CUSTOMS VALUATION (CV) HANDBOOK
FOR CUSTOMS ADMINISTRATIONS
IN
THE EAST AFRICAN REGION
Programme on Capacity Building of Master Trainers
under the JICA Project on Capacity Building
for the Customs Administrations of the Eastern African Region (Phase 2)
Edition 2012
© Japan International Cooperation Agency 2012
The Project on Capacity Building for the Customs Administrations of the Eastern African
Region (Phase 2)
Japan International Cooperation Agency (JICA)
P.O. Box 50572-00200 Nairobi, Kenya
Tel: +254-20343027, 202812196
Suggested citation:
JICA Project on Capacity Building for the Customs Administrations of the Eastern African
Region (Phase 2)
PREFACE
This Handbook has been prepared by the Master Trainers Programme Customs Valuation
Working Group members in the East African Region under the auspices of Japan
International Cooperation Agency (JICA). The aim of this Handbook is to provide Customs
officers and other interested persons with information on the Agreement on implementation
of Article VII of GATT 1994 (The Agreement).
The scope of the Handbook covers among others, the Overview of WTO Agreement
on Customs Valuation, Transaction Value Method, Adjustments under Article 8, Other
Methods of Valuation (Article 2 through 7 of the Agreement) and Customs Documentation.
The Agreement referred to above has been domesticated under section 122 read together
with the 4th Schedule of the East African Community Customs Management Act
(EACCMA), 2004.
ACKNOWLEDGEMENT
Special thanks goes to the Government of Japan for the technical assistance and support
for Capacity Building in the Eastern African Region provided through Japan International
Cooperation Agency (JICA) and the World Customs Organization (WCO) for providing
Customs valuation experts under the Master Trainers Programme. Special thanks goes
to the management of Revenue Authorities of Burundi, Kenya, Rwanda, Tanzania and
Uganda for their financial and moral support and their commitment to the success of this
Programme.
This acknowledgement would not be complete without special mention of selfless efforts
of Facilitators of the Program namely Mr. Tsuneo Yamahara, Mission Head of Japanese
Technical Experts and retired Director General of Okinawa Regional Customs, Mr.
Shigeaki Katsu, Ms. Keiko Ito, Mr. Shigetoshi Aoyama, Mr. Koichi Iwai, Mr. Tsuyoshi
Togoe and Mr. Shingo Tanagami, Japan Customs Valuation Experts, Ms. Maki Kitaura
and Mr. Ian Cremer, WCO Valuation Technical Experts, Mr. Shinji Urakawa and Mr.
Masaharu Shimoya, Chief Advisors JICA Project, Mr. Shoji Maeda, Senior Advisor JICA
Project, Mr.Takao Iwai, Advisor JICA Project, Ms.Yukari Yoshida and Ms. Yoko Konishi,
Project coordinators, Mr. Allan Morgan, Project secretary from the Project Team.
Finally, we hail the working group leader and members for their dedication, sacrifice and
team work which made completion of this handbook a success.
The Working Group members including former members are :
Nishirimbere Albert, Marie-Goreth Bizindavyi, Kubwimana Judith, Ndikumana Philipe
(BURUNDI), Abakuk Kasibo, Ebby Khaguli, Esther Watene, Fridah Kimani (KENYA),
Mukamurenzi Providence, Shyaka Alex, Jimmy Mwesigye, Rugema Lucien (RWANDA),
George Mnyitafu, Narcis Lumumba, Mary Lyakurwa (TANZANIA), Kagumire Abel,
Twongeirwe Livingstone, Mubiru Salim, Kiconco Kellen (UGANDA).
Kyoko Kuwajima
Director General
Industrial Development and Public Policy Department
Japan International Cooperation Agency
On behalf of Japan International Cooperation Agency (JICA), I would like to congratulate
the completion of the “Customs Valuation Handbook for Customs Administrations in
the East African Region” which has been developed by the team of the Master Trainers
Programme. JICA expects this “Handbook” would benefit both Customs Administrations
and trade partners in East Africa.
JICA is working together with countries of Africa for development of economic corridors
and construction of One Stop Border Post (OSBP) for trade facilitation under the Japan’s
initiative at the Tokyo International Conference on African Development IV (TICAD IV).
As one of the key components, JICA‘s Project on Capacity Building for the Customs
Administrations of the Eastern African Region (Phase 2) (the JICA Customs Project)
has dynamically and speedily been extending a variety of activities hand in hand with
the partner organizations, such as the Revenue Authorities/Customs Administrations
and Clearing and Forwarding Agent Associations of the East Africa Community (EAC)
member states.
One of its highlighted activities is the Master Trainers Prgogramme, whose prime goal
is capacity development of the Customs officers in the fields of Customs Valuation, HS
Classification and Intelligence Analysis. The programme is an innovative and interactive
programme with specific focus on training of core trainers. The Working Group members,
all of whom have been assigned full-time to this programme by the respective Revenue
Authorities/Customs Administrations since its beginning in January 2010, have not
only gained skills and knowledge, but also strenuously developed and revised a draft
“Handbook”, and conducted a number of their own training courses with support of the
experts from the Japan Customs and the World Customs Organization (WCO). JICA
believes that the “Handbook”, which they have developed by themselves, is the culmination
of their hard work and utmost efforts throughout the Master Trainers Programme.
In this regard, I would like to extend its cordial gratitude to our development partners,
especially the Japan Customs, the WCO and the EAC for their dedicated contribution to
the JICA Customs Project, especially to the success of the Master Trainers Programme, in
the development of the above mentioned “Handbook”.
I sincerely hope that this “Handbook” would be fully and widely used as the essential
Training Material for further effective trade facilitation in East Africa and beyond its
boundaries.
Kenneth Bagamuhunda
Director Customs
Directorate of Customs
EAC Secretariat
The Handbook on Customs Valuation, HS Classification and Intelligence Analysis has
been developed by a team of Customs officials who are members of the Master Trainers
Programme under the JICA Project on Capacity Building for the Customs Administrations
of Eastern African Region (Phase 2).
This Handbook is a tool premised on the EAC Customs instruments which include among
others, the EAC Customs Union Protocol, EAC Customs Management Act, EAC Customs
Union Common External Tariffs, EAC Rules of Origin, EAC Customs Management
Regulations, EAC Customs Compliance and Enforcement Regulations, EAC procedure
manual, EAC Valuation manual and EAC Post Audit Clearance Manual.
To enhance Customs training and professionalism, an EAC Customs Training Curriculum
has been developed which will ensure harmonized training in all the Partner States hence
effective skills development and service delivery. In addition, an EAC Trainers’ Guide,
has been developed to assist trainers in the EAC have common approach in the delivery of
Customs trainings. These Handbooks will be a reference training material in teaching and
learning in support of the above EAC training tools.
On this occasion, I also congratulate the members of the Master Trainers Programme who
were drawn from all the five EAC Partner States. They have successfully developed the
Handbooks as a regional team for the whole of EAC.
The EAC is in the process of consolidating the Customs Union through establishment of
a Single Customs Territory. The Single Customs Territory will facilitate and lead to free
circulation of goods without barriers hence enhance trade facilitation which a driver of
trade and the economy in this Region. The Handbooks therefore comes in handy as a tool
for the realization of trade facilitation in the region.
I want to salute JICA for the financial and technical support provided in the development
of this handbook. We appreciate that the ties JICA has built with EAC have continued to
strengthen from year to year particularly in support of Customs reforms and modernization
in EAC. We pledge our commitment to sustain the relationship and wish to affirm that the
Handbooks will be tool for training in the East Africa Community.
John K. Njiraini
Commissioner General
Kenya Revenue Authority
Republic of Kenya
Kieran Holmes
Commissioner General
Office Burundais des Recettes
Republic of Burundi
Ben Kagarama
Commissioner General
Rwanda Revenue Authority
Republic of Rwanda
Harry M. Kitillya
Commissioner General
Tanzania Revenue Authority
United Republic of Tanzania
Allen Kagina
Commissioner General
Uganda Revenue Authority
Republic of Uganda
For decades, each Customs Administration of the EAC partner states have placed its primary
role exclusively in collecting revenue, taking advantage of its unique nature of controlling the
trade through its own territorial sea, lake, air, as well as border posts. As we see in the emerging
dynamics in the region, however, its roles are drastically changing into trade facilitation, leading
various initiatives of both national and regional level. These initiatives are, for example, “AEO
Program”, “Customs Union”, “Common Market”, “Elimination of NTBs” and so forth.
With this background, the JICA’s Master Trainers Programme was launched in January 2010
under the recognition by all the then-Commissioners General of the 5 Revenue Authorities of
KRA, OBR, RRA, TRA and URA seeking to develop Master Trainers among the nominated
Customs officers from the respective Customs Administrations who would be highly valuable
human resources with great deals of knowledge and skills in Customs businesses, specifically
Customs Valuation, HS Classification, and Intelligence Analysis. Once they are accredited as the
Master Trainers, they would become indispensable stronghold for the Customs administrations
in leading various Customs’ initiatives, including capacity building of other Customs officers as
well as private sectors, such as importers, exporters, and clearing agents.
In this occasion, we are honored to express our utmost gratuity in acknowledging the publication of
the “Handbook” on Customs Valuation, HS Classification, and Intelligence Analysis respectively,
all of which were developed through great efforts by the Master Trainer candidates with support
of JICA and WCO. We all acknowledge here that it will be fully used for long as one of the key
training materials for our training purposes.
Masaharu Shimoya
Chief Advisor
The Project on Capacity Building
for the Customs Administrations of the
Eastern African Region (Phase 2)
On behalf of JICA Customs Project team as well as our predecessors who have started the
Master Trainer Programme, Japan Customs Experts, Officers of World Customs Organization
who have been involved in this programme, I would like to extend my cordial congratulations
to the members of Master Trainer Programme who have developed the Handbooks for training
of Customs Valuation, HS Classification and Intelligence Analysis.
As Chief Advisor of the Project, I have closely monitored and supervised the activities by all
the Master Trainer Programme members. Their willingness and enthusiasm had been very
strong at each activity, their teamwork and dedicated efforts made it realize these Handbooks.
I sincerely congratulate them and am proud of each member of the team who made great
contribution to develop the handbooks.
All three subject areas featured in the Handbook are the KEY areas for Customs operations
in which intensive Customs techniques and knowledge are required. The theories, their key
rules and regulations, are compiled in the Handbooks and we expect these knowledge and
skills will be widely shared among the officers and industries. I would like to highlight the
important points in each subject areas as follows;
HS Classification:
Goods must be classified as presented before you, the duty rate is not an issue;
Customs Valuation:
To identify who is the buyer and who is the seller, and to find out price actually paid or
payable plus adjustment elements;
Intelligence Analysis:
Intelligence Analysis is a tool of trade facilitation. The tool shall be used to differentiate the
customs approach to low risk stakeholders and high risk stakeholders.
I can say that a combination of the above customs technique will provide better trade incentives
to importers, exporters and Customs Clearing Agents.
JICA Customs Project aims for better trade facilitation in this region and I am sure that the
Handbooks will contribute to capacity building of both Government and its stakeholders and
benefit them in facilitate smoother Customs clearance for both sides.
The JICA Customs Project team continuously support the various activities for capacity
building of Customs Administrations and the Clearing Agents in this Region. We are very
happy to work together with our counterparts for their reform and modernization.
LIST OF ABBREVIATIONS
ACV
Agreement on Customs Valuation
BDV
Brussels Definition of Value
C&F
Cost and Freight
CIF
Cost Insurance and Freight
CU
Currency Unit
DDP
Delivered Duty Paid
EAC
East African Community
EACCMA
East African Community Customs Management Act, 2004
FIS
Free in Store
FOB
Free on Board
GAAP
Generally Accepted Accounting Principles
GATT
General Agreement on Tariffs and Trade
GIC
General Introductory Commentary
JICA
Japan International Cooperation Agency
KRA
Kenya Revenue Authority
LC
Letter of Credit
MTN
Multinational Trade Negotiations
OBR
Office Burundais des Recettes
PAPP
Price Actually Paid or Payable
PCA
Post Clearance Audit
RRA
Rwanda Revenue Authority
TCCV
Technical Committee on Customs Valuation
TRA
Tanzania Revenue Authority
TT
Telegraphic Transfer
URA
Uganda Revenue Authority
WCO
World Customs Organisation
WTO
World Trade Organisation
Table of Contents
PREFACE
ACKNOWLEDGEMENT
LIST OF ABBREVIATIONS
CHAPTER 1
1.0 AGREEMENT ON CUSTOMS VALUATION ...........................................
1
1.1
Introduction ...............................................................................................
2
1.2
Historical Background of Customs Valuation ..........................................
2
1.3
Objectives of the WTO Agreement on Customs Valuation .....................
6
1.4
Structure of the WTO Customs Valuation Agreement
......................
7
1.4.1 General Introductory Commentary .....................................................
8
1.4.2 PART I - Rules on Customs Valuation ................................................
9
1.4.3 PART II - Administrtion, Consultations and Dispute Settlement ........
10
1.4.4 PART III - Special and Differential Treatment ...................................
11
1.4.5 PART IV - Final Provisions ..............................................................
11
1.5
Annexes ...............................................................................................
12
1.5.1 Annex I - Interpretative notes ...............................................................
12
1.5.2 Annex II - Technical Committee on Customs Valuation ....................
12
1.5.3 Annex III - Provisions for Developing Countries ..............................
13
1.5.4 Customs Valuation Compedium ....................................................
13
2.0 TRANSACTION VALUE METHOD .........................................................
15
2.1
Introduction
........................................................................................
15
2.2
Definitions
............................................................................................
15
2.3
Elements of Transaction Value Method
CHAPTER 2
2.3.1 Concept of sale
..............................................
16
................................................................................
16
2.3.1.1
Definition of sale .......................................................................
16
2.3.1.2
Examples of cases where there is no sale .................................
17
2.3.2 Concept of sale for export ..................................................................
20
2.3.2.1
Meaning of sale for export ....................................................
20
2.3.2.2 Examples.................................................................................. 20
2.3.3 Concept of Price Actually Paid or Payable .......................................
22
2.3.3.1
Direct and Indirect Payments ...................................................
23
2.3.3.2
Activities undertaken by the buyer on his or her own account..
24
2.3.3.3
Flow of Dividends ...................................................................
25
2.4
Discounts and Credits
............................................................................
25
2.4.1 Cash discounts .....................................................................................
25
2.4.2 Quantity discounts................................................................................
26
2.5
Credits ...................................................................................................
27
2.6
Other factors that can affect the price
.....................................................
28
2.6.1 Case of a Price below Market Price .................................................
28
2.6.2 Goods subject to export subsidies or bounties .....................................
28
2.6.3 Goods sold at dumped prices.................................................................
29
2.6.4 Goods not in accordance with the contract ..........................................
29
2.6.5 Split shipments.....................................................................................
30
2.6.5.1
Splitting up of Industrial Installations or plants .......................
30
2.6.5.2
Shipments split for reasons of Quality
.................................
30
2.6.5.3
Shipments split for reasons of Geographical dsitibution .........
31
2.7
Conditions for use of Transaction Value ....................................................
31
2.7.1 Conditions under Article 1 ..................................................................
31
2.7.2 Practical examples in each condition .................................................
32
2.8
CASE STUDY ............................................................................................
36
CHAPTER 3
3.0 ADJUSTMENTS UNDER ARTICLE OF THE AGREEMENT ON CUSTOMS
VALUATION ................................................................................................
38
3.1
Introduction ..............................................................................................
38
3.2
Definition of Adjustments .........................................................................
39
3.3
Categories of Adjutments ..........................................................................
39
3.4
Compulsory Adjustments .........................................................................
40
3.4.1 Commissions and Packing .................................................................
40
3.4.2 Commissions, brokarage except buying commissions .......................
40
3.4.3 Cost of container and packing
44
..........................................................
3.4.4Assists ............................................................................................ 45
3.4.5 Royalties and Licence Fees ................................................................
52
3.4.6 Proceeds ............................................................................................
57
3.5
Optional Adjustments ...............................................................................
59
3.6
Additions to PAPP .....................................................................................
62
3.7
No additions to PAPP ................................................................................
64
3.8
Case Studies
............................................................................................
65
4.0 OTHER METHODS OF VALUATION .....................................................
71
4.1
Introduction
............................................................................................
71
4.2
Transaction Value of identical goods .......................................................
71
4.2.1 Requirements for Transaction Value of identical goods method .........
72
4.2.2 Adjustments under Transaction Value of identical goods ...................
72
4.2.3 Practical examples of Value Adjustments under identical goods .........
73
CHAPTER 4
4.3
......................................
74
4.3.1 Requirements for Transaction Value of similar goods method ..........
75
4.3.2 Adjustments under Transaction Value of similar goods method ..........
75
4.3.3 Practical examples of Adjustments under similar goods method ........
76
4.3.4 Comparisson of Identical and Similar goods .......................................
77
4.4
Transaction value of Similar Goods method Deductive Value Method ..........................................................................
78
4.4.1 Requirements of Deductive Value Method .........................................
78
4.4.2 Application of Deductive Value Method ........................................
79
4.4.3 Deductions made under the Veductive Value method ........................
79
4.4.4. Practical Examples
...........................................................................
80
...................................................................
81
4.5.1 Requirements for Computed Value Method ........................................
82
4.5.2 Elements to be considered under Computed Value Method ...............
83
4.5.3 Treatment of profits and general expenses ........................................
83
4.5.4 Application of Generally Accepted Accounting Priciples (GAAP).....
84
4.5
4.6
Computed Value Method
Fall Back Method
.................................................................................
85
4.6.1 Requirements of Fallback Method ......................................................
86
4.6.2 Right of the importer under Fallback Method .....................................
86
4.6.3 Demonstration of flexible application under each method .................
86
4.6.4 Prohibited means of determining value under the fallback method ....
89
CHAPTER 5
5.0 CUSTOMS DOCUMENTATION .........................................................
90
5.1
Introduction
91
5.2
Definitions and Interpretations
................................................................
91
5.3
Categories of Customs Documents ...........................................................
91
5.4
Importance of Documents ........................................................................
92
5.5
Vital information contained in documents
..............................................
92
5.6
Relationship between definition of Transaction Value and Documentation.
94
5.7
Overview of International Documents ......................................................
95
5.8
Analysis of Documents .............................................................................
95
5.8.1 Commercial Documents ......................................................................
95
5.8.2 Transport Documents .........................................................................
97
5.8.3 Financial Documents ..........................................................................
98
5.8.4 Regulatory Documents ........................................................................ 100
............................................................................................
5.9
Pointers to Authenticity in Documents ...................................................... 101
5.10
Grounds for doubting the truth or accuracy of the declared value ............ 105
CHAPTER 6
6.0
INCOTERMS 2010 .................................................................................. 106
6.1
Common INCOTERMS / Terms of Delivery ............................................ 106
CHAPTER 7
7.0
DOCUMENT CHECKLIST .................................................................... 110
References ................................................................................................... 128
CHAPTER 1
1.0 OVERVIEW OF THE WTO AGREEMENT ON CUSTOMS
VALUATION
The World Trade Organisation (WTO) Agreement on Customs Valuation (here after
referred to as the “Agreement”) is a trade facilitation based multilateral trade agreement
that requires signatory countries, through their Customs Administrations, to deal with a
detailed set of legislative and administrative requirements which goes further than the six
methods of valuation.
It is an Agreement that was arrived at by the world’s trading community under the auspices
of the Uruguay Round that also resulted to the creation of the World Trade Organization
(WTO), the world body charged with governing world trade. Each contracting member
state has ratified the Agreement into respective national or regional customs legislations.
For the case of the East African Community, this has been included in the East African
Community Customs Management Act vide section 122 read together with the Fourth
schedule.
General Objective
The General objective of the overview of the WTO Agreement on Customs Valuation is
to provide a comprehensive summary of the Agreement on implementation of Article VII
of the General Agreement on Tariffs and Trade, GATT 1994.
Specific Objectives
By the end of this chapter, you should be able to;
(a) State the historical background of Customs Valuation
(b) State the principle objectives of the “Agreement”
(c) Outline the structure of the “Agreement”
(d) List annexes to the WTO Agreement on Customs Valuation
Content
(a) Introduction
(b) Historical Background of Customs Valuation
(c) Objectives of the Agreement
(d) Structure of the Agreement
(e)Annexes
1
1.1Introduction
Customs valuation is the procedure applied to determine the value of imported goods
for the purpose of levying ad valorem customs duties. Customs duties are instruments
of fiscal and trade policy. They may be based on specific rates, ad valorem rates, or a
combination of the two. The choice of the rate depends on various factors, such as tariff
policy objective which may include and not limited to;
(a)
(b)
(c)
(d)
(e)
Raise revenue
Facilitate trade
Protect domestic industry
Encourage importation of certain products
Collect trade statistics
Ad valorem duties
Are taxes, duties or fees that vary depending on the value of products, services or property
on which they are levied. They are expressed as a percentage of the value and most of the
countries apply this system.
Ad valorem duty rate is not a recent invention but dates back to the middle ages but what
seems to have been lacking at that time was the application of precise, standard methods
of valuation.
The preference for ad valorem duties re-emerged during the industrial era, when it was
realized that the system offered greater protection, as it was more adaptable in the face of
price fluctuations and differences in the quality of goods.
Specific duties
These are duties, taxes or fees levied based on specific measures of goods such as
number, weight, volume, area, capacity etc. Here, a specific sum is imposed on each
article regardless of its individual value, e.g. price per litre of fuel.
1.2 Historical Background of Custom Valuation
Valuation of goods for exchange purposes has been in place since time immemorial.
Valuation was widely done during the barter trade system which was applied at local trade
as well as foreign trade. At the international level, the existence of different and unstable
valuation systems was a major obstacle to the growth of trade. Valuation system of the
day enabled the incidence of the agreed duties to be manipulated unilaterally by altering
the valuation criteria.
2
At the turn of the century, circles interested in the expansion of international trade undertook
studies with a view to replace the unstable and arbitrary methods applied up to that time
by an international valuation system, which would be neutral in its effect.
After several unsuccessful attempts made under the auspices of the League of Nations,
agreement on the general principles of Customs valuation was reached for the first time
during the United Nations Conference on Trade and Employment, held in Geneva in 1947
and was signed by 23 nations.
The conclusions of this Conference were embodied in Article VII of the General Agreement
on Tariffs and Trade (GATT)1947. The principle provided for customs valuation to be
based on the transaction value to the greatest extent possible. Nevertheless, that text
merely laid down the general principles and provided little guidance as to their practical
application.
Another progress towards international co-operation in the field of Customs valuation
was taken by the European Customs Union Study Group set up in Brussels in 1947. The
Group’s tasks included the drafting of a definition of value for use in the framework of
a Customs Union, and a study of the methods and procedures of application of such
definition.
The text of this definition was completed by mid-1949 and it was based on the principles
of Article VII of the GATT 1947. It was incorporated in the Convention on the Valuation
of goods for Customs purposes, which was signed in Brussels on 15th December 1950
and entered into force on 28th July 1953. This resulted into a new valuation method
termed as Brussels Definition of Value (BDV).
The Brussels Definition of Value is based on a notional concept, which treats the customs
value as the price at which in assumed conditions, the merchandise to be valued would
fetch in the open and free market on interaction of the forces of supply and demand when
sold to unrelated parties. The essential elements of this definition are price, time, place,
quantity and commercial level.
The BDV, a product of the trading environment of the 1950’s was seen to be subject
to arbitrary administration, lacking transparency and unresponsive to the prevailing
international trading environment. The system gives too much discretion to the Customs
administration. The value adjustment depended much on the assessment of the assessor,
which allows arbitrary uplifts that are not quantifiable and uncertain which is detrimental
to trade.
3
Between 1973 and 1979, a new phase in the history of Customs valuation was in the
making. During this period, the GATT multilateral trade negotiations known as the Tokyo
Round took place in Geneva, representing one of the most significant trade policy events
of our time.
The objective of these negotiations were to achieve the expansion of greater liberalization
of the world trade, inter alia, through the progressive dismantling of obstacles to trade.
One means of achieving this goal was the adoption of a common international valuation
system, more widely accepted than the existing system.
One of the results of these negotiations was the adoption of the Agreement on the
Implementation of Article VII of the GATT in 1981 also known as Agreement on Customs
Valuation (ACV). ACV is a positive concept rather than the notional concept under BDV.
A Protocol to the 1979 Agreement deemed to form the integral part thereof, contained
provisions concerning special problems and trading needs of developing countries,
permitting them some flexibility in applying the Agreement. This has become Annex III
of the GATT 1994.
The Agreement on Customs Valuation is based on transaction value that is the price actually
paid or payable for the imported goods when sold for export to the country of importation.
This system is intended to provide a fair, uniform, and neutral way for the valuation of
goods for Customs purposes, conform to commercial realities and precludes the use of
arbitrary and fictitious values. Through its precise methodology, it assists the trading
community and customs authorities to determine the customs values and the amount of
duties payable with more certainty, and therefore, contributes to the facilitation of trade.
The Agreement recognizes that Customs Valuation should, as far as possible, be based
on the actual price of the goods being valued, subject to certain adjustments of elements
which form part of the value but have not been included.
4
Uruguay Round
The Uruguay Round of GATT negotiation which started in 1986 was finalized in December
1994. This resulted in the Agreement on Implementation of Article VII of the General
Agreement on Tariffs and Trade 1994, popularly known as, “the Agreement”. It made
several changes to the existing Agreement on implementation of Article VII:
(a) Creation of World Trade Organization (WTO), which came into force 1995
(b) Requirement that all signatories to the WTO accept all GATT instruments, including
the Agreement on implementation of Article VII
(c) Some slight amendments to the text of the GATT Agreement on Customs
Valuation
(d) Review of Annex III to the Agreement
(e) Adoption of decisions regarding, Burden of proof, Minimum Values and Sole agents,
Sole distributors and Sole concessionaires
5
1.3 Objectives of the WTO Agreement on Customs Valuation
The objectives of the WTO Valuation Agreement are set out in the preamble of the
Agreement as follows:
(a) To further objectives of GATT 1994 and secure additional benefits for
developing countries
The Agreement is an important step towards a uniform application of valuation
procedures thus promoting international trade. It is also for developing countries
when they become members, for example, they may delay application of its
provisions for up to 5 years and may defer application of some specific rules for an
additional three year period.
It was also agreed that developed countries shall furnish technical assistance which
may include training personnel, assistance in implementation, access to sources of
information and advice on application of the provisions of the Agreement.
(b) To provide greater uniformity and certainty
An important objective of the Agreement was to establish a precise set of rules
which will be applied in the same way by all the members. This increases
importer’s confidence that they will receive the same treatment to avoid distortion
of competition. Article VII of GATT before 1994 was rather general and left each
country with the widest discretion in its valuation system.
6
(c) A fair, uniform and neutral system that precludes the use of arbitrary or
fictitious customs values
Arbitrary or fictitious customs values refers to national systems in which customs
values have been assigned to goods without regard to the factors which govern the
transaction between buyer and seller. Many countries have tendencies to protect
domestic industry by uplifting the value of imported goods unfairly. The intention
of precluding the use of arbitrary or fictitious customs values is to ensure that the
valuation of goods is based on the actual circumstances relating to each transaction.
(d) The basis for valuation should, to the greatest extent possible be the Transaction
Value of the goods
Transaction value in its simplest form refers to, the price actually paid or payable
with any necessary adjustments, agreed upon by the buyer and seller. The Agreement
makes clear that the transaction value method should be considered first whenever
possible.
(e) Customs value should be based on simple and equitable criteria consistent
with commercial practices
Whatever method is applied, the customs value should be determined on the basis
of the examination of accurate commercial documentation in line with generally
accepted commercial practices in the specific industry.
(f) Valuation criteria should be of general application without distinction between
sources of supply
This is another aspect of neutrality. Members are required to apply the provisions
of the Agreement uniformly to importations from all countries without distinction
between the goods and exporters.
(g) Valuation procedures should not be used to combat dumping
This means that if dumping is believed to be taking place, the Agreement
should not be used as a counter measure by increasing the customs value of the
goods in question. The correct procedure is to consider application of the anti
dumping laws (Article VI of GATT 1994).
1.4 Structure of the WTO Customs Valuation Agreement
The full title of the WTO Agreement on Customs Valuation is “Agreement on
Implementation of Article VII of the General Agreement on Tariffs and Trade 1994”,
referred to as “the Agreement”.
7
The structure of the Agreement is as follows:
PREAMBLE PART I
PART II PART III
PART IV Annex I Annex II
Annex III
General Introductory Commentary
Rules on Customs Valuation (Article 1-17)
Administration, Consultations & Dispute settlements (Article18-19)
Special and differential treatment (Article 20)
Final provisions (Articles 21-24)
Interpretative Notes
Technical Committee on Customs Valuation
Provisions for Developing Countries
1.4.1 General Introductory Commentary (THE PREAMBLE)
The Preamble gives the general introductory commentary of the Agreement which is the
basic introduction of the valuation methods and their hierarchical order of application.
The commentary to the first paragraph points out that the primary basis of the customs
value is the transaction value.
The starting point for the transaction value method is the price actually paid or payable
for the goods when sold for export, adjusted to take into account certain additional costs
incurred by the buyer which form part of the transaction value, but are not included in the
basic price paid or payable.
Article 8 provides, inter alia, for adjustments to the price actually paid or payable of
specific elements that pass from the buyer to the seller that may not necessarily be in the
form of money.
The commentary informs us that such elements form part of the value for customs purposes
if indeed they are incurred by the buyer but are not included in the price actually paid or
payable for the imported goods.
The second paragraph states that if it is not possible to determine the transaction value
of the goods, the Customs administration and the importer must consult with a view to
establishing the basis of value under Articles 2 and 3 (the transaction value of identical
and similar goods respectively). This is because one party may have information about
the customs value of identical or similar goods that may not be available to the other party.
The third paragraph introduces Article 5 and 6 which describe the methods to be used if
the value cannot be determined under the first three Articles.
The method described in Article 5 (Deductive Value Method) is derived from the price of
imported goods (identical or similar) which are sold after importation to unrelated buyers
in the country of importation.
8
Article 6 is the “Computed Value Method” where the customs value is built up from the
value of separate elements incorporated in the production or manufacture of the goods
being valued such as parts, materials, profits, overheads, etc.
However the use of this method may present difficulties and that is why Article 4 gives the
importer the option of reversing the order of application of Article 5 and 6 in consultation
with the Customs administration.
The fourth paragraph introduces the “Fall Back Method” for use in determining the value
in the event that customs value cannot be determined under the previous methods.
The Commentary as a preamble to the Agreement makes a statement on behalf of members
recognizing a series of fundamental objectives that underpin the Agreement itself.
1.4.2 PART 1 - Rules On Customs Valuation
Part 1 consists of 17 articles which explain the criteria for determining the Customs value,
adjustments, definitions, rights of importers and Customs Administrations.
Article 1 - Transaction Value Method
Article 2 - Transaction value of identical goods
Article 3 - Transaction value of similar goods
Article 4 - Application of Article 5 & 6
Article 5 - Deductive Value Method
Article 6 - Computed Value Method
Article 7 - Fall back Method
Article 8 - Adjustments to the transaction Value
Articles 1 to 8 will be discussed in detail in Chapter 2, 3 and 4.
Article 9 - Currency conversion
If conversion of currency is necessary for the determination of customs value, the rate
of exchange to be used shall be that duly published by the competent authorities of the
country of importation concerned.
Article 10 - Confidentiality of Information
All information which is provided on a confidential basis shall be treated as strictly
confidential by the authorities concerned and shall not be disclosed without specific
permission of the person who issued except to the extent that it may be required to be
disclosed in the context of judicial proceedings.
9
Article 11 - Importer’s rights to appeal without penalty.
The legislation of each member shall provide for the right of appeal without penalty within
the customs administration or an independent body up to the judicial authority.
Article 12 - Obligation to publish laws
Laws, regulations, judicial decisions and administrative rulings of general application
giving effect to this Agreement shall be published in conformity with Article X of GATT
1994 by the country of importation which requires that a member should inform other
members of the amendments made.
Artticle13 - Obligation to provide for a guarantee system
The importer may be allowed to withdraw the goods from customs if it is necessary to delay
the final determination of customs value provided that sufficient guarantee is provided.
Article 14 - Notes to the articles
These notes are set out under Annex I and the articles of the Agreement are to be read and
applied in line with these notes. Annex I, as well as Annex II and III form an integral part
of the Agreement.
Article 15 - Definitions
This article provides definitions and interpretation of various technical words used in the
Agreement.
Article 16 - Rights of importers to a written explanation
This article explains the rights of importers to an explanation in writing as to how customs
value was determined.
Article 17 - Rights of Customs Administrations
This article explains the rights of Customs administrations to satisfy themselves regarding
the truth or accuracy of any documents or declarations presented to Customs for valuation
purposes.
1.4.3 PART II - Administration, Consultations and Dispute Settlement
This part has two Articles.
Articles 18 - Institutions
This Article established the basic institutions of the implementation of the Agreement;
these are WTO Committee on Customs Valuation and WCO Technical Committee on
Customs Valuation.
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Article19 - Consultations and Dispute Settlement
This article describes the procedure to be followed for consultations and dispute settlement.
1.4.4 PART III - Special and Differential Treatment
This part has only one Article.
Article 20 - Special and Differential Treatment
The Article provides for special provisions available to developing countries. For example
developing countries were given a period of 5 years to delay implementation of provisions
of the Agreement.
1.4.5 PART IV - Final Provisions
This part has 4 Articles.
Article 21 - Reservations
This article states that the reservations may not be entered in respect of any of the provisions
of the Agreement without the consent of other members.
Article 22 - National legislation
This article requires each member to domesticate the Agreement and inform the committee
of any changes in its laws. The EAC domesticated the law in 2005 vide section 122 read
together with fourth schedule to the East African Community Customs Management Act,
2004.
11
Article 23 - Review
This article provides for review of implementation and operation of the Agreement by
WTO Committee on Customs Valuation annually.
Article 24 - Secretariat
This Article mandates WTO and WCO Secretariats to service this Agreement.
1.5 Annexes
The purpose of the annexes is to explain further issues covered by the Articles and mainly
the Interpretative Notes to the Articles, the functions of the Technical Committee on
Customs Valuation and the special provisions to the Developing Countries.
1.5.1 Annex I - Interpretative Notes
This annex provides the interpretative notes which supplement provisions of Article 1
until Article 15. In particular, they explain in more detail how the valuation methods are
to be applied. The notes emphasize the use of the methods in hierarchical order.
1.5.2 Annex II - Technical Committee on Customs Valuation (TCCV)
This annex establishes the Technical Committee on Customs Valuation under the auspices
of WCO and describes the role and the responsibility of technical committee with a view
to ensuring that at the technical level, there is uniformity in interpretation and application
of the Agreement.
The Agreement has two committees, the Committee on Customs Valuation based in Geneva
and the Technical Committee on Customs Valuation based in Brussels. The former is
concerned with the trade policy aspects of the Agreement while the latter deals with the
Customs aspects of it. The main role of the TCCV is the examination of specific technical
problems arising in the day to day administration of the Customs Valuation system of
Members and to give advisory opinions on appropriate solutions based upon the facts
presented.
12
Technical Committee on
Customs Valuation
INSTRUMENTS
STUDIES
COMMENTARIES
ADVISORY
OPINIONS
CASE
STUDIES
EXPLANATORY
NOTES
1.5.3 Annex III - Provisions for Developing countries
This annex provides for:
(a) Five (5) years delay in the application of the provisions of the Agreement paragraph
1 of Article 20;
(b) Retention of minimum value on limited and transitional basis;
(c) Reservation and reversal of the sequential order at the request of importer provided
under Article 4 of the Agreement;
(d) Reservation with respect to paragraph 2 of Article 5 of the Agreement, (it allows use
of goods that have gone further process in determination of unit price at which the
greatest aggregate units are sold.);
(e) Provision that developing countries that may have problems in the implementation
of Article 1 of the Agreement insofar as it relates to importations into their countries
by sole agents, sole distributors and sole concessionaires, shall request for a study of
this problem with a view to finding appropriate solutions.
1.5.4 Customs Valuation Compendium
The compendium, also called as “WTO Agreement and Texts of Technical Committee”
contains the following sections:
I. List of WTO Members
II. Agreement on Implementation of Article VII of the General Agreement On Tariffs
And Trade, 1994. This is the Agreement itself.
13
III. Article VII of the Agreement on Tariffs and Trade, 1994 and note thereto.
IV. Decisions taken by the WTO Committee on Customs Valuation. This currently
includes seven decisions made by the WTO Committee on Customs Valuation
covering various valuation issues.
V. Texts issued by the WCO Technical Committee on Customs Valuation. These texts
are published in different formats:
Advisory Opinions: These answer questions raised on the application of the
Agreement to a particular set of facts.
Commentaries: These provide comments on parts of the Agreement and intended to
supplement the text with additional guidance.
Explanatory Notes: These provide the Technical Committee’s views on questions
of a general nature arising from the application of the Agreement.
Case Studies: These are based on a set of facts relating to a particular commercial
transaction. They can be used to demonstrate a practical application of the Agreement.
Studies: These set out the results of detailed studies of questions related to the
Agreement.
VI. Index of valuation rulings and conclusions and of GATT/WTO documents containing
national valuation legislation.
N.B. The Index of rulings within this Section has now been replaced by the “Index
of Reference Materials on Customs Valuation”.
VII. Alphabetical Index
This index provides useful references for matters covered in both the Compendium
and the Agreement itself.
14
CHAPTER 2
2.0 TRANSACTION VALUE METHOD
Objectives
By the end of this chapter you should be able to;
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
Define the term “Transaction Value”
Explain the basis of Customs Value under Transaction Value Method
Enumerate the key elements of Transaction Value
Explain the concept of price actually paid or payable
Conditions for application of Transaction Value
Explain the sale for export concept
State conditions where Transaction Value Method cannot be applied
Apply Transaction Value Method
Outline
(a)Introduction
(b) Definition of terms relating to Transaction Value
(c) Basis of Customs Value under the Transaction Value Method
(d) Elements of Transaction Value
(e) Implication of importations without Sale
(f) Concept of sale for export
(g) Concept of price actually paid or payable
(h) Conditions for use of Transaction Value Method
(i) Case studies
2.1Introduction
The general introductory commentary to the Agreement states that, the basis for customs
value should be wherever possible, the transaction value of the imported goods being
valued (Article 1). That is the price actually paid or payable (PAPP) for the goods when
sold for export to the country of importation, adjusted in accordance with Article 8,
provided the conditions of Article 1 are met (paragraph 2 of 4th schedule of The East
African Community Customs Management Act, 2004 (EACCMA).
2.2 Definitions
(a) Transaction Value
It is the price actually paid or payable for the goods when sold for export to the country of
importation adjusted in accordance with Article 8.
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(b) Price actually paid or payable (PAPP)
Price actually paid means the price that has already been paid at the time of valuation or
importation. Price payable means the price that has not been paid by the time of valuation
or importation but has already been agreed to be paid. Therefore, the PAPP is the total
payment made or to be made by the buyer to or for the benefit of the seller for the imported
goods.
(c) Country of importation
According to Article 15 of the Agreement, country of importation means country or
customs territory of importation where goods are being valued.
(d)Adjustments
Implies any cost elements incurred by the buyer but not included in the price actually paid
or payable for the imported goods being valued.
2. 3 Elements of Transaction Value Method
2.3.1
Concept of sale
In order to establish transaction value there must be a sale of goods before importation. If
the imported goods are not the subject of a sale, there can be no transaction value under
Article 1 of the “WTO Agreement on Customs Valuation”.
2.3.1.1
Definition of sale
“The Agreement” contains no definition of “sale”. It merely indicates that “a sale is a
specific commercial operation satisfying certain requirements and conditions”(Advisory
opinion1.1). It implies a transfer of ownership of the goods for some form of consideration.
Hence a sale necessarily requires an agreement between a seller, who agrees to transfer
the ownership of the goods in exchange for a specified price, and a buyer, who agrees
to purchase those goods for a specified price.
Advisory Opinion 1.1 states that the term “sale” should be interpreted as widely as
possible. Moreover, in the absence of a positive definition of “sale”, a list of situations has
been drawn up in which the imported goods are deemed not to have been the subject of a
sale.
The Technical Committee on Customs Valuation expressed the opinion that:
(a) The Agreement on implementation of Article VII of GATT(1994), has no definition
of “sale”. Article 1, paragraph1, merely stipulates a specific commercial operation
satisfying certain requirements and conditions.
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(b) Nevertheless, in conformity with the basic intention of the Agreement that the
transaction value of imported goods should be used to the greatest extent possible for
Customs valuation purposes, uniformity of interpretation and application can be achieved
by taking the term “sale” in the widest sense, to be determined only under the provisions
of Articles 1 and 8 read together.
(c) It would however be useful to prepare a list of cases which would not be deemed to
constitute sales, meeting the requirements and conditions of Articles 1 and 8. In these
cases the valuation method to be used should be in accordance with the order of priority
laid down by the Agreement.
2.3.1.2
Examples of cases where there is no sale
(a) Free of Charge Shipments
Where a transfer of goods is made free of charge, it cannot be regarded as a sale. This is
the case, for example, with certain gifts, samples, prototypes and promotional items. In
this case, Transaction Value may not be applied.
samples
gifts
(b) Consignment sales
This refers to goods dispatched to the country of importation not as a result of a sale, but
with the intention that they would be sold on the account of the supplier. The goods remain
the property of the foreign supplier until after they are sold through a selling agent in the
domestic market.
17
Illustration of goods imported on consignment for sale by auction
Ilustration No1
(c ) Goods imported by intermediaries
This relates to imported goods which, at the time of Customs clearance, have not yet been
sold but are delivered by the foreign supplier to his/her agent generally to be held in stock
and then sold after importation for the account and the risk of the foreign supplier. Since
there is no transfer of ownership, there is no transaction value for these goods at the time
of importation.
(d) Goods imported by branches
This involves a transaction between two separate persons, the delivery of goods to a branch
office which does not have a separate legal status, is merely a transfer of goods from one
office to another.
Whether a transaction leading to the importation of goods by the branch office qualifies as
a sale for export depends on the role of the branch in the transaction.
If the main function of the branch is merely to find customers for the parent company, there
is no sale between the parent company and the branch. As such, the branch simply has a
logistical function and the sale to the end customer is made before the goods are released
into home use. Consequently, valuation considerations will be based on the transaction
value, under usual conditions.
Example of Goods imported by branches
Goods manufactured by company XYZ in a foreign country are imported through branch
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XYZ-1 which does not have separate legal status from its parent company. XYZ-1 obtain
orders from unrelated buyers in the importing country, clears the imported goods, invoice
them to clients and manage a limited stock resulting from any possible surplus. For
accounting reasons, XYZ sends an invoice for these goods to its branch on the basis of a
price representing the manufacturing costs. The sale of goods to customers in the country
of importation takes place either before or after their clearance. The prices invoiced by
XYZ-1 to customers differ from those mentioned on the invoice issued by XYZ, as they
include a commercial profit margin, Customs duties and other costs.
Given that a sale necessarily involves a transaction between two separate persons, the
delivery to XYZ-1 is merely a transfer of these goods from one office or section to another
within the same legal entity.
Therefore, when the sale to unrelated buyers takes place before the goods are cleared by
Customs; the customs value must be established on the basis of the PAPP by these buyers,
in accordance with Article 1 of the Agreement, excluding the Customs duties, domestic
transport costs and related charges.
However, as goods imported by XYZ-1 for stock purposes are not the subject of a sale,
Article 1 does not apply and the customs value is to be determined using an alternative
method of valuation.
(e) Goods imported under a hire or leasing contract
Hire and leasing contracts, even if they include an option to purchase the leased goods,
do not constitute a sale. Leasing contracts are for the purposes of renting (or leasing) of
goods, for example, machinery and equipment for use in the country of importation without
actually purchasing them from the exporter. The goods are valued using an alternative
method and the leasing fees are generally taken to indicate the worth of the goods. Even
though the rights of the importer may extend to the future purchase of the leased goods,
the leasing contract cannot be substituted for a sale.
(f) Goods supplied on loan
If the goods are loaned by an exporter to an importer, this does not constitute a sale and an
alternative method will have to be considered.
(g) Goods imported for destruction
Costs are usually incurred in connection with the importation of waste or scrap for
destruction where the exporter pays the importer an amount for his/her services. As
the importer does not pay for the imported goods but rather, on the contrary, is paid for
accepting and destroying them, such an importation is not considered as a sale. In such a
case, an alternative method of valuation will be applied.
19
(h) Goods which are the subject of barter
Barter trade transactions, constitute a specific case in as much as they are totally or
partially expressed in non-monetary terms. They may involve an exchange of goods
of approximately equal value or, expressed in monetary terms but not settled (or only
partially settled) in monetary terms (e.g. merchandise barter which includes a payment to
make up the balance). Hence it is necessary to examine, on a case by case basis, whether
the arrangements can be considered a sale.
2.3.2 Concept of sale for export
2.3.2.1 Meaning of sale for export
The transaction value of the imported goods is based on the price for those goods when
sold. Therefore, in order to establish a transaction value, there must be a sale for export
of goods being valued before importation. If the imported goods are not subject of a sale,
transaction value can not be applied under Article 1.
Furthermore, the sale in question must be one for export to the country of importation. If
the goods have been sold for the domestic market in the country of export or for export to
a third country, those sales cannot be used to establish the transaction value.
When goods are presented for valuation, the fact would be to establish their importation,
and that importation would establish whether goods had been exported or not. It must then
be necessary to identify the transaction relating to that importation.
It must be demonstrated that there was an actual international transfer of title to the goods,
which resulted in an export of the goods to the country of importation.
2.3.2.2 Examples
Example 1:
Seller S in the exporting country X enters into a contract to sell electric appliances to
importer A in the importing country I at a price of 5.75 c.u. per piece. S concludes an
agreement with manufacturer M also in country X to manufacture the goods. Manufacturer
M on behalf of S, ships the goods to A in country I. M’s selling price to S is 5 c.u. per
piece.
In this case, the transaction between S and A involves an actual international transfer of
goods and constitutes a sale for export to the country of importation. As such, it would be
a basis for valuation of the imported goods under Article 1 of the Agreement. (Advisory
Opinion 14.1)
20
5 c.u./pc
Illustration No 2
Example 2:
Buyer B in country of importation I purchases goods from seller S in the same country I.
The goods are stored by S in country X. Necessary arrangements for shipment and export
of the goods from country X are completed by S and the goods are imported by B into
country I.
(Country I)
Cargo
BUYER B
(Country X)
STORE S
PURCHASING GOODS
SELLER S
Ilustration No 3
21
It is not necessary that the sale takes place in a specific country of exportation. Whether
seller S is located in country X or I or a third country is not a relevant factor. The transaction
between buyer B and seller S is a sale for export to the country of importation and would
be the basis for valuation of the goods under Article 1 (Advisory Opinion 14.1).
Example 3
Company X in Japan enters into an agreement to sell electrical appliances to Company
P of East Africa. Company X concludes an agreement with Manufacturer XYZ also in
Japan, to manufacture the goods. XYZ manufactures on behalf of Company X, then ships
the goods to Company P in East Africa.
In this case, the transaction between Company X and Company P involves an actual
international transfer of goods and constitutes a sale for export to East Africa.
(EAST AFRICA)
(JAPAN)
Sales Agreement
COMPANY P
COMPANY X
Manufacturing Agreement
CARGO
MANUFACTURER XYZ
Ilustration No 4
2.3.3 Concept of Price Actually Paid or Payable (PAPP)
The Interpretative Note to Article 1 (Note to Paragraph 2 of 4th schedule of EACCMA)
provides that the price actually paid or payable is the total payment made, or to be made,
by the buyer to or for the benefit of the seller for the imported goods.
It further clarifies this term by indicating that the PAPP includes all payments actually
made or to be made as a condition of sale for the imported goods, by the buyer to the seller
or by the buyer to a third party to satisfy an obligation of the seller (ANNEX III 7).
The term “paid” or “payable” means that if the goods are paid for before valuation, the
price paid will be used as a basis for valuation. If not paid, then the price to be paid will be
used. The Interpretative Note to Article 1 specifies that the payment need not necessarily
take the form of a transfer of money. Payment may also be made by letter of credit or
negotiable instruments. The followings are some of the examples in relation to payments;
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2.3.3.1
Direct and Indirect Payments
(a) Direct Payments
These are payments already made at the time of customs valuation of the imported goods.
An example; a buyer in country X and a seller in country Y enter into a contract to supply
an industrial machine at 30,000 c.u. At the time of customs valuation, the buyer had made
the total payment as per contract.
(b) Indirect Payments
These are payments made by the buyer whether in whole or in part in the settlement of a
debt owed by the seller. An example of an indirect payment would be where the price is
reduced due to a debt owed by the seller to the buyer. In this case, the PAPP would be the
sum of all payments, direct and indirect.
Another form of indirect payment would be the settlement by the buyer of a debt owed by
the seller to a third party.
Example 1
Burket Company ltd. of East Africa pays 2,000 c.u. to Toy Factory in Tokyo, Japan for a
shipment of toys. Toy Factory would have charged Burket Company ltd. 2,400 c.u. for the
toys: however, since Toy Factory owed Burket Company ltd. 400 c.u., the company only
charged him 2000 c.u. for the toys.
In this case the PAPP is 2,400 c.u., the sum of the direct payment of 2,000 c.u. and the
indirect payment of 400 c.u.
Ilustration No 5
Example 2
Burket Company ltd. of East Africa pays 3,500 c.u. to Pierre Toy Factory in Paris, France
for a shipment of toys. On a previous shipment of toys from Pierre to the Patel Company,
a new customer in East Africa incurred damage worth 500 c.u. during the shipment.
Based on their long-standing relationship, Pierre asked Burket Company ltd. to make an
immediate settlement of the damage claim with Patel Company and Pierre Toy would then
23
deduct 500 c.u. from the next invoice. The price of the shipment being valued reflects this
500 c.u. deduction.
In this example, the PAPP is 4,000 c.u. the sum of the direct payment of 3,500 c.u. and
the indirect payment of 500 c.u.
Ilustration No 6
2.3.3.2
Activities undertaken by the buyer on his or her own account
The Interpretative Note to Article 1 (Note to Paragraph 2 of the 4th Schedule of EACCMA)
also specifies that activities, other than those for which an adjustment can be made under
Article 8 (Paragraph 9 of 4th schedule of EACCMA), which are undertaken by the buyer
on his or her own account are not considered an indirect payment although they might be
regarded as for the benefit to the seller. This would include such activities as:
(a) Market studies and market research;
(b) Advertising brand or trademark under which goods are going to be sold;
(c) Preparation of showrooms;
(d) Participation in trade fairs and exhibitions;
(e) Testing of machinery and equipment; and
(f) Costs to obtain an irrevocable and confirmed letter of credit.
Example 1
Firm A concludes a long-term contract with foreign manufacturer S for the supply of a
new type of electrical appliance. Under the terms of the contract, the appliance will be
marketed under S’s trademark and A undertakes the cost of marketing it in the country of
importation at his own expense.
24
Illustration No 7
In this example the cost of marketing cannot be added to the PAPP because this activity
is related to the marketing of the imported goods and even though this is of benefit to the
seller, it is not part of the PAPP.
2.3.3.3
Flow of Dividends
The flow of dividends or other payments from the buyer to the seller that do not relate to
the imported goods are not part of the customs value (Interpretative Note to Article 1).
However, we must make a distinction between dividends and proceeds as dividends will
not be added to the PAPP but proceeds will be added as an adjustment under Article 8.1(d).
In general, proceeds are profits realized on the resale of the imported goods and are thus
directly related to the imported goods. Dividends, while also considered as “profit”, are
paid out to stockholders or shareholders. These dividends relate to the firm’s overall
business and not just to the sale of the imported goods. Hence, they are not directly related
to the imported goods.
2.4
Discounts and Credits
Discounts are general reductions of the PAPP when certain conditions put by the seller are
met. Such conditions may include prompt payment, quantity bought, etc.
The PAPP is established after deducting any legitimate (meaning supported by quantifiable
and verifiable data) cash or quantity discounts. The most common discounts include cash
discount and quantity discount.
Note
A discount although not included in the customs value is not part of adjustment under
Article 8, but is excluded by virtue of the definition of transaction value.
2.4.1 Cash discounts
These discounts are granted to buyers for payment in cash or payment made within a
specified period e.g., 5% for a payment made within 10 days of receipt of the invoice and,
for Customs purposes, the discounts must be freely available to all buyers. There should
be a schedule to support the discount levels (Advisory Opinion 5.1 to 5.3).
25
Cash discounts can cause difficulties as they are usually effected after importation has
occurred. However, the transaction value method requires the use of the PAPP and
legitimate cash discounts can therefore be accepted as a deduction as the discounted price
is in fact, the PAPP.
The diagram below illustrates that where the goods have not been paid for at the time of
determining a customs value for the imported goods, the amount that the importer will
ultimately pay to acquire them will form the basis of the transaction value.
Cash Discount
5% discount if the
payment is made within
1 month er the day
of contract.
Contract (@ USD 30,000) 20 Jan. 2012
Importer
(Buyer) A
Payment (USD 28,500) 20 Feb. 2012
Goods 20 Mar. 2012
Exporter
(Seller) B
Invoice (USD 28,500)
(Country I)
If the importer/buyer A actually
made the payment of USD 30,000,
12 days a er the arrival of the
goods, the PAPP is USD 30,000.
At the me of customs valua on the
payment has not been made yet.
(Country X)
PAPP = USD 28,500
(If the importer/buyer A is to pay this
amount within the me frame.)
Ar cle 13 may be applied.
2
IIlustration No 8
When the transaction involves a cash discount, the price payable may be determined in
various ways. Thus, the invoice may include a statement specifying the conditions for
granting a cash discount, or the importer will inform Customs, on request, that he/she
has accepted the conditions entitling him/her to the discount and that the price payable
is the discounted price. The documents submitted by the importer should be based on
quantifiable and verifiable data.
2.4.2 Quantity discounts
Quantity discounts are deductions from the price, allowed according to the quantities
purchased at once or over a period of time. Sellers often encourage buyers to purchase in
bulk as their costs are proportionately reduced. For valuation purposes, it is the quantity
which has determined the unit price of the goods being valued when they were sold for
export to the country of importation that is relevant. In order to be accepted by Customs,
26
discounts must be freely available to all buyers. Quantity discounts can be established
prior or subsequent to the importation of the goods (Advisory Opinion 15.1).
Examples: The seller offers the following range of quantity discounts:
1 to 9 units: no discount
10 to 49 units: 5 % discount
Over 50 units: 8 % discount
First situation
Buyer/Importer A purchases 27 units and is granted a 5 % quantity discount. Buyer C also
purchases 27 units and is granted a 5 % quantity discount, but receives these units in three
separate shipments each comprising 9 units. Can the 5 % discount be applied?
Answer: Yes in both cases. The price actually paid or payable for the imported goods
is reduced by the 5 % discount. The quantity purchased contributed to the setting of the
price, not the delivery circumstances.
Second situation
B and C each purchase a further 42 units from the same supplier. They each receive an 8
% quantity discount on the shipment of 42 units as the manufacturer grants the discount
on the cumulative purchase of over 50 units. Can the 8 % quantity discount be applied?
Answer: Yes. Once again the quantity purchased contributed to the setting of the purchase
price and therefore established the PAPP.
Third situation
In addition to the quantity discounts of 5 % and 8 % granted before Customs clearance, a
further quantity discount of 3 % on the first shipment of 27 units is granted retrospectively.
Can this additional discount be applied to the second shipment?
Answer: No. The additional quantity discount of 3 % granted retrospectively should not
be allowed for the second importation as it did not contribute to the setting of the unit price
of the 42 units being valued, but relates to the 27 units previously imported. To establish
whether or not the 3 % “credit” should be allowed for the first shipment, it is necessary to
begin by examining the question of credits.
2.5Credits
Under normal business transactions, it’s expected that the quantity paid in the invoice
is the quantity delivered. If there is any shortfall it is expected that the buyer could be
refunded the amount equivalent to the shortfall. However in practice, the seller usually
supply excess of the product in the next consignment but decrease the price by the amount
equivalent to what was not delivered earlier. In a way the supplier was granted a credit in
the current transaction.
27
With regard to the treatment of credits in respect of earlier transactions, Advisory Opinion
8.1 of the Technical Committee on Customs Valuation states that the amount of the credit
represents an amount that has already been paid to the seller and is therefore part of the
price actually paid or payable.
The decision on whether or not to apply the credit to the previous shipment must be taken
independently of the shipment being valued. Any adjustment made to the value of the
previous shipment will depend on national legislation.
Example:
Importer I receives a shipment of televisions at an invoiced price of 10,000 c.u. However,
the invoice mentions a credit of 1,000 c.u. which brings the final invoice price down to
9,000 c.u. The importer informs Customs that the credit was granted because 10 of the
television sets in the previous shipment were damaged. The seller therefore granted a
credit on the present shipment to compensate for the losses. Can this credit be applied to
the shipment currently being valued?
Ilustration No 9
Answer: No. The credit is part of the PAPP for the shipment being valued. This shipment
is therefore valued at 10,000 c.u.. The credit may or may not be allowed for the earlier
shipment, depending on the appropriate national legislation.
2.6 Other factors that can affect the price
2.6.1 Case of a price below market price:
“Advisory Opinion 2.1” states that the mere fact that a price is lower than prevailing
market prices for identical goods should not cause that price to be rejected for purposes
of Article 1.
2.6.2 Goods subject to export subsidies or bounties
This is not a case for rejecting the transaction value, or, a cost element to be added under
Article 8, or, an amount to be added to the price as it has not been paid by the buyer to or
for the benefit of the seller (Commentary 2.1).
28
2.6.3 Goods sold at dumped prices
Goods sold at dumped prices are treated based on Article VI of the GATT 1994 on antidumping. In addition, there are national laws and procedures regarding dumped goods in
importing countries. This must remain totally separate from the valuation procedures.
Thus, the fact that a good is sold at a dumped price to an importer is not a reason for
rejecting the transaction value (Commentary 3.1).
2.6.4 Goods not in accordance with the contract
A special situation arises when the imported goods arrive and they are not in accordance
with the contract or the sale. This would include, among others, the following (Explanatory
Note 3.1):
a)
Goods which are partially or completely damaged
b) Goods which do not conform to sample or specification
c)
Replacement goods to cover losses described in situations (a) and (b) above
Where imported goods that do not conform to the contract specifications of the transaction,
are delivered to the importer, but, the importer agrees to take delivery of the goods, the
exporter may fix a new price to be paid for the goods actually received. The price would
then be the basis for determining the customs value under Article 1. Where the importer
does not take delivery of the goods however, they may be re-exported or, abandoned, in
accordance with the national customs law.
Damaged goods
The specific Customs treatment for the handling of damaged or defective goods is a matter
resolved through national legislation. However, these types of goods may still require
valuation and as such, would be subject to the Agreement. The valuation of damaged
goods would be as follows :
a) Total shipment - If all of the goods in the shipment are damaged, transaction value
would not apply because the PAPP would not cover goods in a damaged condition.
b) Partial shipment - if only a part of the shipment is damaged, transaction value can
be used for that portion not damaged and alternate basis for that portion which is
damaged.
Goods not meeting specification
If either the wrong goods were shipped, or the goods that were shipped do not meet
specification, it is still possible to have a transaction value. If the transaction otherwise
meets the criteria of Article 1, then transaction value applies.
Replacements
Items included in a shipment which are to replace goods in a previous shipment, will be valued
at full transaction value whether they are invoiced at full price or invoiced “free of charge.”
29
However, where it is a trade practice for sellers to include in their shipments a quantity of
articles free of charge as replacements for articles which experience shows are likely to
be defective or damaged, the sales price should be regarded as covering the total quantity
shipped. Therefore, you should not attempt to separately value the free replacements or
take account of the additional quantity for valuation purposes.
2.6.5 Split shipments
“Split shipments” refers to goods which, though forming the subject of one transaction
between a buyer and a seller, are not presented for clearance in a single shipment for
reasons connected with delivery, transportation, payment or the like and are imported in
partial or successive shipments and declared, either through the same Customs office or
through different Customs offices.
Cases of goods being imported in split shipments will fall into one of the following three
categories: (Commentary 6.1)
2.6.5.1 Splitting up of industrial installations or plants
This type of case concerns the importation of certain groups of goods and whole installations
which, on account of their size, have to be imported in several shipments.
The customs value of each shipment will be based on the PAPP, i.e., an appropriate
proportion of the total payment made or to be made by the buyer to or for the benefit
of the seller for the imported goods, as reflected in the transaction agreed by the parties. If
the partial shipment has been the subject of a separate invoice, it will be necessary to
add to invoice price any adjustments determined under Article 8.
If the partial shipment has not been the subject of a separate invoice, in determining the
customs value, apportionment of the total value of the transaction could be made in a
reasonable manner appropriate to the circumstances and in accordance with generally
accepted accounting principles.
2.6.5.2 Shipments split for reasons of quantity
An example of this situation could be that the transaction involves a quantity of goods
consisting of identical units or sets sold at an agreed price. The delivery dates may
have been fixed in advance or left to the convenience of the parties.
Since for the purposes of applying Article 1 neither the time at which the sale contract was
concluded nor market fluctuations after the date when the contract was concluded have to
be taken into account, the determination of the customs value of the goods will be based
on the PAPP.
However, if importations in split shipments do not occur within a reasonable time reflecting
the normal commercial practice in the trade concerned, the Customs administration may
consider it necessary to make enquiries concerning the price actually paid or payable,
verifying especially whether there is a complementary agreement which modifies the
original price.
30
The Interpretative Note to Article 1.1(b) cites as an example of such a condition, the case
where the seller establishes the price of the imported goods on condition that the buyer
also acquires a certain quantity of other goods, and therefore lays down a principle relating
to other goods, not to the same goods involved in a single transaction.
2.6.5.3 Shipments split for reasons of geographical distribution
This situation is in fact a normal practice in international trade. The buyer agrees to buy
from a seller in a single transaction a quantity of goods to be sent in separate shipments to
two or more ports of one country of importation or, two or more countries of importation.
The customs value of the transaction has to be determined under Article 1 on the basis of
the PAPP.
The transaction value method can therefore be applied to split shipments, provided the
requirements of Article 1 can be met.
2.7 Conditions for use of Transaction Value
2.7.1 Conditions under Article 1
The transaction value will, however, only be acceptable as the Customs value of the
imported goods, if the four conditions set out in paragraph 1 to Article 1 are fulfilled.
These four conditions are as follows:
(a) that there are no restrictions as to the disposition or use of the goods by the buyer
other than restrictions which:
(i) are imposed or required by law or by the public authorities in the country of importation;
(ii) limit the geographical area in which the goods may be resold;
(iii) do not substantially affect the value of the goods.
(b) that the sale or price is not subject to some condition or consideration for which a
value cannot be determined with respect to the goods being valued;
(c) that no part of the proceeds of any subsequent resale, disposal or use of the goods
by the buyer will accrue directly or indirectly to the seller, unless an appropriate
adjustment can be made in accordance with the provisions of Article 8; and
(d) that the buyer and seller are not related, or where the buyer and seller are related,
that the transaction value is acceptable for customs purposes under the provisions
of paragraph 2 of Article 1.
In determining whether the transaction value is acceptable the fact that the buyer and the
seller are related within the meaning of Article 15 shall not in itself be grounds for regarding
the transaction value as unacceptable. In such case the circumstances surrounding the sale
shall be examined and the transaction value shall be accepted provided that the relationship
did not influence the price.
31
If, in the light of information provided by the importer or otherwise, the Customs
administration has grounds for considering that the relationship influenced the price, it
shall communicate its grounds to the importer and the importer shall be given a reasonable
opportunity to respond. If the importer so requests, the communication of the grounds
shall be in writing (Article 1 (2) a) .
In a sale between related persons, the transaction value shall be accepted and the goods
valued in accordance with the provisions of Article 1 whenever the importer demonstrates
that such value closely approximates to one of the following occurring at or about the
same time:
(i) the transaction value in sales to unrelated buyers of identical or similar goods for
export to the same country of importation;
(ii) the customs value of identical or similar goods as determined under the provisions
of Article 5;
(iii) the customs value of identical or similar goods as determined under the provisions
of Article 6;
In applying the foregoing tests, due account shall be taken of demonstrated differences in
commercial levels, quantity levels, the elements enumerated in Article 8 and costs incurred
by the seller in sales in which the seller and the buyer are not related.
The tests set forth in Article 1 paragraph 2 (b) are to be used at the initiative of the importer
and only for comparison purposes. Substitute values may not be established under the
provisions of Article 1 paragraph 2 (b).
2.7.2 Practical examples in each condition
In order to have a clear understanding of the situation, we will now examine each of these
conditions.
FIRST CONDITION
The transaction value does not permit restrictions as to the disposition or use of the goods
by the buyer. As a practical matter, where the purchaser is restricted as to the disposition
or use of the goods, the price of those goods may well reflect the restriction. Where such
a restriction does exist, it would require the rejection of transaction value.
EXAMPLE
Where the buyer is precluded from reselling the goods, that would be a restriction causing
the rejection of transaction value.
32
Where a machine is sold at a nominal price on the condition that the importer must use
it only for charitable purposes, which would be a restriction causing the rejection of
transaction value.
There are, however, three exceptions to this rule. It would permit those restrictions which:
a)
Are imposed or required by law or by the public authorities in the country of
importation.
Examples of exceptions
i) requirement to obtain a license or permit prior to any resale or use;
ii) requirement for certain types of labeling or packaging;
iii) requirement for testing or inspection before release;
b) Limit the geographical area in which the goods may be resold.
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EXAMPLE
Where the seller imposes a territorial restriction, such as regional distributorships, requiring
resale only in a given area (e.g., country, region, province, county, etc.)
c) Do not substantially affect the value of the goods
In regards to this situation, there is no precise definition or amount for the term
“substantially.” It must be decided on a case by case basis. In that regard, you may wish
to consider the following:
i) the nature of the restriction
ii) the nature of the goods
iii) the nature of the industry and its practices
iv) whether the monetary effect is commercially significant
EXAMPLE
Where the seller requires the buyer of automobiles not to sell or exhibit the automobiles
prior to a fixed date which represents the beginning of a model year. This would not be a
restriction as it does not substantially affect the price.
Where the seller requires that the imported product be sold to consumers exclusively
through individual sales representatives who use a house-by-house sales technique. This
would not be a restriction as it does not substantially affect the price. (Commentary 12.1).
SECOND CONDITION
Where the sale or price is subject to some condition or consideration for which a value
cannot be determined with respect to the imported goods.
The above situation is further explained in paragraph 1(b) of the Interpretative Notes
through the following three situations:
i) The seller establishes the price of the imported goods on condition that the buyer
will also buy other goods in specified quantities.
+ 10 Photocopiers for $1000 each
50 Fax machines for $100 each
•
•
the value of the fax machines.
34
4
EXAMPLE
Manufacturer F in country of export E sells leather goods to buyer X in country I of
import at a unit price of 50 c.u. on the condition that X also purchases a shipment of shoes
at a unit price of 30 c.u.
ii) The price of the imported goods is dependent upon the price or prices at which the buyer of the imported goods sells other goods to the seller of the imported goods.
EXAMPLE
Manufacturer F in country of export E has an agreement with importer X in country of
import I to supply specialized equipment designed by F at a unit price of 10,000 c.u. on
condition that importer X supplies F with certain relays at a unit price of 150 c.u.
iii) The price is established on the basis of a form of payment extraneous to the imported
goods, such as where the imported goods are semi-finished goods which have been
provided by the seller on condition that he will receive a specified quantity of the
finished goods.
EXAMPLE
Importer I buys lumber from a foreign seller. He uses the lumber to produce a desk. The
price at which he buys the lumber is predicated on the buyer sending a certain number of
finished desks to the seller.
THIRD CONDITION
That no part of the proceeds of any subsequent resale, disposal or use of the imported
goods by the buyer will accrue directly or indirectly to the seller unless an appropriate
adjustment can be made in accordance with the provisions of Article 8.
EXAMPLE
Importer A in country Y imports 4000 pieces of hydraulic pumps from seller/exporter B
in country X at 500 c.u. per piece. On examining the contract between the buyer and the
seller it discovered that buyer has to remit 2% of the proceeds to seller B for each unit
sold.
FOURTH CONDITION
The buyer and seller are not related, or where the buyer and seller are related, that the
transaction value is acceptable for Customs purposes under the provisions of paragraph 2
of Article 1.
EXAMPLE
Buyer A in country Y imports 5000 television sets from seller B in country X for 200 c.u.
35
each. On examining previous importations by other buyers who bought same quantities
from the same seller on or about the same time. It was found that the price payable was
350 c.u. per piece. On examining the documents of the buyer it was found that buyer A
holds 10% of the outstanding voting stock in seller B’s company.
2.8 CASE STUDY
1.Importer/buyer A in country Y purchased an industrial machine which is highly
specialized and incorporated advanced technology from exporter/seller B in country
X and imported it into Y.
2. The industrial machine was imported into country Y on 25 April 2012.
3. The commercial invoice shows the following information:
➢
➢
➢
➢
➢
Industrial machine Advance payment Discount Early shipment bonus TOTAL CIF US $ 30,000
US $ 5,000
US $
500
US $
600
US $ 25,100
4.
Accounting record of A and the document issued by a bank show that A made the
advance payment of US$ 5,000 to B on 20 march 2012.
5.
The contract of sale was concluded on 20 January 2012. The contract included
the following information (1) to (4), and importer/buyer A provided additional
information (5) and (6):
(1)
The contract price of the industrial machine is US$ 30,000 (CIF), which has to be
paid within 30 days after the shipment.
If an advance payment of 10% of the contract price or more is made before the end
of March 2012, the price of the machine is discounted by 10% of the amount of such
advance payment.
The industrial machine is to be shipped to A before the end of June 2012.
In addition to the payment of the contract price, A will pay B the amount equivalent
to 2% of the contract price, if the industrial machine is shipped to A before the end
of April 2012.
A indicated at the time of customs clearance that A has paid the cost according to
the invoice.
There is no relationship within the meaning of Article 15.4 of the Agreement between
A and B.
(2)
(3)
(4)
(5)
(6)
36
QUESTION
How do you determine the customs value of the industrial machine?
SOLUTION: CASE 1
Contract price =
Advance payment =
CIF USD $ 30,000
USD $ 5,000
Advance payment was made before end of March
Discount = 10% of advance payment = 10% of USD $ 5000 = USD $ 500
Goods Shipped before end of April
Early shipment bonus = 2% of contract price = 2% of USD $ 30,000
CIF = USD $ 600
PAPP = Contract price – discount + Early shipment bonus
We add early shipment bonus because it was agreed in the contract that if the machine will
be shipped early before April, the cost of the machine will be added by 2% of the total
contract price. Since the bonus benefitted the seller it should be added to PAPP. Then the
total cost paid/incurred by the importer to the exporter in acquiring the good will be the
contract price plus Early shipment bonus.
We also subtracted discount USD $ 500, since it was agreed in the contract if the importer
will meet the condition and pay advance before end of March the total cost will be
discounted by 10% of the amount paid.
The payment was made on 20 March, 2009.
Therefore,
CUSTOMS VALUE = CIF USD $ 30,000+USD $ 600 – USD $ 500 = USD $ 30,100
37
CHAPTER 3
3.0 ADJUSTMENTS UNDER ARTICLE 8 OF THE AGREEMENT ON
CUSTOMS VALUATION
Objectives
By the end of this chapter you should be able to;
(a) Define adjustments under Article 8
(b) Categorize adjustments under Article 8
(c) Explain treatments of adjustments under Article 8.1
(d) Explain the provisions of Article 8.2
(e) State the requirements of Article 8.3
(f) State the requirements of Article 8.4
Content
(a)Introduction
(b) Definition of Adjustments
(c) Categories of Adjustments
(d) Compulsory Adjustments Article 8.1
(e) Optional Adjustments Article 8.2
(f) Additions to PAPP Article 8.3
(g) No additions to PAPP Article 8.4
3.1Introduction
The general introductory commentary to the Agreement indicates that Article 1 is to be
read together with Article 8 (paragraph 9 of the 4th schedule of EACCMA). Article 8
provides for adjustment to the price actually paid or payable (PAPP) where certain specific
elements which are considered to form part of customs value are incurred by the buyer
but are not included in the PAPP for the imported goods. This chapter deals with cost
elements other than the PAPP that may be included or excluded from the customs value.
The chapter, therefore, considers compulsory and optional inclusions and exclusions to
the PAPP.
38
3.2
Definition of Adjustments
3.3
Categories of Adjustments
;
.
39
3.4
Compulsory Adjustments
Article 8.1 provides that in determining the customs value under the provisions of Article
1, there shall be costs added to the price actually paid or payable for the imported
goods, where they are incurred by the buyer but are not included in the price actually paid
or payable. Therefore, Compulsory Adjustments are those costs which must be added to
the price actually paid or payable to the extent that they have been incurred by the buyer
and have not been included. Compulsory adjustments are provided for under Article 8.1(a)
as follows;
3.4.1 Commissions and Packing
Article 8.1(a) provides for additions of the following elements;
i) Commissions and brokerage, except buying commissions
ii) Cost of containers
iii)Cost of packing whether for labour or materials
3.4.2 Commissions, Brokerage except Buying Commissions
The provisions of the Agreement are clear on the principle of the treatment of commissions
for Customs valuation purposes and depends upon the exact nature of services rendered
by the intermediaries (Agents). (Explanatory Note 2.1, Commentary 17.1)
Intermediaries (Agents) include :
a) Buying Agents (buying Commissions)
b) Selling Agents (Selling Commissions)
c) Independent Agents or Brokers (Brokerage fee)
Article 8.1 (a)(i) tells us that commissions are to be added to the PAPP when incurred by
the buyer and not already included in the PAPP except buying commissions. Buying and
selling commissions must be distinguished.
The agent’s fee is called a commission and is often expressed as a percentage of the total
price of the goods. Agents who work on behalf of the buyer are called buying agents
and those who work for the seller are called selling agents. Their fees are referred to
respectively as buying and selling commissions.
a)
Buying Agent
A buying agent represents the buyer. Buying commission is the fees paid by an importer
to his agent for the service of representing him abroad in the purchase of goods being
valued. The role of the buying agent is as listed below;
• Represents the Buyer
• Finds Suppliers for the goods wanted by the buyer
40
•
•
•
•
•
•
Obtains samples from the Suppliers for the buyer’s inspection
Assists in arranging for insurance, transport and delivery of goods
Assists the buyer in negotiating the lowest prices
Expresses the needs of the buyer to the seller
Helps prepare documents for the purchased goods
Consolidates shipments from different sellers
Illustration showing the role of the buying agent
Buying Agent
Supplier
Buyer
b) Selling Agent
A selling agent represents the seller. Selling commission is the fees paid by the seller to his
agent for the service of representing him in the sale of the goods being valued. The role of
the selling agent is as listed below;
•
•
•
•
•
•
•
Represents the Seller
Finds customers (Buyers) for the seller’s goods
Maintaining samples and showing them to prospective buyers
Assisting in arranging for insurance, transport and storage
Negotiates highest prices on behalf of the seller
Separate shipments for different buyers
Assisting in preparation of export documents and invoices
41
Illustration showing the role of the selling agent
Selling Agent
Supplier
Buyer
c) Independent Agent (Broker)
The term “broker” refers to an intermediary who does not act on his/her own account. The
broker can act for both buyer and seller and can arrange to put both parties in touch with
each other. His/her fee is known as a brokerage.
In order to determine whether a brokerage should be added to the PAPP, it is necessary
to look at what services were provided in return for the fee. If those services match those
provided by a selling agent then they are to be added. If they match the services provided
by a buying agent then they will not be added. In some cases it may be determined that
the brokerage fee is partly incurred by the buyer (representing a buying commission)
and partly by the seller (representing a selling commission). The seller’s portion will be
included in the PAPP but buyer’s portion should not be included in the PAPP.
The role of the independent agent/broker is as listed below;
• Acts for both the Buyer and the Seller
• Connects both parties to the transaction
• Specializes in certain types of goods
• Finds buyers for his goods
• Negotiates his own terms of sale
• Confirms all sales
• Arranges for the shipping of the goods
Supporting Documentary Evidence
The treatment of commissions and brokerage for Customs valuation purposes depends
upon the exact nature of the services provided by the intermediary. If the intermediary is
42
acting on his/her own account and/or if they have a proprietary interest in the goods, they
cannot be considered to be a buying agent.
The nature of services rendered by agents and brokers are often not apparent from the
commercial documents presented with the Customs declaration. It may therefore be
necessary to look at further documentation to establish the precise nature of a particular
payment and determine whether it is to be included in the customs value under this
provision.
In cases of doubt, further evidence may be requested, for example:
• The seller’s contract of sale showing the price of the goods. This may make reference
to the involvement of a selling agent;
• The contract between the buyer and his/her agent;
• Letters of credit;
• Purchase orders;
• General correspondences
Where an agency relationship cannot be confirmed, Customs may conclude that the fees
paid do not represent a buying commission and that the amount in question should be
included in the customs value.
It is important to be aware of the possibility that a payment may be incorrectly declared
as a buying commission in order to reduce the customs value. A buying commission is
normally separately identified from the PAPP for the goods, either on the commercial
invoice or on a separate commission invoice. If it is not, it cannot be excluded from the
customs value.
In some cases, it may be appropriate to ask whether the so-called buying agent assumes
any risk or performs additional services not normally carried out by a buying agent. For
example, where the party concerned uses his/her own funds for the payment of the imported
goods he/she is taking a commercial risk, i.e., may sustain a loss or make a profit from the
transaction rather than simply receiving an agreed fee for services. In this situation, all the
circumstances of the agency agreement should be examined to verify the statements made.
If the agent is related to the seller or to a person related to the seller, despite the existence
of an agency contract, you must examine all the circumstances to determine whether the
agent is, in fact, acting on his/her own account.
In some transactions the agent may re-invoice the importer, distinguishing the price of
the goods and his/her fee. The mere act of re-invoicing does not make him/her the seller
of the goods. However, since the price paid to the supplier for the imported goods is the
basis for the transaction value under the Agreement, Customs may require the declarant
to produce the invoice issued by the supplier and any other document to substantiate the
declared value.
43
3.4.3. Cost of container and packing
Article 8.1(a), (ii) and (iii) provides for the addition of the cost of the containers ,which
are treated as being one for customs purposes with the goods being valued, and cost of
packing whether for labour or materials. All costs incurred by the buyer for the container
and packing will be added to the PAPP to the extent that they are not already included.
These additions must be the actual costs.
In referring to “containers”, the Agreement is not referring to the commercial shipping
containers commonly used for long distance transport. Container refers to, packaging and
labeling used to store and transport products e.g. exterior packing, such as cartons, boxes,
bottles, cans, etc.
Types of containers
There are two types of containers;
Re-usable and Non Re-usable
(a)Re-usable
The only containers, which do not form part of the goods and whose costs would not form
part of the customs value of imported goods, and under national legislation are required to
be separately declared in their own right.
These containers could be those of domestic (importing country) origin or, those that
receive special tariff treatment under General Rules for the Interpretation of the Harmonized
System such as :
(i) Containers which give the whole its essential character;
(ii) Usual type of shipping or packing containers which are capable of re-use;
(iii)Containers imported empty.
Generally, the application of Article 8.1(a)(ii) and (iii) is straightforward but decisionmakers must remember, that when in doubt, to seek further objective and quantifiable data
on which to base their valuation decision.
(b) Non Re-usable
Non re-usable containers are used for :
Protection, handling in transit, and “retail” packing. They are however for the purposes
of classification under the Harmonized System, taken to be as one with the goods and
classified under the same heading with the goods. That is, for example, as perfumery or
as a wristwatch.
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EXAMPLES OF
PACKING COSTS
RETAIL
BAGS
BOXES
BLISTER PACKS
CARDBOARD BOX
EXPORT
MATERIALS
CARDBOARD BOX
CRATES
PALLETS
METAL BOXES
DRUMS
CARDBOARD
BUBBLE PACKS
HAY
STRAW
STYROFOAM CHIPS
SHREDDED PAPER
LABOR
SEALING BOXES
COOPERING
VACUUM PACKING
PUT ON RACKS
ENV. CONDITIONING
For the purposes of taking into account all costs relating to the provision of packing and
containers, such types are various and include:
(a) Interior packing boxes and cartons (referred to as “retail” packing such as bags,
boxes, blister packs, plastic wrappers, cardboard boxes, etc.);
(b) Exterior packing boxes and cartons (also referred to as “export” packing and may
include cardboard boxes, wooden crates, metal boxes, etc.);
(c) Packing materials (such as cardboard inserts, bubble wrap, hay, straw, shredded
paper, foam chips, etc.);
(d) Labour costs involved in placing and securing the goods in their containers (such as
packing and sealing the boxes or cartons, coopering, vacuum packing, environmental
conditioning, placing on hangers or racks, etc.)
3.4.4 Assists
Assists may be defined as the goods and services supplied directly or indirectly by the
buyer, for free of charge or at reduced cost to the seller or a producer for use in connection
with the production and sale for export of the imported goods (Article 8.1(b)).
Categories of Assists are as follows;
a) Materials, components, parts and similar items incorporated in the imported goods
e.g. raw materials, finished components;
b) Tools, dies, moulds and similar items used in the production of the imported goods
e.g. hand held drill;
45
c) Materials consumed in the production of the imported goods e.g. fuel, chemicals;
d) Engineering, development, artwork, design work & plans and sketches undertaken
elsewhere other than in the country of importation and necessary for the production
of the imported goods.
Valuation of Assists
The cost of Assists should only be added to the value if :
i) not already included in the PAPP,
ii) supplied by the Buyer either free of charge or at reduced cost,
iii)supplied directly or indirectly by the Buyer to the Seller,
iv) for use in the production and sale for export of imported goods.
Illustration on Valuation of Assists
ADD IF
NOT
INCLUDED
In PAPP
FREE OF CHARGE
OR AT REDUCED
COST
SUPPLIED
BY
BUYER
USED
IN
PRODUCTION
Valuation of “Assists”
Once it has been established that a cost element falls within Article 8.1(b) and will therefore
be added to the PAPP, it must then be valued. This value may also be apportioned, as
appropriate, to the imported good if :
a)
the assist has been acquired by the importer from a seller who is not related to him/
her, the cost of acquisition is to be taken into consideration.
b)
the assist was produced by the importer or by a related person or, if it was bought from
a related person, the cost of production is to be taken into consideration. It should
be possible to establish this cost from the records of the importer. The amount to be
taken into consideration is limited to the costs of development and manufacturing,
plus a share of the overhead costs, but excluding all elements relating to profit.
46
Additional points:
The value of the assist includes transport costs to the manufacturing site as well as nonreimbursed duties and taxes if :
• the assist has already been used by the buyer, the initial cost of acquisition or of its
production must be adjusted downwards to take this use into account when valuing
the assist.
• the assist has been repaired or modified by the buyer, its value must take into
account the cost of repairing or modifying it.
• the assist has been leased, the addition would be the cost of the lease.
• the assist consists of engineering work, development, design work, plans or
sketches, it is possible to value them by consulting the buyer’s commercial records.
• the engineering work, development, design work, plans or sketches are available
in the public domain, then only the cost of obtaining copies is to be taken into
consideration.
• the assist is only partly used for the manufacture of the imported goods, that
level of use is taken into account. For instance, if design centre is located outside
the country of importation and if the company attributes all the costs of this centre
to its overhead expenses without allocation to specific products, then the total cost
of the design centre are apportioned over the entire production benefiting from
these services. The costs are apportioned to the price of the imported goods and are
adjusted according to the number of units produced.
Consider the inter-relationship between the elements referred to in Article 8.1(b)(ii)–
mould set and those in Article 8.1(b)(iv). When engineering, development and design
work are included in the value of the assists referred to in Article 8.1(b)(ii), tools, dies,
moulds and similar items, each category must stand on its own. Thus, the value of the
cost elements mentioned in Article 8.1(b)(ii) includes the value of the design work,
development work, etc., even if this works was carried out in the country of importation,
because it forms part of the cost of the acquisition or production of these elements.
Methods of apportioning the value of the assist to the PAPP for the imported goods
Usually, the apportioning method used is the one requested by the importer and agreed to
by Customs. Thus, the value of the assist may be:
• Applied entirely to the first shipment if the importer wishes to pay duty on the entire
value at one time;
47
• Apportioned over the number of units produced up to the time of the first shipment;
• Apportioned over the entire anticipated production where contracts or firm
commitments exist for that production;
• Apportioned over the assists years of useful life.
Example
Company I, in the country of importation, sells high fashion men’s garments to retailers.
All garments are imported from one overseas supplier X.
X manufactures the garments using paper patterns supplied free of charge by L on behalf
of I. L, which is located in a third country, specializes in designing high fashion men’s
garments. Company I has a license agreement with L under which I is granted an exclusive
license to use the paper patterns produced by L and to distribute garments incorporating
L’s designs in the country of importation. In return, I pays L a license fee based on the
turnover it achieves on the sales of the garments.
Question: How will you determine the customs value?
Ilustration No 10
Answer:
Customs administrations must determine the exact nature of the license fee in order to
establish whether or not it forms part of the customs value of the imported garments. If
the facts show that the payment referred to as a license fee relates to an element of Article
8.1 (b) (an assist), then Article 8.1 (b) would apply. Otherwise, Customs should examine
whether the payment satisfies the conditions laid down in Article 8.1 (c) (royalties). The
paper patterns perform a similar function to a mould or die. The buyer sends the paper
patterns free of charge through the licensor L and they are used in the production and
sale for export of the imported goods. These patterns therefore constitute an assist under
48
Article 8.1 (b) (ii) and their value, which also includes the cost of the designs, should be
added to the PAPP for the imported goods. As I and L are not related, the value of the paper
patterns would be I’s cost to acquire the patterns from L. I acquired the patterns through
the license agreement with L and the cost of acquisition of the patterns is therefore the
amount of the license fee to be paid. Given that the license fee is to be added to the PAPP
of the imported garments under the terms of Article 8.1 (b), it is not necessary to consider
its possible addition to the price actually paid or payable under the terms of Article 8.1 (c).
(Ref: Case Study 8.1)
Example
I imported multiple copies of a video laser disc purchased from X. The discs, which
incorporated a selection of copyright music video clips, were manufactured by X in the
country of exportation.
I obtained the right to use the music video clips incorporated on the discs under a separate
license agreement with L in a third country. In return, I must pay a license fee to L. In
accordance with its license agreement with I, L compiled a master tape of the selection
of music video clips to be incorporated in the discs. I then supplied the master tape to X
free of charge. Each disc is an identical reproduction of the master tape and X would not
have been able to manufacture the discs without the master tape.
Question : How do you determine the customs value ?
Ilustration No 11
Answer : The compilation is part of the design and development phase for the imported
video laser discs. As design and development was undertaken elsewhere other than in
the country of importation, it is to be added to the PAPP for the merchandise pursuant
to Article 8.1(b)(iv). The value of the assist is the license fee as this was the cost to I of
obtaining the music video clips and master tape.
Given that the license fee is to be included in the customs value of the imported discs
49
under the terms of Article 8.1(b)(iv), it is not necessary to consider its possible addition to
the PAPP under the terms of Article 8.1(c).
In certain cases, the assist supplied by the buyer has been leased by the buyer. The value
to be included will be the cost of the lease. (Ref: Case Study 8.2)
Example
Company I in the country of importation imports shirts made to order by company F
located in a foreign country, using materials provided by company I.
The contract states that company I must provide the materials to company F at 40% of
their cost of acquisition.
The invoice F sends to I states an amount for manufacture and supply of shirts. The
amount should be verified as required.
The value of the materials therefore, for the purposes of Article 8.1(b)(i), is their total cost.
It follows that part of the cost not included in the PAPP of the imported goods represents
60% of the total cost of the assist.
Consequently, that part of the cost of the assist which is to be incorporated in the customs
value of the shirts is 60% as 40% is already included.
Ilustration No 12
Example : Apportioning the value of the assist to the imported goods
A buyer provides the Producer with a mould to be used in the production of the goods to
be imported and contracts with the producer to buy10,000 units. By the time of arrival of
the first shipment of 1,000 units, the producer has already produced 4,000 units.
The buyer may request the Customs authorities to apportion the value of the mould over
1,000, 4,000 or 10,000 units.
50
Illustration on apportionment
Ilustration No 13
Example :
Company I in the country of importation presents for Customs clearance armoured vehicles,
which were the subject of an armouring operation by Company A in the country of export
X. The basic unarmoured vehicles were purchased by Company I from Manufacturer
M at a total price of 17,000,000 c.u. The basic vehicles were supplied free of charge to
Company A, without them having ever been used. At the time of importation, Company I
produces an invoice from A for the armouring operation for an amount of 43,000,000 c.u.,
and an invoice from manufacturer M for the basic vehicles invoicing Company I for an
amount of 17,000,000 c.u.
Question : What is the transaction value ?
(Country of Impotation)(
INV/Cargo4 3,000,000 c.u.
COMPANY I
Payment of armouring
operation 43,000,000 c.u.
INV
.1
.1
7,0
00,
000
c
COMPANY A
Basic vehicles
7,0
00,
0
00
c
INV
Country of Exportation)
.u.
(Country of Manufacture)
MANUFACTURER M
.u.
Ilustration No 14
51
Answer : Because Company A is providing armouring services, not selling armoured
vehicles, the term sale as it applies to the transaction between I and A, will be regarded
in its widest sense as a sale of goods. In this case the cost of the basic vehicles should
be added to the PAPP for the armouring operation. Thus, the transaction value of the
armoured vehicles is 60,000,000 c.u. plus other deductions as required.
3.4.5 Royalties and License fees
Article 8.1(c) of the Agreement requires that, when determining the customs value under
the provisions of Article 1, there shall be added to the PAPP for the imported good:
“royalties and license fees related to the goods being valued that the buyer must pay,
either directly or indirectly, as a condition of sale of the goods being valued to the extent
that such royalties and license fees are not included in the price actually paid or payable”.
The Agreement does not provide specific definitions for the terms “royalty” or “license
fees”. In general however, the most accepted meaning is that they represent the cost of
the right to use, produce or sell a licensed product. In fact, there are various kinds of
intangible rights, including “names” and ideas/concepts, and, it is the payment for those
associated “rights” which relate to the manufacture, sale, use or resale of imported goods,
that may be captured as under Article 8.1(c).
The Collins Dictionary and Thesaurus (1991) defines “royalty” as “a percentage of the
revenue from the sale of a book, performance of a theatrical work, use of a patented
invention … paid to the author, inventor …”
Valuation of Royalty or License fees
The Agreement imposes certain requirements on whether a royalty will form part of the
customs value. Article 8.1(c) requires that the royalty covers payments made for the right
to use, produce or sell a given product.
These charges are Added to the PAPP if they are;
i) Related to the goods being valued
ii) A condition of sale
iii) Not already included in the PAPP
52
Illustration for inclusion of royalties and license fees
ADD IF
RELATED
TO THE
GOODS
IMPORTED
CONDITION
NOT
OF
ALREADY
SALE
INCLUDED
Must be related to the goods being valued.
That is, the royalty or license fee must relate directly to the imported goods, either because
the goods have a trademark or copyright applied to them or, they may contain a patented
process or, because of some other protected right.
Must be a condition of sale and paid directly or indirectly by the buyer.
That is, the purchase of the imported goods must require the payment of a royalty or
license fee, or, the buyer must pay a royalty or license fee in order to receive the goods.
The royalty payment may be paid to a third party but, the payment must still be a condition
of the sale of the goods.
Is not already included in the PAPP.
If the royalty payment is included in the PAPP, it will not be added again under Article
8.1(c). In fact, if the royalty payment already forms part of the “price” negotiated between
the buyer and seller, Article 8 will not have to be considered at all in regard to royalties/
license fees.
If it is established that some form of royalty or license fee is a consideration in regard
to the imported goods, the Customs administration must satisfy itself as to the correct
valuation treatment. That is, will it form part of the customs value or not.
The Interpretative Note to Article 8.1(c) provides additional guidelines in respect to the
treatment of royalties and license fees under the Agreement. All decisions made regarding
the valuation treatment of royalties/licence fees, must be based on objective and quantifiable
data.
Royalties and license fees may include, among other things, payments in respect to patents,
trademarks and copyrights; also charges for the right to reproduce the imported goods in
53
the country of importation shall not be added to the price actually paid or payable (Note
to Article 8 paragraph 1(c)1).
Payments made by the buyer for the right to distribute or resell the goods will not be added
to the PAPP provided that these payments are not a condition of the sale for export to the
country of importation of the imported goods. (Note to Article 8 paragraph 1(c)2).
However, where the price actually paid or payable already includes a royalty/license
fee amount, there is no provision under the Agreement to deduct that amount. The legal
deductions contained in the Interpretative Note to Article 1, paragraph 3, are specifically
instructive on those deductions that can be made.
Rights associated with royalties and licence fees
Categories of Royalty or License fees
i) Patents
ii) Trademarks
iii) Copyrights
With regard to the type of properties/rights to which royalties/license fees do relate, the
three types noted in sub-paragraph 1 of the Interpretative Note to Article 8.1(c) are worth
looking at:
A Patent
A patent is a document or testimony, issued by a relevant government office, which
describes an “invention” and authenticates that “invention” through legal registration
making it illegal for anyone to then duplicate or exploit the registered patent which is the
registered property of the patentee. It can only be used with the express approval of the
patentee, which in effect, is a reserved right. Therefore, patent is an invention, a novel idea
which results from an inventive activity and is capable of industrial application.
Trademark
A trademark is a marketing device which is generally in the form of a particular sign or
“logo” which is affixed to imported goods that conveys an inherent quality and reputation
statement. Normally, protection of a trademark requires the trade mark to be registered
with the appropriate government authority. The registration is taken out to protect the
holder’s rights and to be able to prosecute others who might copy the mark.
A trade mark is not only a business’s main brand name but also can be its Business name,
Product names, Sub brands, Logos and Symbols, Colours.
54
Copyright
A copyright is a reserved right which protects the holder from unauthorized use of his/
her work (usually artistic or literary) from reproduction, copying or translation. It is the
exclusive right of the author, artists, etc. This form of protection would cover examples
of work such as Literary work (novels, articles, papers etc.), Artistic works (paintings,
drawings, sculptures, etc.), Photography, Motion pictures, Technical drawings, etc.
Right to Reproduce
Paragraph 1 of the Interpretative Note to Article 8.1(c) refers to the fact that no royalty
payments for the reproduction of the licensed product in the country of importation will
form part of the customs value of the imported product.
For example, a new cartoon character prototype/master model is imported into the country
of importation with the intention to reproduce a large number in a local manufacturing
plant. There will normally be at least two levels of royalty payments in such a case. There
would be a royalty consideration attached to the prototype for importation which would
form part of the customs value of the imported goods.
There will normally also be some form of royalty related to the reproduction of the goods
and/or on retail sales in the market place of the country of importation. The royalty
payments that relate to the reproduction of the prototype in the importing country’s market
place will not form part of the customs value. In the case of a commercial shipment of a
number of the toys, with a royalty payable on a percentage of retail sales, if the royalty is
a condition of the sale of the imported goods, and relates to the goods being valued, it will
form part of the customs value of the imported goods.
Distribution Rights
The Interpretative Note also states that in regard to the valuation considerations of Article
8.1(c), that “Payments made by the buyer for the right to distribute or resell the imported
goods shall not be added to the price actually paid or payable for the imported goods if
such payments are not a condition of sale”. As such, careful consideration has to be made
when identifying the sale. For example, are there supporting royalty/license agreements
as well as the contract of sale? If so, together, do they all form conditions of the sale?
The contract of sale alone and/or the commercial invoice are not always the only relevant
documents. These facts must be established before any decision regarding the royalty/
license fee is made.
It should be noted however that where payments for the right to distribute or resell are
already included in the PAPP, there is no authority to deduct them.
55
Treatment of Royalties
All decisions made regarding the valuation treatment of royalties/license fees, must be
based on objective and quantifiable data. Where it is determined that such data does
not exist, an officer cannot make an arbitrary adjustment and, therefore, Article 1, the
transaction value cannot be applied. That is, when the officer is of the opinion that a
royalty is relevant to the imported goods and, the importer is unable to provide further
information, if the officer remains concerned regarding the appropriateness of Article
1, the importer should be advised that the first alternative method of valuation is to be
considered and the reasons attached to that decision.
Also, if the royalty payment is based partly on the imported goods and partly on other
factors which do not relate to the goods as imported, it is also inappropriate to make an
adjustment for the royalty on the imported goods. For example where imported goods
are mixed with domestic ingredients and are no longer identifiable and where the royalty
payment cannot be distinguished from the financial arrangements between the buyer and
the seller.
Example
An importer buys cured tobacco in order to make cigarettes. In addition to the imported
tobacco, the importer purchases domestic tobacco which is blended with the imported
tobacco. There are no agreed set percentages of either tobacco type in the blending process.
The importer then pays a royalty based on the resale of the finished cigarettes.
As the royalty is in fact relevant only to the imported tobacco and, as that tobacco had
lost its identity in the finished goods, it is impossible to determine the royalty amount
of the imported tobacco against the finished product. If however the royalty payment
was against a certain percentage of the imported tobacco being blended with a specific
percentage of local tobacco, the royalty adjustment could be determined.
So, what facts must be established in order to determine whether payments are in fact
royalties and whether they will form part of the customs value of the imported goods?
1.
The payments must be related to the imported goods being valued, that is, the
royalties/license fees must be linked with the imported goods either because they
involve the right to use a trademark or copyright, or, because the goods contain a
patented process or, because of some other protected right.
2.
That the buyer must pay the royalty/license fee directly or indirectly as a condition
of the sale. As such, it does not matter if the royalty payment is paid to a third party
(e.g., the designer/license holder), rather the fact that it is a condition of the sale.
3.
It must be established that the royalty is not already included in the price actually
paid or payable.
56
Identification of royalty/license fee payments can be relatively simple. In most cases,
there will be a formal written agreement spelling out the rights and obligations being
conferred from one party to the other. Examination of these documents will normally
establish what the payment is for.
A question that can help in determining the status of the royalty is, “could the goods have
been imported without the payment of a royalty”? This is a good starting point. Always
base royalty/license fee considerations on objective and quantifiable data. Ask questions
to the importer as required, before a final decision can be made. The decision maker must
be satisfied that the facts are correct and appropriate adjustments are made in order to
determine transaction value.
3.4.6 Proceeds
Article 8.1(d) provides that in determining the customs value under the provisions of
Article 1, there shall be added to the PAPP for the imported goods, the value of any part of
the proceeds of any subsequent resale, disposal or use of the imported goods that accrues
directly or indirectly to the seller.
Proceeds must not be confused with transfers of dividends or other such payments made
by the buyer to the seller. Neither must they be confused with royalties and licence fees
which are payable on the re-sale price of the imported goods. Payments falling within
the definition of royalties and licence fees must be examined solely within the context of
Article 8.1 (c).
Where a royalty payment has been examined and found not to form part of the customs
value of the imported goods under Article 8.1(c), it cannot then be considered again under
the provisions of Article 8.1(d).
The Agreement does not define the scope of Article 8.1 (d), nor does the Agreement impose
any conditions on how these payments are to be taken into account in the customs value.
In particular, it does not require that such payments must constitute a condition of the sale
of the imported goods. The mere existence of such proceeds requires an adjustment to be
made to the price actually paid or payable for the imported goods.
Sometimes at the time of importation the amount of the proceeds that accrues to the
seller may be unknown, The transaction value method may not be applied. In this case,
Article 13 may be applied that is, the importer may provide sufficient guarantee and the
goods are released before final determination of the customs value. However, the general
requirement that any addition under Article 8 must be made on the basis of objective and
quantifiable data still applies.
57
Example (Case Study)
Corporation C of country X owns subsidiaries in different countries, all of which operate
in accordance with corporate policies established by C. Some of these subsidiaries are
manufacturing enterprises, others are wholesalers.
Importer I in country of importation Y, a subsidiary of C is a wholesaler of men’s, women’s
and children’s garments. The importer buys men’s garments from manufacturer M,
another subsidiary of corporation C also located in country X and, women’s and children’s
garments from unrelated manufacturers located in a third country, as well as from local
manufacturers.
Situation 1:
In accordance with C’s corporate policy concerning sales between its subsidiaries, goods
are sold at the price negotiated between the subsidiaries. However, at the end of the year,
importer I will pay to manufacturer M 5 % of the total annual resale of the men’s garments
which the importer purchases from the manufacturer during that year as a further payment
for the imported goods.
In this case, the payment in question is a proceed of the subsequent resale of the imported
goods which is paid directly to the seller by the importer and that amount is to be added to
the PAPP adjustment under Article 8.1(d).
Situation 2:
Importer I pays to service company A, another subsidiary of corporation C, 1 % of the
importer’s gross profit realised over the total annual sales of garments purchased from all
sources. The importer produces evidence that this payment is not related to the subsequent
resale, use or disposal of the imported goods but is a payment made in accordance with
corporate policy to reimburse A for low interest loans and other financial services A
provides for all subsidiaries of corporation C.
Service company A is related to the seller of the imported goods and thus the payment
could be considered as an indirect payment to the seller. It is, however, payment for a
financial service which is not related to the imported goods. Therefore, the payment would
not be considered to be a proceed within the meaning of Article 8.1(d).
Situation 3:
At the end of the financial year, importer I remits to corporation C, 75 % of the importer’s
net profit realised over that year.
In this case the remittance by I to corporation C cannot be considered as proceeds since
it represents a flow of dividends or other payments from the buyer to the seller which do
not relate to the imported goods. Therefore, in accordance with the Interpretative Note to
Article 1, it will not form part of customs value of the imported goods.
58
3.5 Optional Adjustments
Unlike other adjustments required under Article 8 of the Agreement, the inclusion of the
elements listed in Article 8.2 is optional. In framing its national legislation, each member
state shall provide for the inclusion in or exclusion from the customs value, in whole or in
part, of the following:
(a) The cost of transport of the imported goods to the port or place of importation;
(b) loading, unloading and handling charges associated with the transport of the imported
goods to the port or place of importation; and
(c) The cost of insurance.
Illustration showing elements under Article 8.2
When they are all included in the PAPP, the level is referred to as the CIF basis of valuation,
that is, the cost, insurance and freight. Where none of these costs/charges are included in
the PAPP, this is known as the FOB basis of valuation, that is, free on board.
a) Cost of Transport (Freight)
The cost of transport includes those costs that physically move the goods from the factory
of manufacture through the port of loading to the port of discharge to the country of
importation. Such costs or charges include:
- inland freight (trucking),
-
rail freight,
-
ocean freight,
- air freight.
59
Transport to the port or place of
importation
Eastern African region
Mombasa
NOT
buyer/Importer
Dar es salaam
2
It is also important to understand the various terms of delivery used in international trade.
These terms indicate the agreed responsibilities of the buyer and seller in a particular
transaction in respect of the shipping arrangements and other associated charges in
connection with the goods.
The terms will generally be quoted on the commercial invoice and specifically on the
prescribed declaration of value form and indicate which Article 8.2 costs or charges are
included in the price of the goods. That is, the level of sale/trade at which the goods have
been sold.
Once the terms of delivery have been established, it is then possible to determine what
impact these costs will have on the customs value of the goods.
b) Loading, Unloading and Handling Charges
The charges referred to here are those incurred in the country of exportation.
These charges would include a myriad of possibilities. Loading and unloading include
costs or charges for the movement of goods to or off from any conveyance (vessel, truck
or aircraft).
Handling would include any number of activities surrounding or incidental to the physical
movement of the goods such as preparation of manifests, preparation of bills of lading
or other waybills, obtaining any appropriate export licenses, preparation of customs
documents and any other shipping arrangements.
However, all three costs or charges must be associated with the transport of the goods.
Storage fees or warehouse fees which are not directly related to the transport of the goods
are not included here.
60
Example of Loading and Unloading
c)
Cost of Insurance
Cost of Insurance includes costs or charges that cover any risk on the goods being
transported from the place of manufacture in the country of exportation to the country of
importation. Such costs or charges include:
- Land insurance,
- Marine insurance,
- Air insurance.
The inclusion of insurance in the customs value is limited to insurance costs incurred for
the transportation, loading, unloading and handling of the goods to the place of import.
Companies sometimes arrange for global or group policies to be set up rather than
individual policies for each shipment. In this case, where objective and quantifiable data
is not available for each individual import, the customs value cannot be determined using
Article 1. Where insurance costs have been omitted from the declared value this may be
because the importer has failed to advise his/her agent of the existence of such a policy.
In some cases the sales contract requires the seller to procure insurance against the buyer’s
risk of loss of or damage to the goods during carriage, but the buyer also decides to
procure insurance. In other words, there is a ‘double’ insurance, however, in the event of
loss or damage, legally only one claim can be made. Consequently, only the cost of the
seller’s insurance is to be included in the customs value as that is the basis of CIF. The
above situation will depend upon the terms agreed on the sales contract.
In some cases the importer may state that neither he/she nor the seller insured the goods.
61
If there is evidence to support this, then it is not necessary to include an amount for
insurance under Article 8.2.
Storage Costs
An area closely related to transport costs is storage costs. In the context of Article 8.2 it
is necessary to consider whether or not the costs are in connection with the shipment of
the goods.
Where the storage is not in connection with the shipment of the goods, Article 8.2 does
not apply. Their inclusion in, or exclusion from, the PAPP will be in accordance with
Article 1.
Where the storage is in connection with the shipment of the goods, then they are considered
as part of the cost of transport and they will be included in or excluded from the value of
the goods depending upon the treatment of Article 8.2 in national legislation.
The term “storage” does not include the cleaning, sorting or re-packing of the imported
goods while in storage.
Example
An importer purchases goods at an ex-factory price from the seller in the country of
exportation. Storage costs are incurred at the place of export pending the exportation of
the goods.
In this case, the storage costs are incidental to the shipment of the goods and as such, should
be regarded as charges associated with the transport of the goods. They are, therefore, to
be treated in accordance with the provisions of Article 8.2(b) or, if the costs are incurred
after importation, they must be treated in accordance with the Note to Article 1 which states
that post importation transport costs will not be included in the customs value provided
those costs are distinguished from the PAPP for the imported goods. (Commentary 7.1)
3.6 Additions to PAPP
Article 8.3 states that, “Additions to the price actually paid or payable shall be made under
this Article only on the basis of objective and quantifiable data”. This means that any
adjustments that are to be made under Article 8, must be based on real facts and figures.
Only facts based on the presentation of precise documentary information is objective and
quantifiable data.
This requirement is based on the need for uniform and transparent application of the
Agreement and the elimination of level of discretion which may have been applied under
previous valuation systems.
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If there is no quantifiable data available to confirm the details of the addition, an arbitrary
(or notional) amount cannot be added. In this case there can be no transaction value under
Article 1.
Examples of objectives and quantifiable data
The Interpretative Note to Article 8.3 provides a clear example of objective and quantifiable
data relating to a royalty which is paid on the price in a sale in the importing country of a
litre of a particular product that was originally imported by the kilogram and made up into
a solution after importation.
If the royalty is based partly on the imported goods and partly on other factors which have
nothing to do with the imported goods, (such as if the imported goods are mixed with
domestic ingredients making them no longer separately identifiable, or, where the royalty
cannot be distinguished from the overall special financial arrangements between the buyer
and the seller), it would be difficult to attempt to make an adjustment for the royalty under
Article 8.
In such a case, the transaction value under Article 1 could not be determined. However, if
the royalty payment is based on the imported goods and can be distinguished in the final
product sold and, can be quantified as being a condition of the sale and relates to the goods
being valued, then the Article 8 addition can be made.
This provision of the Agreement does not mean that the Article has to be applied so rigidly
that the transaction value has to be rejected in the majority of cases involving adjustments.
Rather, it is placing a requirement on decision-makers that adjustments must be made on
objective and quantifiable data (not be made subjectively or on the basis of “best guess”).
Relationship between Article 8.3 and Article 17
The obligations under Article 8.3 relate to both the importer and Customs. Where Customs
determine they have insufficient information to make a valuation decision under Article
1, Article 17 specifies they have the right to be satisfied regarding the truth or accuracy
of any statement, document or declaration presented to them. As such, questions can be
put to the importer regarding the need for further objective and quantifiable data to be
provided in order for Customs to make a well-informed decision.
The obligation to provide that information is placed on the importer. In stating that
“Nothing in the Agreement shall be construed as restricting or calling into question the
rights of Customs administrations to satisfy themselves, Article 17 is firmly placing the
obligation on Customs to be satisfied and on the importer to comply as required. Customs
has the right to satisfy themselves that everything presented by the importer is complete
and correct.
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There are a number of instruments of the Technical Committee on Customs Valuation,
which reinforce the requirements of all parties under Article 17 and through its application,
Article 8.3.
Decision 6.1, also reinforced the application of Article 17 of the Agreement in its “ Cases
where Customs administrations have reasons to doubt the truth or accuracy of the declared
value”. While emphasising that Customs administrations should not prejudice legitimate
trade, the decision also recognised that Customs may have to deal with cases where there
may be reason to doubt the truth or accuracy of particulars or of documents provided by
importers in support of a declared value.
The Decision, inter alia, confirms that Customs has the right to verify any information
relative to the customs value submitted to them. If there is a doubt regarding the truth or
accuracy of such information, they may go back to the importer and request additional
information. If the importer does not respond or, if further documentation is provided
but Customs still has doubts, it may be deemed that the value cannot be determined under
Article 1.
The Decision of the Uruguay Round also states that before making a final decision, Customs
should notify the importer, in writing, regarding the reasons or grounds for doubting the
truth or accuracy of the information and the importer should be given an opportunity to
respond. The Decision also reinforces the provisions of Article 11 and the importers’ right
of appeal.
The Agreement clearly expresses the primacy of the transaction value to the greatest extent
possible and therefore, the rejection of the transaction value must be clearly reasoned
and defensible. Articles 8.3 and 17 cannot be used to conduct “fishing expeditions” to
support a decision maker’s guess work.
3.7
No Additions to The PAPP
Article 8.4 states that “No additions shall be made to the price actually paid or payable in
determining the customs value except as provided in this Article.” The only cost elements
that can be added to the PAPP are those listed in Article 8 and therefore, no other additions
are permitted. However, there is a need to distinguish between additions to be made to the
price actually paid or payable under Article 8 and those costs which form part of the total
payment made or to be made by the buyer to the seller, for example, indirect payments.
There is a clear difference between those cost elements which form the total PAPP and
those to be included under Article 8. The distinction is important because if there is a cost
element which is not part of the PAPP and, it is not an adjustment under Article 8, there is
no authority to include it in the transaction value under Article 1.
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In conclusion, with regard to the additions to be made under Article 8, it is important to
always remember that adjustments are made to the extent that they are:
(a) Incurred by the buyer;
(b) Not already included in the PAPP;
(c) Based on objective and quantifiable data.
3.8 Case Studies
Article 8: Adjustments to the PAPP
Case study 1
1. Importer/Buyer A in country I purchased 10 metric ton of chemical fertilizers from
Manufacturer/Seller B in country X and imported them into I.
2.
Both the commercial invoice and the contract of sale show that the price of the
imported goods (10 metric ton of chemical fertilizers) is USD 3,000 (ex-factory).
3.
The Letters of Credit (L/C) also shows that A paid B USD 3,000 for 10 metric ton of
chemical fertilizers.
4.
There is no relationship within the meaning of Article 15.4 of the CVA between A
and B.
5.
A negotiated and contracted with B through an agent G. On behalf of A, G also
arranged two shipping contract of the goods; one is from B’s factory to the port
of country X and the other is from the port of country X to in country I. G paid a
transportation company USD 110 for the former shipping contract. A paid directly
another transportation company USD 500 for the latter shipping contract.
6.
The buying agency agreement between A and G states that G acts for the account
of A, G finds suppliers at the request of A, G negotiates purchase contracts for A, G
arranges shipments of the goods purchased by A, and A pays G 3 % of the contract
price of the goods for services performed by G.
7.
With regard to the above importation of chemical fertilizers, A paid G USD 200 by
telegraphic transfer (TT).
Question
How do you determine the customs value of the 10 metric ton of chemical fertilizers?
65
Case study 2
1. Importer/Buyer A in country I purchased 2,000 pieces of furniture of plastics from
Manufacturer/Seller B in country X and imported a half of them into country I. The
other half was imported by A’s branch into country Y.
2.
The commercial invoice shows that the unit price of the furniture is USD 10 (exfactory) and the total price for 1,000 pieces of the furniture is USD 10,000 (exfactory).
3.
The contract of sale between A and B shows that the unit price of the furniture is USD
10 (ex-factory) and the total price for 2,000 pieces of the furniture is USD 20,000
(ex-factory). The Letters of Credit (L/C) also shows that A paid B USD 20,000 for
2,000 pieces of the furniture.
4.
The contract of sale between A and B also states that A provides B with the raw
material (plastics) and the design for the furniture free of charge while their costs of
delivery to B are borne by B.
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5.
The raw material (plastics) necessary for production of 2,000 pieces of the furniture
was purchased by A from M in country Z at USD 1,000. The design for the furniture
was prepared by a designer D of country Y in country I and purchased by A at 0.5
million local currency unit. The costs of delivery of the raw material (plastics) and
the design to B were borne by B.
6.
A, B, D and M are not related to each other within the meaning of Article 15.4 of the
CVA.
Question
1) How do you determine the customs value of the furniture imported by A into country
I?
2)
How do you determine the customs value of the furniture imported by A’s branch
into country Y?
CS on adjustments #2
(Country I)
Designer D
(Country X)
Design for furniture
Furniture (1,000 pcs. @USD 10 )
LCU 0.5 mil.
Importer
(Buyer) A
Contract of Sale (2,000 pcs. @ USD 10)
Manufacturer
(Seller) B
L/C USD 20,000 (2,000 pcs. @ USD 10 )
Plastics (for 2,000 pcs.
of furniture)
A’s branch
(Country Y)
Furniture (1,000 pcs. @USD 10 )
USD 1,000
M
(Country Z)
How do you determine the customs value of the furniture imported by A?
Customs Value=PAPP: USD 10,000 + Assists: USD 500 (Art. 8.1. (b) (i)) = 10,500 USD
How do you determine the customs value of the furniture imported by A’ branch?
Customs Value= PAPP: USD 10,000
3
+ Assists: USD 500 (Art. 8.1. (b) (i) + LCU 0.25 mil. (Art. 8.1 (b) (iv)) = 10,500 + 0.25 LCU
Case study 3
1. Importer/Buyer A in country I purchased 1 metric ton of a spice S from Manufacturer/
Seller B in country X and imported it into country I every month during the year
2011. Accordingly, in 2011, 12 metric tons of the spice S were imported by A in
total.
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2.
For each shipment, both the commercial invoice and the contract of sale showed that
the price of 1 metric ton of the spice S was USD 4,000 (ex-factory). The Letters of
Credit (L/C) also showed that A paid B USD 4,000 for each shipment. Importer paid
USD 3,840, which is the total amount of 2011, to the transportation company for the
transport from the B’s factory to the port of importation.
3.
The PCA was carried out at the office of A in September 2012. During the PCA, the
Customs officers found the following facts:
(1) The spice S was one of the ingredients for a seasoning preparation P.
(2) There was a licence agreement between A and B’s parent company C regarding P.
(3) The licence agreement included the following:
(a) C holds a patent for producing P and owns a trademark T for P.
(b) A has been granted a licence to manufacture P using the patented process only
in country I. In consideration for this licence, A pays C a royalty of 5 % of the
net annual sales of P in country I.
(c) A has been also granted a licence to sell P using the trademark T only in country
I. In consideration for this licence, A pays C a royalty of 3% of the net annual sales of P in country I.
(4) The net annual sales of P by A in country I was 1.2 billion local currency unit.
Accordingly, A paid C 60 million local currency unit for the licence to manufacture
P and 36 million local currency unit for the licence to sell P.
(5) The spice S could be purchased from sellers other than B and A was not obliged to
purchase S from B.
4.
There is no relationship within the meaning of Article 15.4 of the CVA neither
between A and B nor between A and C while B is the 100% subsidiary of C.
Question
How do you determine the customs value of the spice S imported by A in 2011?
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Case study 4
1. Importer/Buyer A in country I purchased an industrial machine from Manufacturer/
Seller B in country X and imported it into country I.
2.
The industrial machine was imported into country I on 1 March 2011.
3.
The invoice price of the industrial machine was EUR 20,000 (ex-factory). The
Letters of Credit (L/C) also showed that A paid B EUR 20,000 for the machine.
4.
The Post clearance audit (PCA) was carried out at the office of A in September 2012.
During the PCA, the Customs officers found the following facts:
(1) In addition to the payment of EUR 20,000 by L/C, A paid B EUR 2,000 on 10 April
2011 and 15 million local currency unit on 10 April 2012.
(2) The contract of sale of the industrial machine included the following:
• The contract price of the industrial machine is EUR 20,000 (ex-factory).
• After the importation of the industrial machine, B will assist A in installing it in
A’s factory and will teach A how to operate it. For these services, A will pay B
EUR 2,000.
• A pays B 20% of net revenue earned from selling merchandise produced by
using the industrial machine for a period of 1 year after A has started to use the
machine.
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(3) B actually assisted A in installing the industrial machine in A’s factory and taught A
how to operate it in March 2011.
(4) A started to produce the merchandise by using the industrial machine on 1 April
2011. Net revenue earned from selling such merchandise from April 2011 to March
2012 was 100 million local currency unit.
(5) A paid 5 million local currency unit to C in country Y in accordance with B’s
instruction on 15 April 2012.
5.
There is no relationship within the meaning of Article 15.4 of the CVA between A
and B.
Question
How do you determine the customs value of the industrial machine?
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CHAPTER 4
4.0 OTHER METHODS OF VALUATION
Objectives
At the end of this chapter you should be able to;
- Define the terms used in other methods of valuation
- State the requirements for transaction value of identical goods method
- State the requirements for transaction value of similar goods method
- State the requirements for deductive value method
- State the requirements for computed value method
- Explain the application for fallback method
Content
(a)Introduction
(b) Definition of terms used in other methods of valuation
(c) Transaction value of identical goods method
(d) Transaction value of similar goods method
(e) Deductive value method
(f) Computed value method
(g) Fallback method
4.1 Introduction
Where the customs value cannot be determined under Article 1 (Transaction Value Method),
there should normally be a process of consultation between the customs administration
and the importer with the view to arriving at the basis of value under the provision of
Article 2 through 7.
4.2 Transaction value of identical goods
Where the customs value cannot be determined under Article 1 (Transaction Value Method),
there should normally be process of consultation between the customs administration and
the importer with the view to arriving at the basis of value under the provision of Article
2. The value of the identical goods must be a previously accepted transaction value for
goods imported at or about the same time.
Definitions
Identical goods
These are goods, which are the same in all respects, including physical characteristics,
quality and reputation. Minor differences in appearance shall not preclude goods otherwise
conforming to the definition from being regarded as identical. The minor differences in
appearance would include:
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(i)Colour
(ii)Size
(iii) Label
(iv)Pattern
In regards to identical goods, Article 15.2(c to e) also provides further criteria in the
selection of identical goods:
i.
Goods will not be considered as identical if they incorporate or reflect engineering,
development, artwork, design work, and plans and sketches which were undertaken
in the country of importation and thus no adjustment was made under Article 8.1(b)
(iv);
ii.
In order to be identical, the goods must also be produced in the same country as the
goods being valued;
iii. Identical goods produced by a different person shall be taken into account only where
there are no identical goods produced by the same person as the goods being valued.
4.2.1 Requirements for transaction value of identical goods method
(i) Goods were sold for export to the country of importation and exported at or
about the same time as the goods being valued.
(ii) Goods are generally at the same commercial level and substantially same quantity.
(iii) Where costs and charges under Article 8(2) that is cost of transport, insurance and
loading, unloading and handling charges are included, appropriate adjustments
should be made.
(iv) Where in comparison with existing database more than two values are found, the
lowest of such values should be considered.
4.2.2 Adjustments under transaction value of identical goods method
In applying Method 2, Customs administration shall wherever possible, use a sale of
identical goods at the same commercial level and in substantially the same quantities as
the goods being valued. Where no such sales are found, a sale of identical goods that takes
place under any one of the following three conditions may be used.
(i)
(ii)
(iii)
A sale at the same commercial level but in different quantities
A sale at a different commercial level but in substantially the same quantities
A sale at a different commercial level and in different quantities is exported at or
about the same time as the goods being valued.
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4.2.3 Practical Example of value adjustment under identical goods
Example 1
You have a shipment from supplier E at a unit price of 4 c.u, in a quantity of 1,700 pieces
to a wholesaler. It is not possible to establish a transaction value under Article 1. You have
records of an identical product supplied by F, at a quantity of 2,300 pieces to a wholesaler
at a unit price of 4.75 c.u. You have a copy of F’s price list, which you have determined is
bona fide, which shows the price varies according to the amount purchased. For purchases
of under 2,000 pieces, the price is 5 c.u. while 2,000 and over brings a price of 4.75 c.u.
Since there is no transaction value for the shipment from E, what is the proper value?
Illustration for example 1
(Count ry of Impota tion)
I
(Count ry of Export at ion)
1,700 Pcs
IMPORTER
SUPPLIER E
SUPPLIER F
Agreement buy 2000pcs pay 4.7 c.u.
buy 2000pcs pay 5 c.u.
At or about th e same time of importa tion.
Conclusion, customs value should be 5 c.u./pc
Ilustration No 15
Answer
5 c.u. Since the price of the identical goods does vary according to quantity purchased,
and the identical goods are at a different quantity, you must make an adjustment. Using a
given price list, select the price in the range appropriate to the imported goods, or the price
at 2,000 pieces and over.
Example 2
You have a shipment 1,700 pieces of televisions from Al Jazzer of Dubai to a wholesaler
at a unit price of USD 100/pc for valuation but It is not possible to establish a transaction
value under Article 1. However you have identical televisions from Dubai Co. ltd, of
1,700 pieces to a wholesaler at a unit price of USD 120/pc in your valuation database and
thus resorting to Article 2.
Do you have a value to use and, must you make an adjustment to that value?
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Answer
Yes the value of USD 120/pc may be used and adjustment is not necessary as the goods
are in the same quantities and at the same commercial level.
4.3 Transaction Value of Similar Goods Method
Where the customs value cannot be determined under Article 1 and 2 , there should normally
be a process of consultation between the customs administration and the importer with the
view to arriving at the basis of value under the provision of Article 3. The value of the
similar goods must be a previously accepted customs value for goods imported at or about
the same time.
Definition
“Similar goods’’ means goods which, although not alike in all respect, have like
characteristics and like component materials which enable them to perform the same
functions and to be commercially interchangeable. The quality of the goods, their
reputation and the existence of a trademark are among the factors to be considered in
determining whether goods are similar.
In that regard, similar goods will be like the imported goods in the following respects:
(a)
(b)
(c)
(d)
Physical characteristics (size and shape)
Component material (glass, metal, wood, textile, paper)
Same function and use
Commercially interchangeable (consumer will accept it as a substitute)
In the above example you have two shipments of dresses, which were previously imported
and valued under the provisions of Article 1. Both shipments of dresses were made from
100% silk, in various sizes and colours, but all the dresses were cut from the same pattern.
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One shipment of dresses bears the name of a famous fashion designer while the other does
not. Would these shipments of dresses be considered similar for purposes of Article 3?
Answer
No. While there are minor differences in size and colour, there is a difference in reputation.
That is, the reputation of a famous designer would demand a very different price and
market from the non-designer dress.
In regards to similar goods, Article 15.2 (c to e) also provides further criteria in the selection
of similar goods:
(i) Goods will not be considered as similar if they incorporate or reflect engineering,
development, artwork, design work and plans and sketches which were undertaken
in the country of importation and thus no adjustment was made under Article 8.1 (b)
(iv);
(ii) In order to be similar, the goods must also be produced in the same country as the
goods being valued; and
(iii) Similar goods produced by a different person shall be taken into account only where
there are no similar goods produced by the same person as the goods being valued.
4.3.1 Requirements for transaction value of similar goods method
a. Goods were sold for export to the country of importation and exported at or
about the same time as the goods being valued.
b. Goods are generally at the same commercial level and substantially same quantity.
c. Where costs and charges under Article 8(2) that is cost of transport, insurance and
loading, unloading and handling charges are included, appropriate adjustments
should be made.
d. The existence of a trademark.
e. Where in comparison with existing database more than two values are found, the
lowest of such values should be considered.
4.3.2 Adjustments under transaction value of similar goods method
In applying Method 3, Customs administration shall wherever possible, use a sale of
similar goods at the same commercial level and substantially the same quantities as the
goods being valued. Where no such sales are found, a sale of similar goods that takes
place under any one of the following three conditions may be used.
(i)
(ii)
(iii)
A sale at the same commercial level but in different quantities
A sale at a different commercial level but in substantially the same quantities
A sale at a different commercial level and in different quantities is exported at or
about the same time as the goods being valued.
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4.3.3 Practical examples of adjustments under similar goods method
Example 1
You have a shipment before you from Fu shung of China, of 2,000 pieces of radio cassette,
priced at USD 5/pc and imported by a wholesaler. It is not possible to establish a transaction
value under Article 1 and Article 2. You have a similar product from Shangai Co. also of
China, shipped in a quantity of 1,700 pieces at a unit price of USD 6 and imported by a
wholesaler. Shangai Co. sells his product to all who buy at least 1,000 pieces at USD 6/pc
and does not otherwise vary his price. What is the appraised value for the imported goods
assuming that Article 1 and Article 2 cannot be used? Is an adjustment required?
Illustration of the above example
Ilustration No 16
Answer
USD 6/pc Although there is a difference in quantity levels between the imported goods
and the identical product, that difference does not affect the price, as it will be USD 6per
pc as long as it is over 1,000 pieces.
Example 2
You have a shipment of goods from supplier D, in a quantity of 2,800 pieces at a unit price of
1.50 c.u. which was sold to a wholesaler. It is not possible to establish a Transaction Value
under Article 1 and Article 2. You have records of a similar product from supplier E also
in a quantity of 2,800 pieces but at a unit price of 2.50 c.u. less 15%, to a retail purchaser.
E has a bona fide price list which offers discounts based on the level of purchaser. He
grants 15% to all retailers and 20% to all wholesalers. Since there is no transaction value
for the imported goods, how would you value the shipment from D?
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Answer
2.50 c.u. less 20% since you have demonstrated evidence of a difference in price due to
the level of purchaser, you must adjust the price of the similar goods to compensate. Since
the imported goods are at the wholesale level, use the wholesale price of less 20% as the
adjusted price under Article 3.
4.3.4 Comparison of identical and similar goods (Commentary 1.1)
The following are some of selected examples to illustrate the application of the determining
whether goods are identical or similar in accordance with Article 15.
Example 1
Steel sheets of identical chemical composition, finish and size imported for different
purposes.
Answer
Although the importer is to use some of the sheets for automobile bodies, and others for
furnace liners, the goods are nevertheless identical
Example 2
Tulip bulbs of the same size but of different varieties
Answer
They are not identical goods; however, because they produce flowers of approximately the
same size and shape and of the same colour, and they are commercially interchangeable,
they are therefore similar goods.
Example 3
Rubber inner tubes in the same range of sizes are imported from two different producers,
both located in the same country. While each producer uses a different trademark, the
inner tubes made by both are to the same standard, are of the same quality; enjoy equivalent
reputations and are used by motor vehicle manufacturers in the country of importation.
Could they be considered as identical or similar?
Answer
As the inner tubes bear different trademarks, they are not the same in all respects and
should not be regarded as identical. Although not alike in all respects, the inner tubes
do have like characteristics and component materials, which enable them to perform the
same functions. As the goods are made to the same standard, are of the same quality, have
equivalent reputations and carry a trademark, they should be considered similar, even
though the trademarks are different.
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Example 4
Ink of paper quality versus ink of paper and textile quality.
Answer
To be similar for purposes of Article 3, goods must be, inter alia, commercially
interchangeable with each other. Ink of a quality suitable only for paper printing would
not be similar to ink of a quality for paper and textile printing, even though the later could
be commercially acceptable in the paper printing.
4.4 Deductive Value Method
If the customs value of the imported goods cannot be established under identical goods or
similar goods method, then the deductive value method should be considered. However
Article 4 provides that the importer may request the trial of use of computed value method
before deductive value method. Should this fail then the basis of valuation will revert to
deductive value method.
Under this method, the customs value shall be based on the unit price at which the imported
goods or identical or similar imported goods are so sold in the greatest aggregate quantity,
at or about the time of the importation of the goods being valued, to persons who are not
related to persons from whom they buy such goods, subject to certain deductions.
Terms relating to deductive value method
(a) At or about the time of importation
Any period but not exceeding 90 days from the date of importation of the goods being
valued or identical/similar goods.
(b) “Unit price at which….goods are sold in greatest aggregate quantity’’
Means the price at which the greatest number of units is sold in sales to persons who are
not related to person to whom they buy such goods at the first commercial level after
importation at which such sales take place.
(c) General expenses
Include the direct and indirect cost of marketing the goods compared with the goods being
valued.
4.4.1 Requirements for deductive value method
(a) Condition as imported (Article 5. 1.(a))
The goods selected for consideration should be sold in their condition as imported.
However, repacking to remove the overseas export packing materials or simple repacking
for the domestic market would still leave the goods in condition as imported. Natural
changes such as evaporation, shrinking, normal weathering, etc., would also be considered
78
as same condition. Any type of manufacturing or further processing, including assembly,
would no longer render the goods as being in the same condition as imported.
(b) At or about the time of importation
If no sale took place at or about the time of importation, it is permitted to use sales
up to 90 days of the imported goods or identical/similar goods to the goods being valued.
(c) The sales should not be to related persons.
The buyer and the seller in the importing country should not be related.
4.4.2 Application of Deductive Value Method
The customs value under deductive value method will be determined on basis of the unit
price at which the imported goods or identical or similar goods are sold to an unrelated
buyer in the greatest aggregate quantity in the country of importation.
To determine the greatest aggregate quantity all sales at a given price are taken together
and the sum of all the units of goods sold at that price is compared to the sum of all the
units of goods sold at any other price. The greatest number of units sold at one price
represents the greatest aggregate quantity.
Selling points
Unit Price
A100
B95
C90
D95
E85
Units Sold
60
70
80
50
90
In the above illustration the greatest units sold 70 +50 = 120 , therefore unit price at which
the greatest aggregate quantity was sold is 95.
4.4.3 Deductions made under the deductive value method
Since the starting point in calculating deductive value is the sales price in the country of
importation, various deductions are necessary to reduce that price to the relevant customs
value:
(a) Commissions usually paid or agreed to be paid, the sum of profits and general
expenses added in connection with sales must also be deducted;
(b) Where appropriate, the costs and charges referred to in Article 8.2 (Optional
Adjustments);
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(c) The transport costs and corresponding insurance are to be deducted from the price of
the goods when these costs are usually incurred within the country of importation;
(d) The customs duties and other national taxes payable in the country of importation by
reason of the importation or sale of the goods;
(e)
Value added by assembly or further processing, when applicable.
4.4.4 Practical examples
The greatest total number of units sold at one price represents the greatest aggregate
quantity.
Example 1
Goods are sold from a price list, which grants favourable unit prices for purchase made in
increasingly larger quantities.
Quantity Range
Unit PriceSales Number.
1-10
10010 sales of 5
5 sales of 3
11-25
955 sales of 11
Over 25
901 sale of 30
1 sale of 50
The unit prices show the following aggregate totals:
100 c.u. - 65 units sold
95 c.u. - 55 units sold
90 c.u. - 80 units sold
Answer
The greatest number of units sold at a given price is 80. Therefore, the unit price in the
greatest aggregate quantity would be 90.
Example 2
You have sales records for product X, which show varying prices for varying quantities
purchased. Your records show the following sales:
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Sales Quantity
Unit Price (In USD)
40 units100
30 units
90
15 units100
50 units
95
25 units105
35 units
90
5 units100
Totals:
Unit Price
Quantity Sold
Total Quantity Sold
9030+35 65
9550
50
100 40+15+560
10525
25
Answer
The greatest number of units sold at a given price is 65. Therefore, the unit price in the
greatest aggregate quantity is 90.
4.5 Computed Value Method
If customs value cannot be based on any of the valuation methods under Article 1 to 5,
then computed value method is considered as alternative method of valuation.
The use of the computed value method will generally be limited to those cases where the
buyer and the seller are related, and the producer is prepared to supply to the authorities of
the country of importation the necessary costing and to provide facilities for any subsequent
verification which may be necessary.
Computed value method is a rarely used method in determining the customs value. Under
Computed Value Method, the basis of customs value is the cost of production of the goods
being valued, plus an amount for profit and general expenses usually reflected in the sales
from the country of exportation to the country of importation of goods of the same class
or kind.
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Definitions
General expenses
These include the direct and indirect costs of marketing the goods compared with the
goods being valued.
Generally Accepted Accounting Principles (GAAP)
Refers to the recognized consensus or substantial authoritative support within a country
at a particular time as to which economic resources and obligations should be recorded
as assets and Liabilities. “Goods of the same class or kind” in this context means goods
which fall within the group or range of goods produced by a particular industry or
sector and include the identical or similar goods.
4.5.1 Requirements for computed value method
(a) Examination of the costs of producing the goods being valued and other information
which has to be obtained from outside the country of importation. However in most
cases the producer of the goods will be outside the jurisdiction of the authorities of
the country of importation hence difficulty in verification.
(b) The computed value method will generally be limited to those cases where the buyer
and the seller are related, and the producer is prepared to supply to the authorities
of the country of importation with the necessary cost information to facilitate any
subsequent verification which may be necessary.
(c) Information supplied by the producer of the goods for the purposes of determining
the customs value under computed value method may be verified in another country
by the authorities of the country of importation with the agreement of the producer
and provided they give sufficient advance notice to the government of the country in
question and the latter does not object to the investigation.
(d) Where information other than that supplied by or on behalf of the producer is used
for the purposes of determining a computed value, the authorities of the importing
country shall inform the importer, if the latter so requests, of the source of such
information, the data used and the calculations based upon such data, subject to the
provisions of Article 10, which prescribes the treatment of confidential information.
(e) Under the computed value method, the producer’s general expenses and profit equal
to that usually reflected in sales of goods of the same class or kind as the goods being
valued which are made by the producers in the country of exportation for export to
the country of importation.
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4.5.2 Elements to be considered under computed value method
These elements are outlined in Article 6 as being the sum of the following:
(a) The cost or value of materials and fabrication or other processing employed in
producing the imported goods;
(b) An amount for profit and general expenses equal to that usually reflected in sales
of goods of the same class or kind as the goods being valued which are made by
producers in the country of exportation for export to the country of importation;
(c) The cost or value of all other expenses necessary to reflect the valuation option
chosen by the Member under paragraph 2 of Article 8.
4.5.3 Treatment of profits and general expenses
The amount for profit and general expenses shall be taken as a whole. If, in any particular
case, the producer’s profit figure is low and his general expenses are high, taken together,
they may nevertheless equal the amount for profit and general expenses usually reflected
in the trade.
Example
A foreign manufacturer is introducing a new product in your country and in order to
establish a foothold in that market, he is willing to accept a low profit margin of 2%.
Because the product is new, the producer’s general expenses are unusually high for the
trade, 30% of the cost of materials and fabrication. The usual profit and general expenses
of the trade is 32% of the cost of materials and fabrication. Can we use the producer’s
profit and general expenses?
Answer
Yes. Taken together, the producer’s profit and general expenses are 32%, compared to the
trade which is 30%. The amount added by the producer would seem to equal that of the
trade, so use 32%.
Where the producer’s own figure for profit and general expenses are not equal to that
amount usually reflected in the trade, the amounts to be added may then come from the
trade.
Thus, in most cases we will use the information obtained by or on behalf of the producer
but in the above case, we will be basing our decision of data obtained from other sources.
This raises the question of how much of a difference there should be between the producer’s
figures and the figures of the trade before we would reject the producer’s figures for profit
and general expenses and use those of the trade.
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There is no clear answer to that question. It depends upon the industry in question and
must therefore be decided on a case-by-case basis. A 5% difference between actual and
the usual may be significant in one industry but not significant in another.
4.5.4 Application of Generally Accepted Accounting Principles (GAAP)
Recordings of expenses are, in general, controlled in a given country by a board of
accountancy. This group decides which expenses are recorded as material or labour costs
and which are recorded as general expenses.
In general, all cost not covered by Article 6 would be considered as general expenses or
overhead and would include such costs as:
•
Rent
•
Electricity, water, heat and other utilities
•
Legal fees
•
Office salaries
•
Office equipment
•
Marketing expenses
•
Telephone and telegraph
•
Employee benefits
It should also be pointed out that for purposes of determining whether computed value
information is consistent with GAAP in the country of production, it is acceptable that
the importer submit a statement from a recognized accounting authority in the country of
production stating that the figures are consistent with GAAP.
4.5.5 Application of Computed Value Method
Computed value is the sum of the following elements:
(a) Production costs = value of materials + cost of fabrication
The cost or value of materials and fabrication or other processing employed in
producing the imported goods.
Materials would include, for example, raw materials, such as lumber, steel, lead, clay
textiles, etc; costs to get the raw materials to the place of production; sub assemblies
such as integrated circuit; and prefabricated components which will eventually be
assembled.
Fabrication would include costs for labour, any costs for assembly when there is
an assembly operation instead of manufacturing process; and indirect costs such as
factory supervision; plant maintenance; overtime, etc.
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The cost is to be determined on the basis of information relating to the
production of goods being valued, supplied by or on behalf of the producer.
If not included above, elements specified in paragraph 1 (a) (ii) and (iii) of Article
8 such as packing costs and cost of containers, and elements specified in paragraph
1(b) (iv) of Article 8 which are undertaken in the country of importation such as
engineering, development, artwork, design work, and plans and sketches shall be
included only to the extent that such elements are charged to the producer.
(b) Profit and general expenses
An amount for profit and general expenses equal to that usually reflected in sales of
the same class or kind as the goods being valued which are made by producers in the
country of exportation for export to the country of importation.
(c) Other expenses to be added
The cost or value of all other expenses necessary to reflect the valuation option
chosen by the member under Article 8.2 such as cost of transport, insurance, loading,
unloading and handling charges.
Some members that adopted CIF as the point of valuation in their country would
add a cost of transport of imported goods to the port or place of importation as well
as loading, unloading and handling charges in the country of exportation associated
with the transport of the imported goods to the port or place of importation and cost
of insurance.
COMPUTED VALUE is
A
THE SUM OF
B
C
COST OR
VALUE
AND
MATERIALS
AND
FABRICATION
PROFIT
AND
GENERAL
EXPENSES
4.6 Fallback Method
VALUE
ARTICLE
8.2
EXPENSES
If the customs value of the imported goods cannot be determined on the basis of Article
1 through 6 inclusive(method 1-5), the customs value can be derived based on one of the
five previous methods reasonably adjusted as necessary. The determined value should be
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based to the greatest extent possible on previously determined values only on the data
available in the country of importation.
Terms related to the fallback method
Fallback
This is a procedure rather than a method per se used to determine customs value where the
sequential application of the previous methods has failed.
Flexible application
These include flexibility of some of the previous principles of the agreement and conditions
of the previous methods especially where such conditions has insignificant or no effect
on the value. For example the 90 days under method 4 may be extended for a longer
reasonable period.
4.6.1 Requirements of fallback method
Article 7 does not provide for a specific valuation method but rather requires that the
customs value be determined:
(a) Using reasonable means;
(b) Consistent with the principles and general provisions of the Agreement;
(c) On the basis of data available in the country of importation.
4.6.2 Right of the importer under fallback method
If the importer so requests, the importer shall be informed in writing of the customs value
determined under the provisions of this Article and the method used to determine such
value.
4.6.3 Demonstration of flexible application under each method
The methods of valuation to be employed under Article 7, according to the Interpretative
Notes to that Article, should be those laid down in Article 1 through 6, but a reasonable
flexibility in the application of those methods would be in conformity with the aims and
provisions of Article 7.
Some examples of reasonable flexibility are as follows:
Identical or similar goods
(a) In the case of identical or similar goods, the requirement that the goods must be
exported at or about the same time as the goods being valued could be flexibly
interpreted.
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(b) In the case of identical or similar goods, the requirement that the country of production
be the same as the goods being valued could be waived.
Could also use goods
from
Netherlands or
Luxembourg
Country of
BELGIUM
Deductive method
(a) The requirement that the goods must have been sold in the condition as imported in
Article 5.1 (a) could be flexibly interpreted.
(b) The 90-day rule in Article 5.1 (b) could be flexibly administered.
In regards to the above examples, it would also be possible to flexibly interpret Article
1 in conjunction with Article 8. The following would be such an example of a flexible
interpretation of Article 1.
Example
Company X in country I imports a machine tool after having it sent abroad for repair.
When exported, the value of the machine tool was 9,000 c.u. Upon importation, company
X pays only for the cost of repairs, 1,000 c.u. to exporter E.
Determine the customs value of the imported machine tools
Answer
Under Article 7, we could flexibly interpret the price actually paid or payable under Article
1 to be the cost of the repairs. To that cost, you would add the machine tool itself as an
assist under the provisions of Article 8.
Therefore, use 9,000 c.u. plus 1,000 c.u. as the value under Article 7 through a flexible
interpretation of Article 1 and 8. (There may be a distinction between dutiable values an
appraised value; i.e. some administrations may not collect duty on goods of domestic
origin). Therefore the answer is 10,000 c.u.
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Example
Firm A of country X rents a unique new machine from rental company B in country Y for
a minimum duration of 36 months. the useful life of the machine is determined to be five
years. According to the terms of the contract, the erection and maintenance costs in the
country of importation incurred by the importer are 20,000 c.u. per annum for the first two
years of operation and 30,000 c.u. per annum for the following years, payable to the rental
firms. The machine is rented at 50,000 c.u. per month, inclusive of these costs. What is
the customs value?
Illustration of the above example
RENTAL CONTRACT
(Country X)
MACHINE(CARGO)
FIRM A
(Country Y)
COMPANY B
RENT /COST FOR
ERECTION &
MAINTENANCE
Ilustration No 17
Answer
Article 1 does not apply because there is no sale. Article 2 and 3 do not apply because
the machine is unique and there is no identical or similar goods. Article 5 does not apply
because the machine is not resold. Article 6 does not apply because costs to produce are
not available. Article 7 would apply. After consultation with the importer Customs could
value the machine on the basis of the total amount of rent payable over 5 years (the full
useful life of the machine) less the total costs for erection and maintenance paid by the
importer.
Despite a degree of flexibility, the aim of the law and its provisions should always be kept
in mind. However, there are certain “flexible” approaches which also should not be used.
The following are some of the approaches Customs should not take:
• Use of the further fabrication method under Article 6.2 when it was not requested by
the importer.
• Expanding consideration of what is considered as identical or similar goods.
• Use of related party sales to establish a deductive value under Article 5.
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Hierarchical order
In this regard, a question has arisen whether, while employing Article 7, it is necessary
to follow the hierarchical order prescribed in the Agreement. That is, do you flexibly
interpret Article 1 first, then Article 2 and so on.
The WCO Technical Committee on Customs Valuation, in Advisory Opinion 12.2,
expressed the view that there is no specific provision in the Agreement which requires a
hierarchical approach to the flexible interpretation of Articles 1 through 6 under Article 7.
However, Article 7 does require the use of reasonable means consistent with the principles
and general provisions of the Agreement and this would indicate that where reasonably
possible, the hierarchical order should be followed.
Thus, where you have several acceptable methods, all of which are considered a reasonably
flexible interpretation, maintain the order of Article 1 through 7.
4.6.4 Prohibited means of determining value under the fallback method
Customs value shall not be determined under the provision of Article 7 on the basis of;
(a) Selling prices in the country of importation of goods produced in such country (i.e.,
prices of goods manufactured in the importing country);
(b) A system which provides for the acceptance for customs purposes of the higher of
two alternative values (i.e., the lowest should be used);
(c) The price of goods on the domestic market of the country of exportation (i.e.,
economies of countries are different);
(d) The cost of production other than computed values which have been determined for
identical or similar goods in accordance with the provisions of Article 6 (i.e.; valuation
must be arrived at on the basis of data available in the country of importation);
(e) Price of the goods for export to a country other than the country of importation;
(f) Minimum customs values;
(g) Arbitrary or fictitious values (this is aimed at systems which do not base values on
what happens in the market place, as reflected in actual prices or sales and in actual
costs, reason of the importation or sale of the goods).
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CHAPTER 5
5.0 CUSTOMS DOCUMENTATION
What is Document Check ?
OBJECTIVES
By the end of this Chapter you will be able to:
- Define documentation and interpret related terms
- State the various categories of documents
- Explain the importance of various documents
- Relate documentation to the Agreement
- Identify common documents used in international trade
- Verify the salient features of authentic documents
- Discuss various terms of payment in the international trade
- Explain International Commercial Terms (INCOTERMS)
- State the possible grounds for rejecting Customs documents
Content
(a)Introduction
(b) Definitions and interpretation
(c) Categories of customs documents
(d) Importance of documents
(e) Vital information contained in documents
(f) Relationship between definition of transaction and documentation
(g) Overview of international business documentation
(h) Analysis of documents and information contained therein
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(i)
(j)
(k)
(l)
Pointers to authenticity in documents
Grounds for rejecting customs documents
International Commercial Terms (INCOTERMS)
Documents check list and legal provision
5.1Introduction
The World Customs Organization (WCO) and the World Trade Organization (WTO) have
developed international standards, best practices and tools for trade documents, such as
the Revised Kyoto Convention on simplification, harmonization, standardization and
modernization of trade procedures that involves collecting, presenting, communicating
and processing data required for the movement of goods in international trade.
Documentation plays an important role in the smooth movement of goods in international
trade. Facilitation of legitimate trade largely depends on proper documentation. It is
therefore important for Customs and other interested parties to be conversant with
International Trade Documentation because it imparts them with the skills to authenticate
the relevant documents used in clearance of goods in international trade.
This Chapter aims at highlighting international documentation, their relevance to customs
valuation and valuationi information contained in these documents.
5.2 Definitions and interpretation
Document refers to the presentation of data in digital or any other form for purposes of
exchanging information and communication.
Document check is the systematic analysis of all supporting documents to a customs
declaration in order to facilitate proper valuation of imported goods.
5.3 Categories of Customs Documents
Customs documents used in the clearance of goods may be broadly categorized as
following;
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(a)
(b)
(c)
(d)
Commercial Documents
Transport Documents
Financial Documents
Regulatory Documents
All the four categories of documents, are interlinked and interdependent and should be
presented to Customs and analyzed simultaneously.
5.4 Importance of Documents
Documents are useful for:
• Clearance of goods
• Identification of origin
• Provision of data for Statistics
• Post Clearance Audit (PCA)
• Intelligence analysis
• Serving as evidence in commercial dispute settlement
• Collection of taxes and duties
• Protection of community and the environment
• Proof of ownership
• Facilitation of legitimate trade
5.5 Vital information contained in Documents
The following information runs through most of the documents involved in international
trade. It is important for Customs and other stakeholders to be conversant with this
information that plays an important role in customs valuation;
• Document name – A document must have a name to help distinguish it from other
documents e.g. a Commercial Invoice as opposed to a Proforma Invoice.
• Date & Serial Number – A proper Document must have a date and must also be
serialized to help keep track while issuing these documents.
• Name of Supplier / Exporter – Clear and detailed particulars of the Supplier or
Exporter must be there (such particulars include the name, physical location, postal
address, telephone contacts & email).
• Name of Importer – Likewise clear and detailed particulars of the Importer must be
indicated (name, physical location, postal address, telephone contacts & email).
• Quantity & Description – The quantity supplied should be clearly indicated and
proper description thereof.
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• Gross & Net weight – This is vital information which points to the weight of the
packagings and the actual products & this information is very useful not only at
physical examination but also at valuation.
• Unit price & Total price – A proper Commercial invoice / Proforma Invoice should
show the price per unit and also work through sub-totals and grand totals.
• Unit of Measure – The unit of measure upon which the price is based should also be
indicated i.e., pieces, kilograms, liters, meters, square meters, etc.
• Terms of Delivery – Basically these are Incoterms which should also be very specific.
• Terms of Payment – these are the agreed upon terms on how the Importer will pay
the supplier i.e., Telegraphic Transfer, cash, letters of Credit etc.
• Time of shipment – this is usually indicated on the Bill of lading and has a bearing
on terms agreed upon in the Contract.
• Pre-carriage information – this is also indicated on the Bill of lading and at times on
the Commercial Invoice / Proforma Invoice – and is very important for pre-carriage
expenses.
• Port of loading – this is indicated on the Bill of lading and at times on the Commercial
Invoice / Proforma Invoice – and has a bearing on the freight payable.
• Type of packaging – at a wider level Customs are looking at either 20ft or 40ft
container (which can be a risk management pointer to the total taxes payable); but
also at a micro level it is important for the type of packing to be specified as either
cartons, bales, bags, drums, etc.
• Marks & Numbers – these can be container numbers, seal numbers or serial numbers
(in case of machines) and they are useful in identification.
• Vessel or Freight Number – this information is usually found on the Bill of lading
and is important in identifying the carrier.
• Country of Origin –This is important especially where preferential treatment is
concerned, also origin has a bearing on the reputation of goods.
• Harmonized System Code (HSC) – in some cases the supplier specifies the HS
codes and it is usually important to compare it with what has been declared; this is at
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times indicated on the Bill of lading, Packing list and Commercial invoice.
• Special remarks – especially on the Bill of lading should never be taken for
granted – remarks like FCL/FCL, LCL/LCL, and RO/RO have special meaning and
implication. (Note Meaning – FCL – full container load; LCL – low container load;
RO/RO – Roll-on Roll-off).
5.6 Relationship between definition of transaction value and documentation
It is important for customs officers to fully appreciate the definition and interpretation
of Transaction Value and how the term relates to international trade documentation.
Definition of Transaction Value embeds most of the documents involved in international
trade.
As indicated in Article 1, Transaction Value is the price actually paid or payable for the
goods when sold for export to the country of importation and adjusted in accordance with
the provisions of Article 8.
When broken down into parts and critically analyzed, several documents are implied in
the key elements in this definition as follows:
Key elements of Transaction Value
Reference documents
Price actually Paid
Commercial invoice, Receipts, Sales contract, Telegraphic
transfer, Form E
Price actually Payable
Purchase order, Proforma invoice, Price lists,
Credit agreement
For the goods
Sales contract, Packing list, Certificate of analysis,
Specific permits
When sold for
export
Sales contract, Sales confirmation, Certificate of origin,
Shipping bill or Export entry
To the country of importation
Purchase order, Bill of lading, Inland transport documents
Adjusted in
accordance with
provisions of Article 8
Sales contract, Commercial Invoice
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Illustration of work in a customs office
5.7 Overview of International Documents
Documentation is an essential tool in conducting international trade and several
documents are used in carrying out business transactions. These documents follow a clear
sequence right from the time an importer makes an order up to the time the goods are
cleared from the Customs territory. Most of these documents are mandatory for customs
clearance purposes while others are optional depending on the nature of goods being
cleared and the national legislation of country of Importation.
5.8 Analysis of Documents
All documents in international trade have unique features which distinguish them from the
other. The information contained in each document should be well known by the customs
officers and stakeholders, with particular reference to how the document looks like, the
information it contains and its relationship with other documents.
Below are different categories of documents used in international trade emphasizing vital
information.
5.8.1 Commercial documents
(a) Purchase order
This is a commercial document used by the Buyer/Importer in placing an order with the
supplier/seller. Important information on this document for customs purposes include the
date when the order was placed, the company that ordered, the quantity ordered, suggested
price to be paid or payable, signature and stamp of the ordering importer, preceding
documents (e.g. Price quotation ,catalogues, price list, etc.).
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However it must be noted that different importers use different means of placing their
orders; some have formal purchasing order forms, others order by telephone while others
order by e-mail. Therefore it is important for customs to establish the method of ordering
that the importer used.
(b) Proforma Invoice
This is the document which the seller issues in response to the purchase order. It stipulates
the terms and conditions upon which the seller will sell the goods to the buyer. Some of
the important information contained in this document includes date of issue, preceding
documents (if any), description of goods, unit price and total consignment price, the terms
of payment, terms of delivery, obligations of each party and signatures of contracting
parties.
(c) Sales Contract
This is a legal document that is enforceable by parties demonstrating that the buyer and
seller agree on a sale of a particular good. It obliges the seller to supply goods to the
buyer and ensure that the buyer acquires proprietary rights over the goods. Important
information on this document for customs purposes include date of contract, terms of sale,
description of goods, unit price and total contract price, terms of payments, seller’s bank
details, swift code and arbitration clause. Sometimes proforma invoice serve the same role
as sales contract and the two may be used interchangeably.
(d) Commercial Invoice
This is a commercial document prepared by a seller as indication of the final agreement
on the sale of goods. It lists all items sold and presented to the buyer for payment. It
contains the following information; date of issue, description of goods, quantity sold, the
actual price paid or payable, terms of payment, terms of delivery, the serial number and
the stamp of the issuing authority. This document is different from a pro-forma invoice in
that whereas on the pro-forma invoice there is still room for negotiations and is subject to
change, the commercial invoice is the final agreement between the parties.
(e) Receipt
This is a document that is issued in cases of cash transactions certifying receipt of payment
by the seller. Vital information in this document include date of issue, serial number,
payee, amount paid, means of payment (i.e. cash or cheque), balance due if any, signature
and stamp of the seller.
(f) Packing list
This is a document that accompanies goods from the exporting country and it gives a
detailed breakdown of the way goods have been packed in the consignment to facilitate
both the importer and customs authorities to easily verify the quantities and description of
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the consignment. Vital information to consider in this document includes, date and serial
number, preceding document, goods description, weights, quantities and dimensions and
signatures.
5.8.2
Transport Documents
(a) Shipping Bill/Export entry
This is a Customs document that is generated/issued by Customs of the exporting country.
Vital information contained in this document includes the Customs reference number of the
exporting country, the exporter, the consignee, the country of export, importing country,
description of goods, Incoterms, carrier used, total export Customs Value, currency and
preceding document (if any).
(b) Bill of Lading/Airway Bill
This is an official document prepared by the carrier/shipper duly accepting the goods
for shipment and it contains the following information; the serial number, type of Bill of
Lading/Airway Bill (master, house, combined transport, non negotiable), date and place
of issue, date shipped on board, name of the shipping line, name of the consignee, name
of the vessel, the items shipped, the quantity and weight of goods, port of loading, the
point of destination, preceding documents (if any), pre-carriage information, signatures
and stamps.
(c)
Freight Invoice
This is a document issued by the shipper/carrier as acknowledgement on the agreed
freight terms. It contains the following information; date of issue, serial number, name
of carrier/shipper, name of the importer, amount paid, balance due if any, signature and
stamp.
(d)
Freight debit note
This is a document issued by the shipper/carrier in the event that freight amount is due. It
contains the following information, date of issue, serial number, name of carrier/shipper,
name of the importer, amount to be paid and date due, signature and stamp.
(e)
Insurance certificate
This is a legal document certifying that goods or products are insured against certain
risks before carriage. This can be marine insurance, marine and road insurance, or all
risks cover. This certificate is issued as evidence that a certain insurance policy has been
under taken to cover the goods. It is also contractual in nature meaning that it is a contract
between the insurer and the insured. Vital information on this document includes; serial
number, date of issue, the insurer, the insured, the insured amount, the insurance policy,
signature and stamps.
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(f) Insurance Debit Note
This is the document issued by the insurance company in the event that insurance charges
are due. It contains the following information, serial number; date of issue, the insurer, the
insured, the insured amount, the insurance policy, signature and stamp.
5.8.3 Financial Document
(a) Form E
This is the declaration made by the exporter to the central bank of the exporting country
showing the amount in foreign exchange that the goods are worth. Vital information on
this document include, the issuing bank, date and serial number, place of issue, name of
the exporter, description and quantity of goods, foreign exchange value, signature and
stamp of both the bank and exporter.
(b) Payment Documents
These are documents that provide evidence that the goods in question have been paid for
or will be paid for depending on the agreed terms of payment. These documents include,
Telegraphic Transfer (TT), Letters of Credit (LC), Documentary credits, Bank draft/
Bill of exchange and credit agreement etc. Vital information on these documents varies
depending on agreed terms of payment.
Accordingly, there are several means of payment used in settlement of amount owed to the
supplier/exporter and this includes the following:
Telegraphic transfer
This refers to the payment of money by transferring funds from the sender’s account to
the beneficiary’s via an electric cable in form of an automated fund transfer system which
uses coded messages that are safe and convenient.
Letter of Credit
This is a formal document issued by financial institutions acting on behalf of the applicant
by settling payments for a transaction to the beneficiary. These letters of credit are of
different types, the most commonly used are;
• Revocable Letters of Credit; this is a form of credit letter whose contents can be
amended without the consent of the beneficiary at the request and on the instruction
of the applicant.
• Irrevocable Letter of Credits; this form of credit letter cannot be amended or
cancelled without the consent of the issuing agency if any or the beneficiary.
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ILLUSTRATION OF HOW LETTERS OF CREDIT OPERATE
Illustration No 18
Step A – Importer A places order with Supplier C and both parties enter into a contract
Step B – Importer A negotiates/applies for Letter of credit with his Bank (Bank B)
Step C – Bank B issues letter of credit through inter-mediary Bank D who verifies
authenticity and compliance to the terms of the contract
Step D – Bank D advises Supplier C to ship goods and release documents to Bank B
Step E – Supplier C ships the goods
Step F – Supplier C releases documents to Bank B
Step G – Importer A pays contract amount on due date to Bank B or Bank B credits
Importer A’s account with the amount owed
Step H – Bank B releases documents to Importer A
Step I – Bank B remits funds to Bank D
Step J – Bank D remits funds to supplier C
Bank Guarantee
This refers to a formal security that lending institutions ensure that the liabilities of a
debtor are met when due on behalf of the applicant incase he/she fails to settle them.
A Bank guarantee and a Letter of credit are similar in many ways but they are two different
things. Letters of credit ensure that a transaction proceeds as planned, while a Bank
guarantees reduce the loss if the transaction does not go as planned. A Bank guarantee is
used to insure a buyer or seller from loss or damage due to non-performance by the other
party in the contract.
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Bank overdraft
Literally a Bank overdraft is when someone is able to spend more than what is actually in
their bank account; obviously the money does not belong to them and will have to be paid
back automatically once money goes onto their account.
It is a mutual agreement between the lending agencies to act on behalf of an applicant to
settle his liabilities. It can be in form of a bond, cash or loan usually on a maximum limit
beyond which the lending agency cannot exceed.
Bank draft
This is a banker’s cheque used as a negotiable instrument instructing a foreign bank to pay
on demand a fixed amount of money to a named beneficiary. It is also known as “Cashier’s
Cheque” and it applies when you need to pay somebody with guaranteed funds. Bank
drafts are more secure for sellers because the funds are guaranteed by the bank that issued
the draft. If a personal cheque is used there are possibilities of bouncing, however banks
only issue Bank drafts after they have taken money from the applicant’s account – so the
seller is assured of being paid.
In international trade, a Bank Draft is a negotiable instrument issued by a local bank
instructing a foreign bank to pay on demand, a fixed some of money to a named beneficiary.
Bill of exchange
This is an unconditional order issued by a person or business when directing the recipient
to pay a fixed sum of money to a third party at a future date. The future date may be either
fixed or negotiable. A bill of exchange must be in writing and signed.
5.8.4 Regulatory Documents
(a) Certificate of Origin
This is a customs document that certifies the origin of goods. It also gives the criteria
for conferring origin. This criteria may be wholly obtained, value added, change in tariff
heading. This certificate shows the preferential treatment of the goods being considered.
The certificate of origin is usually issued either by the national chamber of commerce or
by the export promotion boards and may be counter signed by Customs authority. Vital
information on this document includes; date and serial numbers, preceding documents
(especially the commercial invoice Number), description of goods, name of the exporter,
name of the importer, criteria of the goods, issuing authority, signature and stamps of
both the issuing authority and exporter.
(b) Permit/certificate of analysis
This is a document issued by the manufacturer or bureau of standards in various countries
certifying that the goods exported have undergone inspection and are certified to be
consumed. This analysis is very crucial because apart from Customs collecting revenues
100
they also protect the environment and human health. This certificate therefore recommends
that goods to be consumed are safe to the environment or human health. Vital information
on this document includes serial number, name and address of the certifying authority,
name of inspector, materials compound of the item, description of goods analyzed,
recommended life span of the goods, date, signature and stamps of the issuing authority.
(c) Fumigation Certificate
This is a document that certifies that goods imported or exported have been tested /inspected
and treated to make them free from pests or fungus and qualify to be consumed or used.
Vital information on this document includes; name of fumigator, name of the exporter,
descriptions of goods fumigated, date of fumigation, methods and chemical components
used in fumigation, stamp and signature of the authorized institute.
(d) Phytosanitary Certificate
This is a document that certifies that livestock and plants imported or exported
have been tested/inspected and vaccinated to make them free of infectious diseases.
Vital information on this document includes; name of vaccinating authority, name of
the exporter, details of livestock or plants vaccinated, date of vaccination, methods and
chemical components used in vaccination, stamp and signature of the authorized institute.
(e) Transit documents
These are customs documents used to convey goods from point of entry into the Community
to the final destination. Such documents include C17 which is usually issued in Mombasa,
IM8 and T1 issued at Ugandan and Tanzanian boarders. Vital information on these
documents include, customs reference number, name of the exporter, consignee name,
description of goods, means of conveyance/truck or wagon number, manifest number,
customs value, signatures and stamps of Customs processing officers.
5.9
Pointers to Authenticity in Documents
Submission of the above documents to support an import declaration in itself is not enough
to clear the goods under transaction value method, it is always important to verify if the
availed documents are authentic and the table below gives us some of the Pointers that can
be applied in this regard.
101
sn Major Point
Specific Aspects
1 VALUES
Exceptionally high or low values
High Insurance costs
Disproportionate Transport cost
2 FALSIFICATION Erasers, rubbings, ON DOCUMENTS and white-wash Scanned Documents
Varying Font
Date & Serial Number Format
102
Remarks
Declaration of exceptionally high values
can be an indicator of intention to evade
Internal / Domestic taxes.
On the other hand exceptionally low values are an indicator of a direct
evasion of Customs taxes through
under valuation.
If the terms of delivery is CIF (Kampala
or Kigali) & the breakdown of inland
insurance shows an exceptionally high
figure – then there is a likely-hood of under declaration of the CIF Mombasa.
Likewise if the delivery terms is CIF (Kam
pala or Kigali) and the breakdown of
inland freight shows an exceptionally high figure – then there is a likelihood of under-declaration of the CIF Mombasa.
If such alterations are done on a document
then it has to be authenticated by
countersigning and stamping. Any thing
not counter-signed should be an indicator
of a problem & should be probed further.
Presentation of scanned documents
should be followed by a look at the origi
nal documents, otherwise it is possible to change information on a document while scanning.
Usually when a document is tampered with, there is a possibility of the Fonts
inserted not matching with the original Fonts and at times even the formation of the numbers might be different – a keen eye is able to detect such.
Date Format - There are two major date
formats used in International Trade – the
British format which is day/month/
year; and the American format which is year/month/date. And these formats were
adopted by the colonies of these respec
tive countries – so a forger who is not
keen enough will mix up these aspects.
sn Major Point
Specific Aspects
Serial Numbers
3 Samples of Invoice set-up, previous Documents logo & Color
from Same Supplier
4 Arithmetic Unit price Versus Sub
Accuracy
totals Versus Grand totals
5 Consistency Weight
in Information
Goods Description
Value
Ownership
6 Disproportionate FOB
Incoterms
CIF
103
Remarks
Serial numbers can be either manual or
system generated, however it is always
important to keep track of serial numbers
of major Suppliers by keeping copies of
their invoices, since someone forging
might not be aware of the running serial
number.
Companies have brands that identify them
from others and these are also reflected
in their Documentation. By keeping
copies of documents for major Suppliers
one is able to quickly recognize the logos,
company colors, and document formats of
such Companies – so if someone present a
contrary document the difference is easily
noticed.
Rarely do Valuation Officers work through
the computations on the presented invoices
/ packing lists, however it is not
uncommon to find inaccuracy in the computations once one works through.
The weight quoted on the packing list,
Proforma Invoice, Commercial Invoice, and Bill of lading – should always tally; any discrepancy is a pointer to an anomaly.
The Goods Description should be
uniform on the Packing list, Proforma
invoice, Commercial invoice, and Sales
Contract.
The quoted value should be uniform on
the Purchase Order, Proforma invoice, Commercial invoice, Sales Contract, and Financial Documents.
The Ownership should be consistent on
the Bill of lading, Transit Documents, Shipping Bill/Export Entry and the other supporting documents
Where the terms of Delivery are FOB it is
always necessary to watch out for the quoted Freight & Insurance charges as they
are usually under declared.
Where the terms of Delivery are CIF, it is
sn Major Point
Specific Aspects
Remarks
always necessary to work back-wards by
deducting approximate Freight charges
and insurance. The remaining FOB should
give an indicator on the authenticity of the
declaration.
Freight Collect Versus It is always necessary to cross-check the
Freight pre-paid
Freight terms quoted on the Bill of lading
against those on the Proforma invoice /
Commercial invoice, sometimes there is a
discrepancy.
7 Unrealistic Cash Payments
Most importers who declare terms of
Terms of Payment
payment as cash should be put under
further scrutiny as they are not usually
giving the whole truth & cash payments are the hardest to prove since there is no third party involved
Unguaranteed Credit
Payment terms such as ‘payment after
180 days or 360 days’ which are not
supported by guarantees should always
be treated with suspicion. Likewise
‘payment at sight of Documents’ means
that goods were dispatched before payment
– so even in this case there should be a
guarantee.
8 Vague Suppliers Name & If someone is giving vague or incomplete
Information
Address, Importers information in terms of addresses,
Name & Address, weights, and description of goods it means
Description of goods, they are holding back some information
Breakdown of packages and such declarations should be
on the packing list,
scrutinized further.
9 Incomplete At least all the Mandatory Documents
Documentation
as per the ‘Check list’ must be attached for
a consignment to be comfortably passed
under Transaction Value Method; otherwise
attaching only a Commercial Invoice is
not enough to pass the entry under
Transaction value method.
10 Signature & Stamp
If a Document has a provision for a
signature & stamp then it should be signed
and stamped – otherwise such a document
cannot be accepted.
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5.10. Grounds for doubting the truth or accuracy of the declared value
If Customs has reasons to doubt the truth or accuracy of the particulars of documents
produced by traders in support of the declared value, then Customs should communicate
such doubt in line with WTO Decision 6.1 which recommends the following steps.
The Customs administration shall communicate in writing to the importer, via a specific
form, their grounds for doubting the truth or accuracy of the particulars or documents
produced and ask for further explanation, including documents or other evidences. A
reasonable time frame should be given for a response.
If the importer fails to provide adequate documentation, or other evidences which
supports his declaration, within the specified time frame. The Customs administration
communicates in writing their final decision to reject the transaction value, explaining the
grounds for the decision. Relevant sections of the law should always be quoted to justify
Customs rejection of a declared transaction value. Decision 6.1 should be read together
with Article 17.
(refer to attachments on Legal Provisions on Documentation)
105
CHAPTER 6
6.0 INCOTERMS 2010
The common terms of sale used in international trade can be found in a reference book titled
“INCOTERMS”, produced by the International Chamber of Commerce. The purpose of
this book is to provide a set of guidelines for the interpretation of the most commonly used
terms in international trade. The aim is to avoid or reduce the uncertainties of different
interpretations of such terms in different countries.
Incoterms define the responsibilities of buyers and sellers for the delivery of goods and
sales contracts. They are the authoritative rules for determining how costs and risks are
allocated to the parties. Incoterms rules are regulary incorporated into sales contracts
worldwide and have become part of the daily language of trade.
6.1 Common INCOTERMS/ Terms of Delivery
(a) FOB (Free On Board)
“Free On Board” is used only for sea or in land waterway transport. It means that the
seller delivers the goods on board the vessel nominated by the buyer at the named port
of shipment or procures the goods already so delivered. The risk of loss or damage to the
goods passes when the goods are on board the vessel, and the buyer bears all costs from
that moment onwards.
The seller’s obligations include:
• Delivering the goods on board the vessel named by the buyer at the place of export;
obtaining any required export licenses;
• Bearing risks and costs relating to the goods until they are placed/loaded onto the
means of transport at the place of export.
The buyer’s obligations include:
• Contracting at his/her own expense for the carriage of the goods from the place of
export; bearing risks and costs relating to the goods once they are placed/loaded
onto the means of transport at the place of export;
• Arranging all Customs formalities for importing the goods.
(b) CIF (Cost, Insurance and Freight)
“Cost, Insurance and Freight” is used only for sea or inland waterway transport it means
that the seller delivers the goods at the vessel on board the vessel or procures the goods
already so derived. The risk of loss or damage to the goods passes when the goods are on
board the vessel. The seller must contract for and pay the costs and freight necessarily to
bring the goods to the named port of destination. The seller also contract for insurance
cover against the buyer’s risks of loss or damage to the goods during the carriage.
106
Seller’s obligations include:
•
Contracting at his/her own expense for the carriage of the goods to their destination
and pay all freight charges up to that point;
•
Obtaining at his/her own expense any required export licenses;
•
Obtaining at his/her own expense, freight insurance as agreed in the contract.
The buyer’s obligations include:
•
Bearing the cost of unloading the goods at the place of importation, unless already
included in the freight bill paid by the seller;
•
obtaining at his/her own expense any import licenses and carry out all Customs
formalities (including payment of any Customs duties) for the import of the goods
to the place of importation.
(c) CFR (Cost and Freight) Also known as “C + F”
“Cost and Freight” is used for sea and inland waterway transport. It means that the seller
delivers the goods on board the vessel or procures the goods already so delivered. The risk
of loss or damage to the goods passes when the goods are on board the vessel. The seller
must contract for and pay the cost and freight necessary to bring the goods to the named
port of destination. The liabilities of the seller and buyer are the same as under C.I.F.
except that neither party has an obligation to provide insurance. However, the buyer may
then choose whether he/she obtains insurance cover.
(d) EXW (Ex-works) also known as “Ex-factory”
“Ex works” may be used irrespective of the mode of transport selected and may also be
used where more than one mode of transport is employed. It is suitable for domestic trade.
It means that the seller delivers when it places the goods at the disposal of the buyer at
the seller’s premises or at another named place (i.e. works, factory, warehouse, etc.). The
seller does not need to load the goods on any collecting vehicle, nor does it need to clear
the goods for export where such clearance is applicable. The seller’s obligations cease
when the goods leave the works/factory premises. Title and risk pass to buyer including
payment of all transportation and insurance cost from the seller’s door. It is used for any
mode of transportation.
(e) FCA (Free Carrier) may be used irrespective of the mode of transport selected
and may also be used where more than one mode of transport is employed. It means that
the seller delivers the goods to the carrier or another person nominated by the buyer at
the seller’s premises or another place. The parties are well advised to specify as clear as
possible the point within the named place of delivery, as the risk passes to the buyer at that
point.
In this type of transaction, the seller is responsible for arranging transportation, but he is
107
acting at the risk and the expense of the buyer. Where as in FOB the freight forwarder or
carrier is the choice of the buyer, in FCA the seller chooses and works with the freight
forwarder or the carrier. “Delivery” is accomplished at a predetermined port or destination
point and the buyer is responsible for insurance.
(f) FAS (Free Alongside Ship) means that the seller delivers when the goods are placed
alongside the vessel (i.e. on a quarry or barge) nominated by a buyer at the named port of
shipment. The risk of loss or damage of the good passes when the goods are alongside the
ship and the buyer bears all costs from that moment onwards.
The parties are well advised to specify as clear as possible the loading point at the named
port of shipment, as the costs and risks to that point are for the account of the seller and
this cost and associated handling charges may vary according to the practice of the port.
(g) CPT (Carriage Paid To) may be used irrespective of the mode of transport selected
and may also be used where more than one mode of transport is employed. It means that
the seller delivers the goods to the carrier or any other person nominated by the seller at
an agreed place (if any such place is agreed between the parties) and that the seller must
contract for and pay the costs of carriage necessary to bring the goods to the named place
of destination. The seller fulfills its obligation to deliver when it hands the goods over to
the carrier and not when the goods reach the place of destination.
(h) CIP (Carriage and Insurance Paid To) is used irrespective of the mode of transport
selected and may also be used where more than one mode of transport is employed. It
means that the seller delivers the goods to the carrier or another person nominated by the
seller at an agreed place (if any such place is agreed between the two parties) and that the
seller must contract for and pay the cost of carriage necessary to bring the goods to the
named place of destination.
The seller also contracts for insurance cover against the buyer’s risk of loss or damage to
the goods during the carriage. The seller fulfills its obligation to deliver when it hands the
goods over to the carrier and not when the goods reach the place of destination.
(i) DAT (Delivered at Terminal)
Title, risk and responsibility cost pass to seller to place the goods at the Buyer’s disposal
after unloading at the named terminal at port or place of destination. Used for any mode
of transportation. The Seller delivers when the goods, once unloaded from the arriving
means of transport, are placed at the Buyer’s disposal at a named terminal at the named
port or place of destination. “Terminal” includes any place, whether covered or not, such
as a warehouse, container yard or road, rail or air cargo terminal. The Seller bears all risks
involved in bringing the goods to and unloading them at the terminal at the named port or
place of destination.
108
(j) DAP (Delivered at Place)
Title, risk and responsibility cost pass to seller to place the goods at the Buyer’s disposal
on the delivering carrier ready for unloading at the named place of destination. The Seller
bears all risks involved in bringing the goods to the named place.
(k) DDP (Delivered Duty Paid) is used irrespective of the mode of transport selected
and is also used where more than one mode of transport is employed. It means that the
seller delivers the goods when the goods are placed at the disposal of the buyer, cleared
for import on the arriving means of transport ready for unloading at the named place of
destination. The seller bears all the costs and the risks involved in bringing the goods to
the place of destination and has an obligation to clear goods not only for export but also for
import, to pay any duties for both export and import and carry out all customs formalities.
DDP represents the maximum obligation for the seller.
The parties are well advised to specify as clearly as possible the point within the agreed
place of destination, as the costs and risks to that point are for the account of the seller.
109
CHAPTER 7
7.0 DOCUMENT CHECK LIST
Having looked at several Documents that are required to aid proper valuation, it is obvious
that it is not always easy to remember all these Documents while vetting lodged entries
– yet some of the Documents are mandatory attachments to an entry. So the documents
checklist was designed to ensure that Valuation Officers have a quick reference of
Documents required to support a Declaration.
The Valuation Document Check List also serves the following purposes :
• Avail a quick reference to Valuation Officers by outlining required Documents for
valuation purposes
• Outline Documents that are mandatory to support any declaration
• Avail a mechanism for systematic analysis of entries to ensure a chronological
flow of the supporting Documents by way of serial numbers, dates, and preceeding
Documents
• It is a handy tool in analysing complex transactions
• This form can also be used by Lodgement Desk Officers & Customs Registry /
Archives Officers to confirm that all the required Documents have been attached to
an entry.
Conclusion
Proper analysis of international trade documents is an integral part of Customs clearance.
If sufficient documents are availed in support of the declaration, proper taxes and duties
coupled with trade facilitation will be realized. However, if there are insufficient or
inconsistent documents, this will cause delays, likewise wrong taxes, duties and statistics
will be collected.
110
Note : Attachments for all documents discussed above are here below attached
DOCUMENTATION LEGAL PROVISIONS
EAC CMA 2004 DETAILS
SECTION
Sec 122(1)
Paragraph 2 to 9 Where imported goods are liable to import duty ad valorem, then the
value of such goods shall be
determined in accordance with the
Fourth Schedule and import duty shall
be paid on that value.
Sec 122(2)
Upon written request, the importer shall be entitled to an explanation in writing from the proper officer as to
how the Customs Value of the importer’s
goods was determined
Sec 122(3)
Where, in the course of determining the Customs Value of imported goods,
it becomes necessary for the Customs
to delay the final determination of such
Customs Value, the delivery of the goods
shall, at the request of the importer be
made:
Provided that before granting such
permission the proper officer may
require the importer to provide
sufficient guarantee in the form of a
surety, a deposit or some other
appropriate security as the proper
officer may determine, to secure the
ultimate payment of Customs duties for
which the goods may be liable
Sec 122(4)
Nothing in the Fourth Schedule shall be construed as restricting or calling into question the rights of the proper
officer to satisfy himself or herself as
to the truth or accuracy of any
statement, document or declaration
presented for Customs Valuation purposes.
111
Related Articles in
ACV
Article1 to 8
Article16
Decision 6.1
Article13
Article 17
Decision 6.1
Sec 235
(1) The proper officer may, within
five years of the date of importation,
exportation or transfer or manufacture
of any goods, require the owner of the
goods or any person who is in possession
of any documents relating to the goods-
Sec 235(2)
Sec 236
(a) to produce all books, records and
documents relating in any way to the
goods; and
(b) to answer any question in relation
to the goods; and
(2) Where any owner fails to comply
with any requirement made by the
proper officer under this section, the
proper officer may refuse entry or
delivery, or prevent exportation or
transfer, of the goods, or may allow the
entry, delivery, or exportation or
transfer, upon the deposit of such
sum, pending the production of the
books and documents, as the proper
officer may deem fit; and any deposit
made shall be forfeited and paid into the
Customs revenue if the documents are
not produced within three months, or
such further time as the proper officer
may permit from the date of the deposit.
The Commissioner shall have the Article17
powers to(a) verify the accuracy of the entry
of goods or documents through
examination of books, records,
computer stored information, business
systems and all relevant customs
documents, commercial documents and
other data related to the goods;
112
MT P EA ST A FR IC A LTD.
P.O.Box 24687, Plot No. 444 East Africa,
Phone: +256 772 5050505
PU RCHA SE ORDER
No :
To : AAA EXPORTERS TRADING Co.
NEW DELHI INDIA
DATE: 22-03-2010
QTY PRICE
DESCRIPTION
S.I.No.
ML 023/2010
AMOUNT
USD
USD
1
Men’s Jean Trouser Brand X Sise 30 - 34
1400
$5.29
$7,406.00
2
Ladies Jean Trouser Brand Y Sise 30 - 36
600
$4.68
$2,808.00
3
Men’s Jean Trouser Brand X Sise 35 - 47
600
$5.79
$3,474.00
$13, 688.00
FOB New Delhi India
In World us$ THIRTEEN THOUSAND SIX HUNDRED EIGHTY EIGHT ONLY
WARRANTY : TWO YEAR
PAY TERM: 30% ADVANCE , 70% BEFORE SHIPMENT
LOADING TIME: 30 DAYS FROM THE DATE OF 30% ADVANCE
VALIDITY 45 DAYS FROM THE DATE OF PURCHASE ORDER
113
Fo r
--------------------------------------------Author ised Signature:
114
115
116
117
118
119
120
121
122
123
124
125
CUSTOMS VALUATION DOCUMENT CHECK LIST
sn Document
Serial No Date Remarks / Analysis
1 Authority Letter
M
2 Purchase Order
W/A
3 Proforma Invoice
M
4 Sales Contract
W/A
5 Commercial Invoice
M
6Receipt
W/A
7 Packing List
M
8 Certificate of Origin
M
9 Shipping Bill / Export Entry
W/A
10 Form E
W/A
11 Bill of lading/Airway Bill
M
12 Freight Invoice
M
Reqirement under Sec 146 of EAC CMA
13 Insurance Invoice/ Certificate M
14 TT Application
W/A
15 TT Confirmation
W/A
16 Fumigation Certificate
W/A
17 Other Payment modes
W/A
18 Phytosanitary Certificate
W/A
19 Certificate of Analysis
W/A
20 Other Relevant Permits
W/A
21 Mombasa T810 / T812
M
22 IM8 / T1
M
23 IM7 (Warehousing Entry)
W/A
This is mandatory if the goods were warehoused, however does not apply if it is a direct C4
NOTE - M stands for Mandatory Documents
W/A stands for Documents that should be attached where applicable
126
References
1.
2.
3.
4.
5.
6.
7.
General Agreement on Tariffs and Trade (GATT), 1994
Agreement on Implementation of Article VII of GATT, 1994
Brief Guide to the Valuation Agreement
Customs Valuation Compendium 2nd Edition November, 2008
Legal Texts: Uruguay Round of Multilateral Trade Negotiations
East African Community Customs Management Act (EACCMA), 2004
East African Community Customs Management Act Regulations (EACCMAR),
2004
8. World Customs Organization (WCO) Basic Training Module
9. Incoterms 2010
127