WORLD TRADE  
ORGANIZATION  G/VAL/W/137 
14 October 2004 
 
 (04-4326) 
Committee on Customs Valuation Original:   English 
  
 
NOTIFICATION UNDER ARTICLE 22 OF THE CUSTOMS  
VALUATION AGREEMENT 
 
US questions regarding China's legisl ation related to customs valuation
 
 
 
 The following communication, dated 8 October 2004, is being circulated at the request of the Delegation of the United States.  
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  For ease of reference, the United States pres ents in this one document the following 
outstanding questions regarding China’s notifications under Article 22 of the Customs Valuation Agreement (CVA).  These questions have previo usly been submitted by the United States in 
documents G/VAL/W/134 and G/VAL/W/127.  Where appropriate, certain questions have been 
deleted or otherwise updated to reflect China’ s June 2004 notification of its Regulations 
(G/VAL/N/1/CHN/4).  
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1. Regarding China's Notification of its Implementing Law (G/VAL/N/1/CHN/1)
 
 
 The definition of "price actually paid or paya ble" in Decree No. 95 differs from the definition 
in the WTO Agreement.  Article 41 of China’s Decree No. 95 states that "Price actually paid or 
payable" means the total payment, as a condition fo r the sale of the imported goods from the seller, 
directly or indirectly made, or to be made, by the buyer to or for the benefit of the seller to the third 
party.  The phrase "price actually paid or payable" is defined in the Note to Article 1, in the WTO 
CVA as "the total payment made or to be made by the buyer to or for the benefit of the seller for the 
imported goods."  The "price actually paid or pa yable" concept is one of the cornerstones of 
transaction value.  We ask China to incorporate th e WTO CVA definition into its relevant laws and 
regulations, or otherwise explain the reason for the definition in Article 41 which is not consistent 
with the CVA definition. 
 
2. Regarding Related Parties - Circumstances of Sale Test  
 
 The Decree lacks the language  of Article 1.2 and the corresponding Interpretative Notes of 
the CVA.  There is no reference to the Circumstan ces of Sale Test and how it is to be applied. 
Article 6 of the Decree simply states that where the seller and the buyer are related within the 
meaning of Article 42, the transaction value shall be accepted whenever the customs administration 
considers that the relationship did not influence the price.   We note that the Regulations notified in 
G/VAL/N/1/CHN/4 do not address this issue.  There is no explanation of the "circumstances of sale" 
test.  Nor is there any reference to the other method specified in Article 1.2 of the CVA for 
demonstrating that transaction value is acceptable (that is, closely approximates certain previously G/VAL/W/137 
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 accepted customs values).  Please indicate how the pr ovisions of Article 1.2 of the CVA and the 
applicable interpretative notes will be implemented.  
 
 The scope of identical goods and similar goods covered in the Decree di ffers from the CVA.  
Whereas Articles 15 CVA states that goods shall not be regarded as "identical goods" or "similar 
goods" unless they were produced in the same country  as the goods being valued, Article 41 of the 
Decree defines "identical goods" and "similar goods" as goods with specified characteristics that are 
produced in the same country or region.  We see k an explanation and ask that the reference to 
"region" should be deleted.  
 
 The Interpretative Notes to Article 5 CVA spec ify that the deduction for profit and general 
expenses should be taken as a whole and should be determined on the basis of information supplied 
by the importer unless the importer's figures are inconsistent with those obtained in sales in the country of importation of the imported goods of the sa me class or kind. The Decree contains no such 
provision.  We seek an explanation for this situati on, and request that China make sure this provision 
is added to its legislation and regulations.   
 
 Article 10 of the Decree provides that an el ement of the computed value is "an amount for 
profit and general expenses equal to that usually reflected in sales of goods of the same class or kind 
as the imported goods being valued."  However, the Chinese law is lacking a provision set forth in the 
Interpretative Note to Article 6 of the WTO CVA - that the amount for profit and general expenses is 
to be taken as a whole and determined on the basis of information supplied by or on behalf of the 
producer unless the producer's figures are inconsistent  with those "usually re flected in sales of the 
goods of the same class or kind."  Please provide ad ditional information on this matter, providing an 
explanation for the absence of this type of provision.  
 Although China indicates in its WTO Checklis t response that the Peoples' Bank of China 
publishes the official rate of exchange, there is no indication whether the currency conversion is the 
rate in effect at the time of exportation or the time of importation as specified in Article 9 CVA.  
Although Article 22 of the notified Regulations ad dresses currency conversion, it does not provide 
whether the applicable rate is the rate in effect at  the time of exportation or the time of importation.  
Please provide additional information on this matter.  
 
 Article 39 of the Decree indicates that the importer or exporter who dissents from the decision of the customs administration on the customs valua tion may apply for appeal in accordance with the 
relevant provisions of the Customs Law of the People's Republic of China and the  Regulations on 
Import and Export Tariff of the People's Republic of China .  We note that Article 64 of the notified 
Regulations provides for the right to appeal the de termination of the customs value to the People’s 
Court.  Please cite to where it is provided that the appeal is without penalty and that the appellant will 
receive written notice of the decision as required by Article 11 of the CVA.   Article 37 of the Decree provides that where [the] customs administration decides that the 
determination of customs value needs to be postponed, the importer (or exporter) may, after 
submitting a guarantee according to the relevant regulations, request the goods be released from 
customs custody.  The notified Regulations do not ad dress the requirements of Article 13 of the CVA.  
Please provide information on the specific operation of  the process to be in compliance with Article 
13 of the CVA, and indicate where this will be provided for in the law or regulations. 
 
 In addition, we request that China provide in formation on "sufficient guarantees."  Article 66 
states that "In case where the importer or exporte r asks the Customs to release the goods before the 
determination of goods classification of Customs Va luation, or presentation of effective declaration 
documents or completion of other Customs forma lities, the Customs shall release the goods against 
the securities provided by the importer or exporter which is compatible with his legal obligation  G/VAL/W/137 
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 according to the law." There is no indication of what these legal obligations are or how the requisite 
security amount is determined.  Article 66 specifi es two exceptions for the release of goods, plus an 
additional exception for "other circumstances where the laws and administrative regulations have 
provided for."  China is requested to provide more  information, including the applicable laws and 
regulations, on how the security amount is determ ined and on the scope of these exceptions.  The 
notified Regulations do not address these issues. 
  Pursuant to Article 14 CVA, the Interpretative No tes form an integral part of the Agreement.  
Although in its responses to the Checklist of Issues, China states that the Inte rpretative Notes of the 
Agreement were in included in Chapters 2 & 8 of th e Decree, these chapters include only a few of the 
Interpretative Notes.  For example, most of the in terpretative notes pertaining to Articles 1, 5, 6, 7 
and 8 are absent.  We ask China to ensure that the Interpretative Notes are incorporated into its laws 
and regulations.     The Decree does not include the provisions of Ar ticle 15.2(c) regarding the scope of identical 
and similar goods.  We ask that China address this discrepancy. 
  The Decree does not include Article 15.3, regard ing the definition of goods of the same class 
or kind.  We ask that China address this discrepancy.   We request a clarification of Article 19 of th e Decree.  To what does this Article apply?  
Please provide an explanation of the formula. 
  Article 21 of the notified Regulations states that "where the transaction value of imported 
goods does not comply with the conditions prescrib ed in Paragraph 2 of Article 18 of these 
Regulations, or it is impossible to determine the transaction value, the Customs shall ...".   Please 
explain what is meant by the phrase "it is impossible to determine the transaction value", with specific 
examples of such situations.   3. Regarding document G/VAL/N/1/CHN/3,
 “The Customs Regulations of The People’s 
Republic of China Regarding De termination on Customs Value of Royalties and License Fees 
Related to the Imported Goods”   
 
 Article 3 provides that "royalties and license fe es shall be added to the customs value of 
imported goods provided the paym ents meet both the following conditions...".  This provision does 
not address the situation where the royalty or license fee is already included in the price.  Is provision 
made elsewhere for this situation? 
  Article 4 provides that royalties and license fees in accordance with the provisions of 
Articles 5 through 8  shall be deemed  to be related to the imported goods. Does this mean that an 
importer could not present evidence that in the pa rticular circumstances presented that the royalties 
and license fees are not related to the imported goods?   
 
 Article 5 addresses royalties and license fees paid for the right of patent or know-how.  
Paragraph 2 of Article 5 provides that where patent or know-how is imported in the form of magnetic 
tapes and disks, CDs or other similar media, wh ether downloaded from network, or transmitted via 
satellite, it shall be deemed to be related to the imported goods in terms of the above provisions.  We 
would like further explanation of this provision.  How will it be determined whether this media is 
related to the categories of goods listed in  the first paragraph of Article 5?  
  Under Article 6 royalties and license fees paid for the right of trademark would be deemed related to the imported goods wh ere the trademark is affixed after importation .  We would like further G/VAL/W/137 
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 explanation of this provision.  How would you address the situation where the imported goods are 
assembled and/or processed in China and the tradem ark is affixed to the assembled/processed good?  
  Articles 5 and 7 both refer to imported softwa re.  How do these provisions relate to China's 
application of the WTO Committee on Customs Valua tion Decision 4.1?  We have some concerns 
that these provisions could be used to circumvent that decision.  
  Reference is made to minor processing in Article 6 and 8.  This term is defined in Article 15 
to include primary assembling.  Can you provide  an explanation of primary assembling?   
 
 The scope of Article 11 is very broad.  What  is the reason for requiring importers to declare 
royalties and license fees paid in any form?  What  can the importer do when it is not possible to 
provide objective and quantifiable data at the time of entry?  Would this subject the importer to 
potential criminal penalties under Article 14?  
 In what situations would a violation of the royalty regulations constitute a crime pursuant to 
Article 14? 
 
 Can China include examples in their regulations or policy directives of royalty payments that 
would not be included in the customs value?  
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