CUSTOMS VALUATION (CV) HANDBOOKFOR CUSTOMS ADMINISTRATIONS
IN THE EAST AFRICAN REGION
Programme on Capacity Building of Master Trainersunder the JICA Project on Capacity Building
for the Customs Administrations of the Eastern African Region (Phase 2)Edition 2012
© Japan International Cooperation Agency 2012
The Project on Capacity Building for the Customs Administrations of the Eastern African Region (Phase 2)Japan International Cooperation Agency (JICA)P.O. Box 50572-00200 Nairobi, KenyaTel: +254-20343027, 202812196
Suggested citation:JICA Project on Capacity Building for the Customs Administrations of the Eastern African Region (Phase 2)
PREFACE
This Handbook has been prepared by the Master Trainers Programme Customs Valuation Working Group members in the East African Region under the auspices of Japan International Cooperation Agency (JICA). The aim of this Handbook is to provide Customs officers and other interested persons with information on the Agreement on implementation of Article VII of GATT 1994 (The Agreement).
The scope of the Handbook covers among others, the Overview of WTO Agreement on Customs Valuation, Transaction Value Method, Adjustments under Article 8, Other Methods of Valuation (Article 2 through 7 of the Agreement) and Customs Documentation.The Agreement referred to above has been domesticated under section 122 read together with the 4th Schedule of the East African Community Customs Management Act (EACCMA), 2004.
ACKNOWLEDGEMENT
Special thanks goes to the Government of Japan for the technical assistance and support for Capacity Building in the Eastern African Region provided through Japan International Cooperation Agency (JICA) and the World Customs Organization (WCO) for providing Customs valuation experts under the Master Trainers Programme. Special thanks goes to the management of Revenue Authorities of Burundi, Kenya, Rwanda, Tanzania and Uganda for their financial and moral support and their commitment to the success of this Programme.
This acknowledgement would not be complete without special mention of selfless efforts of Facilitators of the Program namely Mr. Tsuneo Yamahara, Mission Head of Japanese Technical Experts and retired Director General of Okinawa Regional Customs, Mr. Shigeaki Katsu, Ms. Keiko Ito, Mr. Shigetoshi Aoyama, Mr. Koichi Iwai, Mr. Tsuyoshi Togoe and Mr. Shingo Tanagami, Japan Customs Valuation Experts, Ms. Maki Kitaura and Mr. Ian Cremer, WCO Valuation Technical Experts, Mr. Shinji Urakawa and Mr. Masaharu Shimoya, Chief Advisors JICA Project, Mr. Shoji Maeda, Senior Advisor JICA Project, Mr.Takao Iwai, Advisor JICA Project, Ms.Yukari Yoshida and Ms. Yoko Konishi, Project coordinators, Mr. Allan Morgan, Project secretary from the Project Team.
Finally, we hail the working group leader and members for their dedication, sacrifice and team work which made completion of this handbook a success.The Working Group members including former members are :
Nishirimbere Albert, Marie-Goreth Bizindavyi, Kubwimana Judith, Ndikumana Philipe (BURUNDI), Abakuk Kasibo, Ebby Khaguli, Esther Watene, Fridah Kimani (KENYA), Mukamurenzi Providence, Shyaka Alex, Jimmy Mwesigye, Rugema Lucien (RWANDA), George Mnyitafu, Narcis Lumumba, Mary Lyakurwa (TANZANIA), Kagumire Abel, Twongeirwe Livingstone, Mubiru Salim, Kiconco Kellen (UGANDA).
Kyoko KuwajimaDirector GeneralIndustrial Development and Public Policy DepartmentJapan International Cooperation Agency
On behalf of Japan International Cooperation Agency (JICA), I would like to congratulate the completion of the “Customs Valuation Handbook for Customs Administrations in the East African Region” which has been developed by the team of the Master Trainers Programme. JICA expects this “Handbook” would benefit both Customs Administrations and trade partners in East Africa.
JICA is working together with countries of Africa for development of economic corridors and construction of One Stop Border Post (OSBP) for trade facilitation under the Japan’s initiative at the Tokyo International Conference on African Development IV (TICAD IV). As one of the key components, JICA‘s Project on Capacity Building for the Customs Administrations of the Eastern African Region (Phase 2) (the JICA Customs Project) has dynamically and speedily been extending a variety of activities hand in hand with the partner organizations, such as the Revenue Authorities/Customs Administrations and Clearing and Forwarding Agent Associations of the East Africa Community (EAC) member states.
One of its highlighted activities is the Master Trainers Prgogramme, whose prime goal is capacity development of the Customs officers in the fields of Customs Valuation, HS Classification and Intelligence Analysis. The programme is an innovative and interactive programme with specific focus on training of core trainers. The Working Group members, all of whom have been assigned full-time to this programme by the respective Revenue Authorities/Customs Administrations since its beginning in January 2010, have not only gained skills and knowledge, but also strenuously developed and revised a draft “Handbook”, and conducted a number of their own training courses with support of the experts from the Japan Customs and the World Customs Organization (WCO). JICA believes that the “Handbook”, which they have developed by themselves, is the culmination of their hard work and utmost efforts throughout the Master Trainers Programme.
In this regard, I would like to extend its cordial gratitude to our development partners, especially the Japan Customs, the WCO and the EAC for their dedicated contribution to the JICA Customs Project, especially to the success of the Master Trainers Programme, in the development of the above mentioned “Handbook”.
I sincerely hope that this “Handbook” would be fully and widely used as the essential Training Material for further effective trade facilitation in East Africa and beyond its boundaries.
Kenneth BagamuhundaDirector CustomsDirectorate of Customs EAC Secretariat
The Handbook on Customs Valuation, HS Classification and Intelligence Analysis has been developed by a team of Customs officials who are members of the Master Trainers Programme under the JICA Project on Capacity Building for the Customs Administrations of Eastern African Region (Phase 2).
This Handbook is a tool premised on the EAC Customs instruments which include among others, the EAC Customs Union Protocol, EAC Customs Management Act, EAC Customs Union Common External Tariffs, EAC Rules of Origin, EAC Customs Management Regulations, EAC Customs Compliance and Enforcement Regulations, EAC procedure manual, EAC Valuation manual and EAC Post Audit Clearance Manual.
To enhance Customs training and professionalism, an EAC Customs Training Curriculum has been developed which will ensure harmonized training in all the Partner States hence effective skills development and service delivery. In addition, an EAC Trainers’ Guide, has been developed to assist trainers in the EAC have common approach in the delivery of Customs trainings. These Handbooks will be a reference training material in teaching and learning in support of the above EAC training tools.
On this occasion, I also congratulate the members of the Master Trainers Programme who were drawn from all the five EAC Partner States. They have successfully developed the Handbooks as a regional team for the whole of EAC.
The EAC is in the process of consolidating the Customs Union through establishment of a Single Customs Territory. The Single Customs Territory will facilitate and lead to free circulation of goods without barriers hence enhance trade facilitation which a driver of trade and the economy in this Region. The Handbooks therefore comes in handy as a tool for the realization of trade facilitation in the region.
I want to salute JICA for the financial and technical support provided in the development of this handbook. We appreciate that the ties JICA has built with EAC have continued to strengthen from year to year particularly in support of Customs reforms and modernization in EAC. We pledge our commitment to sustain the relationship and wish to affirm that the Handbooks will be tool for training in the East Africa Community.
For decades, each Customs Administration of the EAC partner states have placed its primary role exclusively in collecting revenue, taking advantage of its unique nature of controlling the trade through its own territorial sea, lake, air, as well as border posts. As we see in the emerging dynamics in the region, however, its roles are drastically changing into trade facilitation, leading various initiatives of both national and regional level. These initiatives are, for example, “AEO Program”, “Customs Union”, “Common Market”, “Elimination of NTBs” and so forth.
With this background, the JICA’s Master Trainers Programme was launched in January 2010 under the recognition by all the then-Commissioners General of the 5 Revenue Authorities of KRA, OBR, RRA, TRA and URA seeking to develop Master Trainers among the nominated Customs officers from the respective Customs Administrations who would be highly valuable human resources with great deals of knowledge and skills in Customs businesses, specifically Customs Valuation, HS Classification, and Intelligence Analysis. Once they are accredited as the Master Trainers, they would become indispensable stronghold for the Customs administrations in leading various Customs’ initiatives, including capacity building of other Customs officers as well as private sectors, such as importers, exporters, and clearing agents.
In this occasion, we are honored to express our utmost gratuity in acknowledging the publication of the “Handbook” on Customs Valuation, HS Classification, and Intelligence Analysis respectively, all of which were developed through great efforts by the Master Trainer candidates with support of JICA and WCO. We all acknowledge here that it will be fully used for long as one of the key training materials for our training purposes.
John K. NjirainiCommissioner GeneralKenya Revenue AuthorityRepublic of Kenya
Ben KagaramaCommissioner GeneralRwanda Revenue AuthorityRepublic of Rwanda
Allen KaginaCommissioner GeneralUganda Revenue AuthorityRepublic of Uganda
Kieran HolmesCommissioner GeneralOffice Burundais des RecettesRepublic of Burundi
Harry M. KitillyaCommissioner GeneralTanzania Revenue AuthorityUnited Republic of Tanzania
Masaharu ShimoyaChief AdvisorThe Project on Capacity Buildingfor the Customs Administrations of the Eastern African Region (Phase 2)
On behalf of JICA Customs Project team as well as our predecessors who have started the Master Trainer Programme, Japan Customs Experts, Officers of World Customs Organization who have been involved in this programme, I would like to extend my cordial congratulations to the members of Master Trainer Programme who have developed the Handbooks for training of Customs Valuation, HS Classification and Intelligence Analysis.
As Chief Advisor of the Project, I have closely monitored and supervised the activities by all the Master Trainer Programme members. Their willingness and enthusiasm had been very strong at each activity, their teamwork and dedicated efforts made it realize these Handbooks. I sincerely congratulate them and am proud of each member of the team who made great contribution to develop the handbooks.
All three subject areas featured in the Handbook are the KEY areas for Customs operations in which intensive Customs techniques and knowledge are required. The theories, their key rules and regulations, are compiled in the Handbooks and we expect these knowledge and skills will be widely shared among the officers and industries. I would like to highlight the important points in each subject areas as follows;
HS Classification:Goods must be classified as presented before you, the duty rate is not an issue;
Customs Valuation:To identify who is the buyer and who is the seller, and to find out price actually paid or payable plus adjustment elements;
Intelligence Analysis:Intelligence Analysis is a tool of trade facilitation. The tool shall be used to differentiate the customs approach to low risk stakeholders and high risk stakeholders.
I can say that a combination of the above customs technique will provide better trade incentives to importers, exporters and Customs Clearing Agents.
JICA Customs Project aims for better trade facilitation in this region and I am sure that the Handbooks will contribute to capacity building of both Government and its stakeholders and benefit them in facilitate smoother Customs clearance for both sides. The JICA Customs Project team continuously support the various activities for capacity building of Customs Administrations and the Clearing Agents in this Region. We are very happy to work together with our counterparts for their reform and modernization.
LIST OF ABBREVIATIONS
ACV Agreement on Customs ValuationBDV Brussels Definition of ValueC&F Cost and FreightCIF Cost Insurance and FreightCU Currency UnitDDP Delivered Duty PaidEAC East African CommunityEACCMA East African Community Customs Management Act, 2004FIS Free in StoreFOB Free on BoardGAAP Generally Accepted Accounting PrinciplesGATT General Agreement on Tariffs and Trade GIC General Introductory CommentaryJICA Japan International Cooperation AgencyKRA Kenya Revenue AuthorityLC Letter of CreditMTN Multinational Trade NegotiationsOBR Office Burundais des RecettesPAPP Price Actually Paid or PayablePCA Post Clearance AuditRRA Rwanda Revenue AuthorityTCCV Technical Committee on Customs ValuationTRA Tanzania Revenue AuthorityTT Telegraphic TransferURA Uganda Revenue AuthorityWCO World Customs OrganisationWTO World Trade Organisation
Table of Contents
PREFACE ACKNOWLEDGEMENT LIST OF ABBREVIATIONS
CHAPTER 1 1.0 AGREEMENT ON CUSTOMS VALUATION ........................................... 11.1 Introduction ............................................................................................... 21.2 Historical Background of Customs Valuation .......................................... 21.3 Objectives of the WTO Agreement on Customs Valuation ..................... 61.4 Structure of the WTO Customs Valuation Agreement ...................... 7 1.4.1 General Introductory Commentary ..................................................... 8 1.4.2 PART I - Rules on Customs Valuation ................................................ 9 1.4.3 PART II - Administrtion, Consultations and Dispute Settlement ........ 10 1.4.4 PART III - Special and Differential Treatment ................................... 11 1.4.5 PART IV - Final Provisions .............................................................. 111.5 Annexes ............................................................................................... 12 1.5.1 Annex I - Interpretative notes ............................................................... 12 1.5.2 Annex II - Technical Committee on Customs Valuation .................... 12 1.5.3 Annex III - Provisions for Developing Countries .............................. 13 1.5.4 Customs Valuation Compedium .................................................... 13
CHAPTER 2 2.0 TRANSACTION VALUE METHOD ......................................................... 152.1 Introduction ........................................................................................ 152.2 Definitions ............................................................................................ 152.3 Elements of Transaction Value Method .............................................. 16 2.3.1 Concept of sale ................................................................................ 16 2.3.1.1 Definition of sale ....................................................................... 16 2.3.1.2 Examples of cases where there is no sale ................................. 17 2.3.2 Concept of sale for export .................................................................. 20 2.3.2.1 Meaning of sale for export .................................................... 20 2.3.2.2 Examples .................................................................................. 20
2.3.3 Concept of Price Actually Paid or Payable ....................................... 22
2.3.3.1 Direct and Indirect Payments ................................................... 23
2.3.3.2 Activities undertaken by the buyer on his or her own account .. 24
2.3.3.3 Flow of Dividends ................................................................... 25
2.4 Discounts and Credits ............................................................................ 25
2.4.1 Cash discounts ..................................................................................... 25
2.4.2 Quantity discounts ................................................................................ 26
2.5 Credits ................................................................................................... 27
2.6 Other factors that can affect the price ..................................................... 28
2.6.1 Case of a Price below Market Price ................................................. 28
2.6.2 Goods subject to export subsidies or bounties ..................................... 28
2.6.3 Goods sold at dumped prices ................................................................. 29
2.6.4 Goods not in accordance with the contract .......................................... 29
2.6.5 Split shipments ..................................................................................... 30
2.6.5.1 Splitting up of Industrial Installations or plants ....................... 30
2.6.5.2 Shipments split for reasons of Quality ................................. 30
2.6.5.3 Shipments split for reasons of Geographical dsitibution ......... 31
2.7 Conditions for use of Transaction Value .................................................... 31
2.7.1 Conditions under Article 1 .................................................................. 31
2.7.2 Practical examples in each condition ................................................. 32
2.8 CASE STUDY ............................................................................................ 36
CHAPTER 3 3.0 ADJUSTMENTS UNDER ARTICLE OF THE AGREEMENT ON CUSTOMS VALUATION ................................................................................................ 383.1 Introduction .............................................................................................. 38
3.2 Definition of Adjustments ......................................................................... 39
3.3 Categories of Adjutments .......................................................................... 39
3.4 Compulsory Adjustments ......................................................................... 40
3.4.1 Commissions and Packing ................................................................. 40
3.4.2 Commissions, brokarage except buying commissions ....................... 40
3.4.3 Cost of container and packing .......................................................... 44
3.4.4 Assists ............................................................................................ 45
3.4.5 Royalties and Licence Fees ................................................................ 52
3.4.6 Proceeds ............................................................................................ 57
3.5 Optional Adjustments ............................................................................... 59
3.6 Additions to PAPP ..................................................................................... 62
3.7 No additions to PAPP ................................................................................ 64
3.8 Case Studies ............................................................................................ 65
CHAPTER 4 4.0 OTHER METHODS OF VALUATION ..................................................... 714.1 Introduction ............................................................................................ 71
4.2 Transaction Value of identical goods ....................................................... 71
4.2.1 Requirements for Transaction Value of identical goods method ......... 72
4.2.2 Adjustments under Transaction Value of identical goods ................... 72
4.2.3 Practical examples of Value Adjustments under identical goods ......... 73
4.3 Transaction value of Similar Goods method ...................................... 74
4.3.1 Requirements for Transaction Value of similar goods method .......... 75
4.3.2 Adjustments under Transaction Value of similar goods method .......... 75
4.3.3 Practical examples of Adjustments under similar goods method ........ 76
4.3.4 Comparisson of Identical and Similar goods ....................................... 77
4.4 Deductive Value Method .......................................................................... 78
4.4.1 Requirements of Deductive Value Method ......................................... 78
4.4.2 Application of Deductive Value Method ........................................ 79
4.4.3 Deductions made under the Veductive Value method ........................ 79
4.4.4. Practical Examples ........................................................................... 80
4.5 Computed Value Method ................................................................... 81
4.5.1 Requirements for Computed Value Method ........................................ 82
4.5.2 Elements to be considered under Computed Value Method ............... 83
4.5.3 Treatment of profits and general expenses ........................................ 83
4.5.4 Application of Generally Accepted Accounting Priciples (GAAP) ..... 84
4.6 Fall Back Method ................................................................................. 85
4.6.1 Requirements of Fallback Method ...................................................... 86
4.6.2 Right of the importer under Fallback Method ..................................... 86
4.6.3 Demonstration of flexible application under each method ................. 86
4.6.4 Prohibited means of determining value under the fallback method .... 89
CHAPTER 55.0 CUSTOMS DOCUMENTATION ......................................................... 905.1 Introduction ............................................................................................ 91
5.2 Definitions and Interpretations ................................................................ 91
5.3 Categories of Customs Documents ........................................................... 91
5.4 Importance of Documents ........................................................................ 92
5.5 Vital information contained in documents .............................................. 92
5.6 Relationship between definition of Transaction Value and Documentation . 94
5.7 Overview of International Documents ...................................................... 95
5.8 Analysis of Documents ............................................................................. 95
5.8.1 Commercial Documents ...................................................................... 95
5.8.2 Transport Documents ......................................................................... 97
5.8.3 Financial Documents .......................................................................... 98
5.8.4 Regulatory Documents ........................................................................ 100
5.9 Pointers to Authenticity in Documents ...................................................... 101
5.10 Grounds for doubting the truth or accuracy of the declared value ............ 105
CHAPTER 66.0 INCOTERMS 2010 .................................................................................. 1066.1 Common INCOTERMS / Terms of Delivery ............................................ 106
CHAPTER 77.0 DOCUMENT CHECKLIST .................................................................... 110
References ................................................................................................... 128
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CHAPTER 1
1.0 OVERVIEW OF THE WTO AGREEMENT ON CUSTOMS VALUATION
The World Trade Organisation (WTO) Agreement on Customs Valuation (here after referred to as the “Agreement”) is a trade facilitation based multilateral trade agreement that requires signatory countries, through their Customs Administrations, to deal with a detailed set of legislative and administrative requirements which goes further than the six methods of valuation.
It is an Agreement that was arrived at by the world’s trading community under the auspices of the Uruguay Round that also resulted to the creation of the World Trade Organization (WTO), the world body charged with governing world trade. Each contracting member state has ratified the Agreement into respective national or regional customs legislations. For the case of the East African Community, this has been included in the East African Community Customs Management Act vide section 122 read together with the Fourth schedule.
General ObjectiveThe General objective of the overview of the WTO Agreement on Customs Valuation is to provide a comprehensive summary of the Agreement on implementation of Article VII of the General Agreement on Tariffs and Trade, GATT 1994.
Specific Objectives By the end of this chapter, you should be able to;(a) State the historical background of Customs Valuation(b) State the principle objectives of the “Agreement”(c) Outline the structure of the “Agreement”(d) List annexes to the WTO Agreement on Customs Valuation
Content(a) Introduction(b) Historical Background of Customs Valuation(c) Objectives of the Agreement(d) Structure of the Agreement(e) Annexes
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1.1 IntroductionCustoms valuation is the procedure applied to determine the value of imported goods for the purpose of levying ad valorem customs duties. Customs duties are instruments of fiscal and trade policy. They may be based on specific rates, ad valorem rates, or a combination of the two. The choice of the rate depends on various factors, such as tariff policy objective which may include and not limited to;
(a) Raise revenue(b) Facilitate trade(c) Protect domestic industry(d) Encourage importation of certain products(e) Collect trade statistics
Ad valorem dutiesAre taxes, duties or fees that vary depending on the value of products, services or property on which they are levied. They are expressed as a percentage of the value and most of the countries apply this system.
Ad valorem duty rate is not a recent invention but dates back to the middle ages but what seems to have been lacking at that time was the application of precise, standard methods of valuation.
The preference for ad valorem duties re-emerged during the industrial era, when it was realized that the system offered greater protection, as it was more adaptable in the face of price fluctuations and differences in the quality of goods.
Specific dutiesThese are duties, taxes or fees levied based on specific measures of goods such as number, weight, volume, area, capacity etc. Here, a specific sum is imposed on each article regardless of its individual value, e.g. price per litre of fuel.
1.2 Historical Background of Custom ValuationValuation of goods for exchange purposes has been in place since time immemorial. Valuation was widely done during the barter trade system which was applied at local trade as well as foreign trade. At the international level, the existence of different and unstable valuation systems was a major obstacle to the growth of trade. Valuation system of the day enabled the incidence of the agreed duties to be manipulated unilaterally by altering the valuation criteria.
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At the turn of the century, circles interested in the expansion of international trade undertook studies with a view to replace the unstable and arbitrary methods applied up to that time by an international valuation system, which would be neutral in its effect.
After several unsuccessful attempts made under the auspices of the League of Nations, agreement on the general principles of Customs valuation was reached for the first time during the United Nations Conference on Trade and Employment, held in Geneva in 1947 and was signed by 23 nations.
The conclusions of this Conference were embodied in Article VII of the General Agreement on Tariffs and Trade (GATT)1947. The principle provided for customs valuation to be based on the transaction value to the greatest extent possible. Nevertheless, that text merely laid down the general principles and provided little guidance as to their practical application.
Another progress towards international co-operation in the field of Customs valuation was taken by the European Customs Union Study Group set up in Brussels in 1947. The Group’s tasks included the drafting of a definition of value for use in the framework of a Customs Union, and a study of the methods and procedures of application of such definition.
The text of this definition was completed by mid-1949 and it was based on the principles of Article VII of the GATT 1947. It was incorporated in the Convention on the Valuation of goods for Customs purposes, which was signed in Brussels on 15th December 1950 and entered into force on 28th July 1953. This resulted into a new valuation method termed as Brussels Definition of Value (BDV).
The Brussels Definition of Value is based on a notional concept, which treats the customs value as the price at which in assumed conditions, the merchandise to be valued would fetch in the open and free market on interaction of the forces of supply and demand when sold to unrelated parties. The essential elements of this definition are price, time, place, quantity and commercial level.
The BDV, a product of the trading environment of the 1950’s was seen to be subject to arbitrary administration, lacking transparency and unresponsive to the prevailing international trading environment. The system gives too much discretion to the Customs administration. The value adjustment depended much on the assessment of the assessor, which allows arbitrary uplifts that are not quantifiable and uncertain which is detrimental to trade.
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Between 1973 and 1979, a new phase in the history of Customs valuation was in the making. During this period, the GATT multilateral trade negotiations known as the Tokyo Round took place in Geneva, representing one of the most significant trade policy events of our time.
The objective of these negotiations were to achieve the expansion of greater liberalization of the world trade, inter alia, through the progressive dismantling of obstacles to trade. One means of achieving this goal was the adoption of a common international valuation system, more widely accepted than the existing system.
One of the results of these negotiations was the adoption of the Agreement on the Implementation of Article VII of the GATT in 1981 also known as Agreement on Customs Valuation (ACV). ACV is a positive concept rather than the notional concept under BDV. A Protocol to the 1979 Agreement deemed to form the integral part thereof, contained provisions concerning special problems and trading needs of developing countries, permitting them some flexibility in applying the Agreement. This has become Annex III of the GATT 1994.
The Agreement on Customs Valuation is based on transaction value that is the price actually paid or payable for the imported goods when sold for export to the country of importation.
This system is intended to provide a fair, uniform, and neutral way for the valuation of goods for Customs purposes, conform to commercial realities and precludes the use of arbitrary and fictitious values. Through its precise methodology, it assists the trading community and customs authorities to determine the customs values and the amount of duties payable with more certainty, and therefore, contributes to the facilitation of trade.
The Agreement recognizes that Customs Valuation should, as far as possible, be based on the actual price of the goods being valued, subject to certain adjustments of elements which form part of the value but have not been included.
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Uruguay Round
The Uruguay Round of GATT negotiation which started in 1986 was finalized in December 1994. This resulted in the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994, popularly known as, “the Agreement”. It made several changes to the existing Agreement on implementation of Article VII:
(a) Creation of World Trade Organization (WTO), which came into force 1995(b) Requirement that all signatories to the WTO accept all GATT instruments, including
the Agreement on implementation of Article VII(c) Some slight amendments to the text of the GATT Agreement on Customs
Valuation(d) Review of Annex III to the Agreement(e) Adoption of decisions regarding, Burden of proof, Minimum Values and Sole agents,
Sole distributors and Sole concessionaires
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1.3 Objectives of the WTO Agreement on Customs Valuation
The objectives of the WTO Valuation Agreement are set out in the preamble of the Agreement as follows:
(a) To further objectives of GATT 1994 and secure additional benefits for developing countries
The Agreement is an important step towards a uniform application of valuation procedures thus promoting international trade. It is also for developing countries when they become members, for example, they may delay application of its provisions for up to 5 years and may defer application of some specific rules for an additional three year period.
It was also agreed that developed countries shall furnish technical assistance which may include training personnel, assistance in implementation, access to sources of information and advice on application of the provisions of the Agreement.
(b) To provide greater uniformity and certainty An important objective of the Agreement was to establish a precise set of rules
which will be applied in the same way by all the members. This increases importer’s confidence that they will receive the same treatment to avoid distortion of competition. Article VII of GATT before 1994 was rather general and left each country with the widest discretion in its valuation system.
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(c) A fair, uniform and neutral system that precludes the use of arbitrary or fictitious customs values
Arbitrary or fictitious customs values refers to national systems in which customs values have been assigned to goods without regard to the factors which govern the transaction between buyer and seller. Many countries have tendencies to protect domestic industry by uplifting the value of imported goods unfairly. The intention of precluding the use of arbitrary or fictitious customs values is to ensure that the valuation of goods is based on the actual circumstances relating to each transaction.
(d) The basis for valuation should, to the greatest extent possible be the Transaction Value of the goods
Transaction value in its simplest form refers to, the price actually paid or payable with any necessary adjustments, agreed upon by the buyer and seller. The Agreement makes clear that the transaction value method should be considered first whenever possible.
(e) Customs value should be based on simple and equitable criteria consistent with commercial practices
Whatever method is applied, the customs value should be determined on the basis of the examination of accurate commercial documentation in line with generally accepted commercial practices in the specific industry.
(f) Valuation criteria should be of general application without distinction between sources of supply
This is another aspect of neutrality. Members are required to apply the provisions of the Agreement uniformly to importations from all countries without distinction between the goods and exporters.
(g) Valuation procedures should not be used to combat dumping This means that if dumping is believed to be taking place, the Agreement
should not be used as a counter measure by increasing the customs value of the goods in question. The correct procedure is to consider application of the anti dumping laws (Article VI of GATT 1994).
1.4 Structure of the WTO Customs Valuation AgreementThe full title of the WTO Agreement on Customs Valuation is “Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994”, referred to as “the Agreement”.
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The structure of the Agreement is as follows:
PREAMBLE General Introductory CommentaryPART I Rules on Customs Valuation (Article 1-17)PART II Administration, Consultations & Dispute settlements (Article18-19)PART III Special and differential treatment (Article 20) PART IV Final provisions (Articles 21-24) Annex I Interpretative NotesAnnex II Technical Committee on Customs ValuationAnnex III Provisions for Developing Countries
1.4.1 General Introductory Commentary (THE PREAMBLE)The Preamble gives the general introductory commentary of the Agreement which is the basic introduction of the valuation methods and their hierarchical order of application. The commentary to the first paragraph points out that the primary basis of the customs value is the transaction value.
The starting point for the transaction value method is the price actually paid or payable for the goods when sold for export, adjusted to take into account certain additional costs incurred by the buyer which form part of the transaction value, but are not included in the basic price paid or payable.
Article 8 provides, inter alia, for adjustments to the price actually paid or payable of specific elements that pass from the buyer to the seller that may not necessarily be in the form of money.
The commentary informs us that such elements form part of the value for customs purposes if indeed they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods.
The second paragraph states that if it is not possible to determine the transaction value of the goods, the Customs administration and the importer must consult with a view to establishing the basis of value under Articles 2 and 3 (the transaction value of identical and similar goods respectively). This is because one party may have information about the customs value of identical or similar goods that may not be available to the other party.
The third paragraph introduces Article 5 and 6 which describe the methods to be used if the value cannot be determined under the first three Articles.
The method described in Article 5 (Deductive Value Method) is derived from the price of imported goods (identical or similar) which are sold after importation to unrelated buyers in the country of importation.
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Article 6 is the “Computed Value Method” where the customs value is built up from the value of separate elements incorporated in the production or manufacture of the goods being valued such as parts, materials, profits, overheads, etc.
However the use of this method may present difficulties and that is why Article 4 gives the importer the option of reversing the order of application of Article 5 and 6 in consultation with the Customs administration.
The fourth paragraph introduces the “Fall Back Method” for use in determining the value in the event that customs value cannot be determined under the previous methods.
The Commentary as a preamble to the Agreement makes a statement on behalf of members recognizing a series of fundamental objectives that underpin the Agreement itself.
1.4.2 PART 1 - Rules On Customs ValuationPart 1 consists of 17 articles which explain the criteria for determining the Customs value, adjustments, definitions, rights of importers and Customs Administrations.
Article 1 - Transaction Value MethodArticle 2 - Transaction value of identical goods Article 3 - Transaction value of similar goods Article 4 - Application of Article 5 & 6Article 5 - Deductive Value Method Article 6 - Computed Value MethodArticle 7 - Fall back MethodArticle 8 - Adjustments to the transaction Value
Articles 1 to 8 will be discussed in detail in Chapter 2, 3 and 4.
Article 9 - Currency conversionIf conversion of currency is necessary for the determination of customs value, the rate of exchange to be used shall be that duly published by the competent authorities of the country of importation concerned.
Article 10 - Confidentiality of InformationAll information which is provided on a confidential basis shall be treated as strictly confidential by the authorities concerned and shall not be disclosed without specific permission of the person who issued except to the extent that it may be required to be disclosed in the context of judicial proceedings.
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Article 11 - Importer’s rights to appeal without penalty.The legislation of each member shall provide for the right of appeal without penalty within the customs administration or an independent body up to the judicial authority.
Article 12 - Obligation to publish lawsLaws, regulations, judicial decisions and administrative rulings of general application giving effect to this Agreement shall be published in conformity with Article X of GATT 1994 by the country of importation which requires that a member should inform other members of the amendments made.
Artticle13 - Obligation to provide for a guarantee systemThe importer may be allowed to withdraw the goods from customs if it is necessary to delay the final determination of customs value provided that sufficient guarantee is provided.
Article 14 - Notes to the articles These notes are set out under Annex I and the articles of the Agreement are to be read and applied in line with these notes. Annex I, as well as Annex II and III form an integral part of the Agreement.
Article 15 - DefinitionsThis article provides definitions and interpretation of various technical words used in the Agreement.
Article 16 - Rights of importers to a written explanationThis article explains the rights of importers to an explanation in writing as to how customs value was determined.
Article 17 - Rights of Customs AdministrationsThis article explains the rights of Customs administrations to satisfy themselves regarding the truth or accuracy of any documents or declarations presented to Customs for valuation purposes.
1.4.3 PART II - Administration, Consultations and Dispute Settlement
This part has two Articles.
Articles 18 - InstitutionsThis Article established the basic institutions of the implementation of the Agreement; these are WTO Committee on Customs Valuation and WCO Technical Committee on Customs Valuation.
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Article19 - Consultations and Dispute SettlementThis article describes the procedure to be followed for consultations and dispute settlement.
1.4.4 PART III - Special and Differential TreatmentThis part has only one Article.
Article 20 - Special and Differential TreatmentThe Article provides for special provisions available to developing countries. For example developing countries were given a period of 5 years to delay implementation of provisions of the Agreement.
1.4.5 PART IV - Final ProvisionsThis part has 4 Articles.
Article 21 - ReservationsThis article states that the reservations may not be entered in respect of any of the provisions of the Agreement without the consent of other members.
Article 22 - National legislationThis article requires each member to domesticate the Agreement and inform the committee of any changes in its laws. The EAC domesticated the law in 2005 vide section 122 read together with fourth schedule to the East African Community Customs Management Act, 2004.
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Article 23 - ReviewThis article provides for review of implementation and operation of the Agreement by WTO Committee on Customs Valuation annually.
Article 24 - Secretariat This Article mandates WTO and WCO Secretariats to service this Agreement. 1.5 AnnexesThe purpose of the annexes is to explain further issues covered by the Articles and mainly the Interpretative Notes to the Articles, the functions of the Technical Committee on Customs Valuation and the special provisions to the Developing Countries.
1.5.1 Annex I - Interpretative NotesThis annex provides the interpretative notes which supplement provisions of Article 1 until Article 15. In particular, they explain in more detail how the valuation methods are to be applied. The notes emphasize the use of the methods in hierarchical order.
1.5.2 Annex II - Technical Committee on Customs Valuation (TCCV)This annex establishes the Technical Committee on Customs Valuation under the auspices of WCO and describes the role and the responsibility of technical committee with a view to ensuring that at the technical level, there is uniformity in interpretation and application of the Agreement.
The Agreement has two committees, the Committee on Customs Valuation based in Geneva and the Technical Committee on Customs Valuation based in Brussels. The former is concerned with the trade policy aspects of the Agreement while the latter deals with the Customs aspects of it. The main role of the TCCV is the examination of specific technical problems arising in the day to day administration of the Customs Valuation system of Members and to give advisory opinions on appropriate solutions based upon the facts presented.
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1.5.3 Annex III - Provisions for Developing countriesThis annex provides for:(a) Five (5) years delay in the application of the provisions of the Agreement paragraph
1 of Article 20;(b) Retention of minimum value on limited and transitional basis;(c) Reservation and reversal of the sequential order at the request of importer provided
under Article 4 of the Agreement;(d) Reservation with respect to paragraph 2 of Article 5 of the Agreement, (it allows use
of goods that have gone further process in determination of unit price at which the greatest aggregate units are sold.);
(e) Provision that developing countries that may have problems in the implementation of Article 1 of the Agreement insofar as it relates to importations into their countries by sole agents, sole distributors and sole concessionaires, shall request for a study of this problem with a view to finding appropriate solutions.
1.5.4 Customs Valuation Compendium The compendium, also called as “WTO Agreement and Texts of Technical Committee” contains the following sections:
I. List of WTO Members II. Agreement on Implementation of Article VII of the General Agreement On Tariffs
And Trade, 1994. This is the Agreement itself.
ADVISORY
OPINIONS
COMMENTARIES
EXPLANATORYNOTES
STUDIES
CASE
STUDIES
Technical Committee on Customs Valuation
INSTRUMENTS
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III. Article VII of the Agreement on Tariffs and Trade, 1994 and note thereto.IV. Decisions taken by the WTO Committee on Customs Valuation. This currently
includes seven decisions made by the WTO Committee on Customs Valuation covering various valuation issues.
V. Texts issued by the WCO Technical Committee on Customs Valuation. These texts are published in different formats:
Advisory Opinions: These answer questions raised on the application of the Agreement to a particular set of facts.
Commentaries: These provide comments on parts of the Agreement and intended to supplement the text with additional guidance.
Explanatory Notes: These provide the Technical Committee’s views on questions of a general nature arising from the application of the Agreement.
Case Studies: These are based on a set of facts relating to a particular commercial transaction. They can be used to demonstrate a practical application of the Agreement.
Studies: These set out the results of detailed studies of questions related to the Agreement.
VI. Index of valuation rulings and conclusions and of GATT/WTO documents containing national valuation legislation.
N.B. The Index of rulings within this Section has now been replaced by the “Index of Reference Materials on Customs Valuation”.
VII. Alphabetical Index This index provides useful references for matters covered in both the Compendium
and the Agreement itself.
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CHAPTER 2
2.0 TRANSACTION VALUE METHOD
ObjectivesBy the end of this chapter you should be able to;
(a) Define the term “Transaction Value”(b) Explain the basis of Customs Value under Transaction Value Method(c) Enumerate the key elements of Transaction Value(d) Explain the concept of price actually paid or payable(e) Conditions for application of Transaction Value(f) Explain the sale for export concept(g) State conditions where Transaction Value Method cannot be applied(h) Apply Transaction Value Method
Outline(a) Introduction(b) Definition of terms relating to Transaction Value(c) Basis of Customs Value under the Transaction Value Method(d) Elements of Transaction Value(e) Implication of importations without Sale(f) Concept of sale for export(g) Concept of price actually paid or payable(h) Conditions for use of Transaction Value Method(i) Case studies
2.1 IntroductionThe general introductory commentary to the Agreement states that, the basis for customs value should be wherever possible, the transaction value of the imported goods being valued (Article 1). That is the price actually paid or payable (PAPP) for the goods when sold for export to the country of importation, adjusted in accordance with Article 8, provided the conditions of Article 1 are met (paragraph 2 of 4th schedule of The East African Community Customs Management Act, 2004 (EACCMA).
2.2 Definitions(a) Transaction ValueIt is the price actually paid or payable for the goods when sold for export to the country of importation adjusted in accordance with Article 8.
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(b) Price actually paid or payable (PAPP)Price actually paid means the price that has already been paid at the time of valuation or importation. Price payable means the price that has not been paid by the time of valuation or importation but has already been agreed to be paid. Therefore, the PAPP is the total payment made or to be made by the buyer to or for the benefit of the seller for the imported goods.
(c) Country of importationAccording to Article 15 of the Agreement, country of importation means country or customs territory of importation where goods are being valued.
(d) AdjustmentsImplies any cost elements incurred by the buyer but not included in the price actually paid or payable for the imported goods being valued.
2. 3 Elements of Transaction Value Method2.3.1 Concept of sale
In order to establish transaction value there must be a sale of goods before importation. If the imported goods are not the subject of a sale, there can be no transaction value under Article 1 of the “WTO Agreement on Customs Valuation”.
2.3.1.1 Definition of sale“The Agreement” contains no definition of “sale”. It merely indicates that “a sale is a specific commercial operation satisfying certain requirements and conditions”(Advisory opinion1.1). It implies a transfer of ownership of the goods for some form of consideration.Hence a sale necessarily requires an agreement between a seller, who agrees to transfer the ownership of the goods in exchange for a specified price, and a buyer, who agrees to purchase those goods for a specified price.
Advisory Opinion 1.1 states that the term “sale” should be interpreted as widely as possible. Moreover, in the absence of a positive definition of “sale”, a list of situations has been drawn up in which the imported goods are deemed not to have been the subject of a sale.
The Technical Committee on Customs Valuation expressed the opinion that:(a) The Agreement on implementation of Article VII of GATT(1994), has no definition of “sale”. Article 1, paragraph1, merely stipulates a specific commercial operation satisfying certain requirements and conditions.
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(b) Nevertheless, in conformity with the basic intention of the Agreement that the transaction value of imported goods should be used to the greatest extent possible for Customs valuation purposes, uniformity of interpretation and application can be achieved by taking the term “sale” in the widest sense, to be determined only under the provisions of Articles 1 and 8 read together.
(c) It would however be useful to prepare a list of cases which would not be deemed to constitute sales, meeting the requirements and conditions of Articles 1 and 8. In these cases the valuation method to be used should be in accordance with the order of priority laid down by the Agreement.
2.3.1.2 Examples of cases where there is no sale(a) Free of Charge Shipments Where a transfer of goods is made free of charge, it cannot be regarded as a sale. This is the case, for example, with certain gifts, samples, prototypes and promotional items. In this case, Transaction Value may not be applied.
samples gifts
(b) Consignment salesThis refers to goods dispatched to the country of importation not as a result of a sale, but with the intention that they would be sold on the account of the supplier. The goods remain the property of the foreign supplier until after they are sold through a selling agent in the domestic market.
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Illustration of goods imported on consignment for sale by auction
Ilustration No1
(c ) Goods imported by intermediariesThis relates to imported goods which, at the time of Customs clearance, have not yet been sold but are delivered by the foreign supplier to his/her agent generally to be held in stock and then sold after importation for the account and the risk of the foreign supplier. Since there is no transfer of ownership, there is no transaction value for these goods at the time of importation.
(d) Goods imported by branchesThis involves a transaction between two separate persons, the delivery of goods to a branch office which does not have a separate legal status, is merely a transfer of goods from one office to another.
Whether a transaction leading to the importation of goods by the branch office qualifies as a sale for export depends on the role of the branch in the transaction.
If the main function of the branch is merely to find customers for the parent company, there is no sale between the parent company and the branch. As such, the branch simply has a logistical function and the sale to the end customer is made before the goods are released into home use. Consequently, valuation considerations will be based on the transaction value, under usual conditions.
Example of Goods imported by branches Goods manufactured by company XYZ in a foreign country are imported through branch
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XYZ-1 which does not have separate legal status from its parent company. XYZ-1 obtain orders from unrelated buyers in the importing country, clears the imported goods, invoice them to clients and manage a limited stock resulting from any possible surplus. For accounting reasons, XYZ sends an invoice for these goods to its branch on the basis of a price representing the manufacturing costs. The sale of goods to customers in the country of importation takes place either before or after their clearance. The prices invoiced by XYZ-1 to customers differ from those mentioned on the invoice issued by XYZ, as they include a commercial profit margin, Customs duties and other costs.
Given that a sale necessarily involves a transaction between two separate persons, the delivery to XYZ-1 is merely a transfer of these goods from one office or section to another within the same legal entity.
Therefore, when the sale to unrelated buyers takes place before the goods are cleared by Customs; the customs value must be established on the basis of the PAPP by these buyers, in accordance with Article 1 of the Agreement, excluding the Customs duties, domestic transport costs and related charges.
However, as goods imported by XYZ-1 for stock purposes are not the subject of a sale, Article 1 does not apply and the customs value is to be determined using an alternative method of valuation. (e) Goods imported under a hire or leasing contractHire and leasing contracts, even if they include an option to purchase the leased goods, do not constitute a sale. Leasing contracts are for the purposes of renting (or leasing) of goods, for example, machinery and equipment for use in the country of importation without actually purchasing them from the exporter. The goods are valued using an alternative method and the leasing fees are generally taken to indicate the worth of the goods. Even though the rights of the importer may extend to the future purchase of the leased goods, the leasing contract cannot be substituted for a sale.
(f) Goods supplied on loanIf the goods are loaned by an exporter to an importer, this does not constitute a sale and an alternative method will have to be considered.
(g) Goods imported for destructionCosts are usually incurred in connection with the importation of waste or scrap for destruction where the exporter pays the importer an amount for his/her services. As the importer does not pay for the imported goods but rather, on the contrary, is paid for accepting and destroying them, such an importation is not considered as a sale. In such a case, an alternative method of valuation will be applied.
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(h) Goods which are the subject of barterBarter trade transactions, constitute a specific case in as much as they are totally or partially expressed in non-monetary terms. They may involve an exchange of goods of approximately equal value or, expressed in monetary terms but not settled (or only partially settled) in monetary terms (e.g. merchandise barter which includes a payment to make up the balance). Hence it is necessary to examine, on a case by case basis, whether the arrangements can be considered a sale.
2.3.2 Concept of sale for export
2.3.2.1 Meaning of sale for exportThe transaction value of the imported goods is based on the price for those goods when sold. Therefore, in order to establish a transaction value, there must be a sale for export of goods being valued before importation. If the imported goods are not subject of a sale, transaction value can not be applied under Article 1. Furthermore, the sale in question must be one for export to the country of importation. If the goods have been sold for the domestic market in the country of export or for export to a third country, those sales cannot be used to establish the transaction value.When goods are presented for valuation, the fact would be to establish their importation, and that importation would establish whether goods had been exported or not. It must then be necessary to identify the transaction relating to that importation.It must be demonstrated that there was an actual international transfer of title to the goods, which resulted in an export of the goods to the country of importation.
2.3.2.2 Examples
Example 1:Seller S in the exporting country X enters into a contract to sell electric appliances to importer A in the importing country I at a price of 5.75 c.u. per piece. S concludes an agreement 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. M’s selling price to S is 5 c.u. per piece.
In this case, the transaction between S and A involves an actual international transfer of goods and constitutes a sale for export to the country of importation. As such, it would be a basis for valuation of the imported goods under Article 1 of the Agreement. (Advisory Opinion 14.1)
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Illustration No 2
Example 2:Buyer B in country of importation I purchases goods from seller S in the same country I. The goods are stored by S in country X. Necessary arrangements for shipment and export of the goods from country X are completed by S and the goods are imported by B into country I.
Ilustration No 3
(Country I)(Country X)
STORE SBUYER B
SELLER S
Cargo
PURCHASING GOODS
5 c.u./pc
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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 buyer B and seller S is a sale for export to the country of importation and would be the basis for valuation of the goods under Article 1 (Advisory Opinion 14.1).
Example 3Company X in Japan enters into an agreement to sell electrical appliances to Company P of East Africa. Company X concludes an agreement with Manufacturer XYZ also in Japan, to manufacture the goods. XYZ manufactures on behalf of Company X, then ships the goods to Company P in East Africa. In this case, the transaction between Company X and Company P involves an actual international transfer of goods and constitutes a sale for export to East Africa.
Ilustration No 4
2.3.3 Concept of Price Actually Paid or Payable (PAPP)The Interpretative Note to Article 1 (Note to Paragraph 2 of 4th schedule of EACCMA) provides that 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.It further clarifies this term by indicating that the PAPP includes all payments actually made or to be made as a condition of sale for the imported goods, by the buyer to the seller or by the buyer to a third party to satisfy an obligation of the seller (ANNEX III 7).The term “paid” or “payable” means that if the goods are paid for before valuation, the price paid will be used as a basis for valuation. If not paid, then the price to be paid will be used. The Interpretative Note to Article 1 specifies that the payment need not necessarily take the form of a transfer of money. Payment may also be made by letter of credit or negotiable instruments. The followings are some of the examples in relation to payments;
(JAPAN)(EAST AFRICA)
MANUFACTURER XYZ
COMPANY P COMPANY X
CARGO
Sales Agreement
Manufacturing Agreement
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2.3.3.1 Direct and Indirect Payments(a) Direct PaymentsThese are payments already made at the time of customs valuation of the imported goods. An example; a buyer in country X and a seller in country Y enter into a contract to supply an industrial machine at 30,000 c.u. At the time of customs valuation, the buyer had made the total payment as per contract.
(b) Indirect PaymentsThese are payments made by the buyer whether in whole or in part in the settlement of a debt owed by the seller. An example of an indirect payment would be where the price is reduced due to a debt owed by the seller to the buyer. In this case, the PAPP would be the sum of all payments, direct and indirect.Another form of indirect payment would be the settlement by the buyer of a debt owed by the seller to a third party.
Example 1Burket Company ltd. of East Africa pays 2,000 c.u. to Toy Factory in Tokyo, Japan for a shipment of toys. Toy Factory would have charged Burket Company ltd. 2,400 c.u. for the toys: however, since Toy Factory owed Burket Company ltd. 400 c.u., the company only charged him 2000 c.u. for the toys.In this case the PAPP is 2,400 c.u., the sum of the direct payment of 2,000 c.u. and the indirect payment of 400 c.u.
Ilustration No 5
Example 2Burket Company ltd. of East Africa pays 3,500 c.u. to Pierre Toy Factory in Paris, France for a shipment of toys. On a previous shipment of toys from Pierre to the Patel Company, a new customer in East Africa incurred damage worth 500 c.u. during the shipment. Based on their long-standing relationship, Pierre asked Burket Company ltd. to make an immediate settlement of the damage claim with Patel Company and Pierre Toy would then
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deduct 500 c.u. from the next invoice. The price of the shipment being valued reflects this 500 c.u. deduction.
In this example, the PAPP is 4,000 c.u. the sum of the direct payment of 3,500 c.u. and the indirect payment of 500 c.u.
Ilustration No 6
2.3.3.2 Activities undertaken by the buyer on his or her own accountThe Interpretative Note to Article 1 (Note to Paragraph 2 of the 4th Schedule of EACCMA) also specifies that activities, other than those for which an adjustment can be made under Article 8 (Paragraph 9 of 4th schedule of EACCMA), which are undertaken by the buyer on his or her own account are not considered an indirect payment although they might be regarded as for the benefit to the seller. This would include such activities as:(a) Market studies and market research;(b) Advertising brand or trademark under which goods are going to be sold;(c) Preparation of showrooms;(d) Participation in trade fairs and exhibitions;(e) Testing of machinery and equipment; and(f) Costs to obtain an irrevocable and confirmed letter of credit. Example 1Firm A concludes a long-term contract with foreign manufacturer S for the supply of a new type of electrical appliance. Under the terms of the contract, the appliance will be marketed under S’s trademark and A undertakes the cost of marketing it in the country of importation at his own expense.
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Illustration No 7
In this example the cost of marketing cannot be added to the PAPP because this activity is related to the marketing of the imported goods and even though this is of benefit to the seller, it is not part of the PAPP.
2.3.3.3 Flow of DividendsThe flow of dividends or other payments from the buyer to the seller that do not relate to the imported goods are not part of the customs value (Interpretative Note to Article 1).However, we must make a distinction between dividends and proceeds as dividends will not be added to the PAPP but proceeds will be added as an adjustment under Article 8.1(d).In general, proceeds are profits realized on the resale of the imported goods and are thus directly related to the imported goods. Dividends, while also considered as “profit”, are paid out to stockholders or shareholders. These dividends relate to the firm’s overall business and not just to the sale of the imported goods. Hence, they are not directly related to the imported goods.
2.4 Discounts and Credits Discounts are general reductions of the PAPP when certain conditions put by the seller are met. Such conditions may include prompt payment, quantity bought, etc.The PAPP is established after deducting any legitimate (meaning supported by quantifiable and verifiable data) cash or quantity discounts. The most common discounts include cash discount and quantity discount.
NoteA discount although not included in the customs value is not part of adjustment under Article 8, but is excluded by virtue of the definition of transaction value.
2.4.1 Cash discounts These discounts are granted to buyers for payment in cash or payment made within a specified period e.g., 5% for a payment made within 10 days of receipt of the invoice and, for Customs purposes, the discounts must be freely available to all buyers. There should be a schedule to support the discount levels (Advisory Opinion 5.1 to 5.3).
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Cash Discount
2
5% discount if the payment is made within 1 month er the day of contract.
Importer(Buyer) A
Exporter(Seller) B
(Country I) (Country X)
Contract (@ USD 30,000) 20 Jan. 2012
Goods 20 Mar. 2012
Invoice (USD 28,500)
Payment (USD 28,500) 20 Feb. 2012
PAPP = USD 28,500If the importer/buyer A actually made the payment of USD 30,000, 12 days a er the arrival of the goods, the PAPP is USD 30,000. Ar cle 13 may be applied.(If the importer/buyer A is to pay this
amount within the me frame.)
At the me of customs valua on the payment has not been made yet.
Cash discounts can cause difficulties as they are usually effected after importation has occurred. However, the transaction value method requires the use of the PAPP and legitimate cash discounts can therefore be accepted as a deduction as the discounted price is in fact, the PAPP.
The diagram below illustrates that where the goods have not been paid for at the time of determining a customs value for the imported goods, the amount that the importer will ultimately pay to acquire them will form the basis of the transaction value.
IIlustration No 8
When the transaction involves a cash discount, the price payable may be determined in various ways. Thus, the invoice may include a statement specifying the conditions for granting a cash discount, or the importer will inform Customs, on request, that he/she has accepted the conditions entitling him/her to the discount and that the price payable is the discounted price. The documents submitted by the importer should be based on quantifiable and verifiable data.
2.4.2 Quantity discounts Quantity discounts are deductions from the price, allowed according to the quantities purchased at once or over a period of time. Sellers often encourage buyers to purchase in bulk as their costs are proportionately reduced. For valuation purposes, it is the quantity which has determined the unit price of the goods being valued when they were sold for export to the country of importation that is relevant. In order to be accepted by Customs,
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discounts must be freely available to all buyers. Quantity discounts can be established prior or subsequent to the importation of the goods (Advisory Opinion 15.1).
Examples: The seller offers the following range of quantity discounts:1 to 9 units: no discount10 to 49 units: 5 % discountOver 50 units: 8 % discount
First situationBuyer/Importer A purchases 27 units and is granted a 5 % quantity discount. Buyer C also purchases 27 units and is granted a 5 % quantity discount, but receives these units in three separate shipments each comprising 9 units. Can the 5 % discount be applied?
Answer: Yes in both cases. The price actually paid or payable for the imported goods is reduced by the 5 % discount. The quantity purchased contributed to the setting of the price, not the delivery circumstances.
Second situation B and C each purchase a further 42 units from the same supplier. They each receive an 8 % quantity discount on the shipment of 42 units as the manufacturer grants the discount on the cumulative purchase of over 50 units. Can the 8 % quantity discount be applied? Answer: Yes. Once again the quantity purchased contributed to the setting of the purchase price and therefore established the PAPP.
Third situation In addition to the quantity discounts of 5 % and 8 % granted before Customs clearance, a further quantity discount of 3 % on the first shipment of 27 units is granted retrospectively. Can this additional discount be applied to the second shipment?Answer: No. The additional quantity discount of 3 % granted retrospectively should not be allowed for the second importation as it did not contribute to the setting of the unit price of the 42 units being valued, but relates to the 27 units previously imported. To establish whether or not the 3 % “credit” should be allowed for the first shipment, it is necessary to begin by examining the question of credits.
2.5 Credits Under normal business transactions, it’s expected that the quantity paid in the invoice is the quantity delivered. If there is any shortfall it is expected that the buyer could be refunded the amount equivalent to the shortfall. However in practice, the seller usually supply excess of the product in the next consignment but decrease the price by the amount equivalent to what was not delivered earlier. In a way the supplier was granted a credit in the current transaction.
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With regard to the treatment of credits in respect of earlier transactions, Advisory Opinion 8.1 of the Technical Committee on Customs Valuation states that the amount of the credit represents an amount that has already been paid to the seller and is therefore part of the price actually paid or payable.
The decision on whether or not to apply the credit to the previous shipment must be taken independently of the shipment being valued. Any adjustment made to the value of the previous shipment will depend on national legislation.
Example:Importer I receives a shipment of televisions at an invoiced price of 10,000 c.u. However, the invoice mentions a credit of 1,000 c.u. which brings the final invoice price down to 9,000 c.u. The importer informs Customs that the credit was granted because 10 of the television sets in the previous shipment were damaged. The seller therefore granted a credit on the present shipment to compensate for the losses. Can this credit be applied to the shipment currently being valued?
Ilustration No 9
Answer: No. The credit is part of the PAPP for the shipment being valued. This shipment is therefore valued at 10,000 c.u.. The credit may or may not be allowed for the earlier shipment, depending on the appropriate national legislation.
2.6 Other factors that can affect the price 2.6.1 Case of a price below market price: “Advisory Opinion 2.1” states that the mere fact that a price is lower than prevailing market prices for identical goods should not cause that price to be rejected for purposes of Article 1.
2.6.2 Goods subject to export subsidies or bounties This is not a case for rejecting the transaction value, or, a cost element to be added under Article 8, or, an amount to be added to the price as it has not been paid by the buyer to or for the benefit of the seller (Commentary 2.1).
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2.6.3 Goods sold at dumped prices Goods sold at dumped prices are treated based on Article VI of the GATT 1994 on anti-dumping. In addition, there are national laws and procedures regarding dumped goods in importing countries. This must remain totally separate from the valuation procedures. Thus, the fact that a good is sold at a dumped price to an importer is not a reason for rejecting the transaction value (Commentary 3.1).
2.6.4 Goods not in accordance with the contractA special situation arises when the imported goods arrive and they are not in accordance with the contract or the sale. This would include, among others, the following (Explanatory Note 3.1):a) Goods which are partially or completely damagedb) Goods which do not conform to sample or specificationc) Replacement goods to cover losses described in situations (a) and (b) above
Where imported goods that do not conform to the contract specifications of the transaction, are delivered to the importer, but, the importer agrees to take delivery of the goods, the exporter may fix a new price to be paid for the goods actually received. The price would then be the basis for determining the customs value under Article 1. Where the importer does not take delivery of the goods however, they may be re-exported or, abandoned, in accordance with the national customs law.
Damaged goodsThe specific Customs treatment for the handling of damaged or defective goods is a matter resolved through national legislation. However, these types of goods may still require valuation and as such, would be subject to the Agreement. The valuation of damaged goods would be as follows :a) Total shipment - If all of the goods in the shipment are damaged, transaction value
would not apply because the PAPP would not cover goods in a damaged condition.b) Partial shipment - if only a part of the shipment is damaged, transaction value can
be used for that portion not damaged and alternate basis for that portion which is damaged.
Goods not meeting specificationIf either the wrong goods were shipped, or the goods that were shipped do not meet specification, it is still possible to have a transaction value. If the transaction otherwise meets the criteria of Article 1, then transaction value applies.
ReplacementsItems included in a shipment which are to replace goods in a previous shipment, will be valued at full transaction value whether they are invoiced at full price or invoiced “free of charge.”
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However, where it is a trade practice for sellers to include in their shipments a quantity of articles free of charge as replacements for articles which experience shows are likely to be defective or damaged, the sales price should be regarded as covering the total quantity shipped. Therefore, you should not attempt to separately value the free replacements or take account of the additional quantity for valuation purposes.
2.6.5 Split shipments “Split shipments” refers to goods which, though forming the subject of one transaction between a buyer and a seller, are not presented for clearance in a single shipment for reasons connected with delivery, transportation, payment or the like and are imported in partial or successive shipments and declared, either through the same Customs office or through different Customs offices.Cases of goods being imported in split shipments will fall into one of the following three categories: (Commentary 6.1)
2.6.5.1 Splitting up of industrial installations or plantsThis type of case concerns the importation of certain groups of goods and whole installations which, on account of their size, have to be imported in several shipments.The customs value of each shipment will be based on the PAPP, i.e., an appropriate proportion of the total payment made or to be made by the buyer to or for the benefit of the seller for the imported goods, as reflected in the transaction agreed by the parties. If the partial shipment has been the subject of a separate invoice, it will be necessary to add to invoice price any adjustments determined under Article 8. If the partial shipment has not been the subject of a separate invoice, in determining the customs value, apportionment of the total value of the transaction could be made in a reasonable manner appropriate to the circumstances and in accordance with generally accepted accounting principles.
2.6.5.2 Shipments split for reasons of quantityAn example of this situation could be that the transaction involves a quantity of goods consisting of identical units or sets sold at an agreed price. The delivery dates may have been fixed in advance or left to the convenience of the parties.Since for the purposes of applying Article 1 neither the time at which the sale contract was concluded nor market fluctuations after the date when the contract was concluded have to be taken into account, the determination of the customs value of the goods will be based on the PAPP.
However, if importations in split shipments do not occur within a reasonable time reflecting the normal commercial practice in the trade concerned, the Customs administration may consider it necessary to make enquiries concerning the price actually paid or payable, verifying especially whether there is a complementary agreement which modifies the original price.
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The Interpretative Note to Article 1.1(b) cites as an example of such a condition, the case where the seller establishes the price of the imported goods on condition that the buyer also acquires a certain quantity of other goods, and therefore lays down a principle relating to other goods, not to the same goods involved in a single transaction.
2.6.5.3 Shipments split for reasons of geographical distributionThis situation is in fact a normal practice in international trade. The buyer agrees to buy from a seller in a single transaction a quantity of goods to be sent in separate shipments to two or more ports of one country of importation or, two or more countries of importation. The customs value of the transaction has to be determined under Article 1 on the basis of the PAPP. The transaction value method can therefore be applied to split shipments, provided the requirements of Article 1 can be met.
2.7 Conditions for use of Transaction Value2.7.1 Conditions under Article 1The transaction value will, however, only be acceptable as the Customs value of the imported goods, if the four conditions set out in paragraph 1 to Article 1 are fulfilled. These four conditions are as follows:(a) that there are no restrictions as to the disposition or use of the goods by the buyer
other than restrictions which: (i) are imposed or required by law or by the public authorities in the country of
importation; (ii) limit the geographical area in which the goods may be resold; (iii) do not substantially affect the value of the goods.
(b) that the sale or price is not subject to some condition or consideration for which a value cannot be determined with respect to the goods being valued;
(c) that 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 an appropriate adjustment can be made in accordance with the provisions of Article 8; and
(d) that the buyer and seller are not related, or where the buyer and seller are related, that the transaction value is acceptable for customs purposes under the provisions of paragraph 2 of Article 1.
In determining whether the transaction value is acceptable the fact that the buyer and the seller are related within the meaning of Article 15 shall not in itself be grounds for regarding the transaction value as unacceptable. In such case the circumstances surrounding the sale shall be examined and the transaction value shall be accepted provided that the relationship did not influence the price.
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If, in the light of information provided by the importer or otherwise, the Customs administration has grounds for considering that the relationship influenced the price, it shall communicate its grounds to the importer and the importer shall be given a reasonable opportunity to respond. If the importer so requests, the communication of the grounds shall be in writing (Article 1 (2) a) .
In a sale between related persons, the transaction value shall be accepted and the goods valued in accordance with the provisions of Article 1 whenever the importer demonstrates that such value closely approximates to one of the following occurring at or about the same time:
(i) the transaction value in sales to unrelated buyers of identical or similar goods for export to the same country of importation;
(ii) the customs value of identical or similar goods as determined under the provisions of Article 5;
(iii) the customs value of identical or similar goods as determined under the provisions of Article 6;
In applying the foregoing tests, due account shall be taken of demonstrated differences in commercial levels, quantity levels, the elements enumerated in Article 8 and costs incurred by the seller in sales in which the seller and the buyer are not related.
The tests set forth in Article 1 paragraph 2 (b) are to be used at the initiative of the importer and only for comparison purposes. Substitute values may not be established under the provisions of Article 1 paragraph 2 (b).
2.7.2 Practical examples in each conditionIn order to have a clear understanding of the situation, we will now examine each of these conditions.
FIRST CONDITIONThe transaction value does not permit restrictions as to the disposition or use of the goods by the buyer. As a practical matter, where the purchaser is restricted as to the disposition or use of the goods, the price of those goods may well reflect the restriction. Where such a restriction does exist, it would require the rejection of transaction value.
EXAMPLEWhere the buyer is precluded from reselling the goods, that would be a restriction causing the rejection of transaction value.
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Where a machine is sold at a nominal price on the condition that the importer must use it only for charitable purposes, which would be a restriction causing the rejection of transaction value.
There are, however, three exceptions to this rule. It would permit those restrictions which: a) Are imposed or required by law or by the public authorities in the country of importation.
Examples of exceptionsi) requirement to obtain a license or permit prior to any resale or use;ii) requirement for certain types of labeling or packaging;iii) requirement for testing or inspection before release;
b) Limit the geographical area in which the goods may be resold.
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50 Fax machines for $100 each + 10 Photocopiers for $1000 each
•
•the value of the fax machines.
4
EXAMPLEWhere the seller imposes a territorial restriction, such as regional distributorships, requiring resale only in a given area (e.g., country, region, province, county, etc.)
c) Do not substantially affect the value of the goodsIn regards to this situation, there is no precise definition or amount for the term “substantially.” It must be decided on a case by case basis. In that regard, you may wish to consider the following:
i) the nature of the restrictionii) the nature of the goodsiii) the nature of the industry and its practicesiv) whether the monetary effect is commercially significant
EXAMPLEWhere the seller requires the buyer of automobiles not to sell or exhibit the automobiles prior to a fixed date which represents the beginning of a model year. This would not be a restriction as it does not substantially affect the price. Where the seller requires that the imported product be sold to consumers exclusively through individual sales representatives who use a house-by-house sales technique. This would not be a restriction as it does not substantially affect the price. (Commentary 12.1).
SECOND CONDITION Where the sale or price is subject to some condition or consideration for which a value cannot be determined with respect to the imported goods.The above situation is further explained in paragraph 1(b) of the Interpretative Notes through the following three situations:
i) The seller establishes the price of the imported goods on condition that the buyer will also buy other goods in specified quantities.
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EXAMPLEManufacturer F in country of export E sells leather goods to buyer X in country I of import at a unit price of 50 c.u. on the condition that X also purchases a shipment of shoes at a unit price of 30 c.u.
ii) The price of the imported goods is dependent upon the price or prices at which the buyer of the imported goods sells other goods to the seller of the imported goods.
EXAMPLEManufacturer F in country of export E has an agreement with importer X in country of import I to supply specialized equipment designed by F at a unit price of 10,000 c.u. on condition that importer X supplies F with certain relays at a unit price of 150 c.u.
iii) The price is established on the basis of a form of payment extraneous to the imported goods, such as where the imported goods are semi-finished goods which have been provided by the seller on condition that he will receive a specified quantity of the finished goods.
EXAMPLEImporter I buys lumber from a foreign seller. He uses the lumber to produce a desk. The price at which he buys the lumber is predicated on the buyer sending a certain number of finished desks to the seller.
THIRD CONDITIONThat no part of the proceeds of any subsequent resale, disposal or use of the imported goods by the buyer will accrue directly or indirectly to the seller unless an appropriate adjustment can be made in accordance with the provisions of Article 8.
EXAMPLEImporter A in country Y imports 4000 pieces of hydraulic pumps from seller/exporter B in country X at 500 c.u. per piece. On examining the contract between the buyer and the seller it discovered that buyer has to remit 2% of the proceeds to seller B for each unit sold.
FOURTH CONDITIONThe buyer and seller are not related, or where the buyer and seller are related, that the transaction value is acceptable for Customs purposes under the provisions of paragraph 2 of Article 1.
EXAMPLEBuyer A in country Y imports 5000 television sets from seller B in country X for 200 c.u.
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each. On examining previous importations by other buyers who bought same quantities from the same seller on or about the same time. It was found that the price payable was 350 c.u. per piece. On examining the documents of the buyer it was found that buyer A holds 10% of the outstanding voting stock in seller B’s company. 2.8 CASE STUDY
1. Importer/buyer A in country Y purchased an industrial machine which is highly specialized and incorporated advanced technology from exporter/seller B in country X and imported it into Y.
2. The industrial machine was imported into country Y on 25 April 2012.3. The commercial invoice shows the following information:
➢ Industrial machine CIF US $ 30,000 ➢ Advance payment US $ 5,000➢ Discount US $ 500 ➢ Early shipment bonus US $ 600 ➢ TOTAL US $ 25,100
4. Accounting record of A and the document issued by a bank show that A made the advance payment of US$ 5,000 to B on 20 march 2012.
5. The contract of sale was concluded on 20 January 2012. The contract included the following information (1) to (4), and importer/buyer A provided additional information (5) and (6):
(1) The contract price of the industrial machine is US$ 30,000 (CIF), which has to be paid within 30 days after the shipment.
(2) If an advance payment of 10% of the contract price or more is made before the end of March 2012, the price of the machine is discounted by 10% of the amount of such advance payment.
(3) The industrial machine is to be shipped to A before the end of June 2012.(4) In addition to the payment of the contract price, A will pay B the amount equivalent
to 2% of the contract price, if the industrial machine is shipped to A before the end of April 2012.
(5) A indicated at the time of customs clearance that A has paid the cost according to the invoice.
(6) There is no relationship within the meaning of Article 15.4 of the Agreement between A and B.
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QUESTION How do you determine the customs value of the industrial machine?
SOLUTION: CASE 1Contract price = CIF USD $ 30,000 Advance payment = USD $ 5,000
Advance payment was made before end of MarchDiscount = 10% of advance payment = 10% of USD $ 5000 = USD $ 500
Goods Shipped before end of AprilEarly shipment bonus = 2% of contract price = 2% of USD $ 30,000CIF = USD $ 600
PAPP = Contract price – discount + Early shipment bonus
We add early shipment bonus because it was agreed in the contract that if the machine will be shipped early before April, the cost of the machine will be added by 2% of the total contract price. Since the bonus benefitted the seller it should be added to PAPP. Then the total cost paid/incurred by the importer to the exporter in acquiring the good will be the contract price plus Early shipment bonus.
We also subtracted discount USD $ 500, since it was agreed in the contract if the importer will meet the condition and pay advance before end of March the total cost will be discounted by 10% of the amount paid.The payment was made on 20 March, 2009.Therefore,
CUSTOMS VALUE = CIF USD $ 30,000+USD $ 600 – USD $ 500 = USD $ 30,100
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CHAPTER 3
3.0 ADJUSTMENTS UNDER ARTICLE 8 OF THE AGREEMENT ON CUSTOMS VALUATION
Objectives By the end of this chapter you should be able to;(a) Define adjustments under Article 8(b) Categorize adjustments under Article 8(c) Explain treatments of adjustments under Article 8.1(d) Explain the provisions of Article 8.2(e) State the requirements of Article 8.3(f) State the requirements of Article 8.4 Content(a) Introduction(b) Definition of Adjustments(c) Categories of Adjustments(d) Compulsory Adjustments Article 8.1(e) Optional Adjustments Article 8.2(f) Additions to PAPP Article 8.3(g) No additions to PAPP Article 8.4
3.1 IntroductionThe general introductory commentary to the Agreement indicates that Article 1 is to be read together with Article 8 (paragraph 9 of the 4th schedule of EACCMA). Article 8 provides for adjustment to the price actually paid or payable (PAPP) where certain specific elements which are considered to form part of customs value are incurred by the buyer but are not included in the PAPP for the imported goods. This chapter deals with cost elements other than the PAPP that may be included or excluded from the customs value. The chapter, therefore, considers compulsory and optional inclusions and exclusions to the PAPP.
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3.4 Compulsory Adjustments Article 8.1 provides that in determining the customs value under the provisions of Article 1, there shall be costs added to the price actually paid or payable for the imported goods, where they are incurred by the buyer but are not included in the price actually paid or payable. Therefore, Compulsory Adjustments are those costs which must be added to the price actually paid or payable to the extent that they have been incurred by the buyer and have not been included. Compulsory adjustments are provided for under Article 8.1(a) as follows;
3.4.1 Commissions and PackingArticle 8.1(a) provides for additions of the following elements;
i) Commissions and brokerage, except buying commissionsii) Cost of containersiii) Cost of packing whether for labour or materials
3.4.2 Commissions, Brokerage except Buying Commissions The provisions of the Agreement are clear on the principle of the treatment of commissions for Customs valuation purposes and depends upon the exact nature of services rendered by the intermediaries (Agents). (Explanatory Note 2.1, Commentary 17.1)
Intermediaries (Agents) include :
a) Buying Agents (buying Commissions) b) Selling Agents (Selling Commissions) c) Independent Agents or Brokers (Brokerage fee)
Article 8.1 (a)(i) tells us that commissions are to be added to the PAPP when incurred by the buyer and not already included in the PAPP except buying commissions. Buying and selling commissions must be distinguished. The agent’s fee is called a commission and is often expressed as a percentage of the total price of the goods. Agents who work on behalf of the buyer are called buying agents and those who work for the seller are called selling agents. Their fees are referred to respectively as buying and selling commissions.
a) Buying Agent A buying agent represents the buyer. Buying commission is the fees paid by an importer to his agent for the service of representing him abroad in the purchase of goods being valued. The role of the buying agent is as listed below;
• Represents the Buyer• Finds Suppliers for the goods wanted by the buyer
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• Obtains samples from the Suppliers for the buyer’s inspection• Assists in arranging for insurance, transport and delivery of goods• Assists the buyer in negotiating the lowest prices• Expresses the needs of the buyer to the seller• Helps prepare documents for the purchased goods• Consolidates shipments from different sellers
Illustration showing the role of the buying agent
b) Selling Agent A selling agent represents the seller. Selling commission is the fees paid by the seller to his agent for the service of representing him in the sale of the goods being valued. The role of the selling agent is as listed below;
• Represents the Seller• Finds customers (Buyers) for the seller’s goods• Maintaining samples and showing them to prospective buyers• Assisting in arranging for insurance, transport and storage• Negotiates highest prices on behalf of the seller• Separate shipments for different buyers• Assisting in preparation of export documents and invoices
Buying Agent
Buyer
Supplier
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Illustration showing the role of the selling agent
c) Independent Agent (Broker) The term “broker” refers to an intermediary who does not act on his/her own account. The broker can act for both buyer and seller and can arrange to put both parties in touch with each other. His/her fee is known as a brokerage. In order to determine whether a brokerage should be added to the PAPP, it is necessary to look at what services were provided in return for the fee. If those services match those provided by a selling agent then they are to be added. If they match the services provided by a buying agent then they will not be added. In some cases it may be determined that the brokerage fee is partly incurred by the buyer (representing a buying commission) and partly by the seller (representing a selling commission). The seller’s portion will be included in the PAPP but buyer’s portion should not be included in the PAPP.
The role of the independent agent/broker is as listed below;• Acts for both the Buyer and the Seller• Connects both parties to the transaction• Specializes in certain types of goods• Finds buyers for his goods• Negotiates his own terms of sale• Confirms all sales• Arranges for the shipping of the goods
Supporting Documentary Evidence The treatment of commissions and brokerage for Customs valuation purposes depends upon the exact nature of the services provided by the intermediary. If the intermediary is
Selling Agent
Buyer
Supplier
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acting on his/her own account and/or if they have a proprietary interest in the goods, they cannot be considered to be a buying agent.The nature of services rendered by agents and brokers are often not apparent from the commercial documents presented with the Customs declaration. It may therefore be necessary to look at further documentation to establish the precise nature of a particular payment and determine whether it is to be included in the customs value under this provision.
In cases of doubt, further evidence may be requested, for example: • The seller’s contract of sale showing the price of the goods. This may make reference
to the involvement of a selling agent;• The contract between the buyer and his/her agent; • Letters of credit;• Purchase orders;• General correspondences
Where an agency relationship cannot be confirmed, Customs may conclude that the fees paid do not represent a buying commission and that the amount in question should be included in the customs value.It is important to be aware of the possibility that a payment may be incorrectly declared as a buying commission in order to reduce the customs value. A buying commission is normally separately identified from the PAPP for the goods, either on the commercial invoice or on a separate commission invoice. If it is not, it cannot be excluded from the customs value.
In some cases, it may be appropriate to ask whether the so-called buying agent assumes any risk or performs additional services not normally carried out by a buying agent. For example, where the party concerned uses his/her own funds for the payment of the imported goods he/she is taking a commercial risk, i.e., may sustain a loss or make a profit from the transaction rather than simply receiving an agreed fee for services. In this situation, all the circumstances of the agency agreement should be examined to verify the statements made.
If the agent is related to the seller or to a person related to the seller, despite the existence of an agency contract, you must examine all the circumstances to determine whether the agent is, in fact, acting on his/her own account. In some transactions the agent may re-invoice the importer, distinguishing the price of the goods and his/her fee. The mere act of re-invoicing does not make him/her the seller of the goods. However, since the price paid to the supplier for the imported goods is the basis for the transaction value under the Agreement, Customs may require the declarant to produce the invoice issued by the supplier and any other document to substantiate the declared value.
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3.4.3. Cost of container and packingArticle 8.1(a), (ii) and (iii) provides for the addition of the cost of the containers ,which are treated as being one for customs purposes with the goods being valued, and cost of packing whether for labour or materials. All costs incurred by the buyer for the container and packing will be added to the PAPP to the extent that they are not already included. These additions must be the actual costs.
In referring to “containers”, the Agreement is not referring to the commercial shipping containers commonly used for long distance transport. Container refers to, packaging and labeling used to store and transport products e.g. exterior packing, such as cartons, boxes, bottles, cans, etc.
Types of containersThere are two types of containers;Re-usable and Non Re-usable
(a) Re-usableThe only containers, which do not form part of the goods and whose costs would not form part of the customs value of imported goods, and under national legislation are required to be separately declared in their own right.
These containers could be those of domestic (importing country) origin or, those that receive special tariff treatment under General Rules for the Interpretation of the Harmonized System such as :
(i) Containers which give the whole its essential character;(ii) Usual type of shipping or packing containers which are capable of re-use;(iii) Containers imported empty.
Generally, the application of Article 8.1(a)(ii) and (iii) is straightforward but decision-makers must remember, that when in doubt, to seek further objective and quantifiable data on which to base their valuation decision.
(b) Non Re-usableNon re-usable containers are used for :Protection, handling in transit, and “retail” packing. They are however for the purposes of classification under the Harmonized System, taken to be as one with the goods and classified under the same heading with the goods. That is, for example, as perfumery or as a wristwatch.
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For the purposes of taking into account all costs relating to the provision of packing and containers, such types are various and include:(a) Interior packing boxes and cartons (referred to as “retail” packing such as bags,
boxes, blister packs, plastic wrappers, cardboard boxes, etc.);(b) Exterior packing boxes and cartons (also referred to as “export” packing and may
include cardboard boxes, wooden crates, metal boxes, etc.); (c) Packing materials (such as cardboard inserts, bubble wrap, hay, straw, shredded
paper, foam chips, etc.);(d) Labour costs involved in placing and securing the goods in their containers (such as
packing and sealing the boxes or cartons, coopering, vacuum packing, environmental conditioning, placing on hangers or racks, etc.)
3.4.4 AssistsAssists may be defined as the goods and services supplied directly or indirectly by the buyer, for free of charge or at reduced cost to the seller or a producer for use in connection with the production and sale for export of the imported goods (Article 8.1(b)). Categories of Assists are as follows;
a) Materials, components, parts and similar items incorporated in the imported goods e.g. raw materials, finished components;
b) Tools, dies, moulds and similar items used in the production of the imported goods
e.g. hand held drill;
BAGSBOXESBLISTER PACKSCARDBOARD BOX
RETAIL
CARDBOARD BOXCRATESPALLETSMETAL BOXESDRUMS
EXPORT
CARDBOARDBUBBLE PACKSHAYSTRAWSTYROFOAM CHIPSSHREDDED PAPER
MATERIALS
SEALING BOXESCOOPERINGVACUUM PACKINGPUT ON RACKSENV. CONDITIONING
LABOR
EXAMPLES OFPACKING COSTS
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c) Materials consumed in the production of the imported goods e.g. fuel, chemicals;
d) Engineering, development, artwork, design work & plans and sketches undertaken elsewhere other than in the country of importation and necessary for the production of the imported goods.
Valuation of AssistsThe cost of Assists should only be added to the value if :
i) not already included in the PAPP,ii) supplied by the Buyer either free of charge or at reduced cost,iii) supplied directly or indirectly by the Buyer to the Seller,iv) for use in the production and sale for export of imported goods.
Illustration on Valuation of Assists
Valuation of “Assists”Once it has been established that a cost element falls within Article 8.1(b) and will therefore be added to the PAPP, it must then be valued. This value may also be apportioned, as appropriate, to the imported good if :
a) the assist has been acquired by the importer from a seller who is not related to him/her, the cost of acquisition is to be taken into consideration.
b) the assist was produced by the importer or by a related person or, if it was bought from a related person, the cost of production is to be taken into consideration. It should be possible to establish this cost from the records of the importer. The amount to be taken into consideration is limited to the costs of development and manufacturing, plus a share of the overhead costs, but excluding all elements relating to profit.
NOT INCLUDED
In PAPP
SUPPLIED BY
BUYER
FREE OF CHARGE OR AT REDUCED
COST
USED IN
PRODUCTION
ADD IF
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Additional points:The value of the assist includes transport costs to the manufacturing site as well as non-reimbursed duties and taxes if :
• the assist has already been used by the buyer, the initial cost of acquisition or of its production must be adjusted downwards to take this use into account when valuing the assist.
• the assist has been repaired or modified by the buyer, its value must take into account the cost of repairing or modifying it.
• the assist has been leased, the addition would be the cost of the lease.
• the assist consists of engineering work, development, design work, plans or sketches, it is possible to value them by consulting the buyer’s commercial records.
• the engineering work, development, design work, plans or sketches are available in the public domain, then only the cost of obtaining copies is to be taken into consideration.
• the assist is only partly used for the manufacture of the imported goods, that level of use is taken into account. For instance, if design centre is located outside the country of importation and if the company attributes all the costs of this centre to its overhead expenses without allocation to specific products, then the total cost of the design centre are apportioned over the entire production benefiting from these services. The costs are apportioned to the price of the imported goods and are adjusted according to the number of units produced.
Consider the inter-relationship between the elements referred to in Article 8.1(b)(ii)– mould set and those in Article 8.1(b)(iv). When engineering, development and design work are included in the value of the assists referred to in Article 8.1(b)(ii), tools, dies, moulds and similar items, each category must stand on its own. Thus, the value of the cost elements mentioned in Article 8.1(b)(ii) includes the value of the design work, development work, etc., even if this works was carried out in the country of importation, because it forms part of the cost of the acquisition or production of these elements. Methods of apportioning the value of the assist to the PAPP for the imported goodsUsually, the apportioning method used is the one requested by the importer and agreed to by Customs. Thus, the value of the assist may be:
• Applied entirely to the first shipment if the importer wishes to pay duty on the entire value at one time;
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• Apportioned over the number of units produced up to the time of the first shipment;
• Apportioned over the entire anticipated production where contracts or firm commitments exist for that production;
• Apportioned over the assists years of useful life.
ExampleCompany I, in the country of importation, sells high fashion men’s garments to retailers. All garments are imported from one overseas supplier X. X manufactures the garments using paper patterns supplied free of charge by L on behalf of I. L, which is located in a third country, specializes in designing high fashion men’s garments. Company I has a license agreement with L under which I is granted an exclusive license to use the paper patterns produced by L and to distribute garments incorporating L’s designs in the country of importation. In return, I pays L a license fee based on the turnover it achieves on the sales of the garments.
Question: How will you determine the customs value?
Ilustration No 10
Answer: Customs administrations must determine the exact nature of the license fee in order to establish whether or not it forms part of the customs value of the imported garments. If the facts show that the payment referred to as a license fee relates to an element of Article 8.1 (b) (an assist), then Article 8.1 (b) would apply. Otherwise, Customs should examine whether the payment satisfies the conditions laid down in Article 8.1 (c) (royalties). The paper patterns perform a similar function to a mould or die. The buyer sends the paper patterns free of charge through the licensor L and they are used in the production and sale for export of the imported goods. These patterns therefore constitute an assist under
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Article 8.1 (b) (ii) and their value, which also includes the cost of the designs, should be added to the PAPP for the imported goods. As I and L are not related, the value of the paper patterns would be I’s cost to acquire the patterns from L. I acquired the patterns through the license agreement with L and the cost of acquisition of the patterns is therefore the amount of the license fee to be paid. Given that the license fee is to be added to the PAPP of the imported garments under the terms of Article 8.1 (b), it is not necessary to consider its possible addition to the price actually paid or payable under the terms of Article 8.1 (c). (Ref: Case Study 8.1)
Example I imported multiple copies of a video laser disc purchased from X. The discs, which incorporated a selection of copyright music video clips, were manufactured by X in the country of exportation.
I obtained the right to use the music video clips incorporated on the discs under a separate license agreement with L in a third country. In return, I must pay a license fee to L. In accordance with its license agreement with I, L compiled a master tape of the selection of music video clips to be incorporated in the discs. I then supplied the master tape to X free of charge. Each disc is an identical reproduction of the master tape and X would not have been able to manufacture the discs without the master tape.
Question : How do you determine the customs value ?
Ilustration No 11
Answer : The compilation is part of the design and development phase for the imported video laser discs. As design and development was undertaken elsewhere other than in the country of importation, it is to be added to the PAPP for the merchandise pursuant to Article 8.1(b)(iv). The value of the assist is the license fee as this was the cost to I of obtaining the music video clips and master tape.Given that the license fee is to be included in the customs value of the imported discs
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under the terms of Article 8.1(b)(iv), it is not necessary to consider its possible addition to the PAPP under the terms of Article 8.1(c).
In certain cases, the assist supplied by the buyer has been leased by the buyer. The value to be included will be the cost of the lease. (Ref: Case Study 8.2)
Example Company I in the country of importation imports shirts made to order by company F located in a foreign country, using materials provided by company I.
The contract states that company I must provide the materials to company F at 40% of their cost of acquisition.
The invoice F sends to I states an amount for manufacture and supply of shirts. The amount should be verified as required.
The value of the materials therefore, for the purposes of Article 8.1(b)(i), is their total cost. It follows that part of the cost not included in the PAPP of the imported goods represents 60% of the total cost of the assist.
Consequently, that part of the cost of the assist which is to be incorporated in the customs value of the shirts is 60% as 40% is already included.
Ilustration No 12
Example : Apportioning the value of the assist to the imported goods A buyer provides the Producer with a mould to be used in the production of the goods to be imported and contracts with the producer to buy10,000 units. By the time of arrival of the first shipment of 1,000 units, the producer has already produced 4,000 units.
The buyer may request the Customs authorities to apportion the value of the mould over 1,000, 4,000 or 10,000 units.
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Illustration on apportionment
Ilustration No 13
Example : Company I in the country of importation presents for Customs clearance armoured vehicles, which were the subject of an armouring operation by Company A in the country of export X. The basic unarmoured vehicles were purchased by Company I from Manufacturer M at a total price of 17,000,000 c.u. The basic vehicles were supplied free of charge to Company A, without them having ever been used. At the time of importation, Company I produces an invoice from A for the armouring operation for an amount of 43,000,000 c.u., and an invoice from manufacturer M for the basic vehicles invoicing Company I for an amount of 17,000,000 c.u.
Question : What is the transaction value ?
Ilustration No 14
(Country of Impotation)( Country of Exportation)
(Country of Manufacture)
COMPANY A
MANUFACTURER M
INV/Cargo4 3,000,000 c.u.
Payment of armouring operation 43,000,000 c.u.
Basic vehicles
COMPANY I
INV. 17,000,000 c.u.INV. 17,000,000 c.u.
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Answer : Because Company A is providing armouring services, not selling armoured vehicles, the term sale as it applies to the transaction between I and A, will be regarded in its widest sense as a sale of goods. In this case the cost of the basic vehicles should be added to the PAPP for the armouring operation. Thus, the transaction value of the armoured vehicles is 60,000,000 c.u. plus other deductions as required.
3.4.5 Royalties and License feesArticle 8.1(c) of the Agreement requires that, when determining the customs value under the provisions of Article 1, there shall be added to the PAPP for the imported good: “royalties and license fees related to the goods being valued that the buyer must pay, either directly or indirectly, as a condition of sale of the goods being valued to the extent that such royalties and license fees are not included in the price actually paid or payable”.
The Agreement does not provide specific definitions for the terms “royalty” or “license fees”. In general however, the most accepted meaning is that they represent the cost of the right to use, produce or sell a licensed product. In fact, there are various kinds of intangible rights, including “names” and ideas/concepts, and, it is the payment for those associated “rights” which relate to the manufacture, sale, use or resale of imported goods, that may be captured as under Article 8.1(c). The Collins Dictionary and Thesaurus (1991) defines “royalty” as “a percentage of the revenue from the sale of a book, performance of a theatrical work, use of a patented invention … paid to the author, inventor …”
Valuation of Royalty or License feesThe Agreement imposes certain requirements on whether a royalty will form part of the customs value. Article 8.1(c) requires that the royalty covers payments made for the right to use, produce or sell a given product.
These charges are Added to the PAPP if they are; i) Related to the goods being valued ii) A condition of saleiii) Not already included in the PAPP
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Illustration for inclusion of royalties and license fees
Must be related to the goods being valued. That is, the royalty or license fee must relate directly to the imported goods, either because the goods have a trademark or copyright applied to them or, they may contain a patented process or, because of some other protected right.
Must be a condition of sale and paid directly or indirectly by the buyer. That is, the purchase of the imported goods must require the payment of a royalty or license fee, or, the buyer must pay a royalty or license fee in order to receive the goods. The royalty payment may be paid to a third party but, the payment must still be a condition of the sale of the goods.
Is not already included in the PAPP.If the royalty payment is included in the PAPP, it will not be added again under Article 8.1(c). In fact, if the royalty payment already forms part of the “price” negotiated between the buyer and seller, Article 8 will not have to be considered at all in regard to royalties/license fees.
If it is established that some form of royalty or license fee is a consideration in regard to the imported goods, the Customs administration must satisfy itself as to the correct valuation treatment. That is, will it form part of the customs value or not.
The Interpretative Note to Article 8.1(c) provides additional guidelines in respect to the treatment of royalties and license fees under the Agreement. All decisions made regarding the valuation treatment of royalties/licence fees, must be based on objective and quantifiable data.
Royalties and license fees may include, among other things, payments in respect to patents, trademarks and copyrights; also charges for the right to reproduce the imported goods in
RELATED TO THE GOODS
IMPORTED
CONDITION
OF
SALE
NOT
ALREADY
INCLUDED
ADD IF
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the country of importation shall not be added to the price actually paid or payable (Note to Article 8 paragraph 1(c)1).
Payments made by the buyer for the right to distribute or resell the goods will not be added to the PAPP provided that these payments are not a condition of the sale for export to the country of importation of the imported goods. (Note to Article 8 paragraph 1(c)2).However, where the price actually paid or payable already includes a royalty/license fee amount, there is no provision under the Agreement to deduct that amount. The legal deductions contained in the Interpretative Note to Article 1, paragraph 3, are specifically instructive on those deductions that can be made.
Rights associated with royalties and licence feesCategories of Royalty or License fees
i) Patents ii) Trademarksiii) Copyrights
With regard to the type of properties/rights to which royalties/license fees do relate, the three types noted in sub-paragraph 1 of the Interpretative Note to Article 8.1(c) are worth looking at:
A Patent A patent is a document or testimony, issued by a relevant government office, which describes an “invention” and authenticates that “invention” through legal registration making it illegal for anyone to then duplicate or exploit the registered patent which is the registered property of the patentee. It can only be used with the express approval of the patentee, which in effect, is a reserved right. Therefore, patent is an invention, a novel idea which results from an inventive activity and is capable of industrial application.
TrademarkA trademark is a marketing device which is generally in the form of a particular sign or “logo” which is affixed to imported goods that conveys an inherent quality and reputation statement. Normally, protection of a trademark requires the trade mark to be registered with the appropriate government authority. The registration is taken out to protect the holder’s rights and to be able to prosecute others who might copy the mark.
A trade mark is not only a business’s main brand name but also can be its Business name, Product names, Sub brands, Logos and Symbols, Colours.
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Copyright A copyright is a reserved right which protects the holder from unauthorized use of his/her work (usually artistic or literary) from reproduction, copying or translation. It is the exclusive right of the author, artists, etc. This form of protection would cover examples of work such as Literary work (novels, articles, papers etc.), Artistic works (paintings, drawings, sculptures, etc.), Photography, Motion pictures, Technical drawings, etc.
Right to ReproduceParagraph 1 of the Interpretative Note to Article 8.1(c) refers to the fact that no royalty payments for the reproduction of the licensed product in the country of importation will form part of the customs value of the imported product.
For example, a new cartoon character prototype/master model is imported into the country of importation with the intention to reproduce a large number in a local manufacturing plant. There will normally be at least two levels of royalty payments in such a case. There would be a royalty consideration attached to the prototype for importation which would form part of the customs value of the imported goods.
There will normally also be some form of royalty related to the reproduction of the goods and/or on retail sales in the market place of the country of importation. The royalty payments that relate to the reproduction of the prototype in the importing country’s market place will not form part of the customs value. In the case of a commercial shipment of a number of the toys, with a royalty payable on a percentage of retail sales, if the royalty is a condition of the sale of the imported goods, and relates to the goods being valued, it will form part of the customs value of the imported goods.
Distribution RightsThe Interpretative Note also states that in regard to the valuation considerations of Article 8.1(c), that “Payments made by the buyer for the right to distribute or resell the imported goods shall not be added to the price actually paid or payable for the imported goods if such payments are not a condition of sale”. As such, careful consideration has to be made when identifying the sale. For example, are there supporting royalty/license agreements as well as the contract of sale? If so, together, do they all form conditions of the sale? The contract of sale alone and/or the commercial invoice are not always the only relevant documents. These facts must be established before any decision regarding the royalty/license fee is made.
It should be noted however that where payments for the right to distribute or resell are already included in the PAPP, there is no authority to deduct them.
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Treatment of RoyaltiesAll decisions made regarding the valuation treatment of royalties/license fees, must be based on objective and quantifiable data. Where it is determined that such data does not exist, an officer cannot make an arbitrary adjustment and, therefore, Article 1, the transaction value cannot be applied. That is, when the officer is of the opinion that a royalty is relevant to the imported goods and, the importer is unable to provide further information, if the officer remains concerned regarding the appropriateness of Article 1, the importer should be advised that the first alternative method of valuation is to be considered and the reasons attached to that decision.
Also, if the royalty payment is based partly on the imported goods and partly on other factors which do not relate to the goods as imported, it is also inappropriate to make an adjustment for the royalty on the imported goods. For example where imported goods are mixed with domestic ingredients and are no longer identifiable and where the royalty payment cannot be distinguished from the financial arrangements between the buyer and the seller.
Example An importer buys cured tobacco in order to make cigarettes. In addition to the imported tobacco, the importer purchases domestic tobacco which is blended with the imported tobacco. There are no agreed set percentages of either tobacco type in the blending process. The importer then pays a royalty based on the resale of the finished cigarettes.As the royalty is in fact relevant only to the imported tobacco and, as that tobacco had lost its identity in the finished goods, it is impossible to determine the royalty amount of the imported tobacco against the finished product. If however the royalty payment was against a certain percentage of the imported tobacco being blended with a specific percentage of local tobacco, the royalty adjustment could be determined. So, what facts must be established in order to determine whether payments are in fact royalties and whether they will form part of the customs value of the imported goods?
1. The payments must be related to the imported goods being valued, that is, the royalties/license fees must be linked with the imported goods either because they involve the right to use a trademark or copyright, or, because the goods contain a patented process or, because of some other protected right.
2. That the buyer must pay the royalty/license fee directly or indirectly as a condition
of the sale. As such, it does not matter if the royalty payment is paid to a third party (e.g., the designer/license holder), rather the fact that it is a condition of the sale.
3. It must be established that the royalty is not already included in the price actually
paid or payable.
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Identification of royalty/license fee payments can be relatively simple. In most cases, there will be a formal written agreement spelling out the rights and obligations being conferred from one party to the other. Examination of these documents will normally establish what the payment is for. A question that can help in determining the status of the royalty is, “could the goods have been imported without the payment of a royalty”? This is a good starting point. Always base royalty/license fee considerations on objective and quantifiable data. Ask questions to the importer as required, before a final decision can be made. The decision maker must be satisfied that the facts are correct and appropriate adjustments are made in order to determine transaction value.
3.4.6 Proceeds Article 8.1(d) provides that in determining the customs value under the provisions of Article 1, there shall be added to the PAPP for the imported goods, the value of any part of the proceeds of any subsequent resale, disposal or use of the imported goods that accrues directly or indirectly to the seller. Proceeds must not be confused with transfers of dividends or other such payments made by the buyer to the seller. Neither must they be confused with royalties and licence fees which are payable on the re-sale price of the imported goods. Payments falling within the definition of royalties and licence fees must be examined solely within the context of Article 8.1 (c).
Where a royalty payment has been examined and found not to form part of the customs value of the imported goods under Article 8.1(c), it cannot then be considered again under the provisions of Article 8.1(d).
The Agreement does not define the scope of Article 8.1 (d), nor does the Agreement impose any conditions on how these payments are to be taken into account in the customs value. In particular, it does not require that such payments must constitute a condition of the sale of the imported goods. The mere existence of such proceeds requires an adjustment to be made to the price actually paid or payable for the imported goods.
Sometimes at the time of importation the amount of the proceeds that accrues to the seller may be unknown, The transaction value method may not be applied. In this case, Article 13 may be applied that is, the importer may provide sufficient guarantee and the goods are released before final determination of the customs value. However, the general requirement that any addition under Article 8 must be made on the basis of objective and quantifiable data still applies.
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Example (Case Study)Corporation C of country X owns subsidiaries in different countries, all of which operate in accordance with corporate policies established by C. Some of these subsidiaries are manufacturing enterprises, others are wholesalers.Importer I in country of importation Y, a subsidiary of C is a wholesaler of men’s, women’s and children’s garments. The importer buys men’s garments from manufacturer M, another subsidiary of corporation C also located in country X and, women’s and children’s garments from unrelated manufacturers located in a third country, as well as from local manufacturers.
Situation 1:In accordance with C’s corporate policy concerning sales between its subsidiaries, goods are sold at the price negotiated between the subsidiaries. However, at the end of the year, importer I will pay to manufacturer M 5 % of the total annual resale of the men’s garments which the importer purchases from the manufacturer during that year as a further payment for the imported goods.In this case, the payment in question is a proceed of the subsequent resale of the imported goods which is paid directly to the seller by the importer and that amount is to be added to the PAPP adjustment under Article 8.1(d).
Situation 2: Importer I pays to service company A, another subsidiary of corporation C, 1 % of the importer’s gross profit realised over the total annual sales of garments purchased from all sources. The importer produces evidence that this payment is not related to the subsequent resale, use or disposal of the imported goods but is a payment made in accordance with corporate policy to reimburse A for low interest loans and other financial services A provides for all subsidiaries of corporation C. Service company A is related to the seller of the imported goods and thus the payment could be considered as an indirect payment to the seller. It is, however, payment for a financial service which is not related to the imported goods. Therefore, the payment would not be considered to be a proceed within the meaning of Article 8.1(d).
Situation 3:At the end of the financial year, importer I remits to corporation C, 75 % of the importer’s net profit realised over that year.In this case the remittance by I to corporation C cannot be considered as proceeds since it represents a flow of dividends or other payments from the buyer to the seller which do not relate to the imported goods. Therefore, in accordance with the Interpretative Note to Article 1, it will not form part of customs value of the imported goods.
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3.5 Optional AdjustmentsUnlike other adjustments required under Article 8 of the Agreement, the inclusion of the elements listed in Article 8.2 is optional. In framing its national legislation, each member state shall provide for the inclusion in or exclusion from the customs value, in whole or in part, of the following:(a) The cost of transport of the imported goods to the port or place of importation;(b) loading, unloading and handling charges associated with the transport of the imported
goods to the port or place of importation; and(c) The cost of insurance.
Illustration showing elements under Article 8.2
When they are all included in the PAPP, the level is referred to as the CIF basis of valuation, that is, the cost, insurance and freight. Where none of these costs/charges are included in the PAPP, this is known as the FOB basis of valuation, that is, free on board. a) Cost of Transport (Freight) The cost of transport includes those costs that physically move the goods from the factory of manufacture through the port of loading to the port of discharge to the country of importation. Such costs or charges include:
- inland freight (trucking), - rail freight, - ocean freight, - air freight.
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It is also important to understand the various terms of delivery used in international trade. These terms indicate the agreed responsibilities of the buyer and seller in a particular transaction in respect of the shipping arrangements and other associated charges in connection with the goods.
The terms will generally be quoted on the commercial invoice and specifically on the prescribed declaration of value form and indicate which Article 8.2 costs or charges are included in the price of the goods. That is, the level of sale/trade at which the goods have been sold.
Once the terms of delivery have been established, it is then possible to determine what impact these costs will have on the customs value of the goods.
b) Loading, Unloading and Handling ChargesThe charges referred to here are those incurred in the country of exportation.These charges would include a myriad of possibilities. Loading and unloading include costs or charges for the movement of goods to or off from any conveyance (vessel, truck or aircraft).
Handling would include any number of activities surrounding or incidental to the physical movement of the goods such as preparation of manifests, preparation of bills of lading or other waybills, obtaining any appropriate export licenses, preparation of customs documents and any other shipping arrangements.
However, all three costs or charges must be associated with the transport of the goods. Storage fees or warehouse fees which are not directly related to the transport of the goods are not included here.
Transport to the port or place of importation
NOT
buyer/Importer
Eastern African region
Mombasa
Dar es salaam
2
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Example of Loading and Unloading
c) Cost of Insurance Cost of Insurance includes costs or charges that cover any risk on the goods being transported from the place of manufacture in the country of exportation to the country of importation. Such costs or charges include:
- Land insurance, - Marine insurance, - Air insurance.
The inclusion of insurance in the customs value is limited to insurance costs incurred for the transportation, loading, unloading and handling of the goods to the place of import. Companies sometimes arrange for global or group policies to be set up rather than individual policies for each shipment. In this case, where objective and quantifiable data is not available for each individual import, the customs value cannot be determined using Article 1. Where insurance costs have been omitted from the declared value this may be because the importer has failed to advise his/her agent of the existence of such a policy. In some cases the sales contract requires the seller to procure insurance against the buyer’s risk of loss of or damage to the goods during carriage, but the buyer also decides to procure insurance. In other words, there is a ‘double’ insurance, however, in the event of loss or damage, legally only one claim can be made. Consequently, only the cost of the seller’s insurance is to be included in the customs value as that is the basis of CIF. The above situation will depend upon the terms agreed on the sales contract.
In some cases the importer may state that neither he/she nor the seller insured the goods.
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If there is evidence to support this, then it is not necessary to include an amount for insurance under Article 8.2.
Storage CostsAn area closely related to transport costs is storage costs. In the context of Article 8.2 it is necessary to consider whether or not the costs are in connection with the shipment of the goods.
Where the storage is not in connection with the shipment of the goods, Article 8.2 does not apply. Their inclusion in, or exclusion from, the PAPP will be in accordance with Article 1.
Where the storage is in connection with the shipment of the goods, then they are considered as part of the cost of transport and they will be included in or excluded from the value of the goods depending upon the treatment of Article 8.2 in national legislation.
The term “storage” does not include the cleaning, sorting or re-packing of the imported goods while in storage.
ExampleAn importer purchases goods at an ex-factory price from the seller in the country of exportation. Storage costs are incurred at the place of export pending the exportation of the goods.
In this case, the storage costs are incidental to the shipment of the goods and as such, should be regarded as charges associated with the transport of the goods. They are, therefore, to be treated in accordance with the provisions of Article 8.2(b) or, if the costs are incurred after importation, they must be treated in accordance with the Note to Article 1 which states that post importation transport costs will not be included in the customs value provided those costs are distinguished from the PAPP for the imported goods. (Commentary 7.1)
3.6 Additions to PAPPArticle 8.3 states that, “Additions to the price actually paid or payable shall be made under this Article only on the basis of objective and quantifiable data”. This means that any adjustments that are to be made under Article 8, must be based on real facts and figures. Only facts based on the presentation of precise documentary information is objective and quantifiable data.
This requirement is based on the need for uniform and transparent application of the Agreement and the elimination of level of discretion which may have been applied under previous valuation systems.
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If there is no quantifiable data available to confirm the details of the addition, an arbitrary (or notional) amount cannot be added. In this case there can be no transaction value under Article 1.
Examples of objectives and quantifiable data The Interpretative Note to Article 8.3 provides a clear example of objective and quantifiable data relating to a royalty which is paid on the price in a sale in the importing country of a litre of a particular product that was originally imported by the kilogram and made up into a solution after importation.
If the royalty is based partly on the imported goods and partly on other factors which have nothing to do with the imported goods, (such as if the imported goods are mixed with domestic ingredients making them no longer separately identifiable, or, where the royalty cannot be distinguished from the overall special financial arrangements between the buyer and the seller), it would be difficult to attempt to make an adjustment for the royalty under Article 8.
In such a case, the transaction value under Article 1 could not be determined. However, if the royalty payment is based on the imported goods and can be distinguished in the final product sold and, can be quantified as being a condition of the sale and relates to the goods being valued, then the Article 8 addition can be made.
This provision of the Agreement does not mean that the Article has to be applied so rigidly that the transaction value has to be rejected in the majority of cases involving adjustments. Rather, it is placing a requirement on decision-makers that adjustments must be made on objective and quantifiable data (not be made subjectively or on the basis of “best guess”). Relationship between Article 8.3 and Article 17The obligations under Article 8.3 relate to both the importer and Customs. Where Customs determine they have insufficient information to make a valuation decision under Article 1, Article 17 specifies they have the right to be satisfied regarding the truth or accuracy of any statement, document or declaration presented to them. As such, questions can be put to the importer regarding the need for further objective and quantifiable data to be provided in order for Customs to make a well-informed decision.
The obligation to provide that information is placed on the importer. In stating that “Nothing in the Agreement shall be construed as restricting or calling into question the rights of Customs administrations to satisfy themselves, Article 17 is firmly placing the obligation on Customs to be satisfied and on the importer to comply as required. Customs has the right to satisfy themselves that everything presented by the importer is complete and correct.
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There are a number of instruments of the Technical Committee on Customs Valuation, which reinforce the requirements of all parties under Article 17 and through its application, Article 8.3.
Decision 6.1, also reinforced the application of Article 17 of the Agreement in its “ Cases where Customs administrations have reasons to doubt the truth or accuracy of the declared value”. While emphasising that Customs administrations should not prejudice legitimate trade, the decision also recognised that Customs may have to deal with cases where there may be reason to doubt the truth or accuracy of particulars or of documents provided by importers in support of a declared value.
The Decision, inter alia, confirms that Customs has the right to verify any information relative to the customs value submitted to them. If there is a doubt regarding the truth or accuracy of such information, they may go back to the importer and request additional information. If the importer does not respond or, if further documentation is provided but Customs still has doubts, it may be deemed that the value cannot be determined under Article 1.
The Decision of the Uruguay Round also states that before making a final decision, Customs should notify the importer, in writing, regarding the reasons or grounds for doubting the truth or accuracy of the information and the importer should be given an opportunity to respond. The Decision also reinforces the provisions of Article 11 and the importers’ right of appeal.The Agreement clearly expresses the primacy of the transaction value to the greatest extent possible and therefore, the rejection of the transaction value must be clearly reasoned and defensible. Articles 8.3 and 17 cannot be used to conduct “fishing expeditions” to support a decision maker’s guess work.
3.7 No Additions to The PAPPArticle 8.4 states that “No additions shall be made to the price actually paid or payable in determining the customs value except as provided in this Article.” The only cost elements that can be added to the PAPP are those listed in Article 8 and therefore, no other additions are permitted. However, there is a need to distinguish between additions to be made to the price actually paid or payable under Article 8 and those costs which form part of the total payment made or to be made by the buyer to the seller, for example, indirect payments.
There is a clear difference between those cost elements which form the total PAPP and those to be included under Article 8. The distinction is important because if there is a cost element which is not part of the PAPP and, it is not an adjustment under Article 8, there is no authority to include it in the transaction value under Article 1.
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In conclusion, with regard to the additions to be made under Article 8, it is important to always remember that adjustments are made to the extent that they are: (a) Incurred by the buyer;(b) Not already included in the PAPP;(c) Based on objective and quantifiable data.
3.8 Case Studies
Article 8: Adjustments to the PAPP
Case study 11. Importer/Buyer A in country I purchased 10 metric ton of chemical fertilizers from
Manufacturer/Seller B in country X and imported them into I.
2. Both the commercial invoice and the contract of sale show that the price of the imported goods (10 metric ton of chemical fertilizers) is USD 3,000 (ex-factory).
3. The Letters of Credit (L/C) also shows that A paid B USD 3,000 for 10 metric ton of chemical fertilizers.
4. There is no relationship within the meaning of Article 15.4 of the CVA between A and B.
5. A negotiated and contracted with B through an agent G. On behalf of A, G also arranged two shipping contract of the goods; one is from B’s factory to the port of country X and the other is from the port of country X to in country I. G paid a transportation company USD 110 for the former shipping contract. A paid directly another transportation company USD 500 for the latter shipping contract.
6. The buying agency agreement between A and G states that G acts for the account of A, G finds suppliers at the request of A, G negotiates purchase contracts for A, G arranges shipments of the goods purchased by A, and A pays G 3 % of the contract price of the goods for services performed by G.
7. With regard to the above importation of chemical fertilizers, A paid G USD 200 by telegraphic transfer (TT).
QuestionHow do you determine the customs value of the 10 metric ton of chemical fertilizers?
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Case study 21. Importer/Buyer A in country I purchased 2,000 pieces of furniture of plastics from
Manufacturer/Seller B in country X and imported a half of them into country I. The other half was imported by A’s branch into country Y.
2. The commercial invoice shows that the unit price of the furniture is USD 10 (ex-factory) and the total price for 1,000 pieces of the furniture is USD 10,000 (ex-factory).
3. The contract of sale between A and B shows that the unit price of the furniture is USD 10 (ex-factory) and the total price for 2,000 pieces of the furniture is USD 20,000 (ex-factory). The Letters of Credit (L/C) also shows that A paid B USD 20,000 for 2,000 pieces of the furniture.
4. The contract of sale between A and B also states that A provides B with the raw material (plastics) and the design for the furniture free of charge while their costs of delivery to B are borne by B.
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5. The raw material (plastics) necessary for production of 2,000 pieces of the furniture was purchased by A from M in country Z at USD 1,000. The design for the furniture was prepared by a designer D of country Y in country I and purchased by A at 0.5 million local currency unit. The costs of delivery of the raw material (plastics) and the design to B were borne by B.
6. A, B, D and M are not related to each other within the meaning of Article 15.4 of the CVA.
Question1) How do you determine the customs value of the furniture imported by A into country
I?
2) How do you determine the customs value of the furniture imported by A’s branch into country Y?
Case study 31. Importer/Buyer A in country I purchased 1 metric ton of a spice S from Manufacturer/
Seller B in country X and imported it into country I every month during the year 2011. Accordingly, in 2011, 12 metric tons of the spice S were imported by A in total.
3
CS on adjustments #2
Importer(Buyer) A
Manufacturer(Seller) B
(Country I) (Country X)
Furniture (1,000 pcs. @USD 10 )
L/C USD 20,000 (2,000 pcs. @ USD 10 )
How do you determine the customs value of the furniture imported by A?
A’s branch
(Country Y) M
(Country Z)
Designer D
Contract of Sale (2,000 pcs. @ USD 10)
Plastics (for 2,000 pcs. of furniture)
Design for furniture
LCU 0.5 mil.
USD 1,000
Furniture (1,000 pcs. @USD 10 )
Customs Value=PAPP: USD 10,000 + Assists: USD 500 (Art. 8.1. (b) (i)) = 10,500 USD
How do you determine the customs value of the furniture imported by A’ branch?Customs Value= PAPP: USD 10,000 + Assists: USD 500 (Art. 8.1. (b) (i) + LCU 0.25 mil. (Art. 8.1 (b) (iv)) = 10,500 + 0.25 LCU
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2. For each shipment, both the commercial invoice and the contract of sale showed that the price of 1 metric ton of the spice S was USD 4,000 (ex-factory). The Letters of Credit (L/C) also showed that A paid B USD 4,000 for each shipment. Importer paid USD 3,840, which is the total amount of 2011, to the transportation company for the transport from the B’s factory to the port of importation.
3. The PCA was carried out at the office of A in September 2012. During the PCA, the Customs officers found the following facts:
(1) The spice S was one of the ingredients for a seasoning preparation P.(2) There was a licence agreement between A and B’s parent company C regarding P.(3) The licence agreement included the following: (a) C holds a patent for producing P and owns a trademark T for P. (b) A has been granted a licence to manufacture P using the patented process only in country I. In consideration for this licence, A pays C a royalty of 5 % of the net annual sales of P in country I. (c) A has been also granted a licence to sell P using the trademark T only in country I. In consideration for this licence, A pays C a royalty of 3% of the net annual
sales of P in country I.(4) The net annual sales of P by A in country I was 1.2 billion local currency unit.
Accordingly, A paid C 60 million local currency unit for the licence to manufacture P and 36 million local currency unit for the licence to sell P.
(5) The spice S could be purchased from sellers other than B and A was not obliged to purchase S from B.
4. There is no relationship within the meaning of Article 15.4 of the CVA neither between A and B nor between A and C while B is the 100% subsidiary of C.
QuestionHow do you determine the customs value of the spice S imported by A in 2011?
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Case study 41. Importer/Buyer A in country I purchased an industrial machine from Manufacturer/
Seller B in country X and imported it into country I.
2. The industrial machine was imported into country I on 1 March 2011.
3. The invoice price of the industrial machine was EUR 20,000 (ex-factory). The Letters of Credit (L/C) also showed that A paid B EUR 20,000 for the machine.
4. The Post clearance audit (PCA) was carried out at the office of A in September 2012. During the PCA, the Customs officers found the following facts:
(1) In addition to the payment of EUR 20,000 by L/C, A paid B EUR 2,000 on 10 April 2011 and 15 million local currency unit on 10 April 2012.
(2) The contract of sale of the industrial machine included the following:• The contract price of the industrial machine is EUR 20,000 (ex-factory).• After the importation of the industrial machine, B will assist A in installing it in
A’s factory and will teach A how to operate it. For these services, A will pay B EUR 2,000.
• A pays B 20% of net revenue earned from selling merchandise produced by using the industrial machine for a period of 1 year after A has started to use the machine.
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(3) B actually assisted A in installing the industrial machine in A’s factory and taught A how to operate it in March 2011.
(4) A started to produce the merchandise by using the industrial machine on 1 April 2011. Net revenue earned from selling such merchandise from April 2011 to March 2012 was 100 million local currency unit.
(5) A paid 5 million local currency unit to C in country Y in accordance with B’s instruction on 15 April 2012.
5. There is no relationship within the meaning of Article 15.4 of the CVA between A and B.
QuestionHow do you determine the customs value of the industrial machine?
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CHAPTER 4
4.0 OTHER METHODS OF VALUATION
ObjectivesAt the end of this chapter you should be able to;
- Define the terms used in other methods of valuation- State the requirements for transaction value of identical goods method- State the requirements for transaction value of similar goods method- State the requirements for deductive value method- State the requirements for computed value method- Explain the application for fallback method
Content(a) Introduction(b) Definition of terms used in other methods of valuation(c) Transaction value of identical goods method(d) Transaction value of similar goods method(e) Deductive value method(f) Computed value method(g) Fallback method
4.1 IntroductionWhere the customs value cannot be determined under Article 1 (Transaction Value Method), there should normally be a process of consultation between the customs administration and the importer with the view to arriving at the basis of value under the provision of Article 2 through 7.
4.2 Transaction value of identical goodsWhere the customs value cannot be determined under Article 1 (Transaction Value Method), there should normally be process of consultation between the customs administration and the importer with the view to arriving at the basis of value under the provision of Article 2. The value of the identical goods must be a previously accepted transaction value for goods imported at or about the same time.
DefinitionsIdentical goodsThese are goods, which are the same in all respects, including physical characteristics, quality and reputation. Minor differences in appearance shall not preclude goods otherwise conforming to the definition from being regarded as identical. The minor differences in appearance would include:
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(i) Colour(ii) Size(iii) Label(iv) Pattern
In regards to identical goods, Article 15.2(c to e) also provides further criteria in the selection of identical goods:
i. Goods will not be considered as identical if they incorporate or reflect engineering, development, artwork, design work, and plans and sketches which were undertaken in the country of importation and thus no adjustment was made under Article 8.1(b) (iv);
ii. In order to be identical, the goods must also be produced in the same country as the goods being valued;
iii. Identical goods produced by a different person shall be taken into account only where there are no identical goods produced by the same person as the goods being valued.
4.2.1 Requirements for transaction value of identical goods method(i) Goods were sold for export to the country of importation and exported at or
about the same time as the goods being valued.
(ii) Goods are generally at the same commercial level and substantially same quantity.
(iii) Where costs and charges under Article 8(2) that is cost of transport, insurance and loading, unloading and handling charges are included, appropriate adjustments should be made.
(iv) Where in comparison with existing database more than two values are found, the lowest of such values should be considered.
4.2.2 Adjustments under transaction value of identical goods method In applying Method 2, Customs administration shall wherever possible, use a sale of identical goods at the same commercial level and in substantially the same quantities as the goods being valued. Where no such sales are found, a sale of identical goods that takes place under any one of the following three conditions may be used.
(i) A sale at the same commercial level but in different quantities(ii) A sale at a different commercial level but in substantially the same quantities(iii) A sale at a different commercial level and in different quantities is exported at or about the same time as the goods being valued.
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4.2.3 Practical Example of value adjustment under identical goodsExample 1You have a shipment from supplier E at a unit price of 4 c.u, in a quantity of 1,700 pieces to a wholesaler. It is not possible to establish a transaction value under Article 1. You have records of an identical product supplied by F, at a quantity of 2,300 pieces to a wholesaler at a unit price of 4.75 c.u. You have a copy of F’s price list, which you have determined is bona fide, which shows the price varies according to the amount purchased. For purchases of under 2,000 pieces, the price is 5 c.u. while 2,000 and over brings a price of 4.75 c.u. Since there is no transaction value for the shipment from E, what is the proper value?
Illustration for example 1
Ilustration No 15
Answer5 c.u. Since the price of the identical goods does vary according to quantity purchased, and the identical goods are at a different quantity, you must make an adjustment. Using a given price list, select the price in the range appropriate to the imported goods, or the price at 2,000 pieces and over.
Example 2You have a shipment 1,700 pieces of televisions from Al Jazzer of Dubai to a wholesaler at a unit price of USD 100/pc for valuation but It is not possible to establish a transaction value under Article 1. However you have identical televisions from Dubai Co. ltd, of 1,700 pieces to a wholesaler at a unit price of USD 120/pc in your valuation database and thus resorting to Article 2. Do you have a value to use and, must you make an adjustment to that value?
(Country of Exportat ion)(Country of Impotation)
I
At or about the same time of importation.Conclusion, customs value should be 5 c.u./pc
SUPPLIER E
SUPPLIER F
1,700 Pcs
Agreement buy 2000pcs pay 4.7 c.u.buy 2000pcs pay 5 c.u.
IMPORTER
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AnswerYes the value of USD 120/pc may be used and adjustment is not necessary as the goods are in the same quantities and at the same commercial level.
4.3 Transaction Value of Similar Goods MethodWhere the customs value cannot be determined under Article 1 and 2 , there should normally be a process of consultation between the customs administration and the importer with the view to arriving at the basis of value under the provision of Article 3. The value of the similar goods must be a previously accepted customs value for goods imported at or about the same time.
Definition“Similar goods’’ means goods which, although not alike in all respect, have like characteristics and like component materials which enable them to perform the same functions and to be commercially interchangeable. The quality of the goods, their reputation and the existence of a trademark are among the factors to be considered in determining whether goods are similar.
In that regard, similar goods will be like the imported goods in the following respects:
(a) Physical characteristics (size and shape)(b) Component material (glass, metal, wood, textile, paper)(c) Same function and use(d) Commercially interchangeable (consumer will accept it as a substitute)
In the above example you have two shipments of dresses, which were previously imported and valued under the provisions of Article 1. Both shipments of dresses were made from 100% silk, in various sizes and colours, but all the dresses were cut from the same pattern.
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One shipment of dresses bears the name of a famous fashion designer while the other does not. Would these shipments of dresses be considered similar for purposes of Article 3?
AnswerNo. While there are minor differences in size and colour, there is a difference in reputation. That is, the reputation of a famous designer would demand a very different price and market from the non-designer dress.
In regards to similar goods, Article 15.2 (c to e) also provides further criteria in the selection of similar goods:(i) Goods will not be considered as similar if they incorporate or reflect engineering,
development, artwork, design work and plans and sketches which were undertaken in the country of importation and thus no adjustment was made under Article 8.1 (b)(iv);
(ii) In order to be similar, the goods must also be produced in the same country as the goods being valued; and
(iii) Similar goods produced by a different person shall be taken into account only where there are no similar goods produced by the same person as the goods being valued.
4.3.1 Requirements for transaction value of similar goods methoda. Goods were sold for export to the country of importation and exported at or
about the same time as the goods being valued.b. Goods are generally at the same commercial level and substantially same quantity.c. Where costs and charges under Article 8(2) that is cost of transport, insurance and
loading, unloading and handling charges are included, appropriate adjustments should be made.
d. The existence of a trademark.e. Where in comparison with existing database more than two values are found, the
lowest of such values should be considered.
4.3.2 Adjustments under transaction value of similar goods methodIn applying Method 3, Customs administration shall wherever possible, use a sale of similar goods at the same commercial level and substantially the same quantities as the goods being valued. Where no such sales are found, a sale of similar goods that takes place under any one of the following three conditions may be used.
(i) A sale at the same commercial level but in different quantities(ii) A sale at a different commercial level but in substantially the same quantities(iii) A sale at a different commercial level and in different quantities is exported at or about the same time as the goods being valued.
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4.3.3 Practical examples of adjustments under similar goods method
Example 1You have a shipment before you from Fu shung of China, of 2,000 pieces of radio cassette, priced at USD 5/pc and imported by a wholesaler. It is not possible to establish a transaction value under Article 1 and Article 2. You have a similar product from Shangai Co. also of China, shipped in a quantity of 1,700 pieces at a unit price of USD 6 and imported by a wholesaler. Shangai Co. sells his product to all who buy at least 1,000 pieces at USD 6/pc and does not otherwise vary his price. What is the appraised value for the imported goods assuming that Article 1 and Article 2 cannot be used? Is an adjustment required?
Illustration of the above example
Ilustration No 16
AnswerUSD 6/pc Although there is a difference in quantity levels between the imported goods and the identical product, that difference does not affect the price, as it will be USD 6per pc as long as it is over 1,000 pieces.
Example 2You have a shipment of goods from supplier D, in a quantity of 2,800 pieces at a unit price of 1.50 c.u. which was sold to a wholesaler. It is not possible to establish a Transaction Value under Article 1 and Article 2. You have records of a similar product from supplier E also in a quantity of 2,800 pieces but at a unit price of 2.50 c.u. less 15%, to a retail purchaser. E has a bona fide price list which offers discounts based on the level of purchaser. He grants 15% to all retailers and 20% to all wholesalers. Since there is no transaction value for the imported goods, how would you value the shipment from D?
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Answer2.50 c.u. less 20% since you have demonstrated evidence of a difference in price due to the level of purchaser, you must adjust the price of the similar goods to compensate. Since the imported goods are at the wholesale level, use the wholesale price of less 20% as the adjusted price under Article 3.
4.3.4 Comparison of identical and similar goods (Commentary 1.1)The following are some of selected examples to illustrate the application of the determining whether goods are identical or similar in accordance with Article 15.
Example 1Steel sheets of identical chemical composition, finish and size imported for different purposes.
AnswerAlthough the importer is to use some of the sheets for automobile bodies, and others for furnace liners, the goods are nevertheless identical
Example 2Tulip bulbs of the same size but of different varieties
AnswerThey are not identical goods; however, because they produce flowers of approximately the same size and shape and of the same colour, and they are commercially interchangeable, they are therefore similar goods.
Example 3Rubber inner tubes in the same range of sizes are imported from two different producers, both located in the same country. While each producer uses a different trademark, the inner tubes made by both are to the same standard, are of the same quality; enjoy equivalent reputations and are used by motor vehicle manufacturers in the country of importation. Could they be considered as identical or similar?
AnswerAs the inner tubes bear different trademarks, they are not the same in all respects and should not be regarded as identical. Although not alike in all respects, the inner tubes do have like characteristics and component materials, which enable them to perform the same functions. As the goods are made to the same standard, are of the same quality, have equivalent reputations and carry a trademark, they should be considered similar, even though the trademarks are different.
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Example 4Ink of paper quality versus ink of paper and textile quality.
AnswerTo be similar for purposes of Article 3, goods must be, inter alia, commercially interchangeable with each other. Ink of a quality suitable only for paper printing would not be similar to ink of a quality for paper and textile printing, even though the later could be commercially acceptable in the paper printing.
4.4 Deductive Value MethodIf the customs value of the imported goods cannot be established under identical goods or similar goods method, then the deductive value method should be considered. However Article 4 provides that the importer may request the trial of use of computed value method before deductive value method. Should this fail then the basis of valuation will revert to deductive value method.
Under this method, the customs value shall be based on the unit price at which the imported goods or identical or similar imported goods are so 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 persons from whom they buy such goods, subject to certain deductions.
Terms relating to deductive value method(a) At or about the time of importationAny period but not exceeding 90 days from the date of importation of the goods being valued or identical/similar goods.
(b) “Unit price at which….goods are sold in greatest aggregate quantity’’Means the price at which the greatest number of units is sold in sales to persons who are not related to person to whom they buy such goods at the first commercial level after importation at which such sales take place.
(c) General expenses Include the direct and indirect cost of marketing the goods compared with the goods being valued.
4.4.1 Requirements for deductive value method(a) Condition as imported (Article 5. 1.(a))The goods selected for consideration should be sold in their condition as imported. However, repacking to remove the overseas export packing materials or simple repacking for the domestic market would still leave the goods in condition as imported. Natural changes such as evaporation, shrinking, normal weathering, etc., would also be considered
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as same condition. Any type of manufacturing or further processing, including assembly, would no longer render the goods as being in the same condition as imported.
(b) At or about the time of importationIf no sale took place at or about the time of importation, it is permitted to use sales up to 90 days of the imported goods or identical/similar goods to the goods being valued.
(c) The sales should not be to related persons.The buyer and the seller in the importing country should not be related.
4.4.2 Application of Deductive Value MethodThe customs value under deductive value method will be determined on 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.
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.
Selling points Unit Price Units SoldA 100 60 B 95 70C 90 80D 95 50E 85 90
In the above illustration the greatest units sold 70 +50 = 120 , therefore unit price at which the greatest aggregate quantity was sold is 95.
4.4.3 Deductions made under the deductive value methodSince the starting point in calculating deductive value is the sales price in the country of importation, various deductions are necessary to reduce that price to the relevant customs value:
(a) Commissions usually paid or agreed to be paid, the sum of profits and general expenses added in connection with sales must also be deducted;
(b) Where appropriate, the costs and charges referred to in Article 8.2 (Optional Adjustments);
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(c) The 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;
(d) The customs duties and other national taxes payable in the country of importation by reason of the importation or sale of the goods;
(e) Value added by assembly or further processing, when applicable.
4.4.4 Practical examplesThe greatest total number of units sold at one price represents the greatest aggregate quantity.
Example 1Goods are sold from a price list, which grants favourable unit prices for purchase made in increasingly larger quantities.
Quantity Range Unit Price Sales Number.1-10 100 10 sales of 5 5 sales of 311-25 95 5 sales of 11Over 25 90 1 sale of 30 1 sale of 50
The unit prices show the following aggregate totals:100 c.u. - 65 units sold95 c.u. - 55 units sold90 c.u. - 80 units sold
AnswerThe greatest number of units sold at a given price is 80. Therefore, the unit price in the greatest aggregate quantity would be 90.
Example 2You have sales records for product X, which show varying prices for varying quantities purchased. Your records show the following sales:
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Sales Quantity Unit Price (In USD)
40 units 100 30 units 90 15 units 100 50 units 95 25 units 105 35 units 90 5 units 100
Totals:
Unit Price Quantity Sold Total Quantity Sold90 30+35 6595 50 50100 40+15+5 60105 25 25
AnswerThe greatest number of units sold at a given price is 65. Therefore, the unit price in the greatest aggregate quantity is 90.
4.5 Computed Value MethodIf customs value cannot be based on any of the valuation methods under Article 1 to 5, then computed value method is considered as alternative method of valuation.
The use of the computed value method will generally be limited to those cases where the buyer and the seller are related, and the producer is prepared to supply to the authorities of the country of importation the necessary costing and to provide facilities for any subsequent verification which may be necessary.
Computed value method is a rarely used method in determining the customs value. Under Computed Value Method, the basis of customs value is the cost of production of the goods being valued, plus an amount for profit and general expenses usually reflected in the sales from the country of exportation to the country of importation of goods of the same class or kind.
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DefinitionsGeneral expenses These include the direct and indirect costs of marketing the goods compared with the goods being valued.
Generally Accepted Accounting Principles (GAAP)Refers to the recognized consensus or substantial authoritative support within a country at a particular time as to which economic resources and obligations should be recorded as assets and Liabilities. “Goods of the same class or kind” in this context means goods which fall within the group or range of goods produced by a particular industry or sector and include the identical or similar goods.
4.5.1 Requirements for computed value method(a) Examination of the costs of producing the goods being valued and other information
which has to be obtained from outside the country of importation. However in most cases the producer of the goods will be outside the jurisdiction of the authorities of the country of importation hence difficulty in verification.
(b) The computed value method will generally be limited to those cases where the buyer and the seller are related, and the producer is prepared to supply to the authorities of the country of importation with the necessary cost information to facilitate any subsequent verification which may be necessary.
(c) Information supplied by the producer of the goods for the purposes of determining the customs value under computed value method may be verified in another country by the authorities of the country of importation with the agreement of the producer and provided they give sufficient advance notice to the government of the country in question and the latter does not object to the investigation.
(d) Where information other than that supplied by or on behalf of the producer is used for the purposes of determining a computed value, the authorities of the importing country shall inform the importer, if the latter so requests, of the source of such information, the data used and the calculations based upon such data, subject to the provisions of Article 10, which prescribes the treatment of confidential information.
(e) Under the computed value method, the producer’s general expenses and profit equal to that usually reflected in sales of goods 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.
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4.5.2 Elements to be considered under computed value methodThese elements are outlined in Article 6 as being the sum of the following:
(a) The cost or value of materials and fabrication or other processing employed in producing the imported goods;
(b) An amount for profit and general expenses equal to that usually reflected in sales of goods of the same class or kind as the goods being valued which are made by producers in the country of exportation for export to the country of importation;
(c) The cost or value of all other expenses necessary to reflect the valuation option chosen by the Member under paragraph 2 of Article 8.
4.5.3 Treatment of profits and general expensesThe amount for profit and general expenses shall be taken as a whole. If, in any particular case, the producer’s profit figure is low and his general expenses are high, taken together, they may nevertheless equal the amount for profit and general expenses usually reflected in the trade.
ExampleA foreign manufacturer is introducing a new product in your country and in order to establish a foothold in that market, he is willing to accept a low profit margin of 2%. Because the product is new, the producer’s general expenses are unusually high for the trade, 30% of the cost of materials and fabrication. The usual profit and general expenses of the trade is 32% of the cost of materials and fabrication. Can we use the producer’s profit and general expenses?
AnswerYes. Taken together, the producer’s profit and general expenses are 32%, compared to the trade which is 30%. The amount added by the producer would seem to equal that of the trade, so use 32%.
Where the producer’s own figure for profit and general expenses are not equal to that amount usually reflected in the trade, the amounts to be added may then come from the trade.
Thus, in most cases we will use the information obtained by or on behalf of the producer but in the above case, we will be basing our decision of data obtained from other sources.
This raises the question of how much of a difference there should be between the producer’s figures and the figures of the trade before we would reject the producer’s figures for profit and general expenses and use those of the trade.
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There is no clear answer to that question. It depends upon the industry in question and must therefore be decided on a case-by-case basis. A 5% difference between actual and the usual may be significant in one industry but not significant in another.
4.5.4 Application of Generally Accepted Accounting Principles (GAAP)Recordings of expenses are, in general, controlled in a given country by a board of accountancy. This group decides which expenses are recorded as material or labour costs and which are recorded as general expenses.
In general, all cost not covered by Article 6 would be considered as general expenses or overhead and would include such costs as:• Rent• Electricity, water, heat and other utilities• Legal fees• Office salaries• Office equipment• Marketing expenses• Telephone and telegraph• Employee benefits
It should also be pointed out that for purposes of determining whether computed value information is consistent with GAAP in the country of production, it is acceptable that the importer submit a statement from a recognized accounting authority in the country of production stating that the figures are consistent with GAAP.
4.5.5 Application of Computed Value MethodComputed value is the sum of the following elements:
(a) Production costs = value of materials + cost of 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; sub assemblies such as integrated circuit; and prefabricated components which will eventually be assembled.
Fabrication would include 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.
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COMPUTED VALUE isTHE SUM OF
AB
CCOST ORVALUEAND MATERIALS AND FABRICATION
PROFITAND GENERAL EXPENSES
VALUE ARTICLE 8.2 EXPENSES
The cost is to be determined on the basis of information relating to the production of goods being valued, supplied by or on behalf of the producer.
If not included above, elements specified in paragraph 1 (a) (ii) and (iii) of Article 8 such as packing costs and cost of containers, and elements specified in paragraph 1(b) (iv) of Article 8 which are undertaken in the country of importation such as engineering, development, artwork, design work, and plans and sketches shall be included only to the extent that such elements are charged to the producer.
(b) Profit and general expenses An amount for profit and general expenses equal to that usually reflected in sales of
the same class or kind as the goods being valued which are made by producers in the country of exportation for export to the country of importation.
(c) Other expenses to be added The cost or value of all other expenses necessary to reflect the valuation option
chosen by the member under Article 8.2 such as cost of transport, insurance, loading, unloading and handling charges.
Some members that adopted CIF as the point of valuation in their country would add a cost of transport of imported goods to the port or place of importation as well as loading, unloading and handling charges in the country of exportation associated with the transport of the imported goods to the port or place of importation and cost of insurance.
4.6 Fallback MethodIf the customs value of the imported goods cannot be determined on the basis of Article 1 through 6 inclusive(method 1-5), the customs value can be derived based on one of the five previous methods reasonably adjusted as necessary. The determined value should be
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based to the greatest extent possible on previously determined values only on the data available in the country of importation.
Terms related to the fallback method
FallbackThis is a procedure rather than a method per se used to determine customs value where the sequential application of the previous methods has failed.
Flexible applicationThese include flexibility of some of the previous principles of the agreement and conditions of the previous methods especially where such conditions has insignificant or no effect on the value. For example the 90 days under method 4 may be extended for a longer reasonable period.
4.6.1 Requirements of fallback methodArticle 7 does not provide for a specific valuation method but rather requires that the customs value be determined:(a) Using reasonable means;(b) Consistent with the principles and general provisions of the Agreement;(c) On the basis of data available in the country of importation.
4.6.2 Right of the importer under fallback methodIf the importer so requests, the importer shall be informed in writing of the customs value determined under the provisions of this Article and the method used to determine such value.
4.6.3 Demonstration of flexible application under each methodThe methods of valuation to be employed under Article 7, according to the Interpretative Notes to that Article, should be those laid down in Article 1 through 6, but a reasonable flexibility in the application of those methods would be in conformity with the aims and provisions of Article 7.
Some examples of reasonable flexibility are as follows:
Identical or similar goods(a) In the case of identical or similar goods, the requirement that the goods must be
exported at or about the same time as the goods being valued could be flexibly interpreted.
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Country of
BELGIUM
Could also use goodsfrom Netherlands orLuxembourg
(b) In the case of identical or similar goods, the requirement that the country of production be the same as the goods being valued could be waived.
Deductive method(a) The requirement that the goods must have been sold in the condition as imported in
Article 5.1 (a) could be flexibly interpreted.
(b) The 90-day rule in Article 5.1 (b) could be flexibly administered.
In regards to the above examples, it would also be possible to flexibly interpret Article 1 in conjunction with Article 8. The following would be such an example of a flexible interpretation of Article 1.
ExampleCompany X in country I imports a machine tool after having it sent abroad for repair. When exported, the value of the machine tool was 9,000 c.u. Upon importation, company X pays only for the cost of repairs, 1,000 c.u. to exporter E. Determine the customs value of the imported machine tools
AnswerUnder Article 7, we could flexibly interpret the price actually paid or payable under Article 1 to be the cost of the repairs. To that cost, you would add the machine tool itself as an assist under the provisions of Article 8.
Therefore, use 9,000 c.u. plus 1,000 c.u. as the value under Article 7 through a flexible interpretation of Article 1 and 8. (There may be a distinction between dutiable values an appraised value; i.e. some administrations may not collect duty on goods of domestic origin). Therefore the answer is 10,000 c.u.
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ExampleFirm A of country X rents a unique new machine from rental company B in country Y for a minimum duration of 36 months. the useful life of the machine is determined to be five years. According to the terms of the contract, the erection and maintenance costs in the country of importation incurred by the importer are 20,000 c.u. per annum for the first two years of operation and 30,000 c.u. per annum for the following years, payable to the rental firms. The machine is rented at 50,000 c.u. per month, inclusive of these costs. What is the customs value?
Illustration of the above example
Ilustration No 17
AnswerArticle 1 does not apply because there is no sale. Article 2 and 3 do not apply because the machine is unique and there is no identical or similar goods. Article 5 does not apply because the machine is not resold. Article 6 does not apply because costs to produce are not available. Article 7 would apply. After consultation with the importer Customs could value the machine on the basis of the total amount of rent payable over 5 years (the full useful life of the machine) less the total costs for erection and maintenance paid by the importer.
Despite a degree of flexibility, the aim of the law and its provisions should always be kept in mind. However, there are certain “flexible” approaches which also should not be used. The following are some of the approaches Customs should not take:
• Use of the further fabrication method under Article 6.2 when it was not requested by the importer.
• Expanding consideration of what is considered as identical or similar goods.• Use of related party sales to establish a deductive value under Article 5.
(Country X) (Country Y)
FIRM A COMPANY B
MACHINE(CARGO)
RENT /COST FOR ERECTION &
MAINTENANCE
RENTAL CONTRACT
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Hierarchical orderIn this regard, a question has arisen whether, while employing Article 7, it is necessary to follow the hierarchical order prescribed in the Agreement. That is, do you flexibly interpret Article 1 first, then Article 2 and so on.
The WCO Technical Committee on Customs Valuation, in Advisory Opinion 12.2, expressed the view that there is no specific provision in the Agreement which requires a hierarchical approach to the flexible interpretation of Articles 1 through 6 under Article 7.However, Article 7 does require the use of reasonable means consistent with the principles and general provisions of the Agreement and this would indicate that where reasonably possible, the hierarchical order should be followed.
Thus, where you have several acceptable methods, all of which are considered a reasonably flexible interpretation, maintain the order of Article 1 through 7.
4.6.4 Prohibited means of determining value under the fallback methodCustoms value shall not be determined under the provision of Article 7 on the basis of;
(a) Selling prices in the country of importation of goods produced in such country (i.e., prices of goods manufactured in the importing country);
(b) A system which provides for the acceptance for customs purposes of the higher of two alternative values (i.e., the lowest should be used);
(c) The price of goods on the domestic market of the country of exportation (i.e., economies of countries are different);
(d) The cost of production other than computed values which have been determined for identical or similar goods in accordance with the provisions of Article 6 (i.e.; valuation must be arrived at on the basis of data available in the country of importation);
(e) Price of the goods for export to a country other than the country of importation;(f) Minimum customs values;(g) Arbitrary or fictitious values (this is aimed at systems which do not base values on
what happens in the market place, as reflected in actual prices or sales and in actual costs, reason of the importation or sale of the goods).
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CHAPTER 5
5.0 CUSTOMS DOCUMENTATION
OBJECTIVESBy the end of this Chapter you will be able to:
- Define documentation and interpret related terms- State the various categories of documents- Explain the importance of various documents- Relate documentation to the Agreement- Identify common documents used in international trade- Verify the salient features of authentic documents- Discuss various terms of payment in the international trade- Explain International Commercial Terms (INCOTERMS)- State the possible grounds for rejecting Customs documents
Content(a) Introduction(b) Definitions and interpretation(c) Categories of customs documents(d) Importance of documents(e) Vital information contained in documents(f) Relationship between definition of transaction and documentation(g) Overview of international business documentation(h) Analysis of documents and information contained therein
What is Document Check ?
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(i) Pointers to authenticity in documents(j) Grounds for rejecting customs documents(k) International Commercial Terms (INCOTERMS)(l) Documents check list and legal provision
5.1 IntroductionThe World Customs Organization (WCO) and the World Trade Organization (WTO) have developed international standards, best practices and tools for trade documents, such as the Revised Kyoto Convention on simplification, harmonization, standardization and modernization of trade procedures that involves collecting, presenting, communicating and processing data required for the movement of goods in international trade.
Documentation plays an important role in the smooth movement of goods in international trade. Facilitation of legitimate trade largely depends on proper documentation. It is therefore important for Customs and other interested parties to be conversant with International Trade Documentation because it imparts them with the skills to authenticate the relevant documents used in clearance of goods in international trade.
This Chapter aims at highlighting international documentation, their relevance to customs valuation and valuationi information contained in these documents.
5.2 Definitions and interpretationDocument refers to the presentation of data in digital or any other form for purposes of exchanging information and communication.
Document check is the systematic analysis of all supporting documents to a customs declaration in order to facilitate proper valuation of imported goods.
5.3 Categories of Customs DocumentsCustoms documents used in the clearance of goods may be broadly categorized as following;
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(a) Commercial Documents(b) Transport Documents(c) Financial Documents(d) Regulatory Documents
All the four categories of documents, are interlinked and interdependent and should be presented to Customs and analyzed simultaneously. 5.4 Importance of DocumentsDocuments are useful for:
• Clearance of goods • Identification of origin• Provision of data for Statistics• Post Clearance Audit (PCA)• Intelligence analysis• Serving as evidence in commercial dispute settlement• Collection of taxes and duties• Protection of community and the environment• Proof of ownership• Facilitation of legitimate trade
5.5 Vital information contained in DocumentsThe following information runs through most of the documents involved in international trade. It is important for Customs and other stakeholders to be conversant with this information that plays an important role in customs valuation;
• Document name – A document must have a name to help distinguish it from other documents e.g. a Commercial Invoice as opposed to a Proforma Invoice.
• Date & Serial Number – A proper Document must have a date and must also be serialized to help keep track while issuing these documents.
• Name of Supplier / Exporter – Clear and detailed particulars of the Supplier or Exporter must be there (such particulars include the name, physical location, postal address, telephone contacts & email).
• Name of Importer – Likewise clear and detailed particulars of the Importer must be indicated (name, physical location, postal address, telephone contacts & email).
• Quantity & Description – The quantity supplied should be clearly indicated and proper description thereof.
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• Gross & Net weight – This is vital information which points to the weight of the packagings and the actual products & this information is very useful not only at physical examination but also at valuation.
• Unit price & Total price – A proper Commercial invoice / Proforma Invoice should show the price per unit and also work through sub-totals and grand totals.
• Unit of Measure – The unit of measure upon which the price is based should also be indicated i.e., pieces, kilograms, liters, meters, square meters, etc.
• Terms of Delivery – Basically these are Incoterms which should also be very specific.
• Terms of Payment – these are the agreed upon terms on how the Importer will pay the supplier i.e., Telegraphic Transfer, cash, letters of Credit etc.
• Time of shipment – this is usually indicated on the Bill of lading and has a bearing on terms agreed upon in the Contract.
• Pre-carriage information – this is also indicated on the Bill of lading and at times on the Commercial Invoice / Proforma Invoice – and is very important for pre-carriage expenses.
• Port of loading – this is indicated on the Bill of lading and at times on the Commercial Invoice / Proforma Invoice – and has a bearing on the freight payable.
• Type of packaging – at a wider level Customs are looking at either 20ft or 40ft container (which can be a risk management pointer to the total taxes payable); but also at a micro level it is important for the type of packing to be specified as either cartons, bales, bags, drums, etc.
• Marks & Numbers – these can be container numbers, seal numbers or serial numbers (in case of machines) and they are useful in identification.
• Vessel or Freight Number – this information is usually found on the Bill of lading and is important in identifying the carrier.
• Country of Origin –This is important especially where preferential treatment is concerned, also origin has a bearing on the reputation of goods.
• Harmonized System Code (HSC) – in some cases the supplier specifies the HS codes and it is usually important to compare it with what has been declared; this is at
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times indicated on the Bill of lading, Packing list and Commercial invoice.
• Special remarks – especially on the Bill of lading should never be taken for granted – remarks like FCL/FCL, LCL/LCL, and RO/RO have special meaning and implication. (Note Meaning – FCL – full container load; LCL – low container load; RO/RO – Roll-on Roll-off).
5.6 Relationship between definition of transaction value and documentationIt is important for customs officers to fully appreciate the definition and interpretation of Transaction Value and how the term relates to international trade documentation. Definition of Transaction Value embeds most of the documents involved in international trade.
As indicated in Article 1, Transaction Value is the price actually paid or payable for the goods when sold for export to the country of importation and adjusted in accordance with the provisions of Article 8.
When broken down into parts and critically analyzed, several documents are implied in the key elements in this definition as follows:
Key elements of Reference documentsTransaction Value
Price actually Paid Commercial invoice, Receipts, Sales contract, Telegraphic transfer, Form E
Price actually Payable Purchase order, Proforma invoice, Price lists, Credit agreement
For the goods Sales contract, Packing list, Certificate of analysis, Specific permits
When sold for Sales contract, Sales confirmation, Certificate of origin,export Shipping bill or Export entry
To the country of Purchase order, Bill of lading, Inland transport documentsimportation
Adjusted in Sales contract, Commercial Invoice accordance with provisions of Article 8
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Illustration of work in a customs office 5.7 Overview of International DocumentsDocumentation is an essential tool in conducting international trade and several documents are used in carrying out business transactions. These documents follow a clear sequence right from the time an importer makes an order up to the time the goods are cleared from the Customs territory. Most of these documents are mandatory for customs clearance purposes while others are optional depending on the nature of goods being cleared and the national legislation of country of Importation.
5.8 Analysis of Documents All documents in international trade have unique features which distinguish them from the other. The information contained in each document should be well known by the customs officers and stakeholders, with particular reference to how the document looks like, the information it contains and its relationship with other documents.Below are different categories of documents used in international trade emphasizing vital information.
5.8.1 Commercial documents(a) Purchase orderThis is a commercial document used by the Buyer/Importer in placing an order with the supplier/seller. Important information on this document for customs purposes include the date when the order was placed, the company that ordered, the quantity ordered, suggested price to be paid or payable, signature and stamp of the ordering importer, preceding documents (e.g. Price quotation ,catalogues, price list, etc.).
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However it must be noted that different importers use different means of placing their orders; some have formal purchasing order forms, others order by telephone while others order by e-mail. Therefore it is important for customs to establish the method of ordering that the importer used.
(b) Proforma InvoiceThis is the document which the seller issues in response to the purchase order. It stipulates the terms and conditions upon which the seller will sell the goods to the buyer. Some of the important information contained in this document includes date of issue, preceding documents (if any), description of goods, unit price and total consignment price, the terms of payment, terms of delivery, obligations of each party and signatures of contracting parties.
(c) Sales ContractThis is a legal document that is enforceable by parties demonstrating that the buyer and seller agree on a sale of a particular good. It obliges the seller to supply goods to the buyer and ensure that the buyer acquires proprietary rights over the goods. Important information on this document for customs purposes include date of contract, terms of sale, description of goods, unit price and total contract price, terms of payments, seller’s bank details, swift code and arbitration clause. Sometimes proforma invoice serve the same role as sales contract and the two may be used interchangeably.
(d) Commercial InvoiceThis is a commercial document prepared by a seller as indication of the final agreement on the sale of goods. It lists all items sold and presented to the buyer for payment. It contains the following information; date of issue, description of goods, quantity sold, the actual price paid or payable, terms of payment, terms of delivery, the serial number and the stamp of the issuing authority. This document is different from a pro-forma invoice in that whereas on the pro-forma invoice there is still room for negotiations and is subject to change, the commercial invoice is the final agreement between the parties.
(e) ReceiptThis is a document that is issued in cases of cash transactions certifying receipt of payment by the seller. Vital information in this document include date of issue, serial number, payee, amount paid, means of payment (i.e. cash or cheque), balance due if any, signature and stamp of the seller.
(f) Packing listThis is a document that accompanies goods from the exporting country and it gives a detailed breakdown of the way goods have been packed in the consignment to facilitate both the importer and customs authorities to easily verify the quantities and description of
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the consignment. Vital information to consider in this document includes, date and serial number, preceding document, goods description, weights, quantities and dimensions and signatures.
5.8.2 Transport Documents(a) Shipping Bill/Export entryThis is a Customs document that is generated/issued by Customs of the exporting country. Vital information contained in this document includes the Customs reference number of the exporting country, the exporter, the consignee, the country of export, importing country, description of goods, Incoterms, carrier used, total export Customs Value, currency and preceding document (if any).
(b) Bill of Lading/Airway BillThis is an official document prepared by the carrier/shipper duly accepting the goods for shipment and it contains the following information; the serial number, type of Bill of Lading/Airway Bill (master, house, combined transport, non negotiable), date and place of issue, date shipped on board, name of the shipping line, name of the consignee, name of the vessel, the items shipped, the quantity and weight of goods, port of loading, the point of destination, preceding documents (if any), pre-carriage information, signatures and stamps.
(c) Freight InvoiceThis is a document issued by the shipper/carrier as acknowledgement on the agreed freight terms. It contains the following information; date of issue, serial number, name of carrier/shipper, name of the importer, amount paid, balance due if any, signature and stamp.
(d) Freight debit noteThis is a document issued by the shipper/carrier in the event that freight amount is due. It contains the following information, date of issue, serial number, name of carrier/shipper, name of the importer, amount to be paid and date due, signature and stamp.
(e) Insurance certificateThis is a legal document certifying that goods or products are insured against certain risks before carriage. This can be marine insurance, marine and road insurance, or all risks cover. This certificate is issued as evidence that a certain insurance policy has been under taken to cover the goods. It is also contractual in nature meaning that it is a contract between the insurer and the insured. Vital information on this document includes; serial number, date of issue, the insurer, the insured, the insured amount, the insurance policy, signature and stamps.
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(f) Insurance Debit NoteThis is the document issued by the insurance company in the event that insurance charges are due. It contains the following information, serial number; date of issue, the insurer, the insured, the insured amount, the insurance policy, signature and stamp.
5.8.3 Financial Document(a) Form EThis is the declaration made by the exporter to the central bank of the exporting country showing the amount in foreign exchange that the goods are worth. Vital information on this document include, the issuing bank, date and serial number, place of issue, name of the exporter, description and quantity of goods, foreign exchange value, signature and stamp of both the bank and exporter.
(b) Payment DocumentsThese are documents that provide evidence that the goods in question have been paid for or will be paid for depending on the agreed terms of payment. These documents include, Telegraphic Transfer (TT), Letters of Credit (LC), Documentary credits, Bank draft/ Bill of exchange and credit agreement etc. Vital information on these documents varies depending on agreed terms of payment.
Accordingly, there are several means of payment used in settlement of amount owed to the supplier/exporter and this includes the following:
Telegraphic transferThis refers to the payment of money by transferring funds from the sender’s account to the beneficiary’s via an electric cable in form of an automated fund transfer system which uses coded messages that are safe and convenient.
Letter of CreditThis is a formal document issued by financial institutions acting on behalf of the applicant by settling payments for a transaction to the beneficiary. These letters of credit are of different types, the most commonly used are;
• Revocable Letters of Credit; this is a form of credit letter whose contents can be amended without the consent of the beneficiary at the request and on the instruction of the applicant.
• Irrevocable Letter of Credits; this form of credit letter cannot be amended or cancelled without the consent of the issuing agency if any or the beneficiary.
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ILLUSTRATION OF HOW LETTERS OF CREDIT OPERATE
Illustration No 18
Step A – Importer A places order with Supplier C and both parties enter into a contractStep B – Importer A negotiates/applies for Letter of credit with his Bank (Bank B)Step C – Bank B issues letter of credit through inter-mediary Bank D who verifies authenticity and compliance to the terms of the contractStep D – Bank D advises Supplier C to ship goods and release documents to Bank BStep E – Supplier C ships the goodsStep F – Supplier C releases documents to Bank BStep G – Importer A pays contract amount on due date to Bank B or Bank B credits Importer A’s account with the amount owedStep H – Bank B releases documents to Importer AStep I – Bank B remits funds to Bank DStep J – Bank D remits funds to supplier C
Bank Guarantee This refers to a formal security that lending institutions ensure that the liabilities of a debtor are met when due on behalf of the applicant incase he/she fails to settle them.A Bank guarantee and a Letter of credit are similar in many ways but they are two different things. Letters of credit ensure that a transaction proceeds as planned, while a Bank guarantees reduce the loss if the transaction does not go as planned. A Bank guarantee is used to insure a buyer or seller from loss or damage due to non-performance by the other party in the contract.
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Bank overdraftLiterally a Bank overdraft is when someone is able to spend more than what is actually in their bank account; obviously the money does not belong to them and will have to be paid back automatically once money goes onto their account.It is a mutual agreement between the lending agencies to act on behalf of an applicant to settle his liabilities. It can be in form of a bond, cash or loan usually on a maximum limit beyond which the lending agency cannot exceed.
Bank draftThis is a banker’s cheque used as a negotiable instrument instructing a foreign bank to pay on demand a fixed amount of money to a named beneficiary. It is also known as “Cashier’s Cheque” and it applies when you need to pay somebody with guaranteed funds. Bank drafts are more secure for sellers because the funds are guaranteed by the bank that issued the draft. If a personal cheque is used there are possibilities of bouncing, however banks only issue Bank drafts after they have taken money from the applicant’s account – so the seller is assured of being paid. In international trade, a Bank Draft is a negotiable instrument issued by a local bank instructing a foreign bank to pay on demand, a fixed some of money to a named beneficiary.
Bill of exchangeThis is an unconditional order issued by a person or business when directing the recipient to pay a fixed sum of money to a third party at a future date. The future date may be either fixed or negotiable. A bill of exchange must be in writing and signed.
5.8.4 Regulatory Documents(a) Certificate of OriginThis is a customs document that certifies the origin of goods. It also gives the criteria for conferring origin. This criteria may be wholly obtained, value added, change in tariff heading. This certificate shows the preferential treatment of the goods being considered.
The certificate of origin is usually issued either by the national chamber of commerce or by the export promotion boards and may be counter signed by Customs authority. Vital information on this document includes; date and serial numbers, preceding documents (especially the commercial invoice Number), description of goods, name of the exporter, name of the importer, criteria of the goods, issuing authority, signature and stamps of both the issuing authority and exporter.
(b) Permit/certificate of analysisThis is a document issued by the manufacturer or bureau of standards in various countries certifying that the goods exported have undergone inspection and are certified to be consumed. This analysis is very crucial because apart from Customs collecting revenues
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they also protect the environment and human health. This certificate therefore recommends that goods to be consumed are safe to the environment or human health. Vital information on this document includes serial number, name and address of the certifying authority, name of inspector, materials compound of the item, description of goods analyzed, recommended life span of the goods, date, signature and stamps of the issuing authority.
(c) Fumigation CertificateThis is a document that certifies that goods imported or exported have been tested /inspected and treated to make them free from pests or fungus and qualify to be consumed or used. Vital information on this document includes; name of fumigator, name of the exporter, descriptions of goods fumigated, date of fumigation, methods and chemical components used in fumigation, stamp and signature of the authorized institute.
(d) Phytosanitary CertificateThis is a document that certifies that livestock and plants imported or exported have been tested/inspected and vaccinated to make them free of infectious diseases. Vital information on this document includes; name of vaccinating authority, name of the exporter, details of livestock or plants vaccinated, date of vaccination, methods and chemical components used in vaccination, stamp and signature of the authorized institute.
(e) Transit documentsThese are customs documents used to convey goods from point of entry into the Community to the final destination. Such documents include C17 which is usually issued in Mombasa, IM8 and T1 issued at Ugandan and Tanzanian boarders. Vital information on these documents include, customs reference number, name of the exporter, consignee name, description of goods, means of conveyance/truck or wagon number, manifest number, customs value, signatures and stamps of Customs processing officers.
5.9 Pointers to Authenticity in DocumentsSubmission of the above documents to support an import declaration in itself is not enough to clear the goods under transaction value method, it is always important to verify if the availed documents are authentic and the table below gives us some of the Pointers that can be applied in this regard.
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sn Major Point Specific Aspects Remarks1 VALUES Exceptionally high or Declaration of exceptionally high values low values can be an indicator of intention to evade Internal / Domestic taxes. On the other hand exceptionally low values are an indicator of a direct evasion of Customs taxes through under valuation. High Insurance costs If the terms of delivery is CIF (Kampala or Kigali) & the breakdown of inland insurance shows an exceptionally high figure – then there is a likely-hood of under declaration of the CIF Mombasa. Disproportionate Likewise if the delivery terms is CIF (Kam Transport cost pala or Kigali) and the breakdown of inland freight shows an exceptionally high figure – then there is a likelihood of under-declaration of the CIF Mombasa.2 FALSIFICATION Erasers, rubbings, If such alterations are done on a document ON DOCUMENTS and white-wash then it has to be authenticated by countersigning and stamping. Any thing not counter-signed should be an indicator of a problem & should be probed further. Scanned Presentation of scanned documents Documents should be followed by a look at the origi nal documents, otherwise it is possible to change information on a document while scanning. Varying Font Usually when a document is tampered with, there is a possibility of the Fonts inserted not matching with the original Fonts and at times even the formation of the numbers might be different – a keen eye is able to detect such. Date & Serial Date Format - There are two major date Number Format formats used in International Trade – the British format which is day/month/ year; and the American format which is year/month/date. And these formats were adopted by the colonies of these respec tive countries – so a forger who is not keen enough will mix up these aspects.
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sn Major Point Specific Aspects Remarks Serial Numbers Serial numbers can be either manual or system generated, however it is always important to keep track of serial numbers of major Suppliers by keeping copies of their invoices, since someone forging might not be aware of the running serial number.3 Samples of Invoice set-up, Companies have brands that identify them previous Documents logo & Color from others and these are also reflected from Same Supplier in their Documentation. By keeping copies of documents for major Suppliers one is able to quickly recognize the logos, company colors, and document formats of such Companies – so if someone present a contrary document the difference is easily noticed.4 Arithmetic Unit price Versus Sub Rarely do Valuation Officers work through Accuracy totals Versus the computations on the presented invoices Grand totals / packing lists, however it is not uncommon to find inaccuracy in the computations once one works through.5 Consistency Weight The weight quoted on the packing list, in Information Proforma Invoice, Commercial Invoice, and Bill of lading – should always tally; any discrepancy is a pointer to an anomaly. Goods Description The Goods Description should be uniform on the Packing list, Proforma invoice, Commercial invoice, and Sales Contract. Value The quoted value should be uniform on the Purchase Order, Proforma invoice, Commercial invoice, Sales Contract, and Financial Documents. Ownership The Ownership should be consistent on the Bill of lading, Transit Documents, Shipping Bill/Export Entry and the other supporting documents6 Disproportionate FOB Where the terms of Delivery are FOB it is Incoterms always necessary to watch out for the quoted Freight & Insurance charges as they are usually under declared. CIF Where the terms of Delivery are CIF, it is
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sn Major Point Specific Aspects Remarks always necessary to work back-wards by deducting approximate Freight charges and insurance. The remaining FOB should give an indicator on the authenticity of the declaration. Freight Collect Versus It is always necessary to cross-check the Freight pre-paid Freight terms quoted on the Bill of lading against those on the Proforma invoice / Commercial invoice, sometimes there is a discrepancy.7 Unrealistic Cash Payments Most importers who declare terms of Terms of Payment payment as cash should be put under further scrutiny as they are not usually giving the whole truth & cash payments are the hardest to prove since there is no third party involved Unguaranteed Credit Payment terms such as ‘payment after 180 days or 360 days’ which are not supported by guarantees should always be treated with suspicion. Likewise ‘payment at sight of Documents’ means that goods were dispatched before payment – so even in this case there should be a guarantee.8 Vague Suppliers Name & If someone is giving vague or incomplete Information Address, Importers information in terms of addresses, Name & Address, weights, and description of goods it means Description of goods, they are holding back some information Breakdown of packages and such declarations should be on the packing list, scrutinized further.9 Incomplete At least all the Mandatory Documents Documentation as per the ‘Check list’ must be attached for a consignment to be comfortably passed under Transaction Value Method; otherwise attaching only a Commercial Invoice is not enough to pass the entry under Transaction value method.10 Signature & Stamp If a Document has a provision for a signature & stamp then it should be signed and stamped – otherwise such a document cannot be accepted.
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5.10. Grounds for doubting the truth or accuracy of the declared valueIf Customs has reasons to doubt the truth or accuracy of the particulars of documents produced by traders in support of the declared value, then Customs should communicate such doubt in line with WTO Decision 6.1 which recommends the following steps.
The Customs administration shall communicate in writing to the importer, via a specific form, their grounds for doubting the truth or accuracy of the particulars or documents produced and ask for further explanation, including documents or other evidences. A reasonable time frame should be given for a response.
If the importer fails to provide adequate documentation, or other evidences which supports his declaration, within the specified time frame. The Customs administration communicates in writing their final decision to reject the transaction value, explaining the grounds for the decision. Relevant sections of the law should always be quoted to justify Customs rejection of a declared transaction value. Decision 6.1 should be read together with Article 17. (refer to attachments on Legal Provisions on Documentation)
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CHAPTER 6
6.0 INCOTERMS 2010 The common terms of sale used in international trade can be found in a reference book titled “INCOTERMS”, produced by the International Chamber of Commerce. The purpose of this book is to provide a set of guidelines for the interpretation of the most commonly used terms in international trade. The aim is to avoid or reduce the uncertainties of different interpretations of such terms in different countries.
Incoterms define the responsibilities of buyers and sellers for the delivery of goods and sales contracts. They are the authoritative rules for determining how costs and risks are allocated to the parties. Incoterms rules are regulary incorporated into sales contracts worldwide and have become part of the daily language of trade.
6.1 Common INCOTERMS/ Terms of Delivery (a) FOB (Free On Board)“Free On Board” is used only for sea or in land waterway transport. It means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered. The risk of loss or damage to the goods passes when the goods are on board the vessel, and the buyer bears all costs from that moment onwards.
The seller’s obligations include:• Delivering the goods on board the vessel named by the buyer at the place of export;
obtaining any required export licenses;• Bearing risks and costs relating to the goods until they are placed/loaded onto the
means of transport at the place of export.
The buyer’s obligations include:• Contracting at his/her own expense for the carriage of the goods from the place of
export; bearing risks and costs relating to the goods once they are placed/loaded onto the means of transport at the place of export;
• Arranging all Customs formalities for importing the goods.
(b) CIF (Cost, Insurance and Freight)“Cost, Insurance and Freight” is used only for sea or inland waterway transport it means that the seller delivers the goods at the vessel on board the vessel or procures the goods already so derived. The risk of loss or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessarily to bring the goods to the named port of destination. The seller also contract for insurance cover against the buyer’s risks of loss or damage to the goods during the carriage.
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Seller’s obligations include:• Contracting at his/her own expense for the carriage of the goods to their destination
and pay all freight charges up to that point;• Obtaining at his/her own expense any required export licenses;• Obtaining at his/her own expense, freight insurance as agreed in the contract.
The buyer’s obligations include:• Bearing the cost of unloading the goods at the place of importation, unless already
included in the freight bill paid by the seller;• obtaining at his/her own expense any import licenses and carry out all Customs
formalities (including payment of any Customs duties) for the import of the goods to the place of importation.
(c) CFR (Cost and Freight) Also known as “C + F”“Cost and Freight” is used for sea and inland waterway transport. It means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the cost and freight necessary to bring the goods to the named port of destination. The liabilities of the seller and buyer are the same as under C.I.F. except that neither party has an obligation to provide insurance. However, the buyer may then choose whether he/she obtains insurance cover.
(d) EXW (Ex-works) also known as “Ex-factory”“Ex works” may be used irrespective of the mode of transport selected and may also be used where more than one mode of transport is employed. It is suitable for domestic trade.It means that the seller delivers when it places the goods at the disposal of the buyer at the seller’s premises or at another named place (i.e. works, factory, warehouse, etc.). The seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export where such clearance is applicable. The seller’s obligations cease when the goods leave the works/factory premises. Title and risk pass to buyer including payment of all transportation and insurance cost from the seller’s door. It is used for any mode of transportation.
(e) FCA (Free Carrier) may be used irrespective of the mode of transport selected and may also be used where more than one mode of transport is employed. It means that the seller delivers the goods to the carrier or another person nominated by the buyer at the seller’s premises or another place. The parties are well advised to specify as clear as possible the point within the named place of delivery, as the risk passes to the buyer at that point.
In this type of transaction, the seller is responsible for arranging transportation, but he is
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acting at the risk and the expense of the buyer. Where as in FOB the freight forwarder or carrier is the choice of the buyer, in FCA the seller chooses and works with the freight forwarder or the carrier. “Delivery” is accomplished at a predetermined port or destination point and the buyer is responsible for insurance.
(f) FAS (Free Alongside Ship) means that the seller delivers when the goods are placed alongside the vessel (i.e. on a quarry or barge) nominated by a buyer at the named port of shipment. The risk of loss or damage of the good passes when the goods are alongside the ship and the buyer bears all costs from that moment onwards.
The parties are well advised to specify as clear as possible the loading point at the named port of shipment, as the costs and risks to that point are for the account of the seller and this cost and associated handling charges may vary according to the practice of the port.
(g) CPT (Carriage Paid To) may be used irrespective of the mode of transport selected and may also be used where more than one mode of transport is employed. It means that the seller delivers the goods to the carrier or any other person nominated by the seller at an agreed place (if any such place is agreed between the parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination. The seller fulfills its obligation to deliver when it hands the goods over to the carrier and not when the goods reach the place of destination.
(h) CIP (Carriage and Insurance Paid To) is used irrespective of the mode of transport selected and may also be used where more than one mode of transport is employed. It means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between the two parties) and that the seller must contract for and pay the cost of carriage necessary to bring the goods to the named place of destination.The seller also contracts for insurance cover against the buyer’s risk of loss or damage to the goods during the carriage. The seller fulfills its obligation to deliver when it hands the goods over to the carrier and not when the goods reach the place of destination.
(i) DAT (Delivered at Terminal) Title, risk and responsibility cost pass to seller to place the goods at the Buyer’s disposal after unloading at the named terminal at port or place of destination. Used for any mode of transportation. The Seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the Buyer’s disposal at a named terminal at the named port or place of destination. “Terminal” includes any place, whether covered or not, such as a warehouse, container yard or road, rail or air cargo terminal. The Seller bears all risks involved in bringing the goods to and unloading them at the terminal at the named port or place of destination.
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(j) DAP (Delivered at Place) Title, risk and responsibility cost pass to seller to place the goods at the Buyer’s disposal on the delivering carrier ready for unloading at the named place of destination. The Seller bears all risks involved in bringing the goods to the named place.
(k) DDP (Delivered Duty Paid) is used irrespective of the mode of transport selected and is also used where more than one mode of transport is employed. It means that the seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination. The seller bears all the costs and the risks involved in bringing the goods to the place of destination and has an obligation to clear goods not only for export but also for import, to pay any duties for both export and import and carry out all customs formalities.
DDP represents the maximum obligation for the seller.The parties are well advised to specify as clearly as possible the point within the agreed place of destination, as the costs and risks to that point are for the account of the seller.
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CHAPTER 7
7.0 DOCUMENT CHECK LISTHaving looked at several Documents that are required to aid proper valuation, it is obvious that it is not always easy to remember all these Documents while vetting lodged entries – yet some of the Documents are mandatory attachments to an entry. So the documents checklist was designed to ensure that Valuation Officers have a quick reference of Documents required to support a Declaration.
The Valuation Document Check List also serves the following purposes :
• Avail a quick reference to Valuation Officers by outlining required Documents for valuation purposes
• Outline Documents that are mandatory to support any declaration• Avail a mechanism for systematic analysis of entries to ensure a chronological
flow of the supporting Documents by way of serial numbers, dates, and preceeding Documents
• It is a handy tool in analysing complex transactions• This form can also be used by Lodgement Desk Officers & Customs Registry /
Archives Officers to confirm that all the required Documents have been attached to an entry.
ConclusionProper analysis of international trade documents is an integral part of Customs clearance.If sufficient documents are availed in support of the declaration, proper taxes and duties coupled with trade facilitation will be realized. However, if there are insufficient or inconsistent documents, this will cause delays, likewise wrong taxes, duties and statistics will be collected.
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Note : Attachments for all documents discussed above are here below attached DOCUMENTATION LEGAL PROVISIONS
EAC CMA 2004 DETAILS Related Articles inSECTION ACVSec 122(1)Paragraph 2 to 9 Where imported goods are liable to Article1 to 8 import duty ad valorem, then the value of such goods shall be determined in accordance with the Fourth Schedule and import duty shall be paid on that value. Sec 122(2) Upon written request, the importer Article16 shall be entitled to an explanation in Decision 6.1 writing from the proper officer as to how the Customs Value of the importer’s goods was determined Sec 122(3) Where, in the course of determining Article13 the Customs Value of imported goods, it becomes necessary for the Customs to delay the final determination of such Customs Value, the delivery of the goods shall, at the request of the importer be made: Provided that before granting such permission the proper officer may require the importer to provide sufficient guarantee in the form of a surety, a deposit or some other appropriate security as the proper officer may determine, to secure the ultimate payment of Customs duties for which the goods may be liable Sec 122(4) Nothing in the Fourth Schedule shall be Article 17 construed as restricting or calling into Decision 6.1 question the rights of the proper officer to satisfy himself or herself as to the truth or accuracy of any statement, document or declaration presented for Customs Valuation purposes.
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Sec 235 (1) The proper officer may, within five years of the date of importation, exportation or transfer or manufacture of any goods, require the owner of the goods or any person who is in possession of any documents relating to the goods-
(a) to produce all books, records and documents relating in any way to the goods; and (b) to answer any question in relation to the goods; and Sec 235(2) (2) Where any owner fails to comply with any requirement made by the proper officer under this section, the proper officer may refuse entry or delivery, or prevent exportation or transfer, of the goods, or may allow the entry, delivery, or exportation or transfer, upon the deposit of such sum, pending the production of the books and documents, as the proper officer may deem fit; and any deposit made shall be forfeited and paid into the Customs revenue if the documents are not produced within three months, or such further time as the proper officer may permit from the date of the deposit. Sec 236 The Commissioner shall have the Article17 powers to- (a) verify the accuracy of the entry of goods or documents through examination of books, records, computer stored information, business systems and all relevant customs documents, commercial documents and other data related to the goods;
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MT P EA ST A FRICA LTD.P.O.Box 24687, Plot No. 444 East Africa,
Phone: +256 772 5050505
PU RCHA SE ORDER
To : AAA EXPORTERS TRADING Co. NEW DELHI INDIA
No : ML 023/2010
DATE: 22-03-2010
S.I.No.
1
3
2
Men’s Jean Trouser Brand X Sise 30 - 34
Men’s Jean Trouser Brand X Sise 35 - 47
Ladies Jean Trouser Brand Y Sise 30 - 36
1400
600
600
$5.29 $7,406.00
$5.79 $3,474.00
$13, 688.00
$4.68 $2,808.00
DESCRIPTION QTY PRICE AMOUNT
USD USD
FOB New Delhi India
In World us$ THIRTEEN THOUSAND SIX HUNDRED EIGHTY EIGHT ONLY
For
Author ised Signature:---------------------------------------------
WARRANTY : TWO YEARPAY TERM: 30% ADVANCE , 70% BEFORE SHIPMENTLOADING TIME: 30 DAYS FROM THE DATE OF 30% ADVANCEVALIDITY 45 DAYS FROM THE DATE OF PURCHASE ORDER
114
115
116
117
118
119
120
121
122
123
124
125
126
CUSTOMS VALUATION DOCUMENT CHECK LIST
sn Document Serial No Date Remarks / Analysis
1 Authority Letter M Reqirement under Sec 146 of EAC CMA
2 Purchase Order W/A
3 Proforma Invoice M
4 Sales Contract W/A
5 Commercial Invoice M
6 Receipt W/A
7 Packing List M
8 Certificate of Origin M
9 Shipping Bill / Export Entry W/A
10 Form E W/A
11 Bill of lading/Airway Bill M
12 Freight Invoice M
13 Insurance Invoice/ Certificate M
14 TT Application W/A
15 TT Confirmation W/A
16 Fumigation Certificate W/A
17 Other Payment modes W/A
18 Phytosanitary Certificate W/A
19 Certificate of Analysis W/A
20 Other Relevant Permits W/A
21 Mombasa T810 / T812 M
22 IM8 / T1 M
23 IM7 (Warehousing Entry) W/A This is mandatory if the goods were
warehoused, however does not apply
if it is a direct C4
NOTE - M stands for Mandatory Documents
W/A stands for Documents that should be attached where applicable
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References
1. General Agreement on Tariffs and Trade (GATT), 19942. Agreement on Implementation of Article VII of GATT, 19943. Brief Guide to the Valuation Agreement 4. Customs Valuation Compendium 2nd Edition November, 20085. Legal Texts: Uruguay Round of Multilateral Trade Negotiations6. East African Community Customs Management Act (EACCMA), 20047. East African Community Customs Management Act Regulations (EACCMAR),
20048. World Customs Organization (WCO) Basic Training Module9. Incoterms 2010
