RESTRICTEDWORLD TRADE
ORGANIZATIONG/VAL/W/64
4 April 2000
(00-1355)
Committee on Customs Valuation Original:  Spanish
CUSTOMS VALUATION IN CUSTOMS REFORMS IN
LATIN AMERICA AND THE CARIBBEAN
Statement by the Representative of the Inter-American Development Bank
The invitation by the World Trade Organization (WTO) to attend this meeting of the
Committee on Customs Valuation affords an excellent opportunity to explain briefly what the Inter-American Development Bank (IDB) has been doing to support Customs modernization and reform
processes in Latin America and the Caribbean.  These processes were carried on throughout the 1990s
and made the Customs change more in those years than in the rest of the century.
These pages take up, first, the crucial factors in Customs reform processes; second, IDB's
technical assistance to a good number of Latin American and the Caribbean countries in those
processes,  and then considerations concerning Customs valuation before and since the WTO Customs
Valuation Agreement.  Finally, we go on to explain the Bank's arrangements for closer cooperation
with the WTO in customs-related matters within the Bank's purview.
The factors for change in Customs
Those who claim that these changes have been brought about by globalization are right.
However, this is only partly true, since globalization is far from inevitable as systemic difficulties of
an economic or political nature can bring the process to a halt.  A good example is the inter-war
period when private markets and nations were plunged into crisis.  Latin America and the Caribbean
emerged from this period with a development strategy – a State-led import substitution model withhigh protection levels – suited to those adverse international conditions.  In the beginning the strategy
was successful, promoting industrialization, growth and a series of major transformations, all of
which made the region stand out among the regions of the developing world.  However, this approach
gradually began to lose touch with the real conditions in the world economy as post-war events saw
greater liberalization of national markets, the gradual ousting of State intervention by private initiativeand an increase in trade, international financing a nd foreign investment.  This all set the stage for the
globalization we are experiencing today.
Most countries in Latin America and the Caribbean responded to these new events by making
major changes, without altering the basic nature of the overall development strategy.  Not until thecrisis in the 1980s did a new development strategy emerge in the region.
As we now know, since the mid-1980s the Latin American and Caribbean countries have
gone through a process of structural reform to liberalize and open up their economies, redefining the
role of the State, enhancing competitiveness and de mocratizing political regimes.  A central feature of
this reform process has been the liberalization of imports to foster competition, reduce the costs of
inputs and thus enhance productivity, all with a vi ew to exploiting the gr owth potential stemming
from participation in a globalizing world economy.  The extent of the opening process can be seen if
we bear in mind that the region's average external tariff fell from over 40 per cent to 12 per cent by
the mid-1990s (from 1995 countries sought negotiations on the process for the Free-Trade Area of theAmericas).  This opening up, coupled with capital inflows and economic reactivation, contributed toG/VAL/W/64
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increased imports and an annual rate of growth of 18 per cent up until the Asian crisis.  This rate of
growth in imports almost doubled that of the Western Hemisphere as a whole.
In the 1990s, the Latin American and Caribbean countries complemented their unilateral
opening-up with a renewed interest in regional inte gration.  During that decade four Customs Unions
were created and more than 20 free-trade agreements were signed in the Hemisphere.  This deeperregional opening of economies has made an important contribution to the increase in intra-regional
imports.
The content of the Customs reform
In addition to trade liberalization and greater regional economic integration, a third factor had
a decisive influence on the Customs reform and modernization process in Latin America:  the crisis inthe previous economic model that brought great financial imbalances to virtually all countries in the
region.  These three factors – regional integration, the abandoning of protectionist policies and the
need to increase fiscal revenue – have also been present, to a greater or lesser extent, in other areas of
the world.  In the case of Latin America and the Caribbean they are the ones which, overall, go to
explain why the Customs reform processes were, by and large, initiated in the early 1990s.
Consensus is not confined to these factors as crucial to the reform.  Others involve a review of
the role of the State and changes in tax systems (chiefly the introduction of VAT).  There is also
agreement about the direction taken by the changes:  simplification and harmonization of Customs
procedures, a concern to improve the level of Customs integrity, efficiency in Customsadministrations and, naturally, a concern for effective achievement of their aims.
Obviously, this consensus was not perceived until some time had passed.  In the beginning,
each national Customs Administration  thought it was making major changes on its own, until it began
to realize that other countries were taking similar measures.  The World Customs Organizationconducted a survey which showed, among other things, that change had become a worldwide
phenomenon.  Not only this, but the motives behind each change were basically the same, as were the
areas in which the greatest changes had taken place.  This could not be mere coincidence:  Customs
Administrations in all countries could not have so many things in common as to make the changes
head in the same direction.  Actually, the changes had been favoured by the same events taking placein the world economy and in the business world.  This common attitude had developed throughout the
world, with an increasing demand for the Customs, in all countries, to provide the same facilities to
the business community in its foreign trade operations.
There is also some consensus as to the next steps to be taken in the Customs reform, namely:
• Consolidating and improving the changes already made insofar as they help to
facilitate business:  simplification of procedures, risk management or selective action,
automated procedures, information flow, enhanced integrity and dialogue and
interaction with the private sector;
• opening new paths such as electronic exchange of information, differential treatment
depending on traffic features and trade operators, and developing new formulas and
fields for inter-Customs cooperation.
IDB technical assistance
These reforms have been firmly supported by the international community.  The IDB, as part
of that community, has played a key role in provid ing both technical and financial assistance to Latin
American and the Caribbean countries during the last decade.  In this paper, we share some of theG/VAL/W/64
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IDB's experiences in Customs reform projects and give an overall view of the substance and scope of
IDB-financed programmes over the past decade.
The purpose of these programmes was to support Government efforts to transform their
Customs Administrations.  In some instances, those administrations were given guidelines on
alternative methods for carrying out the Customs' traditional tasks so as to make them consistent with
market requirements and the needs of the business world.
National programmes.   The IDB has financed about thirty (30) projects intended exclusively
for Customs modernization.  Customs matters have also been included in other broader programmes
designed at the same time to strengthen fiscal administration institutions (taxation, budget, treasury,
audit etc.) and in regional technical cooperation programmes.  IDB funding of support programmes
for Customs reform is conservatively estimated at US$100 million.
These programmes are financed by loans or grants.  Grants are made only to economically
less-developed countries and, in recent years, the amount available in IDB for grants has diminished
and preference has been given to programmes to combat poverty.  Loans consist of two kinds:  low-
interest loans at 2 per cent, repayable for up to 40 years, and regular loans at financial-market interest
rates repayable usually within 20 years.
National programmes adopt an integral approach in that they include all areas of Customs
administration that the country deems it necessary to strengthen or modernize: legal framework,
organization, procedures, automation, human resources and training.  The IDB assigns a large part of
its technical resources to following up these programmes with indicators to assess the progress madeand ensure that  the work is heading in the right direction in order to achieve programme objectives.
Regional programmes.  Regional technical cooperation programmes focus on more specific
aspects of interest to a group of countries.  Cooperation can be requested by countries or a sub-
regional body and participation is available to the countries in the sub-region or to those that prove tobe interested.  The resources to finance regional cooperation programmes are grants from IDB
resources or they are combined with those made available by other donors.
This might prove a suitable tool to help countries which stand in need of assistance in
introducing the WTO Customs Valuation Agreement or  enhancing implementation of the Agreementin those countries which have already introduced it.  This has been done with the English-speaking
Caribbean countries through the Caribbean Customs Law Enforcement Council (CCLEC).
Other programes.  Countries can ask the IDB for other kinds of support.  One is intra-
regional technical cooperation (TC-INTRA) in which officials from one country travel to another to
make use of the experience or better practices in that country in particular matters.  Travel costs and
per diem are paid by the IDB and are not reimbursable.  The periods are short and for a small numberof officials.  In general, such help does no t exceed US$20,000 for maximum periods of four weeks.
This kind of assistance may have a great multiplier effect as a result of a country's successful
experience.
Organizing seminars and workshops on specific topics is another form of cooperation that the
IDB supports in conjunction with the country or countries arranging them, such as work on practical
valuation cases headed by experts, or an analysis of Custom's work in connection with intellectual
property rights, etc.
Customs valuation
IDB-financed programmes to support Customs Administrations have included valuation as
one of the major elements forming part of operational procedures.  For many years, the need to
determine the price of goods before physical inspection and, therefore, before they are handed over toG/VAL/W/64
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the importer, has been one of the great obstacles in prompt clearance of goods.  Customs officials
could (and frequently did) ask for any document or supplementary information that was not always in
the hands of the importer and could be obtained only through offices or firms abroad.  This meant that
valuation might last indefinitely and quite often, neither the official or the importer could predict how
long.
Most Latin American and Caribbean countries valued imports in accordance with the rules of
the Brussels Definition of Value (BDV).  Although the Definition was the frame of reference, the real
situation regarding valuation in some countries was difficult either because of the "special"
interpretations the Customs placed on certain rules, which gave rise to a very broad degree of
discretion for employees, or because governments hired verification companies to combat fraud and
false declarations of value.  The IDB's experience shows that the situation regarding customs
valuation has not improved substantially, despite the reform and modernization programmes, mainlybecause of three factors:  (i)  a feeling that "things are temporary" in view of the undertaking to apply
the WTO Valuation Agreement in the near future;  (ii)  too many expectations regarding prices or
databases, and;  (iii)  the inefficiency of the verification companies in accomplishing their goals and in
the transfer of know-how to the Customs Administrations.
In view of the performance of verification companies over the past decade, in five countries
in Latin America and the study conducted by IDB experts in two of those countries, generally
speaking the IDB would not recommend hiring such companies, for the following reasons:
• Their activity runs counter to the facilitation required of the Customs, since it entails
yet another procedure.  Although this other procedure is not noticeable because it
takes place at the point of shipment, it does occur and may produce delays in clearing
the goods and, of course, in costs payable by the importer or the State.
• The cost/benefit ratio is prejudicial to the contracting countries. The results of the
companies' activities in the countries analysed indicate that:  (i)  the average
profitability for a country from a verification company measured in terms ofcollection, is 43 per cent and 12 per cent:  the State recovers US$43 or US$12 for
every US$100 that the country pays to the company;  (ii)  the increase in f.o.b. value
or adjustment resulting from the verification company's activities during the period
was only 1.6 per cent of the initially declared value.  This correction on f.o.b invoice
prices would indicate that the level of "under-invoicing" is only 1.6 per cent or, ifmarkedly higher, the verification companies were not able to detect it and correct it;
(iii) according to estimates by the companies themselves, each certificate requires five
hours work from their staff and costs the Government US$369.
• Little (and costly) transfer of technology,  owing to the following considerations: (i)
the Customs could obtain the same price information at much more reasonable cost;
(ii)  the need for constant renewal of the information makes countries more dependent
on the companies;  (iii)  the capacity to demand and assimilate the transfer of
technology and know-how is directly tied in with the Customs' strength:  a weak
Customs will continue to be weak because it is not in a position to make effective use
of information where it does receive it;  conversely, a strong Customs does not stand
in need of the "assistance" of the companies.
Hiring verification companies could be useful for some countries in the process of
strengthening the Customs and, provided it is limited to a relatively short period (temporariness) and
their activities are confined to those products the country regards as entailing a higher risk of fraud
(selectiveness).G/VAL/W/64
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THE IMPACT OF THE WTO VALUATION AGREEMENT
Obviously, it would be presumptuous and it is not the purpose in these pages to establish the
differences between this valuation system and others previously used by the WTO Member countries.
Nor is the intention to speculate about the effects that the Valuation Agreement has had on the foreign
trade of the countries that have already introduced it, nor for those countries which, throughout this
year, will be starting to implement it.
Rather, the purpose is to sum up the impact the Agreement may have on what has been done
with the help of the Bank's earlier technical assistance programmes and on the content and design of
future programmes.  In our opinion, they will basically affect the following matters pertaining to
valuation of goods:
• The use of databases in those countries which have developed and used this tool.
Changes in invoice prices or adjustments in the event of a link between the seller and
the buyer will be far less frequent and, of course, will not be automatic, in accordance
with the Valuation Agreement.  Also, resortin g to the prices of identical or like goods
will become a secondary valuation procedure.
• The organization of valuation services that have generally adopted a centralized
structure.  This form of organization was logical, since it concentrates human and
computer resources in one place and ensures a unified criterion.  In addition, previous
valuation methods allowed the Customs to postpone its decisions and even withhold
the goods until the decisions were taken..  Under the Valuation Agreement, the
Customs must have trained personnel at both the operational and the central levels
and must improve inspection and study services after the delivery of the goods.
• A change in the mentality of valuation officials, who must grow accustomed to
habitually accepting the invoice price as the customs value of the goods.  Only in the
circumstances provided for in the Agreem ent will they have to make the requisite
investigations to demonstrate that the declared price is incorrect and unacceptable.
Technical assistance coordination
The IDB would look very positively on prompt collaboration with the World Trade
Organization to support Member countries of both institutions in matters pertaining to Customs
valuation (introduction and improvement).  We freque ntly encounter some difficulties in identifying
experts able to help countries, especially in introducing the Agreement.  Since customs valuation of
goods is important, it is not the only area in which we could find opportunities for cooperation.  For
example, the application and enforcement of the rules on intellectual property rights and border
verification of origin are two other areas included in the WTO Agreement, in which the Customs have
an important role in connection with imports and exports.
Different kinds of cooperation can be explored so that they will prove satisfactory to both
institutions.  It should be noted that a Memorandum of Understanding will shortly be signed between
the IDB and the World Customs Organization for joint work on other customs areas.
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