Agreement Establishing the World Trade Organization
(Continued)
Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994
ANNEX I
INTERPRETATIVE NOTES
General Note
Sequential Application of Valuation Methods
1. Articles 1 through 7 define how the customs value of imported goods
is to be determined under the provisions of this Agreement. The methods
of valuation are set out in a sequential order of application. The primary
method for customs valuation is defined in Article 1 and imported goods
are to be valued in accordance with the provisions of this Article whenever
the conditions prescribed therein are fulfilled.
2. Where the customs value cannot be determined under the provisions
of Article 1, it is to be determined by proceeding sequentially through
the succeeding Articles to the first such Article under which the customs
value can be determined. Except as provided in Article 4, it is only when
the customs value cannot be determined under the provisions of a particular
Article that the provisions of the next Article in the sequence can be
used.
3. If the importer does not request that the order of Articles 5 and
6 be reversed, the normal order of the sequence is to be followed. If the
importer does so request but it then proves impossible to determine the
customs value under the provisions of Article 6, the customs value is to
be determined under the provisions of Article 5, if it can be so determined.
4. Where the customs value cannot be determined under the provisions
of Articles 1 through 6 it is to be determined under the provisions of
Article 7.
Use of Generally Accepted Accounting Principles
1. "Generally accepted accounting principles" refers to the
recognized consensus or substantial authoritative support within a country
at a particular time as to which economic resources and obligations should
be recorded as assets and liabilities, which changes in assets and liabilities
should be recorded, how the assets and liabilities and changes in them
should be measured, what information should be disclosed and how it should
be disclosed, and which financial statements should be prepared. These
standards may be broad guidelines of general application as well as detailed
practices and procedures.
2. For the purposes of this Agreement, the customs administration of
each Member shall utilize information prepared in a manner consistent with
generally accepted accounting principles in the country which is appropriate
for the Article in question. For example, the determination of usual profit
and general expenses under the provisions of Article 5 would be carried
out utilizing information prepared in a manner consistent with generally
accepted accounting principles of the country of importation. On the other
hand, the determination of usual profit and general expenses under the
provisions of Article 6 would be carried out utilizing information prepared
in a manner consistent with generally accepted accounting principles of
the country of production. As a further example, the determination of an
element provided for in paragraph 1(b)(ii) of Article 8 undertaken in the
country of importation would be carried out utilizing information in a
manner consistent with the generally accepted accounting principles of
that country.
Note to Article 1
Price Actually Paid or Payable
1. The price actually paid or payable is the total payment made or to
be made by the buyer to or for the benefit of the seller for the imported
goods. The payment need not necessarily take the form of a transfer of
money. Payment may be made by way of letters of credit or negotiable instruments.
Payment may be made directly or indirectly. An example of an indirect payment
would be the settlement by the buyer, whether in whole or in part, of a
debt owed by the seller.
2. Activities undertaken by the buyer on the buyer's own account, other
than those for which an adjustment is provided in Article 8, are not considered
to be an indirect payment to the seller, even though they might be regarded
as of benefit to the seller. The costs of such activities shall not, therefore,
be added to the price actually paid or payable in determining the customs
value.
3. The customs value shall not include the following charges or costs,
provided that they are distinguished from the price actually paid or payable
for the imported goods:
(a) charges for construction, erection, assembly, maintenance or technical
assistance, undertaken after importation on imported goods such as industrial
plant, machinery or equipment;
(b) the cost of transport after importation;
(c) duties and taxes of the country of importation.
4. The price actually paid or payable refers to the price for the imported
goods. Thus the flow of dividends or other payments from the buyer to the
seller that do not relate to the imported goods are not part of the customs
value.
Paragraph 1(a)(iii)
Among restrictions which would not render a price actually paid or payable
unacceptable are restrictions which do not substantially affect the value
of the goods. An example of such restrictions would be the case where a
seller requires a buyer of automobiles not to sell or exhibit them prior
to a fixed date which represents the beginning of a model year.
Paragraph 1(b)
1. If the sale or price is subject to some condition or consideration
for which a value cannot be determined with respect to the goods being
valued, the transaction value shall not be acceptable for customs purposes.
Some examples of this include:
(a) the seller establishes the price of the imported goods on condition
that the buyer will also buy other goods in specified quantities;
(b) the price of the imported goods is dependent upon the price or prices
at which the buyer of the imported goods sells other goods to the seller
of the imported goods;
(c) the price is established on the basis of a form of payment extraneous
to the imported goods, such as where the imported goods are semi-finished
goods which have been provided by the seller on condition that the seller
will receive a specified quantity of the finished goods.
2. However, conditions or considerations relating to the production
or marketing of the imported goods shall not result in rejection of the
transaction value. For example, the fact that the buyer furnishes the seller
with engineering and plans undertaken in the country of importation shall
not result in rejection of the transaction value for the purposes of Article
1. Likewise, if the buyer undertakes on the buyer's own account, even though
by agreement with the seller, activities relating to the marketing of the
imported goods, the value of these activities is not part of the customs
value nor shall such activities result in rejection of the transaction
value.
Paragraph 2
1. Paragraphs 2(a) and 2(b) provide different means of establishing
the acceptability of a transaction value.
2. Paragraph 2(a) provides that where the buyer and the seller are related,
the circumstances surrounding the sale shall be examined and the transaction
value shall be accepted as the customs value provided that the relationship
did not influence the price. It is not intended that there should be an
examination of the circumstances in all cases where the buyer and the seller
are related. Such examination will only be required where there are doubts
about the acceptability of the price. Where the customs administration
have no doubts about the acceptability of the price, it should be accepted
without requesting further information from the importer. For example,
the customs administration may have previously examined the relationship,
or it may already have detailed information concerning the buyer and the
seller, and may already be satisfied from such examination or information
that the relationship did not influence the price.
3. Where the customs administration is unable to accept the transaction
value without further inquiry, it should give the importer an opportunity
to supply such further detailed information as may be necessary to enable
it to examine the circumstances surrounding the sale. In this context,
the customs administration should be prepared to examine relevant aspects
of the transaction, including the way in which the buyer and seller organize
their commercial relations and the way in which the price in question was
arrived at, in order to determine whether the relationship influenced the
price. Where it can be shown that the buyer and seller, although related
under the provisions of Article 15, buy from and sell to each other as
if they were not related, this would demonstrate that the price had not
been influenced by the relationship. As an example of this, if the price
had been settled in a manner consistent with the normal pricing practices
of the industry in question or with the way the seller settles prices for
sales to buyers who are not related to the seller, this would demonstrate
that the price had not been influenced by the relationship. As a further
example, where it is shown that the price is adequate to ensure recovery
of all costs plus a profit which is representative of the firm's overall
profit realized over a representative period of time (e.g. on an annual
basis) in sales of goods of the same class or kind, this would demonstrate
that the price had not been influenced.
4. Paragraph 2(b) provides an opportunity for the importer to demonstrate
that the transaction value closely approximates to a "test" value
previously accepted by the customs administration and is therefore acceptable
under the provisions of Article 1. Where a test under paragraph 2(b) is
met, it is not necessary to examine the question of influence under paragraph
2(a). If the customs administration has already sufficient information
to be satisfied, without further detailed inquiries, that one of the tests
provided in paragraph 2(b) has been met, there is no reason for it to require
the importer to demonstrate that the test can be met. In paragraph 2(b)
the term "unrelated buyers" means buyers who are not related
to the seller in any particular case.
Paragraph 2(b)
A number of factors must be taken into consideration in determining
whether one value "closely approximates" to another value. These
factors include the nature of the imported goods, the nature of the industry
itself, the season in which the goods are imported, and, whether the difference
in values is commercially significant. Since these factors may vary from
case to case, it would be impossible to apply a uniform standard such as
a fixed percentage, in each case. For example, a small difference in value
in a case involving one type of goods could be unacceptable while a large
difference in a case involving another type of goods might be acceptable
in determining whether the transaction value closely approximates to the
"test" values set forth in paragraph 2(b) of Article 1.
Note to Article 2
1. In applying Article 2, the customs administration shall, wherever
possible, use a sale of identical goods at the same commercial level and
in substantially the same quantities as the goods being valued. Where no
such sale is found, a sale of identical goods that takes place under any
one of the following three conditions may be used:
(a) a sale at the same commercial level but in different quantities;
(b) a sale at a different commercial level but in substantially the
same quantities; or
(c) a sale at a different commercial level and in different quantities.
2. Having found a sale under any one of these three conditions adjustments
will then be made, as the case may be, for:
(a) quantity factors only;
(b) commercial level factors only; or
(c) both commercial level and quantity factors.
3. The expression "and/or" allows the flexibility to use the
sales and make the necessary adjustments in any one of the three conditions
described above.
4. For the purposes of Article 2, the transaction value of identical
imported goods means a customs value, adjusted as provided for in paragraphs
1(b) and 2, which has already been accepted under Article 1.
5. A condition for adjustment because of different commercial levels
or different quantities is that such adjustment, whether it leads to an
increase or a decrease in the value, be made only on the basis of demonstrated
evidence that clearly establishes the reasonableness and accuracy of the
adjustments, e.g. valid price lists containing prices referring to different
levels or different quantities. As an example of this, if the imported
goods being valued consist of a shipment of 10 units and the only identical
imported goods for which a transaction value exists involved a sale of
500 units, and it is recognized that the seller grants quantity discounts,
the required adjustment may be accomplished by resorting to the seller's
price list and using that price applicable to a sale of 10 units. This
does not require that a sale had to have been made in quantities of 10
as long as the price list has been established as being bona fide through
sales at other quantities. In the absence of such an objective measure,
however, the determination of a customs value under the provisions of Article
2 is not appropriate.
Note to Article 3
1. In applying Article 3, the customs administration shall, wherever
possible, use a sale of similar goods at the same commercial level and
in substantially the same quantities as the goods being valued. Where no
such sale is found, a sale of similar goods that takes place under any
one of the following three conditions may be used:
(a) a sale at the same commercial level but in different quantities;
(b) a sale at a different commercial level but in substantially the
same quantities; or
(c) a sale at a different commercial level and in different quantities.
2. Having found a sale under any one of these three conditions adjustments
will then be made, as the case may be, for:
(a) quantity factors only;
(b) commercial level factors only; or
(c) both commercial level and quantity factors.
3. The expression "and/or" allows the flexibility to use the
sales and make the necessary adjustments in any one of the three conditions
described above.
4. For the purpose of Article 3, the transaction value of similar imported
goods means a customs value, adjusted as provided for in paragraphs 1(b)
and 2, which has already been accepted under Article 1.
5. A condition for adjustment because of different commercial levels
or different quantities is that such adjustment, whether it leads to an
increase or a decrease in the value, be made only on the basis of demonstrated
evidence that clearly establishes the reasonableness and accuracy of the
adjustment, e.g. valid price lists containing prices referring to different
levels or different quantities. As an example of this, if the imported
goods being valued consist of a shipment of 10 units and the only similar
imported goods for which a transaction value exists involved a sale of
500 units, and it is recognized that the seller grants quantity discounts,
the required adjustment may be accomplished by resorting to the seller's
price list and using that price applicable to a sale of 10 units. This
does not require that a sale had to have been made in quantities of 10
as long as the price list has been established as being bona fide through
sales at other quantities. In the absence of such an objective measure,
however, the determination of a customs value under the provisions of Article
3 is not appropriate.
Note to Article 5
1. The term "unit price at which ... goods are sold in the greatest
aggregate quantity" means the price at which the greatest number of
units is sold in sales to persons who are not related to the persons from
whom they buy such goods at the first commercial level after importation
at which such sales take place.
2. As an example of this, goods are sold from a price list which grants
favourable unit prices for purchases made in larger quantities.
Sale quantity | Unit price | Number of sales | Total quantity sold at each price |
1-10 units | 100 | 10 sales of 5 units 5 sales of 3 units | 65 |
11-25 units | 95 | 5 sales of 11 units | 55 |
over 25 units | 90 | 1 sale of 30 units 1 sale of 50 units | 80 |
The greatest number of units sold at a price is 80; therefore, the unit
price in the greatest aggregate quantity is 90.
3. As another example of this, two sales occur. In the first sale 500
units are sold at a price of 95 currency units each. In the second sale
400 units are sold at a price of 90 currency units each. In this example,
the greatest number of units sold at a particular price is 500; therefore,
the unit price in the greatest aggregate quantity is 95.
4. A third example would be the following situation where various quantities
are sold at various prices.
Sale quantity | Unit price |
40 units | 100 |
30 units | 90 |
15 units | 100 |
50 units | 95 |
25 units | 105 |
35 units | 90 |
5 units | 100 |
Total quantity sold | Unit price |
65 | 90 |
50 | 95 |
60 | 100 |
25 | 105 |
In this example, the greatest number of units sold at a particular price
is 65; therefore, the unit price in the greatest aggregate quantity is
90.
5. Any sale in the importing country, as described in paragraph 1 above,
to a person who supplies directly or indirectly free of charge or at reduced
cost for use in connection with the production and sale for export of the
imported goods any of the elements specified in paragraph 1(b) of Article
8, should not be taken into account in establishing the unit price for
the purposes of Article 5.
6. It should be noted that "profit and general expenses" referred
to in paragraph 1 of Article 5 should be taken as a whole. The figure for
the purposes of this deduction should be determined on the basis of information
supplied by or on behalf of the importer unless the importer's figures
are inconsistent with those obtained in sales in the country of importation
of imported goods of the same class or kind. Where the importer's figures
are inconsistent with such figures, the amount for profit and general expenses
may be based upon relevant information other than that supplied by or on
behalf of the importer.
7. The "general expenses" include the direct and indirect
costs of marketing the goods in question.
8. Local taxes payable by reason of the sale of the goods for which
a deduction is not made under the provisions of paragraph 1(a)(iv) of Article
5 shall be deducted under the provisions of paragraph 1(a)(i) of Article
5.
9. In determining either the commissions or the usual profits and general
expenses under the provisions of paragraph 1 of Article 5, the question
whether certain goods are "of the same class or kind" as other
goods must be determined on a case-by-case basis by reference to the circumstances
involved. Sales in the country of importation of the narrowest group or
range of imported goods of the same class or kind, which includes the goods
being valued, for which the necessary information can be provided, should
be examined. For the purposes of Article 5, "goods of the same class
or kind" includes goods imported from the same country as the goods
being valued as well as goods imported from other countries.
10. For the purposes of paragraph 1(b) of Article 5, the "earliest
date" shall be the date by which sales of the imported goods or of
identical or similar imported goods are made in sufficient quantity to
establish the unit price.
11. Where the method in paragraph 2 of Article 5 is used, deductions
made for the value added by further processing shall be based on objective
and quantifiable data relating to the cost of such work. Accepted industry
formulas, recipes, methods of construction, and other industry practices
would form the basis of the calculations.
12. It is recognized that the method of valuation provided for in paragraph
2 of Article 5 would normally not be applicable when, as a result of the
further processing, the imported goods lose their identity. However, there
can be instances where, although the identity of the imported goods is
lost, the value added by the processing can be determined accurately without
unreasonable difficulty. On the other hand, there can also be instances
where the imported goods maintain their identity but form such a minor
element in the goods sold in the country of importation that the use of
this valuation method would be unjustified. In view of the above, each
situation of this type must be considered on a case-by-case basis.
Continue with the Agreement on Implementation of
Article VII of the General Agreement on Tariffs and Trade 1994
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