INSTITUTE OF TAX AND CUSTOMS ADMINISTRATION

Department of Customs Administration (Masters Program)

A Research proposal on:

The Impact of Implementation of World Trade Organization Valuation
Methods on Trade Facilitation:
The Case of Jijiga Revenues and Customs branch office.

Prepared by:
Tolasa Jiregna
ID NO. ECSU1500172
Submitted to:
Amar S. Kanwar (PH.D)

Prepared as a Partial Requirement for the Module of Advanced Research

Methods (CUA5031)

January, 2016
 Addis Ababa, Ethiopia

Acronyms

WTO....................World Trade Organization

ERCA....................Ethiopian Revenue and Customs Authority
GATT....................General Agreement on Tax and Tariff
 TABLE OF CONTENTS

Contents
pages

1. INTRODUCTION
1.1 Back Ground of the study

International trade has been major part of economic growth in many countries. The clarification
and predictable at which the goods move across the borders in which customs play a critical role,
has a significant advantages to the country competitiveness in international trade. The customs
valuation methods are designed primarily for the purpose of revenue collection from goods that
are imported from abroad. (source: WTO,1994)

In recent years, the international trading environment has been transformed dramatically in terms
of the manner in which goods are carried and traded, the speed of such transactions, and the
sheer volume of goods now being traded around the globe. This, together with mounting pressure
from the international trading community to minimize government intervention, has caused
customs authorities to place an increasing emphasis on the facilitation of trade.(Luc de Wulf, and
Jose B. Sokol)

Customs Valuation is the process where customs authorities assign a monetary value to a good or
service for the purposes of import or export. It 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 to be paid on an imported good.

Generally Ethiopian revenue and customs authority is applying the following six types of
valuation methods.

1. Transaction value
 2. The transaction value of identical goods
3. The transaction value of similar goods
4. The deductive value method
5. The computed value method
6. The fall-back method.

The above valuation methods must be used in hierarchical order. The study of this paper will be
designed to assess the impacts of applications of these methods on trade activities which is
entirely focus on import and export clearance procedures of Jijiga revenue and customs branch
office.

1.2 The Statement of The Problem

The customs valuations methods is the main customs procedure that affects the international
trade activities and hence plays a major role in trade facilitation in the world . Therefore the
study will assess the overall activities in customs valuation methods of Ethiopian revenue and
customs authority regarding customer service which has a direct relationship with trade
facilitation. In general the impact of implementation of the world trade organization valuation
method on trade facilitation and also the research specifically will answer.

1.How the world trade organization valuation methods affect the actual import/export
procedures?

2.What are the effects of WTO valuation methods on actual customs value of import/export
goods?

3.What are the effects of WTO valuation method on trade facilitation?

4.Have these WTO valuation methods affected the activities of traders in importing and
exporting of goods?

1.3 Objective of The Study

1.3.1 The General Objective

The objective of the study is to investigate the valuation methods of world trade organization and
their impacts on trade facilitation in Ethiopian revenue and customs authority, with special case
of Jijiga branch office.
1.3.2 The Specific Objectives
The specific objectives of the study are as follows

 To evaluate the world trade organization valuation method effects on trade facilitation.

 To evaluate the implementation of WTO valuation method on actual customs value

declaration.

 To explore the effect of WTO valuation methods on traders compliance with valuation
rules.

 To explore whether there is direct relationship between implications of WTO valuation

methods and trade facilitation

1.4 Significance of The Study

The research paper will have significant importance by showing the impact of applying WTO
valuation methods on trade facilitation including the following benefits

 It enables employees more understanding of WTO valuation methods clearly.

 Identifying the impact of the overall the WTO valuation method affects the trade
facilitation.
 Establishing the solutions for the problems related to valuation method application
according to the WTO agreement.
 Finding out the advantages and disadvantages of the implementation of WTO valuation
methods.
 Describing also the knowhow and the ability of understanding implementation of the
methods of employees of Jijiga revenue and customs branch office especially those
working in assessment of declarations of import goods team which is also very helpful
for higher officials.

1.5 The Scope of The Study

The study is limited to assess the implementation of WTO valuation method related with
customs clearance on trade facilitation at specific area of customs clearance procedure in ERCA
Jijiga branch.

1.6 Limitation of The Study

The study is estimated encounter the following constraints:
  The major limitation the researcher may encounter is time and budget constraint.

 The managers who concerns the study may not be volunteer to respond the needed
information in depth due to time limitation.

 Complexity of the valuation methods is to difficulty of gathering information

 The secondary data concerning the aim of study may not be organized in one area as it is
needed

 The confidentiality of important information in the hands of concerned officers and their
unwillingness to disclose the information.

2. LITERATURE REVIEW
According to the world customs organization (WTO, 2007), one of the focal issues on
international trading is the performance of customs and their effectiveness and efficiency of
clearing goods. Modern customs administrations have recognized the importance of streamlining
and simplifying clearance procedures to importers, exporters and national economies as a whole.
Customs administrations are thus increasingly introducing simplified procedures so as to put in
to place efficient and effective valuation methods while maintaining the traditional duties of
revenue collection.

2.1 Meaning of Trade Facilitation

There are many definitions of trade facilitation given by different scholars. It can be widely
defined as any policy measure aimed at diminishing of trade costs. Trade facilitation is directed
to make information easily available, simplification of formalities, and procedures, faster
clearance of goods, reasonable rates of fees and charges and transparency.

Trade facilitation is defined in a concise and broaden scopes. Many literatures took the
definition of WTO as basis for their definition of trade facilitation concepts. Accordingly, trade
facilitation defines as "the simplification and harmonization of international trade procedures,
where trade procedures are the activities, practices and formalities involved in collecting
presenting, presenting, communicating and processing data required for the movement of goods
for international trade." (WTO,1998)
In an effort to achieve an appropriate balance between trade facilitation and regulatory control,
customs administrations are generally abandoning their traditional, routine “gateway” checks and
are now applying the principles of risk management, with varying degrees of sophistication and
success(Luc de Wulf, and Jose B. Sokol)

In narrow sense, trade facilitation measures are usually associated with simplification and
harmonization of trade regulation. It is promoting all actors in an economy, imports and exports
through time and money savings, procedures through cheaper availability of intermediate
products, consumers through lower prices.

2.2 Factors Affecting Trade Facilitation

The implementation of trade facilitation of principles is fraught with obstacles, including conflicting
interests, institutional limitations, lack of knowledge. Trade facilitation needs involvement of traders,
other actors from all industries and various government ministries among of them the major one is
Ethiopian revenue and customs authority. (Lidya Debebe, 2014)

2.3 Definition of Customs Valuation

Walsh (2003) defines customs valuation as an integral part of trade facilitation together with
issues related to changes levied on imports quota licensing arrangement and the application of
preference systems .He also explained provisions to gather with their implementation procedures
of the WTO customs valuation agreement.

Finger and Schuler (2000) presents customs valuation within the wider sphere of reforms which
are based on transparency, accountability, objectivity and balance.

2.4 Types of WTO Valuation Methods

There are six types of methods of valuation applicable in their sequential order all over the world

including Ethiopia.

2.4.1 Transaction Value;

Transaction value is based on the price actually paid or payable is the total payment made or to
be made by the buyer to or for the benefit of the seller for the imported goods, and includes all
payments made as a condition of sale of the imported goods by the buyer to the seller, or by the
buyer to a third party to satisfy an obligation of the seller. The customs value is the transaction
value if there is evidence of sale of the goods including commercial invoice, contracts, purchase
orders and etc as well as under the fulfillment of other requirements like bank permits, way bill
of lading and other required documents which are to be requested y customs officers.

2.4.2 Transaction Value of Identical Goods;

The transaction value is calculated in the same manner on identical goods if the goods are:-

 the same in all respects including physical characteristics, quality, and reputation
 produced in the same country as the goods being valued
 and produced by the producer of the goods being valued
For this method to be used, the goods must be sold for export to the same country of importation
as the goods being valued. The goods must also be exported at or about the same time as the
goods being valued.

2.4.3 The Transaction Value of Similar Goods

The transaction value is calculated in the same manner on similar goods if:

 Goods closely resembling the goods being valued in terms of component materials
and characteristics

 Goods which are capable of performing the same functions and are commercially
interchangeable with the goods being valued

 Goods which are produced in the same country as and by the producer of the goods
being valued. For this method to be used, the goods must be sold to the same
country of importation as the goods being valued. The goods must be exported at or
about the same time as the goods being valued.

2.4.4 The Deductive Value Methods

The Agreement provides that when customs value cannot be determined on the basis of the
transaction value of the imported goods or identical or similar goods, it will be determined on the
basis of the unit price at which the imported goods or identical or similar goods are sold to an
unrelated buyer in the greatest aggregate quantity in the country of importation. The buyer and
the seller in the importing country must not be related and the sale must take place at or about the
time of importation of the goods being valued. If no sale took place at or about the time of
importation, it is permitted to use sales up to 90 days after importation of the goods being valued.
2.4.5 The Computed Value Methods
Computed value, the most difficult and rarely used method, determines the customs value on the
basis of the cost of production of the goods being valued, plus an amount for profit and general
expenses usually reflected in sales from the country of exportation to the country of importation
of goods of the same class or kind. Computed value is the sum of the following elements.

2.4.6 The Fall Back Method

Customs value determination based on “reasonable means consistent with the principles and
general provisions of the Agreement, Article VII GATT and on the basis of available data”.

When the customs value cannot be determined under any of the previous methods, it may be
determined using reasonable means consistent with the principles and general provisions of the
Agreement and of Article VII of GATT, and on the basis of data available in the country of
importation. To the greatest extent possible, this method should be based on previously
determined values and methods with a reasonable degree of flexibility in their application.

2.5 World Trade Organization Agreement on Customs Valuation

The Customs Valuation Agreement of the World Trade Organization (WTO) sets out a fair,
uniform and neutral system for determining the value of imported goods on which customs
officials levy duties. This system bars the use of arbitrary or fictitious customs values.

The Agreement was negotiated during the Uruguay Round of Multilateral Trade Negotiations,
which was concluded in April of 1994. It elaborates and makes more precise Article VII of the
Multilateral Agreements on Trade in Goods -- GATT (1947) , and its official name is:
"Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade
1994".

2.5.1 Who Benefits From This Agreement?

Any company involved in international trade can benefit from the fair and predictable rules in
this Agreement for the valuation of goods for customs purposes.

.
 3. RESEARCH METHODOLOGY
3.1 Research Method
Research methods are specific techniques/methods of data collection and analysis used to
achieve the broad research objective through addressing the specific objectives of the study.
Consequently, the researchers used questionnaire, personal semi structured interview and
document analysis and descriptive method of research in order to present the data collected.

Personal semi structured interview will be designed to collect data from officials. While
questionnaire are to collect data from employees of the organization. Document analysis will be
used in order to gather information from secondary data, that is to collect data from written
documents that are help full for the researcher in addition to data collected from interview and
questionnaire. The questionnaire will be prepared in English having two parts, the first part is
comprised of profile of respondents and the second part is comprised of the main idea of the
study issue

3.2 The Source of Data

The types of data that will be used for this study are

1. Primary data - the data that will be collected mainly from employees of customs clearance
procedure and interview for officials.
2. Secondary data - the data that will be gathered from written materials like books, researches,
internal letters of the office and other internets in the authority's website.

3.3 Research Approach

The research approach the researcher going to use for the purpose of this study is Mixed
approach. That means both qualitative and quantitative approach will be used for data
presentation. Mixed approach is useful and appropriate when using either of them remains
inadequate for presenting data collected.

3.4The Research Design

3.4.1 population size

The study population that the researcher intended to draw a sample is will indicated as follows.
Therefore under this study the sampling frame will be customs officials and employees. The
estimated population of the study, there are 300 employees of Jijiga revenues and customs
branch is. Among those 120 employees are working in department directly and indirectly related
to customs valuation and clearance procedure. And hence the researcher believe that these
employees can provide information regarding the effects of customs valuation methods on trade
facilitation. There the total population size of the study will be 120 employees from which
sample size will be designed

3.4.2 Sample size

Sample should be representative because based on the sample generalization is given for the
entire population.

n=

where n= sample size p= proportion defective of 5%= 0.05

Z= value at confidence level (95%)= 1.96 q= 1-p= 0.95
E= sample error at (5%) =0.05 N= total population

=46

Therefore, the sample size is estimated to 46 employees of the total population.

Source: C.R. Kothari, 2004.

3.5 Sampling techniques

To select the sample size of individuals from employees, random sampling technique will be
used which enable the researcher to select randomly and making all employees having the
possibility of being selected out of the total population and for interview purposive sampling will
be used in order to make the researcher free to select from middle and upper managers to gather
data.

3.6. Method of data analysis and presentation

The collected data from secondary and primary sources will be analyzed followed by more
description using the detailed explanation, using tabulation and graphs, where ever it is
necessary, to make the findings more easy to be understood by everyone.

Finally, the findings of the research will be presented by the researcher on written material and
oral presentation.

Appendix 1, Time budget

No Activities Jan Feb Mar Apr May Jun July

1 Proposal preparation Xxx
2 preparing questionnaire Xxx
3 Data collection Xxx
4 literature review Xxx
6 Data analysis and Xxx
interpretation
7 Typing the analysis data on Xxx
the ordinary paper
8 Final paper submission and Xxx
presentation
Appendix 2,Budget schedule

No Description measurement Cost in birr

1 Transportation Distance 3,000 birr
2 Paper and bag number 600 birr
3 Typing and binding 340 birr
5 Pen Number 20 birr
6 Pencil Number 5 birr
7 Flash and C d Number 250 birr
8 Miscellaneous expense 3000 birr
9 Contingency 10% 721.50
Total cost 7,936.50 birr
Appendix 3, Reference

Chaturuedi, Sachin (2006) customs valuation in India, Identifying trade facilitation related
concerns, Asia- Pacific Research and training network, on trade working paper series No.25,
December 2002.

Customs clearance procedures .WWW.trategis.ic.gc.cal/ internet.

C.R. kothari,(2004) Research methodology, methods and techniques, second revised edition.

Gooraman ,Adrien and Wulf Luc De.2004 “customs valuation in developing countries and WTO
valuation” in Luc.De wulf and Jose B.Sokal.eds.customs modernization Hand book,Washinghton
D.C ; World bank.

Lidya Debebe,2014, the challenges of Human resource management on trade facilitation in case
of kaliti branch.

Rage.V (2002) customs valuation and customs reform development trade and the WTO edited by
Barnard hoekman Aaditya mattoo and Philip English Washington World bank.

Streatfield.J (2006) A brief negotiating history of customs valuations in the GATT and WTO
Journal of law and economics in international trade Vol.2 No.2. pp 32-54

Walsh T.J (2003), customs valuation, change customs edited by Michael keen, Washington; IMF.

World trade organization (2003) understanding the WTO Geneva.

World trade organization (2004) valuation of goods for customs purposes Geneva, from
http;//www.wto.org
World trade organization (WTO) 1994 agreement on implementation of article 7 of the General
agreement on tariff and trade viewed 28 July 2009.

World trade organization (WTO) 2009 “Trade policy reviews” viewed 15 July 2009.