Customs Valuation in Developing Countries and the World Trade organization Valuation Rules
| Author | Adrien Goorman and Luc De Wulf |
| Pages | 155-181 |
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The lack of understanding of customs valuation and of its supporting procedures are two of the Page 156 mobilization performance, and aggravates integrity issues. Customs valuation systems have been the subject of international agreements because they can constitute barriers to trade. The World Trade Organization (WTO) Agreement on Customs Valuation (ACV) mandates the use of the ACV for all WTO members. The ACV establishes that the customs value of imported goods, to the greatest extent possible, is the transaction value, that is, the price actually paid or payable for the goods. Despite receiving substantial technical assistance (TA), many developing countries have not succeeded in adequately implementing the WTO valuation standard.
A full appreciation of the central issue of this chapter-the difficulties that many developing countries find in implementing the ACV, together with measures that could overcome these difficulties-requires a good understanding of the complex nature of customs valuation and the constraints developing countries face in the practice of customs valuation. This chapter, therefore, briefly notes the nature and significance of customs valuation systems and practices and their international standardization. It provides insights into the difficulties experienced by developing countries in customs valuation and in implementing the ACV. It also examines the type of measures that could contribute to effective valuation of import shipments. The first section highlights the significance of customs valuation and its historical development. The second section reviews the main characteristics of the ACV. The third section deals with the problem of ACV implementation in developing countries. The fourth section proposes measures to address these problems. The fifth section reviews the role of PSI services and other programs in the customs valuation area. The final section provides the key operational conclusions of the chapter.
Most import tariffs are based on ad valorem duties, that is, a rate expressed as a percentage of the value of the imported good. Customs valuation is the determination of the amount upon which the rate of duty is calculated.1 While these rates are unambiguously fixed by statute in a tariff schedule, the declared value of imported goods may differ from transaction to transaction. This has three important implications for tariff policy. First, an importer may engage in underinvoicing and not declare the full value of the shipment to reduce his duty liabilities. Unless the underinvoicing is detected, government revenue is lost, and the importer receives an unfair advantage compared to its competitors. Second, governments can take advantage of the valuation system to increase or decrease duty liabilities for revenue or protective purposes, thereby offsetting tariff concessions made under multilateral or bilateral trade agreements. Third, undervaluation and overvaluation are used for capital flight.
For these reasons, a valuation standard is needed both at national and international levels to ensure that the correct duty is levied and a level playing field exists for all importers. It is also needed to enhance transparency and predictability of international transactions. Good valuation standards and practices enhance trade facilitation and contribute to the preparation of good trade statistics.
Customs valuation systems have been the subject of a number of international harmonization and standardization efforts. International efforts toward harmonization began in the early 20th century, but significant results did not come until the 1947 General Agreement on Tariffs and Trade (GATT). This Agreement was followed by the 1950 Convention on the Valuation of Goods for Customs Purposes, establishing the Brussels Definition of Value (BDV) and the 1979 Agreement on Implementation of Article VII of the GATT (ACV), resulting from the Tokyo Round. At the 1994 Uruguay Round, a decision (based on Article 17 of the GATT Valuation Agreement) was reached regarding the cases where customs administrations have reasons to doubt the truth or accuracy of the declared value.
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Valuation Principles: Article VII of the GATT The first significant international agreement on customs valuation was reached at the 1947 GATT negotiations that established principles to be adhered to by trading partners. These principles, embodied in GATT's Article VII, emphasize that customs value should not be arbitrary, fictitious, or based on value of indigenous goods. It should be real and based on the actual value of the imported goods or like goods. Customs value should derive from a sale or offer of sale in the ordinary course of business under fully competitive conditions. If the actual value is not ascertainable, customs value should be based on the nearest ascertainable equivalent of such value using prescribed criteria. These principles have remained the basis for customs valuation since then.
Brussels Definition of Value The first international standard based on the GATT valuation principles, the BDV, was introduced in 1950. The BDV is based on the concept of "normal price"-the price that the goods would obtain under open market conditions between unrelated buyers and sellers under specified conditions of time and place. In practice, as the bulk of imports are the subject of a bona fide sale effected in conditions consistent with the terms of the definition, the transaction or invoice price can be taken as a valid basis for valuation for the majority of imports. The BDV recommends that the invoice price be used to the greatest extent possible. Where the invoice price cannot be used, such as with transactions that are not at arm's length, with goods on consignment, with importations by agents and concessionaries, or when the declared price is suspiciously low, customs can use another suitable basis to construe the normal price, using available information and taking into account the actual conditions relating to the transaction being valued. This flexibility is severely restricted under the ACV.
BDV acceptance represented substantial progress toward the international standardization of valuation systems. By 1970, about 100 countries applied the BDV (many on a de facto basis), and several economic associations had adopted it as their valuation standard-the European Economic Community (EEC), Customs Union of Central African States (UDEAC), and Caribbean Common Market (CARICOM). However, a number of important trading countries (the United States and New Zealand, among others) did not adopt the BDV and continued to apply their own systems, largely based on the positive concept of value. Some others adopted the BDV when it was extended to cover FOB countries (Australia, for example) whereas Canada continued to use a fair market value in the export country, leading it to undertake investigations in the country of export. Moreover, the BDV itself was not always applied uniformly, and exporters complained about discretionary and unjustified rejection of the invoice price and uplifting of the declared value by customs. In addition, many countries relied on reference prices for protective purposes and for facilitating customs clearance without endangering budget revenues. Negotiations on customs valuation were therefore included in the negotiations on nontariff barriers at the Tokyo Round GATT negotiations (1973-1979).
The Tokyo Round and the Agreement on Customs Valuation The purpose of the negotiations on customs valuation at the Tokyo Round was to arrive at a fair, uniform, and neutral standard of value that precludes the use of arbitrary or fictitious values, conforms to commercial realities, and does not act as a barrier to trade.2 Following difficult negotiations between industrialized and developing countries, agreement was reached on...
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