RESTRICTEDWORLD TRADE
ORGANIZATIONG/VAL/W/98/Add.1
17 April 2002
(02-2117)
Committee on Customs Valuation Original:  English
PARAGRAPH 12 OF THE DOHA MINISTERIAL DECLARATION:
IMPLEMENTATION-RELATED ISSUES
Questions from Members
Addendum
Questions and comments from Singapore
1. Singapore's overall comments are that custom s fraud exists with or without the Customs
Valuation Agreement, and that there are ways and means to detect, combat and deter customs fraudwhich are beyond the Customs Valuation Agreement.
2. In our view, the Customs Valuation Agreement seeks to strike a balance between the interests
of traders and customs authorities.  India's proposals for tirets 57-61 would tend to increase the
discretion and choice of the customs authorities of the importing country more than are necessary, butdo not appear to actually address the problem of fraud.  The move to increase the discretion and
choice would instead go towards artificially raisin g the customs value.  In our view, such an effect
could inadvertently encourage more fraudulent attempts.
3. We also feel that changing the bases of valuation methods that have been in place for more
than 20 years would cause unnecessary uncertainty and inconvenience to trade.  We would therefore
be very cautious to implement changes that would cause inconvenience to trade and increase businesscosts.
Tiret 57 – proposal to amend Article 8.1(b)(iv) to include in the computation of transaction value, the
cost of services such as engineering, development, and design work, and plans and sketches necessary
for the production of the imported goods even if unde rtaken in the country of importation (currently
excluded).
4. Singapore submits that the rationale behind Article 8.1(b)(iv) to exclude such additional
services was to provide an incentive to importing countries to develop engineering and development
services.  We do not agree with India's interpretation of Article 8.1(b)(iv).  In our view, duty evasionand fraud issues are problems of enforcement and not caused by Article 8.1(b)(iv).
5. Could India therefore elaborate how the inclusion of certain services in Article 8.1(b)(iv),
presently excluded, would address the problem of fraud?
6. How does Article 8.1(b)(iv) actually encourage artificial reduction in customs value and
parallel payments?  To what extent (i.e. what proportion or percentage of the customs valuation
amount) do these services "artificially" reduce the customs value?
7. Singapore submits that there is no need to amend Article 8.1(b)(iv) along the lines proposed
by India.  As we have submitted before, including the value of any engineering, development and
design work supplied by the importer would unnecessarily inflate the imported value.  TheseG/VAL/W/98/Add.1
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additional costs would only be ultimately passed on to consumers who have to bear the burden of
inflated values.
Tiret 58 – proposal to amend Article 7(2) by deleting paragraphs (c) and (e) to allow valuation to be
based on the price of the goods in the domestic market of the country of exportation and/or the priceof the goods for export to a country other than the country of importation.
8. Singapore feels that the use of transaction values of the country of exportation or to country
other than the country of importation would not be reflective of the actual transaction value.
Furthermore, these prices would be difficult to verify, and the verification process contemplated
would increase the burden on exporters and the expo rting country authorities.  Lastly, we would be
cautious about transposing concepts and procedures regarding price determinations from otherAgreements, which have different underlying bases.
9. It is Singapore's view that the value of any imported goods should be based on the actual
transaction price – this is the principle of the Customs Valuation Agreement.  The domestic market
price in the country of export or export price to a third country is not reflective of the actualtransaction price.  In fact, the negotiating history on this aspect shows that developing countries had
argued against using the domestic value in the country of export, as this would be to their
disadvantage given that these domestic prices were often at artificially high levels.  As for the
proposal to use export price to a third country, the proposal seeks to allow importing authorities to
choose a third country with the highest export price.  It appears that such a proposal would giveimporting authorities a lot of leeway to establish ar tificial inflated values, and give impetus to more
fraud.
Could India therefore explain how such a pr oposal would go towards eliminating fraud?
10. In addition, how does India propose to obtain the information on the domestic market price of
the exporter or verify the transaction prices in a third country?  We feel that the verification
contemplated would create additional burdens on the exporter, exporting country authorities or that of
a third country.  Such exercises would not facilitate trade at all.
11. India has already acknowledged that the comput ation of customs valuation is to be based on
the actual value in the ordinary course of trade under fully competitive conditions.  We would submitthat the only way to do this is by computing the price in the country of importation.  To consider the
price or value in any other country would not be taking into account the "ordinary course of trade"
under "fully competitive conditions" as each country's conditions are different.  The only realistic way
to compute actual value is to compute it based on situations in the country of importation and not on
third country pricing.
12. India has pointed out that residual methods of  price determination can be found in other WTO
Agreements and are therefore not "alien" concepts.  We would be very cautious about transposing
concepts and procedures from other Agreements, namely the Anti-Dumping Agreement, over to the
Customs Valuation Agreement, as they have different underlying bases.  The anti-dumpingprocedures are aimed at determining whether price discrimination exists, whereas the Customs
Valuation Agreement seeks to determine the value based on actual transaction costs.
Tiret 59 – proposal to amend Articles 2(3) and 3(3) to use the highest value in situations where there
is more than one transaction value of identical or similar goods.
13. India argues that the proposal in tiret 59 would go a long way to prevent misuse of the
Customs Valuation Agreement, curb invoice ma nipulation, prevent trade distortion and contain
revenue loss.  India states that unscrupulous traders and cartels use Article 2(3) to circumvent theG/VAL/W/98/Add.1
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Customs Valuation Agreement.  India cites the examples of deliberately low-priced pilot
consignments and price-fixing cartels.  If there are indeed price-fixing cartels or circumvention, and
the customs authority already know that these pric es are unreliable (i.e. it has reason to doubt the
accuracy or truth), we would think that such foreknowledge would be the best preventative method,
and the authority can institute a fraud investigation.
14. We fail to see how the proposal would go towards curbing customs fraud.  Would not the
proposal instead distort the value to the other extreme and have the undesired effect of increasing
under-declaration by traders in an attempt to counter the higher valuation rules?
15. In this context, it would also be useful to have information whether other countries have also
experienced circumvention and misuse of the provisions of the Customs Valuation Agreement viaArticles 2(3) and 3(3) as they stand.
Tiret 60 – proposal to amend Art.8:1(a)(i) to allo w buying commissions to be taken into account
16. India argues that these commissions are a legitimate component of the landed cost of the
imported good, and also that excluding them would give rise to misuse of the Customs ValuationAgreement.  We would argue to the contrary that, if it is a question of fraud, there are other means to
deal with fraud, and amending Art.8:1(a)(i) does not necessarily solve the fraud problem.  We would
like to better understand India’s argument.
17. We would submit that India’s assertion that buying commissions are a legitimate component
of the landed cost of the imported good could be overly simplistic.   Buying commissions are defined
as fees  paid by the importer to his agent for the agent’s services of representing the importer abroad
for purchasing the goods in question.  The buying commission payable is usually determined by a
company’s marketing strategy, and the strategy would take into account a complex mix of factors.
That would not be fraud.
18. In addition, in business today, it is more likely that buying agents would be hired by small and
medium sized enterprises that lack the means or resources to go into an overseas market for
procurement.  Therefore, we would be cautious and urge a deeper examination of this proposal, to
avoid a result that would inadvertently discriminate against small and medium sized enterprises.
19. We also note that changing the Agreement to allow for buying commissions to be taken into
account would change a basis that has been in existence for more than 20 years – this would create
disruption and uncertainty to traders.  We would be cautious about implementing changes that are not
trade-facilitative.
Tiret 61 – proposal to amend Article 15(4) to automatically deem associated persons, such as sole
agents, sole distributors, and sole concessionaires, as “related persons”.
20. The Agreement requires importing authorities to carefully examine the relationship of such
persons according to the criteria in Art.15:4 to see if the persons are indeed related.  It is in fact not
uncommon for arms’ length relationship to exist in a sole distributorship, or sole agency etc.
Businesses today do appoint sole distributors etc., and it is not uncommon for entrepreneurs to look tosecure a sole distributorship for a particular product (perhaps more so in developing countries than
others).
21. We also do not see how tiret 61 would go towards combating customs fraud.  We therefore
seek elaboration from India as to how its pr oposal for tiret 61 would combat customs fraud.
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