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WTO Customs Valuation Agreement: objectives, requirements and challenges

20th October 2020
By the World Trade Organization

This year marks the 25th anniversary of the entry into force of the WTO Customs Valuation Agreement (CVA). The Agreement seeks to tackle Customs clearance delays resulting from valuation verification and to ensure that the Customs value of goods entering a market are properly assessed to reflect the actual price of the goods as agreed between the buyer and seller.


It is not the first multilateral regulation in the area of valuation. The first attempt took place under Article VII of the General Agreement on Tariffs and Trade (GATT) which entered into force in 1948. As negotiations were leading to the lowering of tariffs, negotiators wanted to address the existing Customs practice of assigning arbitrary or fictious values to merchandise which could have wiped out the tariff benefits.

Article VII of the GATT introduced the notion that the value of imported merchandise for Customs purposes should be based on the actual value of the imported merchandise. However, it did not include a definition of Customs valuation, nor did it provide details on how to calculate the “true” value of a product. This left Customs administrations with considerable discretion when it came to valuation.

In an attempt to improve regulation, Members negotiated a second, separate Customs agreement, entitled the “GATT Valuation Code” during the Tokyo Round of Negotiations (1973-1979). This agreement, which was in reality a Customs code under the GATT, introduced new disciplines to valuation. It aimed to establish a predictable system that would reflect the true value of merchandise and eliminate arbitrary or fictious valuation. The result was the first detailed regulation of Customs valuation. However, as a Code under the GATT, it was adopted by only a number of GATT signatories.

Eventually, it was superseded by the current Customs Valuation Agreement which was negotiated under the Uruguay Round (1986-1994) and entered into force for all WTO Members in 1995.


The objective of the CVA is to provide a fair, uniform and neutral system for the Customs valuation of goods that eliminates the use of arbitrary or fictitious Customs values. At the same time, it aims to address under-invoicing.

The CVA identifies the primary basis, in fact the default mechanism, that must be used for valuation as the “transaction value”, which it defines as “the price actually paid or payable for the goods when sold for export to the country of importation” (Article 1). Consequently, the value should be based on the selling price agreed between the buyer and seller, which is represented on the invoice. The Agreement also includes in the transaction value other elements impacting on the value of the merchandise that are not included on the invoice (Article 8).

Deviations are allowed only when it is not possible to use the transaction value (e.g. related parties impacting the price, cases where there is no sale, unreliable supporting documentation) and, even then, in accordance with a hierarchical series of five alternative methods of valuation for those cases. Any deviation from the use of the transaction value increases the extent of discretion that can be exercised by Customs authorities, and each subsequent alternative method further increases that level of discretion. The hierarchical structure of the Agreement aims to restrict those opportunities, reflecting the objective to eliminate the use of arbitrary or fictitious Customs values.

According to a WCO survey conducted in the 1990s, more than 90% of goods were valued on the basis of the transaction value method.

The five alternative methods
  1. Transaction value: the value is determined on the basis of the price actually paid or payable for the goods when sold for export to the country of importation plus adjustments for other cost elements not included on the invoice price. (Articles 1 and 8)
  2. Transaction value of similar goods: the value is determined on the basis of the transaction of similar goods produced by the same producer, under the same conditions as for identical goods. (Article 3)
  3. Deductive method: the value is determined on the basis of the sale price of the goods in the country of importation minus deductions for certain costs (e.g. an amount for profit and expenses). (Article 5)
  4. Computed method: the value is determined on the basis of the costs of materials and production in the country of export plus certain other costs, for example, packing, engineering, development work, an amount for profit, general expenses, transport and insurance. (Article 6)
  5. Fall-back method: Customs authorities can devise their own procedure based on any of the previous methods as long as it is reasonable and consistent with the principles of Article VII of the GATT and the CVA. (Article 7)

Infrastructure changes

Implementation of the Agreement requires a shift from focusing on intervention at the clearance stage and requires modernization of both processes and systems. The modernizing measures required for the implementation of the CVA are those that are included in the WCO Revised Kyoto Convention: simplification of procedures, computerization, strengthening of internal controls and management systems, provision of advance rulings on valuation, implementation of risk assessment management and strengthening of post-clearance audit capacities; as well as implementation of Authorized Economic Operator (AEO) programmes.

Moreover, the establishment of Customs cooperation and mutual administrative assistance agreements, whether on a multilateral, regional or bilateral basis, is necessary, particularly where Customs has doubts about the veracity of invoices but has no means of obtaining the data required within its own administration. Computerization to support real-time data exchange would make such cooperation more effective.

Administrations should also have the appropriate infrastructure in place. The establishment of separate Customs units set up for the purpose of dealing with valuation issues is beneficial for the development of Customs infrastructure, as is the establishment of national committees on technical issues and committees on Customs valuation policy to deal with legislation and regulation. These committees play a role in strengthening capacity and expertise on valuation and ensuring national uniform interpretation and application of valuation laws and regulations.

In addition to the need to reform their Customs administrations, many developing and least developed countries are also faced with the challenge of encouraging widespread informal traders to comply with the CVA. Many informal traders do not have the appropriate infrastructure, knowledge and skills and this often translates into a lack of reliable import and export documentation. Customs requires dedicated programmes and infrastructure to bring these traders into compliance.

Other elements for effective implementation

The requirements for effective implementation of the CVA permeate the political, legislative and technical spheres. There is an overarching need for political will to carry out the steps necessary to achieve the required level of capacity. There is also a need for an understanding within government and Customs administration of the extent of administrative, legislative and managerial changes that are to happen.

The CVA is indeed a highly technical, complex agreement which requires expertise in technical valuation rules, ranging from the basic requirements for implementation of the transaction value to complex issues such as transfer pricing, royalties and license fees, and e-commerce business models. There is therefore a need for a sustained mechanism to ensure continual capacity building, for both Customs and the private sector, including through the development of university courses.

Valuation rules and related issues must be not only understood but also applied consistently and in a standardized manner. This will imbue traders with the confidence that they will be treated properly and fairly, and, as a result, they will be more inclined to respect the rules. The adoption of measures aimed at developing an informed and engaged private sector is also essential, as this will facilitate and encourage voluntary compliance with the valuation rules. Regular dialogue with representatives of trader and industry associations, in particular, is important, as it will enable them to be in a better position to help improve the compliance level of their members. This would also be beneficial to Customs, as regular and open communication enhances its understanding of the challenges faced by the private sector regarding certain aspects of valuation.

In terms of transparency, it is also important to note that WTO Members are required to notify their Customs legislation to the WTO Committee on Customs Valuation. This is regarded as an important building block for implementation of the CVA. It allows the Committee to review the legislation to ensure that the laws and regulations in force meet the terms of the Agreement. In particular, it looks at whether the laws are being implemented in a way that ensures predictability and consistency for trading across national borders. In addition to the legislative reviews, the Committee provides a forum for Members to raise questions and discuss the functioning of the Agreement across the entire WTO Membership.

Factors hindering its implementation

There are a number of significant factors that prevent Customs administrations from fully implementing the CVA. There can be resistance to the changes required in Customs administrations in order to implement the Agreement. This may be because such changes can involve significant costs for a developing country, and some countries may have more pressing priorities. Others that are still heavily reliant on Customs duties can have concerns that the proper application of the valuation concept, in particular the transaction value, will have an adverse effect on the collection of duties.

Other challenges are posed by the fact that many Customs administrations are small and suffer from a lack of resources, which means that no part of their organization is specifically set up to deal with valuation issues. There is often a lack of knowledge within Customs administrations of the contents of the CVA, as well as difficulties to understand it. The resource challenge is reinforced by the high turnover of trained Customs personnel and insufficient regular training on the CVA. The result is a disparity in the levels of knowledge and technical capacities among and between Customs authorities.

Some developing countries also lack the necessary supporting legal framework and administrative capacity to implement the Agreement. Inadequate information technology and computerized processes, including for the management of valuation risk, are additional hindering factors. As a result, the private sector can face the overuse of the fall‑back method with over-utilization of reference prices and valuation databases.

In addition, there are disparate levels of cooperation between Members’ authorities and the private sector. These circumstances lead to a great deal of misinformation regarding the effectiveness of the Agreement within both Customs and the private sector.

Last but not least, the existence of a significant informal sector creates serious verification problems and imposes heavy administrative burdens on Customs administrations. It is often impossible for them to apply the transaction value method, or indeed any of the alternative methods of valuation. The situation is further compounded by the fact that, in most countries with a large informal sector, there are no mechanisms to allow for the exchange of information across importing and exporting countries.

Lessons learned from years of implementation

It is clear that, after 25 years, the CVA makes trade more predictable and equitable. It facilitates a secure business environment for economic development, retains the benefits of low tariffs and reduces trade costs. The CVA is of particular benefit to small and medium-sized enterprises, as they are disproportionally impacted by clearance delays and high trade costs.

It is also the case that some countries still continue to face implementation challenges such as those referred to above. However, the most recent WTO agreement, the Trade Facilitation Agreement, offers a significant opportunity for WTO Members to strengthen their implementation of the CVA. Both agreements are closely linked. The TFA includes provisions on all the Customs modernization elements that are required for effective implementation of the CVA: publication of Customs laws and regulations, requirement for consultations with the private sector, implementation of advance rulings (encouraged for valuation), risk management, including value of goods, procedures for appeal or review, release of goods upon guarantee, post-clearance audit and Customs cooperation. In order to be able to implement the TFA, a country must be able to implement the CVA.

Technical assistance and capacity-building support is available to developing and least developed countries unable to implement the TFA. This also represents a practical means of accessing the required support for valuation purposes. In the light of the crossover between both agreements, WTO Members, when identifying and planning their capacity needs to implement the TFA, can include their capacity needs to implement the CVA.

Twenty-five years on, the Customs Valuation Agreement has received a shot in the arm from a more recent trade facilitation agreement. It offers an opportunity to reinforce the CVA for the next 25 years and beyond.


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