08 Autom
ne
M y C o u r s e s e r i e s
OBJECTIVES
Explain the non-tariff measures in the WTO framework;
Describe disciplines related to customs valuation.
WTO E-LEARNING COPYRIGHT © 12
Detailed Presentation of Customs Valuation in the WTO
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I. INTRODUCTION
Besides tariffs, several non-tariff measures could also restrict or even impede market access of goods, some of
which can be legitimately introduced and maintained by WTO Members, as long as they are applied in a WTO
consistent manner.
There is no agreed definition in the WTO of what constitutes a "non-tariff measure" nor a "non-tariff barrier"
neither is there consistency in the way both terms have been used in the past. Although both terms are often
used interchangeably, the term "non-tariff measure" (NTM) has been preferred throughout this course1. While
the application of NTMs does not always restrict trade, they often result in unnecessary restrictions or undue
barriers, which explains the utilisation of the term "non-tariff barrier" (NTBs).
The type of measures covered by these terms varies significantly and includes all measures other than tariffs
which can have an impact on trade in goods. Measures covered by WTO Agreements include: quantitative
restrictions (e.g. quotas), and other NTMs (e.g. lack of transparency in trade regulation, arbitrary application of
trade regulations, customs formalities, technical barriers to trade, practices of customs valuation, etc.).
During the last GATT Rounds of negotiations, Contracting Parties made considerable efforts to eliminate NTBs
that were used solely for protectionist purposes or, in those cases where they were applied to pursue a
legitimate objective (e.g. to protect health or the environment), to minimize their trade distorting effects.
1 The term "non-tariff barrier" (NTB) is, nevertheless, used whenever this course cites GATT/WTO texts or
refers to specific occasions where the term NTB was originally employed.
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II. GATT NEGOTIATIONS ON NON-TARIFF
MEASURES
IN BRIEF
While the GATT 1947 already contained some provisions on non-tariff measures (NTMs), it was not until the
Kennedy Round (1964 - 1967) that GATT Contracting Parties decided to go beyond tariffs and address NTMs in
the context of a multilateral round. In the following GATT Rounds (the Tokyo Round and the Uruguay Round),
NTMs remained on the agenda of negotiations and received extensive attention. The most important
achievement resulting from these negotiations and in particular from the Uruguay Round, was the conclusion of
a number of multilateral agreements, which set out specific disciplines on different types of NTMs.
THE ''KENNEDY ROUND''
With the progressive reduction of tariffs brought about by the early GATT Tariff Conferences, it was perceived
that governments were gradually shifting to other forms of measures to restrict market access for goods and
protect their domestic industries. GATT Contracting Parties recognized that the benefits resulting from tariff
reductions and tariff bindings would only be effective if they could not be undermined by the application of
other measures. Therefore, effective trade liberalization required that not only tariff barriers had to be
reduced, but that there was a growing necessity to agree on multilateral disciplines to address NTMs.
The Kennedy Round was the first GATT Round where NTMs were addressed as part of the multilateral
negotiations in addition to tariffs. However, the results in this Round were rather modest due to the
considerable reluctance of some negotiating parties to assume new commitments in this new field. At the end
of this Round, Contracting Parties were only able to produce an Anti-dumping Code (the 1967 International
Anti-Dumping Code), which, however, applied only to those parties which agreed to be bound by it.
Contracting Parties also made efforts to identify NTMs through an exercise of notification of the barriers they
encountered in their trade relations. The result was a non-exhaustive list including 18 categories of measures
involving issues such as escape clauses, anti-dumping, customs valuation, government procurement policies,
residual quantitative restrictions, administrative and technical regulations, subsidies, etc. On the basis of that
list, an inventory of quantitative restrictions and other non-tariff barriers (NTBs) was drawn up shortly after the
Kennedy Round.
THE ''TOKYO ROUND''
Compared to the modest results on NTBs during the Kennedy Round, the Tokyo Round took a broader look at
trade rules and focused on addressing what was considered the most important NTBs facing exports at that
time.
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The results of this round were considered to be one of the major accomplishments in trade negotiations since
the creation of the GATT. The Tokyo Round negotiations on NTMs led to:
the amendment of the Anti-dumping Code that had originally been negotiated during the Kennedy
Round; and,
the conclusion of new "Codes", including the Code on Customs Valuation, the Code on Import Licensing
Procedures, the Code on Government Procurement, the Code on Subsidies and Countervailing
Measures, and the Code on Technical Barriers to Trade.
Instead of providing legal disciplines applicable to all Contracting Parties, these Codes were drafted as stand-
alone agreements that obliged only those Contracting Parties that became party to them. In most cases, only
a relatively small number of GATT Contracting Parties (mainly developed countries) subscribed to these Codes.
However, the operation of the MFN principle meant that even those GATT Contracting Parties who had not
signed the Codes generally enjoyed the same benefits of the Codes as those Parties who had signed them.
This diminished the incentives for joining the Codes, creating a "free-rider" problem. 2
Furthermore, the Tokyo Round did not tackle some NTBs that impeded considerably the exports of developing
countries, such as NTBs on textiles and clothing products, consumer electronics, agricultural goods and
foodstuffs, etc.
Despite these limitations, the result of the negotiations during the Tokyo Round injected an important impetus
for the further negotiation of NTMs during the Uruguay Round.
TO KNOW MORE... THE TOKYO ROUND CODES
Some of the most relevant codes included:
The Code on Customs Valuation
The Valuation Code established a positive system of Customs Valuation based on the price actually paid or
payable for the imported goods. It was signed by more than 40 Contracting Parties. The Code was
replaced by the WTO Agreement on Implementation of Article VII of the GATT 1994 after the conclusion
of the Uruguay Round.
Import Licensing Code
The Code was aimed at preventing import licensing procedures from unnecessarily hindering international
trade. During the Uruguay Round, it was revised to strengthen the disciplines on transparency and
notifications.
2 In this context, the term "free-rider" is used to describe a situation in which a country who does not make
any trade concessions, enjoys, nonetheless from the concessions made by other countries owing to the MFN
principle. From an economic perspective, free riders do themselves harm because they deny themselves the
benefits of trade liberalization (Goode Walter, Dictionary of Trade Policy Terms (2007), Fifth Edition, p. 181).
The Code on Government Procurement, however, remained a plurilateral instrument and its benefits were not
extended to non-signatory Members.
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TBT Code or "Standards Code"
The Standards Code laid down the rules for preparation, adoption and application of technical regulations,
standards and conformity assessment procedures. Only 32 GATT Contracting Parties signed the Code.
The WTO Agreement on Technical Barriers to Trade (TBT Agreement) has strengthened and clarified the
provisions of the Standards Code.
Anti-Dumping Code
The Anti-Dumping Code provided more guidance about the determination of dumping and of injury than
did Article VI of the GATT 1947. It also set out in detail certain procedural and due process requirements
that must be fulfilled in the conduct of investigations. Nevertheless, the Code represented only a general
framework for countries to follow in conducting investigations and imposing duties. The Code was later
replaced by the WTO Agreement on Anti-Dumping.
THE ''URUGUAY ROUND''
One of the motivations behind the decision to launch the Uruguay Round was the GATT Contracting Parties'
awareness that NTMs were becoming increasingly important. In the Uruguay Round Ministerial Declaration,
negotiating parties set out as one of the objectives to reduce or eliminate NTBs, including quantitative
restrictions (paragraph D of the Ministerial Declaration). The Uruguay Round brought several significant
achievements on addressing NTMs, including:
the amendment of the Codes adopted during the Tokyo Round;
the conclusion of several new Agreements to deal with other forms of NTMs, including the ''Agreement
on Preshipment Inspection'', the ''Agreement on Rules of Origin'', the ''Agreement on Trade-related
Investment Measures'', the ''Agreement on the Application of Sanitary and Phytosanitary Measures'',
the ''Agreement on Textiles and Clothing'', and the ''Agreement on Safeguards''; and,
A new "Part III" was included in the Schedules of concessions to record commitments in respect of
NTMs. Eleven Members made concessions by including specific commitments on areas such as the
removal of import licensing requirements, elimination of quantitative restrictions and tendering
requirements, reform of import licensing systems, eliminate import bans and phase out tariff-rate
quotas, etc.
A major innovation of the Uruguay Round was the introduction of the principle of ''single undertaking''.
According to this principle, all Members were required to accept the Multilateral Trade Agreements concluded
during the Uruguay Round as a whole, that is, as a single package. In other words, no Member had the
possibility to opt out of some Agreements. Thus, while the Tokyo Round Codes were applicable to signatories
only, all of the Uruguay Round Multilateral Trade Agreements were binding on all WTO Members.
EXERCISES:
1. What is the main difference between the Tokyo Round Codes and the Multilateral Trade Agreements
resulting from the Uruguay Round, besides the differences in substantive content?
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III. QUANTITATIVE RESTRICTIONS
IN BRIEF
Quantitative restrictions (QRs), which are one of the best-known NTBs, can be defined as specific limits on the
quantity or value of goods that can be imported (or exported) during a specific time period. The most common
QRs are prohibitions and quotas.
Under the GATT/WTO framework, tariffs are allowed as a form of protection as long as they do not exceed the
bound levels and are applied on an MFN basis. However, Members are generally prohibited from applying QRs.
The rationale of favouring tariffs over quantitative restrictions and other forms of NTBs is because tariffs are
considered to be more transparent and less trade distorting.
Article XI:1 of the GATT 1994 provides the general elimination of quantitative restrictions and "other
measures" instituted or maintained by a Member on the importation, exportation or sale for export of products
(other than duties, taxes or other charges consistent with GATT/WTO rules).
Despite the general rule prohibiting QRs, there are exceptions which allow the imposition of QRs in certain
circumstances and subject to certain conditions. Whenever authorized under WTO rules, QRs must be imposed
on a non-discriminatory basis according to Article XIII of the GATT.
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IV. OTHER NON-TARIFF BARRIERS
IN BRIEF
In addition to quantitative restrictions, several other non-tariff measures (NTMs) could also have the effect of
restricting market access of goods and therefore become trade barriers. Some of the measures covered by
WTO Agreements include, for example, technical barriers to trade, lack of transparency in trade regulations,
customs formalities and arbitrary practices of customs valuation. In those cases where NTMs are based on a
legitimate goal (i.e. measures to protect the environment or health), Members need to meet specific conditions
set out in the WTO Agreements to ensure the application of these measures do not result in barriers to trade.
A number of NTMs are currently subject to WTO multilateral disciplines applicable to all Members, including
inter alia the following:
Agreement on Sanitary and Phytosanitary Measures
Agreement on Technical Barriers to Trade
Article V of the GATT 1994 on Freedom of Transit
Article VII of the GATT 1994 and the Agreement on Customs Valuation
Article VIII of the GATT 1994 on Fees and Formalities connected with Importation and Exportation
Article X of the GATT on Publication and Administration of Trade Regulations;
Agreement on Rules of Origin
Agreement on Preshipment Inspection
Agreement on Import Licensing Procedures
Agreement on Trade Related Investment Measures
IV.A. CUSTOMS VALUATION
IN BRIEF
For importers, the process of estimating the value of a product at customs presents problems that can result in
barriers to trade just as serious as the actual duty rate charged. Customs valuation is the procedure applied to
determine the customs value of imported goods when the rate of duty is ad valorem. In this case, the customs
value is essential to determine the duty to be paid on an imported good. The value of tariff bindings in ad
valorem form would be seriously compromised if governments were free to determine the value of imported
goods through whatever method they wanted. The Agreement on Customs Valuation (CV) aims for a fair,
uniform and neutral system for the valuation of goods for customs purposes — a system that conforms to
commercial realities, and which outlaws the use of arbitrary or fictitious customs values.
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IV.A.1. WHY AN AGREEMENT ON CUSTOMS VALUATION?
The Agreement on Customs Valuation is relevant for tariffs which are in ad valorem form, or which have an ad
valorem component (including mixed and compound tariffs).
In case of a specific duty, the customs value of a good does not need to be determined for purposes of levying
the import tariff, as the duty is not based on the value of the good but on a quantitative description of the
good (e.g. US$ 1 per item or per unit). In this case, no rules on customs valuation are needed.
In the case of ad valorem duties, the value of the good is crucial in determining the amount that needs to be
paid in monetary terms. The amount to be paid on an imported good is normally calculated as follows: the
customs valuation is multiplied by an ad valorem rate of duty (e.g. five per cent).
The need for multilateral disciplines on customs valuation can be attributed to the following two reasons:
Customs valuation can constitute serious obstacles to market access for goods - since the applied tariff
rate is dependent upon the value of a good, the rules applicable to the determination of the value of a
good in customs presents problems that can be just as serious as the actual duty rate to be applied.
Access to the importing Member's market can be denied if the duty payable at customs is inflated
because the imported goods are overvalued by the customs authorities. Furthermore, the lack of
uniformity on customs valuation rules would incur additional transaction costs on importation.
For example:
If a good is valued at $15, the amount payable would be $15 * 5 / 100 = $0.75. But if the same good
is valued at $30, the amount payable would be $30 * 5 / 100 = $1.50. This is the reason why
importers have an incentive to try to undervalue the price of the good (i.e. to pay less), while customs
authorities have an incentive to overvalue it (i.e. to be paid more).
Customs valuation can undermine the value of tariff concessions – the outcome of tariff negotiations
would be seriously undermined if the importing countries are allowed to adopt valuation rules and
methodology arbitrarily and discretionarily. In other words, the arbitrary adoption of valuation rules
could constitute a NTB, which would diminish or even take away the worth of tariff concessions. This
would frustrate the predictability and security achieved through the bindings.
IV.A.2. HISTORICAL BACKGROUND
Before the conclusion of the Agreement on Customs Valuation during the Uruguay Round, Article VII of the
GATT laid down the general principles for an international system of valuation. It stipulated that the value for
customs purposes of imported merchandise should be based on the actual value of the imported merchandise
on which the duty is assessed, or of like merchandise, and should not be based on the value of merchandise of
national origin or on arbitrary or fictitious values. This provision left room for considerably different methods of
valuing goods and for arbitrary protectionist procedures.
The Tokyo Round Valuation Code concluded in 1979, established a new system of Customs Valuation that
would reflect commercial realities as closely as possible. However, as a stand-alone agreement, the Tokyo
Round Valuation Code was applicable only to those Contracting Parties that had signed and ratified it. This
Code was re-examined during the Uruguay Round and replaced by the multilateral Agreement on
Implementation of Article VII (Agreement on Customs Valuation), which applies to all WTO Members.
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IV.A.3. MAIN DISCIPLINES ON CUSTOMS VALUATION
Unlike the Code, the Uruguay Round Agreement on Customs Valuation is binding on all WTO Members. The
Agreement on Customs Valuation aims for a fair, uniform and neutral system for the valuation of goods for
customs purposes, that is, a system that conforms to commercial realities and outlaws the use of arbitrary or
fictitious customs values. It provides a set of valuation rules, expanding and giving greater precision to the
provisions on customs valuation in the GATT.
The Agreement provides that customs valuation shall, except in specified circumstances, be based on the price
paid or to be paid, as agreed between the buyer and the seller, of the goods to be valued. This price is
generally shown in the invoice. For cases where the transaction value cannot be determined or is not accepted
by customs authorities as customs value, the Agreement lays down five other methods of customs valuation.
METHODS OF CUSTOMS VALUATION
Method 1 – Transaction Value (main method)
Method 2 -Transaction Value of Identical Goods
Method 3 – Transaction Value of Similar Goods
Method 4 – Deductive Method
Method 5 – Computed Method
Method 6 – Fall Back Method
1. BASIC PRINCIPLE – METHOD 1 (TRANSACTION VALUE)
The transaction value is the first and most important method of valuation referred in the Agreement. The
"transaction value" is defined in Article 1 as the price actually paid or payable for the goods when sold for
export to the country of importation, adjusted in accordance with Article 8 which provides, inter alia,
adjustment when certain specific elements are incurred by the buyer but are not included in the price.
According to the Interpretative Note to Article 1, 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 includes all payments
made as a condition of sale of the imported goods by the buyer to the seller, or by the buyer to a third party to
satisfy the obligation of the seller. The payment need not necessarily take the form of money, it may be made
directly or indirectly. An example of indirect payment would be the settlement by the buyer, whether in whole
or in part, of a debt owed by the seller.
The customs value is the transaction value if all of the following conditions have been fulfilled:
There must be evidence of a sale for export to the country of importation (i.e. commercial invoices,
contracts, purchase orders, etc.).
There must be no restriction on the disposition or use of the goods by the buyer, other than restrictions
which: (i) are imposed or required by law in the country of importation; (ii) are limited to the
geographic area in which the goods may be resold; (iii) do not substantially affect the value of the
goods.
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The sale or price must not be subject to conditions or considerations for which a value cannot be
determined with respect to the goods being valued. Some examples are provided in the Interpretative
Note to Article 1:1(b).
No part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer will accrue
directly or indirectly to the seller, unless adjustment can be made in accordance with provisions in
Article 8.
Sufficient information is available to enable the specific adjustments to be made under Article 8 to the
price paid or payable.
The buyer and seller are not related (the definition of related persons is found in Article 15), but even if
so, the use of the transaction value is acceptable if the importer demonstrates that the relationship did
not influence the price, or the transaction value closely approximates a test value.
As mentioned above, customs valuation based on the transaction value method is mainly based on
documentary input from the importer. Article 17 of the Agreement on Customs Valuation confirms that
customs administrations have the right to request further information in cases where they have reasons to
doubt the accuracy of the declared value of imported goods. The "Decision Regarding Cases where Customs
Administrations have Reasons to Doubt the Truth or Accuracy of the Declared Value" spells out the procedures
to be observed in such cases. In this regard, customs may ask the importer to provide further explanation that
the declared value represents the total amount actually paid or payable for the imported goods, adjusted in
accordance with Article 8. If the reasonable doubt still exists after reception of further information (or in
absence of a response), customs may decide that the value cannot be determined according to the transaction
value method. Before a final decision is taken, customs authorities must communicate their reasoning to the
importer, who, in turn, must be given reasonable time to respond. In addition, the reasoning of the final
decision must be communicated to the importer in writing.
2. OTHER METHODS
For cases in which there is no transaction value (e.g. there is no sale or an invoice), or where the transaction
value is not acceptable as the customs value because the price has been distorted as a result of certain
conditions – specified in Article 1 of the Agreement-, the Agreement lays down five other methods of customs
valuation, to be applied in the prescribed hierarchical order:
Method 2 -Transaction Value of Identical Goods (Article 2): the customs value is determined on
the basis of the transaction value of previously imported identical goods if the goods are: (i) the same
in all respects including physical characteristics, quality, and reputation; (ii) produced in the same
country as the goods being valued; and, (iii) produced by the producer of the goods being valued. For
this method to be used, the goods must be sold for export to the same country of importation as the
goods being valued. The goods must also be exported at or about the same time as the goods being
valued.
Method 3 – Transaction Value of Similar Goods (Article 3): the customs value is determined on the
basis of the transaction value of previously imported similar goods if: (i) gods closely resembling the
goods being valued in terms of component materials and characteristics; (ii) goods which are capable
of performing the same functions and are commercially interchangeable with the goods being valued;
and, (iii) goods which are produced in the same country as and by the producer of the goods being
valued. Similarly to method 2, for method 3 to be used, the goods must be sold to the same country of
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importation as the goods being valued. The goods also must be exported at or about the same time as
the goods being valued.
Method 4 – Deductive Value (Article 5): the customs value is determined on the basis of the unit
price at which the imported goods or identical or similar goods are sold to an unrelated buyer in the
greatest aggregate quantity in the country of importation minus certain deductions. According to the
Interpretative Note to Article 4, "the unit price at which ... goods are sold in the greatest aggregate
quantity" means the price at which the greatest number of units is sold to unrelated persons at the first
commercial level after importation at which such sales take place (the Interpretative Note provides
some examples). The buyer and the seller in the importing country must not be related and the sale
must take place at or about the time of importation of the goods being valued. If no sale took place at
or about the time of importation, it is permitted to use sales up to 90 days after importation of the
goods being valued.
Method 5 – Computed Value (Article 6): the customs value is determined on the basis of the cost of
production of the goods being valued (value of the materials and fabrication), plus an amount for profit
and general expenses usually reflected in sales from the country of exportation to the country of
importation of goods of the same class or kind. Computed value is the sum of the following elements:
(i) production cost (value of materials and fabrication); (ii) profit and general expenses; and, (iii) other
expenses to be added. The sequence of methods 4 and 5 can be switched at the request of the
importer (not however at the discretion of the customs officer).
Method 6 – Fall Back Method (Article 7): when the customs value cannot be determined under any
of the previous methods, it may be determined using reasonable means consistent with the principles
and general provisions of the Agreement and of Article VII of GATT, and on the basis of data available
in the country of importation. To the greatest extent possible, this method should be based on
previously determined values and methods with a reasonable degree of flexibility in their application.
3. SPECIAL & DIFFERENTIAL TREATMENT AND OTHER PROVISIONS
The Agreement on Customs Valuation recognizes the particular difficulties and challenges that developing
country Members may face in the implementation of the Agreement and thus, contains provisions for special
and differential treatment of developing countries and for technical assistance (see Article 20 and Annex 3 of
the Agreement).
Longer Implementation Periods: developing country Members (which were not party to the Tokyo
Round Code) were allowed to delay application of the provisions of the Agreement for 5 years from the
date on which the developing country became a member of the WTO (Article 20.1). An extension of
the five-year period is also allowed based on request from such developing country Members, which
must show good cause (Annex III:1).
Technical Assistance (TA) from developed country Members: under Article 20.3 developed
country Members shall furnish, on mutually agreed terms, technical assistance to developing country
Members that so request. On this basis, developed country Members shall draw up TA programmes
which may include, inter alia, training of personnel, assistance in preparing implementation measures,
access to sources of information regarding customs valuation methodology and advice on the
application of the provisions of the Agreement.
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The Agreement on Customs Valuation also allowed developing country Members to make reservations to some
provisions of the Agreement (which would not be applicable to them) as well as to request special application
of certain provisions.
Note
The Committee on Customs Valuation of the Council for Trade in Goods (CTG) is the body in the WTO in charge
of monitoring the implementation of the Agreement on Customs Valuation. The Agreement also establishes a
Technical Committee on Customs Valuation under the auspices of the World Customs Organization (WCO),
which is responsible for technical questions concerning the Agreement.
PROPOSED ANSWERS:
1. Compared to the Tokyo Round, a major change in the Uruguay Round was the introduction of the
principle of ''single undertaking''. According to this principle, all Members were required to accept the
Multilateral Trade Agreements concluded during the Uruguay Round as a whole (as a single package): no
Member had the possibility to opt out of some Agreements. Thus, while the Tokyo Round Codes were
applicable to signatories only, the Uruguay Round Multilateral Trade Agreements are binding on all WTO
Members.
