Financial Times

Valuation checks continue despite new WTO system

The Customs Departments will maintain strict checks on certain kinds of imports despite the operation of a world trade agreement designed to ease trade flows by cutting red tape because of the penchant for under-invoicing and false declarations by a large number of importers.

Under the new World Trade Organisation Customs Valuation Agreement for clearing imports, Customs allow imports to be cleared on a bank or corporate guarantee to provide for any payment of duty for which the goods may later found to be liable under post- clearance audits.

It is not supposed to detain goods for examination to determine their values as done previously and the WTO agreement aims to process at least 60 percent of imports without the intervention of valuation experts.

However, post-clearance audits will not be done for a large number of imports and instead Customs will continue with a modified form of the previous arrangement under which the values of imports are checked before the goods are cleared, Customs director general Sarath Jayathilake said.

"In Sri Lanka every day 10 or 12 people register for imports and also many imports are in small volumes. So we have problems in detecting under-valuation," he said in an interview.

"They have no track record, there are no brand names, recorded prices or registered article numbers, especially for Chinese imports such as plastic toys. So it is difficult to do post-clearance audits to check for under-invoicing later on.

"We have identified risk areas and for those importers with no track record we don't allow goods to be cleared pending post-clearance audit checks. Rather, Customs will meet you upfront at the time of import," Jayathilake said.

"Developed countries have no problem because import duties are low hence people don't bother to under-value their imported goods," he added. "Here, we must prove they deliberately undervalued imports."

The WTO agreement aims to provide a single system across the world that is fair, uniform and neutral for the valuation of imported goods for Customs purposes, conforming to commercial realities and outlawing the use of arbitrary or fictitious Customs values.

The agreement recognises that Customs valuation should be charged primarily on the transaction value of the imported goods.

The key feature of this agreement is that it eliminates the arbitrary valuation of imported goods, officials said. The previous system of valuation, the BDV (Brussels Definition Value), gave absolute discretionary powers to Customs officers in determining the value of goods on a notional concept, i.e. the normal value of the goods.

This allowed the Customs department to arrest and rectify under-valued goods, when calculating the specified Customs duty. However, such probes have often proved to be time consuming and the reason for considerable delay in releasing cargo.

M.S.M. Niyas, chairman of the Association of Clearing and Forwarding Agents, said that earlier Customs tried to value goods on the basis of their characteristics but now it will be on the strength of the description in the invoice - shifting valuation from the nature of the goods at point of examination to the documentation.

"So there won't be that much need to submit many containers for examination, draw samples, or hold boxes until the value is finalized," he explained.

"However, the very nature of Sri Lankan business culture is that we have so many small-timers so to trace back such importers has generally been found to be a rather difficult task - it can be done with big corporates with an established track record but not with a large number of individual importers and small fly-by-night firms.

"The law only holds the importer liable," he added. "By the time you do post-clearance audit you find the importer not there . . ."

Sixty percent of the volume of imports is done by the so-called non-corporate sector and 30 percent food cargo imports is controlled by the Pettah market made up of small-timers, he said.

Also, Customs lacks adequate numbers of qualified staff to do post-clearance audit by going through the accounts of importers to find out if there had been any irregularities, he also said.

"Leave alone keeping records for post-clearance audit trails many small traders usually do not maintain proper accounts," Niyaz said.

He described the Customs arrangement to "meet up front people who they think are not reliable" as a "braking system" to prevent abuse.

This arrangement is expected to cover some 60 percent of importers and means that the trade facilitation aims of the WTO Customs Valuation agreement will not be achieved completely for the time being.

The new system could also initially reduce revenue.

"We must be mindful that a sizeable amount of government revenue depends on import duties - of the Rs. 132 billion Customs collected in 2002 over 95 percent came by taxing imports," Niyaz said.

Dealers demand return of nationalised petrol sheds

By Quintus Perera
Some members of the Petroleum Dealers' Association have demanded the government return to them filling stations taken over when petroleum distribution was nationalised.

They said they were paid a pittance when their petrol stations were nationalised and suggested that these lands and buildings now owned by the Ceylon Petroleum Corporation should be sold to dealers at a reasonable price.

The suggestion was very pertinent at a time the government was broad basing petroleum distribution with private sector participation, they told The Sunday Times FT at their recent annual general meeting.

Already 100 filling stations have been handed over to Indian Oil Corporation under a deal between the Indian and Sri Lankan governments in which the Indian oil major will upgrade the distribution network and refurbish the Trincomalee oil tank farm.
Chief Guest Power and Energy Minister Karu Jayasuriya said the competition that comes with the liberalisation of petroleum distribution would benefit not only dealers but consumers as well.

The government would not let the CPC be crippled in the face of competition, he said.

There were indications of oil deposits in Sri Lanka's territorial waters and the government plans to conduct further studies to confirm these findings.

"If we strike oil there would be prosperity and there could be drastic changes in the country," Jayasuriya said.

A Rs. 20 million shortage was reported in the CPC and the people should know what happened to this money, he also said without elaborating.

Jayasuriya said that he had assured CPC workers that there would be no political victimization and urged them to do their work properly and put in an eight-hour working day.

Kishu Gomes, Managing Director, Lanka Lubricants Ltd, local agents for Caltex Lubricants, said that Caltex too wished to get into the petroleum business in Sri Lanka and was seeking clarification from the government.

Sri Lankan-German partnership produces skilled workers

A German government-supported "Public Private Partnership" has enabled a high-tech engineering company to source skilled workers, while simultaneously providing highly sought-after training to Sri Lankan youth.

Last week, the BOI-approved Boehm Leckner Multi Moulds (Pvt) Ltd. (BLMM) graduated its first batch of 12 trainees, all of whom have gone through a rigorous 18 month in-plant training programme on precision plastic mould making.

Another 12 participants from government technical institutions and the private sector received a certificate for the successful completion of a part-time training course in plastic moulding technology held at BLMM.

According to BLMM's Managing Director Ronnie Hatch, the company has already absorbed five of the 12 trainees. "As for the others, their chances of being absorbed by the engineering sector in Sri Lanka are very good. My fear is that with this level of training they may be snapped up by industries in the Middle East," Hatch said. Established in Sri Lanka in 1993, the German-headquartered BLMM manufactures moulds for the thermoplastic and rubber industry and engineering plastics for the automobile industry through the use of high-precision machinery.

BLMM, which has a workforce of 270 Sri Lankans and five expatriates, had a turnover of around Euro 6 million in 2002. With an expansion plan in place, the company expects to substantially increase its turnover during the current year.

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