Dolls R is a toy manufacturer from Goldtown, Richland, with production facilities in

Richland, Newland and Farawayland. (1) Dolls R produces a wide range of toys but is
best known for a doll named Carlie. In view of Carlie’s success in France, Dolls R
wants to explore the possibility of marketing Carlie in Utopia. Carlie is a Barbie-like
doll with a plastic body, artificial hair and three sets of clothes. The plastic body parts
are produced in Newland. The hair and the clothes are produced in Farawayland.
Carlie is only assembled and packaged in Richland. It is expected to sell at $10 per
doll in Utopia.
The Utopia’s Customs Department has informed Dolls R that the customs duty on
Carlie will amount to 15 per cent ad valorem and that the value will be determined on
the basis of the sales price on the domestic market in Richland. Dolls R challenges
both the level of the duty and the manner in which the Customs Department intends to
determine the value of the dolls for customs purposes. It also disagrees with the
Customs Department that the country of origin of Carlie is Richland and not Newland.
Furthermore, Dolls R considers that Carlie is not really a toy but rather a collector’s
item. Finally, it wonders whether, for the customs classification of Carlie, it makes a
difference whether Carlie is imported as a finished product or in parts still to be
assembled.
The Utopia Customs Department also informs Dolls R that all imported dolls are
subject to an import surcharge of $3 per doll as well as a special customs-handling fee
of 2 per cent ad valorem. This fee goes to the Customs Department’s Fund for
Disfavoured Children.
To boost its sales of Carlie in the Utopia, Dolls R plans to gift buyers of this doll short
movies on the wondrous adventures of Carlie. Customers in Richland can watch these
movies via smartphones by installing ‘Carlie Doll’ app. Dolls R is concerned about
the rumour that the Utopia Parliarment is considering the introduction of a customs
duty on movies imported into the country via the Internet.
The Government of Newland, eager to promote the development of its toy industry,
has announced that they will limit the export of plastic body parts of dolls to 10.000
units per year.
Dolls R is ‘disappointed’ by the information received from the Utopia’s Customs
Department and concerned about the rumours on the ‘movies duty’ as well as about
Newland’s planned introduction of an export duty. It has asked its law firm, GBG, a
Vietnamese law firm with offices in Utopia, for legal advice on the WTO-consistency
of the various measures referred to above. You are a junior lawyer working at GBG
and you have been tasked with preparing a note on the legal advice sought by Dolls R.
The senior partner of the law firm has warned you not to forget to check the Utopia
Goods Schedule as well as its rule of origin (such regulations are similar to
Vietnamese laws).
(1) Farawayland is a least-developed currently negotiating its accession to the WTO.

Dolls R is a toy manufacturer seeking to expand its market for the doll "Carlie" to
Utopia. However, they face several challenges:
Customs Duties and Surcharges: Utopia imposes ad valorem customs duties, a specific
import surcharge, and a special customs-handling fee on imported dolls.
Country of Origin: Dolls R disagrees with Utopia's determination of the country of
origin for Carlie.
Classification: Dolls R believes Carlie should be classified as a collector's item rather
than a toy.
Import Restrictions: Newland, a supplier of plastic body parts, has imposed export
limits.
Internet Duties: There is a possibility of a customs duty on movies imported via the
internet.
Dolls R has engaged GBG law firm for legal advice on the WTO-consistency of these
measures.

ANSWER:
i) Is Doll R correct in considering Carlie's country of origin to be Richland?
Dolls R disagrees with Utopia Customs that Carlie's country of origin is Richland, not
Newland. Under the WTO Agreement on Rules of Origin, the country of origin is
determined when more than one country is involved in the production of the good, and
the country of origin is considered to be the country where the last substantial
processing stage is performed.1 Since Carlie was assembled and packaged in Richland,
Carlie's country of origin must be Newland, not Richland. Therefore, Dolls R's
argument is not correct under WTO rules.
Article 3(b) of The Agreement on Rules of Origin provide that: “...when more than
one country is concerned in the production of the good, the country where the last
substantial transformation has been carried out”;
(ii) In the customs classification of Carlie, does it make any difference whether
Carlie is imported as a finished product or the parts are still assembled?
Doll R's concern is whether Carlie is imported as a finished product or as a
component, which makes a difference. Depending on the HS code assigned to each
type of component, the import tax rate for Carlie dolls into Utopia may be different
from that of finished products. In case Carlie is imported into Utopia as a finished
product, it may be subject to a tax rate that falls under the toy classification. But in
case Carlie is imported as components, it may be subject to a much higher tax rate
than that of a finished product because a finished product requires many different
components. However, even if the body parts are disassembled, these features still
identify this as a doll. More specifically, plastic body parts with typical doll sizes and
artificial hair make Carlie an unmistakable product. In addition, the three bundled
clothes are obviously for dolls. That may affect the profit that Doll R earns. Therefore,
this company should choose to import Carlie according to the finished product as
prescribed in Article 2 (a) of General Rules for the Interpretation of the Harmonized
System to bring greater benefits.
According to Article 2(a) of General Rules for the Interpretation of the Harmonized
System: “an article is still considered complete or finished in the same heading even
if it is not entirely assembled or doesn’t have all the finishing touches, provided that
they still keep the “essential characters” of the finished product”
(iii) Is Doll R right that Carlie should be a collector's item and not a toy?

1 WTO Agreement on Rules of Origin, Article 3 Part 2

For the Carlie doll, based on its fundamental characteristics, we can categorize it into
HS codes as follows:
“9503.00.21: Dolls, whether or not dressed;
9705.10.00: Collections and collectors' pieces of zoological, botanical, mineralogical,
anatomical,…”
The Carlie doll is targeted at children, used as a toy, and has the characteristic of
coming with interchangeable clothing. Clearly, heading 9503.00.21 provides specific
and detailed regulations regarding dolls, whether or not dressed. In contrast, Chapter
97 on Collectors' Items doesn’t directly or specifically describe this item.
Rule 3b) of GRI: When goods cannot be classified as provided under (a), mixtures,
composite goods consisting of different materials or made up of different components,
and goods put up in sets for retail sale, shall be classified as if they consisted of the
material or component which gives them their essential character.
(iv) Is Richland able to sell dolls for $10 each in Utopia as expected?
The key factors that affect to the price:
- 15% Ad Valorem Customs Duty = 15%×10 = 1.50 -> add $1,50 dollars to each
doll.
- $3 Import Surcharge
- 2% Special Customs-Handling Fee = 2%×10 = 0,20 -> add $0,02 dollars to
each doll.

Total cost can be calculated as 10 + 1,50 + 3 + 0.20 = 14,70.

In conclusion, Dolls R can’t sell Carlie for $10 each in Utopia as expected due to the
custom duties and other surcharges.

(v) Is Utopia's action of determining the doll's value based on Richland's

domestic selling price consistent with GATT 1994?

Doll R said that the customs value should be based on the transaction value, which
was paid by the Utopian importer, not the domestic price in Richland. So the main
issue is whether Utopia’s method is consistent with GATT 1994 rules, particularly is
WTO Customs Valuation Agreement (CVA)

According to Article VII of GATT 1994, “the value for customs purposes of imported
merchandise should be based on the actual value of the imported merchandise on
which duty is assessed, or of like merchandise, and should not be based on the value
of merchandise of national origin or on arbitrary or fictitious values.” This requires
custom valuation to be calculated based on the actual value of imported goods in
normal conditions of the original country of trade.

Article 1 of CVA said that method of custom valuation is transaction value, which has
been defined as “the price actually paid or payable for the goods when sold for export
to the country of importation”.

The alternative methods are used if the transaction value can’t be determined, due to
CVA. However, none of these methods use the domestic price in the country of origin.

In conclusion, Utopia’s action of determining the value of the doll based on Richland's
domestic selling price violates the WTO Customs Valuation Agreement and, by
extension, Article VII of GATT 1994

(vi) Does Utopia Customs imposing a $3 import duty per doll violate GATT
1994?
First, according to Article II:1(b) of GATT 1994, there is a bound tariff rate that a
country can apply to specific goods. If Utopia’s bound tariff based on ad valorem rate,
then they apply an additional specific duty such as a $3 per doll is total against this
rule because the price $14,50 is 45% higher than$10, which is beyond the bound
tariff.
Next, it may be against the Article II:1(b) of GATT because the $3 surcharge is an
unlisted other duties and charges in its Goods Schedule.
In addition, because of the Most-Favored-Nation (MFN) Treatment, the $3 flat
surcharge should be applied equally to imports from other members of WTO. It would
also breach Article I of GATT.
The final answer is yes according to the analysis above.