Customs Valuation

Unit one................................................................................................................................................... 1

Overview of the WTO-ACV and Ethiopian Customs Valuation System ............................................... 1

Overview of the WTO Agreement on customs valuation (WTO-ACV)Error! Bookmark not defined.

1.1.1. Historical background ......................................................................................................... 2

1.1.2. Objective of the WTO-ACV ............................................................................................... 3

1.1.3. Structure of the WTO Agreement on customs Valuation ................................................... 4

Associated Articles (Articles 9 to 17) ..................................................................................................... 7

Overview of Ethiopian Customs Valuation System ............................................................................. 10

2. The Primary Valuation Method (Transaction Value Method) ...................................................... 13

2.1. Definition of Transaction value terms....................................................................................... 13

2.2. Key Elements of The Transactional Value method .................................................................. 13

2.2.1. Sale.................................................................................................................................... 14

2.2.2. Sale For Export To The Country Of Importation.............................................................. 14

2.2.3. The Price Actually Paid Or Payable.................................................................................. 15

2.3. Adjustments to Transaction Value (Article 8 of WTO-ACV) .................................................. 19

2.3.1. Compulsory Adjustments .................................................................................................. 19

2.3.1.1. Commissions and brokerage ..................................................................................... 20

2.3.1.2. Cost Of Container & Cost Of Packing ...................................................................... 22

2.3.1.3. Assists ....................................................................................................................... 23

2.3.1.4. Royalties & License Fees .......................................................................................... 27

2.3.1.5. Proceeds of Resale .................................................................................................... 30

2.3.2. Optional Adjustments ....................................................................................................... 32

2.4. Conditions for Rejection of Transactional Value...................................................................... 34

2.4.1. Restrictions [Article 1.1 (A)] ............................................................................................ 35

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 2.4.2. Condition Or Consideration [Article 1.1 (b)] .................................................................... 35

2.4.3. Proceeds [Article 1.1 (c)] .................................................................................................. 37

3. Alternative Methods of Valuation................................................................................................. 43

3.1. Transaction Value of Identical Goods (Article 2) ..................................................................... 44

3.2. Transaction Value of Similar Goods (Article 3) ....................................................................... 45

3.3. Deductive Value Method (Article 5) ........................................................................................ 48

3.4. Computed Value Method (Articles 6) ....................................................................................... 54

3.5. Fallback Method On Valuation (Article 7) ............................................................................... 58

3.5.1. Key Factors of application of Fallback method (Article 7) .............................................. 58

3.5.2. Restrictions of Article 7.2 ................................................................................................. 60

4. INCOTERMS and Commercial Documents ................................................................................. 68

4.1. INCOTERMS ........................................................................................................................... 68

4.2. Commercial Documents............................................................................................................ 70

4.3. Duties and Rights of the Importers/Exporters/Declarants and Customs Officers ..................... 71

4.3.1. Responsibilities of the Importer/Exporters: ...................................................................... 71

4.3.2. Rights of the Importers/Exporters/Declarants:.................................................................. 71

4.3.3. Duties of the Declarants: ................................................................................................... 72

4.3.4. Duties and Rights of the Customs Officers ....................................................................... 72

5. Valuation Control, Valuation Detailed Declaration (VDD) and Ethiopian Customs Valuation
System (ECVS) ..................................................................................................................................... 74

5.1. Valuation Control and use of National Valuation Database ..................................................... 74

5.2. Valuation Detailed Declaration (VDD) .................................................................................... 77

5.3. Ethiopian Customs Valuation System (ECVS) ......................................................................... 84

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 Introduction

In the most international trade of the countries in the world, the amount of an ad valorem duty is
determined by multiplying the tariff rate by the customs value of the imported goods. Thus, how
customs officials determine the customs value is as important to the importer as the rate of duty specified
in the national tariff schedule (book) for the goods, as both the basis- the customs value- and the rate
together determine the amount of duty the importer must pay. Today, the rules for valuing imported
goods for purposes of assessing customs duties are well settled in WTO Agreement on Customs
Valuation [WTO-ACV].

This training module discusses customs valuation and related articles. It has five units. Unit One
introduces an Overview of Customs Valuation; historical background, objectives and structure of the
WTO-ACV and the Ethiopian Customs Valuation laws and procedures in line with the international
customs valuation system, i.e., the WTO-ACV. This unit also explains associated articles to rules of
customs valuation including exchange rate, confidentiality of information, right of appeal, clearance on
guarantee, rights of importer and customs officer.

Unit Two explains the transaction valuation method which is the primary valuation method that must
be applied in calculating of duty paying value. According to the WTO-ACV and Ethiopian Customs
Proclamation, customs administration shall apply, to the greatest extent, the transaction valuation
method before applying the other five alternative valuations methods in a sequential order. In this unit,
adjustments to the transaction value and conditions for rejections of transaction value are covered. Unit
three addresses the other five alternative valuation methods, including transactional Valuation of
Identical Goods, Transactional Valuation of Similar Goods, Deductive Valuation Method, Computed
Valuation Method, and Fall Back or Flexible Method.

Unit Four discusses international commercial terms (INCOTERMS) which are essential in an
international trade. Commercial documents required for customs valuation purpose and duties and
rights of the Importers/Exporters/Declarants and Customs officers are also explained in this unit. Unit
five gives an explanation of Valuation Detailed Declaration (VDD) by importer or Clearing Agents and
Valuation Control mechanisms by customs administration to detect the possible Valuation frauds.

The module is prepared for customs clearing agents who are going communicate with customs and
finalize customs clearance operation on the behalf of importers and exporters.

Rationale for the Module

Clearing agents play a vital role in international trade by facilitating goods clearance at customs
clearance offices. This training will help clearing agents to work according to international stardards
and national rules and regulation while declaring values of goods for customs clearance purpose.

Objective of the module:

The module mainly focuses on the basic principles of customs valuation as per the WTO-ACV and
Ethiopian Customs laws, including the six methods of valuation, associated articles of the valuation
agreement, and mechanisms of Valuation control for the possible valuation risks or frauds; and the
customs valuation provisions as described in Ethiopian customs proclamation No.859/2014, Valuation

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Directive No.158/2019, Valuation Declaration process, use of national valuation database, and related
Circulars.

Unit Learning Outcomes:

At the completion of this training course, the attendees will be able to:

• Define customs valuation

• Identify all types customs valuation methods
• Explain the overview of Ethiopian Customs Valuation laws and procedures
• Apply the Transaction Value method and Adjustments under Article 8 of WTO-ACV
• Apply alternative methods of customs valuation in a sequential order
• Identify associated articles to rules of customs valuation that is part of the WTO-ACV.
• Comprehend various documents required for customs valuation
• Identify types of international commercial terms (INCOTERMS)
• Understand valuation detail declaration
• Point out duties and rights of the Importers/Exporters/Declarants and Customs officers.

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 4. Unit one
5. Overview of the WTO-ACV and Ethiopian Customs Valuation System

Descriptor/objective:

In this unit one, overview of the concept customs valuation, overview of the international rules of
valuation i.e. the WTO agreement on customs valuation (WTO-ACV) and overview of the Ethiopian
customs valuation system are covered.

Learning Outcomes:

At the completion of this training course, the attendees will be able to:

• Define Customs Valuation

• Understand WTO Agreement on customs valuation (WTO-ACV)
• Identify associated articles to rules of customs valuation that is part of the WTO-ACV.
• Understand Ethiopian Customs Valuation System

Content outline:

• Overview of customs Valuation

• Overview of WTO Agreement on customs valuation (WTO-ACV)
• Associated articles to rules of customs valuation that is part of the WTO-ACV.
• Overview of Ethiopian Customs Valuation System

1.1 Overview of Customs Valuation

1.1.1 F
1.1.1.1 s

The process of deciding how much money something is worth is called valuation. The amount that
something is worth, measured especially in money, therefore if there is something could be sold, there
must be at least two parties seller and buyer. Even though the decision concerning the value of
something is from the seller side, there is also bargaining process until they reach an agreement.

1.1.2 Concept Custom Valuation

The term “customs value” reflects that “worth” by the physical movement of goods from one country
to another with the importer/buyer then making a “customs value” declaration to the importing
country’s customs administration.

Customs valuation is a customs procedure applied to determine the customs value of imported goods.
If the rate of duty is ad valorem, the customs value is essential to determine the duty. Customs valuation
is distinguished from commercial valuation in that it brings the third party the customs or custom officer,
who is concerned not only with the transaction between the buyers and sellers, but with all similar
transactions between other buyer and sellers.

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The valuation of goods is integral part of customs officer’s duties. Prior to introduction of valuation
system, countries worldwide were using systems, which were inconsistent and had restricted effects on
international trade. The trading countries of the world sought to remove this barrier to trade.
Negotiations on customs valuation was held in many rounds and finally concluded in 1994.The
intention being to provide a fair, uniform and neutral system of valuation, which outlaws the use of
fictitious and arbitrary custom values.

Purposes of customs valuation

• The customs value on imported goods is determined mainly for the purpose of Applying:-
• ad valorem customs duties & taxes;
• Inland taxes;
• a fiscal policy and objective by determining the prices levying of customs duties;
• Rules of Origin;
• an economic objectives by promoting international trade;
• Monitoring Quota Restrictions;
• Trade Statistics; and
• Helps to combat fraud and to protect other importers from unfair competition…etc.

Check your progress in the concept of customs valuation

1. Differentiate the term customs value from price of good?

2. Explain the term custom valuation?
3. Explain specific examples of the main purpose of custom valuation?

1.1.3 Historical background

Before the international agreement (particularly the WTO-ACV) was achieved, various countries used
to follow their own different valuation systems which were often based on a fictitious and arbitrary
value that resulted in a multiple trade barriers across countries. The WTO-ACV passed through different
negotiations for about five decades since 1947. See the table 2 below, for a brief history of the WTO-
ACV.

Table 1: Brief History of the GATT/WTO Agreement on Customs Valuation

Year Activities in International Negotiations

1947/ Jan.1 , 1948 GATT treaty establishment (Article VII of the GATT principles for customs
valuation)
December, 1950 Brussels Definition of Value [BDV](notional concept of “value”i.e. goods
are valued based on their “normal price”
Nov. 1971 Report GATT Committee on Trade in Industrial products
(draft principles & interpretative notes on valuation rules)
[Sep.1973 – April.1979] Tokyo Round Negotiations
(Positive concept of value i.e. actual price paid for the imported goods under
competitive market.)
Nov. 1, 1979 GATT Valuation Code Protocol

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 Year Activities in International Negotiations
Jan. 1, 1981 GATT Valuation Code Enters into Force
Sep.1986 – April,1994 Uruguay Round Negotiations
(focus on concerns of developing countries, Annex III)
Last 1994 WTO-ACV(The agreement on implementation of article VII of GATT 1994)
Jan.1, 1995 WTO – ACV and ministerial declarations takes effect.

Source: WTO and WCO

1.2 Objective of the WTO-ACV

The Rationality behind the agreement on customs valuation is let the importers or declarants a
predictable process of estimating the value of a product and amount of duties & taxes charges; Access
to the importing Member's market; Importers’ transaction costs with uniform Customs Value rules;
Realizing the outcome of the tariff negotiation and avoiding arbitrarily and discretionarily CV
procedures.

Therefore, the main objective of the WTO-ACV is to establish a precise set of rules which will be
applied in the same way by all Members of WTO so that importers can be confident they will receive
the same treatment.

Specific objectives of the WTO-ACV includes:-

➢ A fair, uniform and neutral system that precludes the use of arbitrary or fictitious customs
values.
➢ The basis for valuation should, to the greatest extent possible, be the transaction value of the
goods being valued.
➢ Customs value should be based on simple and equitable criteria consistent with commercial
practices.
➢ Valuation procedures should be of general application without distinction between sources of
supply.
➢ Valuation procedures should not be used to combat dumping. (The correct procedure in this
case is to consider application of the anti-dumping laws (Art.VI of the GATT).

The WTO-ACV [full title: The agreement on implementation of article VII of GATT 1994] is based on
simple and equitable criteria that take in to account the commercial practices in the world. By requiring
all WTO member countries to harmonize their national Valuation legislation and practices on the basis
of the WTO-ACV, it seeks to ensure that uniformity in the application of the rules so that importers can
assess with certainty in advance the amounts of duties and taxes payable on imported goods.

WTO-ACV sets forth a number of principles which must be implemented by customs administrations
of WTO member countries in their customs valuation system when customs duties are levied on an ad-
valorem basis. The agreement adopts six methods of customs valuation which are to be applied in a
sequential order. These are a transactional valuation method, identical valuation method, similar
valuation method, deductive valuation method, computed valuation method and fallback valuation
method.

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WTO-ACV adopts the transaction value is the primary basis for customs valuation of imported goods
and precludes the use of arbitrary or fictitious customs value aiming for a fair, uniform and neutral
system for the valuation of goods for customs purpose within the country and across the countries.
Transaction value is the price actually paid or to be paid when the good is sold for export to the country
of importation adjusted, where appropriate, to include certain payments made by buyer such as costs of
packing and containers, commissions and brokerage, assists, royalties and license fees as per the WTO-
ACV.

Where customs administrations have reason to doubt the accuracy and correctness of the declared value
of the imported goods, the agreement provides right to customs to request further information from the
importers. If the customs still is not satisfied with the justifications given by importers and maintains a
reasonable doubt, the declared value [or the transaction value] can be rejected as per the provisions in
the WTO-ACV. Once the transaction value is NOT accepted by customs, the agreement lays down the
rest five alternative valuation methods to be applied in sequential order based on an objective and
quantifiable data.

By requiring all WTO member countries to harmonize their national Valuation legislation and practices
on the basis of the WTO-ACV, it seeks to ensure that uniformity in the application of the rules so that
importers can assess with certainty in advance the amounts of duties and taxes payable on imported
goods.

1.3 Structure of the WTO Agreement on customs Valuation

The agreement is comprised of 24 Articles plus three annexes. The technical rules of customs valuation
are set out in Articles 1 up 8 of the agreement. The remaining articles of the agreement mainly concern
that implementation in national legislation and practice as well as the settlement of valuation disputes
between members, and the administration and review of the agreement by the WTO valuation
committee and WCO technical committee.

Table 2: Short List of Content of the Structure of the WTO-ACV

Part I:
General Introductory Commentary:
The Commentary gives a basic introduction to the methods of valuation and their hierarchy of
application. It also sets several high level principles which Members of the World Trade
Organisation (hereafter “Members”) agree to apply.
Preamble to the rules on Customs valuation:
As a preamble, the Commentary makes a statement on behalf of all Members recognising a series of
fundamental points which underpin the Agreement itself.
Rules on Customs Valuation (Articles 1 - 17):
➢ Methods of Valuation - Articles 1 – 8: the main criteria for determining the customs value
can be found in Articles 1 to 8.
➢ Associated Articles- Article 9-17
PART II: ADMINISTRATION, CONSULTATIONS AND DISPUTE SETTLEMENT (Articles 18
& 19)

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 ➢ Article 18: describes the basic establishment of the WTO Committee on Customs Valuation
and the WCO Technical Committee on Customs Valuation.
➢ Article 19: describes the procedure to be followed for consultations and disputes between
members.
PART III: Special and Differential Treatment to Developing Countries (Article 20)
PART IV: FINAL PROVISIONS (Articles 21 -24)
➢ Article 21: No reservations without member’s consent
➢ Articles 22: National legislation to conform to the agreement
➢ Article 23: WTO committee annual review
➢ Article 24: Appoints WTO secretariat
ANNEX I: INTERPRETATIVE NOTES, General Note and Notes to Articles
ANNEX II: responsibilities & procedures of the Technical Committee on Customs Valuation
ANNEX III: Miscellaneous: reservations and concessions allowed developing countries. It describes
the special dispensation available on request to developing countries when they become Members.
Supplementary information is also given on the application of Article 17 and interpretation of the
term “price actually paid or payable”.

General Introductory Commentary

The Commentary gives a basic introduction to the methods of valuation and their hierarchy of
application. It also sets several high level principles which Members of the WTO agree to apply.
According to the WTO ACV, there are six valuation methods for determining the Customs value,
including:

1) Transaction Value Method (Article 1)

2) Transaction value of identical goods (Article 2)
3) Transaction value of similar goods (Article 3 )
4) Deductive Value Method (Article 5)
5) Computed Value Method (Article 6)
6) Fall back Method (Article 7)

The first paragraph of the Commentary states that the primary basis for customs value is the
“transaction value” as defined in Article 1. The starting point for the transaction value is the ‘price
actually paid or payable’ for the goods, adjusted to take into account certain additional costs incurred
by the buyer which form part of the customs value, but which were not included in the basic price paid
or payable. Article 8 gives details of these adjustments. Adjustments may also be required for certain
elements which pass between buyer and seller but are not in the form of money. As such, the
Commentary informs us that together, Articles 1 and 8 of the Agreement form the basis for the
determination of the transaction value. Finally, we are told that Articles 2 to 7 are the methods of
valuation to be used when it is not possible to determine a transaction.

The second paragraph states that if it has not been possible to determine a transaction value for the
goods in question the Customs administration and the importer should consult to establish whether a
customs value can be determined under the second or third methods described in Articles 2 and 3. The
method described in Article 2 is based on the customs value of identical imported goods, and Article 3
is based on the customs value of similar imported goods.

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The third paragraph introduces Articles 5 and 6 which describe the methods to be used when the
customs value cannot be determined under the first three Articles. The method described in Article 5
is derived from the price at which the imported goods (or identical or similar) are sold after importation
to an unrelated buyer. That is, a “deductive” method. The method described in Article 6 is based on a
“computed” value, built up from the separate elements which would be incorporated into a normal
selling price, for example, parts, materials, profits, overheads etc. It is acknowledged however that the
use of these methods presents difficulties so for this reason Article 4 allows the importer to choose the
order of application of these two methods in consultation with the Customs administration.

The fourth paragraph refers to Article 7 of the Agreement which describes how to determine the
customs value if the previous methods outlined above cannot be used.

Preamble to the rules on Customs Valuation

As a preamble to the rules on Customs valuation, the Commentary makes a statement on behalf of all
Members recognising a series of fundamental points which underpin the Agreement itself, as follows:

"...to further the objectives of GATT 1994 and to secure additional benefits for the international trade
of developing countries ".

Part III of the Agreement provides "Special and Differential Treatment" for developing countries when
they become Members. For example, they may delay application of its provisions for up to five years
and may defer application of some specific rules for an additional three-year period. "… to provide
greater uniformity and certainty ..." .

ANNEXES IN THE WTO-ACV

The purpose of the annexes (Annex I, Annex II, and Annex III) in the WTO-ACV is to explain further
issues covered by the Articles and mainly the Interpretative Notes to the Articles, the functions of the
Technical Committee on Customs Valuation and the special provisions to the Developing Countries.

ANNEX-I OF THE WTO-ACV: THE INTERPRETATIVE NOTES

The General Note in ANNEX I contains two sections:

• Sequential Application of Valuation Methods

This Note makes the important statement that the transaction value method defined in Article 1 is the
primary method of valuation. It also describes the order in which the alternate methods of valuation
should be considered.

• Use of Generally Accepted Accounting Principles[GAAP]

This Note explains that when financial information is supplied by a company in relation to an
importation, Customs should accept it in the format which corresponds to the conventions of the country
in which the information is prepared. For example, where information relating to profit and general
expenses is prepared in Country “X”, the generally accepted accounting principles of Country “X” are
relevant.

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Notes to Articles

These Notes supplement the text of Articles 1 to 3, 5 to 9, 11 and 15. In particular, they explain in more
detail how the valuation methods are to be applied.

Annex II - Technical Committee on Customs Valuation (TCCV)

This annex establishes the Technical Committee on Customs Valuation under the auspices of WCO and
describes the role and the responsibility of technical committee with a view to ensuring that at the
technical level, there is uniformity in interpretation and application of the Agreement.

The Agreement has two committees, the Committee on Customs Valuation based in Geneva and the
Technical Committee on Customs Valuation based in Brussels. The former is concerned with the trade
policy aspects of the Agreement while the latter deals with the Customs aspects of it. The main role of
the TCCV is the examination of specific technical problems arising in the day to day administration of
the Customs Valuation system of Members and to give advisory opinions on appropriate solutions based
upon the facts presented.

Annex III - Provisions for Developing countries

This annex provides for:

1) Five (5) years delay in the application of the provisions of the Agreement paragraph 1 of Article
20;
2) Retention of minimum value on limited and transitional basis;
3) Reservation and reversal of the sequential order at the request of importer provided under
Article 4 of the Agreement;
4) Reservation with respect to paragraph 2 of Article 5 of the Agreement, (it allows use of goods
that have gone further process in determination of unit price at which the greatest aggregate
units are sold.);
5) Provision that developing countries that may have problems in the implementation of Article 1
of the Agreement insofar as it relates to importations into their countries by sole agents, sole
distributors and sole concessionaires, shall request for a study of this problem with a view to
finding appropriate solutions.

6. Associated Articles (Articles 9 to 17)

These Articles cover as follows:

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 ➢ conversion of currency (Article 9);
➢ confidentiality (Article 10);
➢ the right of appeal (Article 11);
➢ publication of national legislation (Article 12);
➢ security release possibilities when the final determination of the customs value is delayed
(Article 13);
➢ obtaining a written explanation on how the customs value was determined (Article 16);
➢ The right of Customs administrations to be satisfied (Article 17).

Article 9 – Conversion of Currency

This Article states that “where the conversion of currency is necessary for the determination of the
customs value, the rate of exchange to be used shall be that duly published by the competent authorities
of the country of importation”. This rate should reflect the current value of such currency in commercial
transactions in terms of the currency in the country of importation.

In line with this provision, the Customs value of imported or exported goods shall be calculated on the
basis of the official exchange rate declared by the National Bank of Ethiopia on the day of accepting
the customs declaration by the Authority (Art.101 of Ethiopian CP 859/2014).

Each country’s legislation will specify the rate of exchange to be used, that is, the rate in effect at the
time of exportation or importation, for example, or, at the time the Customs declaration is presented to
Customs. Article 9 only applies when there is reason to convert a currency to the national currency of
the importing country in order to determine the customs value.

Art.9 does not, therefore, apply in the following cases:

➢ when the seller and the buyer set the price to be paid in the currency of the country of
importation;
➢ When the seller and the buyer set a price in another currency but agree, between themselves, to
a fixed exchange rate to be applied for converting the importer’s currency for the purposes of
the transaction.

Hence, the buyer and the seller convert the price into a number of fixed units of the currency of the
country of importation and the Customs authorities can decide that no conversion is required.

It should be noted however that some Customs administrations do not accept fixed exchange rate
contracts and importers are required to use the official published exchange rate.

Article 10 – Confidentiality

Article 10 sets out that “all information which is by nature confidential or which is provided on a
confidential basis for the purposes of Customs valuation shall be treated as strictly confidential by the
authorities concerned”.

The authorities should not disclose this information “without the specific permission of the person or
government providing such information, except to the extent that it may be required to be disclosed in
the context of judicial proceedings”.

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It is important to assess on a case by case basis how to ensure a balance between the needs of Customs
and those of the importer, the right of the importer to protection of confidential information and, the
laws, regulations and interests of all the parties involved.

Article 11 – Right of Appeal

Under the terms of Article 11, national legislation shall provide “the right of appeal, without penalty,
by the importer or any other person liable for the payment of the duty”. (See also Art. 87 of
Ethiopian C.P)

An appeal may be made to the appropriate person within the Customs administration or, to an
independent body (e.g. relevant Tribunal) but the importer also has the right to submit a direct appeal
to a judicial authority.

The expression “without penalty” means that the importer does not incur a fine simply because he/she
chose to exercise the right of appeal. The normal costs of legal action and lawyer’s fees are not
considered to be a fine.

The Customs decision being appealed must be provided in writing by Customs and the appellant must
be informed of all his/her rights of further appeal.

In practice, national legislation may also require that the customs duties and possibly the fine or penalty
be settled prior to an external appeal. This is usually paid “under protest” by the importer

Article 12: Publication of Laws, Regulations, Judicial Decisions and Administrative Rulings

This Article requires that each Member must publish all texts relating to the application of the
Agreement. Members applying the Agreement should also inform other countries of their national
legislation and the decisions or conclusions they have adopted in terms of valuation.

Moreover, countries applying the Agreement must submit their national legislation to the WTO
Committee on Customs Valuation for examination.

Corresponding to Art.12 of the WTO-ACV, in the Art. 111 of CP: providing information & compliant
is stipulated as follows:

➢ The Authority shall disseminate rules regulation etc through media

➢ Any person may get information from the authority without being charged
➢ Any person dissatisfied with the treatments of customs may lodge his complaints to the
Authority, and shall be entitled to a written reply.

Article 13 – Release of Goods Pending Determination of Customs Value

Article 13 states that “if, in the course of determining the customs value of imported goods, it becomes
necessary to delay the final determination of such customs value”, the importer shall nevertheless, on
request, be able to withdraw them subject to providing a guarantee or surety to Customs covering the
Customs duties for which the goods may be liable.

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Article 116 and 118 of Proclamation No 859/2014 States that the Authority may order release of the
goods on security such as cash deposit, bank guarantee etc. pending decision on valuation or other
issues.

Article 16 – Right of the Importer to an Explanation

Article 16 states that upon written request, the importer has the right to a written explanation as to how
the customs value of the importer’s goods was determined by Customs.

Article 99(2) of CP states that Where after receiving further information there still are reasonable doubts
about the accuracy of the declared value, it may be deemed that the customs value of the imported goods
cannot be determined under the provisions of Article 90 of this Proclamation; and the reason for such
decision shall be provided in writing to the importer or his agent

Article 17 – Customs Right to be Satisfied

Article 17 states that, “nothing in this Agreement shall be construed as rejecting or calling into question
the rights of Customs administrations to satisfy themselves as to the truth or accuracy of any statement,
document or declaration presented for Customs valuation purposes”.

Article 42(1) of CP states that Where the Authority has reason to doubt the accuracy of particulars of a
declaration or of documents produced in support of a declaration, it may require the importer or his
agent to produce further information or evidence that shows the declared transaction value represents
the amount actually paid or payable for the imported goods.

Instruments of the Technical Committee

The following instruments of the Technical Committee also provide clarification.

Advisory Opinion 10:1

As the Agreement sets out that the customs value is established on the basis of actual facts, any
document providing false information is contrary to the intentions of the Agreement.

Advisory Opinion 11.1

Incomplete documents or documents found to contain inadvertent errors should not be binding on
Customs administrations.

Advisory Opinion 19.1

The rights of Customs administrations which are stated explicitly or implicitly in the Agreement must
be taken into account, and no provision of the Agreement should be interpreted as restricting the rights
of the Customs administration to satisfy themselves.

7. Overview of Ethiopian Customs Valuation System

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• Ethiopia is in the process of acceding to the WTO and hence desires to shift the existing
Minimum valuation system to a transaction value based system as per the WTO-ACV. In order
to have good understanding in the current Ethiopian Customs Valuation System, it is important
to understand its historical backgrounds in line with the implementation of the WTO-ACV.
Therefore, this part will give us an overview of the country’s valuation system.
• Historically, Ethiopia was actively participated in an international trade practice before 2000
years ago mainly since the period of Axum king regime period. However, the formal customs
valuation system was not applied due to several factors. There was no system of customs
declaration by the imports before 1924 E.C. Custom officials themselves used to inspect and
value the goods. In addition, there was no integrated and uniform system of customs valuation
since 1985 E.C. During this period, the process of customs valuation was not depending on
integrated comprehensive customs legislation rather there were only governmental directives.
Ethiopian Customs Valuation System has been based mainly on Brussels Definition of Value
(BDV) and GATT Valuation code was used since 1991 E.C.
• However, because of the certain limitations of implementation capacity of Ethiopian customs
administration, the verification of valuation and classification of imported goods was done by
a foreign contracted company-societe General de surveillance (SGS), since 1992 E.C. until June
1996 E.C. After SGS contract is finished as of June 1996 E.C., Ethiopian Customs Authority
used to verify valuation and classification of goods by its own staff members mainly on the
basis of the customs proclamation No.60/1989 E.C. and Valuation Directives No. 10/1996, No.
2/1996, No. 3/1996, and 6/1996 and other related Circulars.
• According the above directives, the valuation database is started to be used which is prepared
and developed in CD-ROM Excel format. This is used be prepared, updated and then
distributed by Valuation and Tariff Classification Directorate of ERCA to all customs officers
at Head Quarter (HQ) & branch offices of ERCA and to all stakeholders including importers &
transistors. The structure of previous Ethiopian customs valuation database (CD-Excel format)
is broadly categorized into two parts, namely, Minimum price database for those goods which
are selected as high risk level and Reference price database for those goods which are selected
as low risk goods. This Valuation practice is supported by Customs proclamation No. 60/1989
E.C and by related directives including Directive No. 10/1996, Directive No. 2/1996, and
Diective No. 3/1996E.C. This valuation database had certain gaps especially in providing
accurate and up to date price information. As result, it can be said that this practice is not fully
compatible with the WTO-ACV.
• Consequently, ERCA has designed a Valuation project to improve the above Ethiopian
valuation system in line with the WTO-ACV. This is supported by Customs Proclamation
No.622/2009 E.C. and Valuation Directive No.94/2006 E.C. The valuation project comprises
important issues including laws, procedure, capacity building, and development of new
valuation database, Ethiopian Customs Valuation System (ECVS). The main objective and
need of ECVS is to substitute the traditional CD-ROM excel based Valuation system by modern
and Automated Valuation database in order to enhance trade compliance & facilitate risk
analysis fully comply with the WCO Guidelines for development of National Valuation
database for risk assessment tool. This valuation database contains a Contemporaneous price
reference database and is used as a risk assessment tool and decision support system for
checking under-valuation and over-valuation.
• On other hand, the existing Ethiopian customs proclamation No. 859/2014 which has been
issued on December 2014 has the provision “the calculation of customs value” in Articles
89-101 and this is almost fully in line with the WTO-ACV. Among others, the main reason

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 behind this conformity with the WTO-ACV is the country’s interest to implement the
agreement and plan to join to the WTO membership since it is one of requirements of WTO
rules. From the table 1 below, it can be simply seen that the provisions of customs valuation in
the customs proclamation are compatible with the WTO-ACV.

Table 3: Comparison of Ethiopian Customs Proclamation with the WTO-ACV

No. Description of the provision WTO-ACV Ethiopian CP. Ethiopian CP

622/2009 859/2014
1 Transactional Value method Art.1 & adj. with Art. 33 & adj. Art. 90 & adj.
Art.8 with Art. 39 with Art. 96
2 Transactional Value of Identical Value Article 2 Article 34 Article 91
method
3 Transactional Value of Similar Value Article 3 Article 35 Article 92
method
4 Deductive Value method Article 5 Article 36 Article 93
5 Computed Value method Article 6 Article 37 Article 94
6 Fallback or Flexible Value method Article 7 Article 38 Article 95
7 Cost to be included in Customs value Article 8 Article 39 Article 96
8 Certain charges not to be included in Annex-1, Article 40 Article 97
the Customs value Interpretative notes,
note to Article 1

• Following the customs proclamation No.859/2014, a new Customs Valuation Directive

No.111/2008 E.C. is enacted since December 30/2008 E.C. and 158/2011 E.C on May 7, 2011
E.C. In conformity with the proclamation, these directives cover mainly the details application
of valuation methods; valuation used goods and vehicles, use of valuation database, roles and
responsibilities of customs officers and declarants. For details, it is discussed in the next units
of this training module.

Assessment criteria: The trainee should understand the basic concepts of customs valuation in
international and national context.

Assessment Method:

• Exam

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8. Unit Two: The Primary Valuation Method (Transaction Value Method)

Descriptor/objective:

The WTO Agreement on custom valuation recognises that Customs valuation should as far as possible
be based on the actual price of the goods to be valued, i.e. the transaction value. This actual price is
usually reflected in the commercial invoice but may be subject to certain adjustments as per Article 8
of the agreement. Therefore, this unit explains the transaction valuation method which is the primary
valuation method of the six valuation methods of the WTO-ACV that must be applied in calculation of
duty payable value. According to the WTO-ACV Article 1 and Ethiopian Customs Proclamation
No.859/2014 Article 90, a customs administration shall apply, to the greatest extent, the transaction
valuation method before applying the other five alternative valuations methods in a sequential order. In
addition, in this unit, adjustments to the transaction value and conditions for rejections of transaction
value are covered.

Learning Outcomes:

At the end of this unit the trainees/you will be able to:

• Define transaction value

• Identify key elements of transaction value
• Comprehend adjustments to transaction value
• Determine reason for rejection of transaction value
• Use transaction value to establish customs value

Content outline:

• Definition of Transaction Value

• Key elements Transaction Value
• Types of adjustments to transaction value
• Reasons for rejection of transaction value
• Training delivery method:
• Gapped lecture
• Group discussion
• Practical activities
2.1 Definition of Transaction value terms

According to the WTO-ACV, Transaction value is defined as follows:

Transaction Value is the price actually paid or payable for the goods when sold for export to the country
of importation adjusted in accordance with Article 8.

2.2 Key Elements of The Transactional Value method

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 • From the definition of transaction value, the following three key elements of transaction value
are critical to the application of Article 1, i.e., the transaction value:
A. The sale
B. The sale for export to the country of importation
C. The price actually paid or payable

2.2.1 Sale

• Concept and Definition of Sale

• The Agreement states that, the fundamental element for valuation is the agreed sale price.
However, the Agreement contains no definition of “sale”. It merely indicates that a sale is a
specific commercial operation satisfying certain requirements and conditions. It implies a
transfer of ownership of the goods for some type of consideration.

The WCO technical committee on customs valuation expressed the opinion that:

a) The WTO-ACV has no definition of “sale”. Article 1, paragraph1, merely stipulates a specific
commercial operation satisfying certain requirements and conditions.
b) Nevertheless, in conformity with the basic intention of the Agreement that the transaction value
of imported goods should be used to the greatest extent possible for Customs valuation
purposes, uniformity of interpretation and application can be achieved by taking the term “sale”
in the widest sense, to be determined only under the provisions of Articles 1 and 8 read together.
c) It would however be useful to prepare a list of cases which would not be deemed to constitute
sales, meeting the requirements and conditions of Articles 1 and 8. In these cases the valuation
method to be used should be in accordance with the order of priority laid down by the
Agreement.

Hence a sale necessarily requires an agreement between a seller, who agrees to transfer the ownership
of the goods in exchange for a specified price, and a buyer, who agrees to purchase those goods for a
specified price.

• The following Examples are cases where there is no sale:-

1. Free of Charge Shipments such as gifts, samples, prototypes and promotional items
2. Consignment sales
3. Goods imported by intermediaries
4. Goods imported by branches
5. Goods imported under a hire or leasing contract
6. Goods supplied on loan
7. Goods imported for destruction
8. Goods which are the subject of barter
• Similarly, in the Ethiopian Civil Code (Art. 2266), Sale is defined as a contract of sale is a
contract whereby one of the parties, the seller, undertakes to deliver a thing and transfer its
ownership to another party, the buyer, in consideration of a price expressed in money which
the buyer undertakes to pay him.

2.2.2 Sale For Export To The Country Of Importation

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From the definition of transaction value, it indicates that the transaction for Customs valuation purposes
must be the sale for export to the country of importation. There must therefore have actually been a
transfer of ownership resulting in the exportation of the goods to the country of importation. If the
imported goods are not subject of a sale, transaction value cannot be applied under Article 1. When
goods are presented for valuation, it must be demonstrated that there was an actual international transfer
of title to the goods, which resulted in an export of the goods to the country of importation.

However, national regulations generally require the Customs declerant, i.e., the person who completes,
dates and signs the declaration, to be in a position to produce all the commercial documents relating to
the sale at any time, in support of the valuation details contained in the declaration.

Example 1: Seller S in the exporting country X enters into a contract to sell electric appliances to
importer A in the importing country I at a price of 5.75 c.u. per piece. S concludes an agreement with
manufacturer M also in country X to manufacture the goods. Manufacturer M on behalf of S, ships the
goods to A in country I. M’s selling price to S is 5 c.u. per piece.

In this case, therefore, the transaction between S and A involves an actual international transfer of goods
and constitutes a sale for export to the country of importation. As such, it would be a basis for valuation
of the imported goods under Article 1 of the Agreement.

2.2.3 The Price Actually Paid Or Payable

(a) General

The customs value of imported goods is their transaction value, i.e., the price actually paid or payable
for the goods when sold for export to the country of importation. This has to be adjusted in accordance
with Article 8, if necessary.

The price actually paid or payable is the financial consideration for the goods. It represents the total
payment made or to be made by the buyer to or for the benefit of the seller for the imported goods. It
includes all the payments made or to be made as a condition of sale, by the buyer to the seller or by the
buyer to a third party to settle a debt owed by the seller.

The actual time of payment is not relevant (For example, when part of the payment is made in the form
of a deposit prior to delivery of the goods and the balance is paid after delivery) nor is the method of
payment (for example, cash, letters of credit, negotiable instruments, etc.,) relevant and payment for the
imported goods may be made directly or indirectly.

As the price is the financial consideration for the goods, the payment must relate to the imported goods
if it is to form part of the customs value. Thus, the flow of dividends or other payments from the buyer
to the seller that do not relate to the imported goods will not form of the customs value. All payments
made or to be made as a condition of the sale will form part of the customs value of the imported goods.

Elements which do not form part of the customs value of the imported goods

Warranty costs

There are various types of warranty costs in many possible situations :

15
When the seller assumes, directly or indirectly, the charges and risks associated with the warranty,
he/she takes this into account when setting the price of the goods. The additional cost of the warranty
is therefore included in the price of the goods and is paid as a condition of sale. In this case, neither
Article 1 of the Agreement nor its Interpretative Note allow a deduction and the cost of the warranty
will form part of the transaction value, even if it is invoiced separately from the goods.

If the buyer assumes, directly or indirectly, the charges and risks associated with the warranty,
he/she undertakes to bear these costs on his/her own account. No charge paid by the buyer for a
guarantee will therefore be part of the price actually paid or payable, as the activity is one undertaken
by the buyer for his/her own account.

Warranty agreements, when the transaction is the subject of two separate contracts, one for the
goods and the other for the warranty. In this case, the circumstances surrounding the sale of the goods
and the warranty must be examined closely.

If warranty agreement is linked to the contract of sale by the fact that the warranty applies to the
imported goods. Thus, if the seller requires the buyer to take out a warranty relating to the goods with
a third party designated by the seller, the buyer will have to make payments both to the seller for the
goods and to the third party to fulfil the obligation imposed by the seller.

The two amounts should together be the price actually paid or payable.

(b) Discounts and Credits

The price actually paid or payable is established after deducting any legitimate cash or quantity
discounts.

Cash discounts: These discounts are granted to buyers for payment in cash or payment made within a
specified period (e.g., 5% for a payment made within 10 days of receipt of the invoice) and, for Customs
purposes, the discounts must be freely available to all buyers.

By their very nature, cash discounts can cause difficulties as they are usually actually received after
importation has occurred.

However, the transaction value method requires the use of the price actually paid or payable and
legitimate cash discounts can therefore be accepted as a deduction as the discounted price is in fact, the
price actually paid or payable.

Quantity discounts: These are deductions from the price allowed according to the quantities purchased
over a given period. Sellers often encourage buyers to purchase in bulk as their costs are proportionately
reduced.

For valuation purposes,

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 ➢ It is the quantity which has determined the unit price of the goods being valued when they were
sold for export to the country of importation that is relevant.
➢ The discounts must be freely available to all buyers.
➢ it can be established prior or subsequent to the importation of the goods:

Examples : The seller offers the following range of quantity discounts :

1 to 9 units: no discount

10 to 49 units: 5 % discount

Over 50 units: 8 % discount

First situation

Importer B purchases 27 units and is granted a 5 % quantity discount. Buyer C also purchases 27 units
and is granted a 5 % quantity discount, but receives these units in three separate shipments each
comprising 9 units. Can the 5 % discount be applied?

Answer: Yes in both cases. The price actually paid or payable for the imported goods is reduced by
the 5 % discount. The quantity purchased contributed to the setting of the price, not the delivery
circumstances.

Second situation

B and C each purchase a further 42 units from the same supplier. They each receive an 8 % quantity
discount on the shipment of 42 units as the manufacturer grants the discount on the cumulative purchase
of over 50 units. Can the 8 % quantity discount be applied ?

Answer : Yes. Once again the quantity purchased contributed to the setting of the purchase price and
therefore established the price actually paid or payable.

Third situation

In addition to the quantity discounts of 5 % and 8 % granted before Customs clearance, a further quantity
discount of 3 % on the first shipment of 27 units is granted retrospectively. Can this additional discount
be applied to the second shipment ?

Answer : No. The additional quantity discount of 3 % granted retrospectively should not be allowed
for the second importation as it did not contribute to the setting of the unit price of the 42 units being
valued, but relates to the 27 units previously imported.

Credits :

With regard to the treatment of credits in respect of earlier transactions, Advisory Opinion 8.1 of the
Technical Committee states that the amount of the credit represents an amount that has already been
paid to the seller and is therefore part of the price actually paid or payable.

17
The decision on whether or not to apply the credit to the previous shipment must be taken independently
of the shipment being valued. Any adjustment made to the value of the previous shipment will depend
on national legislation.

Example: Importer I receives a shipment of televisions at an invoiced price of 10,000 c.u. However,
the invoice mentions a credit of 1,000 c.u. which brings the final invoice price down to 9,000 c.u.

The importer informs Customs that the credit was granted because 10 of the television sets in the
previous shipment were damaged. The seller therefore granted a credit on the present shipment to
compensate for the losses. Can this credit be applied to the shipment currently being valued ?

Answer: No. The credit is part of the price actually paid or payable for the shipment being valued. This
shipment is therefore valued at 10,000 c.u. The credit may or may not be allowed for the earlier
shipment, depending on the appropriate national legislation.

(c) Damaged goods

The valuation treatment to be applied to damaged or defective goods is a matter for national legislation.
These goods may nevertheless have to be valued and will therefore fall within the scope of the
Agreement.

If all the goods in the shipment are damaged, the transaction value does not apply as the price actually
paid or payable does not relate to the damaged goods.

If only part of the shipment is damaged, the transaction value can be applied to the undamaged goods
and the appropriate alternate valuation method should be applied to the balance of the shipment.

(d) Other factors that can affect the price

Case of a price below market price : Advisory Opinion 2.1 states that the mere fact that a price is
lower than prevailing market prices for identical goods should not cause that price to be rejected for the
purposes of Article 1.

Goods subject to export subsidies or bounties : This is not a case for rejecting the transaction value,
or,a cost element to be added under Article 8, or, an amount to be added to the price (as it has not been
paid by the buyer to or for the benefit of the seller).

Goods sold at dumped prices :

A separate WTO Agreement, the Agreement on Implementation of Article VI of the GATT 1994 on
anti-dumping, there are national laws and procedures regarding dumped goods in importing countries.

This must remain totally separate from the valuation procedures. Thus, the fact that a good is sold at a
dumped price to an importer is not a reason for rejecting the transaction value.

Goods not in accordance with the contract:

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 Where imported goods are delivered to the importer that do not conform to the contract specifications
of the transaction but, the importer agrees to take delivery of the goods, the exporter may fix a new
price to be paid for the goods actually received. The price would then be the basis for determining the
customs value under Article 1.

Where the importer does not take delivery of the goods however, they may be re-exported or,
abandoned, in accordance with the national customs law.

The transaction value is the primary method of valuation and the majority of imported goods into
signatory countries worldwide are valued using the transaction value method. As such, it is the most
important method of valuation under the Agreement.

Five alternate methods are also provided in the Agreement when the transaction value cannot be applied.
This may be due to a number of factors, for example, a restriction may apply to the imported goods
which makes it ineligible under the transaction value. However, the six methods of valuation must be
considered in sequential order.

2.3 Adjustments to Transaction Value (Article 8 of WTO-ACV)

The WTO Agreement, in Article 1, states that that customs value of the 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 of importation adjusted in accordance with the provisions of article 8.

The actual price of the goods to be valued, i.e. the transaction value, is usually reflected in the
commercial invoice but may be subject to certain adjustments, including:.

Article 8.1 Compulsory adjustment

Article 8.2 Optional adjustments

Article 8.3 Objective & Quantifiable Data

Article 8.4 No other additions are permitted

2.3.1 Compulsory Adjustments

➢ Article 8.1 lists a number of adjustments which must be added to the price actually paid or
payable for the imported goods where they are incurred by the buyer but are not included in the
price actually paid or payable.
➢ If the appropriate criteria are met it is compulsory to add the sum in question to the price actually
paid or payable.

The compulsory adjustments are:

(a) (i) commissions and brokerage, except buying commissions”.

(ii) the cost of containers …”.

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 (iii) the cost of packing whether for labour or materials”.

(b) the value, apportioned as appropriate, of (certain) goods and services where supplied directly or
indirectly by the buyer free of charge or at reduced cost for use in connection with the production and
sale for export of the imported goods ...”.

(c)royalties and licence 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 ...”.

(d) the value of any part of the proceeds of any subsequent resale, disposal or use of the imported goods
that accrues directly or indirectly to the seller”.

2.1.1.1. Commissions and brokerage

Article 8.1.(a) (i): commissions and brokerage, except buying commissions;

➢ In order to determine whether commissions or brokerage fees are to be added to the price
actually paid or payable you first need to establish a definition of these terms.
➢ Commissions and brokerage fees are payments made to parties acting as intermediaries in a
transaction.
➢ The two main groups are agents (who are paid a “commission” for their services) and brokers
(who are paid a “brokerage”).

Agents and Commissions

➢ In general, an agent is an individual or firm who buys and/or sells goods for the account of a
principle and may carry out other services relevant to buying and/or selling.
➢ The agent’s fee is known as a commission and is often expressed as a percentage of the total
price of the goods.
➢ Agents who work on behalf of the buyer are called buying agents and those who work for the
seller are called selling agents.
➢ Their fees are referred to respectively as buying and selling commissions.

Article 8.1 (a)(i) tells us that commissions are to be added to the customs value (when incurred by the
buyer and not already included in the price actually paid or payable) unless they are buying
commissions. It is therefore important to be able to distinguish between the different types. The
functions undertaken by a selling agent include :

20
 ➢ seeking customers for the seller’s goods;
➢ taking orders for sales from buyers and transmitting to the seller;
➢ showing samples/demonstrating products to potential buyers;
➢ assisting in the arrangements for insurance, transport, storage and delivery;
➢ assisting in the preparation of export documentation, including invoices.
➢ The commission charged by the selling agent and paid by the seller is often shown on the
commercial invoice.
➢ It may not necessarily indicate whether it is a buying or a selling commission and may simply
be referred to as a “commission”.
➢ As these commissions are to be included in the customs value, there is no need to separately
identify the selling commission.
➢ However, if it is separately identified on the commercial invoice, or separately invoiced, it must
still be included.
➢ In some cases, a selling commission paid by the seller may not be charged to the buyer.
➢ There is no justification within the Agreement to include such payments in the customs value
in these circumstances.

The term buying commission is defined in the Interpretative Note to Article 8 as follows : “Fees paid
by an importer to his agent for the services of representing him abroad in the purchase of the goods
being valued”. The functions undertaken by a buying agent include:

➢ finding suppliers of the goods wanted by the buyer;

➢ helping to negotiate the best prices;
➢ informing the seller of the buyer’s requirements;
➢ obtaining samples for the buyer’s inspection;
➢ inspecting the goods;
➢ assisting in arranging insurance, transport, storage and delivery;
➢ consolidating shipments from different sources;
➢ preparation of invoices.

Brokers and brokerage

➢ These terms are similar to agents and commissions.

➢ The term “broker” usually refers to an intermediary who does not act on his/her own account.
➢ The broker can act for both buyer and seller and can arrange to put both parties in touch with
each other.
➢ His/her fee is known as a brokerage which is usually a percentage of the business concluded as
the result of his/her activities.
➢ In order to determine whether a brokerage should be added to the price actually paid or payable
it is necessary to look at what services were provided in return for the fee.
➢ If those services match those provided by a selling agent then they are to be added.
➢ If they match the services provided by a buying agent then they will not be added.
➢ In some cases it may be determined that the brokerage fee is partly incurred by the buyer
(representing a buying commission) and partly by the seller (representing a selling
commission). The appropriate amount will then be included in the customs value.

Supporting Documentary Evidence

21
 ➢ The treatment of commissions and brokerage for Customs valuation purposes depends upon the
exact nature of the services provided by the intermediary.
➢ The nature of services rendered by agents and brokers are often not apparent from the
commercial documents presented with the Customs declaration.
➢ It may therefore be necessary to look at further documentation to establish the precise nature of
a particular payment and determine whether it is to be included in the customs value under this
provision.
➢ In cases of doubt, further evidence may be requested, for example :
➢ the seller’s contract of sale showing the price of the goods. This may make reference to the
involvement of a selling agent;
➢ the contract between the buyer and his/her agent;
➢ letters of credit;
➢ purchase orders;
➢ General correspondence.
➢ Where an agency relationship cannot be confirmed, Customs may conclude that the fees paid do
not represent a buying commission and that the amount in question should be included in the
customs value.

2.1.1.2. Cost Of Container & Cost Of Packing

➢ Article 8.1(a)(ii) and (iii) provide for the addition of the cost of containers which are treated as
one with the imported goods for Customs purposes and the cost of packing whether for labor
and/or materials.
➢ It must be remembered however that Article 8 adjustments can only be made to the extent that
they are: incurred by the buyer; that they are not already included in the price actually paid or
payable for the goods; and, based on objective and quantifiable data.
➢ In the case of Article 8.1(a)(ii) and (iii), the Agreement very specifically refers to the “cost” of
the containers and packing and not the “value”. As such, it must be the actual cost incurred that
Customs will use. Customs will not appraise or place a “value” on the cost of packing (and its
labor/materials) but will accept the actual costs demonstrated by the buyer. This is to bring about
a more uniform and transparent application of the Agreement and to assist in eliminating the
degree of “discretion” under valuation systems.

For the purposes of taking into account all costs relating to the provision of packing and containers,
such types are various and include:

(a) interior packing boxes and cartons (referred to as “retail” packing such as bags; boxes; blister
packs; plastic wrappers; cardboard boxes etc.);

(b) Exterior packing boxes and cartons (also referred to as “export” packing and may include
cardboard boxes; wooden crates; metal boxes etc.);

(c) Packing materials (such as cardboard inserts; bubble wrap; hay; straw; shredded paper;
styrofoam chips etc.);

(d) the labour costs involved in placing and securing the goods in their containers (such as packing
and sealing the boxes or cartons; coopering; vacuum packing; environmental conditioning; placing on
hangers or racks etc.).

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The only containers, whose costs would not form part of the customs value of imported goods, are
those that under national legislation are required to be separately declared in their own right. These
containers could be those of domestic (importing country) origin or, such as :

(a) Containers which give the whole its essential character;

(b) The usual type of shipping or packing containers which are capable of re-use;

(c) Containers imported empty.

Generally, the application of Article 8.1(a)(ii) and (iii) is straightforward but decision-makers must
remember, that when in doubt, to seek further objective and quantifiable data on which to base their
valuation decision.

2.1.1.3. Assists

Article 8.1 (b) states that you should add to the price actually paid or payable for the imported goods
the cost or value, (“apportioned as appropriate”), of certain “… goods and services supplied directly
or indirectly by the buyer free of charge or at reduced cost for use in connection with the production
and sale for export of the imported goods, to the extent that such value has not already been included
in the price actually paid or payable.” These are known as ‘assists’.

Types Of “Assists”

(a) Materials, components, parts and similar items incorporated in the imported goods - Article
8.1 (b) (i): ‘Materials’ cover, for instance, wood, metals, plastics, or fabric. ‘Components and parts’
can be finished products (hooks, cables), electrical components, integrated circuits, etc.

(b) Tools, dies, moulds and similar items used in the production of the imported goods - Article 8.1 (b)
(ii)

➢ The word ‘tools’ must be interpreted broadly from, for example, hand tools (drills) to large
scale industrial machines. Dies and moulds are items which are used in shaping the product
(casting moulds in foundries, moulds for rubber or plastic used, for instance, for making
figurines).
➢ Remember that only tools used directly in the production of the imported goods can be taken
into account. Therefore, office machines, which are not used in support of the production
process (for example, a photocopier) of the imported goods, should not be taken into account.

(c) Materials consumed in the production of the imported goods – Article 8.1 (b) (iii):

23
 ➢ These are products used in the manufacturing process but which are not always identifiable in
the finished product.
➢ Example: chemical catalysts used to induce a chemical reaction, and, for some countries, energy
(gas, electricity, etc). Another example would be where petrol or oil is supplied free of charge
by the buyer/importer to test the performance of a new high performance motor vehicle.

(d) Engineering, development, artwork, design work, and plans and sketches undertaken elsewhere than
in the country of importation and necessary for the production of the imported goods - Article 8.1 (b)
(iv) :

This type of assist should only be added to the price actually paid or payable if it satisfies the following
three conditions:

1) it is carried out outside the country of importation;

2) it is necessary for the manufacture of the imported goods;
3) it does not constitute one of the costs or charges mentioned in paragraph 3 of the Interpretative
Note to Article 1, “... for construction, erection, assembly, maintenance or technical assistance,
undertaken after importation …”.

Example,

Photographs taken in your country, the country of subsequent importation, as arranged by the
subsequent importer, are sent to the overseas manufacturer, free of charge by the importer, for
incorporation in sets of table place mats.

Under Article 8.1(b)(iv), the value of the photographs will not be added to the price actually paid or
payable for the place mats as the work was undertaken in the country of importation.

Whereas, if scenic photographs taken in another country were sent to the manufacturer by the importer
free of charge, for incorporation in the place mats to be imported, the value of those photographs will
be added to the price actually paid or payable as they originated outside the country of importation.

Common Characteristics Of “Assists”

These cost elements should only be added to the price actually paid or payable if:

➢ they have not already been included in the price actually paid or payable;
➢ they have been provided by the importer either free of charge or at a reduced cost
➢ they have been provided directly or indirectly by the importer.
➢ they are used at the time of production and sale for export of the imported products;
➢ they are based on objective and quantifiable data.

Valuing An “Assist”

Once it has been established that a cost element falls within Article 8.1(b) and will therefore be added
to the price actually paid or payable, it must then be valued and, this value may also be apportioned, as
appropriate, to the imported goods.

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 (a) Determining the value of the assist
➢ if the assist has been acquired by the importer from a seller who is not related to him/her, the cost
of acquisition is to be taken into consideration;
➢ If the assist was produced by the importer or by a related person or, if it was bought from a
related person, the cost of production is to be taken into consideration. It should be possible to
establish this cost from the records of the importer. The amount to be taken into consideration
is limited to the costs of development and manufacturing, plus a share of the overhead costs,
but excluding all elements relating to profit.

Additional points:

➢ The value of the assist includes transport costs to the manufacturing site as well as non-
reimbursed duties and taxes.
➢ If the assist has already been used by the buyer, the initial cost of acquisition or of its production
must be adjusted downwards to take this use into account when valuing the assist.
➢ If the assist has been repaired or modified by the buyer, its value must take into account the
cost of repairing or modifying it.
➢ If the assist has been leased, the addition would be the cost of the lease.
➢ If the assist consists of engineering work, development, design work, plans or sketches, it is
possible to value them by consulting the buyer’s commercial records.

(b) Methods of apportioning the value of the assist to the price actually paid or payable for the
imported goods

Once the value of the assist has been determined, it may be apportioned against the value of the imported
goods. Usually, the apportioning method used is the one requested by the importer and agreed to by
Customs.

That being the case, the value of the assist may:

➢ be applied entirely to the first shipment if the importer wishes to pay duty on the entire value
at one time;
➢ be apportioned over the number of units produced up to the time of the first shipment;
➢ be apportioned over the entire anticipated production where contracts or firm commitments
exist for that production;
➢ be apportioned over the assists’ years of useful life;

Provided that

➢ it is in conformity with generally accepted accounting principles;

➢ and, documentary evidence is provided in support of the apportioning method used.

Example 1: (a) determining the value of the assist

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Facts:

➢ Company I sells high fashion men’s garments to retailers in the country of importation.
➢ All garments are imported from one overseas supplier, X. X manufactures the garments using
paper patterns supplied free of charge by L on behalf of I.
➢ L, which is located in a third country, specializes in designing high fashion men’s garments.
➢ Company I has a license agreement with L under which I is granted an exclusive license to use
the paper patterns produced by L and to distribute garments incorporating L’s designs in the
country of importation.
➢ In return, I pays L a license fee based on the turnover it achieves on the sales of the garments.

Determination of the customs value:

➢ It is for the Customs administration to determine the exact nature of the license fee in order to
establish whether or not it forms part of the customs value of the imported garments.
➢ If the facts show that the payment referred to as a license fee relates to an element of Article
8.1 (b) (an assist), then Article 8.1 (b) would apply.
➢ Otherwise, Customs should examine whether the payment satisfies the conditions laid down
in Article 8.1 (c) (royalties).
➢ The paper patterns perform a similar function to a mould or die. The buyer sends the paper
patterns free of charge through the licensor L and they are used in the production and sale for
export of the imported goods.
➢ These patterns therefore constitute an assist under Article 8.1 (b) (ii) and their value, which also
includes the cost of the designs, should be included in the price actually paid or payable for the
imported goods.
➢ As I and L are not related, the value of the paper patterns would be I’s cost to acquire the
patterns from L.
➢ I acquired the patterns through the license agreement with L and the cost of acquisition of the
patterns is therefore the amount of the license fee to be paid.
➢ Given that the license fee is to be included in the customs value of the imported garments under
the terms of Article 8.1 (b), it is not necessary to consider its possible addition to the price
actually paid or payable under the terms of Article 8.1 (c).

Example 1: Apportioning the value of the assists to the imported goods

Facts

➢ A buyer provides the producer with a mould to be used in the production of the goods to be
imported and contracts with the producer to buy 10,000 units.
➢ By the time of arrival of the first shipment of 1,000 units, the producer has already produced
4,000 units.
➢ The buyer may request the Customs authorities to apportion the value of the mould over 1,000,
4,000 or 10,000 units.

Example 2:

26
 ➢ Importer I in the country of importation presents for Customs clearance 10 armoured vehicles,
which were the subject of an armouring operation by Company A in the country of export X.
➢ The basic unarmoured vehicles were purchased by Company I from Manufacturer M at a total
price of 17,000,000 c.u.
➢ The basic vehicles were supplied free of charge to Company A, without them having ever been
used.
➢ At the time of importation, Company I produces an invoice from A for the armouring operation
for an amount of 43,000,000 c.u., and an invoice from manufacturer M for the basic vehicles
invoicing Company I for an amount of 17,000,000 c.u.
➢ Because Company A is providing armouring services, not selling armoured vehicles, the term
‘sale’ as it applies to the transaction between I and A, will be regarded in its widest sense as a
sale of goods.
➢ In this case the cost of the basic vehicles should be added to the price actually paid or payable
for the armouring operation.
➢ Thus, the transaction value of the armoured vehicles is 60,000,000 c.u. plus other deductions
as required.

2.1.1.4. Royalties & License Fees

Article 8.1(c) of the Agreement requires that, when determining the customs value under the provisions
of Article 1, there shall be added to the price actually paid or payable for the imported goods :

“royalties and licence 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”.

The Agreement does not provide specific definitions for the terms “royalty” or “licence fee”.

➢ In general however, the most accepted meaning is that they represent the right to use, produce
or sell a licensed product.
➢ In fact, there are various kinds of intangible rights, including “names” and ideas/concepts, and,
it is the payment for those associated “rights” which relate to the manufacture, sale, use or resale
of imported goods, that may be captured as a royalty or licence fee under Article 8.1(c).
➢ The Collins Dictionary and Thesaurus (1991) defines “royalty” as “a percentage of the
revenue from the sale of a book, performance of a theatrical work, use of a patented invention
… paid to the author, inventor …”.

Conditions for Royalty & License Inclusion In Customs Value

1. Must be related to the goods being valued.

➢ That is, the royalty or licence fee must relate directly to the imported goods, either because the
goods have a trademark or copyright applied to them or, they may contain a patented process
or, because of some other protected right.

2. Must be a condition of the sale and paid directly or indirectly by the buyer.

27
 ➢ That is, the purchase of the imported goods must require the payment of a royalty or licence
fee, or, the buyer must pay a royalty or licence fee in order to receive the goods.
➢ The royalty payment may be paid to a third party but, the payment must still be a condition of
the sale of the goods.

3. Is not already included in the price actually paid or payable.

➢ If the royalty payment is included in the price actually paid or payable, it will not be added
again under Article 8.1(c).
➢ In fact, if the royalty payment already forms part of the “price” negotiated between the buyer
and seller, Article 8 will not have to be considered at all in regard to royalties/licence fees.
➢ If it is established that some form of royalty or licence fee is a consideration in regard to the
imported goods, the Customs administration must satisfy itself as to the correct valuation
treatment. That is, will it form part of the customs value or not ?
➢ The Interpretative Note to Article 8.1(c) provides additional guidelines in respect to the
treatment of royalties and licence fees under the Agreement.
➢ Sub-paragraph 1: Royalties and licence fees may include, among other things, payments in
respect to patents, trademarks and copyrights; also Charges for the right to reproduce the
imported goods in the country of importation shall not be added to the price actually paid or
payable.
➢ Sub-paragraph 2: Payments made by the buyer for the right to distribute or resell the goods
will not be added to the price actually paid or payable provided that these payments are not a
condition of the sale for export to the country of importation of the imported goods.
➢ It should be noted however, that where the price actually paid or payable already includes a
royalty/licence fee amount, there is no provision under the Agreement to deduct that amount.
➢ The legal deductions contained in the Interpretative Note to Article 1, paragraph 3, are
specifically instructive in those deductions that can be made.

Rights Associated With Royalties and Licence Fees

➢ The type of properties/rights to which royalties/licence fees do relate to:

Patent

➢ A patent can be described as a document or testimony, issued by a relevant government office,

which describes an “invention” and authenticates that “invention” through legal registration
making it illegal for anyone to then duplicate or exploit the registered patent which is the
registered property of the patentee.
➢ It can only be used with the express approval of the patentee, which in effect, is a reserved right.

Trademark

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 ➢ A trademark is a marketing device which is generally in the form of a particular sign or “logo”
which is affixed to the imported goods that conveys an inherent quality and reputation
statement.
➢ Normally, protection of a trademark requires the mark to be registered with the appropriate
government authority.
➢ The registration is taken out to protect the holder’s rights and to be able to prosecute others
who might copy the mark.

Copyright

➢ A copyright is a reserved right which protects the holder from unauthorised use of his/her work
(usually artistic or literary) from reproduction, copying or translation.
➢ It is the exclusive right of the author, artist etc.
➢ This form of protection would cover examples of work such as : literary work (novels, articles,
papers etc.); artistic works (paintings, drawings, sculptures etc.); photography;

motion pictures; technical drawings etc.

Right to Reproduce

➢ Paragraph 1 of the Interpretative Note to Article 8.1(c) refers to the fact that no royalty
payments for the reproduction of the licenced product in the country of importation, will form
part of the customs value of the imported product.
➢ For example, a new cartoon character prototype/master model is imported into the country of
importation with the intention to reproduce a large number in a local manufacturing plant.
➢ There will normally be at least two levels of royalty payments in such a case.
➢ There would be a royalty consideration attached to the prototype for importation which would
form part of the customs value of the imported goods.
➢ There will normally also be some form of royalty related to the reproduction of the goods and/or
on retail sales in the market place of the country of importation.
➢ The royalty payments that relate to the reproduction of the prototype in the importing country’s
market place will not form part of the customs value.

Distribution Rights

➢ The Interpretative Note also states that in regard to the valuation considerations of Article
8.1(c), that “Payments made by the buyer for the right to distribute or resell the imported goods
shall not be added to the price actually paid or payable for the imported goods if such payments
are not a condition of sale”. As such, careful consideration has to be had when identifying the
sale.
➢ For example, are there supporting royalty/licence agreements as well as the contract of sale? If
so, together, do they all form conditions of the sale? The contract of sale alone and/or the
commercial invoice are not always the only relevant documents.

Treatment of Royalties

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 ➢ All decisions made regarding the valuation treatment of royalties/licence fees, must be based
on objective and quantifiable data.
➢ Where it is determined that such data does not exist, an officer cannot make an arbitrary
adjustment and, therefore, Article 1, the transaction value cannot be applied.
➢ When a royalty is relevant to the imported goods and, the importer is unable to provide further
information, the importer should be advised that the first alternate method of valuation is to be
considered and the reasons attached to that decision.
➢ If the royalty payment is based partly on the imported goods and partly on other factors which
do not relate to the goods as imported, it is also inappropriate to make an adjustment for the
royalty on the imported goods.

For example:

(a) Where imported goods are mixed with domestic ingredients and are no longer identifiable;

(b) Where the royalty payment cannot be distinguished from the financial arrangements between
the buyer and the seller.

➢ Identification of royalty/licence fee payments can be relatively simple. In most cases, there will
be a formal written agreement spelling out the rights and obligations being conferred from one
party to the other. Examination of these documents will normally establish what the payment is
for. A question that can help in determining the status of the royalty is, “could the goods have
been imported without the payment of a royalty”?
➢ Always base royalty/licence fee considerations on objective and quantifiable data. Where such
data does not exist for whatever reason, Article 1 can not be used.

2.1.1.5. Proceeds of Resale

➢ Under the terms of Article 8.1(d), there shall be added to the price actually paid or payable for
the imported goods “the value of any part of the proceeds of any subsequent resale, disposal or
use of the imported goods that accrues directly or indirectly to the seller”.
➢ This Article is directly linked to Article 1.1(c) of the Agreement, which states that the customs
value of the goods is the transaction value, provided “that no part of the proceeds of any
subsequent resale, disposal or use of the goods by the buyer accrues directly or indirectly to
the seller, unless an appropriate adjustment can be made in accordance with the provisions of
Article 8”.
➢ Consequently, Article 1.1(c) will not apply and the transaction value will be accepted as a basis
of valuation for the imported goods whenever an adjustment can be made under Article 8.

Definition of Proceeds

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 ➢ For the purposes of this Article, proceeds are any payments, excluding those relating to patents,
trademarks or copyright, which, by contractual agreement, are paid either directly or indirectly
to the seller of the goods being valued.
➢ Proceeds must not be confused with transfers of dividends or other such payments made by the
buyer to the seller. Neither must they be confused with royalties and licence fees which are
payable on the re-sale price of the imported goods.
➢ Payments falling within the definition of royalties and licence fees must be examined solely
within the context of Article 8.1 (c). where a royalty payment has been examined and found not
to form part of the customs value of the imported goods under Article 8.1(c), it cannot then be
considered again under the provisions of Article 8.1(d).
➢ The Agreement does not define the scope of Article 8.1 (d), nor does the Agreement impose
any conditions on how these payments are to be taken into account in the customs value. In
particular, it does not require that such payments must constitute a condition of the sale of the
imported goods. The mere existence of such proceeds requires an adjustment to be made to the
price actually paid or payable for the imported goods.
➢ However, the general requirement that any addition under Article 8 must be made on the basis
of objective and quantifiable data still applies.

EXAMPLE

➢ Corporation C of country X owns subsidiaries in different countries, all of which operate in

accordance with corporate policies established by C. Some of these subsidiaries are
manufacturing enterprises, others are wholesalers. Importer I in country of importation Y, a
subsidiary of C is a wholesaler of men’s, women’s and children’s garments. The importer buys
men’s garments from manufacturer M, another subsidiary of corporation C also located in
country X and, women’s and children’s garments from unrelated manufacturers located in a
third country, as well as from local manufacturers.

Situation 1:

➢ In accordance with C’s corporate policy concerning sales between its subsidiaries, goods are
sold at the price negotiated between the subsidiaries. However, at the end of the year, importer
I will pay to manufacturer M 5 % of the total annual resale of the men’s garments which the
importer purchases from the manufacturer during that year as a further payment for the
imported goods. In this case, the payment in question is a proceed of the subsequent resale of
the imported goods which is paid directly to the seller by the importer and that amount is to be
added to the price paid or payable as an adjustment under the provisions of Article 8.1(d).

Situation 2:

➢ Importer I pays to service company A, another subsidiary of corporation C, 1 % of the

importer’s gross profit realised over the total annual sales of garments purchased from all
sources. The importer produces evidence that this payment is not related to the subsequent
resale, use or disposal of the imported goods but is a payment made in accordance with
corporate policy to reimburse A for low interest loans and other financial services A provides
for all subsidiaries of corporation C. Service company A is related to the seller of the imported
goods and thus the payment could be considered as an indirect payment to the seller. It is,

31
 however, payment for a financial service which is not related to the imported goods. Therefore,
the payment would not be considered to be a proceed within the meaning of Article 8.1(d).

Situation 3:

➢ At the end of the financial year, importer I remits to corporation C, 75 % of the importer’s net
profit realised over that year. In this case the remittance by I to corporation C cannot be
considered as proceeds since it represents a flow of dividends or other payments from the buyer
to the seller which do not relate to the imported goods. Therefore, in accordance with the
Interpretative Note to Article 1, it will not form part of the customs value of the imported
goods.

2.1.2. Optional Adjustments

Unlike other adjustments required under Article 8 of the Agreement, the elements listed in Article 8.2
are not mandatory. Article 8.2 states that in framing its national legislation, each Member shall provide
for the inclusion in or exclusion from the customs value, in whole or in part, of the following optional
adjustments;

(a) the cost of transport of the imported goods to the port or place of importation (this is compulsory to
include in Customs Value in Ethiopia);

(b) loading, unloading and handling charges associated with the transport of the imported goods to the
port or place of importation (this is compulsory to include in Customs Value in Ethiopia); and

(c) the cost of insurance” (this is compulsory to include in Customs Value in Ethiopia).

Treatment Of Article 8.2

Where, under national law, Article 8.2 (a), (b) and (c) are to be included in the customs value. (this is
commonly known as ‘CIF’ and Ethiopia use CIF). Where the terms of sale are CIF then the sale price
should already include both the price actually paid or payable for the goods plus the freight, insurance
and associated handling and loading costs from the place of export to the place of import. This total
amount then forms the basis of the customs value.

Where the terms of sale are FOB then the invoice price will not include the additional elements for
freight etc. In this case, the importer or his/her representative is responsible for arranging and paying
for the freight, insurance etc., from the place of export.

They should therefore be in possession of invoices, contracts etc., that provide details of the actual
amounts paid for these elements. These costs/charges should then be added to the price actually paid or
payable for the goods.

Insurance

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 (i) Scope

The inclusion of insurance in the customs value is limited to insurance costs incurred for the
transportation, loading, unloading and handling of the goods to the place of import.

(ii) Global/group insurance policies

Companies sometimes arrange for global or group policies to be set up rather than individual policies
for each shipment. In this case, where objective and quantifiable data is not available for each individual
import, the customs value cannot be determined using Article 1. Where insurance costs have been
omitted from the declared value this may be because the importer has failed to advise his/her agent of
the existence of such a policy.

In some cases the sales contract requires the seller to procure insurance against the buyer’s risk of loss
of or damage to the goods during carriage, but the buyer also decides to procure insurance. In other
words, there is a ‘double’ insurance, however, in the event of loss or damage, legally only one claim
can be made. Consequently, only the cost of the seller’s insurance is to be included in the customs
value as that is the basis of CIF.

(iii) No insurance taken out

In some cases the importer may state that neither he/she nor the seller insured the goods. If there is
evidence to support this, then it is not necessary to include an amount for insurance under Article 8.2.

Additional Points

➢ In accordance with Article 8.3, any adjustments for the costs or charges listed in Article 8.2 are
to be made only on the basis of objective and quantifiable data.
➢ If such data is not available, then the transaction value method cannot be used.
➢ In accordance with Article 8.4, no addition to the price actually paid or payable is to be made
except those in Article 8.1 and Article 8.2 (a), (b) and (c).

Storage Costs

➢ An area closely related to transport costs is storage costs. In the context of Article 8.2 it is
necessary to consider whether or not the costs are in connection with the shipment of the
goods. Where the storage is not in connection with the shipment of the goods, Article 8.2 does
not apply.
➢ Their inclusion in, or exclusion from, the price actually paid or payable will be in accordance
with Article 1. the shipment of the goods, then they are considered as part of the cost of transport
and they will be included in or excluded from the value of the goods depending upon the treatment
of Article 8.2 in national legislation.
➢ Note that the term "storage" does not include the cleaning, sorting or re-packing of the imported
goods while in storage.

Example

33
 ➢ An importer purchases goods at an ex-factory price from the seller in the country of exportation.
Storage costs are incurred at the place of export pending the arrival of the goods. In this case, the
storage costs are incidental to the shipment of the goods and as such, should be regarded as
charges associated with the transport of the goods.
➢ They are, therefore, to be treated in accordance with the provisions of Article 8.2(b) or, if the
costs are incurred after importation, they must be treated in accordance with the Note to Article
1 which states that post importation transport costs will not be included in the customs value
provided those costs are distinguished from the price actually paid or payable for the imported
goods.

Objective & Quantifiable Data

➢ Article 8.3 states that “Additions to the price actually paid or payable shall be made under this
Article only on the basis of objective and quantifiable data”.
➢ Article 8.3 is in fact saying, that any adjustments that are to be made under Article 8, must be
based on real facts and figures. Best judgement and discretion may not be used, only facts based
on the presentation of precise documentary information, that is, objective and quantifiable data.
This requirement is based on the need for uniform and transparent application of the Agreement
and the elimination of the level of discretion under valuation systems.
➢ The Relationship between Article 8.3 and Article 17 is tThe obligations under Article 8.3 relate
to both the importer and Customs. Where Customs determine they have insufficient information
to make a valuation decision under Article 1, Article 17 specifies they have the right to be satisfied
regarding the truth or accuracy of any statement, document or declaration presented to them.
➢ As such, questions can be put to the importer regarding the need for further objective and
quantifiable data to be provided in order for Customs to make a well-informed decision. The
obligation to provide that information is placed on the importer.
➢ Customs has the right to verify any information relative to the customs value submitted to them.
If there is a doubt regarding the truth or accuracy of such information, they may go back to the
importer and request additional information. If the importer does not respond or, if further
documentation is provided but Customs still has doubts, it may be deemed that the value cannot
be determined under Article 1.

No other additions

➢ This Article provides that “No additions shall be made to the price actually paid or payable in
determining the customs value except as provided in this Article”.
➢ This provision is straightforward and unambiguous. The only cost elements that can be added
to the price actually paid or payable are those listed in Article 8. No other additions are
permitted.

2.2. Conditions for Rejection of Transactional Value

Transaction value will only be acceptable if the four conditions listed in Article 1.1 are satisfied. These
conditions seek answers to the following questions:

34
 ➢ Are there restrictions on the disposition or use of the goods by the buyer?
➢ Is the sale or price subject to any condition or consideration?
➢ Are there proceeds from the resale of the goods which accrue to the seller?
➢ Are the buyer and seller related?

Note: A positive answer to these questions does not automatically mean that the transaction value
method should be rejected.

2.2.1. Restrictions [Article 1.1 (A)]

With certain exceptions, the transaction value cannot be used where there are restrictions that affect the
disposition or use of the goods by the buyer. For example, where the buyer is not allowed to resell the
goods.

However, there are three exceptions to this rule which are considered to have no effect on the value. In
other words, when they apply there are no grounds for rejecting the transaction value method.

First Exception: Article 1.1 (a) (i) Restrictions which are imposed or required by law or by the public
authorities in the country of importation. Examples, requirements to obtain a license or permit prior to
any resale or use; requirement for certain types of labelling or packaging; requirement for testing or
inspection before release.

Second Exception: Article 1.1(a)(ii) Restrictions which limit the geographical area in which the
goods may be resold. Examples, The seller imposes a territorial restriction, such as regional
distributorships, allowing resale only in a specified area (e.g., country, group of countries, region etc.,).

Third exception: Article 1.1(a)(iii) Restrictions which do not substantially affect the value of the goods.
This exception is more difficult to interpret and apply than the previous two. There are a number of
factors which may be taken into consideration to determine whether it should apply, such as: the nature
of the restriction; the nature of the goods; the nature of the industry and its commercial practices;
whether the monetary effect is commercially significant.

There is no precise definition of the term "substantially" in the context of this condition so it must be
decided on a case by case basis.

Examples

i. the seller requires the buyer of cars not to sell or exhibit them prior to a fixed date that represents
the beginning of that model year. This would not be a restriction as it does not substantially affect
the price;
ii. the seller requires that the imported product be sold to consumers exclusively through individual
sales representatives who use a house-by-house sales technique. This would not be a restriction
as it does not substantially affect the price;
iii. on the other hand, an example of a restriction which could have a substantial effect on the value
would be where a machine is sold at a nominal price on condition that the buyer uses it only for
charitable purposes.

2.2.2. Condition Or Consideration [Article 1.1 (b)]

35
 Article 1.1 (b): “… the sale or price is not subject to some condition or consideration for which a
value cannot be determined with respect to the imported goods”.

Bearing in mind that the transaction value should be used wherever possible it is important to consider
all possible options to calculate a value for the consideration or condition in question. Where an
appropriate value can be calculated, it is to be considered as part of the total payment made, or to be
made, by the buyer to the seller for the goods. The transaction value method can still therefore be used.

The second condition is illustrated in paragraph 1(b) of the Interpretative Notes by the following three
situations:

Situation (1) the seller establishes the price of the imported goods on condition that the buyer will
also buy other goods in specified quantities.

Example:

Manufacturer F in country of export E sells leather goods to buyer X in country I at a unit price of 50
c.u. on the condition that X also purchases a shipment of shoes at a unit price of 30 c.u. On the other
hand, if it can be demonstrated that by buying the shoes at 30 c.u., the buyer saves 10 c.u. on the
purchase of the leather goods, the leather goods could still be valued under the transaction value method
at 60 c.u. (50 c.u. + 10 c.u.)

Situation (2) the price of the imported goods is dependent upon the price or prices at which the buyer
of the imported goods sells other goods to the seller of the imported goods.

Example

Manufacturer F in country of export E has an agreement with importer X in country of import I to

supply specialised equipment designed by F at a unit price of 10,000 c.u. on condition that importer X
supplies F with certain relays used in the production of the equipment, at a unit price of 150 c.u.

Situation (3) the price is established on the basis of a form of payment extraneous to the imported
goods, such as where the imported goods are semi-finished goods which have been provided by the
seller on condition that he will receive a specified quantity of the finished goods

Example

An importer buys lumber from a foreign seller. He uses the lumber to produce a desk. The price at
which he buys the lumber is dependent on the buyer supplying a certain number of finished desks to
the seller free of charge.

Further comment on the second condition

36
 ➢ The Interpretative Note to Article 1, paragraph 1(b), provides that conditions or considerations
relating to the production or marketing of the imported goods shall not result in rejection of
transaction value under Article 1.
➢ For example, the fact that the buyer provides the seller with engineering plans and sketches etc.,
undertaken in the country of importation, and therefore not to be added as an assist under Article
8.1(b)(iv), would not result in rejection of the transaction value.
➢ Similarly, if the buyer undertakes activities on his/her own account relating to the marketing of the
imported goods, (even with the agreement of the seller), the value of those activities will not form
part of the customs value. Nor would such activities necessarily result in the rejection of
transaction value.

2.2.3. Proceeds [Article 1.1 (c)]

Article 1.1(c) states : “… that no part of the proceeds of any subsequent resale, disposal or use of the
imported goods by the buyer will accrue directly or indirectly to the seller unless an appropriate
adjustment can be made in accordance with the provisions of Article 8”.

The subject of proceeds is discussed in detail while dealing with Adjustments under Article 8.

Fourth Condition: Rejection of Transaction Value [Article 1.1(d) and 1.2(a)]

Article 1.1(d) states: “… that the buyer and seller are not related, or where the buyer and seller are
related, that the transaction value is acceptable for Customs purposes under the provisions of paragraph
2 [of this Article].”

To understand whether this condition applies, two basic questions need to be answered

➢ What is the definition of the word “related”?

➢ Where the parties are related, how do we determine whether the transaction value is “acceptable”?

Regarding the definition of related parties, Article 15 (4) of this Agreement stipulates that persons shall
be deemed to be related only if:

(a) They are officers or directors of one another's businesses;

(b) They are legally recognized partners in business;

(c) They are employer and employee;

37
(d) any person directly or indirectly owns, controls or holds 5 percent or more of the outstanding
voting stock or shares of both of them;

(e) One of them directly or indirectly controls the other;

(f) Both of them are directly or indirectly controlled by a third person;

(g) Together they directly or indirectly control a third person; or

(h) They are members of the same family.

Most of the situations are self-explanatory except the following two points:

➢ Article 15.4 (e), (f) and (g) refer to direct and indirect control of another party. The Note to
sub-paragraph (e) explains that the term “control” means that one person is legally or
operationally in a position to exercise restraint or direction over another.
➢ Article 15.4 (h) states that members of the same family are related for the purposes of the
Agreement but does not define “family”. As such, the word should be used in its generally
accepted form. [for instance, in Ethiopia C.P 859/2014, Art.90.2(h), the same family is defined
as they are related by consanguinity or affinity up to the second degree.]
➢ As per Article 15 (5) of the Agreement: Persons who are associated in business with one
another in that one is the sole agent, sole distributor or sole concessionaire, however described,
of the other shall be deemed to be related for the purposes of this Agreement if they fall within
the criteria of paragraph 4. It states that in these circumstances the parties shall only be
considered related if they fall within the criteria of paragraph 4. In other words, if a party is
acting as the sole agent etc. of another, this fact alone does not create a relationship within the
meaning of the Agreement.

Determination of Transaction Value where the parties are related

How do we determine whether the transaction value is ‘acceptable’?

We should look first at Article 1.2(a) which tells us that if "... the buyer and seller are related within the
meaning of Article 15 "... that is ..."not enough in itself ... grounds for regarding the transaction value
as unacceptable”.

The Agreement tells us that in these cases the circumstances surrounding the sale should be examined
to determine whether the relationship actually influenced the price. If it can be demonstrated that there
is no price influence then the price can be said to be “arms length”.

38
The phrase “arms length” is described in the Organisation for Economic Co-operation and
Development (OECD) Transfer Pricing Guidelines for Multinational Enterprises and Tax
Administrations. It refers to a transaction between related parties where it has been established that the
relationship did not affect the price. In other words, the buyer was not offered a more favourable price
because of his/her relationship with the seller.

Test Values – in Article 1.2 (b) of the agreement, is considered as one of the ways in which an importer
can demonstrate that a price has not been influenced is through a series of tests which are listed in
Article 1.2 (b).

As per Article 1.2(b) whenever the importer demonstrates that such value closely approximates to one
of the following occurring at or about the same time:

(i) The transaction value in sales to unrelated buyers of identical or similar goods for export to the same
country of importation;

(ii) The customs value of identical/similar goods as determined under the provisions of Art.5;

(iii) The customs value of identical/similar goods as determined under the provisions of Art.6;

In applying the foregoing tests, due account shall be taken of demonstrated differences in commercial
levels, quantity levels, the elements enumerated in Article 8 and costs incurred by the seller in sales in
which the seller and the buyer are not related that are not incurred by the seller in sales in which the
seller and the buyer are related.

Where the declared value “closely approximates” to the test value selected for comparison, the declared
value may be accepted as the transaction value of the goods being valued. The test values should only
be used for comparison purposes; they cannot be used as ‘substitute’ values.

The term “closely approximates” in Paragraph 2 of the Interpretative Notes to Article 1, states that
the importer has the opportunity under paragraph 2(b) of Article 1 to demonstrate that the transaction
value closely approximates to a test value previously accepted by the Customs administration.

The Interpretative Note to Article 1.2(b) lists a number of factors which must be taken into account in
determining whether one value closely approximates to another.

(a) The nature of the goods (e.g., perishables, high technology goods, novelty items etc.);

(b) The nature of the industry (e.g., high technology, video games and toys, chemicals etc.);

(c) The season in which imported (e.g., fruits and vegetables, apparel, seasonal activity equipment
such as skiing etc.);

39
(d) Whether the differences in value are commercially significant. A large difference involving a
certain type of good may be acceptable whereas a small difference in value in a case involving another
type of goods may not be acceptable in determining whether the transaction value closely approximates
to one of the test values.

It is important to understand that these factors vary from case to case and the setting of standards should
not be attempted.

In sum, after verification of the declared value declared by the importer, if the customs is not satisfied
with the justifications given by importers and maintains a reasonable doubt, the declared value [or the
transaction value] can be rejected as per the provisions in the WTO-ACV. Once the transaction value
is NOT accepted by customs, the agreement lays down the rest five alternative valuation methods to be
applied in sequential order based on an objective and quantifiable data.

40
Figure 1: Related party transaction

Operation Sheet

Procedures to be followed in using transaction value method to establish customs value:

First step: Check whether there is sale or no for specific consignment you are trying to establish value
for.

Second step: Check whether there are restrictions,conditions and considerations, proceeds and related
party transaction affecting the price of the goods.

Third step: Check whether all the adjustments are included in the price actually paid or payable

Fourth step: Establish customs value by adding all the adjustment to the commercial value if the
adjustments are not already included in the invoices.

Job Sheet/LAP test (Learning activity performance)

Example One: An importer of motor vehicles in commercial quantities in your country has received a
new shipment. The importer’s commercial documents reveal that an arrangement had been made by the
importer with the exporter for a special waxing compound to be applied to the vehicles prior to export
to protect them from sea spray and the salt air. The charge for this service is invoiced separately to the
commercial invoice for the imported motor vehicles.

Question: How would you treat the waxing compound for customs value purposes ?

Answer

The waxing compound is coated onto the motor vehicles for their protection during carriage by sea to
the country of importation and has been arranged by the importer with the exporter.Therefore, the
waxing compound cost will form part of the price actually paid or payable by the importer to the
exporter and also form part of the customs value of the imported motor vehicles.

Example two: Ten color television are being imported imported by a given importer with a unit price
of 1000 USD. The total amoun is 10,000 USD. But, the importer paid only 8,000 because of credit for
two faulty shipment on the previous shipment.

Instruction: Determine customs value based on the above imformation bearing in mind the transaction
value method

Answer

This invoice contains a reduction in the price of the imported goods on the basis of a credit for faulty
goods contained in a previous shipment.As the credit claimed relates to a previous shipment, it cannot
be a reduction for this shipment, as the price actually paid or payable for the goods in this shipment is

41
the line value of 10,000 c.u. Therefore, on the face of this invoice, the customs value is 10,000 c.u.
CIF. If your country operates at a FOB level, the actual costs for the overseas freight and insurance will
have to be obtained from the importer or shipping company in order to determine the customs value at
the FOB level.

Example three: Ten color television are being imported imported by a given importer with a unit price
of 1000 USD. The total amoun is 10,000 USD. The importer paid 200 USD and 500 USD for insurance
and freight on separate invoice respectively.

Instruction: Establish customs value of each television.

Answer: For a country using CIF as duty paying value, insurance and freight amounts should be added
to the price actually paid or payable since they are invoiced separately than the price of the goods. Thus,
the total price for the shipment is 10,700 USD.

Example four: An importer imported 1200 pieces of electronic scales with unit price of 12.5 USD. The
supplier offered the importer 10% discount for this transaction.

Instruction: Determine customs value based on the above imformation.

Answer

In order to determine a customs value for this shipment, consideration must be given to the unidentified
discount. The importer must be consulted in regard to what type of discount it is in order for you to
establish if it is legitimate and therefore a reduction in the line price. The type of discount must be
supported by objective and quantifiable data.If your country operates at a FOB level, on the fact of the
invoice information, the customs value would be USD13,500.00 if the discount is deemed to be
legitimate. If not, the FOB customs value would be USD15,000.00. You will note that the invoice is
at the FOB level.

If your country operates at a CIF level, information regarding the overseas freight and insurance must
be obtained from the importer or shipping company in order to establish the actual costs to be added.

Assessment criteria:

▪ The trainee should determine correct customs calue using transaction value method considering
all the information inkling the legal framework of the country.

Assessment Method

• Exercise
• Exams including quiz

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Unit Three

3. Alternative Methods of Valuation

Descriptor/objective:

When there is no transaction value or the transaction value is rejected, the five alternative methods
can be applied in a sequential order. Only the deductive and computed value methods can be considered
in reverse order if the importer makes such a request under Art.4. However, like Ethiopia, developing
Countries may have reservation in their National Customs Law so that customs not to reverse the order
of Art.5 & 6. This chapter discusses about implementation of the five alternative valuation methods in
determining customs value and associated articles of valuation agreement.

Learning Outcomes:

At the end of this unit the trainees/you will be able to:

• Apply transaction value of identical goods valuation method in determine customs value.
• Apply transaction value of similar goods valuation method to establish customs value.
• Implement deductive value method in valuing goods in international trade
• Use computed value method to determine customs value of imported goods
• Apply fallback method to establish customs value.

Content outline:

• Transaction Value identical goods method

• Transaction value of similar goods valuation method
• Deductive value method
• Computed value method
• Fallback method
• Training delivery method:
• Gapped lecture
• Group discussion
• Practical activities

Information Sheet

• Five Alternative Methods (Art 2-7) are:-

1. The Transaction Value of Identical Goods(Article 2);
2. The Transaction Value of Similar Goods(Article 3);
3. The Deductive Value Method(Article 5);
4. The Computed Value Method(Article6);
5. The Fallback Method (Article 7).

Article 4 in WTO-ACV is not a method of valuation, but provides the means for an importer to request
the reversal in order of Articles 5 and 6. This provision is absent in Ethiopian C.P.859/2014. All the

43
above alternative methods are stipulated in Ethiopian C.P.859/2014 are compatible with the WTO-
ACV.

In applying the alternative methods, the following points should be considered:

➢ These must be used in the order specified by the Proclamation, i.e., only if Art. 1 (Art. 90 of CP) is
found to be inappropriate can consideration be given to Art. 2 (Art. 91 of CP), and so on.
➢ Where an alternate method of valuation has been applied, the Article used to determine the customs
value of the imported goods must be able to be justified and the importer must be informed of the
decision and the supporting reasons.
➢ When customs using of the alternate methods must never result in an arbitrary or fictitious value.
➢ When the alternate methods are used, Customs administrations and the importer should consult with
a view to efficiently determining the correct value for Customs purposes.
➢ The importer and anyone directly or indirectly involved in the importation concerned, whether they
relate to the goods being valued or, to identical or similar goods, must provide Customs with all the
necessary supporting documents and information.

Among the alternative methods of customs valuation, both identical and similar goods are almost the
same in their application, except in some differences. Hence, here by in this four part of the module,
they are covered in altogether.

3.1. Transaction Value of Identical Goods (Article 2)

DEFINITION:

As per Article 15(2) (a) of the agreement, “identical goods” means goods, which are the same in all
respects including physical characteristics, quality, reputations and country of origin. However, minor
differences in appearance (in colour, size or labelling, etc.,) do not preclude goods otherwise
conforming to the definition from being regarded as identical. The identical goods have also been
defined similarly in clause 20 of Art. 2 of Ethiopian C.P.859/2014.

APPLICATION OF ART.2

Where transaction value cannot be determined under Art.1 (Art. 90 of CP) for the goods being valued,
customs value shall be the transaction value of identical goods sold for export to the same country of
importation and exported at or about the same time as the goods being valued. [Art.2]

In applying this method, it is necessary to consider the following relevant factors:-

44
 ✓ The Transaction value of identical goods Previously accepted by customs .[Art. 2] (Art. 91 of
CP),
✓ The identical goods are produced in the same country as the goods being valued,
✓ They are sold for export to the same country of importation ,
✓ They are sold for export at about the same time,
✓ They are sold at the same commercial level and in substantially the same quantity 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 satisfied:-

1. A sale at the same commercial level(e.g. whole sale or retailer) but in different quantities;
2. A sale at a different commercial level but in substantially the same quantities, or
3. Sale at a different commercial level and in different quantities

Having found a sale under any one of these three conditions, adjustments will then be made, as the case
may be, for:

(a) Quantity factors only;

(b) Commercial level factors only; or

(c) Both commercial level and quantity factors.

Therefore, if the commercial level or quantity is not the same, necessary adjustments should be made
to compensate for any differences based on either of the above three conditions.

3.2. Transaction Value of Similar Goods (Article 3)

DEFINITION:

As per Article 15(2)(b) of the Agreement similar good are defined as follows:

“Similar goods” means goods which although not alike in all respects, have like characteristics and
like component materials, perform the same function and to be commercially interchangeable and the
quality, origin, reputation and the trade mark of which are among the factors to be considered in
determining their similarity. Similar goods are also defined in Art.2 (21) of the Ethiopian CP.859/2014
Article 92 in line with WTO-ACV

APPLICATION OF ART.3

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If customs value of the imported goods cannot be determined under the provisions of Art.1 & 2, the
customs value shall be the transactional value of similar goods sold for export to the same country of
importation and exported at or about the same time as the goods being valued.[Art. 3]

In applying this method, like identical goods, it is necessary to consider the following relevant factors
[it is also similar in Art. 2] (Art. 91 of CP):-

✓ The Transaction value of similar goods Previously accepted by customs,

✓ The similar goods are produced in the same country as the goods being valued,
✓ They are sold for export to the same country of importation ,
✓ They are sold for export at about the same time,
✓ They are sold at the same commercial level (where possible) and in substantially the same
quantity (where possible) as the goods being valued.

Where no such sale is found, a sale of Similar goods that takes place under any one of the following
three conditions may be satisfied:-

1. A sale at the same commercial level(e.g. whole sale or retailer) but in different quantities;
2. A sale at a different commercial level but in substantially the same quantities, or
3. Sale at a different commercial level and in different quantities

Having found a sale under any one of these three conditions, adjustments will then be made, as the case
may be, for:

(a) Quantity factors only;

(b) Commercial level factors only; or

(c) Both commercial level and quantity factors.

Therefore, if the commercial level or quantity is not the same, necessary adjustments should be made
to compensate for any differences based on either of the above three conditions.

Other Relevent Factors In Application Of The Art2. And Art.3

In addition to the above relevant factors, there are other five relevant factors to be considerer in applying
identical goods and similar goods. These factors are;

(a) Origin

(b) Time factor

(c) Commercial level and quantity

(d) Adjustments

(e) Choosing the correct value

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(a) Origin

According to the WTO-ACV, goods cannot be regarded as identical or similar “unless they were
produced in the same country as the goods being valued”. Here, it should be noted that the term country
of exportation is different from the country of manufacturing of the imported good. Hence, the main
factor to compare using Art.2/3 is country of origin of the imported goods.

(b) Time factor

The comparison must be based on identical or, failing that, similar goods “exported at or about the
same time”. The aim is to ensure that the period between the time of exportation of the identical or
similar goods and the time of exportation of the goods being valued is short enough for the economic
and commercial conditions to have remained essentially the same. This period is generally set by
Customs administrations at three months, but it is a matter for individual countries.

Question: in this case, what is the time interval set in Ethiopia?

(c) Commercial level and quantity

Wherever possible, reference is made to a sale of goods “at the same commercial level and in
substantially the same quantity as the goods being valued”. In the absence of such sales, reference may
be made to a sale of identical or, failing that, similar goods realised in any of the following situations:

1) A sale at the same commercial level, but in different quantities;

2) A sale at a different commercial level, but in substantially the same quantities;
3) A sale at a different commercial level and in different quantities.

In these three cases, adjustments must be made to compensate for any differences regarding the levels.
Thus, if the only imported goods for which a transaction value exists were sold in a quantity greater
than that of the goods being valued, an adjustment may be made by referring to the exporter’s price for
a sale in a quantity comparable to that of the goods being valued.

(d) Adjustments

The transaction values that are to be used when determining a customs value under Art. 2 or 3 (Art. 91
or 92 of CP) must have been established in accordance with Art. 1 and 8 of WTO-ACV. (Art. 90 and
96 of CP).

Accordingly, adjustments must be made to take into account any differences between the goods being
valued and the identical or similar goods that relate to such costs as transport, insurance, and loading or
handling. It also should be made on the basis a relevant and reasonable evidence for adjustment.

Thus, in considering these methods, it is not possible to regard as identical or similar goods which
incorporate or reflect engineering, development, artwork, design work, and plans and sketches for
which no adjustment has been made under Art. 8 (Art. 96of CP).

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(e) Choosing the correct value

According to the WTO-ACV, Where more than one transaction value for identical or similar goods is
identified, the customs value of the goods being valued will be based on the lowest value shipment.

In applying choosing the correct value using these methods, an importer can follow either of the
following two ways: Consultation with customs using the valuation advice system (i.e. Pre-arrival of
the imported goods), or at the importer’s own initiative. However, it should be note that the decision of
the correct value is customs responsibility. However, in some developing countries including Ethiopia,
average value is usually chosen for comparison purpose and decision of calculation of duty payable
value if there is no objective and quantifiable data that restrict to take this average value.

3.3. Deductive Value Method (Article 5)

DEFINITION:

Deductive value Method is a method used to determine the customs value of imported goods based on
the unit price at which the imported goods are resold by the importer to unrelated persons in the country
of importation and adjusted by deducting all necessary costs, expenses and duties & taxes which are
associated to the imported goods & are incurred after importation. (See: WTO-ACV, Article 5 & Note
to Article 5)

In short, it is defined as the unit price at which the importer sells the imported goods to his customer in
the country of import minus his markup for profit and other expenses, including duties and taxes, related
to sale and delivery of the goods to his customer.

The unit price is that at which the imported goods, or identical or similar imported goods, are sold, in
the greatest aggregate quantity, at or about the time of importation of the goods being valued, to persons
who are not related to the importer from whom they buy such goods.

Application of Deductive Method:

 In strict hierarchical order, the next method considered after the transaction value is Article 2
i.e. the transaction value of identical goods & then Article 3, the transaction value of similar
goods. It is only when a value cannot be determined using Articles 1, 2 or 3, that Article 5, the
deductive method is considered.
 Article 5 of the Agreement provides that when the previous methods cannot be applied, the
value will be determined on the basis of the price at which the imported (or identical or similar)
goods are sold to unrelated buyers in the country of importation.
 Prior to consideration of Article 5, Article 4 may be utilised by the importer. Article 4 is not a
method of valuation, but provides the means for an importer to request the reversal in order of
Articles 5 and 6. That is, the importer may request the customs value of the imported goods to
be considered under Article 6 before Article 5 when a value cannot be established under Articles
1, 2 or 3. Subsequent to that request, if a customs value cannot be established under Article 6,

48
 Article 5 would then be considered. However, Developing Countries may have reservation for
Art. 4 in national Law.
 Under Article 5, the customs value is based on the unit price at which the imported (or identical
/similar) goods are sold, in the condition as imported, in the greatest aggregate quantity in the
country of importation. The sales to be considered must be between unrelated parties and they
must occur at or about the time of importation of the goods being valued.
 The deductive method involves the deduction of certain costs from the post importation unit
price to establish an appropriate price on which to base your considerations in order to
determine a customs value for the goods being valued.

The deductions for the purposes of Article 5 must have actually been incurred. They are:

1) Either commissions or profit and general expenses;

2) Cost of post importation transport and insurance;
3) Costs and charges of Article 8.2 as appropriate;
4) Customs duties and taxes payable in the country of importation.

Requirements for the application of Deductive Method

In applying this method, the following requirements are to be considered:

➢ There must be a sale in the domestic country of importation of the imported goods, or of
identical or similar goods at or about the same the date of importation of the goods being valued.
➢ When the imported goods or identical or similar goods sold at domestic market, it should be in
the same condition as they were when first imported.
➢ The resale to be taken must be to an unrelated buyer, at first commercial level after importation.
➢ The unit price from which deductions will be made is the price at which the greatest aggregate
quantity (greatest number of units) have been resold.
➢ Any sale in the importing country to a person who supplied an assist (Art.8.1(b)) to the seller
should not be used.
➢ If there is no sale of the imported goods, or identical or similar goods, at or about the date of
importation of the goods being valued, such a sale which occurs at the earliest date after
importation, but before the expiration of 90 days after the importation

The deductive method cannot be considered if the imported goods are either:

❖ used by the importer and not resold; or

❖ resold for export; or
❖ Sold too far into the future.

Key elements to the application of deductive method

There are three key elements to the deductive method, which includes:

49
 1) Selecting the appropriate price;
2) The time of sale and condition in which the goods being valued, or identical or similar goods,
are sold;
3) The greatest aggregate quantity.
1) Selecting The Appropriate Price
 In Article 5, for valuation of goods, the sale of the imported goods will be the focus, to the
greatest extent possible.
 If there are still on-going sales of identical or similar imported goods, Article 5 allows Customs
to refer to those sales (where relevant) so long as the identical or similar goods have been
imported at or about the time of the goods being valued.
 The selecting of such resale price depends on the availability of sales and of the information
regarding those sales.
 This is also dependent on the sales of the identical or similar goods being sold to unrelated
parties, that is, between the importer and the domestic buyer.
2) Time of Sale and Conditions

The goods must also have been sold “in the condition as imported” (Article 5.1(a)). So, there are two
further elements to be considered when applying the deductive methods, which are:

i. the time when the imported goods (or identical or similar) were sold; and
ii. The condition in which they were sold.

For example: Removing packing or repacking No Bar. In this regard, there are two time frames and
three different conditions that must be considered. Since both elements are considered together, for
ease of reference they will be referred to as “conditions”.

CONDITION 1

(i) The phrase “in the condition as imported” in Article 5.1(a)

The goods should be sold in their condition as imported. Removing the overseas export packing or
simple re-packing for the domestic market would not change the imported condition of the goods.
Natural changes such as evaporation, shrinking, normal weathering etc. would also not change the
condition of the goods.

 For example, for the purposes of Article 5.1(a), further processing of the goods after importation
and before their sale to the unrelated buyer, would not then be the goods “in the condition
as imported”. This circumstance might lead to the opinion that, if the imported (or identical or
similar) goods have had further processing, Article 5 would not be appropriate.
 The Agreement however provides certain flexibility

(ii) TIME:

 “At or about the time” in regard to the importation of the goods being valued should include
some reasonable time before importation and some reasonable time after importation. That is,
the goods must be sold at or about the date of importation of the goods being valued. There is

50
 however no fixed time frame under this consideration of Article 5.1(a) in the Agreement, and
each importation will be decided on a case by case basis.
 Therefore, “at or about the time” would include in practice, a period of time before importation,
the day of importation and, a period of time after importation.
 National valuation law may define this phrase in terms of particular time lines.

Question: what is time frame in customs law in the case of Ethiopia?

CONDITION 2

(i) Imported goods relevant to this condition would also have the same “condition as imported”
requirement as described under Condition 1.
(ii) TIME: The difference between Condition 1 and 2 is the time line requirement.
 Article 5.1(b) provides that where there are no sales of the imported goods to be valued (or
identical or similar), sold in condition as imported at or about the time of import of the goods
being valued, one should consider the price at which the imported, (or identical or similar)
goods are sold in the required condition at the earliest date after importation but, before the
expiration of 90 days after such importation.
 However, Article 5.1(b) can only be used if it is impossible to find appropriate and acceptable
unit prices under Article 5.1(a) at importer request
 “earliest date” will be the date on which a sufficient quantity of the imported, (or identical or
similar) goods has been sold “to establish the unit price”.
 “sufficient quantity” will need to be decided on a case by case basis. This will be the case
especially where the full shipment is not sold at the one time. For Example, the goods are sold
on a seasonal basis when a significant quantity would be sold during the in-season and less in
the off-season.
 This time frame allows Customs administrations to wait until the imported goods are sold if
they are not sold at or about the date of import. This does not however apply only to the
imported goods but also, if there are no sales of identical or similar goods at or about the date
of import.

CONDITION 3

 In the previous two conditions, the deductive value method was based on imported goods when
they are resoled as is in the same condition in which they are imported.
 Article 5.2 provides for the valuation treatment of “goods further processed after import”
while still using the deductive method of valuation.
 This is known as the “super-deductive” method, which allows importer to value based on
this method provided that a value (allowance) can be added for the value of imported good as
result of the post importation processing or manufacture.
 This amount of value added after importation would then be another cost deducted from the
resale price.
3) Greatest Aggregate quantity
 A key phrase and condition under Article 5, is “unit price at which … goods are sold in the
greatest aggregate quantity”. That is taken to be the price at which the greatest number of units

51
 is sold to persons who are not related to the persons from whom they buy such goods at the first
commercial level after importation at which those sales take place.
 To determine the greatest aggregate quantity, all sales at a given price are taken together and
the sum of all the units sold at that price is compared to the sum of all the units sold at any other
price. The greatest total number of units sold at any one price represents the greatest aggregate
quantity.
 Even though Article 5 allows for consideration of the imported goods, (or identical or similar),
this method, when used, is generally applied in relation to the imported goods being sold in the
country of importation. If however, there are sales of identical or similar goods occurring,
Customs may refer to those rather than waiting for the sale of the imported goods.
 The first level of sale however, may not be the same in all cases. This has to be established in
order to identify the appropriate unit price.


Legal Deductions

After the appropriate unit price (or selling price) has been established, certain deductions are to be made
in accordance with Article 5.1(a) and these are:

1) the usual costs of transport, insurance and associated costs within the country of
importation;
2) Article 8.2 costs where appropriate;
3) The customs duties and other national taxes payable in the country of importation;
4) Usual commissions or usual profit and general expenses
1) Post Importation Transport and Insurance Costs:

These costs occur in the country of importation after the physical act of importation and cover the
freight, handling and delivery costs from the place of importation to the place of delivery.

2) Article 8.2 costs & charges:

FOB or CIF systems are generally applied by the importing countries. As result, the deduction made is
different base on the FOB or CIF system application.

The deductions relevant to FOB countries are:

 the cost of transport to the place of importation (that is, overseas freight);
 loading, unloading and handling charges associated with the transport of the goods to the place
of importation;
 Insurance costs (overseas/marine).

However, In the case of CIF countries (e.g. Ethiopia) the costs incurred after importation will be
deducted. National legislation treatment of the costs of Article 8.2, will determine whether they form
part of the customs value of the imported goods or not.

52
3) Customs Duties and Other National Taxes:
 Customs duties and other national taxes (e.g., GST/VAT etc.,) payable in the country of
importation by reason of the importation or sale of the goods, will not form part of the customs
value of the goods, and therefore, under Article 5.2, will be a deduction.
 Customs duties and taxes also includes any anti-dumping or countervailing duties which may
also have been imposed.(Advisory opinion 9.1)
 It should be noted also that the customs duties to be deducted are those actually paid by the
importer and not necessarily those added by the seller (the importer).

4) Commission or Profit and General Expenses:

 Deductions will also be made either for the usual commission or for the importer’s profit and
general expenses.
 If a deduction is made for a commission, then, a deduction cannot be made for profit and general
expenses, or vice versa.
 When the goods have been sold in the country of importation on an agency/commission basis,
the commission will be deducted. When they are sold in a straight forward sale, then profit and
general expenses will be deducted
 Where the importer’s amounts differ from the amounts usually added in that trade, you would
base the Article 5 deduction on the usual trade amounts and not the importer’s. (e.g. use industry
associations or trade surveys price sources)
 The amount of commission or profit and general expenses to be deducted from the unit price
should be consistent within the amount of commission or profit and general expenses usually
added in the sale of goods of the same class or kind.
 Goods are considered to be of the same class or kind if they fall within a group or range of
goods produced by a particular industry or industry sector, and includes identical or similar
goods. However, a requirement to consider in such goods is the fact that these goods have been
imported, but the country of export or origin is not relevant. (Art.15.3 of WTO-ACV)

Conclusion:

In calculation the customs value using deductive value method, we can explain it in short formula, here
as it follows below:-

Case 1: when the goods are sold in their condition as imported.

o DPV (Customs Value CIF in ETB) = DMP – (PFM + EXP + DTX )

Case 2: when the imported goods are sold after further processed in country of importation.

53
 o DPV (Customs Value CIF in ETB) = DMP – (PFM + EXP + DTX + ADD)
• Where,
• DPV = Duty Paying Value or Customs Value
• DMP = Domestic Market Selling Unit Price
• PFM = Commission or Profit From Sale
• EXP = Commission or Profit From Sale
• DTX = Domestic General Expenses
• ADD = Additional value resulting from the subsequent processing of the goods
• CIF = Summation of the FOB value, Insurance costs, freight costs and other charges
and costs.

3.4. Computed Value Method (Articles 6)

DEFINITION

The computed method is based on the cost of production and the price is built up to determine a customs
value to the point of importation (CIF) or exportation (FOB). (Articles 6). When it is not possible to
determine the customs value of imported goods under Articles 1, 2, or 3, the next step is to use either
Articles 5 or 6. Article 4 provides the means for an importer to request Articles 5 and 6 to be considered
in reverse order.

Whereas the deductive method (Art. 5) works backwards from the sale price of the imported (or
identical or similar) goods after Customs clearance in the country of importation, the computed method
(Art.6) is based on the manufacturer’s production costs and his usual profits & expenses, and then the
price is built up to determine a customs value to the point of importation (CIF) or exportation (FOB).

In short, under Article 6 the customs value can be calculated by adding the costs of components, material
etc., the freight charges etc., plus the percentage addition for profit and general expenses.

Key Factors in application of computed value Method

In applying this method, the following relevant factors should be considered:

▪ The customs value is determined on the basis of information readily available in the country of
importation,
▪ The use of this method is general limited to those cases where the buyer and seller are related.
▪ The producer of the goods is prepared to supply the authorities in the country of importation the
necessary costs and related information for any subsequent verification,
▪ Information on the costs pr value of the imported goods is to be based up on the commercial
accounts of the producer, and those accounts must be consistent with GAAP.
▪ Information on the amount for profit and general expenses must be consistent eith that usually
reflected in sales of the goods of the same class or kind as the goods being valued.

Article 6.1 & Article 6.2.

Article 6.1 states: The customs value of imported goods under the provisions of this Article shall be
based on a computed value.

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Article 6.2 states: it is not possible to require or compel any person who is not resident in the country
of importation to produce information in order to verify a customs value determined under this method.

Article 6.1:

States as a computed value shall consist of the sum of

• Article 6.1(a) The cost or value of materials and fabrication or other processing employed in
producing the imported goods;
• Article 6.1(b) An amount for profit and general expenses equal to that usually reflected in sales
of goods of the same class or kind as the goods being valued which are made by producers in
the country of exportation for export to the country of importation;
• Article 6.1(c) the cost or value of all other expenses necessary to reflect the valuation option
chosen by the Member under Article 8.2.

Article 6.1(a) (i) Cost of Materials:

Materials should include items used in the production of the Imported goods, such as:-raw materials,
components or parts, subassemblies; and -costs of transporting the raw materials etc. from their source
to the place of manufacture.

Materials should not include: such as any recoverable amounts for either scrap or waste; the amount of
any internal tax imposed by the country of production that is directly applicable to the materials or their
disposition if the tax is remitted or refunded upon exportation of the finished goods.

Article 6.1(a) (ii). Fabrication And Other Processing Costs

Fabrication and other processing costs include:

• all costs for labour;(e.g. wages &benefits paid to employers in production process)
• all assembly costs relevant to the production process;
• machinery costs relevant to the production process;
• Overhead costs such as indirect labor costs ( e.g. Salaries or overtime, wages & benefits paid
to plant supervisor, plant maintenance, and other factory workers not directly involved in
production), indirect materials(e.g. Additives and catalysts), depreciation cost of factory
building &equipment, electricity & utilities used to operate the factory, and insurance, taxes on
the factory property.

Art.6.1 (b) Profit And General Expenses:

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 • This should be equal to amount reflected in goods of same class and kind made in the country
of exportation for export to the country of importation.
• The amount should be determined on the basis of information supplied by the producer (or on
his/her behalf) if consistent with those usually reflected in sales of goods of the same class or
kind as the goods being valued .(Note to Art.6.4)
• When the profit and general expenses are taken together they may be consistent with sales of
goods of the same class or kind failing which the amount may be based upon relevant
information from another source.
• “General expenses” covers the direct and indirect costs of producing and selling the goods for
export which are not included under paragraph 1(a) of Arti6. [note to Art.6.7]

Art 6.1(c) Expenses Relevant To Article 8.2

When considering Article 6, the treatment of element listed in Art. 8.2 (transport, insurance costs etc.,)
depends on the valuation option chosen by the country of importation. In other words, if it has chosen
to include these elements in the customs value when determining a value based on Article 1 then they
should also be included in a customs value determined under Article 6. Conversely, if it has chosen not
to include them under Article 1, they should not be included in a value determined under Article 6.

Therefore, the cost or value of delivery expenses, transportation from the port of loading to the place of
importation, including loading, unloading and handling to the transportation of the imported goods, and
insurance are to be included in the computed value when the basis for customs value is in CIF.

Additional Elements

The Interpretative Note to Article 6.3 states that the “cost or value” referred to in Article 6.1(a) will
include the cost of the following elements (those costs described in Art.8.1):

❖ the cost of containers which are treated as being one, for Customs purposes, with the goods in
question -Article 8.1(a)(ii)
❖ the cost of packing for labour or materials (Article 8.1 (a) (iii));
❖ Cost elements (assists) specified in Article 8.1 (b) - which were supplied by the buyer, directly
or indirectly, free of charge or at a reduced cost for use in connection with the production of the
imported goods. (e.g.Materials,tools, dies, engineering, design, sketch...etc)
❖ The value of cost elements (assists) specified in Article 8.1(b) (iv) undertaken in the country of
importation when they have been charged to the producer.

N.B.: No cost or value shall be accounted twice in determining the computed value.

Article 8.1(B) (Iv) Cost Elements (“Assists”)

According to this provision, the cost or value, apportioned as appropriate, of the goods and services
including the engineering, development, artwork, design work, and plans and sketches undertaken
elsewhere than in the country of importation and necessary for the production of the imported goods,

56
where supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection
with the production and sale for export of the imported goods, to the extent that such value has not been
included in the price actually paid or payable, shall be added to the price actually paid or payable for
the imported goods.

Example:

Where an importer supplies wood free of charge to be used to produce furniture, under Article 8.1(b)(i),
the cost or value of the wood must be included when determining the customs value under Article 6. If
the same importer also supplied the technical drawings to produce the furniture under Article 8.1(b)(iv)
and the drawings were undertaken in the country of importation, the cost or value to be included should
be based on the cost element charged to the producer.

In determining the cost or value of an “assist”, it may also be necessary, in certain cases, to apportion
that value. This would be the case especially with respect to tools, dies, moulds and similar articles
and, if the importer requested the apportionment.

Article 6.2

It states that “No Member may require or compel any person not resident in its own territory to produce
for examination, or to allow access to, any account or other record for the purposes of determining a
computed value.”

However, information supplied by the producer of the goods for the purposes of determining the
Customs value under the provisions of this Article may be verified in another country by the authorities
of the country of importation with the agreement of the producer and provided they give sufficient
advance notice to the government of the country in question and the latter does not object to the
investigation.”

Where it is not possible to carry out satisfactory verification of the information provided which meets
the above conditions then Article 6 cannot be used.

Limitations of Computed Value Method

• Information held by seller/manufacturer

• Information is Not accessible to importer
• Information is Not immediately available
• Reluctance of seller to part with information about profit margin.
• If importer can not provide information and customs also do not have this Rule becomes
inappropriate!!!

Generally, computed value method has a limited scope. It can be used only if the goods to be valued
are exporter’s goods. These are goods that are exported mainly directly by the producer, manufacturer,
etc, not through some intermediary. The essence of this method is to arrive at a value by working
through the producer’s own records of the costs of production. However, the overseas manufacturer’s
production costs information is not likely to be freely available, as it is bound to be considered highly

57
confidential by the manufacturer. Inaddtion, it can also be very difficult, even if the information is
available, due to the documents being in a foreign language; and different accounting conventions.

• As result, computed value is the least frequently used method and the most challenging method
of customs valuation for customs administrations.

3.5. Fallback Method On Valuation (Article 7)

The primary basis for determining the customs value of goods is the transaction value as defined in
Article 1, adjusted where necessary by the addition of the cost elements of Article 8. Where this method
cannot be applied, the alternate methods must be considered in sequential order.

When none of these methods can be used to determine a customs value for the imported goods the
Agreement provides that the “fallback” method of valuation shall be used. This method is covered under
Article 7 of GATT, 1994, and Contains three paragraphs: Article 7.1, 7.2 & 7.3.

DEFINITION (Article 7.1)

As per the Paragraph 1 of Article 7 of GATT (1994), “If the customs value of the imported goods cannot
be determined under the provisions of Articles 1 through 6, inclusive, the customs value shall be
determined using reasonable means consistent with the principles and general provisions of this
Agreement and of Article VII of GATT 1994 and on the basis of data available in the country of
importation”.

Unlike Articles 1 to 6, Article 7 is not strictly speaking and not a specific method of valuation. It would
be better described as a set of principles to be adhered to when determining the customs value of goods
using the fallback method. Article 7 offers parameters within which to apply more reasonableness and
flexibility in the customs value considerations

3.5.1. Key Factors of application of Fallback method (Article 7)

From the Art.7.1, there are three key factors relevant in applying the fall back method, includes:

(a) Using reasonable means,

(b) Consistency with the Agreement and Article VII of the GATT of 1994.

(c) On the basis of data available in the country of importation.

(a) Reasonable Means

The term “reasonable means”, as defined in the interpretive note to Article 7 states that “customs values
determined under the provisions of Article 7 should, to the greatest extent possible, be based on
previously determined customs values”. The Note recommends that the value arrived at should be the
result of a more flexible application of Articles 1 to 6, and that as far as possible, this reasonable flexible
application should be achieved by respecting the sequential order of those methods and in conformity
with the aims and provisions of Art.7.

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(b) Consistency with the Agreement and Article VII of the GATT

The principles of the Agreement include the following in particular:

➢ Absolute priority to be given to the transaction value of the imported goods;

➢ The valuation system should be fair, uniform and neutral;
➢ Use of simple and equitable criteria;
➢ Consistent with commercial practices.

The Principles Laid Down By Article VII Of The GATT (1994)

The principles of Art.7.1 are as follows:

➢ “value for Customs purposes should be based on the actual value of the imported goods on
which duty is assessed”, or failing that, the actual value of “like” goods;
➢ the actual value should be the price at which the imported goods, or “like” goods are sold “in
the ordinary course of trade under fully competitive conditions”;
➢ the value system must not be based on the value of goods of national origin, or on arbitrary
or fictitious values;
➢ The value for Customs purposes must “not include the amount of any internal tax,
applicable within the country of origin or export”, from which the imported goods have been
exempted or have been or will be relieved by means of refund.

(c) Using data available in the country of importation

Article 7 provides that customs value shall be determined “on the basis of data available in the country
of importation”.

However, under article 7 this need not be taken as ruling out the use of information from other countries.
The origin of such information does not prevent its use for the purposes of Article 7, provided that the
information is available in the country of importation and Customs is in a position to check that the data
is true and accurate.

Which method to apply?

In order to depart as little as possible from the text and the spirit of the Agreement, the Note recommends
that the value arrived at should be the result of a more flexible application of Articles 1 to 6, and that as
far as possible; this flexible application should be achieved by respecting the sequential order of those
methods.

For example, if the customs value can be determined by using both a fallback flexible application of
the transaction value of similar goods and by a fallback (flexible) application of the deductive method,
then the first of these two alternate methods must be used.

According to Note to Article 7 of the WTO-ACV, Some examples of reasonable flexibility of valuation
methods are as follows:

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(a) Identical goods - the requirement that the identical goods should be exported at or about the same
time as the goods being valued could be flexibly interpreted; identical imported goods produced in a
country other than the country of exportation of the goods being valued could be the basis for Customs
valuation; Customs values of identical imported goods already determined under the provisions of
Articles 5 and 6 could be used.

(b) Similar goods - the requirement that the similar goods should be exported at or about the same time
as the goods being valued could be flexibly interpreted; similar imported goods produced in a country
other than the country of exportation of the goods being valued could be the basis for Customs valuation;
Customs values of similar imported goods already determined under the provisions of Articles 5 and 6
of the WTO-ACV could be used.

(c) Deductive method - the requirement that the goods shall have been sold in the "condition as
imported" in paragraph 1 (a) of Article 5 of the WTO-ACV could be flexibly interpreted; the "90 days"
requirement could be administered flexibly.

In line with the WTO-ACV provisions above, in Ethiopia, the flexibility of valuation methods is
stipulated in the Customs Proclamation No 859/2014 Art. 95 and in Customs Valuation Directive
No.158/2011 E.C. Article 12.

3.5.2. Restrictions of Article 7.2

The flexibility which is referred to in the first paragraph of Article 7, has limitations placed upon it by
the second paragraph of the Article (i.e. Article 7.2). Accordingly, customs value determined under
fallback method (Art.7) on the basis of either of the following methods is prohibited:

(a) The selling price in the country of importation of goods produced in that country. Article VII of
the GATT itself forbids all reference to the value of goods of national origin;

(b) A system which provides for the acceptance for Customs purposes of the higher of two alternative
values. Therefore, it is not permitted, even using a flexible application of the identical or similar goods
methods, to take the higher value in cases where two values are available;

(c) The price of goods on the domestic market of the country of exportation. This then excludes the
possibility of referring to databases or price lists used in, or printed in publications for the country of
exportation;

(d) The cost of production, except in the case of computed values which have been determined for
identical or similar goods under the computed value method (Article 6). As stated previously, the
valuation of imported goods under Article 7 must be based on data available in the country of
importation;

(e) The price of goods sold for export to a country other than the country of importation.

Articles 1 to 6 refer only to the price of goods which are sold for export from the same country of
exportation to the country of importation. A reference can be made to the sale of identical or similar

60
goods from a country whose economic development is comparable to that of the country of exportation
of the goods to be valued. It does not provide for reference to another country of importation;

(f) “Minimum customs values”:

Annex III of the Agreement does, however, allow developing countries that, prior to implementing the
Agreement, had been using a system which allowed the valuing of goods on the basis of officially
established minimum values, to make a reservation enabling them to retain the use of such values for a
limited and transitional period;

(g) “Arbitrary or fictitious values”.

This excludes the use of any system of valuation which is not based on genuine commercial practices,
that is, actual sales, with actual prices or actual amounts of costs, expenses, profits, commission, etc.

Decision In Writing (Article 7.3)

Paragraph 3 of Article 7 states that “If the importer so requests, the importer shall be informed in writing
of the customs value determined under the provisions of this Article and the method used to determine
such value."

This provision is needed because Article 7 is not a precise method of valuation. In these circumstances
an importer may be unaware of how Customs valued the imported goods.

However it should be noted that for the application of Article 7, it is always preferable that Customs
and the importer co-operate and agree upon the most appropriate method in order to proceed with the
valuation of the imported goods.

Conclusion

❖ In applying the fallback method, the importer (or customs administration) should review the use of
valuation methods from the first method up to the fifth method of valuation, with reasonable flexible
interpretation. The flexible interpretation includes: the time frame and country of origin.
❖ A reliable price database sources, such as catalogues and websites can be used as the basis for
calculating the customs value using this method.
❖ In addition, a definite formula with multiplication factors can be used for such calculation.

Operation Sheet

Procedures to be followed to establish customs value using alternative valuation methods:

First step: Check the availability of transaction value of identical or similar goods from previous
transaction for transaction value of identical and similar goods valuation methods. Check availability
of market price and necessary documents for deductive value method.

Second step: Make necessary adjustments for quantity and commercial level.

Third step: Choose correct value from alternatives using weighted average.

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Job Sheet/LAP test (Learning activity performance)

Required Information

Practical Examples of Identical and Similar Goods Method

Example No.1: In different shipments, two importers imported, steel sheets of identical chemical
composition, finish and size, imported for different purposes. That is: the first importer used for
automobile assembling bodies and the second importer for used for Furnace Liner.

Question: Are they identical or similar goods?

Answer for Example 1:

They are IDENTICAL GOODS. This is because definition of Art. 15 of WTO-ACV. Accordingly, end
use of the goods is not relevant. Therefore, even though they are used for different purpose, the sheets
are considered as identical goods.

Example No.2: Inner tubes imported from two different manufacturers. Rubber inner tubes in the same
range of sizes are imported from two different producers, both located in the same country of export.
While each producer uses a different trademark, the tubes made by both are to the same standard, are
of the same quality, enjoy equivalent reputations and are used by motor vehicle manufacturers in the
country of importation.

Question: is it identical or similar?

Answer for Example 2

As the inner tubes bear different trademarks they are not the same in all respects and should not be
regarded as identical. However, they do have like characteristics and component materials which enable
them to perform the same functions. As the goods are made to the same standard, are of the same
quality, have equivalent reputations and carry trademarks, they should be considered similar, even
though the trademarks are different.

Question: is it identical or similar?

Example No. 3: You are dealing with a shipment of 1700 units shipped by supplier E imported by a
wholesaler at a unit price of 4 c.u. It is not possible to establish a transaction value under the provisions
of Art.1 (Art. 90of CP). You know that 2300 units of an identical product have been sold to a wholesaler
by supplier F at a unit price of 4.75 c.u. You have a copy of F’s price list, the authenticity you have
established and according to which the price varies with the quantity purchased. That is, For less than
2000units the price is 5 c.u., whereas when 2000 or more units are bought the price is 4.75 c.u.

Can you determine a value under Art.2 (Art. 91 of CP) and, if so, is an adjustment required?

Answer to Example 3

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YES, an adjustment is required for quantity. Customs value for the imported good is5 c.u. Since
the price of the identical goods varies according to the quantity purchased and the quantity of the
identical goods imported is different, you need to make an adjustment as follows:

If <2000 units = 5 u.c & if ≥2000 units= 4.75 u.c . Then for 1700 units = 5 u.c

Example 4: You have a wholesaler who imports 2500 units for which Article 1 cannot be used. You
can produce a customs declaration for 1500 units of identical/ similar goods imported by a retailer which
has been accepted by customs under Article 1. The customs value is 2.5 c.u per unit in CIF. It has been
established that the supplier of the identical /similar goods sells at different prices depending on the
quantity ordered. A 20% discount is also given to wholesalers. Further, the price list shows that for less
than 2000 units the price is 2.5 u.c and 2000 units or more the price is 2 c.u per unit.

Can you determine a value under Art.3 (Art. 92 of CP) and, if so, is an adjustment required?

Answer to Example 4

YES! An adjustment is required for quantity & commercial level.

Quantity adjustment: - The price list shows that the price of 2500 units is 2 c.u per units therefore
the value of the identical/similar goods must be decreased by 0.5 c.u per unit.

Commercial level adjustment:- The wholesaler receives a 20% discount therefore the value of the
identical/similar goods which has already been adjusted for quantity (2 units per unit) must be decreased
by 20%. i.e. (2.5 x 20% = 0.4) 0.4 c.u.

Therefore, the value of 1.6 c.u. per unit in CIF is acceptable as the customs value under Article 2/3.

Practical Examples for Deductive Value Method (Article 5)

Example 1: in conducting market survey for determination of customs value using deductive method,
you found the following market survey results or price data.

Sales Quantity Unit Price(in USD)

5 units 0.65

20 units 0.90

40 units 1.00

10 units 1.10

30 units 0.65

18 units 0.95

Frequency of sales: 35 units @ $0.65; 38 units @$ 0.95;

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 40 Units @ $ 1.00; & 10 units @ $1.10.

Question: Select the appropriate price?

Answer 1: an appropriate price is $1.00

From the question, it can be seen that the greatest aggregate quantity is 40 units and the corresponding
unit price for the goods is $1.00 which will be used as the basis for calculation of customs value for the
deductive value method. Then, the appropriate deductions must be made from this unit price to arrive
at the customs value.

Example 2:

Let an importer XY imported a hand tool a quantity of 50 units from overseas to your country.
However, customs value of the imported hand tool can not be determined based on art.1, 2 &3.

You have found that a selling price of identical goods is USD1000 per unit from domestic market. In
addition, the seller also provided you all necessary supporting documents & evidences that show the
amount of commission, or usual profits & expenses related to the good. Accordingly, the usual profit
mark-up is 10% of the selling price, international freight & insurance is USD50/unit, transport and other
costs & expenses after importation is 25USD/unit, and customs duties and taxes incurred is USD10 per
unit.

Question: what is customs value based on deductive value?

Answer 2:

Deductive value is the unit price at which the importer sells the imported goods to his customer in the
country of import minus his markup for profit and other expenses, including duties and taxes, related to
sale and delivery of the goods to his customer.

Facts found from the above question are:

1. Selling unit price = 1000

2. Usual profit mark-up is 10%= 100

3. International freight & insurance=50

4. Transport and other costs & expenses after importation=25

5. Customs duties and taxes incurred=10

Therefore, based on deductive value method customs value is USD 815 per unit.

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 (i.e., 1000-(100+50+25+10) =815).

Example 3.

The seller offers the buyer a discount based on the volume (number of units) purchased. The buyer takes
an advantage of this volume discount to make a number of separate purchases from the seller over a
three month period, as follows. Which of these sales should be used as the resale price for calculating a
deductive value?

S.No Time of importation Quantity(units) Unit price(ETB)

1 10 days ago 140 4.30

2 15 days ago 50 4.8

3 20 days ago 97 4.5

4 30 days ago 70 4.8

5 40 days ago 47 4.8

6 50 days ago 190 3.6

7 60 days ago 60 4.8

Answer 3:

During the period of three month, a total of 227 units (i.e.: 50+60+47+60= 227 units) were sold at a
unit price of USD4.8. This exceeds the aggregate quantity of any other given unit price.

Accordingly, the unit price in the general aggregate quantity would be USD4.8, and should be used as
a basis for deductive value calculation.

This is true even though unit price of USD4.8 is NOT the per unit of the single largest shipment or the
most recent shipment.

• Practical Examples of Computed Value Method

• Example 1
• An importer imports measuring and controlling devices from his/her parent company in another
country. The goods remain the property of the parent company after importation. It is not
possible to use Article 1 as there is no sale for export. The goods are highly specialised and
there are no examples of identical or similar goods so Articles 2 and 3 cannot be used. The

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 importer elects to use Article 4 to reverse the order of Articles 5 and 6 to use Article 6 as the
basis for determining the customs value.
• Importer is able to obtain information due to his relationship with importer – no confidentiality
problems.
 Details of cost of component and material used in the manufacturing process.
 Importer research average level of profit expected for such goods.
 Database is available for working out average profit for 10 companies engaged in such kind of
export.
 Figure of general expenses are also available.
 Appropraite percentage edition for profit and general expenses could be calculated.
 The importing company applies a CIF methodology.
• Question: how can you value the imported goods?
• Answer 1
• Under Article 6, therefore, the customs value of the devices can be calculated by adding the
costs of components, material etc. used for production, overseas freight charges, insurance costs
and miscellaneous fees, plus the percentage addition for profit and general expenses.

Practical Examples of Fallback method (Article 7)

Examples 1

Company I of country X is engaged in the catering business and enters into an agreement with a national
airline to supply pre-packaged food for use on domestic flights. Because the machine used to package
the goods is quite unique and very expensive, Company I, for financial reasons, and decides to lease
the packaging machine from company A, the exporter. Company I signs a lease contract with A to
provide the machine for three years (which represents the full life of the machine in the country of
importation) at a monthly rental fee of 2,000 c.u.

Question: What is the customs value considerations regarding the imported packaging machine and,
what is the customs value?

Answer for Example 1

There is no sale within the meaning of Article 1 and hence that Article cannot be used. Because the
imported product is unique, there are no identical or similar goods. It is not resold in the country of
import so Article 5 cannot be used. No cost data exists so Article 6 cannot be used. Thus Articles 1 to
6 cannot be used to determine a value for the leased imported machine. However, it would be reasonable
under Article 7 to use the full rental fee that represents its full life in the country of importation as the
customs value. That is, 36 months x 2,000 c.u.= 72,000 c.u.

Instruction: based on the above information determine Customs Value using T V

Assessment criteria:

▪ The trainee should establish correct Customs Value using transaction valuae of identical or
similar goods, deductive, computed and fallback method

Assessment Method

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• Exams

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Unit Four

4. INCOTERMS and Commercial Documents

Descriptor/objective:

There are standard set of terminologies in international trade. This unit discusses international
commercial terms and commercial documents required for valuation purpose. Duties and rights of the
Importers/Exporters/Declarants and Customs officers will also be briefly discussed in this unit.

Learning Outcomes:

At the end of this unit the trainees/you will be able to:

• Understand different types of international commercial terms used in international trade.

• Identify various commercial documents required for valuation purpose.
• Point out duties and rights of the Importers/Exporters/Declarants and Customs officers.

Content outline:

• International commercial terms

• Commercial documents
• Duties and rights of the Importers/Exporters/Declarants and Customs officers.
• Training delivery method:
• Gapped lecture
• Group discussion
• Practical activities

Information Sheet

8.1. INCOTERMS

Definition:

INCOTERMS are universally accepted terms used in import-export transactions. They set out the
responsibilities of each party (seller/exporter and buyer/importer) in relation to the delivery of the goods
and the division of function, costs and risks related to the delivery. They were first published by
International Chamber of Commerce (ICC) in 1936 and since then have been updated in 1953, 1967,
1976,1980,1990,2000 and the current revision 2010.

There are 13 INCOTERMS.

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1. EXW (Ex-works)

EX mean from, works mean factory, mill or warehouse

The other name is departure or origin terms. The seller makes the goods available at their premises
(works, factory, etc) packed for export with commercial documents. The buyer bear all costs and risks
involved in taking the goods from the seller promises to the desired destination. This term represent the
minimum obligation for the seller.

2. FCA (Free Carrier)

The seller must deliver the goods, cleaned for export to the carrier nominated by the buyer at the seller
expense. The buyer is responsible for the main carriage / freight, cargo insurance, and other costs and
risks. This term can be used for any mode of transportation.

3. FAS (Free alongside Ship)

Goods are placed in the dock shed or at the side of the ship at the seller expense. The buyer is responsible
for the loading fee, main carriage / freight, cargo insurance, and other costs and risks. It is only for
maritime and inland water way transport. The FAS term is popular in the break-bulk shipment and with
the importing countries using their own vessel.

4. FOB (Free On Board)

The delivery of goods on board the vessel at the named port of origin (loading), at the seller expense.
The buyer is responsible for the main carriage / freight, cargo insurance, and other costs and risks. The
term works only for maritime and inland water way transport.

5. CFR(Cost and Freight)

The delivery of the goods to the named port of destination, at the seller expense. The buyer is
responsible for the cargo insurance and other costs and risks. The term works only for maritime and
inland water way transport. It was formerly written as C&F.

6. CIF(Cost , Insurance and Freight)

The cargo insurance and delivery of goods to the named port of destination at the seller expense. The
seller has the same obligation as CFR but with the addition costs of insurance against the Buyer risk of
loss or damage to the goods during the carriage. The term works only for maritime and inland water
way transport. The buyer is responsible for the import custom clearance, and other costs and risks.

7. CPT(Carriage Paid To)

Under this term the seller as the same obligation as CIF but in addition that the seller must also pays
charges on arrival at destination. The buyer bears all additional costs and risk after the goods have been
delivered to the nominated carrier. This term can be used for any mode of transportation.

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8. CIP(Carriage and Insurance Paid to)

This term is the same as “carriage paid to (CPT)” but with the addition that the seller must procure
insurance against the buyer loss of, or damage to the goods during carriage. The buyer assumes the
import custom clearance payment of custom duties and taxes, and other costs and risks.

9. DAF(Delivered At Frontier)

The seller deliver the goods have been made available, cleaned for export, at the named point and place
at frontier, but before the customs boarder of the adjoining country. The term primarily intended to be
used when goods are to be carried by rail or road but it may be used for any mode of transportation.

10. DES(Delivered Ex Ship)

The delivery of goods on board the vessel at the named port of destination, at the seller expense. The
buyer assumes the unloading fee, import custom clearance payment of custom duties and taxes, and
other costs and risks.

11. DEQ(Delivered Ex Quay [duty paid])

The delivery of goods to the quay (the port) at destination, at the seller expense. The seller is responsible
for the import custom clearance and port of custom duties and taxes at the buyer end. The buyer assumes
the cargo insurance and other costs and risks. The term works only for maritime and inland water way
transport.

12. DDU(Delivered Duty Unpaid)

The delivery of goods and the cargo insurance to the final point at destination, which is often the project
site or buyer’s premises, at the seller expense. The buyer assumes the import customs clearance and
payment of custom duties and taxes.

13. DDP(Delivered Duty Paid)

The seller is responsible for most of the expenses which include the cargo insurance, import customs
clearance and payment of custom duties and taxes. At the buyer’s end, and the delivery of goods to the
final point at destination.

8.2. Commercial Documents

Definitions:

Document means any document presented physically or by electronic means to the commission to
complete customs formalities.

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The main necessary documents for Customs Valuation includes:-

1) Commercial invoice is a document issued by a manufacturer or supplier which shows the

descriptions of goods, quantity of goods, unit of measurement, INCOTERMS and the price of
goods.
2) Detail packing list is a document that shows itemized list of articles usually included in each
shipping package, giving the quantity, description, and weight of the contents. Prepared by the
shipper and sent to the consignee for accurate tallying of the delivered goods. Also called bill
of parcels, packing slip, or unpacking note
3) Transportation documents-Air waybill, bill of lading, carrier's certificate, etc., that serves as
an evidence of acceptance and receipt of goods for carriage and may also serve as a document
of ownership (title).
4) Foreign exchanges permit (Bank Permit)-Exchange controls are government-imposed
limitations on the purchase and/or sale of currencies. These controls allow countries to better
stabilize their economies by limiting in-flows and out-flows of currency, which can create
exchange rate volatility.
5) Certificate of origin means a document issued by a competent authority in the exporting
country certifying the authenticity of the origin of goods
6) Insurance documents- means and includes insurance policies, insurance contracts and third
party insurer or insurance agent invoices for the specific coverages and insurance amounts
required of contractor in the agreement.
7) Details of all contracts, agreements or arrangements for the sale of the imported goods,
8) Evidence of the adjustments in Article 8 of WTO-ACV,
9) Detail Description of the imported goods such as catalogues & manuals,
10) Other necessary documents prescribed by directives issued by the Commission,
11) Customs Declaration.

8.3. Duties and Rights of the Importers/Exporters/Declarants and

Customs Officers
8.3.1. Responsibilities of the Importer/Exporters:

The main responsibilities of importers/exporters regarding to customs process are list below:

• Provide correct and complete information and documents for the valuation of imported goods
after ascertaining their validity.
• Properly fill out and present an electronic or manual forms or documents required by the
Customs Commission.
• When a custom officer requests for addition declaration, information and documents about the
goods required for valuation, provide correct and complete response in timely manner.

8.3.2. Rights of the Importers/Exporters/Declarants:

The main rights of the customs declarant are summarized as follows:

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 • The right to get a written decision of the Commission;
• The right to explain the accuracy of the value of the goods when it is not being accepted;
• The right to have goods released by furnishing a guarantee;
• The right to appeal on the customs decision up to the cassation division/higher level of court/in
accordance with the Proclamation and the Commission’s directive.

8.3.3. Duties of the Declarants:

The main duties of the customs declarant are summarized as follows:

• Understand properly the valuation procedures and act accordingly;

• Be familiarized with international importation and exportation practices and equipped with the
knowledge and skills to implement those practices, or else use experienced consultant or
companies;
• Maintain a proper and acceptable financial records of revenues and expenses;
• Declare the actual transaction value;
• Provide all supporting documents;
• Present full detailed declaration of good that enables to identify the good properly;
• Fill out VDD carefully and completely;
• For efficient services, provide correct and valid information, to avoid unnecessary hassle and
service delaying.

8.3.4. Duties and Rights of the Customs Officers

• Check & verify the documents submitted whether it is correct or complete.

• Check the accuracy & completeness of the data or information including the VDD which
submitted by the declarants.
• Request to the declarant/importer in written, as necessary, in case they raise and notify doubts
on the declared documents or the goods transactional value;
• Provide a guarantee system for the release of imported goods where there is a delay in
determining the customs value.

5. Provide the importers with the right to get a written explanation as to how the customs value was
determined.

6. Provide importers with the right to appeal a customs value decision without penalty.

7. Enforce the customs laws including post entry amendment or other administrational measures.

8. Keep the importers’/exporters’ or declarant’s confidentiality information or documents of valuation.

Assessment criteria:

▪ The trainee should understand the meaning and usage of international commercial terms,
commnercial documents required for valuation purpose, duties and rights of importer or
exporter, declarant and customs offier

Assessment Method

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• Exams

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Unit five

9. Valuation Control, Valuation Detailed Declaration (VDD) and

Ethiopian Customs Valuation System (ECVS)

Descriptor/objective:

This unit explains valuation controls customs is applying to avoiding valuation related fraud committed
by importers. Valuation detailed declaration and Ethiopian customs valuation system is discussed
briefly in this unit.

Learning Outcomes:

At the end of this unit the trainees/you will be able to:

• Understand what controls are applied to avoid valuation fraud

• Understand and use valuation detailed declaration
• Understand Ethiopian Customs Valuation System

Content outline:

• Valuation control
• Valuation Detailed declaration
• Ethiopian Customs Valuation System
• Training delivery method:
• Gapped lecture
• Demo

Information Sheet

2.4 Valuation Control and use of National Valuation Database

According to the Ethiopian Customs Proclamation No.859/2014, Art.2.92, Customs control refers to
the conducting, by customs administration, of the examination of goods, verification of the existence
and authenticity of documents, examination of the accounts of undertakings, and other records to ensure
that laws and directives are observed.

Customs Control deals with all aspects of importation of goods, including customs declaration to
ensure compliance with Customs laws and regulations and to detect fraud.

valuation control is a management of valuation risks by customs which aims to ensure customs
valuation is made properly in the customs or valuation declaration & supporting documents.

WHY VALUATION CONTROL?

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Valuation Control aims mainly to detect and combat manipulation of transaction value which results
in inaccurate customs value declarations being presented to Customs. This can either be as a result of
ignorance or deliberate evasion by fraud. Customs valuation control is also a critical factor not only to
protect customs duties but equally to internal tax systems, statistics, quotas and licenses and,
governments’ balance of trade and payments.

Under the WTO-ACV, transaction value, the price actually paid or payable, is the primary basis for
customs valuation. However, if an importer, whether due to inadvertence, negligent error or fraud,
declares a price to customs that is not the actual amount paid or payable, WTO-ACV does not oblige
customs to accept it. In addition, it does not require customs to rely on fraudulent documents. (See:
Art.7, Annex-III on paragraph 6, advisory opinion 10.1)

Control Powers Given to Customs in WTO-ACV

Control powers to verify and control valuation is given to customs in article 17 of the WTO-ACV and
decision regarding cases where customs administrations have reason to doubt the truth or accuracy of
the declared value. Article 17 is states as follows:

“Nothing in this Agreement shall be construed as restricting or calling into question the rights of
Customs administrations to satisfy themselves as to the truth or accuracy of any statement, document
or declaration presented for Customs valuation purposes.”

Valuation Fraud

Valuation fraud is one of the major problems and the fundamental concern of commercial frauds for
many customs, particularly developing countries. There are several types of valuation fraud and
attempted for various reasons.

Generally, the major categories of valuation frauds are,

i. under/overvaluation,
ii. miss description/misclassification,(including false origin)
iii. related party transactions,
iv. key elements under Article 8 of the WTO Valuation Agreement (e.g. Selling commissions and
brokerage, packing, assists, royalties and license fees, proceeds, installation charges.),
v. Discounts(e.g. discounts in quantity, cash-payment, trade promotion) and
vi. INCOTERMS (e.g. FOB. CIF, ex-works)

Major incentives for valuation fraud include:

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 ❖ To avoid payment of duties & taxes
❖ To avoid payment of internal or local taxes (e.g. transfer pricing or profit taxes)
❖ To avoid countervailing or antidumping duties
❖ To import restricted or prohibited goods (e.g. quota restriction, trade sanctions)
❖ To take advantage the competition in trade
❖ To take advantage or avoid of special trade programs:

Stages of Valuation Control

In deciding the national enforcement strategies for managing the valuation risks, adopting four stages
of valuation control are recommended. These are:

1. Pre-clearance Control stage

2. Clearance Control stage
3. Post-clearance Audit Control stage
4. Post clearance Investigation Control stage

1. Pre-clearance Control stages: collect information, review, and analyse relevant information using
risk management system of import cargo manifests prior to the arrival of the shipment is advantageous,
from the valuation perspective, in order to identify high-risk cargo.

2. Clearance Control stages: review & check of the entry documents and declarations of value at the
front line of clearance to ensure the fulfilment of administrative requirements and to identify high-risk
cargo and the physical examination of the goods to assist in determining/confirming the value

3. Post-clearance Audit Control stage: Customs must rely on the examination of all commercial and
customs documents relating to specific transactions, using RMS, to ensure that the previously made
declaration and clearance of cargo has been based on complete and accurate information supplied by
the importer and to ensure that these are compliance with required customs regulations.

4. Post clearance Investigation Control stage: customs must have an enforcement mechanism to
verify & audit the importer’s declaration including other related documents based on the information,
found from PCA or elsewhere, for suspected fraud so as to take the appropriate action or penalty.

According to several related international documents & agreements, it is believed that successful
valuation control depends mainly on a long-term strategy of reform and modernization of Customs
administrations. In particular, Customs administrations should rely on a control mechanism, using
intelligence based risk assessment and post-clearance auditing systems, which are fundamental to
improving Customs valuation control regimes. (See: Kyoto Convention, GUIDELINES TO COMBAT
VALUATION Fraud Occurring Under the WTO VALUATION AGREEMENT & WCO Guide to the
Exchange Of Customs Valuation Information).

Use National Valuation Database

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 • The WCO Guidelines on the Development and Use of a National Valuation Database as a Risk
Assessment Tool elaborates that a Customs Administration can use a valuation database.
• A Customs Administration that uses a valuation database should establish a monitoring
mechanism to ensure that the database is being used as a risk assessment tool and that the
information stored in the database is updated on a regular basis.
• A database management system has to be designed specially to assess potential risk at any stage
of control regarding the truth or accuracy of the declared value for imported goods.
• Database management systems will usually enable a Customs Administration to compare the
declared value to previously accepted Customs value(s).
• It is not appropriate to apply simple statistical or price indicators to all imports on a
comprehensive basis, as a means to measure potential risk with regard to the truth or accuracy
of Customs value.
• The data contained in a valuation database should be treated in accordance with the applicable
confidentiality provisions.
• Ethiopia also developed and uses valuation National database i.e. ECVS.

2.5 Valuation Detailed Declaration (VDD)

What is VDD?

VDD is an electronic form filled by declarant which contains deceleration of facts of some of the crucial
information required for the purpose of valuation. A declarant, an importer or his Agent should submit
the VDD to the customs in addition to the Goods Declaration and other commercial documents. It
imposes a responsibility on declarant for filling and submitting the accurate and complete data or
information and document. It is also responsibility of customs officers for checking the accuracy &
completeness of the data or information submitted by the declarants.

Why VDD?

• Customs Proclamation No. 859/2014; Article 12 up to 18 and Article 99.

 WTO-ACV & supporting documents.
 Self assessment of duties and tax liabilities.

Declaration

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  Customs declaration may be made in written form, orally, by bodily action or electronically.
 Customs declaration to be presented in written form shall be filled in the prescribed form,
signed and contain all the particulars necessary for completing customs formalities.
 Customs declaration, together with all documents required to be produced for the completion
of customs formalities shall be presented by an importer or exporter or by his agent.

Acceptance of customs declaration:

The Authority shall accept customs declaration where the declaration and supporting documents
described under Article 13(1) of [the] Proclamation contain the necessary particulars required for the
completion of customs formalities.

Production of Additional Information and Evidence:-

CP. 859/2014, Art.99

1/ where the authority has reason to doubt the accuracy of particulars of a declaration or of documents
produced in support of a declaration, it may require the importer or his agent to produce further
information or evidence that shows the declared transaction value represents the amount actually paid
or payable for the imported goods.

2/ where the authority, after receiving further information still has reasonable doubts about the accuracy
of the declared value or in the absence of a response, it may be deemed that the customs value of the
imported goods cannot be determined under the provisions of article 90 of [the] proclamation; and the
reason for such decision shall be provided in writing to the importer or his agent.

Importance of VDD

 VDD is necessary to have full knowledge of the facts relating to the commercial transaction
involving the imported goods including:-
➢ Whether the good is imported is on sale or not.
➢ Any payment in addition to invoice price.
➢ Any descriptions in addition to Invoice.
➢ Any relation between importer & exporter
➢ type of transaction & terms of payment

How to fill the VDD Declaration?

For import goods, every Declarant is expected to fill the mandatory and Optional data and lodge the
VDD as partial fulfillment of SAD Customs Declaration. In the VDD System, it should be noted that
the star (*) refers to Mandatory data that must be filled, where as other fields without star refers to
Optional data that can be filled depending the nature of good.

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How to login to VDD

Finding declaration

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Filling Nature of transaction, traders relationship and conditions and restrictions

Filling discount if any

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Filling Additional costs

Lists of items

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Adding subitems

Adding subitems properties

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Adding another Subitem

Submitting VDD

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 2.6 Ethiopian Customs Valuation System (ECVS)

What is ECVS?

• ECVS is an Automated Ethiopian Customs Valuation Database System.

• It provides the support-base for Valuation Risk Assessment including checking under valuation
and over valuation in strict compliance with the WTO Agreement on Customs Valuation.
• The Valuation database is designed in accordance with the WCO Guidelines on National
Database and includes:
➢ The Customs assessed value for previous importations which is as a contemperaneous
price reference database.
➢ It Provides an estimate of the price of a given item.
➢ The method of valuation applied (e.g., transaction value, deductive value method, etc.)
➢ Data found in import declarations and supporting documents of previous importations
including detail goods descriptions and country of origin.
➢ Other pertinent and reliable data for risk assessment purposes such as international
price trends, Quantity, HS Code, etc
➢ Related Parties tranasaction data

Why is ECVS needed?

Needs of Valuation Database (ECVS) include:-

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 • Subsitute for CD-based valuation system:
• Comply with the WCO guidelines for national valuation database.
• Accurate assessment of duties
• Protect loss of gov’t revenues of imported goods due to under/over valuation .
• Control valuation frauds.
• Control under valuation of exported goods.
• Control the missuse of incentive schemes.

• Capturing of correct trade data

What are the Key Objectives of ECVS?

• Up to date product information with customs to check valuation frauds of imported goods.
• Minimizing manual handling.
• Facilitating Valuation Risk Management.
• Facilitating Customs clearance & Trade.
• Promoting Responsibilties & Transparency

ECVS integration with eCMS and VDD

ECVS
ECMS VDD
 Product detail description
based on attributes
 Basic information  Trader relationship
 Customs Procedure  Additional costs

ECVS
Code

International price

✓Accepted/
✓ Rejected
✓Further Verification

Assessment criteria:

▪ The trainee should understand type of valuation control, the purpose of valuation detail
declaration and Ethiopian Customs valuation System.

Assessment Method

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• Exams
•
• References: WTO Valuation Agreement, Customs Proclamation and Directive, A Handbook
On The WTO Customs Valuation Agreement by Brian J. O'Shea and Sheri Rosenow.

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