Customs Valuation and the World Trade Organization

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World Trade Organization / Market Access Division / 154 Rue de Lausanne, 1211 Geneva 21, Switzerland / [email protected]

Customs Valuation and the World Trade Organization

Roy SantanaMarket Access Division

World Trade Organization


WCO - Knowledge AcademyBrussels, 2 July 2014

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A. The CVA in the WTO context

B. The Committee on Customs Valuation and ongoing issues

C. WTO disputes in general

D. Disputes on Customs Valuation

Structure of this presentation:

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A. The CVA in the WTO context

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Understandings

Multilateral Agreements on:

Agriculture

Sanitary and Phytosanitary measures

Safeguards

Technical Barriers to Trade

Trade-related investment measures

Antidumping

Customs Valuation

Preshipment inspection

Rules of origin

Import Licensing Procedures

Subsidies and countervailing measures

Marrakesh Protocol

GATT 1994

Annex1A

Multilat. Trade Agrs. on Goods

Most WTO Agreements seek to regulate NTMs

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It is normally necessary to know at least 3 things:

How much should I pay?

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B. The Committee on Customs Valuation

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The CVA established two Committees:

Committee on Customs Valuation

(CCV)

“Technical Committee” on

Customs Valuation

(TCCV)

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Instrument Description No.*Advisory opinion

Answers a question on a specific set of facts (actual or theoretical)

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Commentary A series of comments on part of the text of the agreement; supplement with additional guidance, including examples. Applies to a number of situations.

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Explanatory note

Answers a question of a general nature arising from one or more provisions in the Agreement; may also examine trade practices.

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Case study Exposition of complex set of facts based on an actual commercial transaction; used to demonstrate practical application

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Study Result of an examination in some depth of any question relating to the Agreement

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WCO - Technical CommitteeCVA, Article 18.2 and Annex II

Task: To ensure the uniform application of the agreement at the technical level

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All information is publicly available: https://docs.wto.org (Document symbol: “G/VAL/”)

WTO - CommitteeCVA, Article 18.2 and Annex II

Tasks:

1. “Afford Members the opportunity to consult on matters relating to the administration of the customs valuation system by any Member” (CVA, Art. 18.1)

2. Oversee the operation of the Agreement

3. Review of notifications, e.g. national legislation

https://docs.wto.org/

Notifications on Customs Valuation# Notification Established in: Type G/VAL/1 Copy of national

legislationG/VAL/5, B.2 One-off N/1

2 Changes in legislation CVA, Art. 22.2 Ad hoc N/1

3 Checklist of issues G/VAL/5, B.3 One-off N/2

4 Treatment of interest charges

G/VAL/5, A.3 One-off N/3

5 Para. 2 carrier media (software)

G/VAL/5, A.4 Ad hoc N/3

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Treatment of Software and data?

• 1995 “Carrier Media” decision (“Decision 4.1”)• Should it be amended to take account of

technological developments? (Proposal by Uruguay: G/VAL/W/241/Rev.1)

ARTICLE 8.1(B)(IV) OF THE AGREEMENT ON CUSTOMS VALUATION

Agreement to rectify a “serial comma” problem:Article 8

1. In determining the customs value under the provisions of Article 1, there shall be added to the price actually paid or payable for the imported goods: (b) the value, apportioned as appropriate, of the following goods

and services (… ):

(iv) engineering, development, artwork, design work, and plans and sketches, undertaken elsewhere than in the country of importation and necessary for the production of the imported goods;

Workshop on the use of customs valuation databases?

• Issue originally raised by the ICC• Proposal by Australia, Canada, Chinese Taipei,

the European Union, and the United States (G/VAL/W/231/Rev.1)

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C. WTO Disputes in General

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1. Introduction• A dispute arises when a Member

believes that another Member is not complying with a covered Agreement or a specific commitment made in the WTO.

• The Dispute Settlement Body (DSB) has the ultimate responsibility for settling disputes.

• The Dispute Settlement Understanding (DSU) is the main WTO agreement on settling disputes. → One of the cornerstones of the multilateral trading system.

Disputes in general

“Complainant”

“Respondent”

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2. Interpretation of the WTO Agreements

• Art. 3:2 of the DSU: “in accordance with customary rules of interpretation of public international law.”

• Appellate Body (US – Gasoline): Vienna Convention on the Law of Treaties (because it had attained the status of customary or general international law).

VCLT: Article 31 (General Interpretation Rule)

1. Ordinary meaning of the terms2. In their context

This includes the preamble, annexes, agreement between the parties to the dispute. Should be taken together with any subsequent agreement, subsequent practice, and relevant rules of international law.

3. in the light of its object and purpose

Disputes in general

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2. Interpretation of the Agreements (cont’)

VCLT: Article 32 (Supplementary means of interpretation)

- Only used to:1. Confirm the meaning resulting from Art. 31

2. Determine the meaning when Art. 31: (a) leaves the meaning ambiguous or obscure; or (b) leads to a result which is manifestly absurd or unreasonable

- Includes the preparatory work of the treaty and the circumstances of its conclusion.

Disputes in general

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3. Steps of a WTO dispute

Consultations

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Req. to establish Panel

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Establish. of Panel

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Panel Composed

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Panel Report

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Appeal

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The Parties to a Dispute can reach a

“Mutually Agreed Solution” (MAS)

at any time.

Disputes in general

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3. Steps of a WTO dispute (cont’) Disputes in general

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Examples of recent cases

CaseCanada – Renewable energy (feed-in tariffs)China – Raw materialsUS – Clove CigarettesUS – Country of Origin LabellingChina – Electronic payment servicesEU – Large Civil Aircraft (Airbus)US – Large Civil Aircraft (Boeing)EU – Seal ProductsAustralia – Plain Packaging of Cigarettes

Disputes in general

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The facts: EU began reclassifying frozen boneless chicken cuts impregnated with salt under:

- heading 02.07 ("Meat and edible offal, of the poultry of heading 0105, fresh, chilled or frozen") → 02.4€/100kg/net , or

- heading 02.10 ("Meat and edible meat offal, salted, in brine, dried or smoked…") → 15%The issue: Whether the tariff classification under tariff heading 02.10 resulted in treatment that is less favourable than provided for in the EU’s tariff Schedule?

Example: EC – Chicken Cuts

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Warning!: The task of the Panel was to interpret the EU’s Schedule, which is part of the WTO Agreement, and not the Harmonized System!

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“The ordinary meaning of a treaty term must be ascertained according to the particular circumstances of each case.”

“[D]ictionaries are a ‘useful starting point’ for the analysis of ‘ordinary meaning’ of a treaty term, but they are not necessarily dispositive.”

“Importantly, the ordinary meaning of a treaty term must be seen in the light of the intention of the parties as expressed in the words used by them against the light of the surrounding circumstances”

Article 31(1) VCLT: Ordinary meaning

1. “Ordinary meaning” (1)

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“[W]e see no reason to disturb the Panel's conclusion concerning the ordinary meaning of the term ‘salted’ (…)‘in essence, the ordinary meaning of the term ‘salted’ when considered in its factual context indicates that the character of a product has been altered through the addition of salt’(…)"there is nothing in the range of meanings comprising the ordinary meaning of the term ‘salted’ that indicates that chicken to which salt has been added is not covered by the concession contained in heading 02.10 of the EC Schedule."

Article 31(1) VCLT: Ordinary meaning

1. “Ordinary meaning” (2)

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“It is clear from [Article 31 of the Vienna Convention] that the context of the term ‘salted’ in heading 02.10 consists of the immediate, as well as the broader, context of that term.”

Immediate context • Other terms of the product description contained in

Heading 02.10 of the EC Schedule

Broader context • Other headings in Chapter 02 of the EC Schedule • Other WTO Member Schedules• The Harmonized System, including GIRs, Chapter notes,

explanatory notes, etc.

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2. “Context” (1)

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“… we need to determine whether the context of the term ‘salted’ … require or permit a reading of the term ‘salted’ in heading 02.10 of the EC Schedule more narrowly than the ordinary meaning of that term suggests…”

“… that is to say, that the customary rules of treaty interpretation other than ‘ordinary meaning’ indicate that ‘salting’ under heading 02.10 contemplates exclusively the notion of ‘preservation’.”

Whatis the

meaning of

“salted”?

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“the Harmonized System and the relevant Chapter and Explanatory Notes thereto do not support the view that heading 02.10 is characterised exclusively by the concept of preservation”

… Specifically, for resolving this dispute, heading 02.10 does not contain a requirement that salting must, by itself, ensure ‘preservation’”

Panel’s conclusion:

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What is the object and purpose of the WTO Agreement?

“the security and predictability of 'the reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade' is an object and purpose of the WTO Agreement, generally, as well as of the GATT 1994.”

• Of the treaty “on the whole” (i.e. the WTO Agreement)

• Not of specific provisions, paragraphs or subparagraphs of the WTO agreements, or tariff headings in Schedules

3. “Object and purpose” (3)

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D. Disputes on Customs Valuation

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1. The disputes

• GATT 1947: 3 disputes involving valuation. Only one of them resulted in a report (Exports of potatoes to Canada, BISD 11S/88)

Disputes on Customs Valuation

• WTO: 15 disputes where the complainant mentioned a provision of the Agreement on Customs Valuation

No. DS Short Name1 DS9 EC - Cereals2 DS13 EC – Grains (Withdrawn)3 DS17 EC - Rice (Thailand)4 DS56 Argentina - Textiles and Apparel

(Panel Report did not deal with CV claims)

5 DS134 EC - Import Duties on Rice6 DS183 Brazil - Minimum Import Prices (EC)7 DS197 Brazil - Minimum Import Prices (US)

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1. The disputes (cont’)

No. DS Short Name8 DS198 Romania - Minimum Import Prices (MAS)

9 DS210 Belgium – Rice (MAS)10 DS241 Argentina - Poultry Anti-Dumping Duties

(Panel Report did not deal with CV claims)

11 DS298 Mexico - Pricing Measures (MAS)12 DS348 Colombia - Customs Measures (MAS)13 DS366 Colombia - Ports of Entry (Panel Report)14 DS370 Thailand - Customs Valuation15 DS371 Thailand - Cigarettes (Philippines)

(Panel Report; Appeal did not look into CV)

16 DS457 Peru — Additional Duty on Imports of Certain Agricultural Products


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2. The provisions

Article


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D.1 Colombia – Ports of Entry (DS366)

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Timeline

Request for consultations: 12 July 2007Request to establish panel: 14 September 2007Establishment of Panel: 22 October 2007Panel composition: 8 Feburary 2008Circulation of panel Report: 27 April 2009Adoption: 20 may 2009

Colombia – Ports of Entry (DS366)

Complainant: Panama

Respondent: Colombia

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Measure: List of indicative prices


Declared Price (DP)

Indicative Price (IP)

Based on:- past imports, - AVG prod. Costs; - lowest price for

import into Colombia

If DP > IP → DP

If DP < IP: Importer had 3 options:

1. To “correct” thedeclaration

2. To re-ship goods

3. To abandon goods

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1. Customs duties & other duties and charges: based on indicative prices, rather than on the six valuation methods.


2. Sales tax: Imported products: Indicative pricesLike domestic products: Transaction value

Panama alleged that :

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• It is not the payment of a duty;

• It is rather a system for a guarantee allowed by Article 13 of the CVA.


Colombia’s defence:

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Panel Findings:


1. It is a system to determine the payment of a duty, not do determine a guarantee.

2. System is based on choosing the maximum of two values (Prohibited by Article 7:2(b)+(f) CVA).

3. System does not reflect any of the 6 methods. Therefore, in violation of Arts. 1, 2, 3, 5 and 6 CVA.

4. Recommended Colombia to bring its measures into conformity with the CVA.

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D.2 Thailand – Cigarettes (Philippines) (DS371)

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Thailand – Cigarettes (Philippines) (DS371)

Complainant: Philippines

Respondent: Thailand

Timeline

Request for consultations: 7 February 2008

Request to establish panel: 29 September 2008

Establishment of Panel: 17 November 2008

Panel composition: 16 February 2009

Circulation of panel Report: 15 November 2010

Appeal 22 February 2011

Appellate Body Report 17 June 2011

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Products at issue: Cigarettes

Complaint: The Philippines claimed that:

Alleged measure at issue: Were in violation of:A number of fiscal and customs measures: customs valuation practices, excise tax, health tax, TV tax, VAT regime, retail licensing requirements and import guarantees

CVA: Art. 3, 1.1, 1.2, 4, 5, 6, 7, 10, 13, 16

GATT: Art. II:1(b), III:2, III:3, VII:1; VII:2, VII:5, X

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1. Systematic rejection of transaction value just because importer and seller were “related”, in violation of Art 1.1 and 1.2(a) of the CVA.

2. Failed to follow the procedural steps:

• To examine the circumstances of the transaction

• To follow the sequential order of the methods

• To inform the importer of the grounds for rejecting the transaction value


The Philippines argued that (1):

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2. Thai Customs applied the deductive method inconsistently with Articles 5 (failed to make deductions for sales allowances, internal transpor-tation costs, and provincial taxes) and 7 of the CVA.

3. Thailand violated obligations under Article 10 (not to disclose confidential information) and Article 16 (to provide an explanation for the determination of the final customs value)


The Philippines argued that (2):

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• The burden of establishing that the relationship did not influence the price is on the importer.

• Thai Customs act consistently with the CVA, because the importer failed to provide sufficient information to prove that the relationship did not influence the price.

• Explanation was provided


Thailand replied that :

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Procedural steps to determine Transaction Value

1.Importer declares a transaction value

2.Customs examines the circumstances of the sale (only if it has doubts about the validity)

3.Customs examines information provided by importer; obligation to communicate grounds for doubts

4.Customs gives reasonable opportunity to respond; importer submits further information

5.Customs makes a final decision on the value; provides written explanation if importer requires (it is not only a formal, but also a substantive obligation)

Panel Findings: (1)


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• Thai Customs failed to “examine” the circumstances of sale (Art. 1.2(a))

• Thai Customs did not “consult with the importer” for any further relevant information as required under article 7 of the CVA.

• Thai Customs “explanation” was insufficient to reject the importer’s declared transaction value and to give a different customs value to the transaction.

Panel Findings : (2)


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Article 5 of the CVA

Thailand failed to deduct certain expenses (sales allowances, provincial taxes and transportation costs) that should have been deducted in accordance with

Panel Findings : (3)


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Thailand appealed to the Appellate Body. However the reason they appeal did not concern with the panel's conclusion on valuation matters. Therefore the Panel's conclusion would be accepted by the WTO.

Appeal:


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Thank you!Roy Santana

Market Access DivisionWorld Trade Organization

[email protected]

Customs Valuation and the World Trade Organization

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