RESTRICTEDWORLD TRADE
ORGANIZATIONG/VAL/W/52/Add.1
9 February 2000
(00-0485)
Committee on Customs Valuation Original:  Spanish
COMMUNICATION FROM GUATEMALA CONCERNING ANNEX III,
PARAGRAPH 1, OF THE AGREEMENT ON IMPLEMENTATION
OF ARTICLE VII OF THE GENERAL AGREEMENT
ON TARIFFS AND TRADE 1994
Addendum
The following communication, dated 21 January 2000, has been received from the Permanent
Mission of Guatemala.
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The Republic of Guatemala, requests the honourable Members of the Committee on Customs
Valuation (CCV) of the World Trade Organization for a two-year moratorium, beginning on
21 July 2000, on the application of the Agreement on Implementation of Article VII of the General
Agreement on Tariffs and Trade 1994, in order to terminate and strengthen customs procedures andmechanisms and train the personnel responsible for proper application of the aforementioned
Agreement.
Guatemala's request is based on paragraph 1 of  Annex III to the aforementioned Agreement,
which states that the five-year delay in the application of the provisions provided for in Article 20.1
may, in practice, be insufficient for certain developing country Members.  In such cases a developing
country Member may request, before the end of the period referred to in paragraph 1 of Article 20 anextension of the period, it being understood that the Members of the Committee will give sympathetic
consideration to such a request in cases where the developing country Member in question can show
good cause.
I. BACKGROUND
Pursuant to Decree 37-95 of the Congress of  the Republic of 15 May 1995, Guatemala signed
the Agreement establishing the World Trade Organization (WTO), which came into effect on
15 June 1995.  Taking advantage of Article 20 of the Agreement on Implementation of Article VII of
the General Agreement on Tariffs and Trade 1994, Guatemala requested deferral of the application of
the aforementioned Agreement's provisions for a period of five years beginning on the date of entryinto force of the Agreement on the WTO.  The period for applying the provisions provided in
Article VII ends on 20 July 2000, which is deemed to be insufficient to complete the re-organization,
define procedures, put into effect pre-shipment inspections, train personnel and compile the database
required for the efficient implementation of the Agreement.
1.1 Guatemala's Tax Administration
Until 1998, the Ministry of Public Finance was responsible for Guatemala's tax
administration.  The Ministry had a Directorate General of Internal Revenue responsible for collecting
internal taxes and a Directorate General of Customs responsible for administering foreign trade duties.G/VAL/W/52/Add.1
Page 2
One of Guatemala's main structural problems is its low level of tax revenue, as shown by one
of the lowest levels of fiscal charges in Latin America ranging from 9 to 10 per cent.  These low
levels of tax revenue have mainly been caused by an inadequate tax management system, the fact that
people are not used to paying tax, the high and growing level of tax evasion, and an inadequate and
diffused legal framework.
The inadequate tax management system is mainly due to the lack of material and qualified
human resources and, information systems as well as, inadequate and inefficient controls, the scarcity
of facilities for carrying out taxation responsibilities, and the use of obsolete processes and
procedures, which have not been favourable to the functioning of the tax system nor the levels of tax
revenue.
The fact that people are not used to paying tax has been a decisive factor in keeping tax
revenue levels low and limiting the tax base.
Tax evasion is the result of taxpayers' awareness that there is little risk that their evasion will
be detected or punished, together with factors such as failure to register in the Unified Tax Register,omitting to declare income, under-invoicing, underestim ating income, sales or assets, and incorrectly
declaring the value of goods and the applicable customs tariff.
Lastly, tax legislation is diffuse and its punitive capacity is limited, so it does not have the
desired impact on the amounts of tax collected.
In addition, like other developing countries, Guatemala has a high level of imports,
amounting to 35.60 per cent (including fuels and lubricants) of the c.i.f. value of trade with all
countries in the world in 1998.  Because of this, foreign trade duties make up a very large part of tax
revenue, amounting to 41.4 per cent of the total.
As part of its tax policy, in its programme for 1996–2000, the Government is planning to
improve the tax administration and develop policies to enable the collection of sufficient tax revenue
to meet the State's needs, combating and punishing tax evasion more rigorously.  In order to
modernize the tax administration, since 1997 the Government of Guatemala, through the Ministry of
Public Finance, has adopted a number of measures to modify and strengthen the tax system, one of the
essential elements being the establishment of the of Tax Administration Office (SAT).
1.2 Creation, launching and operation of Tax Administration Office (SAT)
The Tax Administration Office was set up under Decree 1-98 of the Congress of the
Republic, in force since 21 February 1998, as a decentralized State authority with competence andjurisdiction throughout Guatemala.  In order to  meet its objectives, the SAT has operational,
economic, financial, technical and administrative independence and its own legal status, assets and
resources.
The main purpose of the SAT is to be solely responsible for the administration, collection,
inspection and verification of all internal and foreign trade revenue due to the State.  Its organizational
structure comprises a governing board, which has external audit and technical advisory services.  The
SAT has internal audit and legal affairs departments, customs divisions, revenue collection,
management and inspection divisions, together with support services:  human resources, finance and
administration, data processing and planning and institutional development.
On 24 September 1998, the SAT took over the management and administration of the
computer system, the database and other functions of the analysis and programming sections of the
data processing department of the Directorate General of Internal Revenue.G/VAL/W/52/Add.1
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On 5 October 1998, the SAT took over the functions, responsibilities and competence of the
Directorate General of Internal Revenue for inspection and verification of tax liabilities and, on
19 October, in order to make adjustments, determin ed tax liabilities, together with the imposition and
application of penalties following their inspection and verification.
On 4 January 1999, the SAT became responsible for collecting internal and foreign trade
revenue, through the banking system, in order to ensure transparency in tax matters, and on
21 February 1999 it took over the Guatemalan custom s service's administrative functions, including
the control and supervision of taxes and procedures related to international trade.
II. SITUATION OF THE GUATEMALAN CUSTOMS SYSTEM
The valuation of goods by the Guatemalan customs service is a complex process that is
difficult to implement, particularly when those responsible have had little time to implement
development plans in accordance with the guidelines and provisions agreed;  furthermore, the officials
have not received appropriate training in valuing goods.
The SAT therefore recently proposed a draft law aimed at establishing the necessary legal
conditions for the modernization of the customs se rvice and compliance with the commitments in the
WTO.  In addition, in 1999, an intensive training programme for customs officers was initiated aimed
at two groups:  one full-time course covering customs duties and completing training within a period
of six months;  and another part-time course which is already under way.  Training includes thevaluation techniques essential for compliance with the WTO Agreements.
Because of the complexity of recruiting customs personnel, who must meet a particular
professional profile, to date only 70 per cent of the posts needed for the optimum functioning of the
customs system have been covered.
In addition, technical developments are being inco rporated into the customs service, including
modern computer equipment and on-line communication systems in order to decentralize decision-
making and facilitate communication with the Directorate, which is situated in Guatemala City.  In
this connection, there have been problems in adapting the premises, which in some cases are not
suitable for a customs service, therefore, considerable investment in infrastructure is required.  As a
first step, modems have been installed in some customs offices in order to facilitate communications.
Preliminary studies have also been carried out on the design and implementation of a
full-scale management system, which it is hoped will lead to a customs service that meets today's
international trade needs.
III. REASON FOR THE EXTENSION
The main reason for extending the time-limit for application of the Agreement on
Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 is to have
sufficient time to achieve the following general objectives:
- Approval by the Congress of the Republic, of the law on modernization of the customs
system and the law and regulations of the GATT valuation system, together with training of
customs personnel in the provisions contained in these instruments.
- Completing the adaptation and modernization of the customs infrastructure, allowing
interconnection with the central offices, and strengthening decentralized decision-making.G/VAL/W/52/Add.1
Page 4
- Bringing up to strength and training the customs technical and operational managerial staff in
order to ensure the effective application of the terms of the Agreement and provide a service
that meets Guatemala's needs and those of the globalization process.
- Establishment of a database on prices and other information on goods at the international
level, which is essential for the implementation and optimum functioning of the Agreement.
In this connection, the SAT is considering the commencement of operations by pre-shipment
inspection firms in the short-term.  One essential part of this undertaking has been the
establishment of a training programme for local staff and the establishment of information
bases.
- Design and initial implementation of a quality management system in the customs service.
The programme to be carried out during the requested extension is the following:
Specific results Programmed
date
1. Recruitment of technical and operationa l personnel needed for the functioning
of the customs serviceJuly 2000
2. Suitable physical and database infrastructure to provide GATT valuation
services, installed and operatingJanuary 2001
3. Customs' system modernization law, approved and enforced*March 2001
4. Law and regulations of the GATT valuation system, approved and enforced*May 2001
5. Technical and operational customs personnel, trained in GATT valuation, legal
standards and criteriaJune 2001
6. Partial application of the GATT Valuatio n Agreement, applicable to 60% of the
chapters in the Central American Tariff System considered to be less affectedby under-valuation at customsJuly 2001
7. Plan to disseminate the enforcement of the GATT Valuation Agreement to the
private sector, customs agents and other economic agents in GuatemalaDecember 2001
8. National Integrated Valuation Committee January 2002
9. Data bank available on prices and other essential information January 2002
10. Quality management system, designed and implemented in customs offices June 2002
11. GATT Valuation Agreement applied to 100% of the chapters in the Central
American Tariff SystemJuly 2002
*These results are outside SAT's control because they depend on the Congress of
the Republic.  It should be noted that there were general elections in Guatemala in
1999 and a new parliament will take office in the year 2000.
IV. REQUEST
Taking into account the restructuring of the tax administration currently taking place in
Guatemala, the adaptation to the rules of the Valuation Agreement under way, and the fact that the
conditions for implementing the Agreement properly do not yet exist in Guatemala, the Republic ofGuatemala requests the Members of the WTO to approve the extension of the time-limit for
implementing the Agreement for two calendar years beginning on 20 July 2000.
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