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to the cost or value of materials produced in the United States may be applied toward the 35 percent minimum local content require41 ment. These rules and requirements to preclude transshipment or pass-through operations are identical to CBI provisions, except that content from CBI beneficiary countries may also be counted toward the minimum 35 percent local content requirement for determining the product of an Andean country.

A statutory list of products that are ineligible for duty-free treatment under the ATPA is also identical to the product exclusion list under the CBI except that rum is also excluded from ATPA eligibility in order to preserve preferential benefits for Caribbean, Vire: gin Islands, and Puerto Rican producers. Unlike under the CBI, duty-free treatment does not apply to imports of certain excluded articles assembled or processed wholly from U.S. components or materials.

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In addition to rum, ATPA duty-free treatment does not apply to textiles and apparel articles subject to textile agreements; footwear not designated eligible for GSP duty-free treatment; canned tuna; petroleum or petroleum products; certain watches and watch parts; certain leather-related products; and sugar, syrups, and molasses subject to over-quota rates of duty. As under the CBI and GSP proft grams, duty-free treatment applies only to imports of sugar entering within the tariff-quota level; over-quota sugar imports remain subject to a high tariff. As under the CBI, duty rate reductions of 20 percent, not to exceed 2.5 percent ad valorem, implemented in five equal annual stages beginning January 1, 1992, apply to imsports of Andean leather-related products (handbags, luggage, flat goods, work gloves, and leather wearing apparel).

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Authorities under the ATPA to grant import relief measures and to take emergency action on imports of agricultural perishables are identical to provisions under the CBI program. The President may suspend duty-free treatment and proclaim a duty rate on any eligible article under the import relief provisions of the Trade Act of 1974 or the national security provisions of the Trade Expansion Act of 1962. The U.S. International Trade Commission must state in its report to the President on any import relief investigation involving an eligible article under the ATPA whether and to what extent its injury findings and remedy recommendations apply to imports of the article from beneficiary countries.

Under an emergency relief procedure for agricultural perishables, ed petitions may be filed with the Secretary of Agriculture at the same time as a petition for import relief is filed with the ITC. Within 14 days, the Secretary advises the President whether he has reason to believe that a perishable product from a beneficiary country is being imported in such increased quantities as to be a substantial cause of serious injury or threat thereof to the domestic industry and that emergency action is warranted, or publishes notice and advises the petitioner of a determination not to recommend emergency action. Within 7 days after receiving a recommendation, the President must proclaim the withdrawal of dutyfree treatment or publish notice of his determination not to take emergency action.

No proclamation under the ATPA shall affect fees imposed pur-i suant to section 22 of the Agricultural Adjustment Act of 1933.

Other provisions

The ATPA increased the duty-free tourist allowance for U.S. residents returning from Andean beneficiary countries from $400 to $600 and 1 additional liter of alcoholic beverages may enter duty free if produced in an Andean beneficiary country.

The President must submit a triennial report to the Congress on the operation of the program. The ITC must report annually to the Congress on the economic impact of the ATPA on U.S. industries and consumers and on the effectiveness of duty-free treatment in promoting drug-related crop eradication and crop substitution efforts of beneficiary countries. The Secretary of Labor must also report annually on the impact of the ATPA on U.S. labor.

Historical background

Customs Valuation

In order to assess applicable duty rates under the Harmonized Tariff Schedule of the United States (HTS) and to collect appropriate import statistics, the dutiable value of all imported merchandise must be determined. The process by which Customs determines the dutiable value of imported merchandise is referred to as "appraisement" or "valuation."

Merchandise exported to the United States on or after July 1, 1980, is subject to appraisement under a uniform system of valuation established by title II of the Trade Agreements Act of 1979. Title II, which implements the Customs Valuation Agreement (entitled the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade) negotiated as one of the Tokyo Round of multilateral trade negotiations (MTN) agreements, was put into effect by Presidential Proclamation 4768 of June 28, 1980.36

Title II revised section 402 of the Tariff Act of 1930 37 and repealed the American Selling Price (ASP) method of valuation. However, under section 204(c) of the Trade Agreements Act of 1979, the ASP method of valuation continues to apply to certain rubber footwear exported to the United States before July 1, 1981. Title II also repealed the alternative valuation system under section 402a of the Tariff Act of 1930.38

Prior to the Trade Agreements Act of 1979, separate valuation standards-commonly referred to as the "old law" and the "new law" existed side by side. Section 402a of the Tariff Act of 1930 was called the "old law" because it was enacted as part of the Tariff Act of 1930. It provided for the following order of progression in appraising merchandise: (1) foreign value or export value, whichever is higher; (2) U.S. value; (3) cost of production. It also provided for the application of the ASP basis of appraisement for designated articles such as benzenoid chemicals and certain footwear. The ASP method was based on the value of a domestic product rather than

36 45 Fed. Reg. 45135 (1980).

37 19 U.S.C. 1401a.

38 19 U.S.C. 1402.

an imported product in order to protect the U.S. industry from foreign competition.

During the early 1950's the Department of the Treasury proposed eliminating the foreign value basis of appraisement, which as its name implies is based on the value of merchandise sold in foreign markets. The Department of the Treasury argued that data for determining export value were more readily available and the elimination of foreign value would streamline the appraisement process by obviating the need to make simultaneous appraisements under export value and foreign value.

In response to these proposals, the Customs Simplification Act of 1956 created a new group of valuation standards. These standards were contained in section 402 of the Tariff Act of 1930 39 and referred to as the "new law." The "new law" eliminated the foreign value standard and made export value the primary basis for appraisement. With certain modifications, both U.S. value and cost of production (renamed the constructed value) were retained as the first and second alternative standards. The meaning of each standard was modified, however, by changes in the statutory language and by the inclusion in the law of definitions for certain of the terms.

However, Congress was unwilling to make these changes applicable to all imported articles. Because the new provisions were expected to have a duty-reducing effect for many articles, the Secretary of the Treasury was instructed to prepare a list of commodities which, if appraised under the new valuation standards, would have been appraised at 95 percent or less of the value at which they were actually appraised in the 12 months ending June 30, 1954 (i.e., dutiable value reduced by 5 percent or more). The articles so identified were published in Treasury Decision 54521 (January 20, 1958), which is referred to as "the Final List" and such articles continued to be appraised under the "old law" standards of section 402a of the Tariff Act. Thus, after the enactment of the Customs Simplification Act of 1956,40 there were nine separate bases of appraisement (five under the old law and four under the new) applicable to imported products.

It was largely this complexity of U.S. valuation laws as well as foreign objections to the American Selling Price basis of appraisement which prompted our trading partners to enter into negotiations at the Tokyo Round of MTN on the development of a new system of customs valuation.

THE GATT/WTO CUSTOMS VALUATION AGREEMENT

The Customs Valuation Agreement was signed by most major U.S. trading partners at the conclusion of the Tokyo Round. The WTO Agreement on Customs Valuation, which is essentially the same document, is included in the Uruguay Round Agreements applicable to all WTO members. Internationally-agreed rules governing customs valuation will apply to the overwhelming majority of trading countries. Newly joining developing countries may delay implementation for up to 5 years.

39 19 U.S.C. 1401a.

40 Act of August 2, 1956, ch. 887.

The Agreement consists of four major parts in addition to a preamble and three annexes. Part I sets out the substantive rule of customs valuation, the substance of which was codified in U.S. law by the Trade Agreements Act of 1979 as an amendment to section 402 of the Tariff Act of 1930. Part II provides for the international administration of the Agreement and for dispute resolution among signatories. Part III provides for special and differential treatment for developing countries, and part IV contains so-called final provi- i sions dealing with matters such as acceptance and accession of the Agreement, reservations, and servicing of the Agreement.

Administration and dispute resolution.-As mentioned above, the ! Agreement establishes two committees-a "Committee on Customs Valuation" (referred to as "the Committee”) and a "Technical Committee on Customs Valuation" (referred to as the "Technical Com- i mittee") to administer the Agreement and creates a mechanism' for resolving disputes between parties to the Agreement. The rules under the WTO Dispute Settlement Understanding apply to disputes over the interpretation or application of the Agreement.

The Committee, which is composed of representatives from each of the parties, meets annually in Geneva "to consult on matters relating to the administration of the customs valuation system by any party to Agreement as it might affect the operation of this Agreement or the furtherance of its objectives, and to carry out such other responsibilities as may be assigned to it by the parties.” The WTO secretariat acts as the secretariat to the Committee, and the Office of the U.S. Trade Representative is the U.S. representative to this Committee.

The Technical Committee was created under the auspices of the Customs Cooperation Council (CCC) to carry out the responsibilities assigned to it by the parties and set forth in annex II to the Agreement with a view towards achieving uniformity in interpretation and application of the Agreement at the technical level. Among the responsibilities assigned to the Technical Committee are

(1) to examine specific technical problems arising in the administration of the customs valuation systems and to give advisory opinions offering solutions to such problems;

(2) to study, as requested, and prepare reports on valuation laws, procedures and practices as they relate to the Agreement; and

(3) to furnish such information and advice on customs valuation matters as may be requested by parties to the Agreement.

The Technical Committee meets periodically in Brussels, and the U.S. Customs Service serves as the U.S. representative to this technical committee.

Dispute resolution.-Several steps are provided for a party to follow if it considers that any benefit accruing to it under the Agreement is being nullified or impaired, or if any objectives of the Agreement are being impeded by the actions of another party.

First, the aggrieved party should request consultations with the party in question with a view to reaching a mutually satisfactory solution. If no mutually satisfactory solution is reached between the parties within a reasonably short period of time, the Committee shall meet at the request of either party (within 30 days of receiv

ing such request) and attempt to facilitate a mutually satisfactory solution. If the dispute is of a technical nature, the Technical Committee will be asked to examine the matter and report to the Committee within 3 months.

In the absence of a mutually agreeable solution from the Committee up to this point, the Committee shall, upon the request of either party, establish a panel (within 3 months from the date of the parties' request for the Committee to investigate where the matter is not referred to the Technical Committee, otherwise within 1 month from the date of the Technical Committee's report) to examine the matter and make such finding as will assist the Committee in making recommendations or giving a ruling on the mat

ter.

After the investigation is complete, the Committee shall take appropriate action (in the form of recommendations or rulings). If the Committee considers the circumstances to be serious enough, it may authorize one or more parties to suspend the application to any other party of obligations under the valuation agreement. Special and different treatment.-Part III of the Agreement allows developing countries which are party to the Agreement

(1) to delay application of its provisions for a period of 5 years from the date the Agreement enters into force;

(2) to delay application of articles 1, 2(b)(iii) and 6 (both of which provide for a determination of the computed value of imported goods) for a period of 3 years; and

(3) to receive technical assistance (such as training of personnel, assistance in preparing implementation measures and advice on the application of the Agreement's provisions) upon request, from developed countries party to the Agreement.

Section 402 of the Tariff Act of 1930 42 as amended by the Trade Agreements Act of 1979 establishes "Transaction Value" as the primary basis for determining the value of imported merchandise. Generally, transaction value is the price actually paid or payable for the goods, with additions for certain items not included in that price.

If the first valuation basis cannot be used, the secondary bases are considered. These secondary bases, in the order of precedence for use, are: transaction value of identical or similar merchandise; deductive value; computed value. The order of precedence of the last two bases can be reversed if the importer so requests. Each of these bases is discussed in detail below:

Transaction value of imported merchandise.-Several concepts relating to the transaction value of imported merchandise are also applicable to the transaction value of identical or similar merchandise, as discussed in the next section. These concepts, concerning the nature of transaction value itself, are discussed in terms of the transaction value of imported merchandise.

41 Most of the description of current law was taken from "Customs Valuation Under the Trade Agreements Act of 1979," Department of the Treasury, U.S. Customs Service, Office of Commercial Operations, October 1981.

42 19 U.S.C. 1401a.