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. 
 
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Customs Valuation Assistance Needed 
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¶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.) 
 
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Customs Making Steady Progress With ASYCUDA 
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¶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. 
 
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Smuggling Undermines Progress 
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¶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. 
 
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Dispute Resolution 
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¶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.) 
 
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Consumption or Value Added Tax 
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¶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. 
 
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Comment 
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¶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