieved in the three years foreseen in the Agreement for the completion of the work. However, due to the complexity of the issues the HWP could not be finalized within the foreseen deadline. The CRO continued its work in 2000. In December 2000, the General Council Special Session agreed to set, as the new deadline for completion of the remainder of the work, the Fourth Session of the Ministerial Conference, or at the latest the end of 2001. The negotiating texts are contained in documents G/RO/41 and G/RO/45.

Until the completion of the harmonization programme, contracting parties would be expected to ensure that their rules of origin are transparent; that they do not have restricting, distorting or disruptive effects on international trade; that they are administered in a consistent, uniform, impartial and reasonable manner, and that they are based on a positive standard (in other words, they should state what does confer origin rather than what does not).

An annex to the agreement sets out a “common declaration” with respect to the operation of rules of origin on goods which qualify for preferential treatment.

Technical Information on Rules of Origin

Definition back to top

Rules of origin are the criteria needed to determine the national source of a product. Their importance is derived from the fact that duties and restrictions in several cases depend upon the source of imports.

There is wide variation in the practice of governments with regard to the rules of origin. While the requirement of substantial transformation is universally recognized, some governments apply the criterion of change of tariff classification, others the ad valorem percentage criterion and yet others the criterion of manufacturing or processing operation. In a globalizing world it has become even more important that a degree of harmonization is achieved in these practices of Members in implementing such a requirement.

Where are rules of origin used? back to top

Rules of origin are used:

— to implement measures and instruments of commercial policy such as anti-dumping duties and safeguard measures;

— to determine whether imported products shall receive most-favoured-nation (MFN) treatment or preferential treatment;

— for the purpose of trade statistics;

— for the application of labelling and marking requirements; and

— for government procurement.

No specific provision in GATT back to top

GATT has no specific rules governing the determination of the country of origin of goods in international commerce. Each contracting party was free to determine its own origin rules, and could even maintain several different rules of origin depending on the purpose of the particular regulation. The draftsmen of the General Agreement stated that the rules of origin should be left:

“...within the province of each importing country to determine, in accordance with the provisions of its law, for the purpose of applying the most-favoured-nation provisions (and for other GATT purposes), whether goods do in fact originate in a particular country”.

Article VIII:1(c) of the General Agreement, dealing with fees and formalities connected with importation and exportation, states that “the contracting parties also recognize the need for minimizing the incidence and complexity of import and export formalities and for decreasing and simplifying import and export documentation requirements” and the Interpretative Note 2 to this Article states that it would be consistent if, “on the importation of products from the territory of a contracting party into the territory of another contracting party, the production of certificates of origin should only be required to the extent that is strictly indispensable”.

Interest in the harmonization of rules of origin back to top

It is accepted by all countries that harmonization of rules of origin i.e., the definition of rules of origin that will be applied by all countries and that will be the same whatever the purpose for which they are applied - would facilitate the flow of international trade. In fact, misuse of rules of origin may transform them into a trade policy instrument per se instead of just acting as a device to support a trade policy instrument. Given the variety of rules of origin, however, such harmonization is a complex exercise.

In 1981, the GATT Secretariat prepared a note on rules of origin and, in November 1982, Ministers agreed to study the rules of origin used by GATT Contracting Parties. Not much more work was done on rules of origin until well into the Uruguay Round negotiations. In the late 1980s developments in three important areas served to focus more attention on the problems posed by rules of origin:

Increased number of preferential trading arrangements

First, an increased use of preferential trading arrangements, including regional arrangements, with their various rules of origin;

Increase in the number of origin disputes

Second, an increased number of origin disputes growing out of quota arrangements such as the Multifibre Arrangement and the “voluntary” steel export restraints; and

Increased use of anti-dumping laws

Lastly, an increased use of anti-dumping laws, and subsequent claims of circumvention of anti-dumping duties through the use of third country facilities.

The UR Agreement

Introduction back to top

The increased number and importance of rules of origin led the Uruguay Round negotiators to tackle the issue during the negotiations.

Aims of the Agreement back to top

Harmonization

The Agreement on Rules of Origin aims at harmonization of non-preferential rules of origin, and to ensure that such rules do not themselves create unnecessary obstacles to trade. The Agreement sets out a work programme for the harmonization of rules of origin to be undertaken after the entry into force of the World Trade Organization (WTO), in conjunction with the World Customs Organization (WCO).

General principles

Until the completion of the three-year harmonization work programme, Members are expected to ensure that their rules or origin are transparent; that they are administered in a consistent, uniform, impartial and reasonable manner; and that they are based on a positive standard.

Coverage: all non-preferential rules of origin back to top

Article 1 of the Agreement defines rules of origin as those laws, regulations and administrative determinations of general application applied to determine the country of origin of goods except those related to the granting of tariff preferences. Thus, the Agreement covers only rules of origin used in non-preferential commercial policy instruments, such as MFN treatment, anti-dumping and countervailing duties, safeguard measures, origin marking requirements and any discriminatory quantitative restrictions or tariff quotas, as well as those used for trade statistics and government procurement. It is, however, provided that the determinations made for purposes of defining domestic industry or “like products of domestic industry” shall not be affected by the Agreement.

Institutions back to top

WTO Committee on Rules of Origin

The Agreement establishes a Committee on Rules of Origin within the framework of the WTO, open to all WTO Members. It is to meet at least once a year and is to review the implementation and operation of the Agreements (Article 4:1).

WCO Technical Committee

A Technical Committee on Rules of Origin is created under the auspices of the World Customs Organization (formerly the Customs Cooperation Council). Its main functions are (a) to carry out the harmonization work; and (b) to deal with any matter concerning technical problems related to rules of origin. It is to meet at least once a year. Membership is open to all WTO Members; other WCO members and the WTO Secretariat may attend as observers (Article 4:2 and Annex I).

The Harmonization Work Programme (HWP) back to top

Article 9:2 provided that the HWP be completed within three years of initiation. Its agreed deadline was July 1998. While substantial progress was made in that time in the implementation of the HWP, it could not be completed due to the complexity of issues. In July 1998 the General Council approved a decision whereby Members have committed themselves to make their best endeavours to complete the Programme by a new target date, November 1999.

The work is being conducted both in the WTO Committee on Rules of Origin (CRO) in Geneva and in the WCO Technical Committee (TCRO) in Brussels. The TCRO is to work, on a product-sector basis of the HS nomenclature, on the following matters:

Definitions of goods being wholly obtained

To provide harmonized definitions of the goods that are to be considered as being wholly obtained in one country, and of minimal operations or processes that do not by themselves confer origin to a good;

Last substantial transformation

Change of tariff heading

To elaborate, on the bases of the criteria of substantial transformation, the use of the change of tariff classification when developing harmonized rules of origin for particular products or sectors, including the minimum change within the nomenclature that meets this criterion.

Supplementary criteria

To elaborate supplementary criteria, on the basis of the criterion of substantial transformation, in a manner supplementary or exclusive of other requirements, such as ad valorem percentages (with the indication of its method of calculation) or processing operations (with the precise specification of the operation).

The CRO considers the input of the TCRO with the aim of endorsing the TCRO's interpretations and opinions, and, if necessary, refining or elaborating on the work of the TCRO and/or developing new approaches. Upon completion of all the work in the TCRO, the CRO is to consider the results in terms of their overall coherence (Article 9:3).

Overall architectural design back to top

The CRO and the TCRO have established an overall architectural design within which the harmonization work programme is to be finalized. This encompasses

— general rules, laid down in eight Articles provisionally entitled: Scope of Application; the Harmonized System; Definitions; Determination of Origin; Residual Rules of Origin; Minimal Operations or Processes; Special Provisions; and De Minimis;

— three Appendices:

Appendix 1: Wholly obtained goods;

Appendix 2: Product rules - substantial transformation; and

Appendix 3: Minimal operations or processes.

Results of the Harmonization Work Programme back to top

The results of the harmonization programme are to be approved by the Ministerial Conference and will then become an annex to the Agreement. When doing this, the Ministerial Conference is also to give consideration to arrangements for the settlement of disputes relating to customs classification and to establish a time-frame for the entry into force of the new annex.

Disciplines during the transition period back to top

During the transition period (i.e. until the entry into force of the new harmonized rules) Members are required to ensure that:

(a) rules of origin, including the specifications related to the substantial transformation test, are clearly defined;

(b) rules of origin are not used as a trade policy instrument;

(c) rules of origin do not themselves create restrictive, distorting or disruptive effects on international trade and do not require the fulfilment of conditions not related to manufacturing or processing of the product in question;

(d) rules of origin applied to trade are not more stringent than those applied to determine whether a good is domestic, and do not discriminate between Members (the GATT MFN principle). However, with respect to rules of origin applied for government procurement, Members are not be obliged to assume additional obligations other than those already assumed under the GATT 1994 (the national treatment exception for government procurement contained in GATT Article III:8).

(e) rules of origin are administered in a consistent, uniform, impartial and reasonable manner;

(f) rules of origin are based on a positive standard. Negative standards are permissible either as part of a clarification of a positive standard or in individual cases where a positive determination or origin is not necessary;

(g) rules of origin are published promptly;

(h) upon request, assessments of origin are issued as soon as possible but no later than 150 days after such request, they are to be made publicly available; confidential information is not to be disclosed except if required in the context of judicial proceedings. Assessments of origin remain valid for three years provided the facts and conditions remain comparable, unless a decision contrary to such assessment is made in a review referred to in (j). This advance information on origin is considered as a great innovation of the Agreement;

(i) new rules of origin or modifications thereof do not apply retroactively;

(j) any administrative action in relation to the determination of origin is reviewable promptly by judicial, arbitral or administrative tribunals or procedures independent of the authority issuing the determination; such findings can modify or even reverse the determination;

(k) confidential information is not disclosed without the specific permission of the person providing such information, except to the extent that this may be required in the context of judicial proceedings.

Disciplines after the transition period back to top

As from the conclusion of the HWP, non-preferential rules of origin will be harmonized and Members will be bound to apply only one rule of origin for all purposes covered by Article 1. The principles contained in (d) through (k) above will continue to apply — i.e. transparency, non-discrimination (also including rules of origin applied for government procurement), and the possibility of reviewing any administrative actions concerning determination of origin (Article 3).

Consultation and dispute settlement back to top

The WTO provisions on consultation and settlement of disputes apply to the Agreement.

Preferential rules of origin back to top

Annex II of the Agreement on Rules of Origin provides that the Agreement's general principles and requirements for non-preferential rules of origin in regard to transparency, positive standards, administrative assessments, judicial review, non-retroactivity of changes and confidentiality shall apply also to preferential rules of origin.

Notifications Non-preferential rules of origin back to top

Article 5:1 of the Agreement requires each Member to provide to the Secretariat, within 90 days after the date of entry into force of the WTO Agreement for it, its currently applicable rules of origin, judicial decisions and administrative rulings of general application relating to rules of origin. The Secretariat circulates to all Members lists of the information received and available to them.

At its meeting of 4 April 1995, the Committee agreed that any notifications made in a language other than a WTO working language should be accompanied by a summary in a WTO working language (G/RO/1).

Preferential rules of origin back to top

Paragraph 4 of Annex II of the Agreement on Rules of Origin provides that Members shall provide to the Secretariat promptly their preferential rules of origin, including a listing of the preferential arrangements to which they apply, judicial decisions, and administrative rulings of general application relating to their preferential rules of origin as soon as possible to the Secretariat. The Secretariat circulates lists of the information received and available to Members.

At its meeting of 4 April 1995, the Committee agreed that any notification made in a language other than a WTO working language, should be accompanied by a summary in a WTO working language (G/RO/1)

Customs valuation

From Wikipedia, the free encyclopedia

Customs Valuation is the process where customs authorities assign a monetary value to a good or service for the purposes of import or export. Generally, authorities engage in this process as a means of protecting tariff concessions, collecting revenue for the governing authority, implementing trade policy, and protecting public health and safety. Custom duties, and the need for customs valuation, have existed for thousands of years among different cultures, with evidence of their use in the Roman Empire, the Han Dynasty and the Indian sub-continent. The first recorded customs tariff was from 336 in Palmyra, an oasis city in the Syrian desert.[1] Beginning near the end of the 20th century, the procedures used throughout most of the world for customs valuation were codified in the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade (GATT) 1994.[2]

Contents

  [hide

  • 1 Agreement on Implementation of Article VII of GATT

  • 2 Transaction value

  • 3 See also

  • 4 References

  • 5 External links

[edit]Agreement on Implementation of Article VII of GATT

Article VII of the GATT outlines the requirements for Valuation for Customs Purposes, and is applicable to all members of the World Trade Organization. The Agreement on Implementation of Article VII (known as the WTO Agreement on Customs Valuation or the “Valuation Agreement”) ensures that determinations of the customs value for the application of duty rates to imported goods are conducted in a neutral and uniform manner, precluding the use of arbitrary or fictitious customs values.[3]

The Agreement was negotiated during the Tokyo Round, but at that time its acceptance was voluntary. Adherence to the Agreement became mandatory as part of membership in the WTO subsequent to the Uruguay Round. The Agreement is administered by the WTO Committee on Customs Valuation, which holds two formal meetings a year. The Agreement also established a Technical Committee on Customs Valuation, which operates under the auspices of the World Customs Organization (WCO), with a view to ensuring, at the technical level, uniformity in interpretation and application of the Agreement. The Technical Committee also meets twice a year.

The Agreement has four major parts in addition to a preamble and three annexes. Part I sets out substantive rules of customs valuation. Part II provides for the international administration of the Agreement and for dispute resolution. Part III provides for special and differential treatment for developing countries, and Part IV contains the so-called final provisions dealing with matters such as acceptance and accession of the Agreement, reservations, and servicing of the Agreement.

The agreement gives customs administrations the right to request further information of importers where they have reason to doubt the accuracy of the declared value of imported goods. If the administration maintains a reasonable doubt, despite any additional information, it may be deemed that the customs value of the imported goods cannot be determined on the basis of the declared value, and customs would need to establish the value taking into account the provisions of the Agreement.[4]

[edit]Transaction value

The primary basis for customs valuation under the Agreement is “transaction value” as defined in Article 1. Article 1 defines transaction value as “the price actually paid or payable for the goods when sold for export to the country of importation.”[5] Article I must be read together with Article 8, which lets Customs authorities make adjustments to the transaction value in cases where certain specific parts of the good - considered to be a part of the value for customs purposes - are incurred by the buyer but are not actually included in the price paid or payable for the imported goods. Article 8 also allows for the inclusion in transaction value of exchanges ("considerations") between the buyer and seller in forms other than money. Articles 2 through 7 provide methods of determining the customs value whenever it cannot be determined under the provisions of Article 1.

The methods of customs valuation, in descending order of precedence, are:

  1. Transaction Value of Merchandise in Question - price actually paid or payable for the goods sold. (Art. 1)

  2. Transaction Value of Identical Merchandise (Art. 2)

  3. Transaction Value of Similar Merchandise (Art. 3)

  4. Deductive Value (Art. 5)

  5. Computed Value (Art. 6)

  6. Derivative Method (Art. 7)

This hierarchy is codified in domestic legislation.[6]

The WTO Valuation Agreement is formally known as the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade (GATT) 1994. It replaced the GATT Valuation Code as a result of the Uruguay Round multilateral trade negotiations which created the WTO in 1994.

The Agreement provides a Customs valuation system that primarily bases the Customs value on the transaction value of the imported goods, which is the price actually paid or payable for the goods when sold for export to the country of importation, with certain adjustments.

Where the Customs value cannot be determined on the basis of the transaction value, it will be determined using one of the following methods:

  • The transaction value of identical goods

  • The transaction value of similar goods

  • The deductive value method

  • The computed value method

  • The fall-back method.

The above valuation methods must be used in hierarchical order.

Benefits of the Agreement

The Agreement is intended to provide a single system that is fair, uniform and neutral for the valuation of imported goods for Customs purposes, conforming to commercial realities and outlawing the use of arbitrary or fictitious Customs values. The Agreement, by its positive concept of value, recognizes that Customs valuation should, as far as possible, be based on the actual price of the goods to be valued.

With the majority of world trade valued on the basis of the transaction value method, the Agreement provides more predictability, stability and transparency for trade, thus facilitating international trade while at the same time ensuring compliance with national laws and regulations.

Specific and ad valorem customs duties    back to top

Customs duties can be designated in either specific or ad valorem terms or as a mix of the two. In case of a specific duty, a concrete sum is charged for a quantitative description of the good, for example USD 1 per item or per unit. The customs value of the good does not need to be determined, as the duty is not based on the value of the good but on other criteria. In this case, no rules on customs valuation are needed and the Valuation Agreement does not apply. In contrast, an ad valorem duty depends on the value of a good. Under this system, the customs valuation is multiplied by an ad valorem rate of duty (e.g. 5 per cent) in order to arrive at the amount of duty payable on an imported item.

  

Definition    back to top

Customs valuation is a customs procedure applied to determine the customs value of imported goods. If the rate of duty is ad valorem, the customs value is essential to determine the duty to be paid on an imported good.

  

Short historical overview    back to top

Article VII GATT

Article VII of the General Agreement on Tariffs and Trade laid down the general principles for an international system of valuation. It stipulated that the value for customs purposes of imported merchandise should be based on the actual value of the imported merchandise on which duty is assessed, or of like merchandise, and should not be based on the value of merchandise of national origin or on arbitrary or fictitious values. Although Article VII also contains a definition of “actual value”, it still permitted the use of widely differing methods of valuing goods. In addition, ‘grandfather clauses’ permitted continuation of old standards which did not even meet the very general new standard.   

Brussels definition of value

Starting in the 1950s, customs duties were assessed by many countries according to the Brussels Definition of Value (BVD). Under this method, a normal market price, defined as “the price that a good would fetch in an open market between a buyer and seller independent of each other,” was determined for each product, according to which the duty was assessed. Factual deviations from this price were only fully taken into account where the declared value was higher than the listed value. Downward variations were only taken into account up to 10 per cent. This method caused widespread dissatisfaction among traders, as price changes and competitive advantages of firms were not reflected until the notional price was adjusted by the customs office after certain periods of time. New and rare products were often not captured in the lists, which made determination of the “normal price” difficult. The USA never became part of the BVD. It was clear that a more flexible and uniform valuation method was needed which would harmonize the systems of all countries.   

Tokyo Round Valuation Code   

The Tokyo Round Valuation Code, or the Agreement on Implementation of Article VII of the GATT, concluded in 1979, established a positive system of Customs Valuation based on the price actually paid or payable for the imported goods. Based on the “transaction value”, it was intended to provide a fair, uniform and neutral system for the valuation of goods for customs purposes, conforming to commercial realities. This differs from the “notional” value used in the Brussels Definition of Value (BVD). As a stand-alone agreement, the Tokyo Round Valuation Code was signed by more than 40 contracting parties.

  

The new Agreement    back to top

The Tokyo Round Code was replaced by the WTO Agreement on Implementation of Article VII of the GATT 1994 following conclusion of the Uruguay Round. This Agreement is essentially the same as the Tokyo Round Valuation Code and applies only to the valuation of imported goods for the purpose of levying ad valorem duties on such goods. It does not contain obligations concerning valuation for purposes of determining export duties or quota administration based on the value of goods, nor does it lay down conditions for the valuation of goods for internal taxation or foreign exchange control.

  

Basic principle: Transaction value    back to top

The Agreement stipulates that customs valuation shall, except in specified circumstances, be based on the actual price of the goods to be valued, which is generally shown on the invoice. This price, plus adjustments for certain elements listed in Article 8, equals the transaction value, which constitutes the first and most important method of valuation referred to in the Agreement.

  

The 6 Methods    back to top

For cases in which there is no transaction value, or where the transaction value is not acceptable as the customs value because the price has been distorted as a result of certain conditions, the Agreement lays down five other methods of customs valuation, to be applied in the prescribed hierarchical order. Overall the following six methods are considered in the Agreement:

Method 1 — Transaction value Method 2 — Transaction value of identical goods Method 3 — Transaction value of similar goods Method 4 — Deductive method Method 5 — Computed method Method 6 — Fall-back method

 

Other provisions    back to top

The sequence of methods 4 and 5 can be switched at the request of the importer (not, however, at the discretion of the customs officer). Moreover, the Agreement contains provisions for special and differential treatment of developing countries and for technical assistance. Since this Agreement is an integral part of the single WTO undertaking, all WTO Members are Members of the Customs Valuation Agreement.

  

Method 1 — Transaction value    back to top

Definition of transaction value   

The price actually paid or payable is the total payment made or to be made by the buyer to or for the benefit of the seller for the imported goods, and includes all payments made as a condition of sale of the imported goods by the buyer to the seller, or by the buyer to a third party to satisfy an obligation of the seller.   

Conditions to be fulfilled   

The customs value is the transaction value if all of the following conditions have been fulfilled:   

Evidence of sale  

There must be evidence of a sale for export to the country of importation (i.e. commercial invoices, contracts, purchase orders, etc.).   

No restriction on the disposition or use

There must be no restriction on the disposition or use of the goods by the buyer, other than restrictions which: — are imposed or required by law in the country of importation; — are limited to the geographic area in which the goods may be resold; — do not substantially affect the value of the goods.   

Not subject to additional conditions

The sale or price must not be subject to conditions or considerations for which a value cannot be determined with respect to the goods being valued. Some examples are provided in Annex I, Note to Article 1:1(b): — the seller establishes the price of the imported goods on the condition that the buyer will also buy other goods in specified quantities; — the price of the imported goods is dependent upon the price or prices at which the buyer sells other goods to the seller; — the price is established on the basis of a form of payment extraneous to the imported goods.   

Full prices, unless...

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, unless adjustment can be made in accordance with provisions in Article 8.   

Sufficient information for adjustments

Sufficient information is available to enable the specific adjustments to be made under Article 8to the price paid or payable such as; — commissions and brokerage, except buying commissions — packing and container costs and charges — assists — royalties and licence fees — subsequent proceeds — the cost of transport, insurance and related charges up to the place of importation if the Member bases evaluation on a C.I.F. basis — but not: costs incurred after importation (duties, transport, construction or assembly), [Annex I, Note 3 to Article 1].   

Buyer and seller not related, otherwise ...

The buyer and seller are not related, but even if so, the use of the transaction value is acceptable if the importer demonstrates that: — the relationship did not influence the price, or — the transaction value closely approximates a test value.   

Related parties

The definition of related persons is found in Article 15 of the Agreement, which states that persons are to be deemed to be related only if: — they are officers or directors of one another's businesses; — they are legally recognized partners in business; — they are employer and employee; — any person directly or indirectly owns, controls or holds 5 per cent or more of the outstanding voting stock or shares of both of them; — one of them directly or indirectly controls the other (the Interpretative Note to Article 15provides that for the purposes of the Agreement, one person shall be deemed to control another when the former is legally or operationally in a position to exercise restraint or direction over the latter. The note also states that “persons” includes a legal person, where appropriate). — both of them are directly or indirectly controlled by a third person; or  — they are members of the same family.

  

Cases where Customs Administrations have reasons to doubt the truth or accuracy of the declared value   back to top

Customs valuation based on the transaction value method is largely based on documentary input from the importer. Article 17of the Agreement confirms that customs administrations have the right to “satisfy themselves as to the truth or accuracy of any statement, document or declaration.” A “Decision Regarding Cases Where Customs Administrations Have Reasons To Doubt The Truth Or Accuracy Of The Declared Value” taken by the Committee on Customs Valuation pursuant to a Ministerial Decision at Marrakesh spells out the procedures to be observed in such cases. As a first step, customs may ask the importer to provide further explanation that the declared value represents the total amount actually paid or payable for the imported goods. If the reasonable doubt still exists after reception of further information (or in absence of a response), customs may decide that the value cannot be determined according to the transaction value method. Before a final decision is taken, customs must communicate its reasoning to the importer, who, in turn, must be given reasonable time to respond. In addition, the reasoning of the final decision must be communicated to the importer in writing.

  

Method 2 — Transaction value of identical goods (Article 2)   back to top

The transaction value is calculated in the same manner on identical goods if the goods are: — the same in all respects including physical characteristics, quality, and reputation; — produced in the same country as the goods being valued; — and produced by the producer of the goods being valued. For this method to be used, the goods must be sold for export to the same country of importation as the goods being valued. The goods must also be exported at or about the same time as the goods being valued.   

Exceptions

Some exceptions are accepted, in particular: — where there are no identical goods produced by the same person in the country of production of the goods being valued, identical goods produced by a different person in the same country may be taken into account. — minor differences in appearance would not preclude goods which otherwise conform to the definitions from being regarded as identical. The definition excludes imported goods which incorporate engineering, artwork etc, provided by the buyer to the producer of goods free of charge or at a reduced cost, undertaken in the country of importation for which no adjustment has been made under Article 8.

  

Method 3 — Transaction value of similar goods (Article 3)back to top

The transaction value is calculated in the same manner on similar goods if: — goods closely resembling the goods being valued in terms of component materials and characteristics — goods which are capable of performing the same functions and are commercially interchangeable with the goods being valued — goods which are produced in the same country as and by the producer of the goods being valued. For this method to be used, the goods must be sold to the same country of importation as the goods being valued. The goods must be exported at or about the same time as the goods being valued.

  

Method 4 — Deductive value    back to top

Deduction of value from the price of the greatest aggregate quantity sold   

The Agreement provides that when customs value cannot be determined on the basis of the transaction value of the imported goods or identical or similar goods, it will be determined on the basis of the unit price at which the imported goods or identical or similar goods are sold to an unrelated buyer in the greatest aggregate quantity in the country of importation. The buyer and the seller in the importing country must not be related and the sale must take place at or about the time of importation of the goods being valued. If no sale took place at or about the time of importation, it is permitted to use sales up to 90 days after importation of the goods being valued.   

Determination of the greatest aggregate quantity sold    

Under Article 5.1, the unit price at which the imported goods or identical or similar imported goods are sold in the greatest aggregate quantity is to be the basis for establishing the customs value. The greatest aggregate quantity is, according to the Interpretative Note to that Article, the price at which the greatest number of units is sold to unrelated persons at the first commercial level after importation at which such sales take place. To determine the greatest aggregate quantity all sales at a given price are taken together and the sum of all the units of goods sold at that price is compared to the sum of all the units of goods sold at any other price. The greatest number of units sold at one price represents the greatest aggregate quantity.   

Deductions from the price at the greatest aggregate quantity    

Since the starting point in calculating deductive value is the sale price in the country of importation, various deductions are necessary to reduce that price to the relevant customs value: — commissions usually paid or agreed to be paid, the sum of profits and general expenses added in connection with sales must also be deducted; — the usual transport costs and corresponding insurance are to be deducted from the price of the goods when these costs are usually incurred within the country of importation; — the customs duties and other national taxes payable in the country of importation by reason of the importation or sale of the goods are also to be deducted; — value added by assembly or further processing, when applicable.

  

Method 5 — Computed value    back to top

Definition: Production cost and profits and expenses

Computed value, the most difficult and rarely used method, determines the customs value on the basis of the cost of production of the goods being valued, plus an amount for profit and general expenses usually reflected in sales from the country of exportation to the country of importation of goods of the same class or kind. Computed value is the sum of the following elements:   

Production cost = value of materials and fabrication

The cost or value of materials and fabrication or other processing employed in producing the imported goods. Materials would include, for example, raw materials, such as lumber, steel, lead, clay textiles, etc.; costs to get the raw materials to the place of production; subassemblies, such as integrated circuits; and prefabricated components which will eventually be assembled. Fabrication would include the costs for labour, any costs for assembly when there is an assembly operation instead of manufacturing process, and indirect costs such as factory supervision, plant maintenance, overtime, etc. Cost or value is to be determined on the basis of information relating to the production of the goods being valued, supplied by or on behalf of the producer. If not included above, packing costs and charges, assists, engineering work, artwork, etc. undertaken in the country of importation would be added.   

Profit and general expenses

Profit and general expenses usually reflected in export sales to the country of importation, by producers in the country of importation on the basis of information supplied by the producer, of goods of the same class or kind. The latter phrase means goods which fall within a group or range of goods produced by a particular industry or industry sector and includes identical or similar goods. The amount of profit and general expenses has to be taken as a whole (i.e. the sum of the two). General expenses could include rent, electricity, water, legal fees, etc.   

Other expenses to be added

Finally, other expenses should be added to the price such as the cost of transport of the imported goods to the port or place of importation, loading, unloading and handling charges associated with the transport of the imported goods to the port or place of importation, and the cost of insurance.

  

Method 6 — Fall-back method    back to top

Definition

Customs value determination based on “reasonable means consistent with the principles and general provisions of the Agreement, Article VII GATT and on the basis of available data”.

When the customs value cannot be determined under any of the previous methods, it may be determined using reasonable means consistent with the principles and general provisions of the Agreement and of Article VII of GATT, and on the basis of data available in the country of importation. To the greatest extent possible, this method should be based on previously determined values and methods with a reasonable degree of flexibility in their application.   

Valuation criteria not to be used

Under the fall-back method, the customs value must not be based on: — the selling price of goods in the country of importation (i.e. the sale price of goods manufactured in the importing country); — a system which provides for the acceptance for customs purposes of the higher of two alternative values (the lowest should be used); — the price of goods on the domestic market of the country of exportation (valuation on this basis would go against the principle in the Preamble that “valuation procedures should not be used to combat dumping”); — the cost of production other than computed values which have been determined for identical or similar goods (valuation must be arrived at on the basis of data available in the country of importation); — the price of goods for export to a third country (two export markets are always to be treated as separate and the price to one should not control the customs value in the other); — minimum customs value (unless a developing country has taken the exception which allows for use of minimum values); — arbitrary or fictitious values (these prohibitions are aimed at systems which do not base their values on what happens in fact in the marketplace, as reflected in actual prices, in actual sales, and in actual costs, reason of the importation or sale of the goods are also to be deducted;

  

Special and differential treatment    back to top

Delay of application of the Agreement for five years for developing countries

Article 20.1 allows developing country Members, not party to the Tokyo Round Code, to delay application of the provisions of the Agreement for a period of five years from the date of entry into force of the WTO Agreement for the Member concerned.   

Delay of application of the computed value method for three years following the application of all other provisions of the Agreement

Article 20.2 allows developing country Members, not party to the Tokyo Round Codes to delay application of the computed value method for a period not exceeding three years following their application of all other provisions of the Agreement. In practice, this means that developing country Members, not party to the Tokyo Round Code, can delay the computed value method a total of 8 years.   

Extension of the transition period

Paragraph 1 of Annex III of the Agreement allows developing country Members for whom the five-year delay in the application of the provisions of the Agreement provided for in Article 20.1 is insufficient to request, before the end of the five-year period, an extension of such a period, it being understood that the Members will give sympathetic consideration to such a request in cases where the developing country Member in question can show good cause.   

Reservations to retain established minimum values

Paragraph 2 of Annex III provides that developing country Members may make a reservation to retain an already-existing system of officially established minimum values on a limited and transitional basis under such terms and conditions as may be agreed to by the Committee (even though minimum prices are prohibited under the Agreement).   

Reservation against Article 4

Paragraph 3 of Annex III allows developing country Members the right to make a reservation permitting them to refuse the request of importers (allowed under Article 4 of the Agreement) to reverse the order of the deductive and computed value methods.   

Special application of the deductive method

Paragraph 4 of Annex III allows developing country Members the right to value the goods under the deductive method even if the goods have undergone further processing in the country of importation, whether or not the importer so requests.   

Technical assistance

Under Article 20.3 developed country Members shall furnish, on mutually agreed terms, technical assistance to developing country Members that so request. On this basis, developed country Members shall draw up programmes of technical assistance which may include, inter alia, training of personnel, assistance in preparing implementation measures, access to sources of information regarding customs valuation methodology, and advice on the application of the provisions of the Agreement.

  

Institutions    back to top

Committee on Customs Valuation

The Agreement establishes a Committee on Customs Valuation composed of representatives from each of the Members for the purpose of affording Members the opportunity to consult on matters relating to the administration of the customs valuation system by any Member or the furtherance of the objectives of the Agreement.   

Technical Committee on Customs Valuation

The Agreement also establishes a Technical Committee on Customs Valuation under the auspices of the World Customs Organization with a view to ensuring, at the technical level, uniformity in interpretation and application of the Agreement. The responsibilities of the Technical Committee include advising on specific technical matters as requested by Members or by a panel in a dispute.

Agreement on Safeguards Back to top introduction

The Agreement on Safeguards (“SG Agreement”) sets forth the rules for application of safeguard measures pursuant to Article XIX of GATT 1994. Safeguard measures are defined as “emergency” actions with respect toincreased imports of particular products, where such imports havecaused or threaten to cause serious injury to the importing Member's domestic industry. Such measures, which in broad terms take the form ofsuspension of concessions or obligations, can consist of quantitative import restrictions or of duty increases to higher than bound rates.

Major guiding principles of the Agreement with respect to safeguard measures are that such measures must be temporary; that they may be imposed only when imports are found to cause or threaten serious injuryto a competing domestic industry; that they be applied on a non-selective (i.e., most-favoured-nation, or “MFN”, basis; that they be progressively liberalized while in effect; and that the Member imposing them must pay compensation to the Members whose trade is affected.

The SG Agreement was negotiated in large part because GATT Contracting Parties increasingly had been applying a variety of so-called “grey area” measures (bilateral voluntary export restraints, orderly marketing agreements, and similar measures) to limit imports of certain products. These measures were not imposed pursuant to Article XIX, and thus were not subject to multilateral discipline through the GATT, and the legality of such measures under the GATT was doubtful. The Agreement now clearly prohibits such measures, and has specific provisions for eliminating those that were in place at the time the WTO Agreement entered into force.

In its own words, the SG Agreement, which explicitly applies equally to all Members, aims to: (1) clarify and reinforce GATT disciplines, particularly those of Article XIX; (2) re-establish multilateral control over safeguards and eliminate measures that escape such control; and (3) encourage structural adjustment on the part of industries adversely affected by increased imports, thereby enhancing competition in international markets.

Structure of the Agreement Back to top

The Agreement consists of 14 articles and one annex. In general terms, it has four main components: (1) general provisions (Articles 1 and 2); (2)rules governing Members' application of new safeguard measures (i.e., those applied after entry into force of WTO Agreement (Articles 3-9)); (3)rules pertaining to pre-existing measures that were applied before the WTO's entry into force (Articles 10 and 11); and (4) multilateral surveillance and institutions (Articles 12-14).

General provisions Back to top

Coverage of the Agreement

Article 1 establishes that the SG Agreement is the vehicle through which measures may be applied pursuant to Article XIX of GATT 1994. That is, any measure for which the coverage of Article XIX (which allows suspension of GATT concessions and obligations under the defined “emergency” circumstances) is invoked, must be taken in accordance with the provisions of the SG Agreement. The Agreement explicitly does not apply to measures taken pursuant to other provisions of GATT 1994, to other Annex 1A Multilateral Trade Agreements, or to protocols and agreements or arrangements concluded within the framework of GATT 1994. (Art. 11.1(c))

Conditions for Application of Safeguard Measures

Article 2 sets forth the conditions (i.e., serious injury or threat thereof caused by increased imports) under which safeguard measures may be applied. It also contains the requirement that such measures be applied on an MFN basis.

Rules governing new safeguard measures (applied after entry into force of WTO Agreement) Back to top

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