Rule 1:

 For legal purposes, classification shall be determined according to the terms of

headings and any relative section or chapter notes.
 Direct classifications are made where the item is mentioned in the heading text.

Rule 2

Rule 2:

This rule is used to classify incomplete articles, unfinished articles, unassembled articles,
disassembled articles and mixtures or combinations of materials.

Rule 2(a):

 Reference to an article shall include the incomplete, unfinished, unassembled or

disassembled article.
 Incomplete or unfinished article is classified under the same heading as the finished
article provided, they have the same ‘essential character’ as the finished article.
 Unassembled or disassembled article is to be classified under the same heading as the
assembled article provided, they have the same ‘essential character’ as the assembled
article.

Rule 2(b):

 Covers mixtures or combinations of materials or substances, but only if the section

and chapter notes or headings do not otherwise require, e.g., tallow oil of 15.03 is not
mixed.
 Any reference in a heading to a material or substance shall be taken to include a
reference to mixtures or combinations of that material or substance with other
materials or substances.

classification of goods.

Rule 3

Rule 3:

 Only by application of Rule 2(b), or for any other reason, goods are classifiable under
two or more headings, classification shall be affected as 3(a)-3(b)-3(c) operated in
that order.

Rule 3(a):
  The heading which provides the most specific description shall be preferred to
headings providing a more general description.

Rule 3(b):

 Mixtures, composite goods consisting of different materials or made up of different

components, and goods put up in sets for retail sale, which cannot be classified by
reference to 3(a), shall be classified as if they consisted of the material or component
which gives them their essential character, insofar as this criterion is applicable.

Rule 3(c):

 Under this rule, goods are classified according to the heading which occurs last in
numerical order.
 Where goods cannot be classified by reference to 3(a) or 3(b), they shall be classified
under the heading which occurs last in numerical order among those which equally
merit consideration.

Rule 4

Rule 4:

 Goods which cannot be classified in accordance with the above rules (1 to 3) shall be
classified under the heading appropriate to the goods to which they are most akin.
 Goods are classified under the same heading as goods similar or virtually identical
(most akin).

Rule 5

Rule 5:

 Relates to packaging and has two parts of 5(a) and 5(b).

Rule 5(a):

 Deals with cases, boxes, bags and containers shaped or fitted to contain a specific
article.
 Camera cases, musical instrument cases, gun cases, drawing instrument cases,
necklace cases and similar containers, specially shaped or fitted to contain a specific
article or specially shaped or fitted to contain a specific article or set of articles.

Rule 5(b):

 Deals with packing materials and packing containers.

  Subject to the provisions of rule 5(a), packing materials and packing containers
presented with the goods therein shall be classified with the goods if they are of a kind
normally used for packing such goods.

Rule 6

Rule 6:

 For legal purposes, the classification of goods in the subheadings of a heading shall be
determined according to the terms of those subheadings and any related subheading
notes and compared to the above rules, on the understanding that only subheadings at
the same level are comparable.

Background of Customs valuation

Value is the worth, desirability, purchasing power, and equivalent of a thing which may be
substituted or exchanged for a thing. Value must be expressed in currency e.g., U$.

Customs value of imported goods is the value of goods for the purposes of levying ad
valorem customs duties.

Customs valuation is a Customs procedure or process or system applied to determine

Customs value of imported goods.

The WTO-Agreement Customs Valuation (WTO-ACV) is the most current procedure or

process or system being applied by the WTO Member States as from 1st January 1995.

EAC Partner States adopted and incorporated WTO-ACV into the Customs
Act (Section 122 and 4th Schedule of EACCMA, 2004).

Necessity to change to ad valorem duties

It became necessary for countries to change to ad valorem duties because:

 Early systems were unstable and non uniform.

 Discretionary was subject to importers influence.
 Non-tariff barrier to international trade.
 Need for a uniform, transparent, and simplified system.

Between 1973-1979, the Tokyo Round i.e., the GATT multilateral trade negotiations took
place in Geneva representing the most significant trade policy events.

In 1981, the negotiations resulted to the adoption of the Agreement on the Implementation of
Article VII of the GATT 1994 also known as WTO Agreement on Customs Valuation
(WTO-ACV).

In 1994, the Uruguay Round of GATT negotiations which started in 1986 was finalized in
December 1994 in Marrakesh, Morocco and WTO was created and came into force on 1st
January 1995. The system of WTO-ACV also came into force on 1st January 1995 and
the Member States of WTO started applying the six methods of valuing imported goods.

Six methods of WTO-ACV

The six methods of WTO-ACV are:

1. Transaction value method.

2. Transaction value of identical goods method.
3. Transaction value of similar goods method.
4. Deductive value method.
5. Computed value method.
6. Fallback value method.

The six methods must be used in hierarchal order.

Method 1. Transaction value

The Custom value under this method 1 is based on the transaction value of goods being
valued.

‘Transaction value’ is the price actually paid or payable (PAPP) for the goods when sold
for export to the country of importation and adjusted in accordance with the provisions of
Article 8 of WTOACV or 4th schedule of EACCMA.

The evidences of sale are commercial invoices, sales contract, bank remittances slips, export
price list and general correspondences related to the transaction.

Importations without sales are gifts, donations, trade samples furnished free of charge, goods
imported on consignment, goods imported by branch offices, goods imported under hire or
lease or loan, goods imported for exhibitions, personal effects, etc.

conditions of using method 1

The conditions of using method 1 are:

 There must be no restrictions as to the disposition or use of the goods by the buyer
that can affect the value of the goods.
 The sale or price of the goods not be subjected to some condition or consideration for
which a value cannot be determined e.g. counter trade or barter transactions.
 No part of the proceeds of any subsequent resale, disposal or use of the goods by the
buyer will accrue directly or indirectly to the seller, unless proper adjustment can be
made as per Article 8.
 The buyer and seller not to be related, unless the buyer can demonstrate that their
relationship did not influence the price.

Compulsory and optional adjustments to method 1

Adjustments to the transaction value are costs incurred by the buyer to be added to or
deducted from the price actually paid or payable if not already included or deducted.
The compulsory adjustments are:

 Selling commissions
 Brokerages
 Cost of containers
 Cost of packing (labour or materials)
 Assists
 Royalties and license fees
 Proceeds of any subsequent resale.

The optional adjustments are:

 Freight
 Insurance
 Other charges like loading, unloading, and handling charges.

Adjustments to be excluded in method 1

Adjustments to be excluded from transaction value are:

 Buying commissions
 Discounts
 Dividends
 Interest charges on finances
 Marketing activities undertaken by the buyer
 Duties and taxes paid in the country of exportation, but refunded before exportation
 Post importation costs like installation, construction or erection costs, transport costs,
insurance costs, duties & taxes paid, etc.

 Method 2. Identical goods

 The basis of Customs value under method 2 is the transaction value of identical
goods.

 Identical goods are goods which are the same in all respects, including physical
characteristics, quality and reputation. Minor differences in appearance would not
preclude goods otherwise conforming to the definition from being regarded as
identical.

Methods 3. Similar goods

The basis of Customs value under method 3 is the transaction value of similar goods.

Similar goods are goods which are not alike in all respects, but have like characteristics and
like component materials which enable them to perform the same functions and to be
commercially interchangeable.
Common requirements for method 2 and 3

The common requirements of identical and similar goods are:

 The goods must be identical or similar to the imported goods being valued.
 They must have been produced in the same country as the goods being valued.
 They must have been exported at or about the same time as the goods being valued.
 The sale of the identical or similar goods must be in the same quantity as the goods
being valued but if not, proper adjustments to be made.
 The sale of the identical or similar goods must be in the same commercial level as
goods being valued but if not, proper adjustments to be made.
 The goods must have been produced by the same producer.
 The goods produced by another producer in the same country can be used incase there
are no goods produced by the same producer.
 In case of two or more values of identical goods for comparison, the lowest will be
used.

Method 4. Deductive value

Under method 4, Customs value is based on the deductive value of identical or similar goods.

Deductive value is the price at which the imported identical or similar goods are sold to
unrelated buyers in the condition as imported in the greatest aggregate quantity in the country
of importation.

Greatest aggregate quantity is the price at which the greatest number of units is sold to
unrelated buyers at the first commercial level after importation at which sales take place.

Deductions under deductive value are:

 Either commissions usually paid or profit and general expenses in connection with
sales of imported goods of the same kind or class.
 Usual costs of transport incurred within the country of importation.
 Usual costs of insurance incurred within the country of importation.
 Usual costs of loading, unloading and handling charges incurred in the country of
importation.
 Customs duties and other taxes payable in the country of importation.

Method 5. Computed value

Under this method 5, Customs value is based on the computed value.

Computed value is the sum of the cost of materials and fabrication, an amount for profit
and general expenses, and the cost of transport, insurance, loading, unloading, handling
and other charges.
Elements of Computed value are:

 Cost or value of materials to be added.

 Fabrication costs (labour, assembly, manufacturing, etc.).
 Profit and general expenses.
 Other expenses to be added depending on national legislation.

Method 6. Fallback

Under method 6, Customs value should, to the greatest extent possible, be based
on previously determined customs values.

Methods 1 to 5 should be applied flexibly to determine Customs values for imported goods
under this method.

Customs value to be determined using reasonable means consistent with the general
principles and provisions of the Agreement and of the Article VII of GATT 1994. Customs
value to be determined on the basis of available data in the country of importation.

Limitations on using Fallback method are:

 Selling price of goods produced in the country of importation should not be used.
 Higher of two alternative values should not be used.
 Selling price of goods in the country of exportation should not be used.
 Only computed values determined under Article 6 of the Agreement can be used.
 Price of goods for export to other countries should not be applied.
 Arbitrary or fictitious values should not be applied.
 Minimum customs values should not be applied.

Declaration of customs value

Customs value to be declared in the prescribed form indicating:

 Terms of delivery
 Terms of payment
 Any relationship between seller and buyer
 Any restrictions or considerations or conditions on goods.

Background of rules of origin

Rules of origin means the specific provisions, developed from principles established by
national legislation or international agreements (‘origin criteria’), applied by a country to
determine the origin of goods.

Administration of quotas, preferential tariffs, anti-dumping actions, countervailing duties,

government procurement etc., requires clearly defined rules of origin.
Non-preferential rules of origin are applied in a non-preferential basis to determine the
country of origin for certain purposes of application within the multilateral trading
system. Non-preferential documents certify that the goods are subject to no preferential
treatment.

Preferential rules of origin are applied in reciprocal trade preferences (i.e., regional trade
agreements or Customs unions) or in non-reciprocal trade preferences (i.e., preferences in
favour of developing countries).

EAC rules of origin

The EAC rules of origin refer to a set of criteria that is used to distinguish between goods
that are produced within the EAC Customs territory and are eligible to Community
Tariff treatment against those produced outside the EAC customs territory that attract
import duties specified in the Common External Tariff.

Origin criteria

Origin criteria means conditions regarding the production of goods which must be fulfilled
for the goods to be considered as originating under applicable rules of origin.

The two basic types of origin criteria to determine the country of origin of goods are wholly
produced and substantial or sufficient transformation criterions.

Goods wholly produced are obtained entirely in the territory of a Partner State without the
addition of any non-originating materials or manufactured exclusively from wholly obtained
inputs (Rule 5).

Goods produced in the Partner State incorporating materials which have not been wholly
obtained there, provided that such materials have undergone sufficient working or
processing in the Partner State as provided for in rule 6.

EAC rules of origin sets specific criteria that represent substantial transformation, including
methodologies as:

 Material content criterion

 Change in tariff heading (CTH) Rule.

There are processes like simple packing and preservation operations, simple mixing of
products and simple assembly of parts into complete articles that are not conferring origin.

Certificate of Origin

The Certificate of Origin is an important international trade document that certifies that
goods in a particular export shipment are wholly obtained, produced, manufactured or
processed in a particular country.
A Certificate of Origin is mainly needed to check whether the goods being exported/imported
are legal and whether such export or import is subject to duties.

Simplified Certificate of Origin

The EAC Simplified Certificate of Origin is a trade facilitation document which is used for
clearance of goods that have been grown/produced in the EAC Partner States and whose
value is US$ 2000 and below.

It confirms that the goods were grown or produced in the EAC and do not attract import
duties in the importing EAC country. The Simplified Certificate of Origin is issued free of
charge at the borders in order to avoid delays in verifying goods originating from the region.

Steps to obtain a Simplified Certificate of Origin:

 The trader has to complete the EAC Simplified Certificate of Origin form and attach
an invoice or evidence of value. He/she then presents the documents to Customs in
the exporting Partner State.
 If satisfied, the Customs officer will stamp and sign the Simplified Certificate of
Origin.
 The trader presents the signed and stamped Simplified Certificate of Origin to the
Customs officers on the importing side.
 The Customs officer will check that the goods declared are in the reference to the
common list of approved products.
 The Customs officer will then confirm if the signature and stamp appearing on the
certificate are the same as those notified by the exporting Customs officer.
 If everything is in order, the goods will NOT be charged any duties or tariffs in the
importing Partner State.