Transfer Pricing Insider
Volume 3, Issue 1
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Customs Valuation Issues at the WCO...and Coming to a
Foreign Jurisdiction Near You (Parts 1 and 2)
Source: Mark K. Neville, Jr. LL.M. NYU, is of counsel to DLA Piper in the firm's New York office, and serves as an adjunct professor at the University of California, Berkeley's Haas School of Business. He is the Journal's Customs & Trade correspondent and a member of the Board of Advisors.
The twin pillars of the present international trading system are the normative rules of tariff classification and customs valuation that were hammered out over long years in the Geneva offices of the GATT, the predecessor of the World Trade Organization (WTO), and in the Brussels offices of the Customs Cooperation Council (CCC), the predecessor of the World Customs Organization (WCO). In place for roughly 30 years, the tariff classification and valuation systems, along with that for the assignment of origin of the goods, have served as the bases on which customs duties are assessed on imported goods.
It would be a mistake, however, to conclude that any of these systems are static, with all possible (or at least all serious) questions having been discussed and resolved. Discussed, yes; resolved, no. In fact, some of these issues have been discussed for years. This column will discuss two of the more serious customs valuation issues—transfer pricing below and royalties in the February issue of the Journal—that have been on the agenda for years and were discussed as recently as October 2008, with the Technical Committee on Customs Valuation (Technical Committee) of the WCO as the venue.
These topics are of more than academic interest to multinationals, since so much of world trade is affected by the imposition of duty where related-party pricing—the use here of this other phrase for transfer pricing is deliberate—and trademarked or patented goods are concerned. But it would be wrong to proceed further without a background note on the Technical Committee.
The WCO and its Technical Committee
The WCO is a multilateral body of some 152 participating countries. One of its goals is to provide technical training for its members, many of which are emerging markets, on the governments' job of running a customs organization. Another goal is to provide guidance on such technical customs matters as tariff classification and valuation, with the WCO empowered to establish technical committees to promulgate case studies, issue advisory opinions, and otherwise ensure uniformity and predictability in the interpretation and application of multilateral agreements.
For customs valuation, the Valuation Agreement1 itself established the WCO's Technical Committee2. Conducted under the umbrella authority of the WTO, the trade community is well served by the Technical Committee, which acts as a forum for discussions. If WTO members are engaged in a dispute settlement proceeding3 because one of them has been accused of nullification or impairment of benefits arising from the application of the Valuation Agreement, the Technical Committee may be called on to provide advice and assistance to the members engaged in consultations. Further, the dispute panel may ask the Technical Committee to play a formal role in an examination of technical questions arising in the context of the dispute. The Technical Committee is also called on to examine specific technical problems arising from the day-to-day administration of the customs valuation system and to furnish information and advice to members. This information and advice may take the form of advisory opinions, comments, or explanatory notes.
1 Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (Valuation Agreement).
2 Valuation Agreement, Article 18(2) and Annex II
3 Disputes among WTO members may be settled pursuant to the Understanding on Rules and Procedures Governing the Settlement of Disputes.
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