WTO Proposes Change to Rules on Valuation of Software
The World Trade Organization is looking into a proposal to change how software is valued when imported on certain “carrier mediums” like flash drives. Under current WTO rules, software imported on CD-ROMs and magnetic tapes is valued as the carrier medium, so software imported on a $3 CD-ROM is valued at $3 for customs purposes. Under a proposal from Uruguay currently being considered by the U.S. and other countries, the definition of “carrier medium” would be expanded to provide the same treatment for software imported on other devices, like USB keys and flash drives.
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The software rule comes from a 30-year old WTO decision on “Valuation of Carrier Media Bearing Software for Data Processing Equipment.” It currently only applies to limited kinds of carrier mediums. Its definition of "carrier medium" excludes “integrated circuits, semiconductors, and similar devices or articles incorporating such circuits or devices.” But many flash drives contain integrated circuits. According to Uruguay, that could lead to the strange situation where the software imported on a CD-ROM is valued at $3, but the same software imported on a flash drive is valued at $1,000. According to the WTO, Uruguay said the decision “must be extended to USB keys or flash drives because of their growing popularity as carrier media for software."
To accomplish this, Uruguay is proposing to add to the prohibition on devices that include integrated circuits an exception for “those which are presented to Customs solely as a means of temporary storage for transfer of data or instructions (software) to data processing equipment in order to be used.”
The WTO said Argentina and Mexico immediately supported Uruguay’s proposal, while the U.S., Canada, the European Union, Japan and the Philippines said “they are open to the proposal and are reviewing the issue.” China said it is open to amending the decision as well, although it noted a concern with treatment of songs and movies, which are currently excluded from valuation based on carrier media.