world trade institute

MILE 7

Master Thesis

CONTEMPORARY IMPLEMENTATION PROBLEMS OF THE WTO AGREEMENT ON CUSTOMS VALUATION INTO DOMESTIC LEGISLATION: WHAT CAN THE EXPERIENCE OF SOME WTO MEMBERS TEACH UZBEKISTAN?

STUDENT: AZIZJON NAZAROV SUPERVISOR: PAOLO VERGANO

DATE: SEPTEMBER 30, 2007

Acknowledgement I would like to thank Paolo Vergano for his constant and constructive help and supervision throughout the process of writing this Master Thesis.

TABLE OF CONTENTS

List of Abbreviations......3 Abstract...4 Introduction....5 Literature Review and Sources.....6 Methodology.....6

Chapter 1

General Overview of the WTO Agreement on Customs Valuation...7

1.1 Brief history of the ACV....7 1.2 General outline of the ACV......11

Chapter 2

Certain Issues Connected With the Implementation of the ACV....12

2.1 ACV and its general problems.............13 2.2 Related Party Transactions issues........14 2.2.1 2.2.2 Article 15.4 of the ACV.....14 General problems of Article 15.4.......16 Implementation problems of Article 15.4...16 Article 1.2 of the ACV...21 General problems of Article 1....21 Implementation problems of Article 1....24

2.3 Conclusion....26

Chapter 3

Case Studies of the ACV Implementation Experience..........27

3.1 Case study: Kingdom of Nepal ....27 General overview of customs valuation legislation in Nepal.....27 Short history of Nepalese customs valuation practice28 Status quo of customs valuation in Nepal...30 Determination of general and specific issues.31 Policy Recommendations for Nepal...........32 Conclusions regarding the ACV implementation in Nepal....34

3.2 Case study: India..35 General overview of customs valuation legislation in India..35 Short history of Indian customs valuation practice....36 Determination of general and specific issues.37 Status quo of customs valuation in India....39 Policy Recommendations for India.....41 Conclusions regarding the ACV implementation in India..42

Chapter 4

Customs Valuation Issues in Uzbekistan....43

4.1 General status quo of Uzbek customs legislation.....43 4.2 ACV and Uzbek customs valuation legislation........46 a) Customs Code.46 b) Law on Customs Tariff...47 c) Directive No. 390....48 4.3 Conclusion49

Chapter 5

Conclusions and Recommendations........50

5.1 General recommendations for the ACV implementation.50 General suggestions...50 Pre-implementation diagnosis and Blueprint from the EU53

5.2 Supplementary recommendations for DCs...55 5.3 Uzbek Customs Legislation and the ACV: Concluding remarks.........56 List of References......59

ATTACHMENTS AND ANNEXES

Attachment 1i Attachment 2..iii Attachment 3..xi Annex L.xii

LIST OF ABBREVIATIONS
ACV BDV CAs CC CCC CCV CL CV CVM CVS DCs DS ECUSG EU EurAsEC FEA GATT GUz ITO LDC LN MNE NTB OECD PCA PPA RAS RMS RP RPT RUz SCC SR TF TV UN VC WCO WP WTI WTO Agreement on Customs Valuation Brussels Definition of Value Customs Authorities Customs Code Customs Cooperation Council Committee on Customs Valuation Customs Legislation Customs Valuation Customs Valuation Method Customs Valuation System Developing Countries Dispute Settlement European Customs Union Study Group European Union Eurasian Economic Community Foreign Economic Activity General Agreement on Tariffs and Trade Government of Uzbekistan International Trade Organization Least Developed Country League of Nations Multinational Enterprises Non -Tariff Barriers Organization for Economic Cooperation and Development Post Clearance Audit Protocol of Provisional Application (1947) Risk Assessment System Risk Management System Related Parties Related Party Transactions Republic of Uzbekistan; the Republic State Customs Committee Special Relationship Trade Facilitation Transaction Value United Nations Valuation Code of 1979 World Customs Organization Working Party World Trade Institute World Trade Organization

The problem of valuation is inherently difficult. No one solution yields the one right answer 1

Abstract
The WTO law seeks to ensure that no WTO Member Country creates any trade-impeding obstacles in its jurisdiction for protectionism purposes and customs valuation (CV) is one of the easiest and most effective instruments for establishing hidden non-tariff barriers (NTB) in relation to the imported goods. To prevent such practice the WTO countries adopted many various agreements such as the GATT, the GATS, and the ACV. The latter Agreement prohibits the use of any non-objective customs valuation methods (CVMs) and the ACV is regarded as an objective, fair and transparent Agreement. Since the acceptance of the ACV, however, many countries, in particular developing countries (DCs) faced many difficulties with the implementation of this Agreement. Such problems have also affected many non-WTO countries like Uzbekistan that intend to join the WTO in near future. Today, many countries continue criticizing the ACV as being very short, complex and controversial WTO Agreement and there are still many countries that strain to the full operation of the ACV in their laws and CV practice. The main aim of this paper is to analyze several systematic issues connected with the ACV and conduct two case studies of the implementation experience of India and Nepal. Afterwards, the author critically examines Uzbek customs legislation (CL) and tries to determine its current pitfalls. The thesis concludes with practical recommendations for better implementation of the ACV, both in general and specifically in Uzbekistan. In short, this paper concludes that there is no general standard for the ACV implementation but there exist a number of concrete guidelines and partial blueprint created by other countries that could be useful in the ACV implementation. This thesis also demonstrates that appropriate ACV implementation is much more than simple adoption of appropriate laws and bylaws and effective ACV accomplishment requires comprehensive reforms in CV practice of a country. Final conclusion is that new and inexperienced DCs like Uzbekistan that have no prior CVS practice must carry out comprehensive reforms in CV sphere taking into account the practice of other more experienced DCs like India and other blueprint created by other WTO countries as well as international and regional organizations like the EU and the OECD.
1

Sherman, Saul (1980), Reflections On The New Customs Valuation Code, Journal of Law and Policy in International Business 12 (1), 1980: p. 119

Introduction
The issue of trade barriers has been a subject of multilateral discussions for more than a century, long before the WTO itself has been finally founded in 1994. It was only in 1994 when the ACV became universally accepted and obligatory for all WTO countries. Before 1994 the ACV was called Article VII of the GATT 1947 and it had plutilateral not a multilateral nature 2 . This Agreement had been difficult to implement from the beginning because of various CVMs used in different countries. Consequently, such divergence in CVMs soon caused a number of systematic problems related to the application of the ACV. Some of such problems remain even nowadays because many countries carry on applying various WTO-inconsistent CVMs even though Article 7.2 of the ACV has bluntly prohibited such methods. It is important to conduct a profound study of this field because of several elementary reasons. First of all, misapplication of the ACV rules usually leads to the unnecessary increase of the value of imported goods that in turn results in higher prices for local consumers of importing country. Secondly, the issue of CV has been out of the scope of the WTO negotiations since the Tokyo round, hence some of the WTO countries occasionally started to disregard the compliance with the ACV. Thirdly, so far there has been no significant study conducted on this sphere because most academic works have been devoted to studying the issues involving the tariff rates and other quantitative restrictions. Finally, there have been only 10 cases connected with the ACV and all of them ended at the stage of negotiations of WTO Dispute Settlement (DS) 3 . Therefore, CV remains as a relatively new, actual, and significant area of the WTO law that deserves a closer academic scrutiny. The main aim of this thesis is to analyze the ACV and its inherent systematic issues and to attempt to offer some solutions for the accurate implementation of the ACV. For that purpose this paper considers the experience of two different countries: India, DC that applied the ACV rules since 1948 and Nepal, LDC that entered the WTO and started the application of the ACV only in 2006. This thesis in Chapter 1evaluates in general the ACV and considers shortly the pre-ACV history. In Chapter 2 the author examines a number of systematic legal issues connected with the implementation of the ACV. In Chapter 3 the author carries out a case study of the experience of two WTO countries, i.e. the experience of India and Nepal and in Chapter 4 the author analyzes the CL of Uzbekistan and its present compatibility with the ACV. The thesis concluded with
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Multilateral indicates that the Agreement is obligatory for all signatory countries of the GATT/WTO while plutilateral means that states become obliged to apply one or another agreement only if they choose to do so 3 For the full list of the cases involving the ACV see WTO document WT/DS/OV/22, dated 14 October 2004

Chapter 5 where the author offers some general as well as specific recommendations regarding the effective realization of the ACV in the example of Uzbekistan. Literature Review and Sources Generally speaking, so far there have been no comprehensive academic or practical papers that reveal all the systematic issues associated with the ACV and propose the model approach to deal with such issues. Overall, main literature in this field includes research and other analytical studies conducted by various researchers and scholars of different international and regional organizations like the WTO, the World Trade Institute (WTI), the Organization for Economic Cooperation and Development (OECD), the World Customs Organization (WCO) and other institutions. More precisely, this thesis actively refers to academic publications of former researcher of the WTI Streatfeild (2004), scholar from Philippines Alburo (2006), the WCO specialist Ping (2000) as well as Korean trade expert from the International Cooperation Bureau Shin (1999), US academic and practitioner Sherman (1980), Australian academic Islam (2006) etc. There are some other scholars who provide many valuable analytical comments for the case studies of Nepal and India. They are Nepalese trade experts Ghimire (2005) and Rajkarnikar (2006), Satapathy (2002), Majumder (2005) and Chaturvedi (2006) and others. Chipiga (2005) from the State Customs Committee of Uzbekistan (SCC) and Musleh-ud Din (2003) from Asian Development Bank (ADB) offer useful examination of Uzbek CV laws. Nevertheless all the abovementioned materials are not ample and they do not provide full analysis of all unresolved problems connected with CV. Most academic works either focus only on a single or few issues involving the ACV and in most cases they are country-specific. Therefore, previously conducted analysis of the ACV is not generally applicable and is not comprehensive. The research is based on the numerous primary and secondary sources. Primary sources embrace informal interviews with CAs of Uzbekistan as well as discussion and correspondence with other Uzbek specialists in the customs field. Other primary sources comprise the legislative acts of many countries; inter alia, Uzbekistan, Kyrgyz Republic, Nepal, India, Russia, Jamaica, Israel, Canada, USA and others. Secondary sources comprise articles, books and other printed and online materials available in various libraries such as the United Nations (UN) library in Geneva, the WTO library, the WTI library and other sources accessible in the Internet. Methodology This Master Thesis investigates and determines systematic legal issues associated with the ACV by analyzing the underlying reasons for such issues and conducting a case study of the 6

experience of some WTO countries that have faced such problems. Consideration of the ACV and its provisions in general and an attempt to ascertain the general systematic issues connected with this Agreement are made. Finally, this thesis focuses on the experience of two countries with diverse CV practice and attempts to discover some useful guidelines for other countries following the example of Uzbekistan.

CHAPTER I GENERAL OVERVIEW OF THE WTO AGREEMENT ON CUSTOMS VALUATION This chapter converses shortly about the history foregoing the acceptance of the ACV and how countries ultimately came to the general consensus for the use of common CVMs. Secondly, this chapter generally outlines the provisions of the ACV as well as its underlining principles and rudiments. 1. Brief history of the ACV The history of negotiations for single and systemized valuation methods has shown that reaching the multilateral accord in this field is rather difficult task to achieve. The preliminary multiparty negotiations started in the 1920s when the League of Nations (LN) raised the issue of adopting universally accepted CVMs 4 . The main rationale for such endeavor was that many countries realized that further prosperity and economic development required global trade rules that would ensure elimination of NTB and other uncertainties. Such global rules, in their turn, required comprehensive and concurrent trade facilitation (TF) measures in the international trade regulation. Thus, the LN countries tried to incorporate many important TF issues into the Charter of International Trade Organization (ITO) and one of such issues was common customs valuation procedure. Yet, such initial attempts failed 5 ; therefore, further discussions on CV issues for some time halted and continued only after the World War II. Such postwar discussions on CV were held in 1947 during the GATT negotiations and they later continued during the Kennedy and Tokyo rounds of multilateral trade negotiations. The latter negotiations were usually heralded as the time when many countries eventually decided to unify their divergent valuation approaches and accept the universal CVM. However, substantial progress achieved in the abovementioned negotiation rounds
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In 1923 the LN attempted to incorporate some rules into the International Convention relating to the Simplification of Customs Formalities and this Convention was meant to regulate some trade-related transactions between countries that inter alia, included issues such as storage of goods, and rules of origin and so on. 5 It is well known that the main reason for such failure was that the US, one of the biggest and most important countries, refused to approve the ITO Charter.

immediately swayed most countries to suspend further discussions on the perfection of the ACV mechanism. Hence many countries, in particular DCs, started to consider that the ACV is effective enough to survive without any further elaboration. Therefore, this topic slowly started to lose its actuality and significance in the view of all GATT members and after 1995 it became a victim of its own success 6 . Today, the WCO has taken charge of further improvement of the AVC which has been confronted with many historically unresolved systematic issues that hinder the effective functioning of the ACV. Streatfeild (2004) confirms such pronouncement declaring; large discrepancies still plague attempts to implement the ACV in any kind of uniform or harmonized manner 7 . Next this Chapter analyses some important negotiation stages preceding the adoption of the ACV. Negotiations under the GATT 1947 As it has been already mentioned the first major step towards the universalization of CV rules after the failure of the ITO was made in 1947 when the GATT contracting parties in tandem negotiated and accepted the GATT and the GATT Protocol of Provisional Application (PPA) on CV. Initially the GATT contracting parties had been permitted to avoid full compliance with these provisions elaborated in that Provisional GATT Protocol 8 . Beside the Protocol Article VII of the GATT 1947 also regulated CV issues but this Article was overly general and ambiguous in its language. For example, the Article used the concept actual value that was defined as the price at whichsuch or like merchandise is sold or offered for sale in the ordinary course of trade under fully competitive conditions. Hence, there was no clear indication in Article VII that actual price is a synonym for invoice price. A footnote to Article VII did not provide any further information either. In short, as Streatfeild (2004) states, it was clear that GATT Article VII served as only a general guideline on how valuation should be conducted, while failing to deliver unambiguous wording on the topic. However, despite its weaknesses, Article VII proved to be an important initial effort and an article upon which future customs valuation agreements would continue to build 9 . Post GATT 1947 developments Although Article VII of the GATT 1947 and the PPA had some shortcomings, those were the first major steps for concluding universal rules on CV and they played a crucial role in the forthcoming further negotiations. Subsequently, one year later
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Streatfeild, Jeremy (2006), A Brief Negotiating History of Customs Valuation in the GATT and WTO, Journal of Law and Economics in International Trade, Vol. 2, No. 2, July available at www.heisummer.ch/pdf/customs_valuation_streatfeild.pdf p. 18 7 Id. at p. 2 8 Id. at p. 3 9 Id. at p. 6

after the GATT, in 1948 many European nations assembled to discuss CV unification problems under the auspices of the European Customs Union Study Group (ECUSG). This meeting had two important achievements. First, European countries were able to draft the Brussels Convention on Valuation and this Convention founded the valuation method often referred to as the Brussels Definition of Value (BDV). Gradually the BDV became a primary technique of CAs in many European states. This method called for the use of the so-called normal price of a good on the market, to be used for customs valuation purposes 10 . Goorman et al. (2005) noted: The BDV was not based on a real price, such as the invoice price of the good in question, but instead, set forth procedures that must be followed to reach the calculated price. BDV, which was a derived value itself, based on a customs authoritys calculation of the price at which a good should be sold, considering certain circumstantial factors 11 . Despite the growing recognition of the BDV, some countries including the USA and Canada abstained from accepting the BDV. These countries were convinced that BDV was not the appropriate valuation system because it did not reflect the true value of imported goods. Conversely, instead of the BDV the US, for example, had been using the export value at those times, i.e. the value of the good ready for export often referred to as American Selling Price (ASL). Meanwhile Canada used the fair market value, which had been based on the price of the imported products in the country of export 12 . Canadas primary basis for valuation was either fair market value or the selling price to the purchaser, whichever was higher 13 . Today many specialists like Alburo (2006) blame the BDV declaring that the ambiguity of the BDV spawned many derivative methods of customs valuation of imported goods 14 . Second major achievement of 1948 discussions under the ECUSG was a naissance of the Customs Cooperation Council (CCC) in November 4, 1952. The CCC was designed to ensure the uniform interpretation and application of the Convention on the BDV. It was the CCC that eventually persuaded other non-signatory countries to accept the BDV and proposed the

Goorman, Adrien and Luc De Wulf (2005), Customs Valuation in Developing Countries and the WTO Valuation Rules, Customs Modernization Handbook (Ed. Luc De Wulf and Jose B. Sokol), 2005 World Bank p. 151 11 Id. at p. 157 12 Winham, Gilbert R. (1986), International Trade and the Tokyo Round Negotiation, Princeton: Princeton University Press, 1986 p. 179 13 Canadian Valuation System, Can. Rev. Stat. Ch. C-40, paragraph 40 (1970) 14 Alburo, Florian A. (2006), Customs Valuation Issues and Research Methodologies, Presentation made at UNDP/ESCAP ARTNeT Trade Facilitation Research Team Meeting, 15 March 2006, Bangkok, Thailand. Alburo refers to at least seven divergent valuation methods that emerged because of introduction of the BVD. For more details about various arbitrary CV methods see infra footnote 18.

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acceptance the Valuation Code during the Tokyo Round 15 . In 1994 the CCC was transformed into the WCO that finally took a responsibility for the further perfection of international CV rules. From the Plutilateral Valuation Code towards the WTO ACV After Kennedy and Tokyo rounds held between 1964-67 and 1973-79 respectively countries finally reached the following consensus that they incorporated into the Valuation Code (VC): First, CV should be based on the transaction price of goods agreed by trade partners as indicated in the invoice. Second, CAs should not have unlimited discretion to establish valuation price of imported goods. Later this VC was transformed with some changes into the ACV in 1994. As a result, what started as a plutilateral Code, which only applied to a handful of signatories, has finally become a multilateral WTO Agreement 16 . Nevertheless, adequate implementation of the ACV in national legislation has been and remained as the most significant unresolved problem. This started with the VC and continued with the ACV. Such problems were observed in both developed countries like the US and Canada and DCs like India and Brazil. The main reason for such problems was that a number of countries implemented the provisions of the VC using different wording and methodology while others intentionally retained valuation standards that were in blatant violation of the new Code 17 . However, after the ACV was finally became part of the obligatory WTO law in 1994 most countries had no choice but to modify their national laws accordingly and incorporate the ACV in their national legislations. Meanwhile a number of DCs still find it difficult to introduce and implement the ACV provisions in an appropriate manner. Despite such challenges the WTO members continue to confront, the WTO does not focus on CV issues anymore and all ACVrelated issues are dealt with under the patronage of the WCO. The WCO, in its turn, has achieved a substantial progress in clarifying a number of the ambiguities that remained in the ACV as well as seeking in ensuring a uniform and coherent application of the Agreements provisions. Nonetheless, there remain many systematic issues that often cause divergent interpretation of the ACV, which are discussed in Chapter II of this paper. This paper next observes generally the ACV articles and presents a brief interpretation to the ACV.
WTO, Customs Valuation: Draft Valuation Code. For full text, see GATT documents, MTN/NTM/W/188, September 18, 1978 16 Streatfeild, Jeremy (2006), A Brief Negotiating History of Customs Valuation in the GATT and WTO, Journal of Law and Economics in International Trade, Vol. 2, No. 2, July, p. 17 available at www.heisummer.ch/pdf/customs_valuation_streatfeild.pdf 17 Id. at p.14
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2. General outline of the ACV The ACV is very condensed agreement and it consists of only four parts and 24 articles. In general, the ACV sets up the principle of uniformity in valuation and all valuation measures are meant to be fair, neutral, simple and equitable. Part I of the ACV includes Articles 1-17 and it establishes general rules for the valuation of goods by CAs. Articles 1-8 cover the issues of various valuation methods that CAs can use for the determination of value (price) of imported goods. Article 1 of the ACV specifies that each CAs must use the TV as the main valuation method. However, in the cases when the CAs cannot determine the exact value of goods based on their TV, i.e. invoice price declared by an importer, then CAs can apply either of 5 alternative pricing methods in the hierarchical order. They are (i) the TV of identical goods; (ii) the TV of similar goods; (iii) deductive method of goods (the price of similar imported goods sold at arms-length with general expenses and commissions, transportation and insurance costs deducted from the price); (iv) the computed value (the total sum of production costs of the good in the exporting country); and (v) a fall-back method (in the cases when customs value of imported goods cannot be determined under other aforementioned valuation methods). In the latter case the ACV states that the customs value shall be determined using reasonable means consistent with the principles and general provisions of the ACV and of Article VII of GATT 1994 and on the basis of data available in the country of importation. It is important to emphasize that Article 7 prohibits the Customs to use any valuation methods that either artificially tend to demonstrate the high value of goods imported or the valuation method that makes the value of goods imported arbitrary or fictitious 18 . Therefore, the ACV is quite clear as regards to the use of only valuation methods mentioned in Articles 1-7. Other articles of the ACV establish the system of determining the exact value by adding some costs into the price of imported goods (Article 8); impose confidentiality obligation on CAs (Article 10); grant a right for the importer to appeal (Article 11); set a requirement for publication of public acts (Article 12). Other articles deal with release of goods when valuation of goods is

There exist many various arbitrary and fictitious methods that various CAs used to or continue applying in relation to the imported goods. Some examples of such derivative methods include: 1. The value based on a CAs concept of price at which a good should be sold (BVD, see supra p. 9); 2. The value of a good is priced to include advertising costs (e.g. in Japan) 3. The invoice price c.i.f. or f.o.b.; 4. The ASP, which while not BDV-based, was intended to give protection to local industries; 5. List price as the price the manufacturer was willing to receivewhen sold for domestic consumption in the ordinary course of trade and in the usual wholesale quantities; 6. Blue book price containing estimated values of goods according to customs determination; 7. Home consumption value (HCV) as the value of the goods in the exporters home market at the time of importation

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delayed (Article 13) and a right of the importer to request from local customs office as to how the customs value of the importers goods was determined (Article 16). Part II of the ACV covers administration, consultation and dispute settlement procedures that arise in connection with CV of goods and Part III addressed special and differential treatment provisions for DCs. Finally, Part IV contains various provisions governing such matters as amendments to the ACV, accession and withdrawal from the ACV. In brief, the ACV is short but concise Agreement that aims at establishing system of valuation that precludes any use of arbitrary or fictitious CV techniques. In conclusion, world community quite early recognized the importance of the universal CVS in the context of other TF measures of international trade. The ACV, before it was eventually accepted in 1994 as the WTO Agreement, went through several negotiations stages. Today, the ACV is the part of a single undertaking that each WTO state has to comply with. The ACV is consistent with general commercial practice and it calls for fair, uniform and neutral system for the valuation of imported goods. Nevertheless, although the ACV has very ambitious objectives and goals many countries, in particular DCs have had some problems with its implementation. Such systematic problems started from the use of deviating valuation methods like the BVD and ASL applied by various countries and they cause some dilemmas in DCs even today. Next Chapter depicts some of the systematic issues that arise in connection with the ACV.

CHAPTER 2 CERTAIN ISSUES CONNECTED WITH THE IMPLEMENTATION OF THE ACV Chapter II analyses the most problematic legal issues that appear during the incorporation of the ACV provisions into national customs legislation (CL) of the WTO countries. The author in this Chapter firstly identifies most of the ACV-related issues in general and then considers the dilemmas involving the RPT issues in more detail. The analysis is made on the basis of legislative acts of many countries such as India, Pakistan, Russia, Israel, Jamaica, Bermuda, Vietnam, Canada and others. Such comparative approach of legislative acts of these countries provides tangible examples of many systematic problems concerning the ACV. Countries chosen include equally the WTO countries and non-WTO countries because both categories of countries face similar problems in this sphere of international trade regulation.

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1. ACV and its general problems It has already been mentioned that the ACV, despite its brevity, is one of the most complex WTO agreements and many countries including the non-WTO members have confronted a number of systematic issues while trying to introduce the ACV provisions in their national legislations. The first reason for such problems is the legalistic language used throughout the ACV. Second reason is the large flexibility provided in the implementation of the ACV. Such flawed incorporation usually results in the misuse of not only wording of the ACV but also the underlying rules and principles of the ACV that can be observed in several WTO as well as nonWTO countries. In general, it is possible to categorize the ACV implementation issues into the following four broad groups: (i) Problems of accurate application of the rules on the ACV valuation methods; (ii) Complete institution of rights and obligations of CAs and traders guaranteed by the ACV; (iii) Legal-procedural implementation issues of the ACV; and (iv) Other issues. The first category of issues involves the issues arising in connection with Articles 1 to 7 of the ACV. The most problematic Article in this regard is Article 1 of the ACV, in particular paragraph 2 of this Article that touches upon the related party transaction (RPT) issues. This problem also indirectly combines Article 15 of the ACV because the latter provides a definition to what the term related parties means. The other problems that often arise in connection with valuation methods are: (1) appropriate use of the hierarchical order of the valuation methods starting from the transaction value (TV) and concluding with the fallback method and (2) cases when CAs have a right to reject one or another valuation method. The second category of issues includes the problems connected with the existence of some discrepancies between the ACV and national laws in relation to the rights and obligations of importers and CAs. It is often the case when traders have fewer rights and more obligations under national laws than they should have under the ACV. Issues in this group implicate Articles 9 through 17 of the ACV that, inter alia include issues like: (1) currency exchange; (2) confidentiality of transaction information; (3) legal rights of importers to make an appeal; (4) importers right to withdraw his goods pending final determination of value; (5) importers right to written a explanation from the CAs about the valuation method used; (6) rights of CAs to satisfy themselves of the truth and accuracy of importers statements. Third category of implementation problems embraces legal-procedural issues of the ACV. These in general are: (a) correctness of declaration and clearance procedures; (b) the 13

responsibilities of the importer during submitting a customs declaration; (c) audit and verification powers of CAs; (d) record keeping requirements of importers; (e) penalty provisions or other disincentives to ensure the correctness of declarations. Among these three categories the most frequent and problematic issues emerge in relation to the RPT, rights of CAs to challenge the value of goods declared by the importer as well audit and verification powers of CAs. Due to its limited framework, this paper will next analyze only the RPT issues. Such study is conducted in great detail accompanied by the comparative analysis of various jurisdictions. Such technique allows evaluating the extent of the interpretation and implementation of the aforementioned matters in various national laws. 2. Related Party Transactions Many prominent scholars including Sherman (1980) and Shin (1999) recognize that one of the trickiest and most difficult issues in CV is how to appraise dutiable value in transactions between related parties, especially in international sales between different entities under the common control of a single multinational enterprise 19 . There is a good rationale to believe that parties in such cases try set and declare a lower price (value) of goods sold/bought than the actual cost/price agreed. Hence the importers try to pay less customs duties that inevitably results in the loss of revenue for the state budget of any country. The Customs try to prevent such sham declaration of value via challenging the value declared but such measures usually create a substantial difficulty for the Customs 20 . Therefore, many states find it extremely challenging to deal with the transactions where business partners are related. The ACV addresses the issue of RPT in Articles 1 and 15. Article 1 establishes the provisions about rules on CV and their application while paragraph 4 of Article 15 provides a definition to a term related parties. Article 15.4 of the ACV The exact definition of the term related parties may play a significant role in the decision-making regarding price and value of goods imported, therefore, it is important for any state to define and interpret this term in its laws and regulations as accurately as possible. However, this is not a simple task to accomplish because there is no strict obligation to incorporate the ACV literally as long as the ACV provisions are reflected in national CL of a country. Therefore, various countries frequently use diverse terms and phrases such as special
Shin, Y. (1999), Implementation of the WTO CVA in Developing Countries: Issues and Recommendations, Journal of World Trade 33(1), p. 132 20 This is the case because it is impractical to check each international transaction to determine whether the correct value of goods was declared. It is equally difficult to enact laws that would prevent undervaluation and other fraud
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relationship, inter-dependent persons etc. In addition, various countries interpret the notion RP differently based on their historical, social and cultural values and other factors. Hence, given the autonomy for implementation, many countries, in particular DCs continue using confusing terms and phrases in their customs laws and administrative regulations. According to Article 15.4 persons are deemed to be related only if they fall under any of the following eight categories: (i) persons are officers or directors of one anothers businesses; (ii) persons are legally recognized partners in business; (iii) persons are employer and employee; (iv) any other person directly or indirectly owns, controls or holds 5% or more of the outstanding voting stock or shares of both of them; (v) either of persons directly or indirectly controls the other; (vi) both of them are directly or indirectly controlled by a third person; (vii) together they directly or indirectly control a third person; or (viii) they are members of the same family. Paragraph 5 of Article 15 also notes that this equally applies to parties who are associated in business with one another in that one is the sole agent, sole distributor or sole concessionaire provided they fall under either of eight categories of special relationship mentioned. For more information concerning the RPT rules it is essential to refer to another authoritative document of the WTO, i.e. the Interpretative Notes (the Notes) to the ACV. On the whole, the Notes is silent about many contentious articles of the ACV including Article 15.4 and the Notes does not provide any reasonable explanation to what the RPT implies either. The Notes only state that the term persons is not only limited to physical persons but also refers to legal persons, where appropriate 21 and secondly, (that) one person shall be deemed to control the former if legally or operationally in a position to exercise restraint or direction over the latter22 . The Notes does not specify, however, in which situations the term person refers to legal entities and it does not clearly indicate what can be regarded as operational control. Finally, the ACV contains no guidelines concerning the issue who can be considered as members of the same family. As regards the notion members of the same family Indian trade expert Satapathy (2002) offers his expert observation declaring that the following can be considered as members of the same family: (i) husband and wife; (ii) parent and child; (iii) brothers and sisters; (iv) brothers; (v) sisters; grandparent and grandchild; (vi) uncle and nephew (niece); aunt and nephew (niece); brothers (sisters)-in-law; brother-in-law and sister-in-law; parent-in-law and child-in-law 23 . In
Note to Article 15, Paragraph 4 Note to Article 15, Paragraph 4 (e) 23 Satapathy, C. (2002), Customs Valuation in India, Third Edition, MVIRDC, World Trade Centre, Mumbai, Answer to Question 37, p. 26
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sum, the Notes lacks of many important clarifications that would facilitate the necessary understanding of the underlying provisions of the ACV 24 . It is natural that such legal gap confused several countries, in particular DCs that had carried out the implementation of the ACV autonomously without external assistance. In some instances countries slightly misused some terms and phrases and that made their domestic laws even more perplexing. In this regard bylaws and other interpretative acts became a strong tool for the Customs to use them in a way consistent with states economic interests. Subsequently, all these caused the inconsistency in the implementation of the ACV in a number of countries. General problems of Article 15.4 In principle, there is no rule of thumb to use only the term related parties in national CL and for that reason one can observe that different countries use deviating synonyms of this term. For instance, there are terms like persons connected with special relationship in Israel and Vietnam, interdependent persons in Russian and Uzbekistan and so on. Some countries do not provide any definition whatsoever and simply mention the term only in the context of other legal provisions. In contrary, other countries opt to present far more detailed and clear definition to RPT, usually accompanied by very detailed guidelines. Consequently, these diverse methods of incorporation of the ACV do cause some difficulty in the application of the ACV. Another reason for the concern is that a number of countries incorporate the ACV-related provisions in various governmental and institutional bylaws that normally form an ample part of domestic customs laws. This undoubtedly creates a legal labyrinth for traders who may face frustration while searching for one or another bylaw accepted by customs organs or another institution. Moreover, it is much easier to modify bylaws than national laws; therefore, the traders bear the risk of abrupt changes in CL. Uzbekistan is one of such countries. To prevent such complexities the WCO has strongly suggested that RPT and the meaning of Article 15.4 should be included directly into the national legislation rather than as administrative guideline requirement 25 . Now this thesis examines the application experience of Article 15.4 in the customs practice of a number of developed and developing countries. Implementation problems of Article 15.4 There are various methods for the incorporation of the ACV into domestic laws. First
Probably such generalization of the ACV articles was a necessary measure during the Tokyo and Uruguay rounds. Yet, today many countries effectively use this opportunity to interpret the ACV provisions in a manner that corresponds only to their individual state interests. 25 WCO, (2002), A Model Trade-Related Technical Assistance (TRTA) Project for Customs Valuation available at www.wcoipr.org/wcoipr/gfx/ModLawEng2.doc
24

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category of countries chose to integrate the stipulations of Article 15.4 using different synonyms of the words actually used in the ACV. For instance, Article 174 of the Customs Code (CC) of Kyrgyz Republic states that related entities shall be understood to be entities, which fall at least under one of the following eight categories: 1. One of the participants of the transaction (a natural person) or an official to one of the transaction participants is at the same time an official to the other participant of the transaction; 2. Participants of the transaction are co-owners of an enterprise; 3. Participants of the transaction are related by labour relations; 4. Another person directly or indirectly owns or controls at least 5% of the outstanding voting stock or shares in the authorized capital of both parties to the transaction; 5. Both participants of the transaction are directly or indirectly controlled by a third entity; 6. Participants of the transaction together directly or indirectly control the third entity; 7. One of the participants of the transaction is directly or indirectly controlled by the other participant of the transaction; 8. Participants of the transaction or their officials are relatives. From the first view there are no visible discrepancies between Article 174 of the Code and Article 15.4 of the ACV. Nevertheless, thorough examination of Article 174 reveals that the CC has somehow developed its own interpretation of the ACV. Such valiant endeavor, however, only resulted in confusing and complex law that obscures the correct understanding of the RPT during CV. Criterion 1, for example, mentions about transaction participants and officials involved in the transaction. This criterion has no common sense and it is impossible to grasp what it actually intends to establish. Similar word turmoil can be observed in the criterion 8 where the legislator uses the phrase their officials. This phrase is not logically connected to the context of the criterion that again causes uncertainty. The main problem of Article 174 is that the legislator tried to combine natural and legal entities in parallel in each of the criterions, which makes the whole Article confound and illogical. On the other hand, Article 174 has some laudable provisions. For example, criterion 3 of this Article allows much broader scope for the Customs to find that the transaction falls under the scope of the RPT than it is allowed under the ACV. The latter requires the CAs to demonstrate that there should be official employer-employee relationship in order to prove that the transaction can be regarded as the RPT. Thus the CAs must be sure that there has been legally 17

established employer-employee relationship between traders 26 . Conversely, Kyrgyz CC takes a broader approach and covers the scope of the RPT in any labour/employment relations created both formally and informally 27 . Most probably this is one the rare examples when legislative acts truly reflect the needs and conditions of the country. Second group of countries comprise mostly small trade-dependant countries that adopted the ACV in almost verbatim form without any significant changes. Bermuda and Jamaica represent this group of countries. In Bermuda the new valuation rules, established in 2005, use the exact wording of the ACV. All the articles can be found in the Customs Valuation Rules of Bermuda 28 , which provide a legal background and detailed guidance to importers about valuation procedure of imported goods for duty calculation purposes. Similar approach was taken by Jamaica that also favored using almost the same language as the Agreement. The only criterion in Jamaica that slightly differs from the actual criteria established in the ACV is transactions based on family ties, i.e. criterion 8 of the ACV. Accordingly, Customs Act of Jamaica states that such relationship should be based on blood relationship, marriage or adoption 29 . Such elucidation of the eighth criterion of the ACV makes the family relationship much narrower than it is under the ACV because it has a much-confined scope 30 . Third category of countries comprises developed countries that also incorporated the ACV provisions using very similar language to the ACV. However, CLs of developed countries is usually much more specific than the ACV provisions and they often refer to other local acts for more exactitude. For instance, Canadian CL mentions nine categories of cases when traders may be considered as connected by Special Relationship (SR) 31 . Accordingly, these include (a) individuals connected by blood relationship, marriage or adoption within the meaning of subsection 251(6) of the Income Tax Act; (b) one is an officer or director of the other; (c) each such person is an officer or director of the same two corporations, associations, partnerships or other organizations; (d) they are partners; (e) one is the employer of the other; (f) they directly or indirectly control or are controlled by the same person; (g) one directly or indirectly controls or is controlled by the other; (h) any other person directly or indirectly owns, holds or controls five per
Normally, the employer-employee relationship takes the form of an employment contract or other legal document that confirms such relationship 27 Informal contracts may take the form of oral agreement or some other form 28 Bermudan Customs Public Notice (No.18) called Customs Valuation Rules 29 Customs Act of Jamaica, Paragraph 1(4) 30 It seems that the original ACV signatory countries had an original intention to leave the criterion 8 untied so that each country could decide whom to accept as members of the same family 31 Section 45 (3) of the Customs Act of Canada
26

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cent or more of the outstanding voting stock or share of each such person; or (I) one directly or indirectly owns, holds or controls five per cent or more of the outstanding voting stocks or shares of the other. Thus, although in principle, Canadian customs laws do not substantially differ from the provisions of the actual ACV, the former have their distinct features like reference to other acts and more specific determination of what is accepted as family relationships in Canada. Fourth category of countries whose legislation deserves some scrutiny concerns the nonWTO countries that plan their WTO accession in the near future. Customs laws of Russian Federation provide an interesting example in this regard. Although Russia is not a WTO member yet this country has made the first step toward the WTO membership as early as in 1993. Since then Russia has been actively pursuing a policy of modifying its CL by making it more harmonized with the WTO laws and principles. For example, in November 2005 the Russian Parliament passed a new Federal Law that substantially changed the previous version of the Law on Customs Tariffs (Law) 32 . First of all, because of new amendments, Article 19 of the Law underwent some further modifications. Accordingly, the notion interdependent persons has been replaced by a new term interrelated (related) persons. The term interdependent was changed to inter-related in the foresight of joining the WTO where a new term is regarded as more consistent with the ACV than it predecessor. Also, the customs practice in Russia has demonstrated that RP are most often inter-related but not interdependent, hence the concept of RP was much narrower than it ought to be. Consequently, the legislator has broadened the notion of inter-related parties to a necessary extent. Second aspect of these amendments is that the new Law has modified the list of criteria for finding the existence of the RPT. Now Russian CL has a new criterion based on business partnership. Accordingly, business partners comprise persons who carry out business based on contractual relations and who share the profit and losses. Concurrently, Russia like many other countries took slightly divergent approach in relation to the TRP based on the family relationship. Hence, Article 5 of the Law states that the transaction is made between the RP if persons are connected by marriage, relative relations or they should have features of adopted and adoptee as well as of guardian and ward. Thus, Russia has a little ampler view about the existence of family relationship in business operations than it is under the ACV, which per se is not inconsistent with Article 15.4 of the ACV. In brief, it is

32

Federal Law of Russian Federation 144-FZ on Introducing some changes into legislative acts of Russian Federation, available at http://www.nrn.org.np/aboutnepal/acts/customs_act.pdf

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apparent that Russia does seek to improve its customs laws by initiating new amendments and the use of new expression inter-related parties instead of inter-dependent parties is a vivid example. Fifth category of countries decided to employ completely narrow and specific approach in interpreting Article 15.4. For instance, in Israel one can observe a much more elaborated definition of the RPT and the term special relationship is used throughout all Israeli laws. Some practitioners claim that in Israel RPT has an exhaustive nature because Israeli laws provide a full list of cases when relations can be found special. Accordingly, under Article 6 of the Customs Ordinance of Israel there are eight cases when CAs may find the existence of the SR. From 8 criteria only two criteria vary from those found in the ACV. Firstly, in Israel SR can be established if one of the sides to the transaction holds office in the other sides business. Pursuant to this law "holding office" means being a director, general manager, general business manager, vice general manager, deputy general manager, other manager which is directly subordinate to the general manager and all other managers which perform like duties without having any regards to their title 33 . Secondly, the transaction will be considered as falling under the SR if the parties to the transaction are relatives. In this regard the word "relatives" has the following meaning spouse, brother, sister, parent, parent's parent, spouse's parent, offspring, spouse's offspring, and spouse of each of the above 34 . Thus, Israeli parliament made an attempt to provide more transparent list of cases when the CAs can hold the relations as special, in particular in relation to the RPT based on family relationship. Although such provisions create transparency and clearness such an exhaustive legal provision certainly causes some difficulty for the CAs by restricting their discretion and tying their hands with stringent Israeli customs laws. The last country whose national legislation is worth to observe is Vietnam. The latter is one of the most recent WTO members that joined the WTO on January 11, 2007. Vietnam, just like many other countries, has chosen a distinct approach in the ACV implementation. Firstly, CL of Vietnam similar to Israeli CL uses the term SR. Secondly, Vietnam has an analogously narrow list of criteria to find the SR on the basis of family relations. Accordingly, SR includes persons who have the following family ties: husband and wife; parents and children recognized by law; blood siblings; grandparents and grandchildren by blood; aunts, uncles, nieces, nephews by blood; sisters-in-law, brothers-in-law 35 . In general, it is difficult to evaluate whether Vietnamese approach, being the most recent, was the most optimal or not, and whether this approach
33 34

Under criterion (a) of Article 6 of the Customs Ordinance of Israel Id. under criterion (h) 35 Article XIX, paragraph 2 of the Law on Customs of Vietnam dating to June 14, 2005 and No. 42/2005/QH11

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facilitated the process of correct determination of the RPT issues by Vietnamese customs officials. At least Vietnam used relatively similar expressions as in the ACV by providing very detailed provisions about the RPT based on family ties. In summary, Article 15.4 is a starting point for any article that touches upon the RPT issues. Unfortunately, this provision is far from being perfect partly because the Interpretative Notes does not provide sufficient instruction about the interpretation of Article 15.4. Hence the Notes leave some gaps open for discretionary interpretation by the CAs. Therefore, it is not surprising that majority of countries chose their independent approach. Only few countries used the precise wording of the ACV while many others did not. On the one hand, generality of the ACV has some space for maneuver, which is especially significant in the foresight of growing number of WTO members. On the other hand, this affects most important purposes of the ACV to be a fair, uniform and neutral system. Therefore, maybe it is prudent to reconsider the Notes making it comprehensive and more detailed. Article 1 of the ACV Another problematic provision that directly touches upon the issue of the RPT is Article 1 of the ACV. The main difficulty of this Article is its controversial nature because Article 1 has no straightforward and clear answer to the following 3 questions: Does mere existence of the SR make the TV method unacceptable or not? What are the specific conditions for the use of TV and who shoulders the burden of (dis)proving of the existence of the SR in transactions? Generally Article 1 obliges the CAs of all the WTO Members to use the TV method as their primary valuation method in the determination of the value of imported goods. Article 1 also envisages four exceptions when the CAs may be allowed to apply either of aforementioned 5 valuation methods 36 . One of these four exemptions deals with cases when the buyer and seller are related, which has been a subject of frequent misunderstanding and misapplication in many countries. This paper next critically analyzes Article 1, in particular paragraph 2 of this Article, and then attempts to reveal what lies underneath the legalistic approach used in this article. After that this thesis shortly scrutinizes the customs laws of several countries and attempts to determine what the main pitfalls in understanding and implementing this provision of the ACV were. General problems of Article 1 Article 1.1 states, The customs value of imported goods shall be the transaction value, that is the price actually paid or payable for the goods when sold for export to the country of
36

See supra p. 12

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importation adjusted in accordance with the provisions of Article 8. However, TV method is subject to several conditions that must be satisfied before imported goods could be valued on the basis of TV. Accordingly, none of the following circumstances should be present in an international deal: a) b) c) In general, there are no restrictions as to the disposition or use of the goods by the buyer; 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; In general, 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; 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. The Interpretative Notes (the Notes) once again does not offer the necessary explanation to the stipulations of Article 1. Although the Notes does clarify some issues of Article 1, i.e. points a) and b), it does not offer additional illustration regarding points c) and d). Meanwhile both c) and d) points obviously deserve more consideration because firstly, both conditions are stated in very long sentences and are not easily comprehensible; and secondly, both conditions refer to the other articles of the ACV 37 . In principle, the fourth exception under Article 1.1 (d) is meant to allow customs officers to apply the other valuation methods, provided: (i) it is possible to demonstrate that the transaction has been made between related parties and [emphasis added] (ii) such relation affected the value (price declared in the customs declaration). Accordingly, the Customs can use other TV methods only if both elements of Article 1.1 are present. Hence, essentially mere satisfaction of the first condition, i.e. existence of the SR between traders is not enough, and in such cases CAs must still use the TV. Article 1.2 logically continues Article 1.1 and it consists of 3 subparagraphs: (a), (b) and (c). In short, paragraph 2 (a) states that the mere fact that the buyer and the seller are related shall not be as such a ground for regarding the TV as unacceptable. Secondly, before shifting to other methods of CV, national CAs should examine the circumstances surrounding the sale. If CAs find no evidence that the relationship influenced the price of goods then they have to accept the TV as the appropriate method of valuation. Conversely, if CAs find any grounds that indicate that
37

Point c) of Article 1.1 has not created as many dilemmas as point d). Hence, the author focuses further only on point d)

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the SR has influences the price, then they have to inform the importer about why and how they think that such SR affected the price 38 . The first focal dilemma arises in connection with the issue of burden of proof. Specifically, who the importer or the Customs bears the burden of showing whether the parties are related or not and whether such relationship influenced the price of the transaction or not. WCO Senior Technical Officer Ping (2000) provides an ad hoc clarification to some issues associated with the ACV 39 . First, he declares that according to Article 17, Annex III paragraph 6) and, more specifically, Decision 6.1 40 normally the burden of proof is on the importer. Moreover, according to Ping Decision 6.1 is believed to have shifted the burden of proof to the importer in a more explicit way, but there are issues to be clarified, including: (i) Different reading of the terms which are carefully worded; (ii) Difficulties when cases are taken to court; (iii) Cases of invoking Decision will be and should be limited. These comments expressed by Ping clearly demonstrate that the issue of burden of proof is one of the most controversial ones even for the WCO experts. Next stage in the CV procedure involves the obligation of the Customs to communicate its grounds to consider that the SR has affected the transaction price. Once such communication is given to the importer, the latter has a reasonable opportunity to respond to such allegation 41 . Thus, the ACV provides the importer with some reasonable remedies against the decision made by the Customs. For example, an importer can show that the relationship did not affect the price of transaction and the price would be almost the same without existence of SR between the importer and the exporter. This is elaborated in paragraph 2 (b) of the Article. Accordingly, an importer should demonstrate that the value of a transaction closely approximates to one of the following three TVs: (i) the TV in sales to unrelated buyers of identical or similar goods for export to the same country of importation based on deductive method; (ii) the customs value of identical or similar goods; (iii) the customs value of identical or similar goods based on computed method. Finally, when carrying out the examination of these issues, both CAs and the importers should take into account the differences in commercial levels, quantity levels, the elements enumerated in Article 8 (the costs of packing, the cost of containers, commissions and
For full step by step explanation of customs clearance procedure refer to Attachment 1 Ping, Liu (2000), WCO compliance related issues regarding the application of the WTO Valuation Agreement, WCO, available at www.wcoomd.org/files/4.%20Learning%20files/PDF/Training/WCO_Valuation_Course.pdf 40 The Decision in full is called The Decision Regarding Cases where Customs Administrations Have Reasons to Doubt the Truth or Accuracy of the Declared Value (In short the Decision on Shifting the Burden of Proof) available at http://www.wto.org/English/docs_e/legal_e/42-dval1.pdf 41 Reasonable opportunity in this context comprises legal remedies available for the traders such as right to make an appeal against the decision reached by the CAs and others.
39 38

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brokerage etc.) and only the costs incurred by the seller that the seller would have incurred if he was not related to the buyer. Overall, Article 1 is not that easy as it may first appear and customs officers from many DCs, who usually lack the knowledge and expertise of the ACV, found Article 1 as one of the most challenging and controversial issues. Implementation problems of Article 1 Article 1 similar to Article 15.4 has often been a subject to frequent misapplication or miscomprehension in many countries. While some countries could have successfully implemented Article 1, others continuously report about their difficulties in this regard. The first country to consider is Pakistan that since January 2000 has adopted several new provisions in its Customs Act with the aim of introducing the WTO consistent methods of valuation. Despite these reforms the OECD specialist Moise (2004) declares that four years afterwards in 2004 the existing procedures dealing with valuation issues in Pakistan remained unchanged. It is still a case that when customs officers were dissatisfied with declared values at points of entry, they frequently re-assess the value by uplifting it in accordance with local guidelines. No justification for increasing the import value was required other than the officer not being satisfied, and there were no adequate mechanisms for resolving valuation disputes 42 . In 2000 the Government of Pakistan decided to gradually eliminate the systematic problems in the field of CV via modernization of its customs practice. Moise states, The main observation in the context of the modernization program was that the move from traditional and outdated imposition by customs of arbitrary values to WTO compliant measures that required changes in systems, procedures and techniques for identifying and resolving valuation issues. Moise continued that state that during the course of the reform program, legislation in accordance with WTO guidelines has been drafted and enacted, and new procedures for entry processing and subsequent post-import audit have been devised. Some limited training has been given to selected staff in the techniques of post-import audit, and to staff and the trading community in general on the new valuation requirements 43 . These measures certainly display obvious intention of the Government to initiate some genuine reforms in the field of CV. Despite such endeavors by the Government some of the problems involving the implementation of the ACV still linger. First issue Pakistan has faced is the issue of burden of proof during the CV procedure. It has been already mentioned that in accordance with the ACV,
Moise, Evdokia (2004), The WTO Customs Valuation Agreement: Bridging Law and Practice, World Trade Institute Customs Valuation Seminar 2004, Berne p. 9 43 Id. p. 9
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in particular pursuant to the Decision 6.1 the Customs is obliged only to show that it has any grounds to believe that the declared value does not reflect the true TV. Yet, Pakistani Customs, instead of finding any grounds to challenge the declared value, simply continued applying the CV based on reference pricing clearly violating Article 7 of the ACV. The government tried to justify this stating that Pakistan was not ready to apply new and innovative customs techniques and that there was a high risk that traders would start making fraudulent undervalued declarations otherwise. Second ongoing problem in Pakistan has been a divergence between its CL and the procedures applied by Customs that, in turn, resulted in procedural distortions in the customs practice. Subsequently, customs officers continued to uplift import values without proper documentation and without provable reasons. In short, in Pakistan the first major progress toward the full implementation of the ACV has been slow and incomplete, and Article 1 was the first main reason for these problems. The second major obstacle to progress remained the traditional valuation approach that the Customs continued to employ. Furthermore, there remained a fear within customs that there will be large revenue losses if the move towards the new valuation scheme is adopted in full in spite of evidence from limited trials conducted during the reforms, which demonstrated that potential revenues collected from post-import audit can far exceed the sums collected at entry review through the arbitrary uplifting of declared values by nuisance amounts. Thus, today although Pakistani CL de jure fully complies with WTO valuation requirements, it has become evident that the actual adoption of new practices and procedures by customs will take more time 44 . Another country that found the provisions of Article 1 difficult to realize is Israel. According to Israeli scholar Potchebutzsky (2002) there still remain some minor differences between present Israeli customs laws and the ACV 45 . First such divergence in Israeli law (Customs Ordinance) is the burden of proof in the cases when the SR is established. As it has been stated many times the ACV shoulders onto the CAs only the burden to show that there are some grounds to consider that the SR has influenced the price. On the other hand, according to Israeli laws the CAs only need to assume that the SR influenced the price in order to tilt the burden of proof onto the importer 46 . Second such difference is found in relation to paragraph 2(b) of Article 1 of the ACV. According to this section the importer needs to show that the price paid
Id. at p. 10 Potchebutzsky, J. (2002), Customs Valuation in Israel - Proposed Changes To The Customs Ordinance And Their Application On Other Fiscal Laws http://www.jplawil.co.il/eng-articles/a002.html at paragraph 14 46 Id.
45 44

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equals the price of similar goods sold at approximately the same time. In Israeli law no such time approximation exists. Potchebutzsky expressed a hope that it is only possible to speculate that the new Israeli laws will be interpreted in such a way as to include this time approximation as well 47 . Third difference between Israeli CL and the ACV is that Israeli law states that in certain conditions interest paid on loans that the importer took in regards to the importation of goods should not be regarded as part of the TV 48 . The ACV does not contain any clear clarification to the matters concerning the interest paid on loan. Finally, Israeli Law provides a definition of "commercial levels" in Section 133A and 133B of the Ordinance while this does not exist in the ACV. In this regard Israeli law gives some examples of different commercial levels such as "retail, wholesale, transactions by a sole agent and other similar levels" again making Israeli CL more detailed and elaborated than the ACV. In summary, the analysis of the experience of implementation of the ACV demonstrate that Article 1 similar to Article 15 is among most problematic articles of the ACV and the Notes to the ACV does not provide sufficient illustration to this Article too. 3. Conclusion The ACV has been one of the new agreements initiated by the WTO countries during the Uruguay Round in 1994 and the issue of CV has remained as one of the most actual topics among other TF topics. Today there is no universal approach in integrating and implementing the ACV in domestic laws due to some legal gaps in the ACV and the Notes. Besides, there have been no relevant WTO cases involving the ACV issues and the WTO courts had no opportunity to shed some light into the ACV by interpreting any of its stipulations. All these hurdles certainly have distorted the fundamental objectives of the ACV to apply a fair, uniform and neutral CVS. It is logical to conclude that the ultimate solution to these problems is to simplify certain provisions of the ACV or to provide further guidelines in the Notes. Plus it would be more practical for DCs to implement the ACV into domestic legislation in a verbatim form along with interpretative bylaws that would guarantee accurate interpretation and application of CVS for the Customs.

47 48

Id. Section 132 (d) of Israeli law (Ordinance)

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CHAPTER 3 CASE STUDIES OF THE ACV IMPLEMENTATION EXPERIENCE Chapter 3 analyses the divergent experience of the ACV implementation in two WTO countries, namely India and Nepal. Although both countries are DCs and both have faced some problems with the implementation of the ACV they have had totally different acquaintance with the ACV. India has a very long experience dealing with customs issues while Nepal has no such experience. Such analysis of two dissimilar approaches allows observing what tactics might be useful in resolving certain legal issues involving the CV. This Chapter observes succinctly the history of CV practice in both countries and then determines what is status quo in each country in field of customs regulation. In the end of each case study the author shortly portrays and presents some pertinent conclusions regarding the ACV implementation. 1. Case study: The Kingdom of Nepal General overview of customs valuation legislation in Nepal Nepal joined the WTO on April 23, 2004 and became the 147th member of the WTO. It was the first LDC to join the WTO through the full working party negotiation process 49 . Nepal benefited from a three-year grace period to fully implement the ACV and the final date for carrying out the necessary changes passed on January 1, 2007. However, even one year ago, in 2006 the Kingdom expressed its concern that its customs acts and regulations were yet not compatible with the ACV provisions. This case study examines which general and specific issues Nepal has confronted and what has been hindering the complete implementation of the ACV. In Nepal the process of CV for the customs tariff purposes was systematized only after the introduction of Customs Act 1962 50 and Customs Regulation 1969. In 1997, in the anticipation of the WTO accession, these acts were amended and the government declared that henceforth the TV became the prime valuation method in Nepal. Despite these considerable changes in Nepalese customs laws, the ACV is yet not fully implemented in the customs practice of the country up to date. Instead, these days Nepalese CAs continue using a hybrid CVS that is based on the BDV and the ACV. One of the most prominent Nepalese scholars Rajkarnikar (2006) found many reasons why the ACV could not have been wholly implemented in Nepal. These issues, inter alia, include: using transaction value method without proper preparation, lack of mutual cooperation between traders and customs administration, inadequate legal provisions, and initial
49 50

WTO, Accession: Nepal available at http://www.wto.org/english/thewto_e/acc_e/a1_nepal_e.htm Full text of this Act is available at http://www.nrn.org.np/aboutnepal/acts/customs_act.pdf

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stage of post clearance audit 51 . This scholar suggests that there is a need for comprehensive customs reforms in various spheres in order to overcome these inherent systematic problems of the Kingdom associated with the CV. Therefore, it is necessary to consider the historical background of Nepalese CVS and try to establish core reasons for such problems in this country. Short history of Nepalese customs valuation practice Nepal was almost isolated from rest of the world until the political change in the 1950s and the country had no properly organized system of customs declaration by the importers before 1945. Instead Custom Officials used to inspect and value the goods personally. At those times there was no fixed valuation system and Nepalese CAs used a mixed system based on the list of reference prices available to the Customs. It was not before 1962 when the process of CV for the purpose of customs tariff was eventually systematized and compiled into the Customs Act 1962. In 1997 the Customs Act 1962 and Customs Regulation 1969 underwent a revolutionary conversion in terms of CVS. For the first time, Nepalese government accepted the TV as the only basis for CV of imported goods and the government agreed to eliminate its previous valuation methods. Rajkarnikar (2006) claims that this amendment conceptually and legally recognized the WTO/GATT valuation system based on TV 52 . Despite these changes it was not a full transformation of reference pricing method into a new TV system. Rajkarnikar states that in 1997 Nepalese government introduced many amendments into the provisions of Custom Act 1962 but they were not absolutely ACV-compliant 53 . The main reason for the inconsistencies introduced in 1997 is that these amendments slightly diverged from the actual ACV specifications. For example, in accordance with the introduced amendments the importers had to submit the invoice and other documents as requested by the customs officials and it was the duty of the importer to prove the authenticity of the bills, invoices or documents submitted by them. Hence, traders were shouldered with a burden to demonstrate that the TV was the appropriate method to apply. If traders were unable to prove that, then CAs could use other alternative methods based on their reasonable discretion. Secondly, according to the modified Section 13 of the Customs Act 1962, if the transaction price declared by the importer somehow did not correspond to the actual TV or in case where the importer could not submit the transaction price of goods, the Customs would refer to the value of similar or identical goods imported into Nepal. Most notably, if necessary,
Rajkarnikar, P. R. (2006), Implementation of the WTO Customs Valuation Agreement in Nepal: An Ex-ante Impact Assessment Asia-Pacific Research and Training Network on Trade Working Paper Series, No. 18, 2006 p. 4 52 Id. at p. 13 53 Id. at p. 9
51

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the Customs could fix the price of goods on the basis of the recorded prices, previous prices of identical or similar goods, reference prices, suggested price lists of manufacturers, local market price, international market prices and other available information [emphasis added]. Consequently, although 1997 amendments did make Nepalese CVS more ACV-consistent, the CAs retained their right of independent assessment and determination of the CV of goods. Nepals accession to the WTO was one of the most focal steps in transition toward the WTO CV technique. In 2003 Nepal adopted a Legislative Action Plan to implement the ACV and other WTO agreements 54 . In this Action Plan the Kingdom instituted several goals that it planned to carry out during and after the WTO accession until its grace period expired in 2007. This Action Plan intended to achieve the following objectives in the next 3-4 years: 1. Further amendments to the Customs Act and Customs Regulations, enacting the legislative framework for the gradual implementation of valuation hierarchy with regard to transaction valuation; 2. Amendments to current legislation to establish an independent administrative tribunal for right to appeal against administrative decisions; 3. Training of custom officials in the areas of clearance, verification, audit, and the method to combat valuation fraud; 4. Preparation of customs valuation manual; 5. Provisions in law and regulations of the Interpretative Notes; 6. Gradual implementation of valuation hierarchy: further amendments to legislation to complete implementation of imputed value, computed value and enforcement of prohibited forms of valuation; Subsequently, Nepalese government has undertaken some additional measures for the enhanced implementation of the ACV in the Kingdom. Such measures were indispensable because after Nepal had modified its CV procedures to the TV, it became essential to ensure that all the legislative acts of the country became WTO-consistent. Therefore, the Government accepted two new acts, i.e. Finance Ordinance of 2005 and Finance Ordinance of 2006. These acts included several provisions aimed at guaranteeing that national laws and procedures were harmonious with the ACV requirements to their maximum extent. For example, these Ordinances included some provisions regarding what the term transaction value denotes and how the CAs should use the valuation procedures in determining the value of imported goods. However, these
54

For further details regarding the Legislative Action Plan WT/ACC/NPL/10/RVI and WT/ACC/NPL/15

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two Ordinances did not provide the expected panacea in resolving the ACV implementation issues. Firstly, these Ordinances did not cover the ACV in a comprehensive manner. Secondly, these acts failed to find a political leverage to compel the unmitigated acceptance of the ACV as the only CV method in the country. Thus, Nepal had to accept another Financial Bill in 2006 that sought to eliminate political reasons for keeping previous non-ACV valuation system in Nepal. Status quo of customs valuation in Nepal It is necessary to admit that today Nepalese CVS became fairly uniform to the ACV and almost all of the ACV provisions found their reflection in Nepalese laws. In short, de jure today Nepalese CL fulfills the requirements of the ACV. However, some scholars carry on criticizing Nepal for lack of conformity of its CL. For example, Ghimire (2005) states that despite Nepal introduced a transaction based valuation system in 1997 Nepalese customs administration continuously faces the difficulties in determining the value of imported goods based on the TV 55 . Such criticism is not an extreme because Rajkarnikar (2006) also negatively depicts the status quo of Nepalese custom legislation. Hence, current system of customs valuations in Nepal can be termed as hybrid of WTO valuation system and the BDV. It does not follow the GATT Valuation Structure strictly. It permits to use the TV of imported goods and other valuation methods such as identical, similar, deducted, computed and fallback either in explicit terms or in implicit. But failure to incorporate all the provisions of GATT VC in the Act, Rules Ordinances or Finance Bill resulted in a blending of old valuation system and GATT valuation system. While it recognizes TV the current valuation system still permits using minimum value 56 . In brief, from the thorough analysis of Nepalese CL it is possible to conclude that although Nepal has committed to follow the ACV-based CVS, at present Nepalese CVS does not follow the GATT valuation structure in entirety. As Rajkarnikar specifies, There is a lack of detailed provisions of value adjustments in CV and Nepalese acts have not defined all terms in accordance with the ACV. Moreover, the Customs Law is also not complete and lacks valuation factors with regard to the use of WTO principles of CV. There is no illustration and guidance in the specific application of Valuation methods 57 . Last but not least Rajkarnikar makes a clear concluding remark regarding the current practice of CVS in Nepal. Accordingly, in Nepal: 1. Valuation is done on the basis of transaction price;
Ghimire et al. (2005), The Legislative Review Study on Customs Policies of HMG, Center for Public Policy Dialogue, Nepal p. 55 56 Rajkarnikar, P. R. (2006), Implementation of the WTO Customs Valuation Agreement in Nepal: An Ex-ante Impact Assessment Asia-Pacific Research and Training Network on Trade Working Paper Series, No. 18 p. 15 57 Id. p. 16
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2. In case TV can not be determined, (a) transaction prices of previously imported identical goods (b) transaction prices of previously imported similar goods (c) deductive value method or computed value method as chosen by the importer (d) fall-back method without violating the principle of WTO valuation system are followed sequentially to determine the value of imported goods; 3. Importer has right to appeal, in case the importer is not satisfied with the valuation done by the customs. Director General of Department of Customs is the final authority to make decision in this regard; 4. There is provision of provisional clearance of goods with surety/deposit; 5. Customs has to follow fundamental principles of the WTO while fixing value of imported goods for the purpose of tariff. Determination of general and specific issues There remain many serious hurdles in Nepal to implement WTO valuation system in full and accurate manner. Rajkarnikar lists some of such obstacles, which include: legal issues, database issues, issues associated with the necessary preparation such as measures on post clearance audit (PCA), issues connected with informal trade, DS issues and finally issues of revenue loss 58 . The most relevant and most important issues that fall under the focus of this thesis are legal issues, PCA and DS issues. The first obstacle that hinders the effective operation of the ACV in Nepal is the absence of sufficient legal provisions that would ensure full realization of the ACV. Rajkarnikar in Table 3 provides several examples when present Nepalese legal provisions and practices contradict the ACV provisions. By doing such a comparison Rajkarnikar ascertains the exact problems that exist in Nepal today. The fundamental conclusion one can make after the observation of Table 3 is that Nepalese CV acts do not fully conform to all ACV articles as it has been stated many times before, which explains why the ACV was yet not fully implementation in Nepal. Second issue that impedes the necessary degree of the ACV implementation in Nepal is PCA. The significance of PCA has been long recognized by the WCO and the latter characterizes it as a process which enables customs officers to verify the accuracy of declarations through examination of the books, records, business system and all relevant commercial data held by persons/companies directly and indirectly involved in international

58

Id. p. 19

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trade 59 . Effective operation of PCA into Nepalese CVS would certainly secure the receipt of customs revenue and other taxes while this would facilitate the customs clearance at border. This would also be an effective mechanism for examining the accuracy of declared value. Nevertheless, although the PCA has been used in Nepal for five years now, there are still some problems with PCA mechanism. These problems inter alia, include lack of manpower, lack of guidelines (for example, the Audit Manual) etc. that make the operation of the PCA in Nepal not effective. Therefore, it is indispensable that the Kingdom continues development of its system based on PCA while trying in parallel to eradicate some of the other obstacles. Third issue that should be considered is DS issues. It is well known that the CAs and traders often end up with many disagreements over various customs issues. Therefore, it is natural that traders frequently complain that Nepalese CAs are neither neutral nor fair and they often exercise subjective discretion in establishing the value of goods. Conversely, the CAs usually claim that importers often commit fraud and try to undervalue the price of goods. Such controversies may only curb when the ACV is fully operative. Undoubtedly this would motivate both parties to comply with the ACV rules and let both parties to benefit from their full rights guaranteed by the ACV. One more matter that may be a reason for unfeasibility of full implementation of the ACV in Nepal is some inflexibilities of the ACV. On the one hand, Rajkarnikar praises the ACV provisions as a remarkable development in the sector of customs valuation and that the ACV is traders friendly 60 On the other hand, Rajkarnikar criticizes the ACV as follow: WTO valuation rules require an administration to accept the declared TV (even when clearly unreasonable), unless the authenticity of the supporting invoice can be unequivocally disproved by the authorities 61 . It is true that complete introduction of the ACV-based CVS requires the existence of certain conditions in the country. Such conditions include the establishment of a legislative and regulatory framework; a mechanism for judicial review; administrative procedure; organizational structure and training etc. However, most DCs lack of these indispensable conditions; therefore, they often risk losing their revenues from customs duties. Rege (2002) expresses a similar view stating, DCs are of the view that requiring customs to accept the transaction value reflected in invoices submitted by importers would impede detection of cases in
WCO, Manual on Measures to Combat Fraud, Doc 38.080/Rev.2 February 1998 Rajkarnikar, P. R. (2006), Implementation of the WTO Customs Valuation Agreement in Nepal: An Ex-ante Impact Assessment, p. 18 61 Id. p. 10
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which imported goods were undervalued to reduce the incidence of duties 62 . Hence, it seems that incomplete flexibility of the ACV did create some additional obstacles in the ACV implementation in Nepal likewise in many other DCs. Policy Recommendation for Nepal It is possible to develop and summarize numerous ideas, analysis and comments expressed by various Nepalese scholars into 10 policy recommendations for additional perfection of ACV implementation in Nepal. Here is a brief summary of the most important and most relevant suggestions. First, CV is only an inch in the whole yard of customs operations that needs improvement through reforms and such reforms should be based on transparency, objectivity, accountability and balance. In the view of the inherent problems in customs administration of Nepal, there is a need for comprehensive customs reforms so that implementation of the WTO CV requirements is both beneficial and practical for Nepal. The key reform measures should involve legislation, organization and management, personnel requirement and development as well as computerization of data and communication technology (ICT) applications. Second, current practice of CV in Nepal demonstrates that the WTO valuation methods are not being applied fully, and they cannot be applied effectively until necessary legislation is prepared and passed. Amendments to make Customs Act 1962 fully compatible with the WTO valuation requirements have been drafted but they have not been enforced due to the recent political situation in the country. The Finance Bill 2006, which was brought into effect by the new government, does not include any new provisions related to CV either. Thus, legal inadequacy in Nepal still remains. What is needed is a comprehensive Customs Act with detailed definition of valuation terms, transparent provision of price adjustment, clear guidance to valuation and so on. First of all, the legislation should cover the valuation principles and methods in the form of a set of valuation rules as mentioned in the ACV. Secondly, there should be provisions in appropriate articles of Customs Act regarding the obligation of importers to declare true of value of imported goods. The following provisions from the ACV and Ministerial Decision were recommended by Rajkarnikar to be included into the respective Nepalese laws: Options in respect of Article 8.2*. Conversion of currency as mentioned in Article 9**. Confidentiality of information as per Article 10***.
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Rege, V (2002), Custom Valuation and Customs Reform Development, Trade and the WTO, A Handbook edited by Barnard Hoekman, Aaditya Mattoo, and Philip English, Washington: World Bank p. 18

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 Right of appeal as per Article 11****. Duration of final value determination under Article 13*****. Customs power to ask for supporting documents and additional information's (as per Ministerial Decision 6). Customs power to carry out all actions involved in verification, including investigation. Customs power to suspect. Customs power to persecute the offender. Third, customs officers should be able to question the declared value whenever they have reasonable doubts about the accuracy of the declared value and the documents presented in its support. Reasonable doubt may arise only on the basis of the valuation data bank available at Nepalese CAs and the indicators from the risk assessment system (RAS). In order to protect the right of the Customs to ask importers (in case of suspicion) to justify the TV, the Customs should be equipped with required information. Adequate database that contains full data about quantity, quality and time of imported goods is also crucial for effective operation of the PCA. However, the data should never be used as a reference price for valuation of goods. Fourth, government should create a congenial environment so that importers declare the price actually paid or payable for the goods imported. Transparency, fairness and competency in valuation process will develop a voluntary compliance culture in the business community. Fifth, an effective customs control system is required to plug revenue leakage through underinvoicing. Also strong enforcement mechanism is required to protect the honest traders. In order to ensure an effective custom control the PCA should be extended as well as strengthened taking into account the present situation in Nepal. Sixth, many WTO countries have introduced import verification program under which importers are required to obtain certificates of inspection issued by authorized pre-shipment inspection companies before goods are shipped from the country of exportation. In the certificates, the pre-shipment inspection company certifies the nature, quantity, value, and tariff classification of goods. This would help prevent undervaluation and fraud, and facilitate the customs administration to determine the value for customs purposes. This is an alternative device to detect undervaluation or overvaluation. Finally, Rajkarnikar recommended that Nepalese government should ask for a grace period of two more years until 2009 to fully implement the ACV in Nepal. According to Rajkarnikar this is necessary because legal provisions are still inadequate in Nepal and the PCA 34

is still in the learning stage; therefore, the probability of revenue leakages is very high if the ACV is implemented without addressing these problems first. Conclusions regarding the ACV implementation in Nepal It is possible to summarize all the ideas and facts about the ACV implementation in Nepal as follows: (1) Nepalese government realize the significance of the ACV that provides fair, neutral and uniform valuation mechanism and protects traders from risk of arbitrary valuation by the Customs. It also understands that complete realization of the ACV in Nepal will not have an adverse effect on volume of trade and general price level in the country. In contrary, there will be a positive impact on customs revenue; hence, implementation of the ACV will be beneficial to the country. However, there is also risk of revenue loss to the government due to possible underinvoicing problems. Therefore, it is indispensable to establish effectively working control mechanism such as the PCA that would guarantee both stable revenue and fair and objective valuation system; (2) Nepal still needs to improve its present state of affairs in terms of legislation, database, infrastructures and skilled manpower etc. since they are still in an inadequate condition; (3) As necessary perquisites are yet to be fulfilled and control mechanism is yet to be strengthened, the government of Nepal should ask for the extended grace period in order to implement the ACV provisions to their maximum extent. In conclusion, the process of the ACV implementation demonstrated that DCs, in particular LDCs like Nepal find it extremely difficult to introduce, implement and enforce the ACV. There are various reasons for such problems. In part such problems are associated with the historical development of this country while in part this is due to the systematic problems including lack of expertise, lack of legislative basis and others. 2. Case study: India General overview of customs valuation legislation in India India is a WTO member since 1 January 1995 and this country has been gradually working on the improvement of its legislation in the sphere of CL under its framework of TF. India early understood the importance of universal customs rules; therefore, it was one of the few DCs that from the beginning were eager to accept GATT-based customs laws. Today, India praises the ACV proviso and the country is often viewed as model DCs in terms of implementation of several WTO agreements, including the ACV. Although India has achieved a substantial progress in the improvement of its CVS, ACV implementation issues remain as one of the most problematic issues among other TF matters in 35

India. For example, a survey conducted in 2004-05 by Chaturvedi and Duval (2006) as part of study on TF, identified that CV has become the key problem for the trading community 63 . This survey has also divulged that nowadays the major systematic issues within the field of CV in India include: (i) Frequent rejection of TV by the CAs; (ii) Delayed updating of price database; (iii) Failure to recognize value of new economy goods, especially those based on new technologies; and (iv) Lack of expertise of field officers. This case study first, shortly scrutinizes the history of Indian CV practice and then evaluates the present condition of CV practice in India. Afterwards the case study analyses selected systematic issues India has dealt with and tries to discover how this country has managed to resolve most of these issues and become a model DCs in this regard. Short history of Indian customs valuation practice Initial efforts to incorporate the universally accepted customs rules into Indian CL started as early as in 1947 after the country gained its sovereignty from Britain. According to Chaturvedi (2006) after this event India revised its CV provisions, particularly the Sea Customs Act of 1878 (Sea Act) to bring it in conformity with the GATT provisions. This Sea Act was based on real value, which was defined as the wholesale price for which like goods are capable of being sold at the time and place of importation (excluding duties payable) 64 . The Sea Act also contained provisions for taking over the imported goods by Government on payment of an amount equal to declared real value 65 . Subsequently, in 1962 India adopted its Customs Act that was based on the GATT rules, i.e. Article VII of the GATT 1947. The valuation system under this Act was based on actual value of imported goods, which in turn, enabled the acceptance of the invoice price so long as the buyer and the seller were unrelated and the price was the sole consideration for sale 66 . The next stage in the history of Indian CV was during the Tokyo Round negotiations where India played an active role. It was India that in September 1978 proposed to use the TV as a major valuation method. Subsequently, as part of Indias commitment at the Tokyo Round ACV, the Customs Act 1962 was subsequently amended and the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 were implemented, which provided
Duval, Yann (2006), An Exploration of the Need for and Cost of Selected Trade Facilitation Measures in AsiaPacific in the context of the WTO Negotiations, Studies in Trade and Investment, No. 57, Economic and Social Commission for Asia and the Pacific, United Nations available at http://www.unescap.org/tid/artnet/pub/wp1406.pdf 64 Chaturvedi, Sachin (2006), Customs Valuation in India: Identifying Trade Facilitation related Concerns, AsiaPacific Research and Training Network on Trade Working Paper Series, No. 25, December 2006 p. 9 65 Under Section 32 of the Sea Customs Act of 1878 66 Satapathy, C. (2002), Customs Valuation in India, Third Edition, World Trade Center, Mumbai at p. 155
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scope for basing the valuation exercise on the basis of TV 67 . Consequently, since 1988 Indian CVS was principally founded on the provision of Article VII of the GATT and this system did not cause any substantial difficulty in the customs practice. Therefore, starting from 1988 Indian CAs have been applying CVS based on price declared by the importer, i.e. invoice price. Nevertheless, According to Chaturvedi later on some importers started to take advantage of such opportune legal situation and undervalue their imports with fake invoices knowing that the CAs may not be able to place them 68 . Therefore, Indian Customs started to take measures for eradicating such misuse of the customs rules that were resulting in the revenue loss. Unfortunately, however, the efforts by the Customs to minimize such loss of revenue often lead to situations which made the CVS slow, unpredictable and nontransparent. As a result, soon it became visible that such measures started to defeat the very raison d'tre of TF in India. In 1994 India became a WTO member and accepted all the WTO agreements including the ACV. Soon after the WTO accession India re-commenced its customs regulation reforms. All the subsequent amendments were converged toward providing more space for maneuver for Indian CAs. Yet, in some cases such reforms conferred too much discretion for the Customs. For example, in 1998 India made certain amendments for the realization of the Decision 6.1 69 . In September 2001 India took some extra measures to stop the revenue leakage from customs duties and the Government introduced some further amendments to its customs laws that, in accordance with Srivastav (2003) restored the arbitrary discretion to Indian Customs 70 . Thus, although historically speaking India had been using the ACV-consistent, TV based valuation system since a long time this country occasionally adopted inappropriate measures in the CV field that occasionally encumbered the use of fair and neutral valuation in the country. Determination of general and specific issues Despite India has had a long experience of dealing with the problems connected with CV some of those problems remain unsettled even nowadays and they require complementary attention by Indian government. Lucid instances of such problems include: (i) Ambiguity

Id. footnote 64 p. 10 Id. p. 5 69 It is known that Decision 6.1 was accepted in order to provide additional discretion to the CAs in cases when they were not convinced with the information provided by importers regarding the true value of goods. For more information about the Decision see supra p. 23 70 Srivastav, Abhai Kumar (2003), Intensive Course on the WTO Customs Valuation Agreement: An Overview of Indian Customs Valuation Database, ADB, Singapore, 24-28 February
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regarding the right of Customs to reject the TV; (ii) CV and Transfer Pricing, and (iii) the issue of right of appeal by importers against the valuation method used by the Customs. (i)Right of the Customs to reject the transaction value The first knotty issue India has experienced is connected with the Rule 10A of its Customs Valuation Rules. In 2001 India introduced some amendments to the Rule 10A for the purpose of implementation of the Decision 6.1. These amendments envisaged that if CAs had any reasons to doubt the true value of imported goods declared by the importer, they could reject the declared value and carry out a fair determination of CV based on fallback method. In such cases the burden of proof shifted to the importer. Yet, Customs Departments in most of Indian regions misunderstood such new right conferred by 2001 amendments and they frequently started to mishandle their discretionary power in the determination of the value of goods. Nonetheless, soon there were several judicial pronouncements in India, which have directed the Customs Departments to exercise a restrain in the application of Rule 10A 71 . One of such judicial verdicts was the Eicher Motor case (2000) 72 that eventually was able to curb the overuse of Rule 10A by the CAs in India. In short, the case concerned the tailor-made bearings manufactured in Japan in 1989 that ought to be imported into India. Due to some reasons part of the consignment was rejected by the importers; therefore, Japanese exporter decided to sell the rejected part to another firm in India at the 1/3 of the original price. It was obvious that the exporter could not sell this product to any other firm in India for its original price. One of the local CAs rejected the TV declared by the importer and the latter appealed against such decision. The case ultimately reached the Supreme Court of India that held that unless the price actually paid for a particular transaction falls within the exceptions laid down, CAs are bound to charge duty on the transaction value. Hence, Eicher Motor case became a clear illustration that Indian judiciary can sometimes intervene and restore the accurate application of the ACV in India. (ii)Customs Valuation and Transfer Pricing Another significant issue that deserves a closer scrutiny from the Indian viewpoint is the accurate determination of the value of imported goods in transaction between associated companies. According to Chaturvedi (2006) several key industries felt that efforts need to be made to explore the possibility of convergence between CV

71

Majumder, S. D. (2005), Customs Valuation: Law and Practice, Fifth Edition, CENTAX Publications Ltd., New Delhi p. 44 72 Eicher Tractors Limited vs. Commissioner of Customs, Mumbai (2000)

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procedures and transfer pricing norms, the lack of which is increasing litigations in India 73 . In general, transfer pricing is used by multinational enterprises (MNE) to determine the price and conditions for the transfer of goods, services and assets between their affiliated companies situated in different tax jurisdictions 74 . In short, transfer price is the price charged by the parent firm to its affiliate, the affiliate to its parent firm, one affiliate to another or by one division to another division within the same firm for goods or services provided 75 . Today such MNE are said to account for 60 percent of world trade, therefore, it is natural that transfer pricing has become the number one issue in many of large DCs like in India. Chaturvedi elucidates that Section 141(A) and 141(B) of the Customs Act of 1988 provide for CV of transactions, which are not at arms length 76 ; Sections 112 and 114 penalize `improper' trade transactions and Section 111 allows for their confiscation. Moreover, both over and underinvoicing of imports (Section 112) and exports (Section 114) are recognized as punishable economic offenses under Indian laws 77 . Satapathy (2001) also notes that both in the Tokyo Agreement in 1979 and subsequently in Article VII of the GATT 1994 there is hardly any reference to transfer pricing though the latter does make a case for arms length price for the CV 78 . Therefore, matters of such complex nature like transfer pricing became one of many outstanding problems in India. (iii)Right of appeal by importer Third impediments for the comprehensive ACV implementation in India is connected with Article 11 of the ACV. India, while revising its Customs Acts in 1962, carried out several institutional arrangements for ensuring the right of appeal for the importers. For instance, in 1982 the Government established the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), formerly known as Customs, Excise & Gold (Control) Appellate Tribunal (in short CEGAT). Initially, first appeal could be made at the Customs Department itself followed by the Tribunal stage. The cases could also be addressed to public judicial system at appropriate levels. However, study based on interviews with traders indicated that quite often appeals addressed to CESTAT were often dismissed. Chaturvedi states
Chaturvedi, Sachin (2006), Customs Valuation in India: Identifying Trade Facilitation related Concerns AsiaPacific Research and Training Network on Trade Working Paper Series, No. 25, December 2006 p. 20 74 WCO, (2006) Background Paper for WCO/OECD Conference on Transfer Pricing and Customs Valuation, 3-4 May, Brussels 75 Satapathy, C. (2002), Customs Valuation in India, Third Edition, MVIRDC, World Trade Centre, Mumbai p. 186 76 The term at arms length means that the transactions should be valued at prices which a company would have charged another unrelated company based purely on market considerations. For further details see Satapathy, C. (2002), Customs Valuation in India, Third Edition, MVIRDC, World Trade Centre, Mumbai p. 186 77 Chaturvedi, Sachin (2006), Customs Valuation in India: Identifying Trade Facilitation related Concerns p. 21 78 Satapathy, C. (2002), Customs Valuation in India, Third Edition, MVIRDC, World Trade Centre, Mumbai, p. 194
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that 60 to 70 percent cases of valuation have been settled at the level of Customs Commissioner (Appeal), thus majority of cases are already rejected at this level. Out of the remaining cases only 15-20 percent of cases can go up in the ladder to the level of the Tribunal. Consequently, the issue of providing enhanced remedies for importers to challenge the decisions of the CAs also remains as a priority issue under present Indian TF framework. Status quo of customs valuation in India In accordance with quite recent Trade Policy Review (Report) of India made on May 25, 2007 there have been no major changes to CV procedures in India since the last Review made in 2002 79 . According to this Report CV is still determined under the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, last amended in September 2001. The Report also states that these Rules contain all the provisions of the ACV but India included one exception to the ACV rules that applies to some agricultural products. Thus, India reserved a right to use reference prices to value some agricultural imports. The Report also shows that India continues to maintain reservations under Annex III, paragraphs 3 and 4 of the ACV concerning the reversal of the sequential order of Articles 5 and 6 and the application of Article 5.2, whether or not the importer so requests. 80 Thirdly, India introduced the Risk Management System (RMS) in December 2005; therefore, routine assessment, audit, and examination of all imported goods/bills of entry have been discontinued in this country. The Report concludes stating that India now on focuses on quality assessment, examination and PCA of bills of entry selected by the RMS. In short, the Report emphasizes that India has been very much advanced in its implementation of the ACV and it has introduced many mechanisms and systems that allow the ACV operate more or less effectively and coherently. Policy Recommendations for India Chaturvedi and other Indian customs experts provide a lot of various policy recommendations in relation to the improvement of present conditions of CVS in India. Here is the outline of eight most important recommendations: 1. The underinvoicing of imported goods is an extremely serious and complex problem that negatively impacts on Indian economy. The increased vigilance and the deployment of modern systems in India like the introduction of electronic RMS which may alert staff to possible
WTO, Trade Policy Review: India WT/TPR/S/182 23 and 25 May 2007 p. 33. The WTO Committee on Customs Valuation (CCV) carried out the last examination of India's legislation in the field of CV in May 2006 and the Committee observed no significant changes during the period of 2002 and 2006. For further details see G/VAL/M/41, 24 May 2006 80 WTO, G/VAL/2/Rev.22, 10 April 2006. For further details see Article 4
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underinvoicing as well as an indicative values database for imported goods may help minimize this loss. Apart from this there seems to be some scope for the Customs to work more closely with industry players such as Customs House Agents etc. to identify and punish the wrongdoers. 2. The continuous lowering of the customs duties in India seems to have helped in reducing the cases of underinvoicing. Such lowering of duty has direct impact on the constraints related to the CV, as lowering may remove the incentives for underinvoicing. Thus the continuation of the policy of lowering duties may eventually assist in resolving the underinvoicing problems. 3. India had early shifted to the TV method, therefore, the TV, by and large is accepted as a key technique for assessing the trade consignments. It is expected that the new schemes like the Valuation Corridor may help strengthen the operation of the TV system. It consists of a database of very highly sensitive commodities. Most of them will have permissible value band defined for allowing clearance without intervention. Any consignment having declared value below the lower limit of value band will be directed for assessment by the department. The second part of the valuation component of the RMS is its contribution to the general risk evaluation. Here risk is computed statistically for various risk elements, including valuation. Each area is assigned a maximum risk index and every commodity under import will be evaluated in terms of a percentage of total risk. The third part of the Valuation Risk component will be the use of intervention corridor in the RMS to study the valuation trend of newly identified sensitive commodities, and to monitor the efficacy of the valuation corridor. In this context, the role of special valuation branches should also be analyzed in an objective manner. 4. India should attempt to promote a culture of voluntary compliance with customs regulations among its traders. Chaturvedi states that there are different export councils working at this point with sectoral focus and the government may seek their help to identify the incidents of fraud that include underinvoicing, tariff misdeclarations, incorrect use of tariff headings, nondeclaration of goods and the import of counterfeit goods. 5. India has already introduced some database systems such the National Import Database. Now it is essential to improve its product description standard so that it becomes more precise and the data is regularly updated in line with the market. This may help in reducing unnecessary friction between CAs and importers regarding the use of the value range information system. 6. India and the United States plan to initiate a multilateral mechanism for the exchange and handling of information between WTO Members. According to Chaturvedi such exchange 41

of information may be through a nodal agency to be designated by each customs administration and this would be kept confidential as per the Article 10 of the ACV 81 . Initially this may be for a limited number of cases for collecting information such as on CV, HS 82 classification, full and accurate description, quantity, origin of goods in identified cases where there is reason to doubt the truth or accuracy of the declaration filed by the importer or exporter. This idea has been proposed at the International Convention on Mutual Administrative Assistance in Customs Matters in 1977 at Nairobi 83 under the auspices of the CCC but regrettably such measures have never been accepted. 7. It would be praiseworthy measure if one of the UN agencies could establish a valuation database so that all countries could refer to it when they regard it necessary. 8. Today it has become necessary to expand the ACV, in particular the ACV provisions relating to transfer pricing, which at this point only cover arms length price. Accordingly, it is necessary to include regulatory provisions covering not only transactions at arms length but also issues of transfer pricing. Conclusions regarding the ACV implementation in India India has a long-established history of CVS that dates back to 1878 when India passed the Sea Customs Act. Later in 1962 India adopted its Customs Act that had already been based on the GATT rules and principles. Subsequently, India has actively participated in the adoption of Customs Code during the Tokyo Round and became one of the first countries to accept the ACV in 1994. Yet, despite its relatively GAT-consistent legislation, India has also faced a number of challenges vis--vis full and uniform implementation of the ACV provisions in its CL. Today India also needs to sort out many systematic legal issues within its CV field. They are inter alia, frequent rejection of TV, delayed updating of price database, failure to recognize value of new economy goods, especially those based on new technologies, transfer pricing, the issue of right of appeal and lack of expertise of field officers to apply appropriate valuation methods. Nevertheless, differently from many other DCs India was among the first to introduce advanced methods of CV including the RMS, the National Import Data Base and so on and this country has

Chaturvedi, Sachin (2006), Customs Valuation in India: Identifying Trade Facilitation related Concerns AsiaPacific Research and Training Network on Trade Working Paper Series, No. 25, December 2006 p. 30 82 Harmonized System 83 Full text of the Convention is available at http://www.wcoomd.org/ie/En/Conventions/MAA%20Legal%20Text%20FINAL%20VERSION_publish%20E.PDF

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very ambitious and genuine plans to enhance its CV legislation in the future and make it ACVcompliant to the full possible extent. CHAPTER 4 CUSTOMS VALUATION ISSUES IN UZBEKISTAN In Chapter 4 the author strives to evaluate the present level of consistency of Uzbek CL with the ACV provisions. This evaluation is based on the conclusions of local state officials as well as on studies conducted by local and international scholars. Next the author observes some specific acts of the Republic of Uzbekistan (RUz), i.e. the Customs Code (CC), the Law on Customs Tariff (the Law) and the Directive No. 390 and considers their accordance with the ACV and other WTO CV rules. Chapter 4 concludes with a short observation of present and future plans of the GUz in the implementation of the ACV in the Republic. 1. General status quo of Uzbek customs legislation Uzbekistan, once part of the Soviet regime, today is regarded as a DC with transition economy. Since gaining its independence in 1991 the Republic has been actively working on the improvement of its legislation. Legislative reforms were in particular directed towards further perfection of foreign economic activity (FEA) in the Republic. During the 16 years of independence the main reformer in the RUz has been and remains the President of Uzbekistan I. Karimov who has passed many decrees, resolutions and other regulatory acts that pursued TF goals in Uzbekistan. On December 13, 2003 during the 14th session of Oliy Majlis 84 the President once again touched upon the FEA regulation issues where he declared: ...all the system of organization of FEA should be fundamentally reviewed. I think that it is excessively regulated. Methods of administrative regulation and not of economic and tariff regulation dominate in it. We should faster move to civilized forms of foreign economic activity adopted in the world and to expedite the process of Uzbekistans accession to the WTO 85 . In January 2006 the Republic joined the Eurasian Economic Community (EurAsEC) and nowadays the RUz is dynamically working on its WTO membership. The first step for the WTO accession was made in 1994 when the Working Party (WP) on the accession of Uzbekistan was established. The WP held three official question and answer (Q/A) type meetings with Uzbek officials. During these meetings a number of the WP countries raised various issues associated with trade regulation in the RUz, which certainly involved CL and CVS of Uzbekistan. During
84 85

Representative Chamber of Uzbek Parliament For further details regarding this speech see http://www.parliament.gov.uz/laws/r5_1214.htm (in Russian)

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one of the Q/A meetings held in 1999 the WP inquired whether Uzbekistan needed to take any further steps to bring its CV regime into full conformity with the WTO and if yes, what plans were in place to achieve this. In short, the representatives of RUz responded that Uzbek CL is in full conformity with the WTO requirements [emphasis added] and that in order to achieve full implementation of CV in practice customs officials in charge were trained by EC experts 86 . One year later during the second Q/A discussion rounds conducted in 2000 the WP once again requested Uzbek officials to explain the operation of Uzbekistan's CV regime and its level of compliance with reference to the ACV 87 . Officials responded that the main legislative act in the RUz was the Law On Customs Tariffs (the Law) and this Law contained the necessary provisions on determination of CV. Uzbek officials added that the principles of this Law were elaborated on the basis of the ACV and they accorded to the rules of the WTO. Consequently, Uzbek officials implied that CL of the country could not be inconsistent with the ACV because the former was elaborated on the basis of the latter. So the Republic has been completely selfconvinced about full conformity of its laws with the WTO requirements. Nonetheless, this description has never reflected the true condition of custom laws and practice in Uzbekistan. In accordance with the findings of the UNDP office in Uzbekistan made in 2006, The current customs administration in Uzbekistan creates significant administrative barriers for foreign trade. Customs clearance procedures are very time consuming and cause substantial costs for participants of FEA. The customs regulatory framework is complicated and confusing while its administration lacks transparency. Inefficient customs administration leads to under-collection of budget revenues, leaves the domestic market unprotected from the penetration of smuggled goods, allows the growth of shadow economy, and hinders the development of external trade and of competitive environment 88 . The UNDP explains that such state of affairs is due to the following main factors: 1. The current CC is not an act of direct action. Customs administration in Uzbekistan is conducted primarily based on numerous bylaws (over 350). As a result, the CL became unsystematic, nontransparent and excessively complicated; 2. There is lack of harmonization between Uzbek CL and operating methods with international standards;
WTO, Working Party on the Accession of Uzbekistan, WT/ACC/UZB/3, 12 October 1999, Question 25 WTO, Working Party on the Accession of Uzbekistan, WT/ACC/UZB/3/Add.2 27 April 2000, Question 48 88 UNDP Office in Uzbekistan, Improving the System of Customs Administration in the Republic of Uzbekistan, available at http://www.undp.uz/projects/project.php?id=104
87 86

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3. Customs bodies are not sufficiently equipped with modern methods, techniques and instruments. This makes it difficult for timeliness and efficiency of customs procedures to be improved and for security measures to be further strengthened. The Head of Legal Department of the State Customs Committee (SCC) of the RUz Chipiga (2004) provides some more supplementary comments regarding the present condition of local CL. As maintained by Chipiga today Uzbek customs laws and regulations do possess certain inconsistencies with international norms, in particular with rules of the WTO, provisions of Kyoto Convention and other international conventions. He continues to state that these inconsistencies should be eliminated from national legislation regardless of membership of the country in WTO or the mentioned conventions, since on the basis of these legal norms the foreign trade and its regulation is carried out in the overwhelming majority of countries, including their trade with the RUz 89 . This official, however, neither specifies which of the local normative acts were inconsistent with international agreements nor provides any concrete criticism of any Uzbek law or bylaw. Third source for the overview of Uzbek CL is the Report prepared in January 2003 by the ADB consultant Musleh-ud Din. In this Report Musleh-ud Din states that the provisions of the Law and of the CC are in line with the WTO/GATT valuation principles and procedures
90

[emphasis added]. The Report instead focuses on other concrete issues that create trade barriers

in Uzbekistan. For example, the Report states that excessive documentation requirements, the absence of both a system of pre-arrival clearing, and systematic risk analysis are major problems of customs practice of the Republic. In short, contrary to Uzbek official Chipiga who openly accepts the existence of many inconsistencies in customs laws of Uzbekistan, ADB consultant Musleh-ud Din believes that major Uzbek laws are in line with the WTO laws. In sum, in fact there have been and are almost no thorough studies conducted about Uzbek trade acts that would provide unambiguous determination of present CV issues in the Republic. UNDP is one of the few organizations that provides the most recent and critical review of Uzbek CL. This review reveals that at present the CL and CVS of the Republic is far from perfect and they (CL and CVS) have to pass a long path of comprehensive reforms and modernization before Uzbekistan could boast with any of its achievements in this regard.
89

Chipiga, V. (2004), Information on reforms in customs legislation of the Republic of Uzbekistan, available at http://www.adb.org/Documents/Events/2004/CCC/Customs_Reforms_Modernization/uzb-custom-code-eng.pdf 90 Musleh-ud Din (2003), Uzbekistan: Trade and Trade Facilitation Review, Asian Development Bank, available at http://www.adb.org/Carec/UZB-TFFR_Prelim_Draft.pdf p. 22

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2. ACV and Uzbek Customs Valuation Legislation It has been abovementioned that during the most of the WP meetings Uzbek officials asserted that Uzbek CL is consistent with the ACV and other WTO rules and it does not require any substantial modifications. Nevertheless, the WP discovered that several important provisions of the ACV were either missing in the CL of the RUz or conflicted with the ACV provisions. Subsequently, the WP communicated about these issues to Uzbekistan during all three Q/A meetings. To begin with the WP criticized that Article 18 of the Law (on Customs Tariff) did not contain any accurate definition of the term transaction value except the statement the price actually paid or payable for the goods when sold for exportation to the country or importation 91 . Besides, the WP pointed out to many other inconsistencies in the CL of the Republic that involved inter alia, ACV Article 1(a)(ii) and (iii); Article 1.2, Article 8.1(b)(i) through (iv); Article 8.4 as well as Articles 4-7, 9, 14 92 and others 93 . In response to such critical comments by the WP the representatives of Uzbek government ad infinitum referred to the Directive No. 390 as the main bylaw that contained all the necessary answers to most of the questions raised. That is why the author now closely examines certain specific Uzbek laws and bylaw in order to find out whether there were any tangible grounds to believe that CV acts in the Republic were in effect congruent with the WTO CV requirements. In Uzbekistan the main normative acts that regulate the CV procedure comprise (a) the Law On Customs Tariff enacted in August 29, 1997, (b) the Customs Code of the RUz passed in December 26, 1997 and (c) the Directive No. 390 on the determination of the customs value of goods imported onto the customs territory of the RUz (Directive) adopted in January 13, 1998 94 . Generally speaking, the CC regulates general customs relations between the CAs and traders, the Law deals with customs duties and other payments while the Directive is a very specific document that offers very explicit information regarding customs clearance system in the RUz. A) The Customs Code, main legislative act policing customs issues, does not contain any provisions that directly regulate CV issues. The CC consists of IX Chapters and 198 articles and it provides only general understanding of legal regulation of customs relations between the CAs and importers. Strangely enough, being the main legislative acts on customs, the CC has no provisions that even indicate about the ACV and other WTO law. Chipiga (2004) rightly remarks
91 92

WTO, Working Party on the Accession of Uzbekistan, WT/ACC/UZB/4 20 April 2001, Question 65 Id. Question 66 93 For the comprehensive list of problems related to the ACV in the CL of Uzbekistan see Attachment 2 94 For the full list of legislative acts and bylaws that directly or indirectly regulate CV issues, please see Annex L

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that the Code has basically fulfilled its tasks at the modern stage of economic development of the Republic and it does not reflect the significant experience gained by CAs since 1998 95 . For this reason it is evident that the CC urgently needs fundamental transformation because it overlooks to encompass and regulate a lot of very focal issues like CV. B) The Law On Customs Tariff is the second major legislative act to regulate CV issues in Uzbekistan. The Law consists of 35 articles and it was last amended in 2004. In accordance with Article 1 This Law establishes the order of formation and application of the customs tariff as well as rules of taxation of goods by the customs duties when transporting through the customs border of the RUz. A main task of this Law is the maintenance of conditions for effective integration of Uzbekistan into world economy and protection of its economic interests 96 . The Law provides a legal explanation to various legal matters such as customs duties and taxes on exportation and importation of goods, anti-dumping duties etc. Only Articles 12-23 of the Law directly regulate CV issues. Article 12 establishes what customs value means while Articles 13-14 list rights and obligations of the CAs and traders. Article 16 states, the CV is a system of determination methods of CV of goods imported into the customs territory of Uzbekistan, which is applied in accordance with the relevant legislation. This Article also notes that the Cabinet of Ministers establishes the order of determination of CV of imported goods into Uzbekistan. Articles 17-23 cover all CVMs starting from the CV based on TV (Article 18) ending with reserve (fall-back) 97 method (Article 23). Article 17 accepts the TV as the main CVM in the RUz and states, if the main CV method cannot be used, then one of the other CVMs is to be used in the consequent order. Article 17 concludes declaring that CVMs based on deduction or computation of costs can be applied in any order. It is not so difficult to realize that this Law encompasses many faulty provisions that do not comply with the ACV requirements. Firstly, the Law does provide any definition whatsoever to the term transaction value. The Law refers to this term several times but one cannot find any provision regarding this term. Secondly, Article 16 ambiguously refers to other relevant legislation that is confusing and inconceivable. Thirdly, Article 17 states that CVMs based on deduction or computation of costs can be applied in any order. Such provision clearly contravenes Article 4 of the ACV. In short, the Law is far from being flawless and requires
Chipiga, V. (2004), Information on reforms in customs legislation of the Republic of Uzbekistan, available at http://www.adb.org/Documents/Events/2004/CCC/Customs_Reforms_Modernization/uzb-custom-code-eng.pdf 96 Translation is made on the basis of the official translation provided by Uzbek officials to the WTO as well as translation made by Uzbek legal database companies Pravo and Norma. See www.pravo.uz for further details. 97 The author uses the term reserve and fallback interchangeably throughout the thesis
95

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numerous amendments before it could become reasonably consistent with the ACV. C) The Directive No. 390, the last and most specific bylaw, is most elaborated and concrete piece of legislation that has been prepared by the SCC. The Directive was adopted in 1998 and it consists of IX Chapters. The Directive replicates most provisions found in the ACV and the Notes. Paragraph 1.2 of Chapter I states the procedure of CV of goods in Uzbekistan is based on the general principles of CV that are applied in the international practice. Chapter II, paragraph 2.2 repeats the provisions of Article 17 of the Law, accepting the TV as the main method for the determination of the customs value of goods and using other methods in their subsequent order. This paragraph highlights that the set consecutive order of methods cannot be changed, with the exception of methods 4 and 5, whose consequence, however, may be changed in accordance with the declarer's wish. Paragraph 2.3 of the same Chapter again re-confirms that Method 1 is regarded as the main method for the CV determination while paragraph 2.5 confirms the right of a declarer to shift the order of the valuation methods 4 and 5. Paragraph 2.6, that covers the reserve method, states the customs value under reserve method is determined on the basis of information available to the CAs. This paragraph concludes with declaration, in the event if a customs officer conducts the CV of imported goods independently, then he may also have recourse to Method 6, which stipulates much more flexibility in interpreting the requirements imposed under Methods 1 to 5. Chapter III of the Directive covers the CVMs based on the TV and the provisions of this Chapter closely resemble the wording of the ACV. For example, paragraph 3.1 talks about the customs value and its determination while paragraph 3.2 sets some requirements that should be met in order to apply the TV. Paragraph 3.7 states that one of the conditions for the use of TV, as a valuation method, is that the importer and exporter should not be interdependent parties. This certainly excludes the cases when such interdependency did not influence the price of the transaction that must be proven by the declarer. Next this Paragraph presents very detailed explanation to the cases when the Customs may find the existence of SR in the transaction. The remaining paragraphs 3.8 and 3.9 roughly follow the language of the ACV. The next Chapters of the Directive IV, V, VI, VII and VIII more or less reflect the ACV and the Notes as much as it is feasible. The legislator in these Chapters offers many descriptive examples about how one or the other method is applied in practice. Finally, Chapter IX ensures the availability of other rights guaranteed by the ACV to the importers such as right of appeal and right to request a written

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explanation regarding the valuation procedure used by the CAs 98 . Undeniably the Directive is the most elaborated piece of legislation regulating the CV issues in Uzbekistan. However, similar to many other local acts it is not free from few regular inaccuracies. Firstly, Paragraph 2.6 unquestionably infringes ACV Article 7 by stating, the customs value under reserve method is determined on the basis of information available to the CAs. Also the statement: in the event if a customs officer conducts the CV of imported goods independently, then he may also have recourse to Method 6, which stipulates much more flexibility in interpreting the requirements imposed under Methods 1 to 5, seems to have been invented by the legislator because there is no such provision either in the ACV or in the Notes. Thirdly, Paragraph 3.7 uses the incorrect term for defining RPT 99 and this Paragraph also inappropriately shoulders the importers with a burden to prove that such interdependency did not influence the price of the transaction. In summary, general evaluation of Uzbek CL clearly indicates that these normative acts are not at all ACV-consistent and they need considerable reforms by the lawmaker. The CC has no articles about CVS and CVMs in Uzbekistan while the Law and the Directive No. 390 conflict each other; therefore, none of the abovementioned acts fulfills the necessary requirements of the WTO law. Realizing this vicious reality the GUz has expedited its work on extensive unification and harmonization of Uzbek national CL and law-enforcement practice with the WTO rules. For example, In 2006 the SCC initiated assistance to development of trade and creation of favorable conditions for FEA among its priorities for 2006 and it (SCC) is planning to complete development of new edition of CC and Law (On Customs Tariffs) 100 . In order to assist the GUz in conducting these large-scale customs reforms, the UNDP has launched the Project called Improving the System of Customs Administration in Uzbekistan (the Project) that is next discussed in this Chapter. 3 Conclusion Responsible officials of Uzbekistan quite often herald about the complete consistency of Uzbek CL with the GATT/WTO rules and principles whilst they often ignored the remaining discrepancies in this regard. The author in Chapter 4 revealed and demonstrated that in reality Uzbek customs laws are frequently deficient and they often misapply the ACV provisions. It
98 99

For the comprehensive analysis of all inconsistencies of Uzbek CL with the ACV, see Attachment 2 For the explanation why this term is inappropriate, see supra p. 20, i.e. Russian legislative reforms 100 Business Vestnik Vostoka, Uzbekistan to work on unification of customs legislation with EurAsEC, WTO rules, available at http://www.parus87.com/economy_of_uzbekistan.htm

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seems, however, that the situation has slowly started to change and local customs experts finally began to pay due attention to the issue of CV. They (state officials and local experts) in one of the recent meetings eventually recognized that CV is one of the central issues of customs administration 101 while these issues were often beyond the scope of focus before. The Expert Group in this meeting identified the main problems that currently plague the international trade in the Republic. According to their findings these include lack of transparency and clear-cut norms in national legislation, regulating methodology of CV. Therefore, the Expert Group expressed the viewpoint that precise regulation of CVS and its methods and ensuring their conformity with international standards and norms has to become the major task of the currently elaborated draft CC in new revision 102 . Consequently, at last both state officials and other local experts not only acknowledged the existence of CV problems in Uzbekistan but they also started to search for some solutions to solve them. Having determined the current pitfalls in Uzbek CL in Chapter 4, the author next proposes some general as well as specific recommendations in Chapter 5. CHAPTER 5 CONCLUSIONS AND RECOMMENDATIONS In Chapter 5 the author sums up various ideas expressed by different scholars and practitioners regarding the ACV implementation and synthesizes some general recommendations for the effective realization of the WTO CV provisions in national CL. Secondly, the authors provides some specific guidelines for DCs, in particular new DCs like Uzbekistan based on the experience of other DCs as well as developed countries. The author concludes with a short response to the questions: What can the ACV implementation experience of other countries teach Uzbekistan and which specific measures should be or could be introduced in Uzbekistan that would create a blueprint for other analogously inexperienced DCs. 1. Recommendations for the ACV implementation General recommendations Today majority of countries share the common view that the introduction of the ACV provisions in their national CL will play a significant positive role in liberalization of their economies. Therefore, it is perfectly understandable why a number of countries choose to carry out these measures unilaterally before they even join the WTO. Nevertheless, when it concerns the implementation of the ACV, many countries have incessantly confronted a number of
101 102

Centre of Economic Research news, available at http://www.cer.uz/index.php?&lang=1&news=259 Id.

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systematic problems that prevented the universal incorporation of the ACV provisions in their national laws. Even if some of these countries like India eventually did manage to adopt ACVcompliant provisions, today such countries have come to realize that applying the ACV means a lot more than simple introduction of the ACV articles in their national laws. In this regard Finger and Schuler (1999) rightly remarked that CV is only an inch in the whole yard of customs operations 103 . Indeed implementation of the ACV can not be done in isolation without undertaking extensive reforms and without putting in place institutional safeguards to prevent misuse of the liberal valuation methods under the ACV because the ACV provisions mostly rely on transparency in trade transactions. Moreover, the abovementioned scholars have pointed out, while implementing tariff changes may require no more than the stroke of a Ministers or a legislatures pen, implementation of reforms in trade procedures and trade regulations require purchase of equipment, training of people and establishment of systems of checks and balances which involve substantial expenditure 104 . In brief, the analysis of the experience of many countries has demonstrated that the effective the ACV implementation measures need to be comprehensive, adequate and continuous. The ultimate outcome should be de jure as well as de facto legislative and procedural compliance with all WTO CV rules in a country. Nevertheless, it is not so simple to achieve the abovementioned goals without proper guidelines and experience of other countries. This thesis has considered many aspects of the ACV including the history of acceptance of the ACV, certain systematic issues that countries have frequently faced as well as specific case studies of the experience of two different DCs India and Nepal. This thesis has also scrutinized the current degree of compliance of Uzbek CL with the WTO valuation rules. Based on the research and findings of numerous scholars it is possible to prcis these ideas and propose some practical solutions to the aforementioned issues. These recommendations have a general nature; hence they will be practical in most of the countries. Yet still one has to consider the particularity of each country in order to make the necessary adjustments while following these suggested measures. Accordingly, some of the measures that could be useful for the comprehensive implementation of the ACV include, inter alia the followings: 1. Elimination of all legal inconsistencies in the domestic CL of a country. These measures include such actions as ample harmonization of all legislative acts, bylaws and making them
103

Finger, J.M. and Schuler, P. (1999), Implementation of Uruguay Round Commitments: The Development Challenge, Policy Research Working Paper No. 2215, World Bank, October 1999 p. 13 104 Id.

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consistent with the requirements of the ACV and other WTO laws. It is a must that countries incorporate the ACV, the Notes and other acts such as Decision 6.1 directly into major laws and, if appropriate, into bylaws of a country; 2. Institution of the operational legal means that guarantee the genuine existence and availability of all rights guaranteed by the ACV for traders (importers). This would raise importers confidence in remedies available to them in the respective national laws and it would increase mutual cooperation between the CAs and the traders; 3. Introduction of specific practical and procedural measures that prevent the overuse of discretion by local CAs. In this regard, it is significant to provide clear course of action for local CAs regarding the use of appropriate CV practice in accordance with the ACV; 4. Introduction of innovative customs mechanisms if it is feasible to do so in a country. RAS and PCA are the most important mechanisms that could ensure the effective operation of the ACV-based CVS in the customs practice of a country. This action certainly requires a profound preparation and it is very complicated task to accomplish without the external assistance from different international organizations and other developed countries. Organizations such as the WTO, the ADB, JICA, the WCO are quite helpful in this respect; 5. Complete fulfillment of the legal-procedural aspects of the ACV. It is crucial for any country to have an independent judiciary branch that would allow importers to make use of their abovementioned rights to challenge the incorrect decisions made by the CAs; 6. Advocacy and active call for the voluntary compliance by traders with the ACV. Each country should try to elucidate the ACV provisions to ordinary businesspeople so that they have at least some general understanding of the WTO CV rules. Such increased awareness among businessmen about the significance of the application of the ACV could indirectly motivate the importers to refrain from the undervaluation practice; 7. Active participation in the regional trade arrangements, i.e. customs unions and free trade agreements may also have an indirect impact on the successful implementation of the ACV. As it has been already illustrated many countries because of the expanding regionalism are forced by their regional partners to bring their CL into compliance with WTO requirements. Prasad (2003) suggested several similar recommendations for the effective ACV implementation. In short, according to his perception TF in the area of CV should include, inter alia, commitment to the introduction of PCA teams; extensive legislative amendments; endorsement of a Risk Management Policy; client awareness and self-assessment; simplified 52

and appropriate legislation; simple, modern and transparent procedures; and improved revenue collections based on appropriate controls 105 . Another scholar who proposed few more of generally applicable recommendations for the effective implementation of the ACV is Satapathy (2002). This scholar announces that first of all, there should be better cooperation and consultation between the importer and the CAs. According to Satapathy such utmost cooperation would compel the importer to furnish the required declaration giving all facts truthfully in addition to furnishing the Bill of Entry and relevant commercial documents. In short, if the importer provides these necessary details with supporting documents available with him, the Customs officer is likely to complete his part of the job without any delay 106 . Satapathy goes on to state that the value determined on the basis of such complete information is also likely to be acceptable to the trade as well as to the Customs. This would also reduce the number of valuation disputes considerably for the vast majority of genuine commercial transactions. Therefore, Satapathy concludes that both (CAs and importers) must necessarily contribute to the decision-making process and share the responsibility to arrive at correct valuation 107 . Satapathy provides another useful comment regarding reference values, i.e. that The ACV does not explicitly provide for adoption of reference values as a method of valuation. However, there may not be objection to using such values for price comparison purposes to test the truth and accuracy of declared values and for rejection of the TVM 108 . In other words, this scholar proposes the DCs to keep their reference prices for their own information but not use them for CV purpose. Pre-implementation diagnosis and Blueprint from the EU Although many scholars do provide many suggestions regarding the effective implementation of the ACV in domestic CL they ignore one very important factor in carrying out these reforms in the CV field, i.e. readiness of a country for such advanced reforms. This aspect is disclosed by a prominent trade expert Malone (2002). According to this expert The application of the ACV assumes the existence a certain degree of capacity on the part of the

105

Prasad, Biman (2003), Trade Facilitation and Regional Integration in Selected Pacific Island Countries (Fiji, Papua New Guinea, Solomon Islands and Tonga), The University of South Pacific, UNDP/ESCAP ARTNeT Consultative Meeting on Trade Facilitation and Regional Integration available at http://www1001.unescap.org/tid/artnet/mtg/tfri_s5biman.pdf 106 Satapathy, C. (2002), Customs Valuation in India, Third Edition, MVIRDC, World Trade Centre, Mumbai, p. 143-144 107 Id. p. 145 108 Id. p. 162

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public service sector responsible for its implementation 109 . Malone asserts that the followings are regarded as indicators of capacity required for CV purposes: 1. Fair, uniform and neutral system for the valuation of goods for customs purposes; 2. Criteria consistent with commercial practices; 3. Objectives of GATT 1994; 4. Generally accepted accounting principles; 5. General commercial laws, concepts, practices and methods (e.g., sales contracts, commercial documentation, methods of payment, banking procedures) 6. Specific commercial arrangements such as obligations relating to royalty and license fees, downstream payments, commissions, related party transactions. In simple words, these conditions should already have been formed in a country before the country could initiate comprehensive ACV implementation amendments. Malone subsequently draws up a list of capacity requirements with respect to the application of the ACV and states that before proposing any recommendations regarding the capacity building for the implementation of the ACV one has to identify the status quo of capacity in this field in a specific country. Such capacity in CV field include inter alia, the essential capacity requirements such as comprehensive valuation-specific legal framework, including powers of customs and full knowledge of the ACV etc. and the essential customs infrastructure capacity requirements like relevant legal regulatory system stable, comprehensive and modern legal framework which ensures that customs legislation is directly applicable and can be implemented 110 . In fact Malone provides very interesting guidelines that are certainly useful in diagnosing each countrys level of readiness for reforms in the field of CV. Another important feature that is useful for the effective modernization and reformation of CVS is model reforms carried out in other countries and the EU is a good pattern in this respect. In 1998 the EU launched a special project that intended to prepare new EU countries for the modernization of their customs practices. This project, among other things, tried to define detailed operational guidelines on the CVS for the new EU members. These guidelines, known as Blueprints, were produced at specially convened workshops, which reunited customs experts

109

Malone, J. (2002), Defining/developing capacity building in the field of customs valuation, Seminar on Technical Assistance on Customs Valuation, 6-7 November 2002, European Commission available at www.wto.org/English/tratop_e/cusval_e/seminar_nov02_e/malone_e.doc 110 Please, see Attachment 3 for the full list of capacity requirements mentioned by Malone

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from existing EC customs services and customs experts from the partner countries 111 . The Blueprints were also to be used as benchmarks against which to measure shortfalls in administrative capacity, and subsequent improvements. In this way, the Blueprints set common standards across the countries in question, helping to assist in the coordination and targeting of EU assistance. Most importantly, the Blueprints not only took account of the different histories, cultures, structures, systems and working methods in each of the individual countries, but were also capable of universal application 112 . Subsequently the European Commission has drawn up an outline Blueprint for the CV, which is partly based on the existing model prepared by the WCO. This European model traderelated technical assistance project for CV provides an essential building block, which can be developed in more detail to take account of the specific needs and conditions in individual cases. Malone considering this EU Blueprint makes a critical conclusion stating, a case by case approach, developed in conjunction with the partner customs administration, should be used in order to establish a precise blueprint for the individual administration concerned 113 . As a result, one can conclude that other countries might also follow such successful practice of creating Blueprints based on the WCO guidelines while considering their distinctive features. This would certainly be more realistic within regional units such as the EU or the EurAsEC. 2. Certain supplementary recommendations for DCs Many academics such as Satapathy (2002) acknowledge that the implementation of the ACV poses many problems particularly for the customs administrations of DCs 114 . As per observations of Satapathy it is much easier to rely on TV in advanced countries where the duty rates are low, import controls are minimal and not based on value, exchange controls are nonexistent, corruption in public service is low, voluntary compliance is high and the judicial system is quick and efficient to bring to book occasional frauds 115 . Meanwhile, the situation in DCs is totally different with high duty rates, value based import controls, rigid exchange controls and non-availability of reliable trade data electronically. Consequently, once again it is impossible to ignore that comprehensive reforms require certain degree of readiness of each country for such reforms. Hence, first of all, a DC should be ready for new reforms and such reforms, in their turn,
111

Malone J., (2002), Defining/developing capacity building in the field of customs valuation, Seminar on Technical Assistance on Customs Valuation, 6-7 November 2002, European Commission 112 Id. 113 Id. 114 Satapathy, C. (2002), Customs Valuation in India, World Trade Center, Mumbai p. 158-159 115 Id.

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should guarantee the operation of the ACV. Concurrently, DCs should refrain from abrupt shift from their past CV practice to ACV-based CVS unless they regard themselves as completely prepared. Secondly, it is natural that not all countries may have all the necessary financial, technical and legal conditions for the swift implementation of the ACV, therefore, these countries has an option to benefit from the 5-year grace period established under Part III of the ACV for DCs. Currently, there are seven WTO members that have been granted a reservation to maintain a system of minimum values 116 . Third recommendation for DCs is to follow all 7 general abovementioned suggestions as well as try to adhere to other general guidelines prepared by the WCO, the WTO, the OECD and other similar organizations. Finally, it is particularly advisable for all DCs to meticulously examine the experience of India and extract more practical tips and hints because the latter country has achieved commendable results in this respect. Once a country has achieved more or less substantial implementation of the ACV like in India, then there are some supplementary recommendations on further perfection of CV practice in this kind of countries. These include: 1. Stricter punishment for the non-compliance by traders. Once there is a basic CV mechanism in a country, it is indispensable to prevent the abuse of such lenient legislation by importers. Therefore, at this point strict laws accompanied by adequate measures become necessary; 2. Introduction of an information exchange mechanism between importing and exporting countries for better determination of export value. Such mechanism would be very helpful in carrying out PCA measures by the CAs. 3. Uzbek Customs Legislation and the ACV: Concluding remarks Uzbekistan is a new DCs country with only 16 years of independence, which had no prior experience in its CV practice. All laws and guidelines used to be prepared and accepted in the central administration in Moscow; hence the Republic only had to copy those laws in its national jurisdiction. This situation illustrates why Uzbekistan like other new CIS countries find it rather difficult to attain the necessary degree of compliance with many international agreements including the WTO ACV. The earlier analysis has shown that there is a growing mandate for additional reforms of Uzbek CL and the aforementioned joint Project is one of the best approaches in this respect. This Project targets two major objectives in the Republic. Firstly, it aims at providing assistance to the GUz in elaboration and adoption of the new revision of the
116

These 7 Members are Bolivia, Guatemala, Haiti, Mauritania, Myanmar, Sri Lanka, and United Arab Emirates. Please, refer to G/VAL/2/Rev. 19 for further details.

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CC, CC-related documents and other legal basis in the customs field. Secondly, it aims at facilitating improvements of customs administration through revision of related subordinate legislation, introduction of modern methods, technologies and tools into Uzbek customs services. The Project started in 2006 and will end in April 2008 117 . Pursuant to the Project the following activities are planned within the framework of project implementation: 1. Methodological assistance to the governmental working group in drafting, adopting and implementing the Revised Customs Code; 2. Carrying out extensive research of the current system of customs administration and reviews of related international standards to facilitate preparation of the Revised CC; 3. Analysis of customs administration legal foundations and practices with consequent development of recommendations for the improvement of relevant procedures; 4. Impact analysis of changes in CL on overall economic situation and developing recommendations for further improvement of CL; 5. Active involvement of all stakeholders legislative branch, businesses, NGOs, and leading experts - in the process of drafting and discussing the Revised Customs Code; 6. Providing assistance in developing Commentary to the new revision of the CC and new customs declaration forms; 7. Conducting a series of training sessions for SCC personnel as part of the human resource development strategy. Many local and international scholars expressed their hope that this Project will yield many positive changes in the perfection of CV legislation in the Republic. For example, Chipiga (2004) declares that the main foundation for the new draft Law are the International Convention for Simplification and Harmonization of Customs Procedures (Kyoto Convention), the GATT and other international agreements and conventions on customs and international trade 118 . Moreover, the Draft new edition of the CC is going to be a much larger document than the Code in force. Such enlargement of the CC increase is going to be due to the fact that in new edition there is a more clear definition of legal relations, and more emphasis on regulation of the relations related to commodity and means of transport movement through the customs border. Enlightened are the peculiarities of including commodities in certain customs regimes and
117

UNDP Office in Uzbekistan, Improving the System of Customs Administration in the Republic of Uzbekistan available at http://www.undp.uz/projects/project.php?id=104 118 Chipiga, V. (2004), Information on reforms in customs legislation of the Republic of Uzbekistan, available at http://www.adb.org/Documents/Events/2004/CCC/Customs_Reforms_Modernization/uzb-custom-code-eng.pdf p. 3

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actions, including the issues of customs payments application 119 . Chipiga expresses a statement of hope that the adoption of a new edition of CC of Uzbekistan will allow to form the timely and efficient legal framework, which in cooperation with other law enforcement bodies, would allow to ensure security and provide efficient assistance to further integration of Uzbekistan in the world economy and liberalization of FEA 120 . It is praiseworthy that Uzbekistan has been enthusiastically succeeding towards enhanced reforms and the Project will inevitably phase in better CVS in the Republic. Still, one has to deliberate that such legislative reforms should take place in tandem with other reforms. Such reforms should certainly involve other spheres of CV like training of necessary skills of customs officers, harmonization of all legislative acts including bylaws that directly or indirectly regulate customs issues 121 . Consequently, the Republic must follow abovementioned general and specific suggestions. In addition, based on the overall analysis of the experience of many countries, the author offers some more country-specific suggestions. In a nutshell, these are the followings: All forthcoming reforms in the field of CV of Uzbekistan should be based on the principles of transparency, objectivity, accountability of CAs and importers to each other; New CC and Law on Customs Tariff of the RUz should contain very detailed definition of all valuation terms such as TV, SR, RPT etc. This new Law should also have transparent provision of price adjustment, clear guidance to valuation and so on; Key reform measures should involve legislation, organization and management, personnel requirement and development as well as computerization of data and communication technology applications as far as it is feasible in this country; The GUz should attempt to promote a culture of voluntary compliance with customs regulations among its traders; The Republic should try to join the multilateral mechanism for the exchange and handling of information between the WTO Members. This would facilitate CV procedure and preclude underinvoicing practice by importers; Finally, once Uzbekistan joins the WTO, it is advisable that the Republic asks for some grace period until the Republic fully implements the ACV in its CL 122 .

119 120

Id. Id. p. 4 121 See Annex L for the comprehensive list of legislative, administrative and governmental acts which directly or indirectly regulate CV issues in Uzbekistan 122 The author proposed some further ACV- specific solutions to present problems of Uzbek CL in Attachment 2

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LIST OF REFERENCES
LEGISLATIVE ACTS AND BYLAWS Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 Annex I to the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 Bermudan Customs Public Notice (No.18) called Customs Valuation Rules Customs Act 1962 of Nepal Customs Act of Canada Customs Act of Jamaica Customs Ordinance of Israel Decision Regarding Cases where Customs Administrations Have Reasons to Doubt the Truth or Accuracy of the Declared Value available at http://www.wto.org/English/docs_e/legal_e/42dval1.pdf [last accessed 08.09.07] Directive No. 390 on the determination of the customs value of goods imported onto the customs territory of the Republic of Uzbekistan registered at Ministry of Justice of RUz under No. 390 of 30.12.1999 Draft Valuation Code, GATT documents, MTN/NTM/W/188, September 18, 1978 Eicher Tractors Limited vs. Commissioner of Customs, Mumbai (2000) Federal Law of Russian Federation 144-FZ on introducing some changes into legislative acts, available at http://www.nrn.org.np/aboutnepal/acts/customs_act.pdf [last accessed 30.08.07] International Convention relating to the Simplification of Customs Formalities Interpretative Notes to the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 available at http://www.wcoomd.org/ie/En/Conventions/MAA%20Legal%20Text%20FINAL%20VERSION_p ublish%20E.PDF [last accessed 30.08.07] Law of Russian Federation On Customs Tariff of May 21, 1993 Law on Customs of Vietnam the Law No. 42/2005/QH11 with amendments of and Supplements to Certain Articles of the Law on Customs dated June 14, 2005 Resolution of the Government of Russian Federation of December 7, 1996 On the order of determination of the cost of goods imported into the customs territory of Russia WTO, ACV Related case law, document WT/DS/OV/22, dated 14 October 2004 59

WTO Documents, G/VAL/2/Rev. 19 WTO Documents, G/VAL/2/Rev.22, 10 April 2006 WTO Documents, G/VAL/M/41, 24 May 2006 WTO Documents, WT/DS/OV/22, dated 14 October 2004

ACADEMIC AND PRACTICAL PAPERS Alburo, Florian A. (2006), Customs Valuation Issues and Research Methodologies, Presentation made at UNDP/ESCAP ARTNeT Trade Facilitation Research Team Meeting, 15 March 2006, Bangkok, Thailand Business Vestnik Vostoka (2006), Uzbekistan to work on unification of customs legislation with EurAsEC, WTO rules available at http://www.parus87.com/economy_of_uzbekistan.htm [last accessed 30.08.07] Center for Economic Review (2006), Uzbekistan and new UNDP Project available at http://www.cer.uz/index.php?&lang=1&news=259 [last accessed 30.06.07] Chaturvedi, Sachin (2006), Customs Valuation in India: Identifying Trade Facilitation related Concerns, Asia-Pacific Research and Training Network on Trade Working Paper Series, No. 25, December 2006 Chipiga, V. (2004), Information on reforms in customs legislation of the Republic of Uzbekistan, available at http://www.adb.org/Documents/Events/2004/CCC/Customs_Reforms_Modernization/uzbcustom-code-eng.pdf [last accessed 30.08.07] Duval, Yann (2006), An Exploration of the Need for and Cost of Selected Trade Facilitation Measures in Asia-Pacific in the context of the WTO Negotiations, Studies in Trade and Investment, No. 57, Economic and Social Commission for Asia and the Pacific, United Nations Finger, J.M. and Schuler, P. (1999), Implementation of Uruguay Round Commitments: The Development Challenge, Policy Research Working Paper No. 2215, World Bank, October 1999 Ghimire et al (2005), Center for Public Policy Dialogue, The Legislative Review Study on Customs Policies of HMG, Nepal Goorman, Adrien and Luc De Wulf (2005), Customs Valuation in Developing Countries and the WTO Valuation Rules, Customs Modernization Handbook, (Ed. Luc De Wulf and Jose B. Sokol), 2005 World Bank available at

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http://events.wcoomd.org/val07factsheet_val07customsvaluationandtransferpricing.htm#what%2 0is%20the%20relationship%20between%20transfer%20pricing%20and%20customs%20valuati on [last accessed on 18.04.07] Majumder, S. Dutt (2005), Customs Valuation: Law and Practice, Fifth Edition, CENTAX Publications Pvt. Ltd., New Delhi Malone, J. (2002), Defining/developing capacity building in the field of customs valuation, Seminar on Technical Assistance on Customs Valuation, 6-7 November 2002, European Commission Moise, Evdokia (2004), The WTO Customs Valuation Agreement: Bridging Law and Practice, World Trade Institute Customs Valuation Seminar, 2004, Berne Musleh-ud Din (2003), Uzbekistan: Trade and Trade Facilitation Review Asian Development Bank, http://www.adb.org/Carec/UZB-TFFR_Prelim_Draft.pdf [last accessed 10.08.07] Parliament of Uzbekistan (2003), Speech of the President of Uzbekistan in the XIVth Parliamentary Session, available at http://www.parliament.gov.uz/laws/r5_1214.htm Ping, Liu (2000), WCO compliance related issues regarding the application of the WTO Valuation Agreement, WCO, available at www.wcoomd.org/files/4.%20Learning%20files/PDF/Training/WCO_Valuation_Course.pdf Potchebutzsky, J. (2002), Customs Valuation in Israel - Proposed Changes to the Customs Ordinance and Their Application on Other Fiscal Laws, available at http://www.jplawil.co.il/eng-articles/a002.html [last accessed on 18.04.2007] Prasad, Biman (2001), Trade Facilitation and Regional Integration in Selected Pacific Island Countries (Fiji, Papua New Guinea, Solomon Islands and Tonga), The University of the South Pacific, UNDP/ESCAP ARTNeT Consultative Meeting on Trade Facilitation and Regional Integration Rajkarnikar, P. R. (2006), Implementation of the WTO Customs Valuation Agreement in Nepal: An Ex-ante Impact Assessment, Asia-Pacific Research and Training Network on Trade Working Paper Series, No. 18, August 2006 Rege, V. (2002), Custom Valuation and Customs Reform Development, Trade and the WTO, A Handbook edited by Bernard Hoekman, Aaditya Mattoo and Philip English, Washington: World Bank Romano, Gianluca (2000), A Practical Approach to WTO Valuation General Motors, Manila, December 7-8, 2000 61

Satapathy, C. (2001), Transfer Pricing: Impact on Trade and Profit Taxation, Economic and Political Weekly, May 19 Satapathy, C. (2002), Customs Valuation in India, Third Edition, MVIRDC, World Trade Centre, Mumbai Sherman, Saul (1980), Reflections on the New Customs Valuation Code, Journal of Law and Policy in International Business 12 (1), 1980: p. 119 Shin, Y. (1999), Implementation of the WTO CVA in Developing Countries: Issues and Recommendations, Journal of World Trade 33(1), p. 132 Srivastav, Abhai Kumar (2003), Intensive Course on the WTO Customs Valuation Agreement: An Overview of Indian Customs Valuation Database, ADB, Singapore, 24-28 February Streatfeild, Jeremy (2006), A Brief Negotiating History of Customs Valuation in the GATT and WTO, Journal of Law and Economics in International Trade, Vol. 2, No. 2, July available at www.heisummer.ch/pdf/customs_valuation_streatfeild.pdf [last accessed 30.08.09] UNDP in Uzbekistan, Improving the System of Customs Administration in the Republic of Uzbekistan available at http://www.undp.uz/projects/project.php?id=104 [last accessed 10.08.07] WCO, (2002), A Model Trade-Related Technical Assistance (TRTA) Project for Customs Valuation, July 2002 WCO, (2006), Background Paper for WCO/OECD Conference on Transfer Pricing and Customs Valuation, 3-4 May, Brussels WCO, Manual on Measures to Combat Fraud (Doc 38.080/Rev.2 February 1998) Wilcox, Clair (1949), A Charter for World Trade, the Macmillan Company, New York, NY, 1949 Winham, Gilbert R. (1986), International Trade and the Tokyo Round Negotiation, Princeton: Princeton University Press, 1986 WTO Accession: Nepal, available at http://www.wto.org/english/thewto_e/acc_e/a1_nepal_e.htm [last accessed 30.08.07] WTO, Customs valuation and transfer pricing [last accessed 10.09.07] WTO, Accession: Nepal [last accessed 10.09.07] WTO, Customs Valuation: Draft Valuation Code. For full text, see GATT documents, MTN/NTM/W/188, September 18, 1978 62

WTO, Trade Policy Review: India, WT/TPR/S/182 23, 25 May 2007 WTO, Working Party on the Accession of Uzbekistan, WT/ACC/UZB/4 20 April 2001 WTO, WTO accession papers of Uzbekistan, WT/ACC/UZB/13, 4 October, 2005, not available for public WTO, Legislative Action Plan of Nepal WT/ACC/NPL/10/RVI and WT/ACC/NPL/15 WTO, Working Party on the Accession of Uzbekistan, WT/ACC/UZB/3, 12 October 1999 WTO, Working Party on the Accession of Uzbekistan, WT/ACC/UZB/3/Add.2 27 April 2000

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ATTACHMENT 1
STAGE BY STAGE CUSTOMS CLEARANCE UNDER THE WTO (WITH PARTICULAR FOCUS ON RPT) 1 Stages in customs clearance 1. Declaration of the value of imported goods by the importer 2. Customs considers the value and other information on the transaction declared by the importer and decides whether it has any reason to doubt the truth or accuracy of the declarations made Rights and obligations of Customs Relevant provisions of the WTO Customs considers all the documents Importer declares the invoice price as the Article 1.1 ACV submitted by the importer and decides transaction price, which includes the and Article 8 ACV whether there are any grounds not apply the adjustment costs mentioned in Article 8 ACV TV. If there are no such grounds, then the Customs has to apply TV as the CVM a) Customs examines whether all the a) Importer has a right to provide any extra Articles 1.1, 1.2, conditions of Article 1.1 are met; evidence he may deem necessary to prove and 15.4; that the transaction satisfies all the National legislation b) Then, it considers whether (i) the parties conditions of Article 1.1; to the transaction are related and (ii) of importing whether such relationship influenced the b) In case if the Customs find any grounds to country challenge the use of TV as the applicable price; c) It is the Customs that should show that it CVM, then the importer may show one of the followings as evidence that TV was the has some grounds to challenge the use of appropriate CMV: TV as the applicable CVM d) For the purpose of determination of 1. Parties to the transactions were not related; existence of special relationship between 2. Even if parties were related, such traders the Customs refers to the definition relationship had not influenced the price of in Article 15.4 ACV the transaction; 3. The price of the transaction satisfies either of 3 test values established in Article 1.2 (b) ACV. c) Importer can refer to his national legislation as long as this legislation does not conflict with the ACV 1. Customs examines the circumstances If the importer maintains on the use of TV Article 1.1 ACV, surrounding the sale and additional method as the appropriate CVM, then he bears the Decision 6.1 2 information provided by the importer. the burden of proof to demonstrate such and relevant 2. The customs decides whether it can still use contention. For that he should provide some national customs TV as a valuation method or not. further information and documents regarding laws and Right and obligations of importer

3. Customs finds some reasons to doubt the truth or accuracy of the value declared by importer or of the documents submitted
1 2

Attachment 1 was prepared independently by the author The Decision Regarding Cases where Customs Administrations Have Reasons to Doubt the Truth or Accuracy of the Declared Value (In short the Decision on Shifting the Burden of Proof)

by him

3. Burden of proof shifts from the Customs to the importer. 4. Customs examines Customs examines the circumstances whether parties to the surrounding the sale and decides whether it transaction are related can find the existence of special relationship between the importer and the exporter 5. Customs examines Customs examines the circumstances whether the relationship surrounding the sale in order to decide influenced the price whether special relationship resulted in the lowered transaction price 6. Customs finds TV Customs is obliged to provide the importer unacceptable because (i) with an opportunity to demonstrate that the the parties to the price declared by the importer is still transaction are related and acceptable (ii) such relationship influenced the price

the transaction that confirms point b) and c) as regulations at stage 2. See above, stage 2, column 3. Article 15.4 ACV and national CL of the importing country Article 1.2 ACV

7. Customs is still not satisfied with the justifications given by the

1. Importer has a reasonable opportunity to respond and demonstrate that although the parties were related such relationship did not influence the price. Importer can demonstrate this under point b) and c) in stage 2. See above, stage 2, column 3. The best way to prove this by the importer is to show that the actual price paid by him closely approximates to one of the following three values: (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. Importer has a right to request an explanation regarding such final decision (for refusal of importers justifications)

ACV Article 1.2 (a) and Article 1.2 (b); National customs legislation of importing country that provides a reasonable opportunity to respond within reasonable period of time. (Usually 30-90 days after the decision made by the Customs)

Article 1.2 (a) ACV ii

importer 8. Importer requests the explanation regarding such decision 9. Customs in writing provides the importer with its reasons for the refusal of using TV 10. Litigation settles

Customs is obliged to communicate its reasons for refusing the use TV to the importer (in writing) -

Importer has a right to make an appeal against this decision to the higher authorities (superior CAs) or, upon the choice of the importer, to a tribunal or other independent body outside the CAs

Article 1.2 (a) ACV

Article 11 ACV and relevant national legislation of importing country

ATTACHMENT 2
THE ACV AND THE EXTENT OF ITS IMPLEMENTATION IN THE CUSTOMS LEGISLATION OF UZBEKISTAN 3

Relevant ACV Article Article 1

Current inconsistencies of Uzbek Customs Legislation with the ACV

Solution Recommended

The Law (On Customs Tariff) does provide any definition whatsoever to a term It is indispensable to incorporate a transaction value. The Law refers to this term several times but neither the Law nor any definition to the term transaction other act provides any illustration to this term. value in both Customs Code and in the Law On Customs Tariff

Attachment 2 was compiled on the basis of three WP meetings on Uzbekistans accession to the WTO as well as independent analysis of Uzbek CL

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Article 1.2 ACV

Article 18 of the Law states: Customs value of imported goods into the customs territory of the RUz is the cost of the transaction, i.e. price actually paid or payable for the imported goods at the moment of crossing customs border of the RUz, provided that: Paragraph 5 - The buyer and seller are not interdependent persons, except for the cases, when their interdependence has not affected the cost of the transaction that must be proved by declarer (importer or his representative) Contrary to the ACV this Article uses the improper term of interdependent persons. Secondly, this Article requires the importer to prove that the relationship between related parties did not influence the price that is also not consistent with the ACV, specifically Article 1.2.

Article 4 ACV Article 17 of the Law provides that "the method of deducting and computing costs may be used in any sequence." This is inconsistent with the Article 4 of the ACV, which provides that the order of deductive and computed value shall be reversed" only at the request of the importer". Yet, accordance to Paragraph 2.2 of the Directives No. 390 the consequence of methods 4 and 5 may be changed in accordance with the declarer's wish. Hence, it becomes obvious that the Directives accurately reflect this ACV Article while the Law fails to do so.

It is necessary to modify such inaccuracies in Article 18 of the Law by replacing the term interdependent persons with the term related parties. For transparency purposes it is necessary to integrate that term both in the Law and in the Customs Code. Secondly, the importer should not bear the burden of proof unless the Customs has already demonstrated that it has some grounds to believe that the use of TV would be impossible. It is significant to harmonize all the domestic laws in accordance with the WTO rules and principles. The fact that the Directives regulate correctly what the Law regulated incorrectly shows a strong need to check the conformity of all laws and bylaws in the Republic

iv

Article 5 ACV Article 21 of the Law is not comprehensive and it misses some provisions established in the ACV. This Article states, The customs valuation based on the deductive value is made in the event if valued goods or identical or analogous goods will be sold in the territory of the RUz without the change of their initial condition at the time of their import. When using the CV method based on deductive method as a basis for the determination of customs value the Customs should use the price of the commodity unit, for which valued, identical or similar goods are sold at their greatest quantity in the territory of the Republic not earlier than 90 days before the date of the importation of the valued goods to the participant of the transaction who is not interdependent with the seller. From commodity unit the following expenses are deducted: Expenses for the payment of commissions, usual extra additions on profit and general expenses in connection with the sale of the imported goods of the same class and kind in the Republic of Uzbekistan; The sums of the import customs duties, taxes, levies and other payments that must be paid in the Republic of Uzbekistan in connection with the importation or sale of the goods; Expenses made in the RUz for transportation, insurance, loading and discharging works. In the absence of the cases of sale of valued, identical or analogous goods in the same condition, in which they were at the moment of importation, at the request of the declarer, it is possible to use the price of a commodity unit that underwent further processing adjusted for added value subject to the provisions of part two and three of this article. In short, Article 21 is relatively short and it does not mention about paragraph (iii) of Article 5 ACV that requires that where appropriate, the costs and charges referred to in paragraph 2 of Article 8 should be subject to deduction from the cost of goods sold in the country of import. Moreover, this Article employs a difficult language; therefore, it creates some difficulty in comprehension.

The whole Article 21 should be replaced by a new Article that would reflect the requirements of Article 5 ACV

Article 6 ACV Article 22 that covers the issue of CV based on the computation of the cost states, While using the CVM based on the computation of the cost as a basis for determination of the CV of goods, the cost calculated by the computation of will include: 1. The cost and expenses of materials incurred by the manufacturer in connection with the production of the valued goods; 2. General expenses, typically incurred for the sale of goods that has the same kind in the RUz from country of exportation including the expenses for the transportation, loading and unloading works, insurance up to the place of crossing of the customs border of Uzbekistan, and other costs; 3. Profit, usually received by the exporter as a result of supply of the identical or similar goods into the Republic of Uzbekistan. In short, Article 22 of the Law fails to implement Article 6.2 of the ACV. Additionally, it appears, based on the English translation of the Law that the Law has improperly implemented Article 6.1(b) and (c). It also turns up that the legislator has separately provided for the addition of profits and general expenses. However, pursuant to the Interpretative Note to Article 6, profit and general expenses are to taken together as a whole. In short, Article 22 does not reflect the stipulation established in Article 6 ACV

To be consistent with Article 6 of the ACV, Article 22 should be reworked. It is necessary to incorporate profit and general expenses into one category and Article 8.2 transportation and insurance costs into another category.

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Article 7 ACV Article 23 of the Law states: If the customs value of goods cannot be determined by methods indicated in Articles 18-22 of this Law, then the customs value of goods is determined on the basis of the price information available at the Customs House. At the same time the customs value of the goods should not be determined on the basis: 1. The sale price of the analogous goods made in the Republic of Uzbekistan; 2. The highest price from two and more alternative prices; 3. The price of goods at the home market of the country of exportation (export); 4. The price of goods delivered from the country of its exportation (export) to the third countries; 5. Minimum customs values as well as arbitrarily established or fictitious and authentically not confirmed costs of the goods. The translation of Article 23 reveals that the value of goods under this provision will be determined on the basis of price information that is available at the CA. This is not consistent with Article 7 ACV, which provides that goods will be valued "using reasonable means consistent with the principles and general provisions of this Agreement and of Article VII of the General Agreement and on the basis of data available in the country of importation." Besides, the Law fails to implement Article 7.2(d) that prohibits such method of appraisement. Finally, the Law has added an additional illicit method of appraisement, i.e. "not authentically confirmed values of goods". Article 9 ACV During the Q/A meeting in 2000 the WP referred to the statements made by the representative of Uzbekistan that foreign exchange rates are published once a week. The WP expressed its frustration regarding this assertion because it could not comprehend at which time the exchange rate is to be taken into account: i.e. time of exportation or time of importation. Pursuant to Article 9.2 ACV, Uzbekistan should have elected one of these times in which currency conversion should take place. The representatives of the Republic responded as follows: Transaction of purchase and sale of foreign currency on the off-the-counter market of Uzbekistan are carried out either at the rate set by the Central Bank on the day of buy-sell transaction, or at the free market rate established on the basis of the supply and demand of the foreign currency depending on the type of buy-sell transaction of the foreign currency.

Firstly, it is necessary to eliminate any CVM on the basis of price information. Also, it is indispensable to incorporate accurate provisions of Article 7.2(d). Finally, the legislator should reconsider some of the terms such as not authentically confirmed values of goods"

It is clear that Uzbek legislation lacks of some currency legislation that would offer a clear-cut answer in this regard. Therefore, it is necessary to review some of Uzbek laws regulating currency issues because these issues do play an important role in the implementation of the ACV

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Article 11 ACV

Article 13 of the Law provides that an applicant has the right to appeal against decisions of CAs with regard to CV according to procedures established by the legislation. However, Uzbek CL does not specify whether the applicant has a right of appeal without penalty to a judicial authority and that the applicant is given written notice of the decision on appeal as set forth in Article 11.2 and 11.3 of the ACV. At present the legislation of the Republic (Economic Code) provides the possibility to appeal to the courts by claiming the protection of infringed rights and the compensation for the losses incurred as a result of the illegal actions of the state bodies. In case of such an appeal the claimant shall pay the following state duties: - Natural persons claiming the infringement of the rights of natural persons as a result of the illegal actions by the state bodies or state officials pay the duty quintuple of the amount of the existing minimal monthly salary in volume of fivefold (this duty is paid by the party found guilty based on the courts decision) Legal persons: - From the claims involving property duties are paid in form of a percentage of the value of the claim (maximum charge 3 per cent from the total amount of claim not exceeding the amount of 1 million soums (national currency of Uzbekistan); minimum charge 1 per cent from the total amount of the claim the total value of which is over 10 million soums); - From the claims not involving property tenfold of the amount of existing minimal monthly salary. Upon results of investigation court announces its grounded decision, which is passed to the parties involved in the case as well as to other interested parties. It is not difficult to observe that both natural and legal entities have to pay the application fee if they want their case to be considered by Uzbek court. Also, in case if the importer loses the case they may end up paying some fine. In brief, there are no clear provisions in this regard and Article 11 is not fully reflected in Uzbek legislation.

It is necessary to add into Article 13 some provision that would ensure that importers have a right of appeal without penalty to a judicial authority and that they will be given written notice of the decision on appeal

viii

Article 14 of the ACV

Article 15.4 ACV

Article 14 ACV stipulates that the (Interpretative) Notes to the Agreement form an integral part of the ACV and the Articles are to be read in connection with the Notes. Thus, the text of the Notes must form part of the implementing legislation. According to the WP, however, Uzbekistan has not indicated how it will incorporate the Notes set forth in Annex I of the ACV in its customs valuation regime. The WP also noted that Uzbekistan acknowledges that the Notes are not included in the current legislation and the SCC knows about this issue.... In response Uzbekistan made a statement that the issue of whether or not to include the Notes will be taken into consideration in future deliberations on this question. Although the Directives No. 390 does incorporate most of the provisions found the in the ACV and the Notes, it does not fully incorporate all of its provisions. Paragraph 5 of Article 18 of the Law states: - The buyer and seller are not interdependent persons, except for the cases, when their interdependence has not affected the cost of the transaction that must be proved by declarer (importer or his representative) The Law never provides any definition to what the term interdependent persons means. Secondly, the term interdependent persons does not correctly reflect the term related parties (persons). Therefore, the Law does not fulfil Article 15.4 ACV.

Directives No. 390 should include the ACV as well as the Notes in its text.

It is indispensable to incorporate a definition to the term related persons in both Customs Code and in the Law On Customs Tariff

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The Interpretative Notes to the ACV

Relevant Article of the ACV De-facto use of minimum prices or arbitrary and fictitious pricing Article 7 ACV

The WP during the third meeting held in 2005 asked the following under its question 55: In its response to Question 67 WT/ACC/UZB/10, Uzbekistan specified several pieces of legislation where the ACV Notes are incorporated: Directives on determining customs value of goods imported into the territory of the Republic of Uzbekistan 390 of 13 January 1998 Directives on filling out the declarations of customs value No. 391 of 13 January 1998 The rules for the declaration and monitoring of customs value of goods being imported onto the customs territory of the Republic of Uzbekistan No. 899 of 22 February 2000 In short, the WP asked whether the Republic is planning to revise only Directives No. 390 or all three documents and how Uzbekistan has been planning to incorporate the Notes into three different administrative acts. The official response by Uzbekistan declared that the Directives related to the application of CV procedures will be revised taking into account the ACV and the approximate term for the completion of this work is 2006. Other indirect violations of the ACV provisions During the WP Q/A meeting in 1999 the officials of Uzbekistan stated, "Export and import prices are controlled in such a way as to ensure that the goods were not exported below or imported above world prices." The WP rightly notes that this language could be interpreted such that Uzbekistan would use minimum pricing in valuing imported goods, which is specifically prohibited by Article 7 ACV. The representatives responded that in accordance with the Resolution of the CM RUz 137 the registration of export contracts is carried out by taking into consideration the conjuncture on the international markets, as well as, the supply and demand status on the regional markets. Moreover, other two CM Resolutions 421 and 424 also require conformity of the contract prices to the average prices on the international markets and its conjuncture. Certainly such practice of contract registration is against the WTO rules; therefore, they ought to be reconsidered.

The revision and modification of the Law, Customs Code and the relevant Directives have not completed until today, one year after the proposed timeframe. It is hoped that these acts will contain all the necessary corrections to the abovementioned omissions of the previous acts.

Solution Recommended As it has been stated above, it is necessary to reconsider various legislative acts and bylaws to check their degree of compliance with the GATT/WTO rules. Certainly, the Republic needs to eliminate such practice like minimum prices and so on.

ATTACHMENT 3 4
III. IDENTIFICATION OF CAPACITY REQUIREMENTS (a) Core Capacity Needs - the essential Valuation Capacity Requirements * Comprehensive valuation-specific legal framework, including powers of customs, * Full knowledge of the Valuation Agreement and of the instruments of the WTO Valuation Committee and the WCO Technical Committee on Customs Valuation, * Total familiarity with current business practices, procedures and documentation, * Total familiarity with relevant trading public (practices, procedures). * Administrative guidelines and Directives. (b) Highly recommended Valuation Capacity Requirements * Specialist valuation units, * Formal and well-maintained valuation rulings system, * Knowledge of related party transactions, * Knowledge of Generally accepted accounting principles, *Knowledge of specific forms of commercial arrangements (e.g., royalties and license fees, agents and commissions). (c) Core Capacity Needs - the essential Customs Infrastructure Capacity Requirements * Relevant legal regulatory system stable, comprehensive and modern legal framework which ensures that customs legislation is directly applicable and can be implemented, * Associated procedures, setting out the obligations of importers (for example, requirements to make an accurate and complete customs declaration or customs value declaration, requirements to produce relevant and essential documents), * Services responsible for post import auditing, with related standards and procedures, * Training programmes for officials involved in valuation work, * Guarantee or customs bond system.
4

Source: Malone, J. (2002), Defining/developing capacity building in the field of customs valuation, Seminar on Technical Assistance on Customs Valuation, 6-7 November 2002, European Commission

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(d) Highly recommended Customs Infrastructure Capacity Requirements * Knowledge and capacity to conduct risk management (risk analysis), * Procedures to inform educate and consult with trading public, * Exploit information technology (e.g., import declarations, record keeping, risk analysis) * Stability and predictability in meeting and maintaining human resource skills and capacity.

ANNEX L
COMPREHENSIVE LIST OF NORMATIVE ACTS OF UZBEKISTAN REGULATING CUSTOM RELATIONS 5 Legislative acts Customs Code of the Republic of Uzbekistan, approved by the Law of the Republic of Uzbekistan # 548-I dated December 26, 1997 and enacted from March 1, 1998 pursuant to Resolution of the Oliy Majlis (Parliament) of the Republic of Uzbekistan Economical Procedural Code of the Republic of Uzbekistan available at WT/ACC/UZB/13/Add.1 Law on Customs Tariff of August 29, 1997 Law on State Customs Service of the Republic of Uzbekistan 472 of 29 August 1997 Law on Currency Regulation of the Republic of Uzbekistan of 7 May 1993 Governmental acts Presidential Decree No. UP-1871 of 10 October 1997 Resolution of the Cabinet of Ministers 80 "On Measures of Tariff Regulation" of 24 February 1998 Resolution of the Cabinet of Ministers of the Republic of Uzbekistan 421 Resolution of the Cabinet of Ministers of the Republic of Uzbekistan 424 Resolution of the Cabinet of Ministers of the Republic of Uzbekistan 137 of 31 March 1998 Administrative acts Directives on determining customs value of goods imported into the territory of the Republic of Uzbekistan 390 of 13 January 1998
5

Independently compiled by the author

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Directives on filling out the declarations of customs value No. 391 of 13 January 1998 Directives on filling out correction forms of customs value No. 920 of 20 April 2000 The rules for the declaration and monitoring of customs value of goods being imported onto the customs territory of the Republic of Uzbekistan No. 899 of 22 February 2000

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