Overview of WTO Obligations under Article III of. measures on imports and like domestic goods

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1 Overview of WTO Obligations under Article III of GATT 1994 ("GATT") GATT) when imposing fiscal/nonfiscal measures on imports and like domestic goods and Customs Valuation a comparative perspective Presenter: Adjunct Professor Alan Bennett Sydney University 1

2 Part I Overview of WTO Obligations under Article III of GATT 1994 (GATT) when imposing i fiscal/non-fiscal l measures on imports and like domestic goods 2

3 Summary 1. Overview of WTO obligations under Article III of GATT in drafting taxes/measures impacting on imports and like domestic products. 2. Scope of Article III of GATT: potentially applies to all taxes/laws and administrative arrangements affecting both imported and like domestic goods. 3. Relevance of WTO/GATT: 1. Exposure to the Dispute Settlement Provisions of Annex 2 of the WTO; 2. Consequential risk management strategies necessary for appropriate consideration of Article III of GATT in drafting/amending g any relevant laws (fiscal or otherwise). 4. What are the key elements of an internal tax/law for Article III purposes? 5. Examples of potential internal taxes/laws/measures affected by Article III? 3

4 Summary (cont d) 6. Does the application of Article III of GATT extend to state taxes (or merely national taxes)? 7. What are the obligations imposed by Article III of GATT on a WTO member country? 8. What about policy considerations conflicting with obligations under Article III of GATT? 9. Suggestions for governments concerning obligations under Article III of GATT 4

5 1 WTO obligations under Article III of GATT The broad and fundamental purpose of Article III of GATT is to avoid protectionism in the application of internal tax and regulatory measures. Article III ensures that "internal measures" are not applied to imported or domestic products so as to afford protection to domestic production. 5

6 2 Scope of topic Article III of GATT imposes obligations on a WTO member country where that country is drafting/amending: national/state t t fiscal laws which h may apply to imported goods; Non-fiscal national/state laws/regulations/administrative l / i i t arrangements which h might discriminate against imported goods in respect of their: internal sale; offering for sale; purchase; transportation, distribution or use 6

7 3.1 Relevance of WTO/GATT The WTO Agreement contains many "Sub"- Agreements including: GATT 1994; Understanding on Rules and Procedures Governing the Settlement of Disputes. (See reference materials for list of all Sub Agreements) 7

8 3.2 Acceptance of WTO membership "A Member which accepts this Agreement. shall implement. those obligations. " (see Article XIV, paragraph 2 of the WTO Agreement) "Each member shall ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed Agreements" (see Article XVI paragraph 4 of the WTO Agreement) 8

9 3.3 Exposure to the Dispute Settlement Provisions of Annex 2 of the WTO Where a country breaches its obligations under Article III of GATT by imposing discriminatory internal taxes/laws on imported goods then affected countries have a right to commence proceedings before a WTO Dispute Settlement Panel. This involves considerable time / expense / embarrassment. Simple risk management strategies can avoid this potential problem and may be built into policy development. 9

10 4 What are the key elements of an internal tax/law for Article III purposes For the purposes of Article III, an internal tax/law is one which applies to an imported product and to the like domestic product (even if it is collected at the time of importation) (see: Ad Article III of Annex 1 to GATT) 10

11 5 Examples of potential internal taxes laws/measures affected by Article III GST/VAT; Transport tax on carriage of goods within a country; Import quota/licensing regimes; Cigarettes/Liquor taxes; Inspection fees; Distribution arrangements; for example on beef. 11

12 6 Does Article III extend to state taxes affecting imported goods? Internal taxes imposed by local governments and authorities within the territory of a contracting party are similarly bound by Article III through the national contracting WTO Member (see Article XXIV GATT and Ad Article III, paragraph 1 of Annex 1 GATT). 12

13 7 What are the obligations imposed by Article III of GATT on a WTO member country? "WTO members are obliged to provide equality of competitive conditions for imported products in relation to domestic products". "The intention ti. was clearly l to treat t the imported products in the same way as the like domestic products once they had been cleared through customs. Otherwise possible indirect protection could be given" 13

14 8 What about policy considerations? i "Members of the WTO are free to pursue their own domestic goals through internal taxation or regulation so long as they do not do so in a way that violates Article III or any of the other commitments they have made in the WTO Agreement" " the policy purpose of a tax measure (the "aim" of a measure) was not relevant for the purpose of Article III:2 first sentence." 14

15 9 Prudential risk management strategy for governments concerning obligations under Article III of GATT There is considerable logic in a government reviewing its taxes, laws and administrative arrangements to assess whether there is any possibility that t it may be in breach of its obligations under Article III of GATT. Such a prudential risk management strategy is consistent with the risk management strategies increasingly being adopted by the private sector. Further, it seems desirable that an element of policy formulation for any new tax/law should test whether there is potential exposure to Article III obligations. 15

16 Part II Customs Valuation a comparative perspective p 16

17 Goal of session Provide an insight on the key elements of a train the trainer course on customs valuation. Examine the historical basis, mischief which was addressed and the underlying philosophy p of the current international Valuation system. Suggest an approach which could be adopted internationally on related party transactions. 17

18 Prepare 4 key elements in train the trainer course Present Try Out Follow Up 18

19 History An understanding of current system requires some insight to former systems Mess prior to current valuation system Previous US problems (particularly related parties) Previous European problems Outcome - new international system Customs Implementation Code enshrined in WTO Overall Outcome - No Uniform Customs Value Procedural fairness for Related Parties 19

20 Obligations Imposed on Signatories i to the WTO Agreement What agreements are within the WTO? GATT 1994 Article VII (too brief) Agreement on Implementation of Article VII of the GATT 1994 Article XIV (2) of the WTO Agreement Article XVI (4) of the WTO Agreement Contracting Parties are legally obliged to comply (a country is exposed to breach of WTO obligations if does not comply) 20

21 Fundamentals of Customs Valuation Code Primacy of "Transaction Value" Starting point - negotiated price - buyer and the seller No uniform customs value envisaged by the Code Customs acceptance of commercial pricing decisions It is not a "notional" system 21

22 Adjustments to price 5 potential additions to price 3 potential deductions from price 4 circumstances to depart from transaction value 22

23 Alternative Valuation Methods - (Summary Mention only) Transaction value of identical or similar goods Deductive valuation method Computed valuation method Other methodologies but principally "based on previously determined customs values" 23

24 Prices between Related Parties Traditional concern by customs (price too low) However, "Presumption of innocence" provision placed in new valuation system 24

25 Related Parties Responsibilities and Obligations No need to examine all related party transactions Customs must have reasonable grounds about a particular importer before determine - price has been "affected by the relationship" Customs must provide importer opportunity to supply relevant details (procedural fairness) 25

26 Bridge between Customs/Transfer Pricing i Where customs has strong grounds that price affected by relationship Procedural fairness in accordance with the Code required; Importer to present information to Customs re price; Related entities have done much tax work on pricing; Customs may reliably use this in-house data as "bridge" to satisfy its concerns. 26

27 Thank You Adjunct Professor Alan Bennett Sydney University au