Customs Valuation in Developing Countries and the World Trade organization Valuation Rules

The lack of understanding of customs valuation and of its supporting procedures are two of the mobilization performance, and aggravates integrity issues. Customs valuation systems have been the subject of international agreements because they can constitute barriers to trade. The World Trade Organization (WTO) Agreement on Customs Valuation (ACV) mandates the use of the ACV for all WTO members. The ACV establishes that the customs value of imported goods, to the greatest extent possible, is the transaction value, that is, the price actually paid or payable for the goods. Despite receiving substantial technical assistance (TA), many developing countries have not succeeded in adequately implementing the WTO valuation standard.

A full appreciation of the central issue of this chapter-the difficulties that many developing countries find in implementing the ACV, together with measures that could overcome these difficulties-requires a good understanding of the complex nature of customs valuation and the constraints developing countries face in the practice of customs valuation. This chapter, therefore, briefly notes the nature and significance of customs valuation systems and practices and their international standardization. It provides insights into the difficulties experienced by developing countries in customs valuation and in implementing the ACV. It also examines the type of measures that could contribute to effective valuation of import shipments. The first section highlights the significance of customs valuation and its historical development. The second section reviews the main characteristics of the ACV. The third section deals with the problem of ACV implementation in developing countries. The fourth section proposes measures to address these problems. The fifth section reviews the role of PSI services and other programs in the customs valuation area. The final section provides the key operational conclusions of the chapter.

Significance and Historic Overview of Customs Valuation

Most import tariffs are based on ad valorem duties, that is, a rate expressed as a percentage of the value of the imported good. Customs valuation is the determination of the amount upon which the rate of duty is calculated.1 While these rates are unambiguously fixed by statute in a tariff schedule, the declared value of imported goods may differ from transaction to transaction. This has three important implications for tariff policy. First, an importer may engage in underinvoicing and not declare the full value of the shipment to reduce his duty liabilities. Unless the underinvoicing is detected, government revenue is lost, and the importer receives an unfair advantage compared to its competitors. Second, governments can take advantage of the valuation system to increase or decrease duty liabilities for revenue or protective purposes, thereby offsetting tariff concessions made under multilateral or bilateral trade agreements. Third, undervaluation and overvaluation are used for capital flight.

For these reasons, a valuation standard is needed both at national and international levels to ensure that the correct duty is levied and a level playing field exists for all importers. It is also needed to enhance transparency and predictability of international transactions. Good valuation standards and practices enhance trade facilitation and contribute to the preparation of good trade statistics.

International Valuation Standards

Customs valuation systems have been the subject of a number of international harmonization and standardization efforts. International efforts toward harmonization began in the early 20th century, but significant results did not come until the 1947 General Agreement on Tariffs and Trade (GATT). This Agreement was followed by the 1950 Convention on the Valuation of Goods for Customs Purposes, establishing the Brussels Definition of Value (BDV) and the 1979 Agreement on Implementation of Article VII of the GATT (ACV), resulting from the Tokyo Round. At the 1994 Uruguay Round, a decision (based on Article 17 of the GATT Valuation Agreement) was reached regarding the cases where customs administrations have reasons to doubt the truth or accuracy of the declared value.

Valuation Principles: Article VII of the GATT The first significant international agreement on customs valuation was reached at the 1947 GATT negotiations that established principles to be adhered to by trading partners. These principles, embodied in GATT's Article VII, emphasize that customs value should not be arbitrary, fictitious, or based on value of indigenous goods. It should be real and based on the actual value of the imported goods or like goods. Customs value should derive from a sale or offer of sale in the ordinary course of business under fully competitive conditions. If the actual value is not ascertainable, customs value should be based on the nearest...

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