WORLD TRADE  
ORGANIZATION  G/VAL/N/4/LKA/3 
21 March 2005 
 
 (05-1153) 
Committee on Customs Valuation Original:   English 
  
 
NOTIFICATION CONCERNING THE DECISION UNDER PARAGRAPH 2  
OF ANNEX III OF THE AGREEMENT ON IMPLEMENTATION OF  
ARTICLE VII OF THE GENERAL AGREEMENT ON 
TARIFFS AND TRADE 1994 
 
SRI LANKA 
  
 The following communication, dated 17 March 2005, is being circulated at the request of the Delegation of Sri Lanka. 
 
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Reservation made by Sri Lanka to retain the sy stem of minimum values on used motor vehicles
 
for valuation purposes under paragraph 2 of Annex III  
 
 
Progress report with regard to phasing out the minimum value system by Sri Lanka  
 
1. Introduction : 
 
 After availing itself of the provisions provided for in Article 20.1 of the WTO Customs Valuation Agreement to delay the application of th e provisions of the said agreement for an agreed 
period, Sri Lanka brought its domestic Custom Law into conformity with the provisions of the said 
agreement through the Customs (Amendment) Act No. 02 of 2003. This Act was passed by the 
Parliament on 11.12.2002 and came in to force on 07.01.2003. Accordingly, Sri Lanka was able to 
implement the provisions of the WTO Custom Valua tion Agreement nearly two months ahead of the 
approved time limit, i.e. 28 February 2003.   
 
 Before expiration of the approved time limit,  i.e. 28 February 2003, Sri Lanka made a 
reservation to the WTO Committee on Custom Valu ation in March 2003 to  retain established 
minimum values on certain products for customs pu rposes, under the provisions provided for in 
paragraph 2 of Annex III.  In res ponse to this request, Sri Lanka was able to obtain an extension of 
time to delay the application of related provisions of the WTO Agreement and to maintain a minimum 
value system on used motor cars for customs purposes until 28 February 2005. As per the decision granting the extension, Sri Lanka may continue to  use officially-established minimum values for the 
valuation for customs purposes until 28 February 2005 for the used motor vehicles and motor cycles 
classified under HS ex 87.01-87.04 and ex 87.11   The main reasons given for the request to ma intain the minimum value system for the used 
motor vehicles were two-fold as enumerated below:  G/VAL/N/4/LKA/3 
Page 2  
 
 1. The potential threat to the Customs revenue from valuation fraud.  This issue is part of the 
wider problem of trade in used or second-ha nd goods, which offer greater opportunities for 
fraud, particularly through the use of false invoices.  
 2. Government restrictions on the age of used motor vehicles, as unregulated imports of used 
motor vehicles causes health hazards and environmental pollution.  
  The Valuation System for custom purposes a dopted by Sri Lanka Customs for used motor 
vehicles, listed in the decision G/VAL/53 of 7 Ma rch 2003, is actually a method to determine the 
customs value under the provisions of Article 7 of the Agreement.   
 
 According to the Customs Notification No. 1273/21 of 31 January 2003, the value of the used motor vehicles shall be calculated on the basis of the FOB values of new motor vehicles and the 
Depreciation Table established by Sri Lanka Cu stoms for used motor vehicles. The Customs 
Regulation under reference contains only the met hod of calculation and therefore it does not declare 
any minimum values for used motor vehicles as such.  
 
2. The phasing-out plan implemented by Sri La nka during January 2003 to January 2005 period
 
 
 Since implementation of the WTO Valuation Ag reement in January 2003, Sri Lanka tried to 
strengthen customs enforcement activities to combat  valuation fraud.  This was the main activity 
contained in the work plan for the phasing out of minimum values for the goods identified.  
 
Implementation of Activities during January 2003 – January 2005 Period 
No Activity   Stage of Implementation 
1.  
Legislation and Procedures 
  
  
¾ Establish Regulations to 
implement minimum values  
Developed and published Do mestic Regulation through 
Government Gazette Notification No. 1273/21, dated 31 January 2003, setting out the basic criteria and other relevant information for app lication of minimum values on 
used motor vehicles. 
 
 
¾ Domestic Regulation on 
Motor vehicles produced in or imported into Sri Lanka   
Developed and published Do mestic Regulation through 
Government Gazette Notification No. 1295/11, dated 30 June 2003, setting out the standards for Air Emissions by Motor Vehicles produced in Sri Lanka or imported in to 
Sri Lanka. This Law is mainly applicable to used motor 
vehicles.   G/VAL/N/4/LKA/3 
 Page 3 
 
 
  
2.  
Human Resource Development to 
combat Valuation Fraud 
  
  
Trained Sri Lanka Customs 
Officials to develop their technical 
knowledge, skills and attitudes:  
  Senior Management Level 
 
  Middle Management Level 
and Operational Level 
  
 
 
This training was given to handle and combat possible valuation fraud in both pre-clearance and post - clearance investigation situations. Th is aimed to strengthen the 
capacity of Customs Official s deployed in the Special 
Units. 
3.  Structural Changes In the 
Organisation   
 ¾ Establishment of Pre 
Clearance Audit Unit 
 ¾ Establishment of Post 
Clearance Audit Branch 
 
 ¾ Establishment of a Valuation 
Investigation Unit  
 
Sri Lanka Customs has established a Pre Clearance Audit 
Unit, a Post Clearance Audit Branch and a Valuation Investigation Unit during the last two years. 
 
3. The Government of Sri Lanka explored alte rnate methods to do away with the minimum 
value system: 
 
(a) Last year, Sri Lanka Customs explored the possi bility of introducing specific duties instead of 
ad valorem duties for motor vehicles with a vi ew to changing the present valuation system. 
However, it proved difficult to adopt a system of specific duties, due to technical reasons, 
such as having different brands and mode ls under a particular engine capacity.  
 (b) Recently, the Sri Lankan Government attempted to restrict importation of used motor vehicles 
due to environmental reasons, so that more and more new motor vehi cles would be imported 
into Sri Lanka. As all new motor vehicles im ported into Sri Lanka are valued for customs 
purposes on the basis of invoice declared values, gradually Sri Lanka Government would 
have done away with minimum value system.  
 (c) Sri Lanka customs also studied the experience of other countries as to how they deal with 
valuation fraud in their countries.  The studies re vealed that each system has its drawbacks 
and is unable to deal with valuation fraud completely.   
 G/VAL/N/4/LKA/3 
Page 4  
 
 4. The Work Plan for 2005/2006 period
: 
 
The Activities Planned for February 2005 – February 2006  
No Activity   Stage of Implementation 
1. 
Strengthening the enforcement 
machineries in three units/branch  
 
(a) Human Resource Development to 
combat Valuation Fraud 
 
  Senior Management Level 
 
  Middle Management Level 
and Operational Level 
  
¾ Need to develop their skills and attitudes; 
 
¾ As the current cadre is not adequate to deal with the 
increasing number of valuation fraud, a new batch of officers need to be trained and deployed. 
 ¾ Need to have training facilities for the new officers. 
(b) Development of Infrastructure 
Facilities ¾ Increasing the existing facilities such as communication 
equipment, transport facilities etc., provided to the units/branch to carry out their duties expeditiously.  
 
 Sri Lanka therefore wishes to forward the above  facts for the consideration of the Members of 
the WTO Committee on Customs Valuation and request s to grant Sri Lanka a further extension to 
apply the current method of valuation until we  strengthen our enforcement area adequately. 
 
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