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Cablegate: Customs Making Progress

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 SANAA 002833

SIPDIS

STATE FOR NEA/ARP, EB/IPR, EB/TRD
STATE PLEASE PASS TO USTR FOR J.BUNTIN
STATE ALSO FOR USAID ANE

E.O. 12958: N/A
TAGS: ECON ETRD YM ECON COM
SUBJECT: CUSTOMS MAKING PROGRESS

1. Summary: Yemen's existing customs and tariff schedule is
calculated under the Brussels Definition of Value, which is not
compliant with WTO standards. As part of the ROYG's economic
reform package, reductions to customs and tariffs are being
considered, but further revisions will be required for full WTO
compliance. In 2003, imports of goods and services amounted to
USD 4.561 billion. The United States is the fourth biggest
exporter, contributing 6.3 percent of total imports. The Customs
Administration contributes 20 million USD annually to the ROYG's
3 billion USD budget. End Summary.

-----------------------------------
Customs Valuation Assistance Needed
-----------------------------------

2. Based on the Brussels Definition of Value, national tariffs
use nomenclatures issued by the World Customs Organization (WCO)
and the Harmonized Commodity Description and Coding System
(HS1996). In other words, while international standards for
coding goods are used, to comply with WTO standards Yemen still
must adopt the GATT Agreement on Customs Valuation and
restructure its customs fees. As part of the ROYG's economic
restructuring, tariff schedules were reduced in
1995 and customs procedures streamlined.

3. Customs duties are calculated according to C.I.F. (Customs
Insurance and Freight) valuation for all imports on the date of
the customs registry declaration. The tariff structure consists
of ad-valorem duties of 5, 10, 15 and 25 percent on a total of
6,237 items. Duties on most food products are levied at 15
percent. Fifty-one percent, or 3,134 items are subject to the 10
percent tariff rate. Yemen does not apply countervailing duties,
anti-dumping duties and safeguard measures. All goods and
services are allowed for import into Yemen except those items
deemed to conflict with Islamic guidelines, environmental
interests, health, or national security.

4. Car tariffs are currently at the highest band, 25 percent, and
are one of the tariff reductions under Parliamentary
consideration. Foreign goods of any origin and source are
allowed to transit the Aden Free Zone duty-free, but the
transporter is charged a "service fee" for use of the Zone.
Goods that enter Yemen from the Aden Free Zone are charged
regular customs rates. If a company is eligible for tax breaks
under Yemen's General Investment Law, fisheries, livestock and
agricultural productions inputs are exempted from customs duty.
Production inputs on other projects are exempted for 50 percent
of customs duty. (Comment: Because implementation of the
Investment Law is spotty at best, few companies have been able to
take advantage of this credit. End comment.)

-------------------------------------------
Customs Making Steady Progress With ASYCUDA
-------------------------------------------

5. In 2001, the Customs Authority (CA) installed the Automated
System for Customs Data (ASYCUDA), financed by the U.K. and
supervised by United Nations Conference on Trade and Development
(UNCTAD). The system aims at increasing revenue, reducing illegal
trade, facilitating procedures, and enhancing transparency. Since
installation, processing time at the entrances has been reduced
from several days to 2-4 hours, smuggling illegal substances has
become difficult, and importers report that they are more
confident in the system's valuation credibility. In 2004, CA
began testing an electronic clearance processing service for the
most trusted traders. By 2005, all entry posts, including the
Aden Free Zone, will use the electronic system.

6. Yemen purchased a $ 23-million Container-Vehicle X-Ray System
from China, and is installing the system at entry posts including
the Aden Free Zone and Sanaa Airport. The new system will be
connected to ASYCUDA processing measures, and will assist in
combating smuggling.

-----------------------------
Smuggling Undermines Progress
-----------------------------

7. Yemen's Industrialist Union estimates that 56 percent of all
available goods in Yemen are smuggled -- a total loss of 133
Billion Yemeni Riyals (720 million USD or 1/4 of total budget) to
the public treasury. Nearly one-fifth (YR 27bn) of all smuggled
products pass through official entry posts, and the transit of
such goods is likely facilitated by government employees.
Businessmen cite smuggling as one of their greatest problems, and
blame high customs and tariff rates and ineffective enforcement
for exacerbating the problem. In addition to the influx of
smuggled goods, ROYG officials are increasingly concerned that
foreign countries are dumping expired goods in Yemen. Smuggled
and "dumped" medicine is a particular concern because it is often
exposed to extreme heat and unsanitary conditions, weakening or
destroying its effectiveness.

------------------
Dispute Resolution
------------------

8. According to Yemen's Customs Law, if a dispute arises between
the CA and a shipment owner, it must be referred within 8 days to
two experts, one appointed by the authority and the other by the
owner of the goods. If both experts agree, their decision is
final. If an agreement cannot be reached, an arbitration
committee is formed consisting of a permanent representative of
the Minister of Finance or two CA and Yemen Standards and
Metrological Organization (YSMO) representatives. The
arbitration committee's decision is final and binding, and the
losing party incurs the arbitration expenses. (Comment: Most
disputes are resolved privately and Post is unaware of frequent
use of the arbitration option. End comment.)

------------------------------
Consumption or Value Added Tax
------------------------------
9. A consumption tax or a value added tax (VAT) is levied on
certain imported commodities, including those manufactured in the
free zones. Imports for domestic consumption are taxed at the
same rate as locally produced goods.. The VAT varies according
to product type. For various oil derivatives, for example, the
tax ranges between 0.5 percent and 2 percent for each liter
depending on price and quality. For local and imported
lubricants, however, the tax charged is a set 2 percent of price.
Movie tickets and video sales and rentals are taxed at 15
percent.

-------
Comment
-------

10. Comment: Yemen's customs regime has the potential to raise
revenue and reduce smuggling. With a proven track record of
reform, the Customs Administration could be a venue for future
U.S. assistance. MEPI and USAID are currently considering
assistance for Yemen's customs valuation system. Other needs
include additional inspection equipment, training of agents and
inspectors, and increased interagency cooperation. End comment.

Krajeski

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