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History of Customs Valuation

What is history ?


"'History,' Stephen said, 'is a nightmare from which I am trying to awake.'" James Joyce "History is the witness that testifies to the passing of time; it illuminates reality, vitalizes memory, provides guidance in daily life, and brings us tidings of antiquity." Cicero "The past is useless. That explains why it is past. Wright Morris "Every past is worth condemning." Friedrich Nietzsche Only a good-for-nothing is not interested in his past." Sigmund Freud
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What is history

Ancient History Palmyra AD 136 Kautilya 300 BC Methods of Valuation World Perspective Indian Scene


World Perspective Why Valuation matter of concern Economic Conference Geneva 1927,1930 The formal History of customs valuation started from the establishment of League of Nations but the agreement between nations on customs valuation was not finalized until general conference of United Nations held on Trade and Employment in 1947. The conclusions of this conference were incorporated in Article VII of General Agreement on Tariff and Trade (GATT)


World Scene
1947 13 Countries se up a study group to examine customs issues identified by GATT 1947 First version of GATT developed during United Nations Conference on Trade and Employment in Havana is referred as GATT 1947 GATT signed on 30.10.1947 by 23 countries Article VII deals with Customs Valuation.


The General Agreement on Tariffs and Trade (GATT 1947)

The Governments of the Commonwealth of Australia, the Kingdom of Belgium, the United States of Brazil, Burma, Canada, Ceylon, the Republic of Chile, the Republic of China, the Republic of Cuba, the Czechoslovak Republic, the French Republic, India, Lebanon, the GrandDuchy of Luxemburg, the Kingdom of the Netherlands, New Zealand, the Kingdom of Norway, Pakistan, Southern Rhodesia, Syria, the Union of South Africa, the United Kingdom of Great Britain and Northern Ireland, and the United States of America:
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Article VII: Valuation for Customs Purposes

1. The contracting parties recognize the validity of the general principles of valuation set forth in the following paragraphs of this Article, and they undertake to give effect to such principles, in respect of all products subject to duties or other charges* or restrictions on importation and exportation based upon or regulated in any manner by value. Moreover, they shall, upon a request by another contracting party review the operation of any of their laws or regulations relating to value for customs purposes in the light of these principles. The CONTRACTING PARTIES may request from contracting parties reports on steps taken by them in pursuance of the provisions of this Article.
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2. (a) The value for customs purposes of imported merchandise should be based on the actual value of the imported merchandise on which duty is assessed, or of like merchandise, and should not be based on the value of merchandise of national origin or on arbitrary or fictitious values.* (b) Actual value should be the price at which, at a time and place determined by the legislation of the country of importation, such or like merchandise is sold or offered for sale in the ordinary course of trade under fully competitive conditions. To the extent to which the price of such or like merchandise is governed by the quantity in a particular transaction, the price to be considered should uniformly be related to either (i) comparable quantities, or (ii) quantities not less favourable to importers than those in which the greater volume of the merchandise is sold in the trade between the countries of exportation and importation.* (c) When the actual value is not ascertainable in accordance with subparagraph (b) of this paragraph, the value for customs purposes should be based on the 4/18/2012 8 nearest ascertainable equivalent of such value.*

3. The value for customs purposes of any imported product should not include the amount of any internal tax, applicable within the country of origin or export, from which the imported product has been exempted or has been or will be relieved by means of refund. 4. (a) Except as otherwise provided for in this paragraph, where it is necessary for the purposes of paragraph 2 of this Article for a contracting party to convert into its own currency a price expressed in the currency of another country, the conversion rate of exchange to be used shall be based, for each currency involved, on the par value as established pursuant to the Articles of Agreement of the International Monetary Fund or on the rate of exchange recognized by the Fund, or on the par value established in accordance with a special exchange agreement entered into pursuant to Article XV of this Agreement. (b) Where no such established par value and no such recognized rate of exchange exist, the 4/18/2012 conversion rate shall reflect effectively the current 9 value of such currency in commercial transactions.

c) The CONTRACTING PARTIES, in agreement with the International Monetary Fund, shall formulate rules governing the conversion by contracting parties of any foreign currency in respect of which multiple rates of exchange are maintained consistently with the Articles of Agreement of the International Monetary Fund. Any contracting party may apply such rules in respect of such foreign currencies for the purposes of paragraph 2 of this Article as an alternative to the use of par values. Until such rules are adopted by the Contracting Parties, any contracting party may employ, in respect of any such foreign currency, rules of conversion for the purposes of paragraph 2 of this Article which are designed to reflect effectively the value of such foreign currency in commercial transactions. (d) Nothing in this paragraph shall be construed to require any contracting party to alter the method of converting currencies for customs purposes which is applicable in its territory on the date of this Agreement, if such alteration would have the effect of 4/18/2012 10 increasing generally the amounts of duty payable.

5. The bases and methods for determining the value of products subject to duties or other charges or restrictions based upon or regulated in any manner by value should be stable and should be given sufficient publicity to enable traders to estimate, with a reasonable degree of certainty, the value for customs purposes.



Ad Article VII Paragraph 1 The expression or other charges is not to be regarded as including internal taxes or equivalent charges imposed on or in connection with imported products. Paragraph 2 1. It would be in conformity with Article VII to presume that actual value may be represented by the invoice price, plus any non-included charges for legitimate costs which are proper elements of actual value and plus any abnormal discount or other reduction from the ordinary competitive price. 2. It would be in conformity with Article VII, paragraph 2 (b), for a contracting party to construe the phrase in the ordinary course of trade ... under fully competitive conditions, as excluding any transaction wherein the buyer and seller are not independent of each other and price is not the sole consideration. 3. The standard of fully competitive conditions permits a contracting party to exclude from consideration prices involving special discounts limited to exclusive agents. 4. The wording of subparagraphs (a) and (b) permits a contracting party to determine the value for customs purposes uniformly either (1) on the basis of a particular exporters prices of the imported merchandise, or (2) on the basis of the general price level of like merchandise.
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1950 -13 European governments developed the BDV, taking into account the broad principles and guidelines prescribed by Article VII GATT agreement. CCC in force 4.11.1952 BDV incorporated in Convention for Valuation of Goods for Customs purpose BDV in force 28. 07.1953 What is BDV? Let us examine provisions
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Annex I Definition of value

Article I 1.For the purposes of levying duties of customs, the value of any goods imported for home consumption shall be taken to be the normal price, that is to say, the price which they would fetch at the time when the duty becomes payable on a sale in the open market between buyer and seller independent of each other. 2.The normal price of any imported goods shall be determined on the following assumptions: (a) that the goods are treated as having been delivered to the buyer at the port or place of introduction into the country of importation; and (b) that the seller will bear all costs, charges and expenses incidental to the sale and to the delivery of the goods at that port or place; but (c) that the buyer will bear any duties or taxes applicable 4/18/2012 14 in the country of importation.

Article II
1.A sale in the open market between buyer and seller independent of each other pre-supposes: (a) that the price is the sole consideration; and (b) that the price made is not influenced by any commercial, financial or other relationship, whether by contract or otherwise, between the seller or any person associated in business with him and the buyer or any person associated in business with him (other than the relationship created by the sale of the goods in question); and (c) that no part of the proceeds of the subsequent re-sale, use or disposal of the goods will accrue either directly or indirectly to the seller or any person associated in business with him .2.Two persons shall be deemed to be associated in business with one another if, whether directly or indirectly, either of them has any interest in the business or property of the other or both have a common interest in any business or 4/18/2012 15 property or some third person has an interest in the business or property of both of them.

Article III
When the goods to be valued a. are manufactured in accordance with any patented invention or are goods to which any registered design has been applied; or b. are imported under a foreign trade mark or are imported for sale under a foreign trade mark, the normal price shall be determined on the assumption that the value of the right to use the patent, design or trade mark in respect of the goods is covered by the price.
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Addendum to Article I
Note 1 "The time when the duty becomes payable" referred to in paragraph (1) of Article I may, in accordance with the legislation of each country, be either the time at which the entry is presented or registered, the time of payment of customs duty or the time of clearance. Note 2 The "costs, charges and expenses" mentioned in Article I, paragraph (2) (b) include, inter alia, any of the following: -carriage and freight;-insurance;-commission;-brokerage;costs, charges and expenses of drawing up outside the country of importation documents incidental to the introduction of the goods into the country of importation, including consular fees;-the net amount (after allowing for repayments made or to be made) of duties and taxes applicable outside the country of importation;-cost of containers excluding those which are treated as separate articles for the purpose of levying duties of customs; cost of 4/18/2012 17 packing (whether for labour, materials or otherwise);-loading charges.

Note 3 Where the normal price would depend upon the quantity in the sale, it shall be determined on the assumption that the sale is a sale of the quantity to be valued. Note 4 Where the determination of the value or of the price paid or payable depends upon factors which are expressed in a currency other than that of the country of importation, the foreign currency shall be converted into the currency of the importing country at the official rate of exchange of that country. Note 5
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Note 5 The object of the definition of value is to make it possible in all cases to calculate the duties payable on the basis of the price at which imported goods are freely available to any buyer in the open market at the port or place of introduction into the country of importation. It is a concept for general use and is applicable whether or not the goods are in fact imported under a contract of sale, and whatever the terms of that contract. But the application of the Definition implies an enquiry into current prices at the time of valuation. In practice, therefore, when imported goods are the subject of a bona fide sale, the price paid or payable on that sale can generally be considered as a valid indication of the normal price mentioned in the Definition. This being so, the price paid or payable can reasonably be used as basis for valuation, and Customs authorities are recommended to accept this price as the value of the goods in question subject: A .to proper safeguards aimed at preventing evasion of duty by means of fictitious or colourable contracts or prices; and such adjustment of the contract price as may be considered necessary on account of circumstances differentiating the contract from the notional concept embodied in the Definition of Value.Adjustments under paragraph (b) above may in particular be required with reference to freight and other expenses dealt with in paragraph (2) of Article I and Note 2 of the Addendum to Article 1, or with reference to discounts or other reductions in price granted in favour of sole 4/18/2012 19 agents or sole concessionaires, or to any abnormal discount or any reduction from the ordinary competitive price.


Addendum to Article III

Note 1 The provisions of Article III (b) may also be applied to goods imported for sale, after further manufacture, under a foreign trade mark. Note 2 Sub-paragraph (b) of Article III, or that sub-paragraph amended in accordance with Note 1 above, may be extended so that it shall not apply to a trade mark registered within the country of importation, unless it is a mark used for the purpose of indicating that goods in relation to which it is used are those of: A any person by whom the goods to be valued have been grown, produced, manufactured, selected, offered for sale or otherwise dealt with outside the country of importation; or b.a person associated in business with any such person as is referred to in (a) above; or c.a person to whom any such person as is referred to in (a) or 4/18/2012 20 (b) above has assigned the goodwill of the business in connection with which the trade mark is used.

General Addendum
It is recommended that the concept of value expressed by the Definition and these Interpretative Notes be employed for the valuing of all goods subject to customs declaration, including duty-free goods and goods liable to specific customs duties.



Summing Up - Brussels Definition of Value

Basis was "Notional concept". Emphasis on Intrinsic value". "The price that imported goods would fetch in the course of international trade, after giving due regards to time, place, quantity and commercial levels." By about 1970, over 100 countries were applying BDV
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TARIFF SCHEDULE IN KAUTILYA'S ARTHA SASTHRA CUSTOMS TARIFES: TARIFE SCHEDULE: IMPORT DUTY: On edible salt - onesixth in kind + countervailing duty. All other goods: 20% ad valorem. EXPORT DUTY: Live animals: Quadrupeds and bipeds - 4% or 5% in cash. Food: Grains, fats, sugar, salt - 4% or 5% in cash. Fresh prduce: Flowers, fruits, vegetables, fruits of creepers, seeds - onesixth in kind. Preserved food: Dried fish or meat - one- sixth in king; Cooked food - 4% or 5% in cash. Liquor: Wine - 4% or 5% in cash Fermented liquor: 1/10the or 1/15th in cash. Medicines, Spices and Perfumery: Spices; perfumery such as sandalwood and aloe: 1/10th or 1/15th in cash; Perf umes n.e.s: 4% or 5% in cash; Medicines: 4% or 5% in cash. Raw material: Cotton - 4% or 5% in cash; Ivory; skins: 1/10th or 1/15th in cash; Timber, bamboo, bark: 4% or 5% in cash; Pigments and colouring material: in cash. Manufactures Garments of cotton and similar in cash fibres; leather garments; silk yarn; covering material such as bedspreads; carpets; wool and woollen goods: 1/10th or 1/15th in cash; Cotton yarn; garments n.e.s; leather goods n.e.s; earthenware: 4% or 5% in cash; Gems and Jewellery: Conch shells; diamonds; precious stones; pearl 4/18/2012 23 necklaces; coral: 20% of basic cost(price less value added) in cash; experts to evaluate value added.


Value under Sea Customs Act, 1878.

Value under Sea Customs Act 1878 was based on real value. Real value 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). The Sea Customs Act also contained provisions for taking over the imported goods by Government on payment of an amount equal to declared real value (Section 32).
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Sea Customs Act, 1878

In view of deeming provision in section 30, real value could be equated to an artificial value that might or might not coincide with the actual value. To discourage under-valuation, provisions existed for payment of an amount equal to the declared real value



Sea Customs Act, 1878

Basis was Real Value" "Wholesale price for which like goods were capable of being sold at the time and place of import Mere fact that Importer paid a certain price was not sufficient to prove that It was real value. It was to be shown that like goods could not be delivered at a low
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Sea Customs Act

Valuation Provisions Section 22 Tariff Value Section 29 Owners requirement for declaring real value Section 30 Real Value Section 31 Examination of Ad valorem goods Section 32 Procedure for undervalued goods
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Section 14 Customs Act 1962