1. IMPLEMENTING THE WTO VALUATION AGREEMENT IN DEVELOPING COUNTRIES Luc De Wulf The World Bank Geneva, 6 – 7 Nov 2002

2. 1. Introduction The World Banks interest in trade and customs reform stems from: Trade liberalization Trade liberalization Revenue enhancement Revenue enhancement Trade facilitation concerns Trade facilitation concerns

3. 2. Trade Facilitation and the WTO Valuation Agreement Valuation is a crucial aspect of customs work Valuation is a crucial aspect of customs work Brief recap of history of the ACV: Brief recap of history of the ACV: 1947 GATT Principles 1947 GATT Principles 1950 Brussels Definition 1950 Brussels Definition 1980 ACV – Special and Differential Treatment Provision 1980 ACV – Special and Differential Treatment Provision 1994 Uruguay Round – Shifting Burden of Proof 1994 Uruguay Round – Shifting Burden of Proof

4. 3. Implementation Issues After 1994, 58 WTO members asked for a 5 year delay; 25 asked for further delay and 23 countries did not ask for delay nor notified the WTO After 1994, 58 WTO members asked for a 5 year delay; 25 asked for further delay and 23 countries did not ask for delay nor notified the WTO Reluctance does not stem from principled resistance to transparent valuation system Reluctance does not stem from principled resistance to transparent valuation system

5. Reluctance to implementation of ACV Lack of ownership. Commitment was made by Ministries of Commerce not by Ministries of Finance, sometimes against advise from Ministry of Finance Lack of ownership. Commitment was made by Ministries of Commerce not by Ministries of Finance, sometimes against advise from Ministry of Finance Concerns about revenue loss. Frequency of fraudulent invoices and budget dependency on import taxation (customs and VAT) Concerns about revenue loss. Frequency of fraudulent invoices and budget dependency on import taxation (customs and VAT) Trading environment. Informal sector, second hand goods, fraud Trading environment. Informal sector, second hand goods, fraud

6. Administrative limitations. Valuation is a very demanding activity hampered by: Administrative limitations. Valuation is a very demanding activity hampered by: Poor information and communications Poor information and communications Weakness of customs: training, low salaries, corrupt social environment Weakness of customs: training, low salaries, corrupt social environment Poorly managed IT systems Poorly managed IT systems Inadequate management: absence of manuals and internal audit and management information systems Inadequate management: absence of manuals and internal audit and management information systems

7. ACV is not well suited to deal with specific developing country valuation needs. ACV procedures are lengthy in cases of reasonable doubt and the application of alternative methods in the correct order is a challenge ACV is not well suited to deal with specific developing country valuation needs. ACV procedures are lengthy in cases of reasonable doubt and the application of alternative methods in the correct order is a challenge

8. Premises for ACV are honest importers and workable self-assessment, etc. This is not realized in many LDCs. Awaiting that these conditions are realized it is possible to implement partial solutions that respond to the objectives of transparency and objectivity, while assisting Customs to fulfill its revenue, protection objectives without excessively hampering trade facilitation. 4. Where from Here? Partial Solutions

9. Simplify the tariff system. A simple and low tariff facilitates valuation work. But there are limits as importance of VAT increases pari passu. Simplify the tariff system. A simple and low tariff facilitates valuation work. But there are limits as importance of VAT increases pari passu. Address the ownership issue. Ensure that LDCs can air their concerns in WTO and other fora, so that the rules are appropriate for them. Address the ownership issue. Ensure that LDCs can air their concerns in WTO and other fora, so that the rules are appropriate for them. Technical assistance can explain to the rules of the ACV. Needs to be done but has limits as application of the new understanding is constrained by administrative limitations in the customs. Technical assistance can explain to the rules of the ACV. Needs to be done but has limits as application of the new understanding is constrained by administrative limitations in the customs. Use of PSI or PSI like services. Used by 41 members of the WCO. WTO compatible if done correctly. A 1994 World Bank publication discussed the details and explains the modalities under which these services can efficiently be used. In many countries these services are not effectively used. Not the place here for a detailed discussion/debate on the issue. New services are being rolled out that focus on support PSI companies can provide to implement risk-based post approach to pre-shipment inspections and post- release inspections. Use of PSI or PSI like services. Used by 41 members of the WCO. WTO compatible if done correctly. A 1994 World Bank publication discussed the details and explains the modalities under which these services can efficiently be used. In many countries these services are not effectively used. Not the place here for a detailed discussion/debate on the issue. New services are being rolled out that focus on support PSI companies can provide to implement risk-based post approach to pre-shipment inspections and post- release inspections.

10. Exchange of information between customs agencies. Conform to the Doha Declaration. Was the focus of a WCO in September in Pretoria. Exporting countries are reluctant: data are confidential, are not checked, their customs organizations are not equipped. Potential of customs exchange may be greatest in regional context. Declaration of several OECD countries that are favorable to this approach should be tested. Exchange of information between customs agencies. Conform to the Doha Declaration. Was the focus of a WCO in September in Pretoria. Exporting countries are reluctant: data are confidential, are not checked, their customs organizations are not equipped. Potential of customs exchange may be greatest in regional context. Declaration of several OECD countries that are favorable to this approach should be tested. Single trade document that could be used for both export and import. At times proposed. In an ideal world this could work, However need to consider the data that are needed in such document, the validity such document would have for the respective authorities as export and import authorities have different objectives and attention to detail. Does not seem top point in the direction of trade facilitation. Single trade document that could be used for both export and import. At times proposed. In an ideal world this could work, However need to consider the data that are needed in such document, the validity such document would have for the respective authorities as export and import authorities have different objectives and attention to detail. Does not seem top point in the direction of trade facilitation.

11. Commercial data bases and price lists. Preparing a good data base in good practice in any Valuation Department in Customs. These can be based on previous imports and other commercial information available to the customs departments. In some countries PSI companies are assisting customs in the preparation of these data bases. Some commercial firms propose data bases and innovative ways and means are being investigated on how to use modern technology to obtain such data. Commercial data bases and price lists. Preparing a good data base in good practice in any Valuation Department in Customs. These can be based on previous imports and other commercial information available to the customs departments. In some countries PSI companies are assisting customs in the preparation of these data bases. Some commercial firms propose data bases and innovative ways and means are being investigated on how to use modern technology to obtain such data. Major issue how to use these data: Raise reasonable doubt and a challenge invoice Raise reasonable doubt and a challenge invoice Use them for valuation purposes. Already done in many countries-conflicts with ACV commitment. Progress would be if price lists were prepared in a transparent manner and communicated to the traders community. Avoid outdated minimum values (hence updating is important) or use for protective purposes. Use them for valuation purposes. Already done in many countries-conflicts with ACV commitment. Progress would be if price lists were prepared in a transparent manner and communicated to the traders community. Avoid outdated minimum values (hence updating is important) or use for protective purposes.

12. 5. Efficient Customs Services are Needed to Implement ACV Many weak links in customs operations make the implementation of ACV often problematic. Many weak links in customs operations make the implementation of ACV often problematic. Solution is to build a strong chain. This requires attention to all links, not only the valuation link. Examples of OECD and successful developing countries exist. Are being summed up. Rules abound (e.g. Kyoto Convention, ACV). Solution is to build a strong chain. This requires attention to all links, not only the valuation link. Examples of OECD and successful developing countries exist. Are being summed up. Rules abound (e.g. Kyoto Convention, ACV).

13. Necessary Condition: Necessary Condition: Political commitment that forces Customs efficiency. May require change in management, management procedures, staff renewal. Political commitment that forces Customs efficiency. May require change in management, management procedures, staff renewal. Private Sector (i) demands better service from customs – performance standards periodically published; (ii) commits to honesty. Private Sector (i) demands better service from customs – performance standards periodically published; (ii) commits to honesty. May be helpful: May be helpful: TA and funding from development partners. TA and funding from development partners. Private sector consultants, service providers and subcontractors. Private sector consultants, service providers and subcontractors.