1. Following AITIC’s lecture on the practical aspects of the WTO Agreement on Customs Valuation held on 30 April 2002, those present expressed the wish to meet again to consider various proposals from developing countries concerning the implementation of this Agreement, and in particular the Indian Communication to the General Council of the WTO, presented during preparations for the Ministerial Conference in Seattle, on 5 July 1999. [Note 1] With this in mind, AITIC invited a representative from the Indian Permanent Mission to the WTO to present the above-mentioned communication. This meeting took place at AITIC’s offices on Monday, 27 May 2002.

2. Before proceeding with a detailed account of the Indian Communication of 5 July 1999, the Indian representative chose to make a number of comments of a more general nature. Problems relating to the implementation of the Agreement on Customs Valuation had started to become apparent during meetings which took place immediately after the creation of the WTO. In fact, the Agreement was negotiated by the developed countries, and the constraints affecting developing countries were not accorded sufficient consideration. This partly explains why developing countries do have difficulty in understanding and implementing the measures in the Agreement. They additionally lack the available resources to implement the Agreement, and what little they do have are often directed towards other priorities. Thus, one of the great challenges facing developing countries is setting up methods for customs valuation which are more suited to the multilateral trading system.

3. The Indian representative also emphasized that the systems governing trade exchanges in developing countries were very different from those in developed countries: whilst developing countries sell more goods than they do services, developed countries do quite the opposite. Furthermore, most goods from developing countries originate from small and medium-sized entities, whereas, on a global level, trade is increasingly moving towards exchanges within companies using trans-national firms as intermediaries. Consequently, some aspects of world trade, and in particular trading practices and procedures in developing countries, have led to a re-examination of the Agreement on Customs Valuation. This is why India has made several proposals, all of which were contained in the above-mentioned Communication of 5 July 1999.

4. Following these general remarks, the Indian representative turned to the presentation of the Indian Communication. A certain number of the proposals within the Communication successfully paved the way towards a “partial agreement” with WTO members in Doha, referred to in paragraph 8.3 of the Ministerial Decision on Implementation-Related Issues and Concerns. [Note 2] This paragraph refers to cases where the customs administrations of an importing member doubt the truth or accuracy of the declared value, and contains two rules. First, when the customs administrations of an importing member have doubts regarding the declared value, they can request the administrations of the exporting member to furnish information on the export value of a particular consignment. This recourse provides an efficient means of checking whether the declared customs value is, in fact, the real value of the merchandise. Importers tend to make false declarations in order to pay lower customs duties. The precise idea behind India’s proposal (Issue 1 of the Communication) is to remedy this failure, insofar as that is possible, so that receipts from customs duties are guaranteed and importers are prevented from deriving fraudulent benefits from them. Tariff revenue is an important factor in India’s balance of payments. Henceforth, the Indian government (or that of any other developing country) may request and be advised of the export value of any imported goods. The Indian representative stressed how essential it was for developing countries to advise their customs representatives of the existence of this additional tool now placed at their disposal to enforce respect for the legislation.

5. Second, by virtue of paragraph 8.3 of the Ministerial Decision on the Implementation-Related Issues and Concerns, the Committee on Customs Valuation has been directed to identify and assess practical means of addressing the concerns voiced by customs administrations regarding the truthfulness of the declared value of goods, and in particular the exchange of information on export values. The Committee must report to the General Council on this issue by the end of 2002 at the latest. This measure, which was the subject of difficult negotiations in Doha, allows developing countries to consider other avenues when seeking to clarify doubts regarding the truthfulness of the declared value. According to the speaker, delegates from developing countries must therefore request their central governments to examine this very important issue, and to furnish information on their experiences in this area.

6. The speaker insisted on two important aspects relating to implementation:

7. The Indian representative then went on to examine Issue 5 of the Indian Communication contained under item 57 of the Compilation of questions on delayed implementation raised by members, dated 27 October 2001 [Note 3] . Article 8:1 b) of the Agreement on Customs Valuation allows that, when the valuation takes place at the frontier, additions can be made to the declared value. These additions concern four categories of goods or services which are cited in the article: (1) materials, components, parts and similar items incorporated into the imported goods; (2) tools, dies, moulds and similar items used in the production of the imported goods; (3) materials consumed in the production of the imported goods; (4) engineering, development, artwork, design work, and plans and sketches undertaken elsewhere than in the importing country and necessary for the production of the imported goods. These different types of input are dealt with in different ways. In effect, with regard to the first three categories, the value of items, whatever it is, is added to that of the good or service concerned for customs valuation purposes. However, with regard to the fourth category, (engineering, development, design work etc.), the Agreement states that their value must be included in the price of the good being valued, except when the work is carried out in the importing country by the buyer himself. According to the Indian representative, items in the second category (tools, dies, etc.) cannot be imported or used in the production unless the engineering component is also examined. This loophole allows unscrupulous buyers to split the value of tools, dies and other items from that of the engineering and development work in order to bring down the value subject to duty. The scale of under-valuation due to this simple procedure and the consequent risks of fraud are quite alarming. What is more, this is contrary to the objective of the Agreement on Customs Valuation, which is to allow a fair valuation of the merchandise so as to apply an appropriate duty. This is one of the reasons why India wishes customs administrations to be given the right in every case to add engineering costs to the value of goods in order to achieve an appropriate valuation.

8. The speaker then addressed Issue 7 of the Indian Communication, spelt out under item 58 of the afore-mentioned Compilation. This item refers to article 7 of the Agreement on Customs Valuation concerning residual value. Article 7:1 fixes the general rules for customs valuation in those cases where the methods under articles 1 to 6 cannot be applied. By virtue of this article, the valuation based on the residual value must comply with the general principles of the Agreement, and must be carried out on the basis of the information available in the importing country. Article 7:2 mentions six items which cannot form the basis for determining customs value. For example, article 7:2 c) stipulates that when a consignment is received, the customs administrations cannot base their calculations on the price of goods on the domestic market of the exporting country. Article 7:2 e) also forbids customs administrations to use the price of the goods for export to a country other than the importing country. According to the Indian representative, this article contains another discrimination, since articles 2 and 3 of the Agreement on Customs Valuation do allow the value to be compared to export prices in a third country for similar or identical goods, but not for the same goods. India has therefore proposed deleting articles 7:2 c) and 7:2 e) in order to facilitate customs valuation by customs administrations. This would have the effect of making an existing data base from a third country available to customs administrations, which would avoid the obligation to seek other means of determining the value.

9. The Indian representative commented on Issue 3 of the Communication, contained in item 59 of the Compilation of questions on implementation. It concerns articles 2 and 3 of the Agreement on Customs Valuation, that is to say identical or similar goods. By virtue of article 2:3, once the transaction value has been rejected, identical goods to those being valued should be examined. The valuation should be based on the lowest consignment value of a collection of goods, taken over a reasonable period of time, and this value must be applied to the goods being valued. According to the speaker, the current arrangement is illogical as the value which should be considered is that which most closely resembles the real value. However, the lowest value is the least close to the real value, as it allows unscrupulous dealers to send a consignment at a very low, sometimes even undervalued price. Hence, the price shown in the customs administrations’ data base, which will be used for all subsequent consignments, will be too low, having a detrimental effect on these consignments and on receipts from customs duty. According to the Indian representative, customs administrations must be instructed to base their calculations on the highest value, which is closer to the real value, if they wish to curtail fraud.

10. Issue 4 of the Indian Communication, covered under item 60 of the Compilation of questions relating to implementation, was then examined. It concerns article 8:a i) of the Agreement on Customs Valuation. This permits the exclusion of buying commissions from the value of the merchandise. However, commissions and brokerage fees paid for by the buyer and which are not already included in the price, can be added a posteriori to the value of the good. India believes that any commission paid by the importer must be included in the price. Once again, this is discriminatory, since unscrupulous dealers can lower customs duty by withdrawing buying commissions from the calculated value of the good. This is a real problem for developing countries because most of the businesses in these countries are small, unable to set up a proper marketing system, and frequently have to employ agents to whom they pay buying commissions. India believes that national authorities should be free to choose whether or not to include these commissions in the price of the goods to be valued.

11. The speaker then turned to Issue 6 of the Indian Communication, contained in item 61 of the Compilation of questions on implementation. This item concerns articles 15:4 and 15:5 of the Agreement on Customs Valuation, on sole agents, distributors and concessionaires. According to article 15:5, these persons are automatically deemed to be related “only if” they fulfil one of the criteria laid out in article 15:4. However, article 15:5 does not mention sole agents, distributors and concessionaires. Thus these persons are not deemed to be related in the sense of article 15:5. At the end of the Uruguay Round in December 1993, and following various proposals from developing countries, a Ministerial Decision relating to the Agreement on Customs Valuation was taken on this subject. [Note 4] This Decision allows developing countries to take advantage of the transitional period, provided for under article 20:1 of the Agreement on Customs Valuation, to carry out studies and to take all necessary measures to facilitate the implementation of the Agreement. It also stipulates that the Customs Cooperation Council (presently transformed into the World Customs Organization - WCO) is charged with assisting developing country members to carry out these studies. But the problem remains and is a source of great concern to India. For example, when an importer presents documents to the customs administration, they find it almost impossible to determine whether or not the buyer (sole agent, distributor or concessionaire) and the seller are related. They do not have access to the relevant documentation, and in particular to the sales contract, which would prove or disprove a relationship. Conversely, it is in the importer’s interest to be as honest as possible, and to show the customs administration any documents which prove the seller is not related. India therefore believes that the responsibility for determining whether or not a relationship exists should rest with the importer and not the customs administrations. For the customs authorities to prove a relationship would require them to automatically assume that the seller and the importer are related.

12. A representative from a francophone developing country intervened regarding article 8 of the Agreement on Customs Valuation.  He asked whether there was a link between the work mentioned in the article (engineering content, etc.) and the on-going work on harmonising rules of origin, and if so, how the efforts of the Committee on Rules of Origin might help in this area. The Indian representative replied that article 8 of the Agreement on Customs Valuation drew a distinction between the importing country and other countries, and that when a good was produced in several countries, it was all the more important to establish which country conferred origin. For the moment, however, there is no agreement governing the harmonisation of rules of origin, which comes down to saying that matters must be examined as they currently stand. At the present time, there are no obligations emanating from the work on rules of origin. Even if, at a later date, there were to be obligations relating to these matters, article 8 draws certain distinctions regarding the person who supplies the engineering content, in order to determine whether or not the cost of this work should be included in the value of the good. However, the Agreement on Rules of Origin forbids discrimination between two suppliers from a same country. This demonstrates that the two agreements are not related. The Indian representative emphasized that there were contradictory obligations at work, which was one of the reasons why this measure had to be deleted from article 8.

13. A representative from a francophone LDC asked for an update on the current position of India’s proposals. The speaker replied that of the 6 proposals in the Communication made prior to the Ministerial Conference in Seattle, one had been considered at the Ministerial Conference in Doha in November 2001. Thus, by virtue of article 8.3 of the Decision on Implementation-Related Issues and Concerns, when the customs administrations of an importing country have doubts regarding the truthfulness of the declared value, they can approach the customs administrations of the exporting country for assistance regarding the value of the merchandise in question.  Moreover, this is done on a confidential basis.  India has also been granted the right to examine the efficiency of this Decision, and has until December 2002 to do so. Additionally, in accordance with paragraph 12 of the Doha Ministerial Declaration, the Committee for Customs Valuation must examine the five other proposals contained under items 57 to 61 of the Compilation and report to the General Council by the end of the year. In order to do this and to make recommendations to the General Council, the Committee has set up a work programme, and two discussion meetings have already been held on the fundamental issues relating to the five items. India has proceeded in stages: the first stage involved presenting its position and the preliminary questions and answers relating to technical issues. At a second meeting, India gave spoken answers to the hundred or so questions submitted in writing by the developed countries. India is currently preparing written answers so that work can progress. The next stage would be to find solutions to these problems, by common consent, by the end of 2002.  In fact, the questions relating to implementation form an integral part of the Doha Programme of Work, and if no satisfactory solution has been found to these questions by December 2002, this may well have a negative impact on other areas of negotiation.

14. The representative from an international organisation in Geneva questioned the speaker on the issue of determining customs value on the basis of the value of similar or identical goods. He asked to what extent the proposal to base this determination on the highest value was appropriate. Indeed, since the general principles of the Agreement had to be respected, and the Agreement stipulated that calculations should be based on the lowest value, how could the measure advocating the use of the highest value effectively be implemented?  The Indian representative reiterated the principle whereby one should examine the closest possible value to the real value of the merchandise to be valued. When article 1 of the Agreement cannot be applied (transaction value), it becomes necessary to employ the method described in article 2 (identical goods). Concerning respect for the general principles which, in particular, make it obligatory to consider the most reasonable and the closest possible value to that of the merchandise to be valued, article 2:1 recognises that customs administrations may be obliged to make certain adjustments, whether by raising or by lowering the value. When a customs administration examines merchandise which is identical to that valued over a given period and in similar quantities, there are several possible scenarios. Within a group of identical goods, the variation in value of the merchandise may be quite small (from $90 to $110 per unit, for example). In this case, the rules laid down in paragraph 3 (the lowest value) are respected, since they do justice to the principle of evaluating merchandise in a manner as close as possible to its real value. But the range can equally well be considerable (from $10 to $100, for example). In this case, if calculations are based on the lowest value ($10), customs administrations may have good reason to believe the value to be artificial. It will therefore be necessary to make adjustments to take into account the commercial level and the quantity of goods despatched. Efforts must therefore be made to find a balance between the various objectives, although no solution can ever be perfect. This is the reason for India submitting this particular proposal.

15. The representative from a francophone country expressed the concern his country shares with others concerning lack of information.  In fact most developing countries, and especially the least-developed countries, do not yet have the means or the structures required to assess these situations correctly, and this is a source of weakness. He felt that countries such as these should be helped, by being provided with the necessary tools to enable them to remain within the framework of the WTO Agreements. According to the Indian representative, a certain number of developing countries are currently seeking extensions to the delay on implementation, as they are approaching the end of the transitional period, and they still lack both the information and the capacity to set up efficient systems which would enable them to deal with the problems that concern them. They are making efforts to build up their capacity and are processing new legislation. This is both an important and an interesting period.

16. The same delegate then asked a question about what to base the valuation of the highest value on, when similar goods are being examined.  He asked which price the highest price referred to: the price from where the import was sourced or the market price in the importing country. According to the speaker, articles 2 and 3 of the Agreement on Customs Valuation concern identical products, without specifying where these goods come from. India’s proposal does not seek to modify the conditions laid down in the text, but simply to replace the terms “the lowest value” with the terms “the highest value”, without modifying the other conditions.