RESTRICTEDWORLD TRADE
ORGANIZATIONG/VAL/W/95
19 March 2002
(02-1416)
Committee on Customs Valuation
NEGOTIATING HISTORY OF THE AGREEMENT ON CUSTOMS VALUATION
Background document by the Secretariat
At its meeting of 26 February 2002, the Committee agreed that the Secretariat should prepare,
on its own responsibility, a factual description of the negotiating history of the Agreement onCustoms Valuation.  The paper was requested in the context of the Committee's discussions related to
paragraph 12 of the Doha Ministerial Declaratio n (WT/MIN(01)/DEC/1):  Implementation-Related
issues, in particular, the discussions related to the tirets in paragraph 7 of Job(01)/152/Rev.1.  It was
expected that a review of the negotiating histor y of the Agreement would shed some light on the
background of those provisions of the Agreement concerned with the five tirets in paragraph 7.  Thepaper is structured to present an historical account of the negotiations of first the Tokyo Round Code
on Customs Valuation, and second, the Urugua y Round Agreement on Customs Valuation.  In
addition, an Annex to the paper lists texts agreed by the Technical Committee of the World Customs
Organization relevant for the discussions on the implementation-related issues.  Finally, while all
efforts have been made to present a fully comprehensive negotiating history of the Agreement, it mustbe acknowledged that negotiations were also carried out in informal contexts for which no records are
available.
_______________
A. P
RE-TOKYO ROUND WORK ON CUSTOMS VALUATION
1. Article VII of the GATT 1994 represents the first successful international agreement on
general principles of customs valuation.  Agreed at the United Nations Conference on Trade andEmployment, held in Geneva in 1947, Article VII laid down general principles and guidelines for the
elaboration of national legislation on customs valu ation.  However, the principles were general and
created no meaningful uniformity in customs valuation methods, thereby permitting a wide variety of
national practices.  In 1952 the CONTRACTING PARTIES adopted the report of the Working Party
on Examination of the ICC Resolution Recommending the Review of the Steps Taken by ContractingParties to Give Effect to the Principles of Article VII.
1  In 1954 the Contracting parties appointed the
Technical Working Party to make a technical and factual study of the replies submitted by
governments to the questionnaire on valuation.2  As a result the comprehensive comparative study of
existing valuation systems was submitted to the CONTRACTING PARTIES.3  Further consideration
to valuation problems was given in the Kennedy Round of Trade Negotiations, particularly related tothe "American Selling Price".  However, an agreement that was drawn up was never implemented.
2. In December 1969, the Committee on Trade in Industrial Products was established in the
GATT to examine, among subjects, the desirability of harmonization of valuation systems and special
valuation procedures, the latter commonly referring to cases where invoice values were notacceptable.  By this time, about a hundred governments followed the Brussels Definition of Value,
either as parties to the convention or as a matter of domestic law or practice, making it by far the most
                                                     
1 BISD 1st supplement, p. 102.
2 L/228 and Add.1-10.
3 BISD 3rd supplement, pp 103-125.G/VAL/W/95
Page 2
widely applied system.  The United States, Austra lia, Canada, South Africa and New Zealand did not
use the BDV and used varying systems of valuation.  Even among those countries applying the BDV,
there was considerable variety in its application and interpretation.  The BDV method was based on
the CIF value while the United States, Australia, and Canada had systems based on the FOB value.
Although both groups used invoice values in most cases, in situations where no invoices could beproduced or where the invoice price appeared to be unacceptable, the value for customs purposes was
established by the two groups according to widely differing methods.
(i) Systems in use prior to the Tokyo Round3. It is worth explaining some of the systems used prior to the elaboration of the Tokyo Round
Code.  The main difference between the countries using the BDV and the US and Canada wasphilosophical.  The BDV was based on a "notional" concept of valuation (i.e. a price at which goods
ought to be sold under a specified set of circumstances) which specified a set of procedures for
arriving at the price at which the goods should be valued.  The US and Canadian systems were based
on a "positive" concept (i.e. the price at which imported goods or like good are in fact sold under
specified conditions.)  In practice, however, all three systems allowed for significant adjustments froma basic reference price and thus could be used in a neutral or protectionist fashion.
4. In 1973, the GATT Secretariat prepared a comprehensive study:  Trade Barriers Arising in the
Field of Customs Valuation.
4  This study described in considerable detail the valuation systems
prevalent in the developed countries, and in certain developing countries at the time.  In particular, theUS system was highly complex and consisted originally of five methods of valuation, ranked in order
of preference.  These were the Foreign Value (the price in the market of the exporting country);  the
Export Value (the actual export price of "freely offere d" goods);  the United States Value (the price of
comparable imported products in the US);  the Cost of Production (estimated cost of production plus
profit of goods in the exporting country);  and the American Selling Price (the price of comparablegoods in domestic production in the US, used only for specific named products).  For a number of
products which were included in what was known as the Final List, the US legislation provided that
duty should be on the basis of "Foreign Value" or "Export Value" whichever was higher.  In addition,
for certain chemicals, the value for customs purposes was determined on the basis of prices at which
domestically produced comparable articles were sold in the principal US market for home
consumption.  Under the Canadian system, the prim ary standard for determining value was the "Fair
Market Value" which was the price at the time and place from which the goods were shipped directlyto Canada, of like goods for home consumption in the exporting country.  This approach explicitly
rejected the export value as a basis for valuation.  In the event that the Fair Market Value could not be
determined, Canadian customs could examine the "costs of production plus profit" in the exporting
country, or where that was not possible, the value for duty was to be determined " in such a manner as
the Minister of Finance decides".  In the case of Australia and New Zealand, dutiable value wasdetermined on the higher of the actual invoice FOB price or current domestic value, which was the
price at which the exporter was selling or would be prepared to sell for cash, at the date of
exportation, the same quantity of identically similar goods, for consumption in the domestic market.
5
5. The 1973 Secretariat study also highlighted the main problems arising from valuationprocedures at the time.  Generally these were i) problems resulting from differences in practices
relating to determination of value, where invoice prices were not acceptable;  ii) determination of
dutiable value on the basis of domestic prices in the exporting countries;  iii) determination of dutiable
value on the basis of domestic prices in the importing country;  iv) systems of fixing minimum values;
and v) other problems such as lack of information or inadequate facilities for appeal against decisions
                                                     
4 GATT document COM.TD/W/195, 2 August 1973.
5 Ibid, pp 4-5.G/VAL/W/95
Page 3
by customs, and practices inconsistent with Article VII of the GATT 1994.6  The report added that
"[developing countries] pointed out that the practices  followed by countries to determine value on the
basis of domestic prices in the exporting country or on the basis of domestic prices in the importing
country posed special problems to their trade.  The practice of levying duty on the basis of current
domestic value in the exporting country worked particularly to their disadvantage, as for a largenumber of products because of the supply scarcities, transport bottlenecks and structural imbalances,
the domestic prices in these countries ruled at artificially high levels."
7
(ii)  Committee on Trade in Industrial Products 
6. The basis for the work done within the Committee on Trade in Industrial Products (CTIP) in
the area of valuation was provided by specific notifications made by contracting parties of thedifficulties encountered by them in particular ma rkets.  These notifications are contained in GATT
document COM/IND/W/8 and in GATT document MTN/3B/2 item numbers 137-171.  While the
work was not directed towards adoption of one common system of valuation, it was oriented towards
interpreting the provisions of Article VII of the GATT 1994 and to elaborate rules for their
application.  The CTIP prepared two drafts, one of "draft principles" and one of "draft interpretativenotes."  These were general guidelines for national customs regulations and practices and formed the
basis for future work.  They can be found in document MTN/NTM/W/7.  While not fully agreed
within the CTIP, in view of the progress achieved, it was agreed that the texts would be refered to
national administrations for examination and for consideration of changes which might be implied in
accepting them.
B. T
OKYO ROUND NEGOTIATIONS8
7. During the preparatory stage of the Tokyo R ound (1974), it was decided in Group 3(b) to put
off discussion of customs valuation in order to give  more time to national administrations to examine
the two drafts prepared by the CTIP.  As the Tokyo Round got underway in 1975, it was agreed at the
meeting of 5 March 1975 of the Group "Non-Tariff Measures" that negotiations should begin initially
in the area of customs valuation.  A sub-group of the NTM Group was established called "Customs
Matters".  At its first meeting on 20-26 May 1975 (MTN/NTM/4) the main positions were as follows:
countries with systems based on the BDV recalled that about 100 countries used this approach and the
EC suggested that the BDV would be the appropria te basis for a common international system.  Some
others (Japan, Nordics) considered that the draft principles and interpretative notes worked out by the
CTIP would be an appropriate basis for the future work of the sub-group.  The US and Canadaconsidered that the BDV had some serious defects and was not a suitable basis for a common system.
They did not hold merit in attempting to establish a common system but that the sub-group should
concentrate on seeking solutions to particular problems identified.  Some developing countries
pointed out that practices by which customs value was determined on the basis of domestic prices in
the exporting or in the importing countries posed particular problems to their exports.  It was agreedthat countries which had specific suggestions for el ements they wished to be included in any new set
of international rules should submit them to the Secretariat.  These were circulated in
MTN/NTM/W/20 and addenda.
8. At the 3-4 October 1975 meeting of the sub-group (MTN/NTM/7) it was agreed that the
sub-group should continue examination of the written submissions and that priority should be given to
four aspects of valuation systems which had been identified as problem areas in the submissions:  i)
judicial and administrative review procedures;  ii) publication of laws, regulations and administrative
                                                     
6 Ibid, pp 8-9.
7 Ibid, p. 15.
8 For the official drafting history of the GATT Valuation Code, see documents listed in TA/INF/1/Rev.
8, pp 61-68.G/VAL/W/95
Page 4
decisions;  iii) precise and fair handling of non-arm's length transactions;  and iv) neutrality of
valuation systems.  At the 16-18 March 1976 meeting (MTN/NTM/13) the sub-group discussed the
specific comments which had been received on the four problem areas (comments were circulated in
MTN/NTM/W/33 and addenda).  In a general discussion of future work, it was apparent that
fundamental differences remained between the EC, the Nordic countries, and Japan on one hand, andthe US and Canada on the other.  The first group supported a proposal by Japan
(MTN/NTM/W/33/Add.3) that the Secretariat should  prepare a draft agreement incorporating the
various elements contained in the CTIP Draft Principles and Interpretative Notes as well as other
proposals that had been submitted to the sub-group.  The US and Canada maintained that the
negotiations should be aimed at solving specific problems.  It was agreed that the Secretariat would
prepare a checklist of issues raised and of possible  elements that may be included in any new set of
international rules or principles to be adopted in the multilateral trade negotiations.
9. At the meeting of 5-8 July 1976 (MTN/NTM/18), the sub-group examined the checklist
prepared by the Secretariat (MTN/NTM/W/51) and agreed that a revised version should be prepared
which would indicate areas of broad consensus and areas of divergences.  While not binding on any
delegation, it would constitute a basis for discussion.  At the meeting of 26-28 October 1976(MTN/NTM/23) the revised checklist (MTN/NTM/W/5 1/Rev.1) was examined.  It was agreed that
the principles contained in the first part of the pape r should be circulated separately and retained for
future reference.  At this meeting, it was also  agreed that a checklist of headings which were
considered important for inclusion in a set of rules be drawn up.  This was subsequently circulated in
MTN/NTM/W/65 and addenda 1-3.  Discussion on this checklist was held at the next meeting of 21February 1977 (MTN/NTM/27).
(i) The EC submits the draft Code10. At the meeting of the sub-group in November 1977 (MTN/NTM/38), the EC submitted a draft
valuation code (MTN/NTM/W/122).  It contained some of the elements of the earlier CTIP Principles
and Interpretative Notes but was more elaborate in that it aimed at establishing a new comprehensive
international customs valuation system.  In fact, in st ructure and content, it was an early version of the
Tokyo Round Code and  present Uruguay Round Agr eement.  Most interesting was the change of
position of the EC with respect to the "positive" versus "notional" approach as contained in the BDV.
In adopting the positive approach, the EC delegate stated that this represented a "fundamental change
for the European Community (MTN/NTM/W/126)."  Th e "positive" approach was combined with the
hierarchical methods of valuation which was what the EC believed "to be good features of the US
valuation system".  In essence, the draft aimed at "taking the best features of [the US, the EC and
Canadian] systems and to combine them together in to a new set of rules…"In his statement, the EC
delegate added that "Article 1 [states] that the price paid or payable for the imported goods shall be
accepted as the basis for determining the customs value provided that the buyer and seller are notrelated….We recognize..that buyers and sellers may be tempted to arrange the transaction so that the
price itself reflects only a small element of the value of the goods and that the remainder is transferred
between them by some indirect method.  We have, therefore, provided, in Article 7 of our draft
(presently Article 8), for certain additions to be made to the price paid or payable if these have not
been included in the basic price.  But the basic concep t is that provided the price paid or payable fully
reflects everything which the buyer has to pay to get the goods then that is accepted as the basis for
the customs value…"In discussing Articles 2 and 3 of the draft, the delegate further added "It may
well be that the customs in looking around find a number of sales of identical goods to different
buyers at slightly different prices or maybe the buyer in question can bring forward evidence to show
that the seller sells identical goods to other buyers at different prices.  In those circumstances there hasto be a rule about the price to be taken into consideration.  Our proposed rule is that the value should
be based upon the average of the prices."  In his concluding comments, the delegation added, "it will
not have escaped the notice of the developing countries that we make no reference to the price of
goods on the domestic market of the exporting country amongst our basic methods of valuation andG/VAL/W/95
Page 5
that we have excluded it as a fall-back method.  We have done this as we accept the validity of the
arguments of developing countries at earlier meetings of the sub-group that often the prices on their
domestic markets are artificial ones and that the price charged in those markets is no fair measure of
the value of their goods at export."
11. While the US and Nordic countries welcomed the proposal as a positive contribution and a
basis for future negotiations, Japan and Australia wished to aim at harmonization on the basis of the
BDV, Canada was concerned that the draft went considerably beyond Article VII and would require
major changes in its valuation practices and India reserved its position on the question of
differentiated treatment in customs valuation for developing countries.
12. By the time of the meeting of 8-9 February 1978, most of the members of the customs sub-
group accepted the draft valuation code submitted by the EC as a basis for future negotiations
(MTN/NTM/40).  The evolution of the EC's draft th rough the negotiations leading to the Final Draft
in 1979 can be tracked in the following main documents:
-MTN/NTM/W/122 (8 November 1977).
-MTN/NTM/W/162 (21 June 1978).
-MTN/NTM/W/175/Rev. 1 ( 6 November 1978)
-MTN/NTM/W/206 (14 December 1978).
-MTN/NTM/W/223 (2 March 1979).
-MTN/NTM/W/222/Rev.1 (Special and Differential Treatment – 27 March 1979)-MTN/NTM/W/229/Rev. 1 (Final draft, 8 April 1979, open to signature 12 April 1979).
-MTN/NTM/W/229/Rev.1/Add.1 (Protocol – 22 Oc tober 1979, open to signature November 1
st 1979).
(ii) Drafting history of the provisions concerned in the paragraph 7 tirets
13. In preparing this drafting history, the Secretariat examined all proposals and national position
papers submitted during the course of the Tokyo Round negotiations with the view to following the
evolution of the provisions concerned in the paragraph 7 tirets.  A general observation from this
research is that the official documents do not present much in terms of the rationales for these
provisions.  The minutes of the sub-group's meetings and the drafts themselves provide little technical
discussion of the provisions in the final draft.  A second observation is that the provisions dealt with
by the tirets were, in fact, discussed during the Tokyo Round and the main proponent of the paragraph7 tirets, India, generally put forward similar views during these discussions, particularly for tirets 57,
58, 60 and 61.  A third observation is that the current provisions related to tirets 57, 58, 59 were
introduced in document MTN/NTM/W/206 and those related to tirets 60 and 61 were incorporated in
document MTN/NTM/W/223.  Finally, it should be noted that, in the negotiations, proposals were
made by a group of countries which identified themselves only as "a number of delegations" withoutspecifying which delegations were involved.
14. Some specific comments, organized according to the paragraph 7 tirets are provided below.
- Tiret 57 (The addition of cost of services such as engineering, development, and
design work, which are supplied directly or indirectly by the buyer free of charge or
at reduced cost for the production of goods under import, shall be included in
Article 8:1(b)(iv).)
15. Article 8.1(b)(iv) of the WTO Agreement on Cu stoms Valuation was first proposed in 1978 in
document MTN/NTM/W/206, "circulated at the request of a number of delegations".  Article 7 of the
EC's draft (MTN/NTM/W/122) contained additions to be made to the customs value and Article 8 of
the draft contained elements not to be included in the customs value. Article 8.d of that draft
specifically excluded from the customs value the "fees for the drawing up outside the country ofG/VAL/W/95
Page 6
importation of documents incidental to the introduction of the goods to that country". The EC did not
give reasons for this exclusion other than that they were "inappropriate to include"
(MTN/NTM/W/126). This excluding rule was also provided in document MTN/NTMW/175,
"circulated a the request of number of delegations".
16. In document  MTN/NTMW/167/Rev.1, Brazil proposed a new Article 7 (k), which
specifically excluded from the transaction value the cost of "engineering, development, artwork,
design work, plans and sketches relating to the imported goods."  In a later draft, "circulated at a
request of a number of delegations," it was proposed that  these services be included in the transaction
value, without specifying the origin of the assists (Article 9.1.b(iv) of document
MTN/NTM/W/175/Rev. 1).  The present form of Article 8.1(b)(iv) was then proposed in
MTN/NTM/W/206.  However, India continued to argue against the present form of Article 8.1(b)(iv)throughout 1979, when it proposed to return to Article 9.1.b(iv) of document
MTN/NTMW/175/Rev.1 (See document MTN/NTM/W/218, of 9 February  1979, Comments to
Article 8).  However, this proposal was ultimately not incorporated into the Final Draft.
- Tiret 58 (The residual method of determining customs value under Article 7 shall be
inclusive of all residual eventualities, thus allowing valuation based on domestic
market price or export price in a third country with appropriate adjustments.)
17. Article 5 of the EC's draft specifically excluded (1) the cost of production of the goods, (2)
the selling price in the country of importation of similar or comparable goods, (3) the price ofidentical, similar or comparable goods on the domestic market of the country of exportation, or (4) the
price of identical, similar or comparable goods for export to a country other than the country of
importation.  The EC considered those methods " unsatisfactory" and opposed to the principle of
avoiding "arbitrary or fictitious" values.  The EC stated that they accepted "the validity of the
arguments of developing countries in earlier meetings of the Sub-group, that often the prices on theirdomestic markets are artificial ones and that the price charged in those market is not fair measure of
the value of their goods at export" (see paragraph 10 above and MTN/NTM/W/126, paragraphs 15
and 26).
18. Spain argued against the "domestic market pric e of the country of exportation"   because: i)
the application of these methods would be very difficult in practice, considering the delay that it
would imply and the problem of how the most elemen tary verification of the data furnished could be
obtained;  and ii) the costs for sales in the domestic market may be different from those for sales for
export. Spain was also against basing valuation on the "export price to third countries" because
competition in the country to which the goods were exported would constitute a relevant element
affecting the price, and because it would be difficult to verify data in a (third) country of importation
located faraway (MTN/NTM/W/172, comments on Article 5 bis of MTN/NTM/W/162).
19. The first revision of the EC's draft proposed Article 5 bis (1) (a) and (d) that specifically
considered as residual methods the "domestic market price of the country of exportation" and "export
prices to third countries"  (MTN/NTM/W/162, "circulated by a number of delegations".). However,
Brazil drafted a new proposed Article 5 bis that did not accept "the domestic market price" and  the
"export price to third countries" as fall-back methods  (MTN/NTM/W/167/ Rev.1).  The document
MTN/NTM/W/175, "circulated at the request of a number of delegations," included the "domestic
price" and the "export price to third countries" in the text or in interpretative notes.
MTN/NTM/W/175/Rev.1 proposed a general fall-back clause based on any reasonable means
consistent with the Code and with Art. VII of  GATT which did not exclude any method. India had
proposed a similar clause in MTN/NTM/W/188 of September 1978.  The final draft of Article 7, as it
is currently in force, was incorporated in document MTN/NTM/W/206, of December 1978.  However,
in February 1979,  India insisted on a broader fall-back clause and proposed to delete paragraph 2 of
Article 7 which listed the fall-back method exclusions, in order to allow all possible eventualitiesG/VAL/W/95
Page 7
(MTN/NTM/W/218).  India stated, "since Article 7 is a residuary Article of last resorts, when other
Articles fail, it would be pragmatic to retain only the first general paragraph as was the case in
document MTN/NTM/W/175/Rev.1".  Th is argument was ultimately not incorporated into the Final
Draft.
- Tiret 59 (The Agreement should be amended to provide for the highest value when
more than one transaction value of identical or similar goods is found).
20. The EC's proposal did not call for basing customs value on the lowest value but the average
value (MTN/NTM/W/122, Articles 2.2 and 3.2) in the event of more than one transaction value of
identical or similar goods.  The EC stated, "It may well be that customs in looking around find a
number of sales of identical goods to different buyers at slightly different prices or maybe the buyer inquestion can bring forward evidence to show that th e seller sells identical goods to other buyers at
different prices. In those circumstances there has to be a rule about the price to be taken into
consideration. Our proposed rule is that the value should be based upon the average of the prices"
(MTN/NTM/W/126, Paragraph 11).  However, the first revision of the EC's draft already incorporated
the principle of the "lowest value", but without providing technical reasons (MTN/NTM/W/162).  Onthe contrary, Spain proposed using the "weighted average value" (total imports divided by total units)
instead of the lowest value.  Spain argued that  "choosing the lowest value might result in the
introduction of an exceptional value" (MTN/NTM/W/172 and MTN/NTM/W/189).  Document
MTN/NTM/W/175/Rev.1 returned to the proposal of the lowest price and, finally, document
MTN/NTM/W/206 inserted the draft of the provisions as it is currently in force.
- Tiret 60 (Buying commissions should be taken into account in the determination of
customs value of imported goods as it fo rms a legitimate component of the landed
cost of imported goods.)
21. Article 7 (b) of the EC's draft  specifically  and exclusively mentioned "selling commissions".
The revision of that draft submitted by Brazil in document MTN/NTM/W/167/Rev.1 as well as
documents MTN/NTM/W/175/Rev.1 and MTN/NTM/W/206 also only mentioned "selling
commissions".  However, in comments made in document MTN/NTM/W/189, Spain included
"buying commissions".  Document MTN/NTM/W/196, "circulated as the request of a number of
delegations", proposed to delete the word "selling" leaving only "commissions". India also proposed a
general clause for "commissions" without distinguishing selling or buying commissions(MTN/NTM/W/218, commentary to article 8).  Article 26 of document MTN/NTM/W/222/Rev.1,
"circulated on behalf of several developing countries", proposed that, in framing their national
legislation, the Code should provide for the inclusion in the customs value, in whole or in part, of the
value of any additional consideration not specified in paragraph 1 of article 8.  Finally, document
MTN/NTM/W/223, circulated at the request of a number of delegations, incorporated the draft as it iscurrently in force.
- Tiret 61 (Persons associated with each other as sole agents, sole distributors, and
sole concessionaires, howsoever described, should automatically be deemed
"related".)
22. Issues concerning "related persons" were some of the most controversial matters in the
negotiations.  The EC draft, in Article 16(2) which contained the definition of related persons, did not
make any specific reference to sole agents, sole distributors and sole concessionaires. The issue was
introduced in document MTN/NTM/W/206, and the current text was included in documentMTN/NTMW/223 and carried forward into the Final Draft.
23. In document MTN/NTM/W/218, India commented on the draft in MTN/NTM/W/206.
Specifically, with respect to Article 15, paragraph 5 of the latter document, India proposed to deleteG/VAL/W/95
Page 8
the statement "if they fall within the criterion of paragraph 4 of this Article" in order to consider sole
agents, sole distributors and sole concessionaires as related persons. India reasoned "sales to sole
agents, sole distributors and sole concessionaires cannot be regarded as sales under fully competitive
conditions and the prices in such sales cannot be accepted as a conclusive basis for customs valuation"
(MTN/NTM/W/218, p. 7). Following this, in March 1979, several developing countries circulatedproposed amendments to the draft Code in order to provide for special provisions to meet the trade,
financial and development needs of such countries (MTN/NTM/W/222/Rev.1).  In that text, they
proposed to add an Article 28 that would read, "Developing parties, in framing their national
legislation, may provide that the provisions of paragr aph 5 of Article 15 will apply as if the words 'if
they fall within the criteria of paragraph 4 of this Article' did not exist at the end of the said
paragraph."
24. In the sub-group's meeting  of 3 April 1979, "delegations from developing countries"
reiterated that in their view the text of MT N/NTM/W/229 and Corr.1 (the Final Draft) "was not
neutral between related and non-related traders, on a number of points favoured firms and enterprises
of developed countries, did not deal adequately with the problem of price reductions not freely
available and with the question of sole agent or sole distributor".  These delegations considered thatserious prejudice would be caused to their export and imports interests if any agreement adopted in
this area did not contain the points in MTN/NTM/W/222/Rev. 1. They concluded that under these
circumstances and unless the points raised…were included in MTN/NTM/W/229 they saw themselves
unable to accept the draft Agreement … ".  In that same meeting, "delegations from developed
countries welcomed the text contained in MTN/NTMW/229 and Corr. 1 and stressed that its adoptionwould form an important part of the global package in the negotiations. They stated that in their view
the text represented a fair, neutral and reasonable compromise between the importers and exporters
and a balanced whole. They emphasized that the prov isions of the Code were not designed to favour
one class of traders as against another…particular problems which developing countries might face
could be overcome under the reservations clause of Article 23 on an interim basis.  Any difficulties in
the operation of the Agreement could also be reviewed in the light of experience…The text
represented the most that could be achieved by way of a multilateral solution…" (MTN/NTM/67,
paras 3 and 4).
25. Ultimately, a Protocol was added to the Agreement which in paragraph 6, stated that the
parties to the Agreement: "Recognized that certain developing countries have expressed concern that
there may be problems in the implementation of Artic le 1 of the Agreement insofar as it relates to
importations into their countries by sole agents, sole distributors and sole concessionaires. The Parties
to the Agreement agree that, if such problems arise in practice in developing countries applying the
Agreement, a study of this question shall be made, at the request of such countries, with a view to
finding appropriate solutions" (MTN/NTM/W/229/Rev  1/Add 1).  This provision is now Annex III,
paragraph 5 of the current version of the Agreement.
C. P
OST TOKYO ROUND – PRE 1994 U RUGUAY ROUND
26. The Tokyo Round Agreement on Customs Valuation came into force on 1 January 1981 and
was accepted by all developed countries.  The developing countries, Argentina, Brazil, and India,
acceded to it by invoking the provisions which delayed application for five years.  Most otherdeveloping countries showed reluctance to accede to the Agreement.  Therefore, during most of the
1980's, the work in the Tokyo Round Committee on Customs Valuation was concerned with
implementation matters.  Reviewing legislation and dealing with interpretative questions occupied
much of the Committee's meetings.  One of the principal preoccupations was how to encourage more
developing countries to accede to the Agreement.  The problems voiced by many developingcountries during the negotiation of the Code did not disappear and indeed became the stumbling
blocks to wider accession of the code by contracting parties.  Since the initial discussions surrounding
the Tokyo Round Code, the main implementation difficulties cited by developing countries haveG/VAL/W/95
Page 9
related to the fear that the Agreement would not allow their customs administrations to control
under-valuation and fraud, and that the Agreement would contribute to a loss of revenue.  In the lead
up to the Uruguay Round, these concerns were voiced consistently and it became clear that this would
be an issue for negotiators.
27. During this period, two Decisions concerning the interpretation of the Agreement were
adopted by the Tokyo Round Committee on Customs Valuation which are related to the issue
concerned by tiret 57.  Both were later adopted by the WTO Committee on Customs Valuation at its
first meeting in May 1995 and are contained in WTO document G/VAL/5.  The first is the Decision
on the Meaning of the word "undertaken" in Article 8. 1(b) (iv) of the English text of the Agreement.,
adopted on 3 March 1983 (VAL/M/6, paragraph 18).  It states that, "The Committee agreed that in the
context of Article 8.1(b) (iv) of the Agreement, the English word "undertaken" was to be understood as
meaning "carried out".  It noted that the French a nd Spanish texts of the Agreement were not affected."
The second Decision is on Linguistic consistency of the term "development" in Article 8.1(b)(iv).  At
the Committee meeting of 9-10 May 1985, the Chairman stated that,
"Consultations have taken place and in the light of these I suggest that the matter be settled by
including the following statemen t in the minutes of the meeting, on the understanding that this
would be without prejudice to rights and oblig ations under the Agreement and that members of
the Committee can revert to the matter should the need arise.
"The Parties to the Agreement considered that  the terms "development" in English, "travaux
d'étude" in French and "creación y perfecciona miento" in Spanish in Article 8.1(b) are
understood to exclude "research" in English, "recherche" in French and "investigación" in
Spanish, as stated in paragraph 6 of VAL/W/ 24/Rev.1.  However, one signatory, Argentina,
considered that, as used in Article 8 .1(b), the Spanish expression "creación y
perfeccionamiento" could not be interpreted as a llowing any part of the value to be excluded
from the "creación y perfeccionamiento"."
D. THE URUGUAY ROUND
28. During the Uruguay Round negotiations, the aim of negotiating the Tokyo Round Codes
(including the Customs Valuation Code) was "to impr ove clarity or expand [them], as appropriate".
The negotiations on the Customs Valuation Code took place in the Negotiating Group on MTN
Agreements and Arrangements, one of the fourteen groups constituted to handle negotiations in thearea of trade in goods.  In the formal and informal discussions, developing countries stressed that
more flexibility was needed in the Agreement to en able customs administrations to shift the burden of
proof to the importer when the declared price was less than that noticed in earlier transactions of the
identical good.  The inability of customs administrations to deal effectively with the problem of
under-valuation resulted in considerable loss of revenue.  India argued that its experience withimplementing the Agreement showed that the rule th at transaction value must be accepted had further
accentuated the trend towards under-valuation, as the importers were certain that the customs would
not be able to reject the declared lower collusive prices.
9 This position was supported by Brazil and
some other Members.  These Members maintained that the provisions (Article 17 of the Agreement
and paragraph 7 of the Tokyo Round Code's Protocol) were insufficient to deal with the problem ofunder-valuation as there was often collusion between exporters and importers.  The negotiated result
of these concerns was the Ministerial Decision Regarding Cases Where Customs Administrations
Have Reasons to Doubt the Truth or Accuracy of the Declared Value.  It is important to note that
while this flexibility was requested by developing countries, the text has been worded in such a way
that its provisions can be invoked by all signatory countries.
                                                     
9 GATT document MTN.GNG/NG8/W/9, 30 September 1987.G/VAL/W/95
Page 10
29. During the negotiations, two other issues were also raised by developing countries as
important considerations for their acceptance of the Ag reement.  These related to the provisions in the
Agreement and its Protocol relating to officially established minimum values and to importations into
developing countries by sole agents, sole distributors and sole concessionaires.  Regarding minimum
values, Article 7 of the Agreement prohibits determination of value for customs purposes on the basisof officially fixed minimum customs values.  Para graph 3 of the Protocol to the Agreement, which
contained provisions for special and differential treatment for developing countries, permitted
developing countries to make a reservation to enable them to retain such values on a limited
transitional period "under such terms and conditions as may be agreed upon by the Parties to the
Agreement".  Developing countries proposed that this transitional period should be sufficiently long.
30. With respect to the issue of sole agents and distributors, under the BDV, which most
developing countries had adopted, it was possible for customs to include in the dutiable value, in
appropriate cases, special discounts obtained by such agents.  This was not the case under the Tokyo
Round Code where the concept that transaction valu e should be generally accepted would require the
customs to accept in all cases unless a relationship could be proven, the price obtained by the sole
agent, irrespective of the level of special discount or the purpose for which it is obtained.  India andsome other developing countries had argued that the acceptance of this principle could lead to the
government losing a serious amount of customs revenue.  As it would not be possible to raise the
revenue lost by other taxation measures, the decline in revenue collection could have serious
implications on the government's efforts at economic development.
10
31. The result of the negotiations relating to these concerns is the Ministerial Decision on TextsRelating to Minimum Values and Imports by Sole Agents, Sole Distributors and Sole
Concessionaires.  The first part of this Decision clarifies the provisions that were in the Protocol
(moved to paragraph 2, Annex III in the WTO Agreement) relating to officially fixed minimum
values.  The second part of this Decision concerns sole agents, sole distributors and soleconcessionaires.  The agreement treats them as unrelated parties so that no special discounts are added
to the transaction value.  The Protocol under th e Tokyo Round (paragraph 5 of Annex III of the WTO
Agreement) recognized that for certain developing countries changeover from their existing practices
in relation to importations by such agents, distributors and concessionaires may pose problems, and
provided that, if a request was made, the Parties to the Code should agree to undertake a study of the
question with a view to finding appropriate solutions.  The text of the Decision adopted emphasises
that while developing countries could continue without changing their existing practices relating todiscounts for such agents during the five-year delay period, during this period, however, these
countries could, with the assistance of the CCC (WCO), conduct appropriate studies on the
importation of sole agents as well as in other areas identified as being of potential concern to them.
The text urges the CCC to provide technical assistance to requesting developing countries for this
purpose, in accordance with the provisions of annex II of the WTO Agreement.
32. Apart from these three Ministerial Decisions, the Code changed very little under the Uruguay
Round Negotiations.  The Protocol became Annex III to the Agreement, the role of the WCO
Technical Committee was clarified and drafting changes were made to bring the Agreement into legal
consistency with the Agreement establishing the World Trade Organization.  The expectation of theadoption of these tree texts was that they would facilitate application of the Agreement by developing
countries.
                                                     
10 Rege, Vinod, "Developing Country Participation in Negotiations Leading to the Adoption of the
WTO Agreements on Customs Valuation and Preshipment Inspection – A Public Choice Analysis", World
Competition, Law and Economics Review, Volume 22, Number 1, March 1999, p.78.G/VAL/W/95
Page 11
ANNEX
TEXTS ISSUED BY THE TECHNICAL COMMITTEE ON CUSTOMS VALUATION
(WCO) RELATED TO EACH TIRET.
Tiret 57
/g216 Commentary 18.1: Relationship between Ar ticles 8.1(b) (ii) and 8.1 (b) (iv).
/g216 Case-study 1.1: Report on a case study w ith special reference to article 8.1 (b):
engineering, development, artwork, etc.
/g216 Case-study 8.2: Applic ation of Article 8.1.
Tiret 58
/g216 Advisory Opinion 12.1: Flexible appli cation of Article 7 of the Agreement.
/g216 Advisory Opinion 12.2:  Hierarchi cal order in applying Article 7.
/g216 Advisory Opinion 12.3: Use of data from foreign sources in applying Article 7.
Tiret 59
/g216 Commentary 1.1: Identical or similar g oods for the purpose of the Agreement.
Tiret 60
/g216 Commentary 17. 1:  Buying Commissions.
/g216 Explanatory Note 2.1: Commissions and brokera ge in the context of Article 8 of the
Agreement.
/g216 Explanatory Note 5.1: Confirming commissions.
Tiret 61
/g216 Advisory Opinion 21.1: Interpretation of the expression "partners in business" in Article
15.4 (b).
/g216 Explanatory note 4.1: Consideration of rela tionship under Article 15.5 read in conjunction
with Article 15.4.
/g216 Case-study 9.1: Sole agents, sole di stributors and sole  concessionaires.
/g216 Case-study 11.1: Application of the artic le 15.4 (e) related party transactions.
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