sold in foreign markets. The Department of the Treasury argued that data to determine Export Value were more readily available and the elimination of Foreign Value would streamline the appraisement process by obviating the need to make simultaneous appraisements under Export Value and Foreign Value. In response to these proposals, the Customs Simplification Act of 1956 created in effect a new group of valuation standards. These standards were contained in section 402 of the Tariff Act of 1930 27 and referred to as the "new law." The "new law" eliminated the Foreign Value standard and made Export Value the primary basis of appraisement. With certain modifications, both U.S. Value and Cost of Production (renamed the Constructed Value) were retained as the first and second alternative standards. The meaning of each of the standards was modified, however, by changes in the statutory language and by the inclusion in the law of definitions for certain of the terms. However, the Congress was unwilling to make the changes applicable to all imported articles. Because the new provisions were expected to have a duty-reducing effect for many articles, the Secretary of the Treasury was instructed to prepare a list of commodities which, if appraised under the new valuation standards, would have been appraised at 95 percent or less of the value at which they were actually appraised in the 12 months ending June 30, 1954 (i.e., dutiable value reduced by 5 percent or more). The articles so identified were published in Treasury Decision 54521 (January 20, 1958), which is referred to as "the Final List" and such articles were to continue to be appraised under the "old law" standards which remained in section 402a of the Tariff Act. Thus, after the enactment of the Customs Simplification Act of 1956,28 there were now nine separate bases of appraisement (five under the old law and four under the new) which could be applicable to imported products. It was largely this complexity of U.S. valuation laws as well as foreign objections to the American Selling Price basis of appraisement which prompted many of our trading partners to enter into negotiations at the Tokyo Round of MTN on the development of a new system of customs valuation. THE GATT CUSTOMS VALUATION AGREEMENT The Customs Valuation Agreement, which was signed by most major U.S. trading partners at the conclusion of the Tokyo Round,29 consists of four major parts in addition to a preamble and three annexes. Part I sets out the substantive rule of customs valuation, the substance of which was codified in U.S. law by the Trade Agreements Act of 1979 as an amendment to section 402 of the Tariff Act of 1930. Part II provides for the international administration of the agreement and for dispute resolution among signato 27 19 U.S.C. 1401a. 28 Act of August 2, 1956, ch. 887. 29 Current signatories to the Valuation Agreement are: Argentina; Australia; Austria; Botswana; Brazil; Canada; Cyprus; Czechoslovakia; European Economic Community (EEC); Finland; Hong Kong; Hungary; India; Japan; Korea, Republic of; Lesotho; Malawi; Mexico; New Zealand; Norway; Romania; South Africa; Sweden; Switzerland; Turkey; United States; Yugoslavia; and Zimbabwe. ries. Part III provides for special and differential treatment for developing countries, and Part IV contains so-called final provisions dealing with matters such as acceptance and accession of the agreement, reservations and servicing of the agreement. Administration and dispute resolution.-As mentioned above, the agreement establishes two committees-a "Committee on Customs Valuation" (referred to as "the Committee") and a "Technical Committee on Customs Valuation" (referred to as the "Technical Committee")-to administer the agreement and creates a mechanism for resolving disputes between parties to the agreement. The Committee, which is composed of representatives from each of the parties, meets annually in Geneva "to consult on matters relating to the administration of the customs valuation system by any party to Agreement as it might affect the operation of this Agreement or the furtherance of its objectives, and to carry out such other responsibilities as may be assigned to it by the parties.' The GATT secretariat acts as the secretariat to the Committee and the Office of the U.S. Trade Representative is the U.S. representative to this Committee. The Technical Committee was created under the auspices of the Customs Cooperation Council (CCC) to carry out the responsibilities assigned to it by the parties and set forth in Annex II to the agreement with a view towards achieving uniformity in interpretation and application of the agreement at the technical level. Among the responsibilities assigned to the Technical Committee are (i) to examine specific technical problems arising in the administration of the customs valuation systems and to give advisory opinions offering solutions to such problems; (ii) to study, as requested and prepare reports on valuation laws, procedures and practices as they relate to the agreement; and (iii) to furnish such information and advice on customs valuation matters as may be requested by parties to the agreement. The Technical Committee meets periodically in Brussels and the U.S. Customs Service serves as the U.S. representative to this technical committee. Dispute resolution.-Several steps are provided for a party to follow if it considers that any benefit accruing to it under the agreement is being nullified or impaired or if any objectives of the agreement are being impeded by the actions of another party. First, the aggrieved party should request consultations with the party in question with a view to reaching a mutually satisfactory solution. If no mutually satisfactory solution is reached between the parties within a reasonably short period of time, the Committee shall meet at the request of either party (within 30 days of receiving such request) and attempt to facilitate a mutually satisfactory solution. If the dispute is of a technical nature, the Technical Committee will be asked to examine the matter and report to the Committee within 3 months. In the absence of a mutually agreeable solution from the Committee up to this point, the Committee shall, upon the request of either party, establish a panel (within 3 months from the date of the parties' request for the Committee to investigate where the matter is not referred to the Technical Committee, otherwise within 1 month from the date of the Technical Committee's report) to examine the matter and make such finding as will assist the Committee in making recommendations or giving a ruling on the matter. After the investigation is complete, the Committee shall take appropriate action (in the form of recommendations or rulings). If the Committee considers the circumstances to be serious enough, it may authorize one or more parties to suspend the application to any other party of obligations under the valuation agreement. Special and different treatment.-Part III of the agreement allows developing countries which are party to the agreement (i) to delay application of its provisions for a period of five years from the date the agreement enters into force; (ii) to delay application of articles 1, 2(b)(iii) and 6 (both of which provide for a determination of the computed value of imported goods) for a period of three years; and (iii) to receive technical assistance (such as training of personnel, assistance in preparing implementation measures and advice on the application of the agreement's provisions) upon request, from developed countries party to the agreement. CURRENT LAW 30 Section 402 of the Tariff Act of 1930 31 as amended by the Trade Agreements Act of 1979 establishes "Transaction Value" as the primary basis for determining the value of imported merchandise. Generally, transaction value is the price actually paid or payable for the goods, with additions for certain items not included in that price. If the first valuation basis cannot be used, the secondary bases are considered. These secondary bases, listed in the order of precedence for use, are: transaction value of identical or similar merchandise; deductive value; computed value. The order of precedence of the last two bases can be reversed if the importer so requests. Each of these bases is discussed in detail below: Transaction Value of Imported Merchandise.-Several concepts relating to the transaction value of imported merchandise are also applicable to the transaction value of identical merchandise, and of similar merchandise which are discussed in the next section. These concepts, concerning the nature of transaction value itself, are discussed in terms of the transaction value of imported merchandise. The discussion in the next section of the transaction value of identical merchandise and similar merchandise will focus on the unique features applicable to those standards. 30 Most of the description of current law was taken from "Customs Valuation Under the Trade Agreements Act of 1979," Department of the Treasury, U.S. Customs Service, Office of Commercial Operations, October 1981. 31 19 U.S.C. 1401a. DEFINITIONS The transaction value of imported merchandise (i.e., the merchandise undergoing appraisement) is defined as the price actually paid or payable for the merchandise when sold for exportation to the United States, plus amounts equal to: A. The packing costs incurred by the buyer; B. Any selling commission incurred by the buyers; C. The value of any assist; 32 D. Any royalty or license fee that the buyer is required to pay as a condition of the sale; E. The proceeds, accruing to the seller, of any subsequent resale, disposal, or use of the imported merchandise. These amounts (A through E) are added only to the extent that each (1) is not included in the price, and (2) is based on information establishing the accuracy of the amount. If sufficient information is not available, then the transaction value cannot be determined; and the next basis of value, in order of precedence, must be considered for appraisement. The price actually paid (or payable) for the imported merchandise is the total payment, excluding international freight, insurance, and other C.I.F. charges, that the buyer makes to the seller. Amounts to be disregarded in determining transaction value are: A. The cost, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the goods from the country of exportation to the place of importation in the United States. B. Any decrease in the price actually paid or payable that is made or effected between the buyer and seller after the date of importation of the goods into the United States. As well as, if identified separately: C. Any reasonable cost or charge incurred for: (1) Constructing, erecting, assembling, maintaining, or providing technical assistance with respect to the goods importation into the United States, or (2) transporting the goods after importation. D. The customs duties and other Federal taxes, including any Federal excise tax for which sellers in the United States are ordinarily liable. LIMITATIONS ON THE APPLICABILITY OF TRANSACTION VALUE The transaction value of imported merchandise is the appraised value of that merchandise, provided certain limitations do not 32 An "assist" is any of the following items that the buyer of imported merchandise provides directly or indirectly, and free of charge or at reduced cost, for use in the production of or the sale for export to the United States of the imported merchandise: Materials, components, parts, and similar items incorporated in the imported merchandise; Tools, dies, molds, and similar items used in producing the imported merchandise; Engineering, development, artwork, design work, and plans and sketches that are undertaken outside the United States. The last item listed above ("Engineering, development .") will not be treated as an assist if the service or work is (1) performed by a person domiciled within the United States, (2) performed while that person is acting as an employee or agent of the buyer of the imported merchandise, and (3) incident to other engineering, development, artwork, design work, or plans or sketches undertaken within the United States. exist. If any of these limitations are present, then transaction value cannot be used as the appraised value, and the next basis of value will be considered. The limitations can be divided into four groups: restrictions on the disposition or use of the merchandise, conditions for which a value cannot be determined, proceeds accruing to the seller, and related-party transactions where the transactions value is not acceptable. Each is discussed separately below. 1. Restrictions.-With regard to the first category of limitations which preclude the use of transaction value, is the imposition of restrictions by a seller on a buyer's disposition or use of the imported merchandise. However, exceptions are made to this rule. Thus certain restrictions are acceptable, and their presence will still allow the use of transaction value. The acceptable restrictions are: (a) those imposed or required by law, (b) those limiting the geographical area in which the goods may be resold, and (c) those not substantially affecting the value of the goods. An example of the last restriction occurs when a seller stipulates that a buyer of new-model cars cannot sell or exhibit the cars until the start of the new sales year. 2. Conditions. Secondly, if the sale of, or the price actually paid or payable for, the imported merchandise is subject to any condition or consideration for which a value cannot be determined, then transaction value cannot be used. Some examples of this group include when the price of the imported merchandise depends on (a) the buyer's also buying from the seller other merchandise in specified quantities, (b) the price at which the buyer sells other goods to the seller, or (c) a form of payment extraneous to the imported merchandise, such as, the seller's receiving a specified quantity of the finished product that results after the buyer further processes the imported goods. 3. Proceeds.-Under the third category of impermissable restrictions, if part of the proceeds of any subsequent resale, disposal, or use of the imported merchandise by the buyer accrues directly or indirectly to the seller, then transaction value cannot be used. There is an exception however. The exception is that, if an appropriate adjustment can be made for the partial proceeds the seller receives, then transaction value can still be considered. Whether an adjustment would be made would depend on whether the price actually paid or payable includes such proceeds and, if it does not, the availability of sufficient information to determine the amount of such proceeds. 4. Relationship.-Finally, the relationship between the buyer and seller may preclude the application of transaction value. The fact that the buyer and seller are related 33 does not automatically 33 For appraisement purposes, any of the following persons are considered related— Members of the same family, including brothers and sisters (whether by whole or half blood), spouse, ancestors, and lineal descendants; Any officer or director of an organization and such organization; An officer or director of an organization and an officer or director of another organization, if each such individual is also an officer or director in the other organization; Partners; Employer and employee; Continued |