I.   Text and Commentary

     -  Introduction     5
     -  Definitions      5
     -  Principle (provision 1)    6
     -  Field of application (provisions 2-6)     7
     -  Exportation of products with entitlement to duty-free
        replacement of goods
        a) Formalities prior to the exportation of the products
           (provisions 7-11)     9
        b) Declaration for exportation with
           entitlement to duty-free replacement of goods
           (provisions 12-14)  10
        c) Examination of products exported with
           entitlement to duty-free replacement of goods
           (provision 15) 11
        d) Authorised destinations of products exported with
           entitlement to duty-free replacement of goods
           (provisions 16-17)  12
        e) Certification of exportation with
           entitlement to duty-free replacement of goods
           (provision 18) 12
     -  Importation of goods (provisions 19-27) 13
     -  Importation concerning the duty-free replacement of goods
        procedure (provision 28) 15

II.  Entry into force

     -    Contracting Parties having accepted the Annex     17

III. Reservations

     -    Contracting Parties having entered reservations   19
     -    Reservations entered (in alphabetical order of Contracting Parties)

IV.  Alphabetical Index



I.-TEXT AND COMMENTARY *


* Annex E.7. was adopted by the Permanent Technical Committee at its
83rd/84th Sessions in March 1974. 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
.....


Introduction

In most countries, national legislation contains provisions under
which goods used to make products for export are not required to bear
duties and taxes. 

The drawback procedure and temporary admission for inward processing
allow a refund of, or conditional relief from, import duties and taxes
to be granted in respect of foreign goods used to obtain exported
products. 

In the case of the duty-free replacement of goods procedure, the
subject of the present Annex, the technique employed is to grant
exemption from import duties and taxes for goods equivalent to those
which were in free circulation and were processed into products
exported from the Customs territory. 

However, application of this procedure may be made subject to the
condition that the importation of goods equivalent to those
incorporated in the products previously exported is regarded by the
competent authorities as beneficial to the national economy. 

Products manufactured from goods admitted free of import duties and
taxes under this procedure may be put on the home market. Should they
be exported, the duty-free replacement of goods procedure could again
become applicable. 


Definitions

For the purposes of this Annex:

(a)  the term " duty-free replacement of goods procedure " means the
Customs procedure which permits the importation, free of
import duties and taxes, of goods (1) equivalent (i.e., identical
in description, quality and technical characteristics) to those which
were in free circulation (2) and which were processed into products
(3) previously exported outright;

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

COMMENTARY

(1)  The term " goods " applies to raw materials, parts, components
and semi-manufactures equivalent to those used to obtain the products
exported.

(2)  If the products exported were obtained by the processing of goods
admitted temporarily for inward processing and of goods that were
home-produced or had borne import duties and taxes, the duty-free
replacement procedure would apply only to goods equivalent to those
that were home-produced or had borne import duties and taxes and had
been used to obtain the products exported.

(3)  The term " products " refers to the goods in the state in which
they are exported with a view to gaining subsequent entitlement to
exemption under the duty-free replacement procedure.

(4)  The definition also covers Value Added Tax collected in
connection with the importation of goods.


Principle


1.   Standard

The duty-free replacement of goods procedure (1) shall be governed by
the provisions of this Annex (2).

COMMENTARY

(1)  Duty-free replacement of goods is not the only Customs procedure
to afford tax concessions in connection with the exportation of goods.
For instance, the drawback procedure (Annex E.4.), the temporary
admission for inward processing procedure (Annex E.6.) and the free
zone procedure (Annex F.1.) may offer similar advantages.

(2)  In accordance with Article 5 of the Convention, Contracting
Parties may enter reservations in respect of these provisions
(Standards and Recommended Practices).


Field of application


2.   Standard

National legislation (1) shall specify the circumstances in which the
duty-free replacement of goods procedure may be granted and shall lay
down the requirements which must be met (2).

Notes     1.   The circumstances in which the duty-free replacement
of goods procedure is allowed may be set out in general terms and/or
in detail.

     2.   The granting of this procedure may be made subject to the
condition that the importation of goods equivalent to those
incorporated in the products previously exported is regarded by the
competent authorities as beneficial to the national economy.

     3.   The benefit of the procedure may be reserved to persons
established in the Customs territory.

COMMENTARY

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

(2)  National legislation may stipulate that all provisions applicable
to goods which are exported outright shall also apply to products
exported with entitlement to duty-free replacement.


3.   Standard

At importation, goods equivalent to those which were in free
circulation and which were incorporated in the products previously
exported shall be afforded total exemption from import duties and
taxes, subject to payment of any duties and taxes repaid or remitted
on the exportation of the products.

Notes     1.   The exemption from import duties and taxes may be
granted in respect of raw materials and semi-manufactured products as
well as to parts equivalent to those incorporated, without further
manufacture, in the products exported.

     2.   Goods such as catalysts and accelerators or retarders of
chemical reactions which, on being used to obtain products for
exportation with entitlement to duty-free replacement of goods,
disappear entirely or partially during such use without actually
being contained in the products for export, may be treated
as goods used to obtain the said products and granted the same
exemption from import duties and taxes. However, this exemption does
not normally extend to mere aids to manufacture such as lubricants
(1).

COMMENTARY

(1)  Power sources, tools and machines used in the manufacture of the
products to be exported are other examples of " mere aids to
manufacture ".


4.   Recommended Practice

The benefit of the duty-free replacement of goods procedure should not
be withheld solely on the grounds that the products are exported to a
specific country (1).

COMMENTARY

(1)  Contracting Parties that accept Recommended Practice 4 without
entering a reservation cease, in the specific case of products
exported under the duty-free replacement procedure, to be entitled to
cite the provisions of Article 3 of the Convention as justification
for applying prohibitions and restrictions based on the destination of
the goods exported.


5.   Standard

National legislation shall specify the categories of persons who may
receive an authorisation for the duty-free replacement of goods.

Note The holder of an authorisation for the duty-free replacement of
goods may be the exporter, the manufacturer or the owner of the
exported products.


6.   Standard

The benefit of the duty-free replacement of goods procedure shall be
granted where it is possible to ascertain the use of the goods in
arriving at the exported products.

Note In order to ascertain the use of the goods in arriving at the
exported products the Customs authorities may carry out controls
during the manufacturing process or may have recourse to the
records kept by the manufacturer of the products to be exported (1).

COMMENTARY

(1)  Examination of the exported products is the method normally
employed by the competent authorities to ascertain that the goods have
in fact been used. The other measures referred to in the Note are
merely supplementary measures.


Exportation of products with entitlement
to duty-free replacement of goods


a) Formalities prior to the exportation of the products


7.   Standard

National legislation shall specify the circumstances in which prior
authority (1) is required for application of the duty-free replacement
of goods procedure and the authorities empowered to grant such
authority (2).

COMMENTARY

(1)  To facilitate the control of certain exportations with
entitlement to duty-free replacement of goods, Contracting Parties may
require that authorisation be obtained from a competent authority
before the products can be exported.

(2)  An authority other than the Customs may be empowered to issue
authorisations of this kind, for example the government department
responsible for economic affairs or external trade.


8.   Recommended Practice

Persons who carry on large-scale and continuous operations involving
the duty-free replacement of goods should be granted a general
authority covering such operations.


9.   Standard

The description, quality, technical characteristics and quantity of
the various goods which were in free circulation and are contained in
the products to be exported with entitlement to duty-free replacement
of goods shall be determined by the competent
authorities on the basis of the actual conditions under which those
products were obtained.


10.  Recommended Practice

In determining the quantities of the various goods contained in the
products to be exported with entitlement to duty-free replacement of
goods, the competent authorities should make allowance for losses and
irrecoverable waste deriving from the manufacturing process.


11.  Recommended Practice

Where products to be exported with entitlement to duty-free
replacement of goods have reasonably constant characteristics and are
obtained under clearly defined technical conditions, the competent
authorities should establish standard quantity scales for the various
goods contained in the products to be exported (1).

COMMENTARY

(1)  The fixing of standard quantity scales for the various goods that
can be imported free of import duties and taxes simplifies matters
both for the Customs and for persons granted the procedure.


b) Declaration for exportation with
entitlement to duty-free replacement of goods


12.  Standard

National legislation shall specify the conditions under which products
to be exported with entitlement to duty-free replacement of goods
shall be produced at the competent Customs office (1) and a Goods
declaration (outwards) shall be lodged.

Note National legislation may provide that the Goods declaration to
the exportation of the products must contain the particulars necessary
to enable the Customs to determine the quantities of the various goods
for which exemption from import duties and taxes will be claimed.


COMMENTARY

(1)  The declarant may be authorised to produce the products at any
competent office of his choice. However, the Customs authorities may
require him to produce the products at a particular Customs office.


13.  Recommended Practice

Where the competent authorities have not been able to give a ruling on
an application for duty-free replacement of goods, the declarant
should be authorised to export the products concerned without delay
provided that the conditions prescribed are met and without prejudice
to the final decision. 


14.  Recommended Practice

The national forms used for the exportation of products with
entitlement to duty-free replacement of goods should be harmonised
with the Goods declaration (outwards) (1).

COMMENTARY 

(1)  Goods declaration (outwards) form has been established by the
Council. This form is given at Appendix I to the Customs Co-operation
Council Recommendation of 1 June 1965 concerning the adoption of a
lay-out key for the Goods declaration (outwards).


c) Examination of products exported with
entitlement to duty-free replacement of goods


15.  Recommended Practice

At the request of the declarant, and for reasons which they deem
valid, the Customs authorities should, so far as possible, allow
products for exportation with entitlement to duty-free replacement of
goods to be examined on private premises (1), the expenses entailed by
such examination being borne by the declarant.

COMMENTARY

(1)  Naturally, the Customs will be able to allow examination of the
products on private premises only to the extent that examining
officers can be made available for the work.

d) Authorised destinations of products exported with
entitlement to duty-free replacement of goods


16.  Recommended Practice

Provisions should be made to permit products for exportation with
entitlement to duty-free replacement of goods to be placed in free
ports or free zones (1).

COMMENTARY

(1)  Contracting Parties not having free ports or free zones are not
required to enter a reservation in respect of this provision.


17.  Recommended Practice

Provision should be made to permit products for exportation with
entitlement to duty-free replacement of goods to be placed in a
Customs warehouse (1) with a view to subsequent exportation.

COMMENTARY

(1)  The person concerned should be allowed, at his discretion, to
deposit the products for exportation in a public Customs warehouse of
his choice or in a private Customs warehouse authorised to receive
goods of the same nature (see Annex E.3. concerning Customs
warehouses, Standards 2 and 4).


e) Certification of exportation with
entitlement to duty-free replacement of goods


18.  Standard

Where products have been exported with entitlement to duty-free
replacement of goods, the Customs authorities shall issue to the
declarant a document establishing his entitlement to import, without
payment of import duties and taxes, goods equivalent to those which
were in free circulation and which were contained in the products in
question.

Note The document issued to the declarant may consist of a copy, duly
certified by the Customs, of the declaration for exportation with
entitlement to duty-free replacement of goods, or may be made out on
an appropriate form.


Importation of goods


19.  Standard

National legislation shall specify the conditions under which goods
which may be admitted free of import duties and taxes under the
duty-free replacement of goods procedure shall be produced at the
competent Customs office (1) and a Goods declaration shall be lodged
(2).

Note National legislation may provide that the Goods declaration must
contain the particulars necessary for authorising exemption from
import duties and taxes and that the entitling document(s) issued by
the Customs authorities must be produced in support of that
declaration.

COMMENTARY

(1)  The declarant may be authorised to produce the goods at any
competent office of his choice. However, the Customs authorities may
require him to produce the goods at a particular Customs office.

(2)  The form of declaration is normally the same as the form used for
clearance for home use. A lay-out key for the Goods declaration for
home use is given at Appendix I to Annex B.1. concerning clearance for
home use.


20.  Standard

The competent authorities shall fix with due regard to the commercial
circumstances the time limit (1) for the importation of goods which
may be admitted free of import duties and taxes.

COMMENTARY

(1)  Contracting Parties which do not set a time limit for the
importation of the goods may be regarded as applying facilities
greater than those provided for in this Standard.


21.  Standard

Provision shall be made to permit goods which may be admitted free of
import duties and taxes to be imported through a Customs office other
than that through which the products were exported (1).

COMMENTARY

(1)  Where the person accorded duty-free replacement of goods
regularly imports goods admissible free of import duties and taxes
through different Customs offices, the Customs authorities may
centralise his accounts in a specific Customs office.


22.  Standard

Provision shall be made to permit goods which may be admitted free of
import duties and taxes to be imported in one or more consignments.


23.  Standard

Provision shall be made to permit goods covered by several documents
establishing entitlement to importation under the duty-free
replacement of goods procedure to be imported in one consignment.


24.  Standard

Provision shall be made to permit goods which may be admitted free of
import duties and taxes to be imported from a country other than that
to which the products were exported.


25.  Recommended Practice

Provision should be made to permit goods which may be admitted free of
import duties and taxes (1) to be imported by a person other than the
exporter of the products (3), subject to compliance with the
conditions laid down by the Customs authorities (2).

COMMENTARY 

(1)  In conformity with Standard 3, the exemption from import duties
and taxes may be either total or partial.

(2)  The Customs authorities may require the importer to prove that
the person who exported the products has in fact assigned to him the
entitlement to import the goods free of import duties and taxes.

(3)  Contracting Parties which, in accordance with Standard S,
restrict the granting of the duty-free replacement procedure to, for
example, persons who process the goods to obtain the products for
exportation should enter a reservation in respect of the present
provision.


26.  Recommended Practice

At the request of the declarant, and for reasons deemed to be valid,
the Customs authorities should, as far as possible, allow goods which
may be admitted free of import duties and taxes to be examined on
private premises (1), the expenses entailed by such examination being
borne by the declarant.

COMMENTARY

(1)  See commentary on Recommended Practice 15.


27.  Standard

National legislation shall specify the Customs treatment applicable
when products which have been exported with entitlement to duty-free
replacement of goods are re-imported (1).

COMMENTARY

(1)  National legislation may provide for cancellation of the
authorisation to import equivalent goods free of import duties and
taxes or, if the equivalent goods have already been imported free of
import duties and taxes, for collection of those import duties and
taxes. 


Information concerning the
duty-free replacement of goods procedure


28.  Standard

The Customs authorities shall ensure that all relevant information
regarding the duty-free replacement of goods procedure is readily
available to any person interested (1).

COMMENTARY

(1)  This information can be made available to the interested persons
through the usual information media such as regular publications
(official gazettes and notices), and should also be readily obtainable
at any Customs office upon request.

*     *     *


II.-ENTRY INTO FORCE

Contracting Parties having accepted the Annex,
with dates of entry into force

        Israel    .....
        Morocco   .....



III.-RESERVATIONS

Contracting Parties having entered reservations

Contracting Parties Provisions reserved
        
        Israel      3 - 17 - 25



IV.-ALPHABETICAL INDEX

     Provisions

Authorisation
- Application  13
- General   8
- Prior     7
Catalysts   3
Documents establishing entitlement to duty-free replacement 18, 19, 23
Examination
- at exportation    15
- at importation    26
Exemption from import duties and taxes    3
Exportation      4, 13
- through a Customs warehouse 17
- through a free port or free zone 16
Forms     14
Field of application       2
Goods contained in the products to be exported      9, 10, 11
Goods declaration   12, 14, 18, 19
Importation    21, 22, 23, 24
Information concerning duty-free replacement of goods  28
Losses and waste    10
Persons entitled      5, 25
[page unnumbered]
Principle   1
Production to Customs    12, 19
Raw materials    3
Re-importation - Customs treatment applicable     27
Semi-manufactured products      3
Time limit     20
Use of goods     6

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