We suggest, therefore, that the Commission consider whether one of the reasons why the United States has never adopted a valuation standard dependent in whole or in part on the distance of the exporter from the various ports of this country is because of the grave question to which such a standard-embodied in the Brussels definition-would give rise under article 1, section 8, clause 1 of the U.S. Constitution. For the foregoing reasons, we submit, the Commission should recommend in its final report that the United States not adopt the Brussels definition of value for duty assessment purposes.

POINT II. THE BRUSSELS DEFINITION OF VALUE SHOULD NOT BE ADOPTED BY THE UNITED STATES FOR STATISTICAL PURPOSES

The institute has previously this year registered its opposition to the reporting of import statistics on a c.i.f. basis.11 We briefly summarize here the institute's reasons for opposing the use of the Brussels definition embodying such c.i.f. basis for statistical purposes.

First, it seems apparent that import statistics should be reported on the same value basis as is used for the assessment of duty. This has always been the case in the United States. It makes good sense because the statistics are a mirror of U.S. trade, the pattern of which in turn is affected by the statutory duty structure. We have given above the reasons why the Uniter States should not adopt the Brussels definition for duty assessment purposes. If, as we recommend, there should not be a change to the Brussels Convention's c.i.f. basis for duty assessment, neither should there be such a change for statistical reporting purposes. Second, just as in the case of its application to duty assessment, the Brussels definition has little to commend it, or to overweigh the added expense of such a system, for statistical purposes. Indeed, the contrary is true-use of the Brussels definition of value for reporting U.S. imports would present a distorted and misleading picture of U.S. trade.

Because U.S. export figures are reported on an f.o.b. port-of-export basis, using the Brussels definition's c.i.f. port of entry basis to statistically report imports would make comparison of U.S. exports and imports for balance-of-trade purposes like comparing apples and oranges. The exclusion of ocean freight and insurance charges from export statistics, while including them in the import figures, would make balance-of-trade data prepared on such basis totally meaningless. We have been recording our trade statistics on an f.o.b. basis since 1832. There is a very good reason why for over 135 years our Government has considered ocean transportation and international insurance charges not proper entries in our trade account. It has long been recognized that transportation and insurance charges are positive or negative factors in the overall balance-of-payments account depending on whether U.S. or foreign companies furnish and are paid for the transportation and insurance services. Whether the charges are incurred on an export or on an import transaction is not relevant from a balance-of-payments point of view.

In sum then, it is the institute's position that the Commission should find that the present, well-tried U.S. reporting system for trade

" See statement of Seymour Graubard on behalf of the AIIS on S.J. Res. 115, before the Committee on Finance, U.S. Senate, 89th Cong. (Sept. 1, 1966).

statistics is productive of accurate, meaningful data. It should recommend in its final report that the United States should continue to report import, as well as export, figures on an f.o.b. port-of-export basis.

POINT III.- - VALUE SHOLD BE DETERMINED ON CONTRACT DATE AND INVOICE PRICE SHOULD BE PRIMA FACIE CUSTOMS VALUE

As previously indicated, we believe that the present U.S. valuation standard as applied to steel imports in general is objective and productive of accurate results. It approaches the ideal customs valuation standard-the actual price on the import transaction in question.

However, there are two ways in which, in our view, the standard can be improved:

(a) Value should be determined on the contract date.-Under the present definition of "export value" embodied in section 402, the date on which value is determined is "the time of exportation to the United States." No consideration is given to prices at the time of the purchase by the importer of the imported product. While, with respect to other kinds of imported merchandise there may be little or no practical difference between value on contract date and shipment date, as applied to steel products imports the "time of exportation" rule can lead to anomalous results.

Normally, steel is ordered by the importer 3 to 4 months in advance of the date of shipment from the foreign ports, the leadtime being required by the mills to schedule production and to roll the steel. Imported steel is sold on a firm contract price, not, as in the case of the bulk of the U.S. mills, on a price governing at time of shipment. During the 3 to 4 month period between the making of the contract and the shipment date the market price of course fluctuates and at time of shipment may be higher or lower than the price at which the importer purchased the steel.

Because the price for imported steel is determined in the free, competitive international marketplace, the importer has no way of knowing what the market price will be at the time of shipment. He, therefore, cannot ascertain his duty liability in advance, although, as is most often the case, he has resold the steel to a domestic customer also at a firm contract price well before the shipment date.

Thus, the "time of exportation" standard leads to unwarranted commercial uncertainty on the part of the importer of steel products subject to ad valorem and compound rates of duty. The burden of this uncertainty is particularly heavy where the product involved is subject to a split rate of duty with a value breakpoint because a small upward adjustment of "value" can bring with it a disproportionate duty

increase.

We have been unable to determine any reason, other than an historical one, why value is determined at time of exportation. As we have shown, to a substantial extent in the case of steel imports and to a certain extent in the case of any class of imported merchandise subject to ad valorem or compound duty rates, it must lead to unnecessary and undesirable commercial uncertainty.

The time of exportation standard is not required from the point of view of uniformity or U.S. treaty commitments. A time-of-con

tracting standard would produce uniformity of valuation treatment of all exports of a class of merchandise from a particular exporting country sold at the same time. There appears to be no reason why this uniformity is not just as acceptable as a uniformity based on the fortuity of the shipment date. The GATT does not specify the time. of valuation to determine "actual value" but rather leaves that specification to the legislatures of the signatory nations.12

In addition to and possibly more important than the advantage to importers of commercial certainty, a time-of-contracting test has the advantage of logic. The dutiable value of an imported article should be the value determined by the marketplace. To test whether the value declared by the importer is one established by the marketplace, one should look to the market price when the importer purchased the imported article, not an unrelated market price some months later.

Thus, because a time-of-contracting test has the advantages of commercial certainty and commercial reality, we submit, the Commission should recommend that the United States adopt such a test in place of the present time-of-exportation test embodied in section 402.

(b) Invoice price should be prima facie the customs value.-As we have indicated throughout, customs value should be actual commercial value of the imported article determined by the marketplace. In turn, the best evidence of such market value is what the importer agreed to pay, and what the exporter agreed to receive, for the article-the invoice price.

No doubt as a practical matter the invoice price more often than not presently governs in determining export value. However, there is no provision of law requiring the customs official to use invoice price prima facie as customs value. We believe that if there were such a provision in section 402, it would further speed the customs appraisement procedure by affirmatively encouraging the customs officials to do so.

Such a provision, of course, would not preclude the customs official from requiring other information to substantiate market value if he should have reason to believe that the invoice price does not represent a true arm's-length market price.13 However, the provision would make it clear that such an extended inquiry should be the exception and not the rule.

The incidence of commercial invoices containing fictitious prices for purposes of obtaining a lower duty liability is small. No reputable importer would be a party to such a fraud on the Government. The large majority of reputable importers should not be penalized by slow cumbersome appraisement procedures to catch the few malefactors. Rather a system, such as is used in income tax collections, which relies basically on the honest reporting of the taxpayer, should be extended to the collection of ad valorem and compound duties.

A first giant step toward such a system-which would relieve some of the ever-increasing burden on the Customs Service-would be to make the invoice price prima facie the customs value. Even more

22 GATT, art. VII (2) (b).

13 It should be noted that an informal system has grown up whereby the Customs requests, and most importers furnish, a copy of the contract between the exporter and importer at the time it is made. We believe that this system should be formalized and made mandatory. It furnishes a ready source of market information for the Customs to spot check the bona fides of invoice prices.

important, making the invoice price prima facie the customs value will bring U.S. customs valuation completely in line with the commercial realities.

LINCOLN & STEWART,
ATTORNEYS AT LAW,
Washington, D.C.

Hon. RUSSELL B. LONG,

Chairman, Committee on Finance,

U.S. Senate,

New Senate Office Building,

Washington, D.C.

DEAR MR. CHAIRMAN: In accordance with your public notice of September 27 and the invitation received in a letter bearing that date from the committee's chief counsel, I am pleased to submit on behalf of the World Trade Committee, Parts Division, Electronic Industries Association, a memorandum pertaining to the valuation of imported goods.

The World Trade Committee has an interest in many of the areas of consideration set forth in your public notice, but we are limiting our submission of views at this time to the topic of the valuation of imported goods so that we might, within the space limitations suggested by the chief counsel, treat with one subject in depth.

On behalf of the Parts Division, the World Trade Committee would expect to participate in the oral hearings to be held by the committee during the next session of the Congress, and we understand from your notice that the submission of a paper on particular topics is not to be considered a prerequisite for presenting an oral statement on such topics when the hearings are scheduled.

Accordingly, at this time we invite your attention to the particular topic which is the subject of the accompanying memorandum, "The Need for the Reestablishment of Customs Valuation Rules Designed to Check Undervaluation of Imported Merchandise."

Sincerely yours,

EUGENE L. STEWART,

Special Counsel, World Trade Committee, Parts Division,

Electronic Industries Association.

SUMMARY

In repealing the customs valuation rules of long standing in the Customs Simplification Act of 1956, the Congress evidenced an intention to prevent harm to domestic industries as a result of lower import values and lower duties resulting from the use of the new value rules. Congress undertook to safeguard against this possibility by reliance on two procedures:

(a) The retention of the former value rules for articles found by the Secretary of the Treasury on the basis of analysis of 1954 imports to be subject to a reduction in import value of 5 percent or more; and

(b) A strengthened enforcement of the Antidumping Act. Neither of these safeguards has proved to be of significant help in preventing the result which Congress wished to avoid in the enactment of the 1956 act. The final list of products published by the Secretary of the Treasury embraced only articles that moved in the import trade in that year and did not provide for similar safeguards against articles which commenced to move in the import trade at a later date, and the scope of the article descriptions set forth in the final list has been constricted by administrative interpretation with the result that imports of electronic components have been denied the benefit of the final list procedure.

In regard to the enforcement of the Antidumping Act, the absence of foreign value information, formerly required under the customs valuation rules repealed by the 1956 act, has handicapped the Bureau of Customs in initiating antidumping investigations and has tended to frustrate the type of enforcement of the Antidumping Act which Congress specifically called for as a check against the undervaluation of imported goods under the new valuation rules.

Without question, return by the United States to the effective use of home market value (foreign value) as the primary basis for customs valuation is necessary if we are to (1) slow the increasing import trend and the imbalance of trade in manufactured goods which flows from this trend; (2) reverse the erosion of our present favorable balance of trade in commercial manufactures with its resultant adverse effect on the growth rate of our gross national product; (3) provide a fair share of U.S. market growth to our domestic industries; and (4) strengthen the enforcement of our antidumping laws which are so important to our domestic industries in combating unfair competition from foreign producers in U.S. markets.

THE NEED FOR THE REESTABLISHMENT OF CUSTOMS VALUATION RULES DESIGNED TO CHECK UNDERVALUATION AND PROVIDE DOMESTIC PRODUCERS WITH A FAIR SHARE OF U.S. MARKET GROWTH

In enacting the Customs Simplification Act of 1956 (19 U.S.C. secs. 1401a, 1402), the Congress was persuaded by the executive branch, under the guise of customs simplification, to make basic and far reaching changes in customs valuation of rules which for more than 30 years had been reasonably effective in checking undervaluation. The basic change made by this act was the elimination of the use of the higher of foreign (home market) or export value as the primary valuation basis and the making of export value the principal valuation base. Of lesser importance, but still of serious impact, were the redefinitions of various valuation bases.