I.  Text and Commentary

    - Introduction     5
    - Definitions      6
    - Principle (provision 1)    7
    - Field of application (provisions 2-8)     7
    - Temporary admission of goods for inward processing
      a) Formalities prior to temporary admission for
         inward processing (provisions 9-12)     11
      b) Declaration for temporary admission for
         inward processing (provisions 13-14)    13
      c) Security (provisions 15-20)   14
      d) Examination of the goods (provision 21) 16
      e) Identification measures (provision 22)  16
    - Stay of the goods in the Customs territory (provisions 23-28)    17
    - Termination of temporary admission for inward processing (provision 29) 19
      a) Re-exportation (provisions 30-34)  19
      b) Other methods of disposal (provisions 35-43) 21
    - Discharge of security (provision 44)    25
    - Information concerning temporary admission for
      inward processing (provision 45)   26

II.  Entry into force

    -    Contracting Parties having accepted the Annex     27

III. Reservations

    - Contracting Parties having entered reservations   29
    - Reservations entered (in alphabetical order of Contracting Parties)

IV.  Alphabetical Index



I.-TEXT AND COMMENTARY *


* Annex E.6. was adopted by the Permanent Technical Committee at its
81st/82nd Sessions, in October 1973. At its 83rd/84th Sessions, in
March 1974 the Committee decided to add a Note to Recommended Practice
43. The Annex has been incorporated in the Kyoto Convention by
decision of the Council, taken on 10 June 1974 at its 43rd/44th
Sessions, held in Brussels. It entered into force on 6 December 1977.
The Council had previously produced a study on the subject (Study No.
8) which was published in 1966.


Introduction

The national legislations of most countries contain provisions
allowing conditional relief from import duties and taxes to be granted
in respect of goods that are to be re-exported after having undergone
specified manufacturing, processing or repair. The Customs procedure
which reflects these provisions is that of temporary admission for
inward processing. 

The main purpose of this Customs procedure is to make it possible for
national enterprises to offer their products or services on foreign
markets at competitive prices and thereby to help to provide more
employment opportunities for national labour. 

However, temporary admission for inward processing may be made subject
to the condition that the proposed operations shall be beneficial to
the national economy and shall not conflict with the interests of
national producers of goods identical or similar to those in respect
of which admission is requested. 

As a general rule, temporary admission for inward processing involves
total conditional relief from import duties and taxes. However, import
duties and taxes may be charged on waste deriving from the processing
or manufacturing of the goods 

National legislations usually require that the goods exported shall
have been obtained from the goods imported. 

In some cases, however, authority may be given for the utilization of
goods equivalent to those temporarily admitted for inward processing
(equivalents).

Within the context of temporary admission for inward processing,
exemption from import duties and taxes may be granted in respect of
goods used up during the production of exported goods without actually
being contained in them. 


Definitions

For the purposes of this Annex:

(a)  the term " temporary admission for inward processing " means the
Customs procedure under which certain goods can be brought into a
Customs territory conditionally relieved from payment of import duties
and taxes (1), such goods must be intended for re-exportation within a
specific period after having undergone manufacturing, processing (2)
or repair (3);

(b)  the term " import duties and taxes " means the Customs duties and
all other duties, taxes, fees or other charges which are collected on
or in connexion with the importation of goods, but not including fees
and charges which are limited in amount to the approximate cost of
services rendered (4); 

(c)  the term " compensating products " (5) means the products
obtained during or as a result of the manufacturing, processing or
repair of the goods temporarily admitted for inward processing (6);

(d)  the term " Customs control " means the measures applied to ensure
compliance with the laws and regulations which the Customs are
responsible for enforcing; 

(e)  the term " security " means that which ensures to the
satisfaction of the Customs that an obligation to the Customs will be
fulfilled. Security is described as " general " when it ensures that
the obligations arising from several operations will be fulfilled; 

(f)  the term " person " means both natural and legal persons, unless
the context otherwise requires. 

COMMENTARY 

(1)  In certain French-speaking countries the expression "exon ration
conditionnelle" is used instead of "suspension". 

(2)  The term " processing " may be interpreted by Contracting Parties
as covering the packaging, industrial packing or repacking of goods. 

(3)  This definition covers not only general trade processing but also
contract or " job " processing in which the foreign customer remains
the owner of the imported goods (see Recommended Practice 7). However,
it does not imply that the processing must involve an industrial
change increasing the value of the goods. The case of goods that are
to undergo minor operations may also be covered. 

(4)  The definition also covers the Value Added Tax collected in
connection with the importation of goods (see commentary (1) to
Standard 3). 

(5)  The use of goods admitted with conditional relief from import
duties and taxes under Customs procedures other than that of temporary
admission for inward processing is not covered by the definition of "
compensating products ". The definition covers not only products that
have undergone all authorized processing operations but also
intermediate products. 

(6)  " Compensating products " need not be obtained solely from goods
temporarily admitted for inward processing; it may be necessary to use
goods of national origin or previously imported against payment of
import duties and taxes. 


Principle


1.   Standard

Temporary admission for inward processing (1) shall be governed by the
provisions of this Annex (2).

COMMENTARY

(1)  Temporary admission for inward processing is not the only Customs
procedure to afford tax concessions on foreign goods which are to be
processed before re-exportation. The drawback procedure (Annex E.4.),
the duty-free replacement of goods procedure (Annex E.7.) and the free
zone procedure (Annex F.1.) may offer similar advantages. 

(2)  There is no obligation on States to accept all the provisions of
the Annex and reservations in respect of any Standards and Recommended
Practices that they are not in a position to apply may be entered (see
Article 5 of the Convention).

     Customs authorities are free to enact rules on aspects of
temporary admission for inward processing not covered by specific
provisions of this Annex. 

     Customs authorities may grant greater facilities than those
provided for in the Annex. The granting of such greater facilities is
recommended in Article 2 of the Convention.


Field of application


2.   Standard

National legislation (1) shall specify the circumstances in which
temporary admission for inward processing may be granted (2) and shall
lay down the requirements which must be met.

Notes     1.   The circumstances in which temporary admission for
inward processing is allowed may be set out in general terms and/or in
detail. 

     2.   Exemption from import duties and taxes may be accorded in
respect of goods such as catalysts and accelerators or retarders of
chemical reactions which, on being used to obtain compensating
products, disappear entirely or partially during such use without
actually being contained in those products (3). The exemption may be
granted only insofar as the compensating products obtained are
exported. However, it does not normally extend to mere aids to
manufacture, such as lubricants (4).

     3.   The right to import goods temporarily for inward processing
may be made subject to the condition that the proposed processing
operations are regarded by the competent authorities as beneficial to
the national economy. 

     4.   The right to import goods temporarily for inward processing
may be reserved to persons established in the Customs territory. 

     5.   Operations allowed under the temporary admission for inward
processing procedure may be carried out in premises designated as
warehouses for inward processing (5).

          The main features of these arrangements may be:

     -    the requirements as to the location and layout of inward
processing warehouses will be laid down by the competent authorities; 

     -    declaration for home use of a specified proportion of the
compensating products obtained is authorized;

     -    examination of the goods to be used, and of the compensating
products to be removed from the warehouse, will generally be carried
out in the warehouse.

COMMENTARY

(1)  See commentary on Article 3 of the Convention.

(2)  The establishment of a list of qualifying operations for
temporary admission for inward processing may be useful. The
circumstances in which temporary admission for inward processing is
allowed mainly concern the possibility of determining the presence of
the imported goods in the compensating products, the time limits for
temporary admission for inward processing and the obligations of
persons who import goods under this procedure.

(3)  This exemption, which is provided for in the national legislation
of many countries, is based on the fact that the economic value of the
goods may be regarded as having been incorporated into the
compensating products. The exemption is generally granted in the
context of temporary admission for inward processing. However, certain
countries consider that it is not a method of application of the
temporary admission for inward processing but rather a tariff measure.

(4)  Lubricants are cited as an example of what is meant by " mere
aids to manufacture ". Other examples are power sources, tools and
machines used in the manufacture of the compensating products. On the
other hand, catalysts and accelerators or retarders of chemical
reactions are essential factors in the process of manufacture and
hence may qualify for exemption from import duties and taxes.

(5)  The " warehouses for inward processing " (inward processing
warehouses) referred to in Note 5 are establishments in which goods
under temporary admission for inward processing may, subject to
certain conditions, be placed. These establishments usually have to be
located in a specified region or place and be approved by the Customs.
The Customs may check that the establishment possesses the necessary
equipment for the proposed processing operations. Among other
facilities, users of the system may declare a specified percentage of
compensating products for home use and may have Customs examinations
carried out at their premises. Inward processing warehouses are not
necessarily subject to special Customs surveillance.


3.   Standard

Goods temporarily admitted for inward processing shall be afforded
total conditional relief (1) from import duties and taxes. However,
import duties and taxes may be assessed on waste deriving from the
processing or manufacturing of goods temporarily admitted for inward
processing that is not re-exported or treated in such a way as to
render it commercially valueless.

Notes     1.   National legislation may provide that waste having
commercial value shall be assessed either on the basis of its own
tariff description or on the basis of the tariff description of the
goods from which it is derived (2)(3).

     2.   National legislation may provide that import duties and
taxes shall not be charged on waste within certain percentage limits
or on waste that is irrecoverable or unusable.

COMMENTARY

(1)  Contracting Parties which require payment of the Value Added Tax
at the time of importation are required to enter a reservation in
respect of Standard 3 since they cannot be regarded as granting "
total conditional relief " from the import duties and taxes chargeable on
the goods admitted temporarily for inward processing.

(2)  Waste deriving from the manufacturing or processing of goods
(parings, rejects, etc.) may be assessed by reference to rules other
than those governing the assessment of waste deriving from the
destruction of goods in the circumstances specified in Standards 41
and 42. In the latter cases the waste is assessed on the basis of its
own tariff description, whereas waste deriving from the manufacturing
or processing of goods may also be assessed on the basis of the goods
from which they are derived. In particular, this prevents persons who
use such waste as raw materials from finding themselves in a
privileged position in relation to persons who use goods imported
directly which are not in the form of waste when imported.

     Customs authorities may waive the production by importers of
waste assessed on the basis of the tariff description of the goods
from which it is derived. 

(3)  Where preferential tariff treatment is prescribed for the
assessment of waste deriving from the use of goods temporarily
admitted for inward processing, its application may be made
conditional on exportation of the compensating products. 


4.   Standard

Temporary admission for inward processing shall not be limited to
goods imported directly from abroad but shall also be granted for
goods ex Customs transit, ex Customs warehouse or from a free port or
a free zone (1)(2).

COMMENTARY 

(1)  Goods under temporary admission subject to re-exportation in the
same state should also be eligible for temporary admission for inward
processing.

(2)  Proper discharge of the Customs procedure under cover of which
the goods were originally imported may be made a prerequisite for the
application of this Standard.


5.   Recommended Practice

Temporary admission for inward processing should not be refused solely
on the grounds of the country of origin of the goods, the country
whence consigned or the country of destination. 


6.   Standard

The right to import goods temporarily for inward processing shall not
be limited to the owner of the imported goods (1)(2).


COMMENTARY

(1)  However, this right may be reserved to persons established in the
Customs territory (see Note 4 to Standard 2). 

(2)  In the case of contract or " job " processing, the person
accorded temporary admission for inward processing is not the owner of
the goods to be processed; the owner may even be established abroad
(see Recommended Practice 7).


7.   Recommended Practice

When, in the execution of a contract entered into with a person
established abroad, the goods to be used are supplied by that person,
temporary admission for inward processing should not be made subject
to the condition that goods equivalent to those to be imported are not
available in the Customs territory of importation. 


8.   Recommended Practice

The possibility of determining the presence of the imported goods in
the compensating products (1) should not be imposed as a necessary
condition of temporary admission for inward processing when the
identity of the goods can be established during the processing
operations by Customs control or when the procedure is terminated by
the exportation of products obtained from the treatment of goods,
identical in description, quality and technical characteristics to
those temporarily admitted for inward processing (2).

COMMENTARY 

(1)  see commentary (2) on Standard 2.

(2)  This method of application of the procedure (setting-off with
equivalent goods) is provided for in Recommended Practice 43.


Temporary admission of goods for inward processing


a) Formalities prior to temporary admission for inward processing 


9.   Standard

National legislation shall specify the circumstances in which prior
authority (1) is required for temporary admission for inward
processing and the authorities empowered to grant such authority (2).


COMMENTARY

(1)  To facilitate the control of certain processing operations,
Contracting Parties may require that authorization be obtained from a
competent authority before the goods can be placed under temporary
admission for inward processing.

(2)  The authority competent to grant " prior authorization " may be a
Customs authority. In designating the service empowered to issue such
authorisations (for example the Central administration, a regional or
interregional service, or the office of importation) account may be
taken of the scale of the proposed processing operations. An authority
other than the Customs may also be empowered to issue authorizations
of this kind. for example the government department responsible for
economic affairs or external trade.


10.  Recommended Practice

Persons who carry on large-scale and continuous temporary admission
for inward processing operations should be granted a general
authorisation covering such operations (1).

COMMENTARY 

(1)  The general authorisation for temporary admission for inward
processing may be made subject to the condition that, inter alia, the
goods held under temporary admission for inward processing should not
exceed a certain quantity and that processing operations should be
completed within a prescribed time limit.


11.  Standard

Where goods temporarily admitted for inward processing are to undergo
manufacturing or processing, the competent authorities (1) shall fix
the rate of yield of the operation by reference to the actual
conditions under which it is effected (2). The description, quality
and quantity of the various compensating products shall be specified
upon fixing that rate.

COMMENTARY

(1)  The Customs may not be the only authorities concerned in fixing
the rate of yield.

(2)  The rate of yield indicates the quantity of goods under temporary
admission for inward processing that is considered to have been used
to obtain the compensating products. In fixing this rate, account may
be taken of losses resulting from the nature of the goods used (see
commentary (1) on Recommended Practice 40).


12.  Recommended Practice

Where the inward processing operations:

-    relate to goods whose characteristics remain reasonably constant;

-    are customarily carried out under clearly defined technical
conditions, and

-    give compensating products of constant quality;

the competent authorities should lay down standard rates of yield
applicable to the operations (1).

COMMENTARY

(1)  The fixing of standard rates of yield can simplify matters both
for the Customs and for persons granted temporary admission for inward
processing. These standard rates may apply to processing operations
carried out by the same person; they may also be fixed in relation to
a specific industrial sector.


b) Declaration for temporary admission for inward processing


13.  Standard

National legislation shall specify the conditions under which goods
temporarily admitted for inward processing shall be produced at the
competent Customs office (1) and a Goods declaration shall be lodged
(2).

COMMENTARY

(1)  Generally speaking, the declarant may produce the goods to any
competent office of his choice. Cases may, however, occur in which the
Customs authorities require the importer to produce the goods al a
particular Customs office.

(2)  Standard 13 does not prevent Customs authorities from granting
temporary admission for inward processing without a written
declaration when no doubt is felt about the re-exportation of the
goods after processing. The written declaration may also be waived in
cases of temporary admission for inward processing of goods of low
value.


14.  Recommended Practice

The national forms used on temporary admission for inward processing
should be harmonised with those used for the Goods declaration for
home use (1)(2).


COMMENTARY

(1)  Since the Goods declaration for home use may be retarded as the
basic import declaration, it is recommended that it be taken as the
model for harmonizing the form used for temporary admission for inward
processing. 

(2)  Customs authorities may require the production of documents such
as invoice, copy of prior authorisation, etc. in support of the Goods
declaration for temporary admission for inward processing. 


c) Security


15.  Standard

The forms in which security is to be provided on temporary admission
for inward processing shall be laid down in national legislation or
determined by the Customs authorities in accordance with national
legislation (1).

COMMENTARY 

(1)  Security is usually provided by depositing cash or negotiable
securities or is given by an approved surety (natural or legal person,
generally a bank or an insurance company). It may also be given in the
form of a bond or in exceptional cases (e.g. non-commercial operations
and operations by public institutions or by government departments or
local authorities) by a simple undertaking. 


16.  Recommended Practice

The choice between the various acceptable forms of security should be
left to the declarant (1).

COMMENTARY 

(1)  Customs authorities may find it advisable to limit the forms of
security acceptable, on the basis of the standing of the consignee. 


17.  Standard

The Customs authorities shall, in accordance with national
legislation, determine the amount in which security is to be provided
when goods are temporarily admitted for inward processing. 


18.  Recommended Practice

The amount of the security to be provided when goods are temporarily
admitted for inward processing should not exceed the
amount of the import duties and taxes from which the goods are
conditionally relieved (1).

Note This Recommended Practice does not prevent the amount of the
security from being determined on the basis of a single rate where the
goods fall in a wide range of tariff headings (2).

COMMENTARY

(1)  Thus, no account should be taken of penalties that may be imposed
or interest for delayed payment that may be chargeable in cases of
abuse of the procedure.

     Contracting Parties which, either as normal practice or in
particular cases of temporary admission for inward processing, require
security in an amount exceeding the amount of the duties and taxes
involved must enter an appropriate reservation to Recommended Practice
18.

(2)  Calculation of the amount of security on the basis of a single
rate offers advantages both to the Customs and to trade.

     This single rate may be the average rate of the import duties and
taxes applicable to the goods temporarily admitted for inward
processing.

     A Contracting Party that systematically fixed the single rate at
a level such that the amount of the security exceeded the amount of
the duties and taxes from which the goods were conditionally relieved
would be required to enter a reservation to Recommended Practice 18.
This would apply, for example, if the single rate used were
systematically the rate applicable to the most highly taxed goods
included in the consignment.


19.  Standard

Persons who regularly use the temporary admission for inward
processing procedure at one or more Customs offices in a given Customs
territory shall be authorised to provide general security (1).

COMMENTARY

(1)  It is for the Customs authorities to fix the amount of the
general security, with due regard to the volume of the temporary
admission for inward processing operations carried out by the
applicant, and to determine at which Customs office it shall be
furnished.


20.  Recommended Practice

Customs authorities should waive the requirement for security where
they are satisfied that payment of any sums that might fall due can be
ensured by other means.


d) Examination of the goods

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