Lanka fails to implement WTO deal
By Suren Gnanaraj
Sri Lanka has failed to implement the World Trade Organisation (WTO) Customs Valuation agreement despite being given lengthy extensions, Commerce Ministry and Customs officials said.

The Sunday Times FT learns that the WTO is however unaware that the Sri Lanka Customs has not implemented this agreement, despite its final dead-line ending on October 31. The possible implications of failing to implement this mandatory WTO agreement are still not known. Customs have claimed that they are ready to implement the agreement as soon as the Customs (Amendment) Act 2002 is passed in Parliament.

However, the Bill has only gone through the first reading and is unlikely to be passed before Parliament closes for its vacation on December 11, due to a few technical adjustments, which needs to be made to the bill during the committee stage. The WTO valuation agreement, which was ratified by Sri Lanka in 1995 and which was scheduled to be implemented on November 1, has not been implemented despite an extended grace period of seven years.

The 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.
Director General of Sri Lanka Customs Sarath Jayatilake was unavailable for comment about the failure to implement the WTO deal.

But, in an interview with The Sunday Times FT prior to the official deadline, Jayatilake said that the need to speed up cargo clearing became essential with the global changes in trade.

"Under the new agreement, we have to clear cargo within 10 days of arrival, otherwise the exporters can take us to arbitration," he said. There was now enormous pressure on the department to act swiftly and efficiently, but the Customs was adequately prepared to meet the challenge, following training provided by the WTO and the World Customs Organisation. (WCO) "Ready or not, we have to implement it", Jayatilake said.

Under the WTO agreement, importers would be able to clear their goods providing sufficient guarantee such as a bank or corporate guarantee, covering the ultimate payment of customs duties for which the goods may be liable, if it becomes necessary to delay a final valuation.

Customs is the largest revenue collector, earning Rs. 123 billion in 2001.
Jayatilake denied that under the new system the government would lose considerable revenue due to the possibility of under-valued goods going undetected. "The difference would only be marginal," he said.

However, Jayatilake stressed that it did not mean that there was no procedure to rectify such cases. "We have requested all importers and exporters to keep their customs documents for three years, during which time the customs would be carrying out post-audits and investigations to determine whether goods that have already been cleared by the customs, have been presented at a lesser amount than its actual value."

The Customs has set up a Post Clearance audit branch and a Valuation Investigation unit to identify areas where a revenue loss could take place.
(Please see connected story)

Price war breaks out on Jaffna flights
By Rajika Chelvaratnam
Competition on the Jaffna flights is hotting up with the number of domestic airlines offering shuttle services increasing, resulting in a price war and fears that the market is not big enough to make the run profitable for more than two operators.
Currently Lionair, Expo Aviation and Serendib offer domestic air services to Jaffna, amid allegations of price undercutting as all three operators find it difficult to fill up the flights.

Chandran Rutnam, chairman of Lionair, said that due to the increase in the number of air services to Jaffna none of the operators are functioning to its full potential.
Lionair is surviving by providing a superior service, he said.

"When you have three airlines our policy is to offer better services and better aircraft," he said. "We have British aircraft while the others have Russian aircraft and there has been a lot of negative publicity with regard to Russian aircraft recently."
Company officials said that a key advantage of operating Western aircraft is that it could immediately 'Sri Lankanise' the aircrews.

Lionair itself operated Russian aircraft until recently when it acquired a British HS-748. Rutnam said that there was definite price undercutting, resulting in a need to standardise prices but there was no co-operation among operators.
Serendib brought down their prices to Rs. 4500 for a return ticket from Rs.6950, followed by Expo Aviation.

Lionair has introduced a two-class system, maintaining a price of Rs 6950 for its luxury class while cutting the price of an economy class return ticket to Rs.4550.
Rutnam said that their load factor has presently exceeded 50 percent and was improving even though they had been in operation only for about six weeks.
Seraj Mohammed, managing director of Expo Aviation, said that they offer flights that are stable and reliable and that they were one of the first airlines to be certified in Sri Lanka under international requirements.

Despite a flight load of about 80 percent, Mohammed said that this was a lull period for domestic air services but they expect the loads to double in December and January.

Due to this lull, he said, they have only one flight at the moment. Expo Aviation had a 97-seater IL-18 aircraft, which they replaced with an An-24 in order to facilitate their expansion of flights to Trincomalee, Koggala and Wirawila, as the former could not land at these airfields.

S. Sivanathan, chairman of Serendib Express, said that they were aware of the competition when they entered the business. Serendib hopes to survive in this increasingly competitive business by keeping its prices low, he said.

The 48-seater Russian aircraft used now will be replaced by an American Fairchild Metro III, which can carry up to nineteen passengers. "The aim is to increase the number of flights to Jaffna for the convenience of our passengers by reducing the number of passengers per flight," he said.

Sivanathan denied all accusations of undercutting and said that the prices had been brought down by the previous management of Serendib and everyone else had brought down the prices with them. "We are not going to get into the price war, we are going to keep our prices" he said.

Sivanathan also said that at the moment they were losing around $30,000 a month despite a passenger load of almost 80 percent, but as soon as the new aircraft is ready for operation they expect an improvement. They also hope to survive by expanding their services to include door-to-door air ambulance services and flights to Trincomalee and Ampara in addition to cargo services.

"Everyone is losing money in the Jaffna route and everyone is trying to see who will lose first," he added. Money lost in this business is not recoverable, said Sivanathan, adding: "We are going to stay in the business no matter what happens."
Industry officials spoke of a "very difficult environment" in which there is "severe pressure on pricing". They said they believe all three operators were losing money on the Jaffna flights.

Giving an example of the cut-throat competition, one source said that in 1994 when two domestic carriers, Lionair and Monara, were operating flights to Jaffna a return ticket cost Rs 5,000 or $104 at that time while the same ticket now costs $47.
"It is not profitable," one industry official said. "Something has to be done soon."

VAT on imports might violate UN agreement
The value added tax imposed on imports could be a violation of an international United Nations agreement to encourage the free flow of ideas and should be withdrawn, according to business and education analysts

The VAT on imports introduced by Finance Minister K. N. Choksy in the government's budget covers imports of educational material with a 10 percent tax on magazines and journals and 20 percent for other items.

"Apparently the Choksy team has missed a very important Agreement known as the Florence Agreement of 1950 on the importation of educational, scientific and cultural materials of which Sri Lanka became the 4th signatory in 1952 - just two years after it was signed," one analyst said.

The government should waive the customs duty on all educational and cultural material that are included in the Florence Agreement, extending it towards electronic carrier media as well, she said.

Under the Florence Agreement, the contracting States undertake not to apply customs duties or other charges on the importation of books, publications and documents other than stationary and those used for advertising.

It also eliminates customs duty on films and scientific equipment, and educational, scientific and cultural materials, such as works of art and collectors' pieces of an educational, scientific or cultural character including paintings.

Following protests from education officials, the Finance Ministry issued a fresh Revenue Protection Order (Customs Tariff) withdrawing the 1.6 percent Customs Duty imposed on imports of books and documents as well as software from India and the two percent duty on such items from elsewhere. But the VAT on these items still remains.

Analysts said it was amazing that Ministers Choksy and Gunawardena were unaware of international clauses and agreements or were not told of these by officials before introducing a budget to Parliament.

"No budget should lead to the withdrawal of any clauses introduced by the Minister of Finance presenting the budget," the analyst noted. "Why? Because careful study should have gone into its preparation."

The Florence Agreement led to an increase in the international circulation of cultural goods. This is due not only to the role that these products play in spreading knowledge of a world which is more and more technologically inter-linked, but also to their growing share of international trade at a time of economic globalisation.

The provisions of the present World Trade Organisation, which replaced the GATT and which also covers international trade in objects protected under intellectual property agreements, have given new life to the Florence Agreement.

CB to inspect 'green' companies
The Central Bank intends to carry out an inspection of the books of some of the companies that accept cash deposits from the public for investments in trees and land.

"At a glance these companies are not financial institutes. Therefore we would have to inspect and see whether they fall into that category or not," a senior bank official said.

At least two firms are in the business - Touchwood and Green Rewards. A senior Touchwood Ltd official said: "It is clear that we are not a financial institute. We sell trees and the customers pay money for it." (TM)

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