WORLD TRADE  
ORGANIZATION  G/VAL/W/141 
25 October 2004 
 (04-4516) 
Committee on Customs Valuation Original:   English 
  
 
REPLIES TO QUESTIONS POSED BY THE UNITED STATES 
REGARDING CHINA'S NOTIFICATION UNDER ARTICLE 22 
OF THE CUSTOMS VALUATION AGREEMENT 
 
China's responses to US questions regarding Chin a's legislation related to customs valuation
1 
 
  The following communication, dated 22 October 2004 is being circulated at the request of the delegation of the People's Republic of China.  
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1.  Regarding China's Notification of its Implementing Law (G/VAL/N/1/CHN/1)
 
 Question 1
: The definition of "price actually paid or payable" in Decree No. 95 differs from the 
definition in the WTO Agreement.  Article 41 of Ch ina’s Decree No. 95 states that "Price actually 
paid or payable" means the total payment, as a condition for 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 payabl e" 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  payable" 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.  Reply
: The differences in the wording result from the transl ation of the text from Chinese to English.  
There is no discrepancy in nature. 
  Based on the corresponding Note to Article 1 of the CVA, the "price actually paid or payable" 
concept under article 41 of the said Decree have b een interpreted and explained in a summarized 
manner in Chinese.  The connotation and denotation of the above-mentioned concept is essentially the 
same with that defined under the CVA. 
 2. Regarding Related Parties - Circumstances of Sale Test
 
 
Question 1 : The Decree lacks the language of Article 1. 2 and the corresponding Interpretative Notes 
of the CVA. There is no reference to the Circumst ances 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 th e 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 
                                                     
 
1 G/VAL/W/137. G/VAL/W/141 
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 demonstrating that transaction value is acceptable (that is, closely approximates certain previously 
accepted customs values). Please indicate how the provisions of Article 1.2 of the CVA and the applicable interpretative notes will be implemented.  Reply
: Provisions of Article 1.2 and the corresponding  Interpretative Notes of the CVA are embodied 
in the said Decree.  It is provided in Decree 95 that  transaction value can not be simply refused on the 
ground that the seller and the buyer are related.  China Customs shall conduct an examination on the 
circumstances of sale in accordance with relative pr ovisions stipulated in Article 6 and Article 34 of 
the said Decree.  
Question 2
: The scope of identical goods and similar goods  covered in the Decree differs from the 
CVA. Whereas Articles 15 CVA states that goods sh all not be regarded as "identical goods" or 
"similar goods" unless they were produced in the sam e country as the goods being valued, Article 41 
of the Decree defines "identi cal goods" and "similar goods" as goods w ith specified characteristics 
that are produced in the same country or region.  We ask that the referenc e to "region" should be 
deleted. 
 Reply
: The concept of "region" in Article 41 of the Decree refers to separate Customs territories, 
which is not in conflict with Article 15 of the CVA.   
  Question 3
: The Interpretative Notes to Article 5 C VA specify that the deduction for profit and 
general expenses should be taken as a whole and s hould 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 same class or kind. The Decree contains no 
such provision.  We seek an explanation for this si tuation, and request that China make sure this 
provision is added to its le gislation and regulations.   
 
Reply : The Decree 95 has clearly stipulated in Article 43 that the "profits and general expenses" 
referred to in Article 9 of the regulation shall be determined on the basis of the information provided 
by the importer.  If the importer’s figures are incons istent with those of the goods of same class or 
kind sold within the customs territory, the profits and general expenses shall be determined on the 
basis of the figure of the goods of same class or kind sold within the customs territory. 
 
Question 4 : Article 10 of the Decree provides that an element 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 th at 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.  
 Reply
: The Decree has clearly stipulated in Article 44 that the "profits and general expenses" referred 
to in Article 10 shall be determined on the basis of the information provided by the manufacturer 
outside of the customs territory.  If the information provided by the manufacturer outside of the customs territory is inconsistent with that of the same class or kind sold by other manufacturers to the 
customs territory, the profits and general expe nses can be determined on the basis of other 
information. 
 
Question 5
: Although China indicates in its WTO Checklist 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  G/VAL/W/141 
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 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.   Reply
: Article 2 of Proclamation No.80 stipulates that where the transaction value and associated 
costs are computed in a foreign currency, the rate of  exchange to be used for the determination of the 
Custom value shall be the basic exchange rate published by the People’s Bank of China on the 3rd 
Wednesday of the previous month, which is appli cable at the time of importation or exportation.  
Where such basic exchange rate is not available fo r the foreign currency in question, the middle price 
between the buying and the selling published by Bank  of China in the same period shall be used.  
 
Question 6 : Article 39 of the Decree indicates that the importer or exporter who dissents from the 
decision of the customs administration on the custom s valuation may apply for appeal in accordance 
with the relevant provisions of Customs Law of th e 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 determination 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.   Reply
: The rights of appeal without penalty and to receive written notice of the decision are provided 
for in  Administrative Procedure Law of People’s Republic of China and Administration 
Reconsideration Law of People’s Republic of China. The administrative procedures of the Customs 
are covered by these two laws.  
 Question 7
: 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. 
 Question 8
: In addition, we request that China provide information on "sufficient guarantees".  
Article 66 states that "In case where the importer or exporter asks the Customs to release the goods 
before the determination of goods classification or Customs valuation, or presentation of effective 
declaration documents or completion of other Cu stoms formalities, the Customs shall release the 
goods against the securities provided by the importer or  exporter which is compatible with his legal 
obligation according to law."  There is no indicatio n of what these legal obligations are or how the 
requisite security amount is determined. Article 66 specifies two exceptions for the release of goods, 
plus an additional exception for "other circumstan ces 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 determined and on th e scope of these exceptions.  The 
notified Regulations do not address these issues.  Reply
: The "legal obligations" refer to those provided for in Customs Law of the People’s Republic of 
China , such as payment of duties and taxes, going through customs procedures, etc. 
  Article 66 of the Customs Law of the People's Republic of China and Article 37 of the Decree 
fully incorporate Article 13 of the CVA. We are currently drawing up specific rules on the 
determination of sufficient guarantees.  
 
Question 9
: Pursuant to Article 14 CVA, the Interpreta tive Notes from an integral part of the 
Agreement.  Although in its responses to the Checklist of Issues, China states that the Interpretative 
Notes of the Agreement were in included in Chapte r 2&8 of the Decree.  These chapters include only 
a few of the Interpretative Notes.  For example,  most of the interpretative notes pertaining to G/VAL/W/141 
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 Articles 1, 5, 6, 7and 8 are absent.  We ask Ch ina to ensure that the Interpretative Notes and 
incorporated into its laws and regulations.  Question 10:
 The Decree does not include the provisions of Article 15.2(c), regarding the scope of 
identical and similar goods.  We ask th at China address this discrepancy.  
 
Question 11 :  The Decree does not include the provisions of Article 15.3, regarding the definition of 
goods of the same class or kind.  We ask  that China address this discrepancy.  
 Reply
: The substantial contents of the interpretative notes and relevant article s of CVA have already 
been included in The Rules of General Administration of Customs of People’s Republic of China 
Regarding Determination of Customs Value for Import and Export Goods .  However, we are now 
under the revision of the said Rules to reflect the notes and articles much more clearly.  Question 12
: We request a clarification of Article 19 of the Decree.  To what does this Article apply?  
Please provide an explanation of the formula. 
 Reply
: Firstly, regarding the application of Article 19: 
  Pursuant to Article 57 of Customs Law of People's Republic of China , duty reduction or 
exemption may be granted to import and export goods  of specific areas, specific enterprises or for 
specific purposes.  Article 49 of REGULATIONS ON IMPORT AND EXPORT TARIFF OF THE 
PEOPLE’S REPUBLIC OF CHINA  provides that where the import goods which are granted duty 
reduction or exemption and the use of which are under the Customs control are diverted to other 
purposes within the duration of Customs control and therefore the recovery of duties is needed, the 
import duty shall be recovered by the Customs on th e basis of the value of import goods depreciated 
according to the time after importation.  
  Article 19 of the Decree  applies to the situations described in Article 49 of REGULATIONS 
ON IMPORT AND EXPORT TARIFF OF THE PEOPLE'S REPUBLIC OF CHINA.   
 
 Secondly, regarding the formula:  
 
 The formula is used to calculate the customs value  of the imports with specified duty 
reduction or exemptions granted and are s ubject to full payment of import duties. 
  The "value of the goods determined at the time of importation" means the customs value 
determined by the customs pursuant to the provisions of The Rules of General Administration of 
Customs of People's Republic of China Regarding  Determination of Customs Value for Import and 
Export Goods  at the time of importation when the goods were imported with specified duty 
reductions or exemptions granted.    "The time accurately used as of the applicati on for paying duties (in term of months)" means 
the duration of time starting from the date on whic h the goods are released till the date when the 
goods is subject to customs duty.  No matter whether the said goods have been used or not, the time is 
measured by month.    "Statutory years for customs custody" means the time period set by the Customs to ensure that 
the goods with duty reduction or exemption for the sp ecified areas, enterprises or purposes be put into 
use as declared. The period is measured by year. 
 
Question 13
: Article 21 of the notified Regulations stat es that "where the transaction value of 
imported goods does not comply with the conditions prescribed in Paragraph 2 of Article 18 of these  G/VAL/W/141 
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 Regulation, 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.  Reply
: The phrase "it is impossible to determine the transaction value" is not translated very 
accurately to its Chinese equivalent.  It should be put as "where the transaction value can not be 
determined".  That refers to the situation when th e transaction value can not be determine pursuant to 
Article 18, 19, 20 of REGULATIONS ON IMPORT AND EXPORT TARIFF OF THE PEOPLE'S 
REPUBLIC OF CHINA .  For example, Addition or deduction to the price actually paid or payable can 
not be made on the basis of objective and quantif iable data, or when the goods and articles are 
donated or rendered as gifts. 
 3. Regarding document G/VAL/N/1/CHN/3, "The Cust oms Regulations of The People’s Republic of 
China Regarding Determination on Customs Value of Royalties and License Fees Related to the 
Imported Goods," we have the following questions:  
 
Question 1 : Article 3 provides that "royalties and licence fees shall be added to the customs value of 
imported goods provided the payments meet both th e following conditions..."  This provision does not 
address the situation where the royalty or licence fee is already included in the price.  Is provision 
made elsewhere for this situation?   
Reply
: The Customs Regulations of the People's Re public of China Regarding Determination on 
Customs Value of Royalties and Licence Fees Related to the Imported Goods  further interprets Article 
4.3 of the Decree No. 95.  According to Article 3.2 of the latter regulation, the transaction value of the 
imported goods is the price actually paid or payabl e for the goods by the buy er adjusted in accordance 
with the provisions of Article 4 and Article 5.  Cust oms do not have to adjust the declared value if the 
Royalties and Licence Fees have  already been included. 
 Question 2
: Article 4 provides that royalties and licence 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 licence fees are not related to the imported goods?   
 
Reply : No. It does not deny the right of an importe r to present evidence to demonstrate that in 
particular circumstances royalties and licence fees are not related to the imported goods.  
 Question 3
: Article 5 addresses royalties and licence fees pa id 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?  
 
Reply :  The way of determination is already expl ained in the first paragraph of Article 5. 
 Question 4
: Under Article 6 royalties and licence fees pa id for the right of trademark would be 
deemed related to the imported goods where the tr ademark is affixed after importation.  We would 
like further explanation of this provision.  Ho w would you address the situation where the imported 
goods are assembled and/or processed in Chin a and the trademark is affixed to the 
assembled/processed good?        Reply
: According to Article 6, royalties and licence f ees shall be considered to be related to the 
imported goods if the trademark is affixed to  the goods  after minor processing in China. G/VAL/W/141 
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  According to Article 15 of the said regulation, the term "minor processing" means diluting, 
mixing, sorting out, primary assembling, repacking, and other similar processing, etc.  Question 5:
  Articles 5 and 7 both refer to imported so ftware.  How do these provisions relate to 
China's application of the WTO Committee on Cust oms Valuation Decision 4.1?  We have some 
concerns that these provisions could be used to circumvent that decision.  
 Reply
: At the time when the said regulations ente red into force, Decision 4.1 had not been 
implemented in China. Ever since 11 December 2003 when China began to implement Decision 4.1 
as committed, China Customs has been implementing Proclamation No. 66 of 2003, which stipulates 
that in determining the customs value of carrier me dia bearing data or instructions, only the cost or 
value of the carrier medium itself shall be taken in to account, provided this cost is distinguished from 
the cost or value of the software.    Question 6:
  Reference is made to minor processing in Article  6 and 8.  This term is defined in Article 
15 to include primary assembling.  Can you provi de an explanation of primary assembling? 
 Reply
: "Primary assembling" actually means "simple pr ocessing", referring to a kind of simple and 
non-substantial processing of the imported goods, su ch as putting together parts or pieces easily 
without changing the physical characteri stics, quality and reputation thereof. 
 
Question 7:  The scope of Article 11 is very broad.  What is the reason for requiring importers to 
declare royalties and licence fees paid in any form ?  What can the importer do when it is not possible 
to provide objective and quantifiable data at the ti me of entry?  Would this subject the importer to 
potential criminal penalties under Article 14?   
Reply:
 Article 11 makes it clear that the importer ha s the obligation to declare royalties and licence 
fees paid in any form by the buyer /importers, so th at the customs officials could determine accurately 
in accordance with the relevant Articles of th e Decree 102 whether royalties and licence fees would 
be dutiable or not. If it is not possible to provide obj ective and quantifiable data at the time of import, 
the importers should explain to customs officers the reason why he could not provide the objective and quantifiable data and when he could be able  to do so. If the buyer/importer violates the 
regulations under Article14 in the import declarati on, it would be subject to criminal penalties.  
 Question 8
:  In what situations would a violation of th e royalty regulations constitute a crime pursuant 
to Article 14?  
Reply
: The consignee of imported goods who violat es the said regulations by failing to present 
accurate declaration, or submitting false, fictitious  or fraudulent declaration of royalties or licence 
fees, shall be punished by th e Customs in accordance with the Customs Law of the People's Republic 
of China and the Implementing Regulations on Imposing Administrative Penalties under the Customs 
Law of the People’s Republic of China . Where the violation constitutes a crime, the 
importer/consignee concerned shall be subject to criminal liability in accordance with the relevant 
Law.  
 Question 9:
  Can China include examples in their regulati ons or policy directives of royalty payments 
that would not be included in the customs value?    G/VAL/W/141 
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 Reply :  China adopts the system of statue law, where cases can not be the basis of law enforcement.  
The specific cases of the advisory opinions or certa in judicial cases can only be used as reference in 
determining whether the payments of R/L should be  included in the customs value or not.  China 
Customs is now introducing "Administrative Rulings" to help the customs officers in determining the 
conditions on which the R/L should be added to the customs value. 
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