Jun 10, 1988


GENEVA, JUNE 8 (IFDA/CHAKRAVARTHI RAGHAVAN) -- The customs valuation code in GATT should be elaborated to take account of the "real world of commerce" and the gross abuses and malpractices prevalent there in over-invoicing and under-invoicing, India has suggested.

In particular the provisions of the code should be elaborate to shift the burden of proof on the importer when customs officials have a factual basis to suspect that the declared value is incorrect or a misrepresentation, India has reportedly suggested.

The Indian suggestion, supported by Pakistan, was reportedly made this week at the meeting of the Uruguay round negotiating group on MTN agreements and arrangements.

The group has been mandated "to improve, clarify, or expand, as appropriate, agreements and arrangements negotiated in the Tokyo round of multilateral negotiations".

A major effort of the exercise is also to persuade third world countries to join the codes and their increases disciplines and benefits.

Very few third world countries have joined the Tokyo round codes. Only 15 of the over 70 third world CPS are members of one or the other of the Tokyo round codes.

The customs valuation agreement is one of the Tokyo round codes. Of the 37 countries that are parties to it, only 12 are third world countries (two of them non-GATT countries). Even of these, seven have done so with reservations.

The code interprets and clarifies the provisions of article VII of the general agreement, which enjoins countries to undertake customs valuation on the basis of general principles, set out in the article.

Among these is the principle that the valuation for customs purposes should be based on the actual value of the imported merchandise, and not on the basis of merchandise of national origin or arbitrary or fictious values.

The actual value itself is defined as the value at which the particular goods or like merchandise is sold or offered for sale in the ordinary course of trade under fully competitive conditions.

Under the Tokyo round code, the actual value for customs purposes is the so-called "transaction value" the value on an invoice of bill of goods of sale.

India reportedly noted in the negotiating group this week that the reason why most third world countries did not join the code was due to the fact that the application of transaction value for customs valuation purposes had revenue implications.

Studies by the Technical Committee of the Code had demonstrated that implementation of the agreement did have significant revenue implications for countries where customs duties represent a significant part of government revenues.

The application of the transaction value, India reportedly noted, made the role of the document of sale, the invoice, of paramount importance in customs valuation.

But it was necessary to take account of the situation in the real world of commerce, and in the light of the limited resources available to customs administrations particularly in third world countries to deal with gross abuses and malpractices in over-invoicing and under-invoicing.

The code had some elaborate procedures and provisions to deal with problems of transactions among "related parties" (such as a principal and subsidiary of a TNC), but the code had not taken account of the "very wide-spread, and in some cases rampant, practice of collusion between unrelated parties in under-invoicing or over-invoicing to the obvious commercial advantage of both parties".

While there was a general enabling provision in article 17 of the code to permit customs authorities to satisfy themselves about the accuracy of documents presented, the burden of proof for establishing inaccuracy remained with the customs administration.

This created enormous difficulties in situations where the customs administration was presented with an invoice which was otherwise genuine but in which the value of goods was deliberately misrepresented on account of an understanding between the buyer and the seller.

In a prima facie case of malafide intent, where the customs had a factual basis to suspect misrepresentation, the burden of proof to establish the validity and correctness should be shifted to the importer.

In supporting the Indian argument, Pakistan which is not a member of the code, is reported to have said that the Indian communication had been examined by its won customs authorities who had said they also faced identical problems.

With the invoice or transaction value as the basis for determination of customs duties, the chances for connivance had increased.

Pakistan had not joined the code among other things because of the revenue implications of acceding to the code.

The European Communities reportedly suggested that even as it was the article 17 of the code could be used by a country to enact domestic laws that would shift the burden of proof on to the importer.

The customs cooperation council representative is reported to have given a preliminary view supporting this. The Council, the representative reportedly said, was having the matter examined and would provide its views at the next meeting of the negotiating group.