WTO
Agreement on Customs Valuation: An Introduction (June
9, 2003)
Brief Background. The customs valuation system presently
being implemented at the Bureau of Customs is the
Transaction Value (TV) System, which is principally
based on the WTO Agreement on Customs Valuation (Agreement
on Implementation of Article VII of the GATT/Customs
Valuation 1979).
Prior to adoption of the WTO Agreement
on Customs Valuation, most countries around the world
had varying valuation systems and as a result, many
companies experienced difficulties in their cross border
activities due to disputes and conflicts on the treatment
of their exported goods. Thus, under the auspices of
the administrators of the GATT, a uniform international
system was established to promote and facilitate trade
by ensuring that customs valuation is simple, transparent
and predicable. The system was likewise designed to
ensure that governments are able to easily administer
the same. Under the new system, countries expect that
their exports would have the same treatment as imports
entering their countries.
In 1995, the Philippines became one
of the member countries of the World Trade Organization
(WTO). Along with the WTO membership was the accession
of the Philippine government to various trade agreements
pertaining to, among others, customs valuation, tariff
restructuring, dumping, countervailing, safeguards,
rules of origin, and the intellectual property rights.
Comparison
with the Export Value (EV) System. The Transaction Value
system was first implemented in January 2000 as provided
under RA 8181. RA 8181 was subsequently amended with
the passage of RA 9135 in June 2001. Prior to the adoption
of the TV system, the customs valuation system that
was in operation was known as the Export Value (EV)
System. In contrast to the present system, the EV system
was criticized for many reasons, among them:
a)
Customs provided a minimum value on imports without
clear basis and standards as to the source of said value.
b) Customs value was not based on actual commercial
terms and conditions.
c) Customs values were considered arbitrary and fictitious.
The
adoption of the TV system thus provided the trading
community with a fair, uniform and neutral rule on customs
valuation. In contrast to the previous system, the present
system now supports business reality and commercial
reasons as basis for the customs value.
What
is the Transaction Value? Under Section 201 of the Tariff
and Customs Code (TCCP), the dutiable value of an imported
article is the "transaction value, which shall
be the price actually paid or payable for the goods
when sold for export to the Philippines". Stated
otherwise, the primary basis for determining the customs
value is the price paid or payable (Method 1 - Transaction
Value).
The
acceptability of the transaction value is, however,
subject to certain conditions. Likewise, certain elements,
which are considered to form part of the value for customs
purposes, may be added to the price paid or payable.
RA
9135 and its implementing rules (CAO 5-2001) provide
that in determining the transaction value certain adjustments
may be made to the price actually paid or payable for
the imported goods being valued. These adjustments are
as follows: (a) commissions and brokerage fees (except
buying commissions); (b) cost of containers; (c) cost
of packing; (d) assists; (e) royalties and license fees;
(f) subsequent proceeds that directly or indirectly
accrue to the supplier; (g) cost of transport to the
port of entry; (h) loading and handing charges to the
port of entry; and (i) cost of insurance.
Under
the TV system, there is a strong policy in favor of
applying the transaction value to the greatest extent
possible, and the grounds for departure should be narrowly
construed as much as possible. There are also very few
instances for departing from the price paid or payable.
Other than the conditions for the acceptability of the
transaction value, there are no other grounds for departing
from the transaction value. Where the transaction value
cannot be applied, the various alternative methods shall
then be followed in sequential order.
Grounds
for Rejecting the Transaction Value. For the Transaction
Value to be acceptable, the following conditions must
be present:
a)
There must be a sale for export to the Philippines.
b)
There must be no restrictions as to the disposition
or use of the goods by the buyer, which substantially
affect the value of the goods.
c)
The sale or price must not be subject to some conditions
or considerations for which a value cannot be determined
with respect to the goods being valued.
d)
No part of the proceeds of any subsequent resale, disposal
or use of the goods by the buyer will accrue directly
or indirectly to the seller.
e)
The buyer and the seller are not related, or if they
are related, the importer must be able to demonstrate
that the relationship did not influence the price actually
paid or payable.
When
the above conditions are not met, the transaction value
cannot be accepted as customs value and as such, the
subsequent methods must then be applied.
CAO
5-2001 elucidates further on the process for proceeding
to alternative methods of determining customs value
when the transaction value is not applicable. [Our subsequent
articles will discuss in more detail the concept of
the Transaction Value and the other methods of valuation.]
The
author is an international trade and customs specialist,
and a licensed customs broker. He is also a partner
of the law firm of David Leabres Uvero Gaticales Sto.
Tomas. For comments or inquiries, he may be contacted
at worldtrade@skyinet.net
or at (632) 4002145 / 4050021.
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New
safeguard investigations against Glass Imports
(May 26, 2003)
Preliminary Investigations on Glass Imports. Last month,
the Department of Trade and Industry (DTI) initiated
safeguard preliminary investigations against importations
of Glass Mirrors and Figured Glass due to allegations
of increased imports, which accordingly have contributed
to serious injury to the local producers of similar
products.
It
will be remembered that last year, the Bureau of Customs
(BoC) imposed safeguard duties against importations
of ceramic tiles for 3 years as a result of a final
ruling made by the Tariff Commission. For the period
January 9, 2002 to January 9, 2003, the safeguard duty
imposed was PhP5.40/kg. To illustrate, a 20-foot container
of ceramic tiles with a net weight of 20 metric tons
will have to pay an additional safeguard duty of at
least PhP100,000 in addition to regular duties and taxes
payable upon importation.
Two
years ago, a similar safeguard investigation against
cement imports was initiated. While the Tariff Commission
ruled against the imposition of safeguard measures,
the domestic industry elevated the case to the regular
courts. To date, the case has yet to be finally resolved.
For
importers and traders, the common questions asked are:
what is a safeguard investigation, how is it applied
and on what basis? The discussion below should provide
a general understanding of the nature of safeguard measures
and how it is applied.
What
is a Safeguard Measure? In general terms, a safeguard
measure is an additional duty imposed on certain imported
articles in case there is a finding that substantial
importation of said articles has directly caused injury
to the domestic industry or the local producers. Safeguard
measures may apply to agricultural as well as non-agricultural
products.
Similar
to dumping and countervailing measures, safeguard measures
are one of the trade protection measures available under
the World Trade Organization (WTO). In fact, safeguard
measures were already provided under the 1947 General
Agreement on Tariffs and Trade (GATT). Until recently,
safeguards were seldom used as most governments previously
preferred to protect domestic industries through bilateral
negotiations with other countries. These negotiations
normally resulted in one country voluntarily agreeing
to lower its exports or agreeing to other market-sharing
schemes.
Safeguard
Measures under WTO and AFTA-CEPT. Safeguard measures
are provided under the WTO Agreement on Agriculture
(WAA) and Agreement on Safeguards (WAS). As regards
agricultural products, GATT previously allowed export
subsidies and import restrictions (e.g. import quotas).
Under the WAA, reforms have been initiated in the areas
of market access, domestic support and export competition.
Part of the new system is the removal of non-tariff
barriers through tariffication, i.e., replacing an import
quota with an import tariff rate. However, countries
are allowed to invoke special measures for the "tariffied"
products.
The
WAS, on the other hand, is a significant development
in the WTO as it offers a basis for countries to undertake
temporary measures to address any adverse impact of
imports on their domestic industry. Countries are therefore
allowed time for their domestic industries to adjust
so long as there is sufficient evidence of injury to
the industry. Similarly, the Agreement on the CEPT Scheme
for the ASEAN Free Trade Area (AFTA) provides emergency
measures in cases of increased importation, which injures
or threatens to injure an industry in the importing
member states.
Republic
Act No. 8800. About three years ago or sometime July
2000, the Philippine government enacted Republic Act
No. 8800. Otherwise known as "An Act Protecting
Local Industries by providing Safeguard Measures to
be Undertaken in Response to Increased Imports and Providing
Penalties for Violation thereof", RA 8800 effectively
implemented both the WAS and the WAA.
Under
RA 8800, the Secretary of Trade and Industry or the
Secretary of Agriculture may apply a safeguard measure
upon final determination by the Tariff Commission that
"a product is being imported into the country in
increased quantities, whether absolute or relative to
the domestic production, as to be a substantial cause
of serious injury or threat thereof to the domestic
industry". For agricultural products however, the
Secretary of Agriculture shall first establish that
the application of such safeguard measures will be in
the public interest.
Preparing
for a Safeguards Investigation. In case of safeguard
application against a particular import, preliminary
investigation is normally conducted by DTI. Upon positive
finding, a formal investigation shall be conducted by
the Tariff Commission for final determination. For the
safeguard measure to be imposed, it must be shown that
the increased imports have substantially caused serious
injury or threat thereof to the domestic industry and
that such increase imports were due to unforeseen developments
and the effect of WTO obligations.
To
prevent the imposition of a safeguard measure as in
the case of glass imports, an importer must therefore
be able to show in principle (a) that there are no increased
imports; (b) that there is no injury to the domestic
industry; (c) that assuming there is injury, the imports
were not the cause of such injury; or (d) that the increased
imports can be foreseen. The quantum of proof necessary
to support the importer's position will, however, be
dependent on the investigating body (i.e., DTI or Tariff
Commission).
The
author is an international trade and customs specialist,
and a licensed customs broker. He is also a partner
of the law firm of David Leabres Uvero Gaticales Sto.
Tomas. For comments or inquiries, he may be contacted
at worldtrade@skyinet.net
or at (632) 4002145 / 4050021.
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Customs
brokerage: An integral part of International Logistics
(May 12, 2003)
Logistics and the Supply Chain. In the last decade,
we have witnessed the growing impact of globalization
on how companies conduct their business across international
borders. The increasing competition in the global marketplace
has caused companies to continuously find ways to lower
production costs and offer competitive prices for their
consumers.
Many
companies have thus overhauled their supply chain (from
the acquisition of raw materials to the provision for
sales and after-sales service) in order to promote efficiencies
and create savings. As logistics cuts across the whole
supply chain, companies likewise look at possible savings
opportunities in the transport, insurance, customs clearance,
inspection, storage, packing, handling and distribution
of goods.
International
Logistics. For companies engaged in international trade,
logistics normally refer to the proper management of
the supply of materials. In general terms, this involves
securing the exact quantity of materials for delivery
at the right time and location at a minimum cost. In
international sale transactions, logistics may include
inbound logistics (from supplier factory or farm to
the buyer in another country) and outbound logistics
(warehousing and distribution of the goods to the production
lines or retail shops).
Logistics
managers normally look at the costs and risks involved
when moving goods across international borders. In a
typical manufacturing entity, it is estimated that incoming
logistics costs accounts for about 20-30% of the total
purchase cost of an article. Obviously, logistics has
direct and indirect impact on the operating profit of
a company and on the price of the goods offered in the
market place. To promote efficiency and create savings
opportunities, many companies have adopted an integrated
approach to logistics and distribution management.
Customs
Brokerage as part of Integrated Logistics. The concept
of integrated logistics is to provide an efficient and
seamless flow of the goods starting from the suppliers
to the customers of finished goods. In the Philippines
and in most other countries, many companies offer integrated
logistics services. Also known as third party logistics
providers, these companies offer, among others, services
such as: air and sea freight, multimodal transport,
customs brokerage, and warehousing and distribution.
From
an operational perspective, logistics services typically
involve the following:
(a)
adoption of international trading terms (INCOTERMS and
documentary credits);
(b) use of transport providers, freight forwarders and
shipping agents;
(c) availment of warehousing and distribution centers;
and
(d) customs clearance, inspection, security and compliance.
For
many multinational companies, integrated logistics solutions
have become part of its business planning and strategy.
With the advent of internet technology, the world of
logistics operations now provide faster and more efficient
transportation of products and more added services.
Likewise, the demand of international traders for trade
facilitation and just-in-time deliveries across international
borders has given customs brokerage services a more
important role in the company's logistics approach.
The
Future-Customs Management. While it is true that international
trade rules have become more complex, international
trade rules have, on the other hand, become more harmonized.
Against this backdrop, trading companies demand more
value-added logistics services and as a consequence,
logistics companies now offer integrated logistics services
to include customs management services and solutions.
In addition to the traditional customs brokerage services,
many logistics companies and customs brokerage firms
now offer customs management services to include:
(a)
customs bonded warehousing;
(b) specialist advice on international trading rules
and government regulations;
(c) record keeping and customs audit support services;
(d) advice on tariff privileges and deferment; and
(e) duty and trade planning.
In
the more developed countries, it is no longer enough
that customs brokerage firms clear goods from customs
in the most efficient and timely manner. As the cost
of logistics (e.g. insurance and freight) directly impact
on the amount of customs taxes and duties payable at
the border, companies demand that customs brokers provide
services not only to reduce logistics costs but also
to provide legally permissible ways to reduce the taxes
and duties payable.
Importer-Customs
Broker Partnering. In the Philippines, the practice
for most local companies is to secure the services of
customs brokers just for clearing the goods from customs
custody. Thus, most customs brokerage companies provide
limited services such as customs documentation and clearance,
and customs and tariff advice. Even as most customs
brokers continue to provide traditional customs brokerage
services, recent developments however demand that customs
brokers provide more added services to address the new
requirements of local companies engaged in international
trade.
The
present customs and trade rules in the Philippines not
only provide certain compliance requirements for importers
(e.g. record keeping and customs audit) but also provide
legitimate opportunities for duty and tax savings on
imported goods. The challenge therefore for a customs
brokerage firm is to provide its clients with a comprehensive
customs management service and thus, maintain its competitive
advantage against competitors.
The
author is an international trade and customs specialist,
and a licensed customs broker. He is also a partner
of the law firm of David Leabres Uvero Gaticales Sto.
Tomas. For comments or inquiries, he may be contacted
at worldtrade@skyinet.net
or at (632) 4002145 / 4050021.
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New
tariff classification system to be implemented by July
2003
(April 28, 2003)
New Development. The Philippine government has recently
announced that it will finally adopt the ASEAN Harmonized
Tariff Nomenclature (AHTN) by July of this year. With
this new development, it is expected that the Philippines
will deepen its integration into the regional economy
and further boost its intra-ASEAN trade.
The
AHTN will effectively prescribe a uniform set of at
least 10,700 tariff lines to be used by all the ASEAN
member countries - Indonesia, Malaysia, Singapore, Thailand,
Brunei Darussalam, the Philippines, Laos, Cambodia and
Myanmar. Last year, the 10-member ASEAN agreed to adopt
the new tariff system by January 2003, although member
countries were given until July 2003 to implement the
same. We have previously written an article on AHTN
in this column. The discussion below should further
provide more details and insights on this latest customs
and trade development.
ASEAN
Harmonized Tariff Nomenclature (AHTN) - A Review. As
a background, the AHTN is an 8-digit commodity nomenclature
adopted in principle by the member countries of ASEAN
and is based on the 6-digit Harmonized System (HS).
The new system will involve the alignment of the national
tariff nomenclature of each member country with the
AHTN. Specifically, the AHTN will revise Sections 103
and 104 of the Tariff and Customs Code of the Philippines
(TCCP).
The
Harmonized System (HS) is the international product
nomenclature based on the Customs Cooperation Council
Nomenclature and the Standard International Trade Classification
(SITC) Revision 2. Similar to the present tariff nomenclature
contained in Volume 1 of TCCP, the AHTN will have the
same structure as follows:
(a)
General Rules for the Interpretation of the System;
(b)
Section and Chapter Notes, including subheading Notes;
and
(c)
A list of headings arranged in systematic order (i.e.,
degree of processing) and, where appropriate, subdivided
into subheadings.
Difference
between AHTN and the present system. Among the ASEAN
countries, the Philippines is one of those with the
least number of tariff lines at 5,658 while Malaysia
has 10,393 lines, Thailand, 9,210 lines, Indonesia,
7,285 lines, Brunei, 6,492 lines, and Singapore, 5,859
lines. Thus, the Philippines will be adding at least
5,000 to its present system.
What
is then the main difference between the present system
and the AHTN? Under the AHTN, the seventh- and eighth-digit
codes are assigned to ASEAN subheadings that comprise
at least 10,700 tariff lines and beyond the 8-digit
level, member countries are allowed to create new national
subheadings. In other words, the present system provides
at least 5,000 tariff lines at 8-digit level while AHTN
provides at least 10,700 lines at 8-digit level with
possible increase to 10-digit level for additional national
subheadings.
Implications
to the Trading Community. With the adoption of at least
5,000 new lines, there are concerns that the AHTN may
result in confusion when declaring the description and
classification of imported goods to customs. This concern
is certainly not without basis considering that some
of the old tariff lines have been assigned to different
headings and sub-headings under the AHTN. To help the
trading community, the Tariff Commission (TC) as well
as the Bureau of Customs (BOC) have been providing seminars
and trainings on AHTN in recent months. As an added
resource material, several publications are being issued
to complement the AHTN, that is:
(a)
Supplementary Explanatory Notes (SEN) - a compilation
of the official interpretation of the ASEAN subheadings.
(b)
Alphabetical Index - an alphabetical electronic list
of the articles mentioned in the AHTN and the SEN to
facilitate the location of the references to any of
the products mentioned in both AHTNA and SEN.
Importers
and Customs Brokers Should Prepare for AHTN. As a risk
management measure, importers and customs brokers should
now start securing advance copies of the AHTN and its
complementary publications (SEN and Alphabetical Index).
Thereafter, existing products lines being imported should
be confirmed and verified against the new tariff classification.
Although this may seem like a straightforward activity,
some companies import products, which involve hundreds
of tariff lines and as such, advance preparation should
help minimize the possibilities of misclassification
or misdeclaration in the customs entries filed with
the BOC. Similarly, the same degree of diligence should
be exercised when exporting products particularly to
member countries of ASEAN.
Together
with the forthcoming implementation of the AHTN, the
BOC is reportedly preparing a new set of rules to govern
the description and classification of products when
declaring in the customs entry. The proposed new rules
accordingly provide stricter guidelines to ensure that
the description of products in the commercial documents
(invoice and packing list) and import entries adhere
closely to the specific tariff line provided in the
AHTN.
Under
existing customs rules and regulations, errors and mistakes
in the classification of imported articles may be treated
as an offense under Section 2503 (Undervaluation, Misclassification
and Misdeclaration in the Entry) of the TCCP. Against
the backdrop of the Post Entry Audit (PEA) system, these
developments should provide greater impetus for customs
brokers and importers to ensure compliance with the
existing rules particularly with regard to the proper
classification and description of imported goods.
The
author is an international trade and customs lawyer,
and a licensed customs broker. He is also a partner
of the law firm of David Leabres Uvero Gaticales Sto.
Tomas. For comments or inquiries, he may be contacted
at worldtrade@skyinet.net
or at (632) 4002145 / 4050021.
Back
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International
sales contracts: What importers, exporters should know
(April 14, 2003)
Risks in the Supply Chain. For companies engaged in
domestic or international trade, a major concern is
how to protect the company's business interests in case
of failure by the buyer or seller to perform the obligations
in a sale and purchasing contract.
For
example, how will an importer claim against its supplier
in case of dispute in the quality of the delivered goods
or in case of loss of goods while in transit? How can
these risks across the supply chain be minimized or
prevented?
For
big companies, there are specialist lawyers that handle
such scenarios. This option, however, may not be realistic
particularly for small and medium-sized enterprises
(SMEs). In fact, many SMEs negotiate and draft their
own sales contracts without legal advice. In such cases,
how can these companies deal with the legal aspects
of doing business internationally? Below is a discussion
of the various factors that exporters and importers
should consider when preparing international sales contracts.
Managing
Risks through International Model Contracts. In cross
border transactions, a contract involving the sale and
purchase of a merchandise will involve at least two
parties - the buyer (importer) and the supplier (exporter).
When an importer buys goods overseas or when an exporter
sells his merchandise to a buyer abroad, the first task
is how to document the transaction to ensure that the
risks and benefits are allocated and defined among the
parties.
This
is not an easy task given the variety of international
rules and business laws applicable in international
trade. Another issue in such transactions is that the
party with the greater bargaining power often imposes
its standard terms and its national laws on the other
party. In recent decades, there have been efforts to
harmonize international trade rules and practices governing
cross border trading.
One
latest trend is the growing use of model contracts.
There are currently two general international model
contracts available for the trading community: (1) the
International Chamber of Commerce (ICC) Model International
Sales Contract for Manufactured Goods; and (2) the International
Sale of Perishable Goods Model Contract proposed by
the International Trade Center (ITC).
These
user-friendly model contracts are ready for use, with
limited clauses to be added and with the parties filling
in the relevant details of their own commercial arrangements.
There are also other various types of ICC model contracts
available to govern various trading arrangements, e.g.
selling through agents and distributors and joint venture
contracts.
Application
of Principles in International Contracts. Another key
initiative in obtaining a balance and comprehensible
contract for the trading community is the 1980 UN Convention
on Contracts for International Sales of Goods (CISG),
which provides a broad set of rights and obligations
for both buyers and sellers, including the various options
available in case of problems in the contract. Parties
in countries that have not adopted CISG may still opt
to base their contracts on the principles of the convention.
The
CISG is also accompanied by the UNIDROIT Principles
of International Contracts, which covers a much broader
range of contracts other than just sales (e.g. partnership
sourcing). The use of these instruments in general should
minimize the role of national laws as the basis for
the contract and should effectively result in a common
language for trading.
Use
of Standardized Trading Terms. In relation to specific
trading terms used in contracts, there are presently
two standardized practices developed by the ICC and
extensively used by the international business community.
The first is the International Commercial Terms, commonly
known as Incoterms. Developed in 1936 by the ICC, the
current version issued in year 2000 contains 13 terms.
These
terms guide the buyer and the seller by defining their
respective obligations and by reducing possible legal
complications. Specifically, Incoterms also provides
the rules for interpreting the trade terms by allocating
transport costs and risks as well as determining the
responsibility for insurance and customs. For the banking
sector, the ICC has likewise standardized the rules
on international Letters of Credits (L/Cs) through the
Uniform Customs and Practice for Documentary Credits
(UCP 500).
Trade
Treaties and Model Laws. Many international treaties
now also embody common rules and practices for international
business. The applicability of these treaties normally
depends on whether the same have been ratified by countries
of the supplier and the buyer. Other than treaties,
there are also model laws developed to harmonize trade
laws, particularly by the UN Commission on International
Trade law (UNCITRAL). Additionally, there are also efforts
being made to standardize and harmonize trade laws on
a regional basis. In the Southeast Asian region, the
ASEAN has various agreements governing international
trade across the region, e.g. AFTA-CEPT, AICO.
Reducing
Transaction Risks and Preventing Disputes. Obviously,
various risks exist when companies engage in international
trade hence, there should be proper documentation of
the terms and conditions of a sale and purchasing transaction
to limit those risks. While not all companies can engage
the services of specialist lawyers for contract documentation
and preparation, the use of model contracts provided
by ICC and ITC should also reduce transactions risks
when preparing such contracts without the assistance
of lawyers.
Even
in instances when the complexity of the trading arrangement
require tailor-made contracts, the various model contracts
available now should limit the role of lawyers to simply
ensuring that the contract clauses reflect actual agreements
and that the filling in of details is properly made.
For
many trading companies, the focus now is preventing
disputes and court trials by having draft contracts
designed to amplify the specific terms and conditions
of a particular international transaction and consequently,
prevent such disputes. This shift in mindset, while
requiring companies to invest in specialist legal advice,
should help prevent huge financial and opportunity losses
resulting from arbitration or court disputes.
The
author is an international trade and customs lawyer,
and a licensed customs broker. He is also a partner
of the law firm of David Leabres Uvero Gaticales Sto.
Tomas. For comments or inquiries, he may be contacted
at worldtrade@skyinet.net
or at (632) 4002145 / 4050021.
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