WORLD TRADE  
ORGANIZATION  TN/TF/W/169 
5 February 2010 
 (10-0644) 
Negotiating Group on Trade Facilitation Original: English 
  
 
COMMUNICATION BY THE UNITED STATES 
 
  The following communication, dated 4 February 2010, is circulated at the request of the 
Delegation of the United States. 
 
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DRAFT TEXT ON PENALTY DISCIPLINES 
 
 
I. INTRODUCTION 
1. Importers, exporters and other pa rticipants in the international supply chain are expected to 
adhere to laws and regulations  governing international trade.  Customs imposes penalties on those 
who do not comply with the rules for import, export and transit.   
2. Customs enforcement of import, export and trans it laws and traders' compliance with the laws 
is fundamental to the efficient operation of the gl obal trading system.  The need for guidance in the 
area of customs offenses and customs response to th e offenses is recognized in the International 
Convention on Simplification and Harmonization of Customs Procedures (the Revised Kyoto 
Convention).  Specifically, Annex H contains exte nsive standards on the procedures for assessing and 
settling penalties for customs offenses.   
3. Recently, traders have expressed concern a bout the transparency, predictability and 
impartiality of some customs penalty regimes.   Concerns have ranged from excessive penalties for 
minor clerical mistakes, to serious allegations of  customs officials personally profiting by the amount 
collected through the assessment of penalties. 
4. Article VIII:3 sets out fundamental disciplin es relating to the imposition of penalties:  
 No contracting party shall impose substan tial penalties for minor breaches of customs 
 regulations or procedural requirements.  In pa rticular, no penalty in respect of any omission or 
 mistake in customs documentation which is eas ily rectifiable and obviously made without 
 fraudulent intent or gross negligence shall be  greater than necessary to serve merely as a 
 warning. 
 
5. Earlier papers in the NGTF touched on the topic of penalties, particularly in the context of 
publication (TN/TF/W/17 and TN/TF/W/114).  Howeve r, the draft consolidated text includes no 
provisions clarifying and improving penalty disciplin es, which directly affect the goal of facilitating 
trade.  TN/TF/W/169 
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  6. Penalty regimes must be objective, transparent,  and provide for penalties that are appropriate 
to the offense.  Further, it is to the benefit of  customs authorities to encourage traders who discover 
that they have made an error or mistake to co me forward and disclose that error to customs.  
Excessive and non-transparent penalties can disc ourage such disclosure and inhibit trade.  
The proposed text clarifies and improves Article VIII: 3 through provisions which bolster the integrity 
of penalty regimes by addressing the proper treatment  of penalties for minor errors, permitting traders 
to disclose errors and receive reduced penalties, a nd ensuring that customs officers do not personally 
profit from the imposition and collection of additional duties and penalties. 
7. The United States submits the following textua l proposal, for Members' consideration and 
inclusion in the draft consolidated negotiating text, TN/TF/W/165.  It could be inserted  as part of 
Article 5, among proposals grouped with the issue when it was included in the Compilation of 
Members' Textual Proposals ( see, e.g., TN/TF/W/43/Rev.12); or in Article 6, where other proposals 
related to Article VIII are covered;  or it could become a separate article. 
II. TEXTUAL PROPOSAL 
1. Each Member shall ensure that penalties for breaches of customs laws, regulations, and 
procedural requirements are based on the culpability of the legally responsible party for compliance 
with the relevant law, regulation,  or procedural requirement.   
2. Each Member shall provide that any penalty for minor breaches, other than clerical errors, of 
customs laws and regulations shall be no greater th an necessary to serve merely as a warning to avoid 
future breaches.   
3. Each Member shall provide that a clerical error in completing paper or electronic customs 
documents shall not be subject to penalties, unless th e error is part of a consistent pattern of such 
errors over a significant period of time.  A Member may require correction of the clerical error prior to payment of the duties, fees, and taxes. 
4. Each Member shall ensure that it maintains procedures to avoid conflicts of interest, including 
ensuring that government officials do not personally benefit or receive a portion of any penalties or 
duties assessed or collected.  
5. Each Member shall ensure that when a pena lty is assessed for a breach of customs laws, 
regulations, or procedural requirements, an expl anation in writing is provided to the legally 
responsible party upon whom the penalty is assessed specifying the nature of the breach, the products 
and/or means of transport involved, a nd how the penalty amount was determined. 
6. Each Member shall provide for the reduction of  civil or administrative penalties which would 
have otherwise been imposed on a legally responsible  party, when that party voluntarily discloses the 
circumstances of a breach of customs laws, regul ations, or procedural requirements prior to the 
discovery by the customs administration of the br each.  Where the disclosing party can correct the 
breach, a Member may require that the party correct it within a reasonable period of time, including paying any duties, taxes, and fees owed.   
7. Each Member shall establish or maintain judi cial, arbitral, or administrative tribunals and 
procedures for prompt review and, where warrante d, correction of final administrative actions 
regarding matters covered by this Article.  Such tr ibunals shall be impartia l and independent of the  TN/TF/W/169 
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  office or authority entrusted with administrative enforcement and shall no t have any substantial 
interest in the outcome of the matter.1 
8. Each Member shall specify a fixed, finite period within which it may initiate penalty 
proceedings in connection with a breach of a cust oms law, regulation, and procedural requirement. 
9. "Legally responsible party" is the person(s) th at has the obligation to comply with a customs 
law, regulation or procedure. 
10. "Clerical error" shall mean a mistake made in copying, inputting or transmitting information. 
11. "Minor breaches" shall mean inadvertent omi ssions or mistakes, including mistakes in 
interpretation of a customs law, regulation or pro cedural requirement, made without fraudulent intent 
or gross negligence. 
 
 
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1 This language may be dropped from the proposal should it be adequately addressed in the context of 
the Article X proposals on appeal procedures.