Sample Economics Paper on WTO Case Study

The treatment of commercial discounts by the Customs department is determined by the WTO and WCO, as set forth in Article (26) of the GCC States’ Common Customs Law. Article (1) allows the valuation of commercial discounts only when discounts are applied to all buyers on the same transaction, given to buyers at the period of valuation, offered depending on the quantity of goods, and given according to normal commercial practices like cash/quantity/special introductory discounts or discounts in kind. Article (2) states that discounts for customs purposes can also be allowed in response to breakage or shipment allowance, negotiated discounts, and contractual discounts. Lastly, the Customs Valuation Department, as illustrated under Article (3), shall reject commercial discounts if the buyer and seller are related, discounts are made after shipment, the discounts offered are unjustifiable, and if the discounts are on sale and brokerage. Article (4) gives the Custom Valuation Department the mandate to implement the customs policy and decide when to accept or reject discounts in event of failure by the customs centers. Lastly, Article (5) states that the policy will be effective as of 1st of April 2006. There are three types of discounts namely; ash discounts offered when a buyer uses cash instead of credit, volume discount given to a seller after buying a large quantity, and purchase discount which is the reduction offered when a buyer purchases products before the due date. The following is an outline of the application of these policies on various discounts.

Application of the Customs Policy to Cash Discounts

When a buyer purchases and imports goods on cash discount before valuation, the Committee on Customs Valuation requires that the cash discount determine the transaction value since it was the amount actually paid. When, by the time of valuation, a cash discount is offered, but the buyer has not made payment for the goods, the valuation agreement states that the sale price cannot be used to determine the transaction valuation; rather, the amount the buyer will pay for the goods is used instead (WTO 1-27).

Application of the Customs Policy to Quantity Discounts

Quantity discounts are price reductions offered by the seller depending on the quantity of goods purchased. However, the Valuation Agreement offers no insight into a standard quantity to be used in determining the customs value. A seller can offer quantity discounts before the import of goods or after (WTO 1-27).

An illustration of quantity discount– As an example, let us assume that a seller offers discounts as follows: 1- 9 units: zero discount, 10- 49 units: 5% discount, and 50 units and above: 8% discount. If importer B buys 27 units in one shipment, the price will reflect a 5% discount. Importer C, who purchases 27, units, shipped thrice as 9 units each, also gets a 5% discount. Therefore, the transaction value will be the price reflecting the 5% discounts.

India Customs Bearing Case

In this case, the buyer is a tractor and tractor engine company, an Indian manufacturer who, for 30 years, had been importing bearings from a Japanese supplier. In 1989, the buyer discovered a cheaper local bearing manufacturer, leaving the Japanese supplier with a huge inventory but with no customer. To sell the remaining inventory, the Japanese supplier offered the importer a discount of 77%, dropping down from the 30% usual discount. India customs rejected the transaction value under Article (3) since it was ambiguously unjustifiable and, instead, employed the fall-back method (WTO 1-27). The importer appealed the case first at the Customs Appellate Tribunal then the Supreme Court of India, both of which upheld the custom’s decision citing the ambiguity of the quoted price as compared to the regular price of the bearings.

 

 

Work Cited

WTO. The WTO Agreement on Customs Valuation. Trade Topics. Pp. 1-27. (2000, Oct).  https://www.wto.org/english/docs_e/legal_e/20-val.pdf