WORLD TRADE
ORGANIZATIONG/VAL/W/32
11 March 1999
(99-0985)
Committee on Customs Valuation Original:  English
LINKAGES BETWEEN THE AGREEMENT ON CUSTOMS VALUATION AND
TRADE FACILITATION
The Council for Trade in Goods (CTG), at its meeting of 8 July 1998, requested that
subsidiary bodies of the CTG include the item "trade facilitation" on the agendas of their formal
meetings. The bodies were requested to address those aspects of trade facilitation which they regarded
as being related to the respective Agreements with a view to introducing the results of these
discussions into the informal CTG discussions on trade facilitation in April 1999.  The Committee onCustoms Valuation first included the item "trade facilitation" on the agenda of its 9 November 1998
meeting.  An informal meeting was held on 12 February 1999 to further discuss the subject.  At this
meeting, it was agreed that  the Secretariat would prepare a paper outlining the linkages between the
Agreement on Customs Valuation (hereafter, the Agreement) and trade facilitation.  In addressing this
subject, there are two aspects to consider:  the linkages between trade facilitation and the provisions ofthe Agreement which relate strictly to valuation for customs purposes;  and the linkages between trade
facilitation and implementation of the Agreement which may also include the customs practices and
procedures.
I. TRADE FACILITATION AND THE PROVISIONS OF THE AGREEMENT
1. The Agreement provides the methodologies and rules that Members must use to value imports
for customs purposes.  Customs valuation is an integral part of the trade process, and can play a major
role in facilitating or hindering trade. This is because it is the value of imported goods, as determined
at the border, that gives effect to rates of duties that are assessed on an ad valorem  basis.  It is obvious
that the existence of harmonized, transparent, stable, and equitable methods of valuing imports is
essential to allow traders to foresee at which prices they can buy and sell their products and can
remain competitive and viable;  these are crucial elements in the commercial decision-makingprocess.  The existence of such methods also enables traders to profit from economies of scale if they
can be assured that the methods of valuation in all countries in which they trade will have the same
procedural, documentational, and informational requirements.
2. The importance to traders of stability and transparency in valuation methodologies was
recognized early on when the original drafters of the GATT created Article VII, Valuation for
Customs Purposes .  In particular, paragraph 5 of Article VII states that,
"The bases and methods for determining the value of products subject to duties or other
charges or restrictions based upon or regulated in any manner by value should be stable andshould be given sufficient publicity to enable traders to estimate, with a reasonable degree of
certainty, the value for customs purposes."
The Agreement itself, in the Preamble states that Members recognize "…  the need for a fair, uniform
and neutral system for the valuation of goods for customs purposes that precludes the use of arbitraryof fictitious customs values; and that "… customs value should be based on simple and equitable
criteria consistent with commercial practices … ".   Members also recognize that the " … basis for
valuation of goods for customs purposes should, to the greatest extent possible, be the transaction
value of the goods being valued;  i.e. the "price ac tually paid or payable for the goods when sold for
export to the country of importation".  The intention was that the most simple and equitable criteriaG/VAL/W/32
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should be used whenever possible.  As a result, the Agreement, by its very nature would appear to be
a trade facilitation tool.
3. The rules of valuation, which are to be found in Part I, constitute the major part of the
Agreement.  Among those rules, some have been recognized by international bodies such as the
International Chamber of Commerce as "best customs practices".  In particular, the rules related to
appeals procedures, the speed and ease with which goods may be released, and transparency incustoms laws and regulations are critical elements of the trade transaction process.  These have been
incorporated in Articles 11, 12, 13 and 22 of the Agreement.
4. Article 11, which deals with appeals procedures , is an example of a "best customs practice."
The Article states that,
"1.  The legislation of each Member shall provide in regard to a determination of customs value
for the right of appeal, without penalty, by th e importer or any other person liable for the
payment of the duty.
2. An initial right of appeal without penalty may be to an authority within the customs
administration or to an independent body, but th e legislation of each Member shall provide for
the right of appeal without penalty to a judicial authority.3. Notice of the decision on appeal shall be given to the appellant and the reasons for such
decision shall be provided in writing.   The a ppellant shall also be informed of any rights of
further appeal.".
The Technical Committee on Customs Valuation in its Advisory Opinion 17.1 recommended "that the
importer shall not be subject to a fine or threat of fine merely because he/she chose to exercise his/her
right of appeal".
5. With regard to transparency, Article 12 states that,
"Laws, regulations, judicial decisions and admini strative 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 concerned."
In addition, Article 22 deals with notification obligations among Members and states that,
"Each Member shall ensure, not later than the da te of application of the provisions of this
Agreement for it, the conformity of its laws, regu lations and administrative procedures with the
provisions of this Agreement.
Each Member shall inform the Committee of any ch anges in its laws and regulations relevant to
this Agreement and in the administration of such laws and regulations."
This Article should be read in conjunction with  the Decisions on Notification and Circulation of
National Legislation, and on the Checklist of Issues, adopted by the Committee (G/VAL/5).  Essentially
the first Decision states that,
"(i) Members will submit the complete texts of their national legislation (laws, regulations,
etc.) on customs valuation in one of the three official WTO languages as soon as
possible to the Secretariat which will circ ulate them as Committee documents to the
other Members in the language submitted… "
The second, designed to facilitate understanding of each Member's legislation, requires Members torespond to 15 questions contained in the checklist abou t the legislation.  These questions are contained
in document G/VAL/5.
 6. With regard to the release of goods, Article 13 states that,G/VAL/W/32
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"If, in the course of determining the custom s value of imported goods, it becomes necessary to
delay the final determination of such customs va lue, the importer of the goods shall nevertheless
be able to withdraw them from customs if, wh ere so required, the importer provides sufficient
guarantee in the form of a surety, a deposit or some other appropriate instrument, covering the
ultimate payment of customs duties for which the goods may be liable.  The legislation of each
Member shall make provisions for such circumstances".
7. In order to facilitate implementation of the Agreement for developing countries, the Agreement
contains Special and Differential Treatment provisions in Part III and in Annex III.  Easing the
application of the Agreement so that all Members w ill be able to implement at the appropriate time will
contribute to global implementation of the Agreemen t, and thereby further the Agreement's contribution
to trade facilitation.  Article 20.1 allows developing  countries that were not party to the Tokyo Round
Agreement to delay implementation of the Agreem ent for a period not exceeding five years, during
which time the Member shall make the transition to the WTO system of valua tion.  Further, Article 20.2
allows these countries to delay application of the computed value method (Article 6) for another three
years.  Article 20.3 provides for developed count ry Members to furnish technical assistance to
developing countries in order to facilitate impl ementation of the Agreement.  Annex III contains
provisions which allow these developi ng countries to request an extension of the five year delay period
from the Committee and to continue to use a system of minimum values after applying the Agreementunder limited terms and conditions to be agreed by the Committee.  Finally, Annex III contains
provisions which allow developing country Members to  refuse a request from an importer to reverse the
order of the deductive value and the computed valu e methods, and to request that a study be conducted
of importations into their countries by sole ag ents, sole distributors and sole concessionaires.
II. TRADE FACILITATION AND IMPLEMENTATION OF THE AGREEMENT
8. As mentioned in the introduction to this paper, the linkages discussed in this section not only
cover the implementation of the provisions of the Agreement, but also customs practices and
procedures which can contribute to the effective implementation of the WTO valuation system.  Some
of these practices have been identified in the discussions in the Committee.  These include pre-arrivalprocessing of electronically transferred data from traders to customs administrations;  techniques such
as risk assessment, post-entry clearance, auditing and rapid release facilities for authorised traders.
Further, there are several international conventions and instruments associated with customs practices
and procedures.  It is not the intention of this paper to discuss these instruments and conventions as
they have been already been explained in consider able detail in a Secretariat paper prepared for the
discussions on trade facilitation in the Council fo r Trade in Goods (G/C/W /80 and Add.1).  Annexes
III through VIII of that paper are particularly important.  Additional information has also been
compiled, following the Trade Facilitation Symposium held on 9-10 March 1998, in documents
G/C/W/113 and 115.  In particular the section in G/C/W/113 entitled "Import and Export Procedures
and Requirements, including Customs and Border Crossing Problems" is of particular interest.  The
issues and problems raised under this heading at the Symposium and the suggestions for resolving
these issues are categorized into under several headings:  Documentation Requirements;  OfficialProcedures;  Automation and Use of Information Technology;  Transparency, Predictability and
Consistency;  Modernization of Border-Crossing Administration.
9. In relation to the subject-matter under discussion, the International Convention on the
Simplification and Harmonization of Customs Procedures (the Kyoto Convention) is of particularimportance.  The Kyoto Convention, agreed in May 1973, consists of two parts.  The first iscomprised of 19 Articles setting out the general provisions essential for the implementation of theinstrument.  The second consists of 31 Annexes (26 of which have entered into force), each devoted toa specific customs procedure.
1 An Annex enters into force when five Contracting Parties have
                                                     
     1The term "Customs procedure" in this context covers all provisions relating to a particular sphere of Customs activity.G/VAL/W/32
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accepted it.  Each Annex consists of a set of defi nitions clarifying the main  customs terms used and
the rules governing the implementation of the procedure concerned.  These provisions take the formeither of Standards , whose general application and incorporation in national legislation are considered
essential for harmonization and simplification, or the form of Recommended Practices , which are
provisions recognized as constituting progress towards the harmonization and simplification ofcustoms procedures, and whose application is considered to be desirable.  Both categories ofprovisions may be accompanied by Notes , intended to indicate ways in which the relevant Standard or
Recommended Practice might be applied.
10. The Kyoto Convention is open for accession by any State, and by Customs or Economic
Unions. Presently, the Kyoto Convention has 59 Contracting Parties.  The 31 Annexes are theinstruments of harmonization of customs procedures, since they contain the principles intended to beincorporated in national legislation.  At the time of accession to the Convention, a State has to acceptat least one Annex.  Subsequently, each of the remaining Annexes can be accepted individually.Countries may select Annexes if they want to limit th eir obligations to those particular sections of their
legislation which they wish to modernize or to align with international practice.
11. The Annexes to the Kyoto Convention, A through J, are listed below with a general
description of the items covered in each:
(a) Annex A: Formalities Prior to the Lodgement of the Goods Declaration
This Annex deals with customs formalities prior to the lodgement of the goods declaration, the
temporary storage of goods, customs formalities ap plicable to commercial means of transport,
and customs treatment of store s (not in force)
(b) Annex B: Clearance of Goods for Home Use
This Annex deals with clearance for home use, relief from import duties and taxes in respect of
goods declared for home use, and reimportation in the same state .
(c) Annex C: Clearance of Goods at Exportation
This Annex deals with outright exportation.
(d) Annex D: Origin of Goods
This Annex deals with rules of origin, concerning documentary evidence of origin, and the
control of documentary evidence of origin.
(e) Annex E: Conditional Release Procedures and Processing Traffic
This Annex deals with customs transit, transhipment, customs warehouses, drawback,
temporary admission subject to re-exportation in  the same state, temporary admission for
inward processing, the duty free replacement of g oods (not in force), and temporary exportation
for outward processing.
(f) Annex F: Special Customs Procedures
This Annex deals with free zones, processing of goods for home use, customs facilities
applicable to travellers, customs formalities in re spect of postal traffic, urgent consignments, the
repayment of import duties and taxes ,and  the carriage of goods coastwise (not in force).
(g) Annex G: Relations Between Persons Engaged in International Trade and the Customs
Administrations
This Annex deals with information supplied by the customs authorities and the relationship
between customs authorities and third parties.
(h) Annex H: Disputes and Offenses
This Annex deals with appeals in customs matters, customs offence (not in force), and
customs applications of computer s (not in force).
(j) Annex J: Customs Applications of Computers
This Annex deals with customs applications of computers (not in force).
12. A WCO Working Group started to revise the Kyoto Convention in 1995;  the target for
completion is April 1999 and for adoption by the WCO Council in June 1999.  The amendments areG/VAL/W/32
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foreseen to enter into force in 2000/2001 if two-thirds of the current contracting parties agree to it.
The amendments would be binding for all those contracting parties who accept the changes to theConvention.  The revision has become necessary due to the radical changes in trade, transport andadministrative techniques, and the view that the Convention has not significantly contributed to theharmonization and simplification of customs procedures worldwide.  One reason for this failure is thesmall number of contracting parties to the individual annexes.  In addition, these parties have made a
large number of reservations with regard to some important annexes, and few parties have committedto standards.  The revised Convention will include modernizing provisions for electronic commerce,risk management, automation and audit-based controls and will have new implementation guidelineswhich should fac ilitate adopti on of the modernized procedures.
13. The revised Convention will consist of a "B ody," a "General Annex," and several specific
Annexes dealing with different sp ecific procedures.  The Body consists of the Preamble, Definitions,
Scope, the Structure (explanation of the structure of the Convention), Administration, Rules ofAccession, and Rules for Amendment.  The General Annex sets out the core provisions and
definitions of general application to all customs procedures.  These principles are not repeated in any
of the specific Annexes and represent an overarchi ng set of modern customs procedures.  Unlike the
1973 Convention, no reservations can be entered against any standards of the General Annex whichwill have to be accepted in its entirety.  However, there are implementation periods of varying lengthfor some of the standards contained in the General Annex.  Parties can choose to accept specificannexes but once they do, all standards therein are binding.  In addition, all Annexes and chaptersinclude "Guidelines" containing detailed information on the implementation of provisions in theAnnexes, simplified procedures and best practices.  These are not part of the legal texts and are to beupdated periodically.
14. A few of the standards in the General Annex are similar to provisions in the Agreement on
Customs Valuation which have been recognized as  "best customs practices " designed to facilitate
trade.  For example in Chapter 3 of the Annex, Standard 3.43 deals with release of goods and says
that,
"When an offence has been detected the Customs shall not wait for the completion of
administrative or legal action before they release the goods, provided that the goods are notliable to confiscation and that the declarant pays the duties and taxes and furnishes security toensure collection of any additional duties and taxes and of any penalties which may beimposed."
In addition, Chapter 10 deals with "Appeals in Customs Matters" and states, in Standard 10.1, that
"National legislation shall provide for a right of appeal in Customs matters."  Standard 10.3 states
"The person directly affected by a decision or omission of the Customs shall be given, after havingmade a request to the Customs, the reasons for such  decision or omission with in a period specified in
national legislation.  This may or may not result in an appeal".   Standard 10.4 and 10.5 say that"National legislation shall provide for the right of an initial appeal to the Customs."…"Where anappeal to the Customs is dismissed, the appellant shall have the right of a further appeal to anauthority independent of the Customs administration."
III. CONCLUSION
15. Finally, it is worth noting that full implementation of the Agreement on Customs Valuation
can contribute towards gl obal economic development through fac ilitating tr ade for both importers in
their domestic markets as well as exporters looking for new or broader markets abroad.  As wasmentioned in the introductory paragraph, the Agreement contains the rules for valuing imports,thereby giving effect to rates of duties that are assessed on an ad valorem  basis.  It provides aG/VAL/W/32
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harmonized, transparent, stable, and equitable system of valuing imports.  This creates a system of
rights and obligations for importers which provides them with the knowledge of what to expect fromcustoms authorities, the right to appeal, the ability to continue their business even pending a customsdecision and the assurance that their suppliers are familiar with customs clearance procedures andknow precisely what documentation and administrative requirements are expected.  Exporters,similarly, can be assured at what price their products will sell abroad and can determine whichmarkets will enable them to remain competitive and viable.  Implementation of the Agreement,coupled with procedural and administrative modernization in the customs administration willsimplify or eliminate administrative, logistical or procedural obstacles to the movement of goodsacross borders.  For traders this will contribute to lowering the costs and delays associated withtrading.  For Governments, a strong customs authority, working in an environment of established,enforced rules and satisfied traders will contribut e to overall improvement in national accounts and
economic development.
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