Certificate Program in Logistics Management: 2010

Foreign Trade Policy

Reading Material: Module I

Course Co-ordinator: Prof. T. Chaturvedi

Session I: Introduction to the course & Theory of Trade: Why Countries Trade? Learning Objectives: objective is to understand meaning of various macroeconomic variables and relate it with the basis of trade, what the gains from trade are and what the pattern of trade is. To explain how factor differences between countries give rise to trade between them and why trade is mutually beneficial. 1.1 Understanding fundamental macroeconomic variables and their interrelationships 1.2 Balance of Payments 1.3 Development of Trade Theories: Introduction Absolute Cost Advantage Comparative Cost Advantage

Reading Notes I. Understanding fundamental macroeconomic variables and their interrelationships Gross domestic product is the value of final sales; it is also equal to the value added at each stage of production. The value-added approach to measuring GDP is a cost approach, where the value of final output is the sum of payments to the factors of production (wages + rent + interest + profit) plus indirect taxes and depreciation. 1. Measuring Gross domestic product There are two approaches to measuring domestic output: an expenditure approach, which measures the value of final sales; and a cost approach, which measures the value added at each stages of production. The following two-sector, three-sector, and four-sector models illustrate how GDP is measured by the expenditure and cost approaches. A Two Sector Model A two-sector model consists of a business sector, which hires resources and produces goods and services, and a household sector, which supplies resource services to the business sector and purchases the goods and services produced by them. Presented as circular flow (Fig 2-1), the upper portion of the inner flow show the household sector providing resource services to the business sector; the lower portion of the inner loop shows the flow of output to individuals (the household sector). The upper portion of 1

the outer loop traces the financial payments made by the business sector to individuals for the use of resource services. Individuals receive wages, interest, and rent for the use of resources services, and profits for entrepreneurial talents. In the lower portion of the outer flow, individuals spend their money income purchasing goods and services produced by the business sector.

Figure 1 Wages, Interest, Rent, and Profit Services of Labour, Capital, Natural Resources and Entrepreneurial Ability

Household Sector

Business Sector

Goods and Services Money Expenditure for Goods and Service

Example 1. Suppose individuals receive the following payment from the business sector: wages $ 3900; interest $400; rent$150; and profit $550. One thousand items are produced and sold to the household sector at an average price per unit of $5. The market value of final output is $5,000 [$5(1000 items)], which is the sum of total spending on final output; the cost of producing this output is also $5,000 [$3900+$400+$150+$550]. 2

Fig. 2 below presents the circular flow of financial payments associated with the production and sale of final output; it differs from the financial payment in the outer flow in Fig. 1 in that individuals save a portion of their money income. The amount that individuals save equals the amount of new plant and/ or equipment purchased by the business sector. Household saving is a leakage from the circular flow; saving leakage are reinvested into the circular flow by investment spending, i.e., by the business sector's purchase of plant and equipment. Figure 2 Compensation for Services of Economic Resources

Household Sector

Business Sector

Consumption Spending Household Saving = Investment Spending

Three-and Four Sector Model Fig. 3 presents a closed economy circular flow among the household, business, and government sectors. In the upper loop, individuals are paid for factor services and government receives indirect taxes, which it imposes upon the output of goods and services. Individuals use their income payments consume, save, and pay income taxes the government. Government spends its tax receipts; receipts; individuals lend their savings to the business sector, which invests in new plant and equipment. In the lower loop, the spending flow includes consumption (c), investment (I), and government expenditures (G).

A four-sector model adds international transactions to the three-sector model. Goods and services available for U.S. purchase include those that are domestically produced (Y) and those that are imported (Mg); thus, goods and services available for domestic purchase equal Y + Mg. Expenditures for U.S. and foreign-made goods include consumption, investment, government, and exports (Xg). Thus, Y+ Mg=C + I + G + Xg. Subtracting Mg from both sides of the equation, we have Y = C + I + G +Xg Mg, where represents domestic output. Figure 3

Compensation for Services of Economic Resources

Direct Taxes Business Income

Indirect Taxes

Household Sector

Direct Taxes on Income

Government Sector

Business Sector

Government Expenditures

(G)

Consumption Spending

(C)

Household Saving = Investment Spending

(I)

Example 2. Suppose consumption spending is $ 4600; investment spending is $ 500; government spending is $ 935; and imports are $ 600. Domestic output is $ 6065, found by summing consumption, investment, government spending, and net exports (exports less imports) ($4600 + $500 + $935 + $630 - $600]). 2. Other Measures of output In addition to GDP, other output measures include: Gross National Product (GNP), net national product (NNP), national income (NI), and personal disposable income (Yd).

Gross National Product Gross domestic product consist of all output produced within the boundaries of the country, whereas GNP includes all output produced by the countrys economic resources regardless of where they are domiciled. Both measure are of comparable magnitude and display similar behavior overtime. Net National Product Net national product equals GNP less replacement investment (capital consumption allowances). Each year, some of the economy's capital stock (In) and replacement of worn-out capital stock (D). Thus, GNP=C+Ig (Gross investment) + G + Xn (gross exports less gross imports), while NNP =C + In (net investment) + C + In (net investment) + G + Xn. National Income The costs associated with producing net national product include payments to the factors of production (national income) and taxes imposed by government at production or final sale. Examples of indirect taxes at production or sale include taxes on tobacco and liquor products when these goods are packaged, sales taxes, and business and property taxes. National income is found by adding wages + interest + rent + profit or by subtracting indirect business taxes from net national product. Personal Disposable Income Personal income is the amount of national income which is received by individuals. In calculating personal income, national income is reduced by corporate retained earnings and corporate income taxes (corporate profits less dividend payments to individuals) and net transfer payments made by business and government to individuals. Personal disposable income is found by deducting tax and non-tax payments to government form personal income. Example 3 Table -1 presents gross domestic product, gross national product, net national product, and national income. Example 4 Table 2 present national income, personal income, and personal disposable income.

Table 1: Gross Domestic Product, (Billion of Dollars) (1) Compensation of Employees Rents Interest Profit Proprietors' income Corporate National income Indirect business taxes Net National Product (NPP) Capital consumption allowances Gross national Product (GNP) Plus: Payments of factor income to rest of the world Less: Receipts of factor income from the rest of the world Gross domestic Product (2) 4222.7 122.2 403.6 478.3 586.6 5813.5 679.0 6492.5 754.2 7246.7 215.3 -208.3 7253.8 (3) Personal Consumption Expenditures Gross Private domestic investment Government Expenditures Net Exports Gross domestic product (4) 4924.9 1065.3 1358.3 - 94.7 72.53.8

Table 2. Personal Disposable Income,(Billions of Dollars) National income Less: Corporate profits Contributions to social security plus net interest Plus: Government and business transfers to individuals Net interest paid to individuals Dividends paid by corporations to individuals Personal income Less: Personal tax and non-tax payments to government Personal disposable income II. Balance of Payments 5813.5 586.6 1066.3 1022.6 717.1 214.8 6115.1 794.3 5320.8

THE BALANCE OF PAYMENTS ACCOUNTING A nation's balance of payments is a summary statement of all its economic transactions with the rest of the world during a given year. Its main components are the current account, the capital account and the official reserve account. Each transaction is entered in the balance of payments as a credit or a debit. A credit transaction is one that leads to the receipt of payment from foreigners. A debit transaction leads to a payment to foreigners. 1. THE CURRENT ACCOUNT

The current account includes trade in goods and services, income on foreign investment and unilateral transfers. The main categories of services transactions are travel and transportation, royalties and military transaction. Income on foreign investments refers to the interest and profits received on the countrys. assets abroad and paid on foreign assets in the country. Unilateral transfers refer to gifts made by individuals and the government to foreigners and to gifts received from foreigners.

Exports of goods and services and the receipt of unilateral transfers are entered in the current account as credits (+) because they lead to the receipt of payments from foreigners. On the other hand, imports of goods and services and the granting of unilateral transfers are entered as debits (-) because they lead to payments to foreigners. Example 1. Table 1 below presents a summary of the current account of the U.S. for the year 1993 as it appeared in a government publication (all values are expressed in billions of dollars; some of the values do not add up because of rounding).

Table 1 Export of Goods, services and income.. 756 Merchandise 457 Services 185 Income receipts on assets abroad ... 114 Imports of goods, services and income -827 Merchandise . -589 Services.. -128 Income payments on foreign assets.. -110 Unilateral transfer, net - 32 Government grants -14 Government pensions and other transfers .. - 4 Private remittances and other transfers - 14 Balance of merchandise trade - 133 Balance on goods, services and income - 72 Balance of current account... -104 2. THE CAPITAL ACCOUNT The capital account shows the change in the nation's assets aboard and foreign assets in the nation other than official reserve assets. It includes direct investments (such as the building of a foreign plant), the purchase or sale of foreign securities (stocks, bonds and treasury bills), and the change in the nation's non-bank and bank claims on and liabilities to foreigners during the year. Increase in the nation's assets abroad and reductions in foreign assets in the nation (other than official reserve assets) are capital outflows or debits (-) in the nation's capital account because they lead to payments to foreigners. On the other hand, decreases in the nation's assets abroad and increases in

foreign assets in the nation are capital inflow or credits (+) because they lead to the receipt of payments from foreigners. Example 2. Table 2. presents the U.S. capital account (in billions of dollars) Table.2 U.S. assets abroad, net [increase/capital outflow (-). -147 U.S. government assets, other than official reserve assets, net -1 U.S private assets, net -146 Direct investment aboard -58 Foreign securities -120 Non-bank claims...0 Bank claims..32 Foreign assets in the U.S. net [increase /capital inflow (+).... 159 Direct investment. 21 U.S. treasury and other U.S. securities. 105 Non-bank liabilities . 14 Bank Liabilities. 19 Balance on capital account .. 12 3. The official reserve account

The official reserve account measures the change in a nation's official reserve assets and the change in foreign official assets in the nation during the year. A nation's official reserve assets include the gold holdings of the nation's monetary authorities, special drawing rights (SDRs) the nation's reserve position in the International Monetary Fund and the official foreign currency holdings of the nation. Increase in the nation's official reserve assets are debits (-), while increases in foreign official assets in the nation are credits (+) Example 3. Table presents the U.S. official reserve account (in billions of dollars) U.S. official reserve assets, net..-1 Gold 0 Special drawing rights 0 Reserve position in the IMF.. 0 Convertible currencies. . -1 Foreign official assets in the U.S. net.. 72 Balance on U.S. official reserve account 71 9

III. Development of Trade Theories: Absolute and Comparative Cost Advantage Most nations of the world export some goods, services and factors of production in exchange for imports which could be supplied only relatively less efficiently at home, or not at all ( e.g., coffee in the U.S., petroleum in Germany, cars in Kenya). Thus, a great deal of economic well-being of most nations rests crucially on international interdependence. Interdependence has grown during the past decades as indicated by the fact that world trade has grown faster than world output. Example 1. When a U.S. firm wants to export a piece of machinery to Germany, it faces certain restrictions (such as a tariff) imposed by Germany. It must also overcome differences in language, customs and laws. In addition, the U.S. firm may receive payment in the foreign currency which may change in value in relation to the dollar. No such barriers are involved when the U.S. firm sells its machinery domestically. In order to analyze the different problems arising from international as opposed to interregional relations, we must modify, adapt, extend and integrate the microeconomic and macroeconomic tools appropriate for the analysis of purely domestic problems. THE MERCANTILIST VIEW ON TRADE The economic philosophy known as mercantilism (popular from the sixteenth to the middle of the eighteenth century in such countries as Britain, Spain, France and the Netherlands) maintained that the most important way for a national to become rich and powerful was to export more than it imported. The difference would be settle by an inflow of precious metals most gold. The more gold a national had the richer and more powerful it was. Thus mercantilists advocated that the government stimulate exports and restrict imports. Since not all nations could have an export surplus simultaneously and the amount of gold in existence was fixed at any one time, a nation could gain only at the expense of other nations. ADAM SMITH: ABSOLUTE ADVANTAGE In 1776, Adam Smith published his famous book. The Wealth of Nations, in which he attacked the mercantilist view on trade and advocated instead free trade as the best policy for the nations of the world. Smith argued that with free trade, each nation could specialize in the production of those commodities in which it had an absolute advantage (or could produce more efficiently than other nations) and import those commodities in which it had an absolute disadvantage (or could produce less efficiently). 10

This international specialization of factors in production would result in an increase in world output which would be shared by the trading nations. Thus, a nation need not gain at the expense of other nations all nations could gain simultaneously. Example 1. Table 1.1 shows that the U.S. has an absolute advantage over the U.K. in the production of wheat and the U.K. has an absolute advantage in the production of cloth. If the U.S. specialized in the production of wheat and the U.K. in the production of cloth, the combined output of wheat and cloth of the U.S. and the U.K. would be greater and both the U.S. and U.K. would share in the increase through (voluntary) exchange. Table 1.1 U.S. 6 1 U.K. 1 2

Wheat (bushels/laborhour) Cloth (yards/labor-hour)

Smiths theory of absolute advantage is obviously correct, but it does not go very far it explains only a small portion of international trade. It remained for David Ricardo, writing some 40 yea later, to explain the bulk of world trade with his law of comparative advantage. DAVID RICARDO: COMPARATIVE ADVANTAGE Ricardo stated that even if a nation had an absolute disadvantage in the production of both commodities with respect to the other nation, mutually advantageous trade could still take place. The less efficient nation should specialize in the production and export of the commodity in which its absolute disadvantage is less. This is the commodity in which the nation has comparative advantage. On the other hand, the nation should import the commodity in which its absolute disadvantage is greater. This is the area of its comparative disadvantage. This is known as the law of comparative advantage one of the most famous and still unchallenged laws of economics. Example 2. Table 1.2 shows that the U.K. has an absolute disadvantage with respect to the U.S. in the production of both wheat and cloth. However, its disadvantage is less in cloth than in wheat. Thus, the U.K. has a comparative advantage with respect to the U.S. in cloth and a comparative disadvantage in wheat. For the U.S., the opposite is true. That is, the U.S. has an absolute advantage over the U.K. both commodities, but

11

this advantage is greater in wheat (6:1) than in cloth (3:2). Thus the U.S. has a comparative advantage over the U.K. in wheat and comparative disadvantage in cloth. Mutually advantageous trade could take place with the U.S. exchanging wheat (W) for cloth (C) with the U.K. Example 3. With reference to Table 1.2., we see that if the U.S. could exchange 6W for 6C with the U.K., the U.S. would gain 3C (since the U.S. can exchange only 6W for 3C domestically). To produce 6W itself, the U.K. would require 6 hours of labor (see Table 1.2). Instead, the U.K. can use the 6 labor-hours to produce 12C (see Table 1.2), exchange 6 of these 12C for 6W from the U.S. and end up with 6C more for itself. Thus, by exchanging 6W for 6C, the U.S. would gain 3C and the U.K. 6C. There are many other ratios of exchange of W for C (beside 6W for 6C) that would be advantageous to both nations . the rate at which exchange actually takes place determines how the gains from trade are share by the two nations. What that rate itself will be also depends on demand conditions in each nation. Table 1.2 U.S. 6 3 U.K. 1 2

Wheat (bushels/laborhour) Cloth (yards/labor-hour)

12

Sample Class Questions 1 Suppose, in a two-sector model, that individuals receive the following payments from the business sector: wages $520, interest $30, rent $10, and profits $80. Consumption spending is $ 550 and investment is $ 90. (a) Find the market value of output and household saving. (b) what is the relationship of saving and investment?

2 (a) Find GDP from the payment and expenditure flows for the closed economy in Fig 2.6. Assume that individuals own all economics resources (b) Find the sum of leakages and objection

WAGES $855, INTEREST $62, RENT $ 26, PROFIT $105 INDIRECT TAXES $135

DEPRECIATION

Direct taxes $ 115

Production Sector

Business Sector

Government Sector

Household Sector

Gross Investment $210

Saving $90

Government Expenditures $ 250 Consumption $250

13

3. From the following data, find (a) national income, (b) personal income, (c) personal disposable income and (d) personal saving.

Compensation of employees Business interest payments Rental income of persons Corporate profits Proprietors' income Corporate dividends Social security contributions Personal Taxes Interest Paid by consumers Interest paid by government Government and business transfers Personal consumption expenditures

$ 1866.3 264.9 34.1 164.8 120.3 66.4 253.0 402.1 64.4 105.1 374.5 1991.9

14

Session II- V: Indias Trade scenario, Regional and Sectoral Trade Flows

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

34

35

36

37

38

39

40

41

42

43

44

45

46

47

48

49

50

WTO PARAMETERS FOR DECISION MAKING

What is a TRQ? A tariff-rate quota is a quota for a volume of imports at a lower tariff. After the quota is reached, a higher tariff is applied on additional imports. Suppose a country replaces its quota of 10,000 tons with a TRQ of 10,000 tons. The TRQ appears to differ little from the earlier "absolute" quota. The distinction is that under an absolute quota it is legally impossible to import more than 10,000 tons, whereas under a TRQ, imports can exceed 10,000 tons but a higher, over-quota tariff is applied on the excess. In principle, a TRQ provides more market access to imports than a quota. In practice, however, many over-quota tariffs are prohibitively high and effectively exclude imports in excess of the quota. It is possible to design a TRQ so that it reproduces the trade-volume limit of the quota it replaces. A TRQ has three components:

a quota that defines the maximum volume of imports charged the in-quota tariff, an in-quota tariff, and an over-quota tariff. The values of these three components are part of the AoA and are defined in member nations' tariff schedules. If the TRQ is scheduled to be liberalized, the rates at which the quota is to increase or the tariffs to decrease are also specified.

The illustration demonstrates how TRQ's influence the incentives to trade. The twolevel tariff results in a stepped import supply function. Imports within the quota are charged the lower tariff; over-quota imports are charged the higher tariff. This results in a vertical step when the quota volume is filled. The figure illustrates a case in which domestic demand is sufficient to import the full quota volume at the in-quota tariff, but the over-quota tariff is prohibitive. That is, the domestic price is below the price of imports with the over-quota tariff, thus there is no incentive to import beyond the quota. Were domestic demand to increase, it might become profitable to import at the over-quota tariff. This opportunity would not be possible with a standard, absolute quota.

TRQ administration involves distributing the rights to import at the in-quota tariff. Whoever obtains such rights can make a risk-free profit of the difference between the domestic price, and the world price inclusive of the in-quota tariff. The area labeled RENT' in the figure represents the value of these profitable opportunities. Rents indicate that the demand to trade within the quota is greater than the supply of quota; thus the necessity to ration or administer the TRQ.

How are TRQ's Administered? The WTO identifies seven principal methods of TRQ administration. Member nations are to notify the WTO whether and how the tariff quotas listed in their tariff schedules are administered. Of the 1,368 tariff-rate quotas notified to the WTO in 1999, more than half were not enforced and imports entered at the in-quota rate. However, the overquota tariff can be reapplied at will. Of the 726 TRQ's that were enforced, license on demand was the most common method of administration, accounting for almost half of enforced TRQ's.

53

TRQ Administration Percent of all TRQ's 47% 25%

Method of TRQ Administration Applied tariff License on demand

Explanation Unlimited imports are allowed at or below the inquota tariff rate; that is, the quota is not enforced. Licenses are required to import at the in-quota tariff. If the demand for licenses is less than the quota, this system operates as a first-come, first-served system. Usually, if demand exceeds the quota, the import volume requested is reduced proportionately among all applicants. The first quota units of imports to clear customs are charged the in-quota tariff; all subsequent imports are charged the over-quota tariff. The right to import at the in-quota tariff is allocated to firms on the basis of their trading volume in previous periods. The right to import at the in-quota tariff is auctioned. The right to import in-quota is granted wholly or primarily to a state trading organization or an organization representing domestic producers of the controlled product. A combination of two or more of the above methods. Methods that do not correspond to the above methods or are not specified in WTO notifications.

First-come, firstserved Historical

11%

5% 4% 2%

Auction State trader or producer group

Mixed Other or not specified

4% 2%

54

Trade Facilitation Introduction Negotiations on trade facilitation started in November 2004 pursuant to the WTOs July Framework Agreement of 2004. The modalities for negotiations are set out in Annex D of the July Framework Agreement. As per the July 2004 Framework Agreement, Trade Facilitation (TF) negotiations revolve around three pillars: (a) Negotiations shall aim to clarify and improve relevant aspects of Articles V, VIII and X of the GATT 1994 with a view to further expediting the movement, release and clearance of goods, including goods in transit; (b) Negotiations shall also aim at enhancing technical assistance and support for capacity building in this area. (c) The negotiations shall further aim at provisions for effective cooperation between customs or any other appropriate authorities on trade facilitation and customs compliance issues. Article V provides for freedom of transit through the territory of other WTO Members. Article VIII seeks to rationalize and simplify border procedures, formalities and charges. Article X requires prompt publication of all trade laws and regulations and their uniform, impartial and reasonable administration. The aim of Article X is to enhance transparency and to inspire trust in the fairness of the border control systems.

55

The object of these three GATT Articles is to reduce trading costs and facilitate trade. However, it has been increasingly realized that with the growing importance and the increasing complexity of international trade, these Articles, which were drafted in 1947, have drifted into obsolescence and so need to be fleshed out by making additional rules and clarifying the existing provisions. Clarification and improvement of the relevant aspects of Articles V, VIII and X is the primary task of the Negotiating Group on Trade Facilitation (NGTF). Textual proposals The textual proposals of Members on the various elements of trade facilitation were discussed by the NGTF. In the ongoing negotiations, Members have submitted a large number of proposals on Articles V, VIII and X. While a large number of proposals have come from the developed countries (like EC, Japan, USA and Canada), several developing countries (e.g. India, Korea, Peoples Republic of China, Singapore, Hong Kong China, Paraguay, etc.) have also tabled proposals. The proposals cover a wide range of issues connected with import, export and transit procedures and fees. The main thrust of the proposals is to impart greater transparency to laws and regulations concerning import and export, and to simplify the border clearance and transit procedures through automation and adoption of modern methods of control such as risk management and post clearance audit. The domain of most of the proposals is confined not just to Customs but also extends to other border agencies as well. Proposals under Article V of GATT cover, inter alia, inclusion of fixed infrastructure viz. pipelines and electricity grids in the definition of goods in transit; adoption of simplified formalities and documentation requirements for expeditious movement of transit goods; exemption of the traffic in transit from all transit duties and other levies except for reasonable charges towards transportation and administrative expenses;

56

and cooperation and coordination in designing and applying bilateral or regional transit agreements. Proposals under Article VIII include: reduction in the number and diversity of fees and charges levied on importation and exportation and their periodic review; levy of fees and charges commensurate with the approximate cost of services rendered and not to be calculated on an ad valorem basis; reduction/simplification and periodic review of formalities and documentation requirements connected with importation and exportation; use of international standards for formalities and procedures connected with importation, exportation and transit; acceptance of commercially available information and copies of documents for goods clearance; submission and processing of documents prior to arrival of goods; introduction of a single window system for filing import/export documentation; prohibition of consular fees or consular invoices in connection with importation; cooperation and coordination of all border agencies; introduction of expedited procedures for express shipments; documentary and physical examination of goods based on risk management for the purpose of concentrating on the examination of higher risk goods and facilitating the movement of lower risk goods; post clearance audit; introduction of further simplified clearance procedures for economic operators which meet the specified criteria; separating release from clearance procedures and release of goods on the basis of security/guarantee; establishment and publication of average release and clearance time; elimination of pre-shipment inspection; and to do always with regulation regarding compulsory use of customs brokers. Some of the proposals made with reference to the working parameters of Article X are: publication of laws, regulations, judicial decisions and administrative rulings of general application relating to trade in goods; publication on a publicly accessible internet web-site of customs procedures, and the forms and documents required for 57

border clearance; establishment of enquiry points for answering enquiries on trade related legislation and procedures and providing the information and documents to interested parties; setting up of an Advance Ruling Authority to issue advance rulings in a time bound manner on matters such as customs classification, rate of duty, customs valuation criteria and duty drawback prior to commencement of imports/exports; providing a reasonable interval between the publication of new or amended laws, regulations etc. and their entry into force in order to allow traders to become acquainted with them; entering into prior consultations with stake holders i.e. seeking comments from stakeholders on proposed new rules or amendment to rules before their finalization; and putting in place clear, transparent and nondiscriminatory appeal procedures against decisions of customs or other border agencies. Indias proposals In the negotiating group, India has floated a proposal on Cooperation Mechanism for Customs Compliance1 along with South Africa, Sri Lanka and Brazil. This is intended to establish a mechanism for exchange of information and co-operation between customs administrations on matters such as HS classification, description, quantity, country of origin and valuation of goods in identified cases of export and import. Such exchange of information would be very helpful in combating valuation and other customs frauds. India has entered into bilateral agreements with a few countries for exchange of such information. India had commissioned a study in 2005 to identify the constraints faced by Indian exporters. One of the findings of this study was that lack of uniformity in clearance procedures at the borders of a Customs Union created uncertainty and acted as a
1

TN/TF/W/123/Rev.2 dated 10 March 2008

58

deterrent to India's exports. In view of this, India has presented a proposal, suggesting uniformity in border clearance procedures at the borders of a Customs Union. Consolidated Negotiating Text: Based on the individual proposals, a draft consolidated negotiating text2 was submitted by the Chairman of the negotiating group in December, 2009. This was the basis of negotiations during 2010. It covered a wide gamut of areas in the negotiations namely those related to Customs Co-operation Mechanism, Publication and Availability of Information, Prior publication and consultation, Advance Rulings, Appeal Procedures, Fees and Charges connected with importation and exportation, Release and Clearance of Goods, Border agency cooperation, Freedom of Transit, Special and Differential Treatment etc Possible changes on account of the TF text The proposed Agreement on Trade Facilitation may necessitate changes in Indian border management procedures. The agency mainly to be affected by the Agreement would not only be Customs but also other border agencies. The proposal on single window would require coordination in the working of the border agencies. The proposal on risk management would require border agencies to develop risk assessment modules which would enable them to limit physical examination only to high-risk shipments. Under the proposal to have enquiry points each agency would undertake the responsibility of answering promptly and correctly the queries that may be asked by interested parties. The proposal on expedited shipments envisages a liberalized control regime for courier shipments. The proposal on separation of

TN/TF/W/165 dated 14 December 2009

59

release from clearance envisages immediate delivery of goods to the importer on arrival pending completion of administrative formalities.

60

Agreement on Pre-Shipment Inspection 1. Introduction Closely linked with customs valuation, but covered by a completely new agreement, is the subject of pre-shipment inspection. In order to verify the quality, quantity, price of goods which a country imports or to assure the respect of their regulations concerning exchange rates and capital, countries have recourse to preshipment inspections. These inspections take place within the territory of the exporting country and are carried out on behalf of the importing countries by private entities having the necessary technical expertise. Exporting countries many a time had complained that these inspections on occasions are applied in a discriminatory manner and also restrict trade. The Agreement concluded within the framework of the Uruguay Round defines in a very detailed manner inspections which are acceptable as well as those which are not acceptable. The Agreement also outlines the manner in which the practice of socalled transfer-pricing may be controlled. On a procedural level, the Agreement provides for exporting countries that they must submit to the decision of the entities which are engaged in the inspection activities to an independent arbitration in case the exporting countries are not satisfied with the inspection entities. The aim of the Agreement on Pre-shipment Inspection is to establish a framework of rights and obligations, based on non-discrimination and transparency that provides guidelines for the use of inspection firms, mentioned entities in the Agreement and for the work of these firms in verifying prices. The Agreement also

61

provides procedures for resolving disputes that may arise between traders and inspectors. The Agreement recognizes the need of some developing countries to make use of pre-shipment inspection for as long and in so far as it is necessary to verify the quality, quantity or price of imported goods. It assumes, however, that inspection entity will be a private company. The use of private specialist companies to inspect goods before they are shipped, so as to be certain that contractual specifications have been met, is far from new. Increasingly, however developing countries have made presentation of a clean report of findings from a designated pre-shipment inspection firm a condition for clearing imports through customs, or for releasing foreign exchange to pay for imports. The purpose is primarily to check that the real value of the goods matches their declared value. Some countries have made pre-shipment inspection a condition for a large proportion of imports, while others require it only for specified imports, such as those for government use. From the point of view of the developing countries the real aim is to prevent fraud and also to reinforce their own customs administrations, ensuring that value is not under or over-declared. The under-declaration, unless detected, will result in lower duties being imposed that may result into the loss of revenue. On the other hand, over-declaration provides an opportunity for illegal export of capital. The concern of the exporters are that these inspection may hamper trade by increasing their costs and causing delays. The imposed changes in valuation amounts to interference in the contractual relationship between buyer and seller. A sensitive point of governments is that these inspections took place in the exporting countries, on behalf of importing countries. These concerns were originally raised in GATT in the Committee responsible for the Tokyo Round Customs Valuation Code.

62

A number of governments around the world, principally in developing countries, employed commercial inspection companies to verify the customs classification and value of goods to be shipped to their markets. Typically such firms operate at sea-ports and airports in developed countries, including the US, where they examine exporter claims concerning the quality, quantity, price, currency exchange rate, financial terms and customs classification of goods awaiting to be exported. The Agreement is primarily designed to require WTO Members employing or mandating the use of such firms (user members) to ensure that the inspection activities of the companies they employ are reasonable and do not interfere with legitimate trade. It also carries obligations for user members, who are expected to ensure fulfillment of the obligations through their contractual agreements with inspection agencies. It also ensures for the protection of confidential exporters information. Unreasonable delays in inspection are minimized. The inspection firms use uniform price verification methodologies. The Agreement also creates a forum for binding arbitration to resolve grievances lodged by exporters against PSI firms. The Pre-shipment Agreement applies to all pre-shipment inspection activities carried out on the territory of any member. Such activities include any contracted or mandated activity by the government or any government body of a member country. For the purpose of Pre-shipment Agreement the term user member means a Member of which the government or any government body contracts for or mandates the use of pre-shipment activities. The Agreement defines pre-shipment inspection as all activities relating to the verification of the quality, quantity, the price, including currency exchange rate and financial terms and or the customs classification of goods

63

to be exported to the territory of the user member.3 Any entity which is contracted or mandated by a member to carryout pre-shipment activities are pre-shipment entity.4 2. Obligations of User Members5 The core of the Agreement lies in Article 2 which provides obligations of user members, which accounts for more than half of the total text. Article 2 requires user members to undertake a range of obligations in respect of activities carried out by PSI firms on their behalf. (A) Non-discrimination6 The PSI Agreement ensures that all pre-shipment activities are carried out in a non-discriminatory manner. It is obligatory on the part of each member to ensure that the procedures and criteria employed in the conduct of activities relating to preshipment are objective in nature and are applied on an equal basis to all exporters affected by such activities. They have also to ensure that uniform performance of inspection is carried out by all the inspectors of the pre-shipment entities contracted or mandated by them.

4 5 6

Article 1.3. Article 1.4. Article 2. Article 2.1. 64

(B) Requirement from Government7 The Pre-shipment Inspection Agreement ensures from every user member that they must meet the national treatment requirements of GATT Article III.4. In other words, the user member should not apply rules on sales, use etc. stricter than would apply to domestic products. (C) Site of Inspection8 The PSI Agreement ensures from all user Member that all activities related to pre-shipment, including the issuance of a Clean Report of Findings are performed in the customs territory from which the goods are exported. The note of non-issuance will also be issued from the site from which goods are exported. The inspection for all complex goods can be done in the customs territory in which goods are manufactured. If both parties agree then also the inspection can be done in the customs territory in which goods are manufactured. (D) Standards Employed in Inspection9 The standard adopted in the inspection activities can be determined by the seller and the buyer of the purchase agreement so that quality and quantity of the exporting goods are maintained. In the absence of such agreements the standard employed for inspection will be relevant international standard. An international standard is a standard adopted by a governmental or non-governmental body whose membership is open to all members, one of whose recognized activities is in the field of standardization.

7 8 9

Article 2.2. Article 2.3. Article 2.4. 65

(E) Transparency10 Article 2 also imposes a number of requirements on user Members to ensure that PSI activities are conducted in a transparent manner. User members must ensure that PSI firms provide exporters with all information necessary for the exporters to comply with inspection requirements. When requested by the exporter PSI entities will have to provide the actual information related to pre-shipment activities. This information includes reference to law and regulations of the user member relating to pre-shipment activities which also includes procedures and criteria used for inspection and for price and currency exchange rates verification purpose. The additional procedural requirements or changes in existing procedures cannot be employed to a shipment unless the exporter concerned is informed of the changes made at the time of inspection date. However, in emergency situations of the types addressed by Articles XX and XXI of GATT 1994, such additional requirements or changes can be applied to a shipment before the exporter has been informed. But this does not relieve exporters from their obligations in respect of compliance with import regulations of the user members. The user members under the agreement has to publish promptly all applicable laws and regulations relating to pre-shipment inspection activities in such a manner as to enable other governments and traders to become acquainted with them. (F) Protection of Confidential Business Information11 The PSI Agreement requires user members to ensure that pre-shipment inspection entities treat all information received in the course of the pre-shipment

10 Article 2.5-2.8. 11 Article 2.9-2.13. 66

inspection as business confidential to the extent that such information is not already published, generally available to third parties or otherwise in the public domain. For this all pre-shipment entities will have to maintain certain procedures. No member can disclose confidential information the disclosure of which will jeopardize the effectiveness of the pre-shipment inspection programm or would prejudice the legitimate commercial interest of particular enterprises, public or private. The PSI Agreement further ensures that pre-shipment entities do not divulge confidential business information to any third party; however they can share this information with the government entities that have contracted or mandated them. All confidential business information for which the entities are engaged must be safeguarded properly. PSI firms or entities may share such information with user members only to the extent that it is customarily required for letters of credit or other forms of payment or for customs, import licensing or exchange control purposes. The user members must ensure that pre-shipment inspection entities do not request exporters to provide information regarding--(i) manufacturing data related to patented, licensed or undisclosed processes, or to processes for which a patent is pending; (ii) unpublished technical data other than data necessary to demonstrate compliance with technical regulations or standards; (iii) internal pricing, including manufacturing costs; (iv) profit levels; (v) the terms of contracts between exporters and their suppliers unless it is not otherwise possible for the entity to conduct the inspection in question.

67

(G) Conflict of Interest12 The PSI Agreement requires user members to ensure that PSI entities maintain procedures to avoid conflict of interest between pre-shipment inspection entities and any related entities of the pre-shipment inspection entities in question, such as parent or subsidiary companies. In addition, governments are to ensure that PSI entities avoid conflict of interest with unrelated firms also. (H) Avoiding Delays13 User members must also ensure that pre-shipment inspection entities avoid unreasonable delays in inspection of shipments. The Agreement also ensures that once an entity and exporter agree on an inspection date, the pre-shipment inspection must be conducted on that date unless it is rescheduled on a mutually agreed basis or the inspection entity is prevented from doing so by the exporter or by force major. Force major means irresistible compulsion or coercion, unforeseeable course of events excusing from fulfillment of contract. Under the Agreement, user members, following the receipt of the final documents and completion of the inspection ensures that inspection entities within five working days, either issue a Clean Report of Findings or provide a detailed written explanation specifying the reasons for non-issuance. In case of non-issuance inspection entities will have to give the exporters opportunity to present their views in writing and if exporters request for re-inspection, arrange for re-inspection at the earliest mutually convenient date. On the request of the exporter, a PSI entity must

12 Article 2.14. 13 Article 2.19. 68

further undertake a preliminary verification and promptly inform the exporter of the results of price and foreign exchange rate. (I) Price Verification14 The Pre-shipment Inspection Agreement also requires user members to ensure that PSI entities apply certain criteria to prevent over and under-invoicing and fraud. For example, user members must require PSI entities to base their price comparisons on the price of identical or similar goods offered for export from the same country of exportation under comparable conditions of sale, in conformity with customary commercial practices and net of any standard discounts, making appropriate allowances for the terms of the sales contract. Furthermore, governments must ensure that PSI entities do not base their price verification on the selling price of goods produced in the country of importation, the price of goods from a country other than the actual country of exportation, the cost of production or an arbitrary or fictitious price or value. (J) Procedure for Appeals15 The Agreement requires user members to ensure that pre-shipment inspection entities establish procedure to receive, consider and render decisions concerning grievances raised by exporters. All information regarding the procedure adopted by these entities must be made available to the exporters. The user members are further required to ensure that the inspection entities designate certain officials for proper discharge of the inspection function. The exporters are under obligation to give all information concerning the specific transaction in question, the nature of grievance 14 Article 2.20. 15 Article 2.21. 69

and a suggested solution. The designated officials are required to take decisions as soon as possible after receipt of the documents concerned. 3. Obligations of Exporter Members16 The PSI Agreement requires from all exporting members to ensure that their laws and regulations relating to pre-shipment inspection activities are applied in purely non-discriminatory manner. For maintaining transparency, exporter members are required further to publish all applicable laws and regulations relating to preshipment inspection activities in such a manner as to enable other governments and traders to become acquainted with them. If requested by any user member, exporter members are directed under the Agreement to provide technical assistance towards the achievement of the objectives of this Agreement on mutually agreed terms. Such technical assistance can be given on a bilateral, plurilateral or multilateral basis. Such assistance include, interalia, tariff and customs administration reforms, simplification and modernization of systems and procedures and the development of an adequate, legal, administrative and physical infrastructure. 4. Binding Arbitration17 Article 4 of the Pre-shipment Agreement calls for the establishment of a system of binding arbitration for grievances that cannot be resolved through the appeals process mentioned in Article 2 paragraph 21 of the Agreement. The Agreement encourages the pre-shipment inspection entities and exporters to resolve their disputes on mutual basis.

16 Article 3. 17 Article 2.21. 70

The arbitration panel must be constituted on mutually agreed basis. The arbitration system will be jointly administered by the International Chamber of Commerce and the International Association of Pre-shipment Inspection Companies. Decisions by the three member arbitration panel-comprising a panelist selected by each side, plus an independent trade expert---must be rendered within eight working days of the request for independent review, unless the parties otherwise agree. The results are binding on the exporter and the inspection entities both. Costs will be apportioned according to the merits of the case. Although a review by the independent entity is conceived, yet the parties can carry a dispute under the Agreement as the governments preserve the right to take disputes about the operation of the Agreement to the normal dispute settlement procedures of the WTO. 5. Review, Consultation and Dispute Settlement18 Article 6 of the Agreement allows for its review first after two years of coming into force of WTO and thereafter every three years. In 1996 a Working Party was established to conduct the review of the Agreement. The Working Party issued three reports, all of which have been approved by the General Council. Article 7 of the Agreement provides that upon request a member can consult other members with respect to any matter affecting the operation of the Agreement on Pre-shipment. In case of dispute among members Article 8 of the Agreement provides that all dispute be settled according to Article XXII of GATT and the WTO Understanding on Dispute Settlement.

18

Article 8. 71

6. Committee The Agreement on Pre-Shipment Inspection is unusual among the WTO agreements in not having a special Committee established to look after it. Instead, it is supervised directly by the Council for Trade in Goods. 7. Indias Position on the Agreement India is not a user of the shipment inspection Agreements of WTO in the sense that it has not contracted out its core customs function lime verification of value tariff classification, description and quality of goods to an outside agency. Its customs related control functions are performed by the custom House manned by offices of Central Board of Excise and Customs. However for certain specified purpose like import of iron and steel scrap from war affected countries, pre-shipment inspection mechanism is used. The operation of Pre shipment inspection by user countries largely in Asia and Africa has not been very successful. It has suffered from criticism and corruption, arbitrary changes in value, high transaction cost, etc. In order to facilitate export trade; the Export Inspection Council of India (EIC) was set up by the Government of India under section 3 of Export (Quality Control and Inspection) Act, 1963 as an apex body to provide for sound development of export trade through quality control and pre-shipment inspection. The Act empowers the central government to notify commodities and their minimum standards for exports. EIC is assisted in its functions by the Export Inspection Agencies located at Chennai, Kochi, Kolkatta and Delhi. It has a wide range of sub-offices and laboratories to back up the pre-shipment and certification activity. The main functions of EIC are to advise the Central Government regarding measures to be undertaken for enforcement of quality control and inspection in relation to commodities meant for export.

72

In the WTOs regime as Indias trading partners are installing regulatory import controls, EIC has refashioned its role to introduce voluntary certification programmes, besides regulatory export control, especially in food sector, and is seeking recognition for EICs certification of official import control agencies of its trading partners as per provisions of WTO agreements, to facilitate easier access to their markets for Indian exporters. The main system of export inspection and certification being followed by EIC include Consignment Wise Inspection (CWI), In Process Quality Control (IPQC), Self Certification (SC) and Food Safety Management Systems based Certification (FSMSC). In order to ensure acceptability of test results of EIA laboratories internationally it is essential that the ISO:17025, international standard for quality system be implemented. For this EIA has prepared a basic document i.e. Quality Manual, Standard Operating Procedures (SOPs) and are in a phase of stabilizing these. To supplement these tests 6 labs have been approved by EIC at Chennai, Bangalore, Delhi, Mumbai. EIC continues to recognize Inspection Agencies under the provisions of Section 7(1) of Export (Quality Control and Inspection) Act, 1963. The scheme has been aligned now with international standard on acceptance of inspection bodies, ISO/IEC 17020:1998 to make the same internationally acceptable. Nearly 51 inspection agencies have applied for recognition as per fresh norms. In the area of fish and fishery products processing units (145 for EU and 217 for Non-EU and 31 lives fish processing units for Non EU) are on approved list. In the eggs products and honey sector Govt. of India has recently banned usages of certain drugs substances at all stages of production and export of egg products. In the milk sector during the period of 2003-04, 42 units are on the approved list. Now EIC/EIAs 73

are proposing to initiate certification in the area of Raw (Chilled/Frozen) Meat, Processed Meat and Animal Casings and have developed a scheme based on a system of approval of units. Work has also been initiated to develop voluntary schemes in the area of Quality Control and Inspection for fresh fruits and vegetables for Exports, HACCP and Organic Certification Schemes. EIC has continued its activities towards working with overseas governments for negotiating agreements in the area of Conformity Assessments. Under this EIC has signed agreements with Singapore, Nepal, Sri Lanka, Korea, Bangladesh, Libya, Thailand, Mexico, Israel, New Zealand etc. 8. Conclusion In conclusion it is fair to say that pre-shipment inspection of goods in international trade has become increasingly common as developing countries supplement their port of unloading customs inspections by requiring importers to employ private inspectors to verify price, quality, and other characteristics of goods in the country of origin. However, the working of the Agreement has also been criticized as members have complained that the Agreement is not being properly utilized for the purposes for which it was crafted and there is a possibility that it may take the shape of one of the non-tariff barrier in international trade in future.

74

Bibliography Books, Articles and Cases 1. Legal text of the Agreement on Pre-shipment Inspection. 2. John Croome, Reshaping the World Trading SystemA History of the Uruguay Round, Kluwer Law International, 1999. 3. Guide ot the Uruguay Round Agreements, The WTO Secretariat, Kluwer Law International, 1999, pp. 115-118. 4. Raj BhalaInternational Trade LawTheory and Practice, 2nd edition, Lexis Publishing 2001, pp. 418-421.

75

Agreement on the Implementation of Article VII of GATT 1994 (Customs Valuation Agreement) 1. Introduction The volume of international trade has markedly increased in recent decades. The rapid expansion of trade has complicated the work of customs administration making it more and more essential than ever for customs formalities to be simplified and harmonized as far as possible. The valuation of goods for customs purposes is one of the key areas in which harmonization of customs procedures is desirable. The WTO's promotion of unified customs valuation is an important aspect of its mandate to foster more efficient international trade by establishing worldwide standards of fairness, consistency and non-discrimination. Enhanced co-operation among national customs administration is needed in particular in this area of globalization. If customs administrations are to meet the challenges of this new global environment, they must co-operate effectively on a worldwide level. 2. The Historical Background To begin with, a brief summary of the historical origins of the Code may be helpful for an understanding of how current issues have emerged. Early in the 20th century, various groups interested in promoting international trade began to study ways of replacing the diverse and arbitrary national practices of customs valuation with an international system that would be neutral in its effects on competition as well as on trade policy. Several initiatives were organised under the auspices of the League of Nations, but they all proved futile. It was not until 1947 that the first agreement on general principles of customs valuation was reached and embodied in Article VII of the General Agreement on Tariffs and Trade (GATT), 1947.

76

Article VII of the GATT, provides that the customs valuation of goods; --should be based on the actual value of the goods; should not be based on the value of goods of national origin or an arbitrary or fictitious values; and -should be the price at which such or similar goods are sold in the ordinary course of trade under fully competitive conditions. Article VII of the GATT permitted a choice between notional and positive concepts of customs valuation, but the general principles it established afforded no specific guidance on how these principles were to be applied in practice. The Brussels Convention of 1950 which was the next major advance in international co-operation set forth a definition of dutiable value deemed suitable for world-wide adoption, the so-called Brussels Definition of Value (BDV). The BDV was the first truly international system of customs valuation, but it was not regarded as fully satisfactory. It left too much of discretion to national customs administration leading to uncertainty in application. The BDV had adopted a truly artificial and purely theoretical approach to valuation, divorced from the concrete realities of business practices. It also lacked precision which led to the lack of uniformity in applying the BDV. It failed to achieve universal acceptance as US and Canada never accepted it. Since it was having the rigid procedure for amendment, it failed to adapt to new developments in international trade. The issues were hard fought in the Tokyo Round (1973-79), but Agreement on Customs Valuation Code was eventually reached. The key to the Agreement was that all sides concurred that their existing methods of valuation were unsatisfactory and in need of reform, and that international code could be a vehicle for such reform. 77

Accepted by most developed countries, but by less than a dozen developing countries, it becomes one of the groups of limited-membership codes governing non-tariff trade measures. It was widely considered as a success. During the Uruguay Round, the code was re-examined, principally to see whether some adoption, without changing its basic principles, might make it more attractive to developing countries. The outcome was a minimally-revised new agreement, supplemented by two Ministerial Decisions designed to ease developingcountries fears that the rules would not fully meet their needs. In this Round, the European Community, the US, Canada and Australia all supporting the 1979 Agreement, only the developing countries opposed, the Customs Valuation Agreement as it emerged from the Uruguay Round was unchanged in all essentials. The principal difference between the 1979 and the 1994 Agreement is that whereas only some countries had joined the Tokyo Round Customs Evaluation Code, all member state of the WTO (as well as any future members) are now bound under the integrated GATT/WTO system, and that the WTO Dispute Settlement Mechanism is expressly made applicable to controversies concerning customs valuation. 3. Concerns for Administration of the WTO Customs Valuation The methods and criteria of valuation set forth in the Code make it predictable that certain recurrent tasks and problems must be dealt with by countries who adopt and implement its system. The technical nature of the agreement is clear at a glance: its Annex I, consisting of interpretative notes to guide the user, occupies as much space as the 24 Articles of the Agreement itself. This degree of detail is in fact what gives the Agreement its authority, since it reduces the opportunity for arbitrary valuation. The basic principles underlying the valuation systems are set out by the General Introductory Commentary, which clarifies the structure of the Agreement and 78

the relationship between its articles, and also emphasizes the importance of consultation between the customs administration and the importer. 4. Resources Required in Administration of Customs Valuation In essence, the Agreement sets up a sequence of six alternative methods of valuing goods for customs purposes. They are to be applied in a strict hierarchy; only if customs value cannot be determined under the first method may the authorities use the second method; only if this second method is inapplicable may they move to the third, and so on. The starting point for valuation-the priority method--bases customs value on the transaction value, the price actually paid for the goods when sold for export to the country of importation. The successive alternatives establish the valuation instead by the transaction values of identical or similar goods, by looking at sale prices or production costs, or finally by a fall-back method which gives greater flexibility but excludes several possible approaches to valuation. The Agreements scope is limited to the valuation of goods for the purpose of levying ad-valorem customs duties on imports. This is not as strict a limitation as it may appear. Most countries levy few, if any, duties on exports and by definition no valuation is required for the comparatively small proportion of duties that are levied on a specific basis (for instance, according to the quantities or weight of the imported goods). Although the rules are not formally applicable to valuation for tax purposes or foreign exchange control, there is nothing to stop them from being used for such purposes, if national administrations so decide.

79

5. Method of Actual Transaction Value19 The primacy of transaction value as the valuation method is made clear in Article 1 of the Agreement, whose opening words, 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 for importation. These words are qualified by a number of provisions, which may in fact make it necessary to move on to the second valuation method, but the preference for the transaction value is clear. Royalties and license fees not actually included in the price paid or payable should be added. Other adjustments are also permitted. Article 1 is to be read together with Article 8 which provides inter alia, for adjustments to the price actually paid or payable in cases where certain specific elements which are considered to form a part of the value for customs purposes are required by the buyer but are not included in the price actually paid or payable for imported goods.20 These elements include (i) cost incurred by the buyer but included in price of the goods such as commission and brokerage cost of containers cost of package; value of good supplied by buyer to seller free of charge or at reduced cost; royalties and licenses fees related to good paid as condition for sale of good; any part of sale proceeds accruing to the seller. Countries also have a freedom of frame in their legislation inclusion or exclusion of following costs: (i) cost of transport (ii) cost of insurance (iii) loading unloading and handling charges at the port of importation. However, certain circumstances listed in Article 1 may justify the customs in rejecting the transaction value of the goods as a fair basis for levying duties. These include the absence of an actual sale, restrictions attached to a sale, conditions or

19 Article 1. 20 Article 8. 80

considerations whose value cannot be established, or arrangements by which some part of the proceeds of resale will be passed back to the original seller. One source of possible concern will be a situation in which the buyer and seller are relateda situation which in fact arises frequently, since much of international trade takes place between different elements of the same company under the agreement, the fact that the buyer and seller are related is not in itself grounds for regarding the transaction price as unacceptable, what matters is that the relationship does not influence the price. If the customs authorities have doubts on this point, they must give the importer the opportunity to demonstrate that the price is fair, by showing that it is close to a previously accepted price for identical or similar goods.

81

A. Method of Transaction Value of Identical Goods21 If and only if the customs authorities conclude, on the basis not only of Article 1 but also of interpretative notes, that the transaction price of the goods cannot be used as the basis of valuation, they may move to the second valuation method. 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 sale at the same commercial level but in different quantities; a sale at a different commercial level but in substantially the same quantities; or a sale at a different commercial level and in different quantities. Having found a sale under anyone of these three conditions adjustments will then be made, as the case may be, for quantity factors only; commercial level factors only; or both commercial level and quantity factors. 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 contain prices 21 Article 2. 82

referring to different levels or different quantities. If more than one price for identical goods is found, the lowest of these prices must be used for valuation. B. Method of Transaction Value of Similar Goods22 The third method, for use if the second cannot be used, is almost the same but bases valuation on the transaction value of the mostly closely similar, rather than identical goods. Similar goods need not be alike in all respects to the goods being valued, but they will have like characteristics and component materials, which allow them to perform the same functions and be commercially interchangeable, and will have been produced in the same country (and normally by the same producer) as the goods being valued. Once again, there are lengthy interpretative notes on such matters as the adjustments that may have to be made to allow for the quantities or commercial factors being different in the case of the sale of the similar goods from that of the goods being valued. C. Exception to Hierarchical Rule23 The sole exception to the strict hierarchy of valuation methods concerns the fourth and fifth alternatives. Article 4 of the Agreement on Customs Valuation provides that if the customs value of the imported goods cannot be determined under the provisions of transaction value or similar or identical provisions than the customs value shall be determined according to the provisions of Article 5 or when the customs value cannot be determined under that Article, under the provisions of Article 6. But if the importer so requests fifth method may be tried before the fourth.

22 Article 3. 23 Article 4. 83

D. Method of Deductive Value24 Under the deductive value method, valuation is based on the resale price of the goods being valued or similar goods sold in the same country of importation at or about the same time to persons unrelated to the seller who has exported the goods. The resources required for application of the deductive value method reflect the fact that this method entails making appropriate deductions necessary to reduce the price to relevant customs value at the point of importation or exportation as the case may be. The profit and general expenses under this method should be taken as a whole. This figure should be determined on the basis of information supplied by or on behalf of the importer unless the importers figures are inconsistent with those obtained in sales in the country of importation of imported goods of the same class or kind. Where the importers figure 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. In determining either the commissions or the usual profits and general expenses, 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 purpose of deductive method, 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.

24 Article 5. 84

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, method of construction and other industry practices would form the basis of calculations. The deduction value would normally not be applicable when, as a result of the further processing, the imported goods lose their identity. E. Method of Computed Value25 In order to determine a computed value it is necessary to examine the costs of producing the goods being valued and other information which has to be obtained from outside the country of importation. In most of the cases the producer of the goods will be outside the jurisdiction of the authorities of the country of importation. The use of the computed value method is generally limited to those cases where the buyer and seller are related and the producer is prepared to supply the authorities of the country of importation the necessary costing and to provide facilities for any subsequent verification which may be necessary. F. Fall-back Method26 Only if none of the above five methods can be applied may the customs authorities fall back on the other means of establishing the value of the goods being imported. Article 7 of the Agreement requires that the value be determined using reasonable means consistent with the Agreement and GATT Article VII, and on the basis of data available in the importing country. Customs value shall not be determined under this method on the basis of

25 Article 6 of the Agreement. 26 Ibid. 85

(a)

the selling price in the country of importation of goods produced in such country;

(b)

a system which provides for the acceptance for customs purposes of the higher of two alternative values;

(c)

the price of goods on the domestic market of the country of exportation;

(d) the cost of production other than computed values which have been determined for identical or similar goods in accordance with the computed value; (e) the price of the goods for export to a country other than the country of importation. (f) (g) minimum customs value; or arbitrary or fictitious value.

6. Guidelines on Objective and Quantifiable Data and on Accounting Standards27 The Customs Valuation Codes preferred use of the actual transaction value method is conditional on the availability of objective and quantifiable data from the importer to substantiate additions required to be made under Article 8 of the code. This means that even if an importer has truthfully declared the actual value of imported goods, the value declared will not be acceptable to the customs authorities under the actual transaction value method if no data have been submitted to substantiate additions to the price included in the declared value. However, the code

27 Article 8. 86

provides no concrete and specific definition of the term objective and quantifiable data. To ensure fairness and uniformity in administration, customs officials need to be furnished with a guideline that sets out a practical definition on which they can rely in decision making. One approach of defining objective and quantifiable data is to treat this expression as meaning information sufficient to demonstrate the truth and accuracy of the value declared by the importer. Even if an importer submit information which tends to substantiate the basis for the declared value, however, a calculation of value will not be acceptable to the customs administration under the actual transaction value method if it is not prepared in accordance with generally accepted accounting principles in the country of importation. In other words we can say that, even if the declared value correspond to objective and quantifiable evidence, it may nevertheless be regarded as an inaccurate or untrue value, unless the data in question conform to generally accepted accounting principles, by which is meant rules and interpretations of accounting established by recognized consensus of the accounting profession within the county of importation at that particular time.

87

7. Other Provisions Other rules in the code concern the exchange rates to be based for currency conversions involved in establishing customs value. Article 9 of the code provides that the rate of exchange to be used should be duly published by the importation country in respect of the period covered by such document of publication. Article 10 of the Code further provides that all information which is confidential in nature shall be treated confidential in strict sense of the term. If, in the course of determining the customs value of the imported goods, it becomes necessary to delay the final determination of such customs value, the importer can withdraw the goods, if he/she can provide sufficient guarantee in the form of surety. 8. Customs Valuation for Related-Party Transactions One of the most difficult matters in customs valuation practice 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. For the purpose of this code Article 15.4 provides that following persons shall be deemed to be related only if (a) (b) (c) they are officers or directors of one anothers business; they are legally recognized partners in business; they are employer and employee;

(d) any person directly or indirectly owns, controls or holds five percent or more of the outstanding voting stock or shares of both of them;

88

(e) (f) (g) (h)

one of them directly or indirectly controls the other; both of them are directly or indirectly controlled by a third person; together they directly or indirectly control a third person; they are members of the same family. The mere fact that the importers and exporter are related companies within the

meaning of Article 15.4 of the code doesn't in itself suffice for the customs administration to reject the declared transaction value. Even though the customs administration may presume or suspect that the relationship between the parties probably influenced pricing, the burden of proof to demonstrate that the price is not an arms-length value rests upon the customs administrations. In the event that the customs administration has no objective evidence tending to prove that the relationship influenced price, the importer may successfully challenge the valuation in litigation and a court may summarily rule against the customs administration in the absence of proof. If any of the following elements is disclosed in the factual details of a relatedparty transaction based on the information and documents submitted by the importer, then there would be some reason to suspect that the relationship between the parties had influenced the price: -the price is determined in a manner different from the ordinary way in which prices are determined between unrelated parties; -the amount of profit or general selling expenses incurred by an importer in a related-party transaction is considerably higher than in similar transactions between unrelated parties; or

89

--

the declared import price is uniformly low in comparison to prices observed in ongoing transactions in the same items between unrelated parties. However, there also exist situations in which a declared transaction value is

acceptable between related parties. This is the case when the importer can demonstrate that the declared value closely approximates one of the following, taken at or about the same time: -the transaction value in sales to unrelated parties in the same country of importation of identical or similar goods; -the customs value of identical or similar goods as determined under the deductive value method; or -the customs value of identical or similar goods under a computed value method. In applying the above tests, due account is to be taken of demonstrated differences in commercial levels, in quantities, in the elements enumerated in Article 8 of the Code and in costs incurred by the seller for sales to unrelated parties which are not incurred in sales to related parties. 9. Calculation of Profit and General Expenses Calculation of an accurate figure for commissions, profit or general selling expenses in the country of importation for goods of the same class or kind can pose manifold problems for customs authorities. The Interpretative Notes to the Code indicate that sales of imported goods of the same class and kind should be examined and clarifies that imported goods includes not only similar goods imported from the same country as the goods under valuation, but also goods imported from third

90

countries. Such investigations are not easy to conduct. Therefore, customs administration conduct the calculations based on a range of values rather than on specific figures. 10. Royalties and License Fees If the money paid for goods includes payment not only for goods themselves, but also for a right that is closely related to the goods such that the additional payment is a condition of importation, then the customs value will include all relevant payments in the total price of the goods. The price actually paid or payable for goods includes all payments or performances of value passing from the buyer to the seller. Article 8.1(c) of the Code provides royalties and license fees related to the goods being valued that the buyer must pay, either directly or indirectly, as a condition of sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable. 11. Burden of Proof The allocation of the burden of proof between the customs administration and importers is an important requirement, given that they have often been accused of arbitrarily shifting the burden of proof to importers based on unreasonable presumptions, abuse of discretion or ambiguous regulations. Once an importer has met the burden of producing some evidence, it will be incumbent on the customs administration to come forward with other evidence to rebut the submitted evidence. The options available to a customs administration are -to make no specific regulation regarding burden of proof, leaving it for judicial determination in each case;

91

--

to adopt provisions along the lines of GATT Ministerial Decision Regarding Cases Where Administrations Have Reasons to Doubt the Truth or Accuracy of the Declared Value;

--

to incorporate into the national customs law a strict provision suiting the burden of proof in customs valuation cases to the importer.

12. Special Provisions for Developing Countries28 The economies of the developing countries are fundamentally different from those of developed ones. The attitude of both to the Code differs, even though the aim of the Code is to facilitate international trade in principle and to bring benefits globally. The developing countries face many problems like shortages of foreign exchange, substantial foreign debt, inadequate infrastructure, high import volumes and excessively low level of exports. Although developing countries recognize that in theory Code achieves a balance between their interests and those of industrialized countries, they do not believe that a balance is achieved in practice as well. Technically the Code which most of the developing countries are not willing to administer are those concerned with related parties, identical or similar goods, computed value and royalties and license fees. Although, the Agreement establishing WTO requires every country to accept all multilateral agreements negotiated in the Uruguay Round, the Code provided the developing countries a total period of five years to implement the provisions i.e. till 1 Jan, 2000. By the end of this period 51 developing countries had invoked the five year delay period. In order to facilitate the change over to this code, the code calls on the 28 Article 20. 92

developed

countries

and

international

organizations

likeWorld

Customs

Organization to provide technical and training assistance in the preparation of implementation measures. In addition, the developing countries who were not the members to the Tokyo Round Agreement can delay the application of the computed value methodology over and above the period not exceeding three years following the application of all provisions of this Agreement. 13. The GATT Ministerial Decision Regarding Cases Where Customs

Administration Have Reasons To Doubt The Truth Or Accuracy Of The Declared Value During the Uruguay Round negotiations, the concerns of developing countries were given serious attention and their request that the burden of proof be shifted to importers led to a compromise formulation on that issue which was adopted by the Valuation Committee at the close of negotiations. This compromise subsequently was embodied in the GATT Ministerial Decision Regarding Cases Where Customs Administration Have Reasons to Doubt the Truth or Accuracy of the Declared Value. This Decision recognizes that customs may need to request additional information from importers when there is a reasonable basis for doubting a declaration and it authorizes the rejection of the declared transaction value if this is not forthcoming or if doubts persist after further information is produced. Another positive aspect of the Decision is that it eliminates minimum values. Some countries were employing certain standard values or minimum values in order to make systematic adjustments of values irrespective of the price actually paid for imported goods. To justify such practices, the need to combat fraud was invoked. In fact as long as the burden of proof is shared by the importer, customs will be in a 93

position to reject obvious cases of false invoicing and instead use the transaction value of identical goods or similar goods, or other valuation methods authorized in the Code. When a declaration has been presented and a Where The Customs Administration Has Reason To Doubt The Truth or Accuracy of the particulars or of documents produced in support of this declaration, the customs administration may ask the importer to provide further explanation, including documents or other evidence, that the declared value represents the total amount actual by paid or payable for the imported goods, adjusted in accordance with the provisions of Article 8 of the Customs Valuation Agreement. If, after receiving further information, or in the absence of a response, the customs administration still has reasonable doubts about the truth or accuracy of the declared value, it may, bearing in mind the provisions of Article 11 of the Customs Valuation Agreement be deemed that the customs value of the imported goods cannot be determined under the provisions of Article 1 of the Agreement. Before taking a final decision, the customs administration shall communicate to the importer, in writing if requested, its grounds for doubting the truth or accuracy of the particulars or documents produced and the importer shall be given a reasonable opportunity to respond. When a final decision is made, the customs administration shall communicate to the importer in writing its decision and the grounds therefore. 14. Administration, Consultations and Dispute Settlement29 Like many other WTO agreements, the Customs Valuation Agreement is served by a Committee established for the purpose. It is open to all WTO Members. A special feature of the Code, however, carried over from the earlier Tokyo Round Code, is that 29 Part-II of the Agreement. 94

it also has a Technical Committee which operates outside the WTO. This Committee is established within the World Customs Organization, with the task of ensuring that the agreement is interpreted and applied in the same way by all WTO Members. This involves studying specific problems that may arise, advising on solutions to them, studying valuation laws, procedures and practices and giving advisory opinions. The Dispute Settlement Understanding is applicable to consultations and settlement of disputes under the code. If any member considers that any benefit under the code is being nullified, it may consult the other members regarding it. The other members have to oblige the complaining member sympathetic consideration. In the event that a dispute nevertheless reaches the stage of being referred to a panel for solution, the Technical committee may be asked to report on questions that require technical considerations. In US-Certain EC products case30 the Panel examined whether increased bonding requirements imposed by US on certain products imported from the European Communities were consistent with, among others, Article II of GATT 1994 and certain provisions in the DSU. The US put forward Article 13 of the Customs Valuation Agreement as a defence, arguing that the non-compliance of the European Communities (with a certain DSB recommendation) created a risk, which allowed the United States to have concerns over its ability to collect the full amount of duties which might be due and that the increased bonding requirements were consistent with that Article. The Panel stated that in the present dispute, there is no disagreement between the parties on the customs value of the EC listed imports. Article 13 of the Customs Valuation Agreement allows for a guarantee system when there is uncertainty

30

United States Import Measures on Certain Products from the European Communities, Panel Report, WT/DS165/R and Add.1, adopted 10 January 2001, as modified by the Appellate Body Report, WT/DS165/AB/R. 95

regarding the customs value of the imported products, but is not concerned with the level of tariff obligations as such. The Panel further states that Article 13 of the Customs Valuation Agreement does not authorize changes in the applicable tariff \levels between the moment the goods arrive at a US port of entry and a later date once imports have entered the US market. The applicable tariff must be one in force on the day of importation, the day the tariff is applied. In other words, Article 13 of the Customs Valuation Agreement is of no relevance to the present dispute, the Panel concluded. Therefore, the US defence was rejected by the DSB. 15. Reservations and Review of the Code Any Member can declare certain reservations to code subject to the provisions that such reservations cannot be entered into effect if the consent of other members has not been taken earlier.31 The Technical Committee shall keep a vigil on the operation of the code. This committee reviews annually the implementation and operation of the agreement taking into account the objectives thereof. The Committee annually gives a report to the Council for Trade in Goods regarding the developments during the whole year. 16. Custom Valuation: Experience with India India played a key role during the Tokyo Round GATT negotiations by placing a new proposal in September 1978, with the suggestion of transaction value for valuation purposes. This proposal encouraged some other developing countries to

join the negotiations. However, many developed countries rejected the proposal as they felt that it gave too much authority to the customs officials. As a result, Tokyo Round was concluded in April 1979 without a multilateral agreement on customs 31 Article 21. 96

valuation but rather a plurilateral code that countries could opt into. India was one of the signatories. However, India took rather long to implement this international commitment. It was only in 1988 that the Customs Act 1962 was amended with effect from August 16, 1988 to bring in elements of international commitment related to transaction value for valuation purposes. It is also important to note that India has not subscribed to pre-shipment Inspection (PSI) services. It is allowed only in cases of metal scrap and such other imports which may pose security concerns. Pre-shipment inspection is the practice of employing specialized private companies (or "independent entities") to check shipment details - essentially the price, quantity and quality of goods ordered overseas. This is followed in countries where customs departments are not very strong.

Much before accessing to the WTO Agreement of Customs Valuation, India accepted the concept of transaction value as a primary method for valuation. It was done as part of the GATT valuation implementation in August, 1988 itself. As part of this, the customs department is bound to accept the value stated by the importer through the invoice unless the department has additional information to substantiate under invoicing. Some importers take advantage of this legal situation and undervalue their imports with fake invoices knowing that customs authorities may not be able to place them. As of now, it is reported to have a revenue loss of almost Rs. 100,000 million.5 In this context, related Uruguay Round ministerial decision gives customs administrations the right to request for further information in cases where they have reasons to doubt the accuracy of the declared value of imported goods.6 If the administration maintains a reasonable doubt, despite any additional information, it may be deemed that the customs value of the imported goods cannot be determined on the basis of the declared value.

97

However, the efforts by the Customs Department to minimize loss of revenue often lead to situations which make the system slow, unpredictable and nontransparent. This defeats the very raison d etre for trade facilitation. As would be clear from the study, there are issues related to Indian traders, especially the small and medium size companies facing constraints and similarly to the multinational companies in context of transactions between related parties. Similarly, there are cases of fraudulent re-invoicing in third countries, double invoicing with the connivance of the foreign suppliers, false declaration of description, quantity and quality of imported goods to suppress value, over-valuation of exempted and low-rated imports to transfer hard currency abroad and overvaluation of exports to get additional export incentives by the private sector Though implementation of programmes like risk management system (RMS), accredited traders and valuation corridors may help to a great extent, some supplementary efforts may make the system more effective. Institutional and Policy Framework The Central Board of Excise and Customs (CBEC) is the key government agency to overview policy planning and development of institutional infrastructure to support it. It established the Directorate of Valuation (DOV) in 1997 for providing guidance to the field staff and develops mechanisms so as to ensure uniform application of rules and regulations for valuation purposes. DOV is headed by a Director General and is based in Mumbai with two zonal offices in Delhi and Bangalore. The CBEC has also delegated to DOV the customs valuation regarding work being done by India as part of WCO. Thus DOV is effectively linked with international processes India is engaged in. As part of its international mandate, DOV organized training courses for customs officials from other developing countries.

98

The major challenge before DOV is to ensure monitoring of those goods in which valuation often comes up as an issue. In order to address this challenge effectively, DOV has developed a network to gather information and feedback on the international price movement of these commodities. DOV issues Valuation Guidelines for the field offices. These are collected on the basis of information received from agencies like Reuters, Metal Bulletin, PLATTS and different other sources. DOV has also developed its own data bases as well.

In India, efforts have been made, as per the Article 11 of ACV, to have institutional arrangements for ensuring rights of appeal. The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), formerly known as Customs, Excise & Gold (Control) Appellate Tribunal (in short CEGAT), was established in 1982. Initially, first appeal may be made at the customs department itself followed by the option for the tribunal. The cases may also go to public judicial system at appropriate levels. Recently India officially launched a country wide Accredited Clients Programme (ACP) and RMS for importers. Under the ACP, regular importers with a reputation of prompt compliance would be accredited under the scheme. This accreditation would secure them assured facilitation at major customs ports throughout the country. The trading community would be able to attempt self assessment and there would be no need for examination by the customs. This may help in assuring of quick delivery of their imported consignments. It would help importers in terms of reducing paper work besides reducing transaction cost. This may also help in minimizing the constraints faced on the front of valuation. Declaration of Bills of Entry and the Import General Manifest (IGM) filed electronically in the ICES (Indian Customs EDI System) either through the service centre or through the Indian Customs and Excise Gate Way

99

is forwarded to the system. The RMS then processes the data in the Bill of Entry and the IGM and generates an electronic output for the ICES. This output will determine whether the Bill of Entry will be taken up for action (appraisement or examination, or both, by the officers) or such self assessed bill is given out of charge directly - after duty payment but without assessment and examination. The RMS which was operational earlier at a limited level has now been launched by the Finance Minister at the national level. Changing Policy Regime After Independence in 1947, India revised her customs valuation provisions, particularly the Sea Customs Act of 1878, to bring it in conformity with GATT provisions. The Sea Customs Act of 1878 was based on real value. This 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). The changes in this act were made on the basis of recommendations from Customs Reorganization Committee 1958-59, which led to the enactment of Customs Act, 1962. The provisions of this were in accordance with Article VII of GATT, which helped in standardizing various procedures, at par with other countries, for determining value and laid down certain principles so as to avoid fixing of arbitrary or fictitious values. The system was based on actual value of imported goods. In this, even the values of goods of notional origin were also ruled out. The provisions and the price was the sole consideration for sale. The rules were notified through Customs Valuation Rule 1963. As part of Indias commitment at the Tokyo Round Agreement on Customs Valuation, the Customs Act 1962 was subsequently amended and the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 were implemented, which 100

provided scope for basing the valuation exercise on the basis of transaction value. The new valuation rules of 1988 largely reflected provision of Article VII of General Agreements on Tariffs and Trade, 1994 (WTO valuation code). The Customs Valuation Rules, 1988, lays down six methods for the valuation of imported goods. The primary basis for valuation is the Transaction Value. However, it is subject to adjustment by certain Valuation Factors (Rule 9). There are also certain conditions for the transaction value method to be applicable (sub-rule 2 of Rule 4). In certain situations, the Customs authorities could reject the declared value (transaction value method), if the truth or accuracy of the declaration is reasonably suspected (Rule 10 A). In all such cases where the transaction value method is not applied, goods shall be valued by applying the subsequent methods in a strictly hierarchical order (Rule 3). These methods are summarized in context of Indian Customs Act (1988) as follows: Compatibility in GATT Valuation Methods and Indian Customs Act (1988) Methods : Indian Act Provisions (a) Method 1: The transaction value method Rule 4 (b) Method 2: The transaction value of identical goods Rule 5 (c) Method 3: The transaction value of similar goods Rule 6 (d) Method 4: The deductive method Rule 7 (e) Method 5: The computed value method Rule 7A (f) Method 6: The fall-back method Rule 8 Since the major switching over from an earlier system of valuation to a new regime in 1988 there were few amendments in the Act. These amendments were made in the subsequent years of 1989, 1990 and 1991 to bring in measures which provided maneuvering space to the Customs Department. In the 1990 amendment it was introduced that there would be a requirement for production of manufacturers invoice at the time of valuation. This was vehemently opposed by the industry which 101

led to another amendment (1991) only to make it conditional depending upon requirements from customs department. After India signed the Marrakech Agreement for establishment of WTO, certain more amendments were made in the Customs Act (1988). An amendment was made in 1998 to enable the bringing in of the decision 6.1 of Uruguay Round Ministerial Declaration to provide discretionary powers to the customs authorities if they are not convinced with the information provided. In 1995 the rules were amended to introduce computed value method. The Customs Valuation Rules, 1988 were again amended through a notification in September 20001. This amendment again provided arbitrary and discretionary powers to the customs department.14 The amendment covered collection of additional duty of customs based on maximum retail price for the notified items on which domestic excise duty is levied on a similar basis. It also proposed certain linguistic changes in Article VII of GATT. Institutional Infrastructure

In light of increasing global integration of Indian business several institutional initiatives have been launched to provide policy support and facilitate work for customs valuation. The Directorate of Valuation has launched several initiatives like the establishment of National Import Data Base (NIDB), Central Registry Database (CRD), etc. DOV has also launched a monthly bulletin titled, Valuation Bulletin incorporating all value related information, including international price trends of important commodities and market intelligence reports from various sources. This is published and distributed to all field offices in the customs department. The Bulletin is basically for officers in the field, as an important source of information on valuation questions in their day-to-day assessment work. Apart from this, DOV also launched

102

specific studies on select commodities depending upon their sensitivity for domestic market. Some of the initiatives mentioned above are being discussed herewith.

National Import Data Base (NIDB) The NIDB was launched to collect and analyze data for goods imported at almost all the customs stations in India. The idea was to provide instant access to the combined data duly analyzed by the DOV so as to check under valuation and valuation frauds.15 This initiative has become possible since most of the major customs points are now linked with electronic data processing system (EDI). The required data is retrieved by special software and transmitted to a central server in the Valuation Directorate through a dedicated Intranet called ICENET. In case of non-EDI stations, the required data is sent to the Valuation Directorate via email. This data is analyzed on a weekly basis in DOV with the help of intelligent software packages. The analyzed data is transmitted to all customs stations every week by electronic means, i.e. via ICENET to major customs stations and via email to other stations. Weekly transmissions are consolidated at Custom stations and stored in MS access format with easy search and retrieval facilities. This data is made available to assessing officers at custom stations on LAN. When the declared value is found to be below 10 per cent the weighted average, the consignment is flagged as an outlier.

Special Valuation Branch (SVB) The Special Valuation Branch was established to deal with specialized investigation of transactions involving special relationships and certain special features. It also looks into technical collaborations and texts of joint venture agreements etc. It has its branches located at four major custom houses viz. Chennai, Calcutta, Delhi and Mumbai. Any decision taken in respect of a particular case in any 103

of these major custom houses is conveyed to all other custom houses by the SVBs which have all India jurisdiction and hence on line communication with all Custom Stations. The order issued by the SVB remains in operation for a period of 3 years. The order by the SVB is based on the replies/documents furnished by the importer. If there is any suppression of fact or mis-declaration on the part of importer, necessary penal action taken separately in accordance with the provisions of law. If the importer is having continuous imports over a period of time extending beyond 3 years, he has to file replies and documents at least 3 months before the completion of 3 years, so as to take up the renewal of the case. In all cases where the importer is aggrieved by the order passed by the SVB, he may file an appeal to Commissioner of Customs (Appeals) against that order. Central Registry Database (CRD) DOV has established a Central Registry Database working as part of Special Valuation Branch (SVB) cases relating to importation involving complex valuation issues such as related party imports, cases involving payment of royalties, license fees, supply of materials and services by the importer, etc. The CRD is made available on the Directorates web site for reference by departmental officers in their day-to-day assessment work. Valuation Risk Assessment Module (VRAM) In the context of the development of a Risk Management System (RMS) for import cargo clearance, the Directorate has joined hands with the national Risk Management Team for devising the strategy for valuation risk assessment and control. On the basis of discussions, the valuation component of the RMS, namely, Valuation Risk Assessment Module (VRAM) has been designed. It is composed of three parts. The 104

first part is a Valuation Corridor consisting of a database of very highly sensitive Commodities. Most of them 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 officers. The second part of the valuation component of the RMS is Valuation Alerts, which are issued by DGOV. If any importer imports the commodity covered by the list of Valuation Alerts, then the consignment is sent to an officer for verification. The third part is that of poor data quality. If the importer declares unusual Unit Quantity Code (UQC) that is not normally used UQC (SQC) then the consignment is sent for assessment.

Export Commodity Data Base (ECDB) The Directorate has initiated work on the development of an Export Commodity Data Base (ECDB), which will focus on the valuation of export goods. This is primarily to check the possibility of over valuation of export goods, a mechanism followed by unscrupulous exporters to claim high level of export incentives under different schemes based on export value. The export data will be compiled on a daily basis in the electronic form from Customs stations that are linked by the dedicated Customs Network (ICENET). The data will be extracted in a predetermined format from all the ICES locations, transmitted via ICENET and merged at DOV into a single data source. The data will be analyzed by special software on weekly basis to provide unit values, averages, percentage deviations, etc. so that it could be used as a real time source of information for valuation by the field based assessing officers. The analyzed files are transmitted to all field formations through ICENET for building up local database for utilization by officers.

105

Experience with Agreement on Customs Valuation

The Indian experience with the implementation of ACV is rather mix. Though, India has largely adopted Article VII of GATT, it has made certain variations for ensuring smooth implementation of customs valuation agreement. These variations include like for instance, adding of method 7 for Settlement of Dispute, in customs valuation under Rule 11 of Indian Customs Valuation Rules. Similarly, Rule 10A of Customs Valuation Rules was introduced to provide a ground for rejection of the declared value, based on the existence of reasons to doubt so that Customs Authority could have a fair determination of customs value. This provision came from Decision 6.1 of Uruguay Round WTO Ministerial Declaration. According to this, burden of proof is shifted to the importer.

However, there are several judicial pronouncements in India, which have directed the customs department to exercise restrain in application of Rule 10A. In fact there is a pattern in the promulgation of amendments in the Customs Valuation Rules of 1988 and putting in of new rules and the valuation related rulings by the judicial delivery system. The Rule 10A itself was outcome of a judicial decision. As would be clear in the section on private sector perception of customs valuation the several legal judgments have instructed the Department to follow transaction value as the first basis for valuation. The Eicher Motor case (2000) became a turning point in this regard (see Box below.)

106

Box: The Eicher Tractor Case

The Supreme Court of India (SCI) in their judgment on Eicher Tractors Limited vs. Commissioner of Customs, Mumbai, case held that, unless the price actually paid for a particular transaction falls within the exceptions laid down, customs authorities are bound to charge duty on the transaction value (TV). The case is an interesting example demonstrating how customs department may implement provisions which completely overlook fundamental requirements for trade facilitation. In this case, the Eicher Tractors Limited imported tailor made bearings manufactured in 1989 from Japan. Part of the consignment was rejected and later was imported in 1993. Since the Japanese exporter could not sell this product (being tailor made to specific requirements) to any other firm, the transaction was at the one-third of the 1989 price. The customs department rejected the TV. Eventually, SCI while ordering of acceptance of TV directed that the price of imported goods is to be determined in accordance with time and place of importation and absence of special circumstances. After the judgment the Indian government amended the Customs Valuation Rule in 2001 whereby the sales below cost is no more specifically excluded from being valued on the basis of transaction value. Source: Based on Excise Law Time (ELT [122] 2000).

107

India & Customs Duty Rationalization The underlying philosophy of reduction in tariffs by Govt. of India to promote competitiveness in the Indian industry. There is a feeling in Government circles that high tariff rates had the effect of creating a high cost industrial structure. The Finance Act, 1993, made a significant simplification in the import tariff by merging auxiliary duty with basic duty, and also by reducing the maximum rate of import duty from 110 per cent to 85 per cent. The peak rate of import duty was further reduced from 85 per cent to 65 per cent by the Finance Act, 1994. Continuing the process of reducing the high level of protection to domestic industry to foster competition and promote efficiency, the peak rate of import duty was reduced from 65 per cent to 50 per cent in 1995, and further down to 40 per sent in the 1997-98 budget. A special customs duty of 2 per cent was imposed in the 1996-97 budget and a further special customs duty of 3 per cent was imposed on certain items in 1997-98. In other words, special customs duty of 5 per cent was in force for a period valid till 31.3.1999. However, in another move the Finance Minister imposed a uniform surcharge of 10 per cent on all commodities excluding the following categories: (a) crude oil and petroleum products, (b) items attracting 40 per cent rate of basic duty, (c) certain GATT-bound items and (d) gold and silver. In other words, the imposition of surcharge raised the basic rate by 10 per cent. For example, basic rate of 5 per cent became 5.5 per cent and 15 per cent became 16.5 per cent.

108

Still further, the Finance Minister reduced the peak rate of basic customs duty from 40 per cent to 35 per cent in his 2000-01 budget, thereby reducing the total number of customs duty rates from 5 to 4, i.e. 35 per cent, 25 per cent, 15 per cent and 5 per cent. The surcharge of 10 per cent imposed in the 1999-2000 budget became applicable to new peak rate of 35 per cent. It is noteworthy that apart from the basic customs duty, countervailing duty equivalent to excise duty (16 per cent) is also imposed, making the maximum rate of customs duty to around 50 per cent. Committed to a calibrated integration of Indian economy with the world economy, further phasing down of our customs duties to ASEAN levels was undertaken in the Budget for the year 1999-2000. However, special considerations to raise revenue and the fact that in a year of exceptional turbulence and uncertainty in the world economy, the Indian industry should be cushioned against unusual surges of competitive pressure from imports was kept in mind. After careful examination of various possibilities, and close interaction with the apex organizations of Commerce and Industry, it was decided to reduce the existing 7 major ad-valorem rates of customs duty to 5 basic rates. The new rates announced were: 5 per cent which will remain unchanged; 15 per cent by substituting the existing 10 per cent rate; 25 per cent by merging the 20 per cent and 25 per cent rates; 35 per cent by merging the 30 per cent and 35 per cent rates 40 per cent - which will remain unchanged.

Taking all factors into consideration, the Budget 2000-01, reduced the peak rate 109

of basic customs duty from 40 per cent to 35 per cent, thereby reducing the total number of customs duty rates from 5 to 4, i.e. 35 per cent, 25 per cent, 15 per cent and 5 per cent. The surcharge of 10 per cent levied due to revenue considerations, also applied to the new peak rate of 35 per cent. Crude oil and petroleum products, certain WTO bound items and gold and silver continued to be exempt. In the Budget for the year 2001-2002, no change in tariff or slab rate of customs duty was announced. However, the surcharge of 10 per cent was discontinued. With this, peak level of customs duty declined marginally from 38.5 per cent to 35 per cent. Customs duty on a few items were withdrawn and were imposed with a nominal duty of 5 per cent. The Finance Minister in his budget for 2002-03, announced that the government would move progressively to reduce to peak rate of customs duty to 20 per cent within three years. An Inter-Ministerial Working Group set up for the purpose suggested a road map for this starting with the budget. It recommended that by 2004-05, there would be only two basic rates of customs duties, namely, 10 per cent covering generally raw material, intermediates and components and 20 per cent covering generally final products. In accordance with the road map, the peak rate of customs duty was reduced from 35 per cent to 30 per cent. In line with last budget, in 2003-04, the peak rate of customs duty was reduced from 30 per cent to 25 per cent, excluding agriculture and dairy products. The peak rate of duty on non agricultural products was reduced to 20% in the 200405 Budget. However, there were a number of products where the duties were reduced to 15%.

110

In the 2005-06 Budget, the peak customs duty on industrial products was reduced from 20% to 15%. A special additional customs duty of 4% was also introduced to countervail the domestic levies such as VAT, sales tax, entry tax etc. The 2006-07 Budget saw the peak customs duty on industrial goods reduced from 15% to 12.5% with a few exceptions. In the 2007-08 Budget, the peak customs duty on industrial goods was reduced from 12.5% to 10%. There was no change in the peak duty of 10% on industrial goods in the 2008-09 Budget and other changes were only marginal. The 2009-10 Budget saw no change in the peak industrial goods duty of 10% with marginal changes in duty on some petroleum products, capital goods etc. In the 2010-11 Budget, the peak rate of customs duty was maintained at 10% with marginal changes in duty of certain tariff lines among petroleum products, precious metals etc. To recapitulate, radical reforms have been introduced in the Indian customs tariff between 1991 and 2010. These reforms were necessary because the customs tariff had become, over the years, very complicated in terms of multiple rates, innumerable exemptions, excessive controls, and elaborate procedures. These infirmities of the customs tariff often led to delays, harassment, corruption, and litigation. Moreover, rationalization and simplification of the customs duties was needed to move towards a market economy, freedom of trade, and opening up the Indian economy to the outside world. The major changes included the following: (a) the peak rate of import duty was reduced from 200 per cent to 10 per cent, (b) average rate of import duty was scaled down from 50 per cent to 9 per cent, (c) import duty on capital goods was brought 111

down from 85 per cent to 7.5% per cent. 9. Conclusion The importance of customs valuation practice in facilitating international trade and in coping with violations of law by traders should not be underestimated. Currently, a very large number of countries have implemented the Code. For those developing countries which have not adopted code there is an urgent need for formation of a task force to pursue the implementation of the Code on the domestic level. Such a task force should be composed of experts with substantial experience in the relevant fields, which is law, accounting and international trade practices. The developing countries should also recognize that the administration of customs valuation is an important area with a potentially major impact on the process of importation. It is also a domain of significance for policing illegal activities of traders. Thus, the government ought to give due priority to this aspect of customs administration, even if collection of import duties does not constitute a primary source of state revenue and even if implementation of the code is expected to gradually diminish the total revenues from import duties. In Indian context, while the Customs Valuation Agreement has been applied since 1988, the traders still identify the disputes on customs valuation and major trade facilitation issue. Use of modern infrastructure like customs database by a specialized agency like Directorate of Valuation within the Central Board of Excise and customs has achieve considerable success in combating the measure of undervaluation and ensuring adoption of uniform values at different customs entry ports. However field level irritants to application of customs valuation system still need to be addressed to the full satisfaction of all stakeholders.

112

Agreement on Import-Licensing Procedures 1. Introduction Import licenses, like origin rules, are a tool for applying trade policies. The Agreement on Import Licensing Procedures is a straightforward set of principles and detailed rules intended to prevent licensing from being an obstacle to trade in itself. It is not a major innovation; rather it is in fact a revised version of limited membership code negotiated in the 1970s. It has been usefully improved and has gained in importance because, as one of the multilateral agreements annexed to the WTO, its obligations apply to all WTO Members. The Agreement establishes disciplines on users of import licensing systems to ensure that the procedures do not by themselves restrict trade. Rather it aims to simplify, clarify and minimize the administrative requirements necessary to obtain import licenses. The Agreement on Import Licensing Procedures has been framed in order to further the objectives of the GATT 1994, taking into account the needs of the developing country members. The Agreement recognized the paramount importance of automatic import licensing so that such licensing should not be used to restrict trade. The framers were convinced that import licensing should be implemented in a purely transparent and predictable manner. They were desirous to simplify and bring transparency to the administrative procedures and practices used in international trade. They tried to ensure that fair and equitable application and administration of such procedures and practices be established. The Agreement ensures that procedures for import licensing be applied purely in a neutral and non-discriminatory manner. Governments generally use import licensing for one of the two purposes: to administer quantitative or other import restrictions, or as a means only of keeping

113

track of imports, usually for statistical purposes. Licenses for the first purpose are classified as non-automatic, because they will only be issued if an applicant is allocated a part of whatever import quota is available. Issuance of the second category of licenses is normally automatic. The Agreement contains general provisions that apply to both kinds of import licensing, as well as provisions that apply specifically to nonautomatic or automatic licensing. 2. General Provisions Article 1 of the Import Licensing Procedures provides for the general provisions regarding it. The provisions seek to reduce the scope for discrimination or administrative discretion in the application of both kinds of licensing. Rules are to be neutral in application and administered fairly and equitably. All rules, as well as relevant information about who is eligible to apply for a license, where the application should be made, and which goods are subject to licensing must, whenever practicable be published by members 21 days prior to the effective date of the requirement, and in all events not later than the effective date. At least 21 days notice should be given of changes. License application and renewal forms should be kept simple. Only such documents and information are demanded which are really required. The application and renewal procedures are made very simple. Applicants are normally provided 21 days or in some case more to respond if there is a closing date. They should consult or approach only one administrative body, but it should not in any case exceed 3. Applications are not to be refused for minor errors of documentation. It is also provided that there should be no undue penalties for minor mistakes and omissions. Licensed imports are to be accepted even if they show minor variations from the license, in value, quantity or weight, provided these variations are consistent with normal commercial practices. No penalty greater than necessary to serve merely as a

114

warning is to be imposed in respect of any omission or mistake in documents if they have been made without fraudulent intent or gross negligence. The foreign exchange necessary to pay for licensed imports must be made available to license holders on the same basis as for goods which need no license. With regard to security exceptions the Agreement on Import Licensing provides that provisions of Article XXI of GATT will apply. The Agreement does not provide for member countries to disclose confidential information which impedes law enforcement or otherwise would be contrary to the public interest or would be prejudicial to the legitimate commercial interests of the particular enterprise. It does not matter whether these enterprises are public or private. The Agreement will apply equally to both the enterprises. The Agreement will not discriminate between the two. 3. Automatic Import Licensing Automatic Import Licensing has been defined in Article 2 of the Agreement. It is defined as where approval of the application is granted in all cases and there is no restrictive effect on trade. It is acceptable whenever other appropriate procedures are not available and as long as its underlying administrative purposes cannot be achieved in a more appropriate way. However, automatic import licensing escapes the tighter rules governing nonautomatic licensing only if it meets the following qualifying conditions: any person, firm or institution which fulfill the legal requirements of the importing member for engaging in import operations involving products subject to automatic licensing is equally eligible to apply for and to obtain import licenses;

115

applications for licenses

must be acceptable on any working day

before the goods are cleared through customs; applications in due form must be approved either immediately or within 10 working days. Developing countries which were not signatories of the earlier code are given up to two years from becoming a WTO Member to meet the last two above requirements. Thus, according to the provisions of the Agreement the members recognise that automatic licensing is necessary whenever other appropriate procedures are not available. It can be given as long as the circumstances which give rise to its introduction prevail and as long as its underlying administrative purposes cannot be achieved in a more appropriate way. 4. Non-Automatic Import Licensing The Agreement on Import Licensing defines non-automatic import licensing as licensing which does not fall within the definition contained in Paragraph I of Article 2 of the Agreement. In other words we can say that the licensing which is not automatic will be called non-automatic licensing. The central requirement under the agreement is that such licensing shall not restrict or distort trade any further than the measures it applies. The procedures under non-automatic licensing must correspond in scope and duration to the measure they are used to implement. It should not be in any manner more burdensome administratively, than what is absolutely necessary to administer the measure. Enough information must be published for traders to know the basis on which licenses are given. The governments with a trade interest have the right to ask for 116

detailed information about how licenses have been distributed and about trade in the concerned products. If the members are administering import quotas, information must be published about the size or value of the quotas, and the dates to which they apply. If the quotas are allocated among supplying countries, all interested supplying members must be informed, and the requirement of publication also applies. In case of early opening of quota, the information must be published in such a manner as to enable governments and traders to become acquainted with them. Any person, firm or institution which fulfills the legal and administrative requirements is equally eligible to apply and to be considered for a license. If the licence has not been given, the person, firm or institution has a right to appeal or review. The appeal or review shall be heard in accordance with the domestic legislation or procedures of the importing member. The period for processing the application will be applied on the basis of first-come first served basis. It must be cleared within 30 days of the filling of the application and in no case more than 60 days if all the applications are taken up the consideration simultaneously. The Agreement provides that the validity of the license shall be for a reasonable period. It cannot be so short as to preclude imports. The period of the validity of the license must not preclude imports from distant imports, except in special cases where imports are necessary to meet unforeseen short-term requirements. In administering quotas, the members must not prevent importation from being effected in accordance with the issued licenses. The members are directed by the Agreement not to discourage the full utilization of quotas. In issuing licenses, the members can take into account the desirability of issuing licenses for products in economic quantities. While issuing licenses, the members can consider the import performances of the applicant. In this matter the applicants past performances can be

117

seen not

before been used

issuing fully,

license. can

If

the the

licenses reasons

have for

members

examine

it and take into account these reasons before issuing any new licenses. Consideration of new importers and their desirability can be the factors which can be examined before allocating the licenses. Special consideration should be given to those importers importing products originating in developing country members and in particular, the least developed country members. In the case of quotas administered through licenses which are not allocated among supplying countries, license holders are free to choose the source of imports. In the case of quotas allocated among supplying countries, the license shall clearly stipulate the country or countries. 5. No Transition Period The Agreement on Import Licensing Procedures has no transition period. It came into full effect immediately upon coming into the force of unaguay Round Agreement in 1995. Only those developing countries were conferred two years extra time that were not party to the earlier code negotiated during 1970. 6. Committee on Import Licensing The Agreement on Import Licensing provides for the establishment of a committee known as the Committee on Import Licensing. This committee consists of representatives of each of the members. The committee has been empowered to elect its own chairman and vice-chairman. The committee meets as and when it is

necessary for the purpose of affording members the opportunity of consulting on any matters relating to the operation of this Agreement or for the furtherance of the objectives of the Agreement.

118

7. Notification of Changed Rules Article 5 of the Import Licensing Procedure provides that any new or changed import licensing procedures have to be reported within 60 days of publication. This information regarding import licensing procedures includes many other things like list of products, information on eligibility, the administrative bodies which seeks applications, indication whether the licensing procedure is automatic or nonautomatic, the expected duration of the licensing procedure, etc. In case of automatic import licensing procedures the notification must contain their administrative purpose and in case of non-automatic procedures, the indication of the measure which is being implemented through the licensing procedure. The members are obliged to notify the committee, the information the publication of which is required under paragraph 4 of Article 1 of the Agreement. Any interested member who considers that another member has not been notified of the institution of licensing procedure or changes, may bring the matter to the attention of other members. If notification is not made thereafter also, a member can notify the licensing procedure or the changes therein. This notification can also include all relevant and available information. This is called a system of reverse notification which is a unique feature of this Agreement. However it has not yet been used by any Member country. 8. Consultation and Dispute Settlement Article 6 of the Agreement on Import Licensing Procedures provides that any consultation and the settlement of disputes with respect to any matter which affects the operation of the Agreement shall be decided, subject to the provisions of Article XXII and XXIII of GATT 1994 which has been elaborated and applied by the Dispute Settlement Understanding.

119

9. Review of the Implementation and Operation of Agreement The Committee on Import Licensing which composes of the representatives of each of the members, has been empowered to review the implementation and operation of the Agreement, at least once in every two years, taking into account the objectives and the rights and obligations mentioned in the Agreement. For the review of the workings of the Agreement, the Secretariat prepares the factual report based on the responses of the annual questionnaire on import licensing procedures and other relevant information which is available to it. The report works more like a synopsis containing the information and in particular indicating the changes or developments during the period under review. Members are under an obligation to complete the annual questionnaire on import licensing procedures promptly and in full. Subsequently, the Committee on Import Licensing reports to the Council for Trade in Goods of the developments that occurred during the period of such review. 10. Reservations to the Agreement Article 8 of the Agreement on Import Licensing Procedures provides for the declaration of reservations by the members to the Agreement. But this does not mean that the members are having an absolute right to declare their reservations on any of the provisions of the Agreement. Reservations to any of the provisions of the Agreement cannot be entered into without the consent of the other members of the Agreement. Once entered into this Agreement, every member must ensure that its law, regulations and administrative procedures are in conformity with the provisions of the Agreement. Any changes made to the laws, regulations and administrative procedures relating to the Agreement must be brought to the notice of the Committee on Import Licensing and this includes the administration of such laws and regulations also.

120

11. Indias Position India has progressively liberalized imports by removing quantitative restrictions maintained under the balance of payments cover. From the national perspective, the lifting of these restrictions has been of far reaching significance. The domestic industry is still going through the process of adjusting to the new situations. QRs have been removed in phased manner by the Govt. of India. These items are classified according to ITC (HS) classification at the 8-digit level. The Special Import License (SIL) Scheme has also been discontinued. Now restrictions are still in force only for those items as permissible under GATT Articles XX and XXI on the grounds such as security, health and moral conduct.32 12. Specific Trade Concern In 2009-10, US raised the issue of Indias licensing procedure for the imports of boric acid for non insecticidal use. The core of the concern was the rationale for having an import licensing procedure which the US alleges to be non automatic for import of boric acid for non insecticidal use.

32

WT/TPR/G/100 121

Bibliography Books, Articles and Cases 1. Legal text of the Agreement on Import-Licensing Procedures. 2. Guide to the Uruguay Round Agreements, The WTO Secretariat, Kluwer Law International. The Hague, London, Boston, pp. 121-123, 1999. 3. John Croome, Reshaping the World Trading SystemA History of the Uruguay Round, Kluwer Law International. The Hague, London, Boston, pp. 73, 182, 1999. 4. Konstantinos Adamantopoulos (ed). An Anatomy of the World Trade Organisation Kluwer Law International, London, The Hague, Boston, pp. 17. 5. Mitsuo Matsushita, Thomas J. Schoenbaum and Petros C. Mavroidis, The World Trade OrganisationLaw Practice, and Policy, pp. 128-132. The Oxford University Press, 2003. 6. European CommunitiesMesaures Affecting the Importation of Certain Poultry Products, Panel Report, WT/DS69/R, adopted 23 July 1998, as modified by the Appellate Body Report, WT/DS69/AB/R, DSR 1998:V. 7. European CommunitiesRegime for the Import, Sale and Distribution of Bananas, Panel Report, WTDS 27/R/ [...], adopted 25 September 1997, as modified by the Appellate Body Report, WT/DS27/ABR, DSR 1997: II. 8. CanadaMeasures Affecting the Importation of Milk and the Exportation of Dairy Products, Panel Report, WT/DS103/R, WTDS113/R, adopted 27 October,

122

1999, as modified by the Appellate Body Report, WT/DS103AB/R and Corr. 1, WT/DS113/AB?R and Corr. 1. 9. IndiaQuantitative Restrictions on Imports of Agricultural, Textile and Industrial Products, Panel Report, WT/DS90/R, adopted 22 September 1999, as upheld by the Appellate Body Report, WT/DS90/AB/R, DSR 1999:V. 10. KoreaMeasures Affecting Imports of Fresh, Chilled and Frozen Beef, Panel Report, WT/DS161R, WT/Ds169/R, adopted 10 January 2001, as modified by the Appellate Body Report, WT/DS161AB/R, WT/DS169/AB/R.

123