RESTRICTEDWORLD TRADE
ORGANIZATIONWT/GC/W/227
5 July 1999
(99-2757)
General Council Original:  English
PREPARATIONS FOR THE 1999 MINISTERIAL CONFERENCE
Proposals Regarding the Implementation of  the Agreement on Implementation of
Article VII of the GATT 1994 in terms of Paragraph 9(a)(i)
of the Geneva Ministerial Declaration
Communication from India
The following communication, dated 2 July 1999, has been received from the Permanent
Mission of India.
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1. Issue:  Ministerial Decision regarding rejection  of transactions value method in doubtful
cases
1. Article 1 of the Agreement on Implementation of  Article VII of the GATT 1994 is to be read
together with Article 8 which provides inter alia  for adjustments to the price actually paid or payable
in cases where certain specific elements which are considered to form a part of the value for customs
purposes are incurred by the buyer but are not included in the price actually paid or payable for the
imported goods.  The Agreement, therefore, enjoins customs administrations to accept the transaction
value except in specified circumstances as laid down in Article 1. Article 17 of the Agreementrecognizes that in cases where there may be reason for doubt, customs administrations may satisfy
themselves as to the truth or accuracy of any statement, document or declaration presented for
customs valuation purposes.  Paragraph 6 of Anne x III to the Agreement secures full cooperation of
importers in the conduct of enquiries by a customs administration in this regard.
2. However, these provisions are inadequate to deal with situations such as collusion between
the importer and exporter for undervaluation of goods aimed at evading customs duty.  Verification
and enquiry by customs administrations set out in Article 17 would not enable the establishment of
fraud in such instances.  Furthermore, the importer can not be expected to fully cooperate with
customs administrations when he is a party to undervaluation and to suppression of information.
3. At the Marrakesh meeting of April 1994 a decision was taken by the Ministers to deal with
this issue (“Decision Regarding Cases Where Customs Administrations have Reasons to Doubt the
Truth or Accuracy of the Declared Value” taken by the WTO Committee on Customs Valuation at its
first meeting held on 12 May 1995 pursuant to the Marrakesh Decision).  This Decision sets out the
procedures to be observed in such cases and may be particularly useful in cases where a
manufacturer’s invoice has not been submitted and where the declared value is much less than thetraded prices given in contemporaneous reputed international publications or is less than the price at
which the goods are sold in the ordinary course of trade under fully competitive conditions.WT/GC/W/227
Page 2
Proposal
4. For practical applicability, this Decision may be incorporated in the WTO Agreement itself as
it will help in a significant way in tackling the problem of undervaluation which is reported to be
rampant in many developing countries, especially those where the rates of customs duty are relativelyhigh.
2. Issue:  Multilateral arrangement for exch ange of information on customs value
5. The provisions of the Agreement do not address the situation where an exporter files the
correct export declaration to the customs authorities, but the importer unilaterally resorts to
mis-declaration of value to the customs authoriti es in the importing country to evade due customs
duty.  To tackle this problem, the practice of entering into bilateral agreements for exchange of
information regarding customs value as evolved.  But this is not a practical and enduring solution tothe problem.
Proposal
6. A multilateral solution that enables customs administrations of importing countries to seek
and obtain information on export values contained in the export declaration to the customsadministrations of exporting countries, in a time-bound manner, in doubtful cases, is proposed.
3. Issue:  Determination of customs value on the basis of transactions value of identical or
similar goods
7. Where the customs value can not be determined under the provisions of Article 1, Articles 2
and 3 of the Agreement proceeding sequentially envisage consultation between the customsadministration and the importer with a view to arriving at a “identical goods” or “similar goods” basis
of transaction value.  The Agreement provides that if in applying these Articles more than one
transaction value of identical or similar goods is found, the lowest of such values shall be used to
determine the customs value of the imported goods.  This provision creates a bias in favour of
importers and could lead to manipulation.  In fact, in many instances the variation between the lowest
value and the highest value of identical or similar goods is very wide and there may be a
concentration of transactions in the higher end of the range.  In a situation where the transaction at the
far lower end results from a deliberately conducted import consignment, a pilot consignment at a
suppressed value, the resultant application of the provision that the lowest value shall be used to
determine the customs value of the imported goods may not fall within the general principles of
valuation set forth in these Articles.
Proposal
8. This situation needs appropriate correction to avoid manipulation of import prices and a better
approximation of “transaction value”.  It is pr oposed that the Agreement should be amended to
provide for the highest value when more than one transaction value of identical or similar goods is
found.
4. Issue:  Buying commissions
9. Under Article 8 of the Agreement, adjustments to the price actually paid or payable is
provided in cases where certain elements which are considered to form a part of the value for customs
purposes are incurred by the buyer but are not included in the price actually paid or payable for the
imported goods.  Commissions and brokerage, exce pt buying commissions, therefore, have to be
taken into consideration in determining the cu stoms value.  “Buying commissions” are paymentsWT/GC/W/227
Page 3
made by an importer to his agent for the servi ce rendered by the agent towards representing the
importer overseas in the purchase of the goods under valuation. Buying agents may also, in some
instances, buy the goods from the manufacturer or trader in that country using own funds and re-
invoice the purchase to the importer.  The Agreements recognizes the second invoice price as the
transaction value in such instances.  However, manipulation through artificially reduced re-invoiceprices frequently occurs to mutual benefit. The exclusion of buying commissions from the
computation of value encourages such under-invoicing and the artificial splitting of value, especially
when purchases are first made by buying agents and are re-invoiced to the importer.
Proposal
10. Buying commissions should, therefore, be taken into account in the determination of customs
value of imported goods as it forms a legitimate component of the landed cost of imported goods.
5. Issue:  Cost of services, such as engineering, development and design
11. Under Article 8:1(b)(iv) of the Agreement, 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, is permitted only if the services are
undertaken other than in the country of importation.  This provision provides room for the splitting ofthe import value, by claiming that part of the services were rendered in the importing country itself.
Proposal
12. It is proposed that the cost of such services, which are integral to the value of the imported
goods, should be included in the valuation irrespective of whether they were undertaken in thecountry of importation.
6. Issue:  Imports by sole agents, sole distributors and sole concessionaires
13. Valuation of imports by sole agents, sole distributors, and sole concessionaires of large
corporations, including transnational corporations, poses a problem as such entities are not considered
as “related persons” automatically under Article 15:5 of the Agreement.  If such entities sell theproduct at specially reduced prices, there may be no means available with customs administrations to
check the veracity of such special prices.  Article 1:2(a) and (b) provide safeguards in the matter of
acceptance of transaction value for customs purposes between a buyer and a seller who are “related”.
Proposal
14. In order to shift the burden of proving that the prices quoted are not influenced by the
relationship to the agents, distributors or concessionaires, as the case may be, persons associated witheach other as sole agents, sole distributors, and sole concessionaires, howsoever described, should
therefore automatically be deemed “related”.
7. Issue:  Determination of customs value under the residual method in Article 7 of the
Agreement
15. The determination of customs value under the residual method is set out in Article 7 of the
Agreement.  Article 7.2 prohibits, inter alia,  determination of customs value on the basis of:  (i) the
price of goods in the domestic market of the country of exportation;  and (ii) the price of the goods for
export to a country other than the country of importation.  The exclusion clause (c) in paragraph 2,
however, creates a situation of dichotomous treatment.  Under the WTO Agreement on
Anti-Dumping, a product is to be considered as being dumped (that is, introduced into the commerceWT/GC/W/227
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of another country at less than its normal value), if the export price of the product is less than the
comparable price for the like product sold in the domestic market or is less than the export price in a
third country where there is no sale in the domestic market.  Therefore, while the Agreement on
Anti-Dumping takes cognisance of the domestic price and export price in a third country, the Customs
Valuation Agreement explicitly excludes such a possibility.
Proposal
16. The residual method of determining customs value appropriately should be inclusive of all
residual eventualities, allowing valuation based on domestic market price or export price in a third
country with appropriate adjustments.
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