ON 13th April, 2010, in the midst of the 30 th Session of the Technical Committee on Customs Valuation, the World Customs Organization (WCO) celebrated the 30 th anniversary of the GATT/WTO Valuation Agreement. The programme for the event comprised a few presentations from internationally respected experts in the area of Customs Valuation followed by the Panel Discussion which basically focussed on what has been learnt over the past 30 years and, taking into account the rapidly changing commercial landscape in the international arena, the major challenges facing Customs Valuation in the years ahead. I had the privilege to be invited by the WCO to make a presentation as also to be a panellist on the occasion.
Historical Background - Birth of GATT
Before describing the memorable event, it would perhaps be in order to give a historical background of the evolution of Customs Valuation. In 1923, after the First World War, under the auspices of the League of Nations, the International Convention relating to Simplification of Customs Formalities established the first Rules of Transactions between countries. Two decades later, after the Second World War, the United Nations Conference on Trade & Employment met in 1947 at Geneva, and a set of general principles for Customs Valuation was agreed by the participants. These principles were embodied in Article -VII of the General Agreement on Tariffs & Trade (GATT).
Brussels Definition of Value (BDV)
In 1948, a year after the GATT was first formed, 30 European Nations assembled in Brussels to discuss Customs Valuation under the auspices of the European Customs Union Study Group. They developed and signed three Conventions. The major achievement of the meeting was to draft the Brussels Convention on Valuation, thereby establishing Customs Valuation Procedures commonly known as the Brussels Definition of Value (BDV). The drafting of BDV was completed by the Study Group in 1949, and finally the BDV was signed in Brussels on 15.12.1950. The BDV called for the use of the so called "normal price" of the goods in the market for the purpose of Customs valuation. The BDV was thus based on the "price that a good would fetch in an open market between a buyer and a seller independent of each other". It finally came into effect on 28.7.1953.
BTN & CCC
The second significant outcome of the 1948 meeting was the Brussels Tariff Nomenclature (BTN) for tariff classification. The third outcome was the establishment of what was to become the Customs Cooperation Council (CCC) later on the 4th of November,1952. This was an international organization designed to "ensure the uniform interpretation and application of the Convention ... on the valuation of goods for customs purposes (also known as the Brussels Convention on Valuation)". Much later, in the year 1994, this very CCC evolved into the now famous World Customs Organization (WCO) which currently claims more than 160 members.
BDV & Non-BDV Practices
Coming back to the BDV, the first Session of its "Valuation Committee" was held during 3 rd - 12 th November, 1953. By the late 60s, about 100 countries followed the BDV, either as parties to the Convention or as a matter of domestic law or practice, making it by far the most widely applied valuation system. However, certain prominent countries like the United States of America, Australia, Canada, South Africa and New Zealand continued to use varying systems of valuation. One contentious issue in Customs Valuation history centres on the American Selling Price (ASP), a protectionist law in the U.S. Customs Code. The ASP, adopted in USA in 1922, was derived using the higher price of goods found on the US market instead of the import price. It was originally adopted to help the ailing US Chemical industries compete against the chemicals supplies from Germany but was later extended to other products and was thus instrumental in bringing the topic of Customs Valuation to the foreground of the GATT negotiations. Under the Canadian system, primary standard for determining value was Fair Market Value (FMV) which was based on the price of the imported products in the country of export. In addition to deviating from valuation procedures of the other GATT Contracting Parties, both the US and Canada were perceived as having relatively protectionist and cumbersome Customs valuation procedures. In the case of Australia and New Zealand, the dutiable value was determined on the basis of the higher of the actual invoice FOB price or the current domestic value.
Inadequacy of Art.VII of GATT - Formation of CTIP
In course of time,it came to be recognized that Article-VII of the GATT could not bring a uniform Customs valuation standard, and that Customs valuation could also serve as extremely effective barriers to the goods trade. Therefore, in December, 1969, a Committee on Trade in Industrial Product (CTIP) was established in the GATT to examine the desirability of harmonization of valuation systems and special valuation procedures. The CTIP prepared two drafts - "draft principles" and "draft interpretative notes". These were general guidelines for national Customs regulations and practices, and they formed the basis for future work. In 1973, the GATT Secretariat prepared a comprehensive study entitled "Trade Barriers arising in the field of Customs Valuation". This study described in considerable detail the valuation systems prevalent in different countries, both developed and developing, and also highlighted the main problems arising from different valuation procedures.
Tokyo Round
The Tokyo Round GATT Multilateral Trade Negotiations took place in Geneva during 1973-79 aimed to "achieve the expansion and ever greater liberalization of world trade, inter alia, through the progressive dismantling of obstacles to trade". The negotiations started on the basis of pre-Tokyo Round work on Customs valuation as discussed above. The initial negotiations progressed poorly mainly because of difference in valuation systems in North American countries and the BDV practised by European countries and certain developing countries. Another important hitch was bringing the other developing countries on board.
Pivotal Role of India
What may not be very well known to people even in India is the fact that it was India that played a key role in bringing the developing countries on board the Tokyo Round negotiations. India, like many other countries, depended on Customs duties for an important part of its Government revenues and, therefore, wished to negotiate favourable terms for itself in a new Customs Valuation Code. In addition, many developing countries lacked the administrative capacities to monitor market prices amongst their trading partners, and thus faced potentially serious problems caused by fraudulent invoices. It was clear that there was too much at stake forthe developing countries. In September, 1978, therefore, India proposed to use the so called "transaction value" for valuation purposes. This term comprised "price paid or payable for the goods when sold for export to the country of importation plus certain additions such as the cost of packaging and the value of various items provided to the buyer, free of charge in connection with the sale of the goods". However, this proposal was made on the condition that "Customs administration of the country of import is satisfied on the basis of the general price level or otherwise that such value represents price in a sale in the ordinary course of trade under fully competitive conditions, the price being the sole consideration for the sale". This proposal was, however, unacceptable to developed countries as they felt that it would water down the commitments on a declared invoice price, and give too much authority to Customs officials to set the value of imports.
Birth of 'GATT Valuation Code'
Despite the initial cool reception, finally India's proposal proved to be a turning point in the negotiations with some of the more influential developing countriesdemonstrating a willingness to reach agreement on a Customs Valuation Agreement. However, not all developed countries were willing to agree to this proposal on the whole, and when the Tokyo Round was concluded on 12.4.1979 it was without a multilateral agreement on Customs Valuation but rather it was a plurilateral code that countries could opt into as they wished. Thus, the agreement on implementation of Article-VII of the General Agreement on Tariffs and Trade commonly known as the "GATT Valuation Code" was signed on 12.4.1979. Notable in the list of signatories were the handful of developing countries including India. It was based on the "price actually paid or payable" for the imported goods, rather than arbitrary or fictitious value. The adoption of the Tokyo Round Valuation Code was a key success of this Round, because it represented the attainment of a broad consensus that Customs valuation should depend on the transaction value and would, as a consequence, reduce the discretion left to Customs authorities. From the overall Global perspective and with ever changing face of international trade, it was deemed to be time for change in global Customs valuation systems. The move from the BDV and other systems that were in place in non-BDV countries, for example, American Selling Price, Fair market value etc. to a more internationally uniform and non-biased system was seen at that time to be a critical need to assist with a more facilitative movement of international trade. Finally the GATT Valuation Code came into being on the first of July, 1980 and that is how 'Thirty years of GATT Valuation Code' was celebrated this year by the World Customs Organization!
(To be Continued)
[The author is a member of the Indian Customs & Central Excise Service, and the views are his personal] |
