RESTRICTEDWORLD TRADE
ORGANIZATIONG/PSI/WP/M/8
23 December 1998
(98-5163)
Working Party on Preshipment Inspection Original:  English
MINUTES OF THE MEETING OF 11 NOVEMBER 1998
Chairman:  Mr. Edward Brown (United Kingdom)
The agenda proposed for the meeting, contai ned in WTO/AIR/966, was adopted as follows:
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1. Adoption of the Report to  the Genera l Council.............................................................................1
2. Exchange of views on th e programme of work.............................................................................1
A.  Issue No. 1:  code of conduct/practice fo r PSI en tities ............................................................2
B.  Issue No. 2:  a sta ndard inspecti on format...............................................................................2
C.  Issue No. 3:  selective examination of shipments....................................................................2
D.  Issue No. 4:  a uditing of PS I entitie s..................................................................................... ...3
E.  Issue No. 5:  promotion of  competition amon g PSI en tities ....................................................4
F.  Issue No. 6:  fee st ructures for PSI en tities .............................................................................. .4
G.  Issue No. 7:  the use, to user Members, of building price databases ......................................6
3. Technical assist ance ......................................................................................................... ..............7
4. Trade faci litatio n ........................................................................................................... .................7
5. Other bus iness ............................................................................................................... .................8
1. Adoption of the Report to the General Council
1.1 The Chairman recalled that the draft report to the General Council had been circulated in
document G/PSI/WP/W/21.  This draft incorporated th e comments received at the informal meeting
held on 30 October 1998 where a first informal draft had been discussed.  He asked if the WorkingParty could adopt this report.
1.2 The Working Party adopted the Report to the General Council.
2. Exchange of views on the programme of work
2.1 The Chairman recalled that the Working Party had had an informative informal session in the
morning.  The presentations had further clarified some of the issues and would serve to guide future
work.  He suggested continuing discussion of the issues in the work programme in sequential order.
Although the mandate of the Working Party was to have an exchange of views on these issues, he
considered that it would be useful to the overall exercise if the exchange of views could be linked to
the original mandate of the Working Party which was to conduct a review of the Agreement.G/PSI/WP/M/8
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A.  Issue No. 1:  code of conduct/practice for PSI entities
2.2 On this issue, the Chairman considered that it would be interesting to hear some concrete
views of Members on the Swiss proposal for a model contract.  He believed that most Members, in
principle, agreed with the idea of a model contract as long as it was available for use on a voluntary
basis, as a tool for user Members if they considered it appropriate and useful to their purposes.  He
recalled that the point had also been made that any recommendation on model contracts would not
affect existing contracts and would be only for future use.
2.3 The representative of the European Commun ities informed the Working Party that the EC
would submit its additions or amendments to the Swiss proposal which was considered very useful.
After this, he foresaw a more in-depth discussion.  He agreed with the Chairman that this model
contract would not be a binding document but would be useful to user Member governments which
wished to use it.
2.4 The Working Party agreed to revert to this issue following a suggestion from the Chairman
that the Swiss and European Communities delegations consult bilaterally and bring suggestions on
this issue to the next meeting.
B.  Issue No. 2:  a standard inspection format
2.5 The Chairman recalled that IFIA had proposed at the meeting in October to standardise the
data-sheet for exporters which advised exporters of specific country requirements.  He believed that
everyone agreed that this would be a positive development.  The Working Party had also reiterated its
request to the ICC and IFIA to consider whether there were additional forms that could be
standardized.  He asked if Members had any views on this or on any other areas which could berecommended for standardization efforts.
2.6 The Working Party agreed to leave it to IFIA and the ICC to pursue standardization efforts on
data-sheets for exporters as well as on other potential areas.  It was also agreed that the Chairman
would write to these two organizations to reiterate this request and to encourage them to report back
to the Working Party for its meeting in January.
2.7 The representative of the European Communities asked if the Chairman intended to ask IFIA
and the ICC to pursue standardization efforts in areas other than inspection formats.
2.8 The Chairman considered that this issue basically dealt with paper transactions.  If there were
other areas under the agenda that required views to be conveyed to these organizations or any other
bodies, they would be discussed as necessary.
C.  Issue No. 3:  selective examination of shipments
2.9 The Chairman considered that all Members could agree that this was an important and useful
practice in principle.  However, the desire and abil ity to institute selective examination of shipments
depended to a great extent on the capacity and level of modernization of each Member's customs
administration.  The Working Party also needed to be  clear in defining what it meant under this issue.
The scope of PSI varied from country to country.  Some users inspected 100 per cent of all goods
whereas others limited the scope of inspections to areas of sensitivity, which were then subject to 100per cent inspections.  He asked how the principle of selectivity could be applied in practice to the
varying needs of user Members.  Was the Working Party trying to encourage the use of selectivity by
Members that were examining shipments on a 100 per cent basis?G/PSI/WP/M/8
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2.10 The representative of the United States noted that his delegation considered this an important
area of the work programme and the Working Party should seek to achieve recommendations in this
regard.  He was aware that some user Members' contracts provided for 100 per cent inspection of
shipments.  His delegation saw little rationale for that type of comprehensive coverage in
examinations, regardless of the value and nature of the shipment involved.  His delegation hoped thatall Members could embrace the principle of selective examination as it did not make sense to require
100 per cent examination of shipments.  Examination at other than 100 per cent was more
complicated and he would come back to this at a future meeting.
2.11 The representative of Canada understood selectivity as akin to the standard risk assessment
approach for customs and that this issue meant that , in applying PSI, the companies themselves should
follow such risk assessment techniques. This issu e was not necessarily related to the coverage of
examinations by a country but more to the business arrangements with the PSI company.
2.12 The representative of the European Communities supported the idea, as a practical step, of
trying to persuade those countries which did not use a selective approach to PSI to start doing so and not
to examine shipments on a 100 per cent basis.  His de legation was not sure, however, to what extent risk
criteria could be uniform because each country would have its own risk assessment criteria.
Nevertheless, it was feasible for the Working Pa rty to envisage a recommendation based on the US
submission and the Chairman's points.
D.  Issue No. 4:  auditing of PSI entities
2.13 The Chairman recalled that in the informal  morning session, the Working Party heard from
the representative of SWIPCO what auditing was and how it worked in practice.  The Working Party
would need to bear in mind that recourse to auditing by some user Members was increasing.  At the
last meeting, the Working Party heard views on this issue which were prompted by the presentationand questions posed to SWIPCO.  He asked if Me mbers had any initial thoughts on how the Working
Party's final report should reflect the knowledge gained so far in this area.
2.14 The representative of the United States believed that this issue, as all the issues in the work
programme, should be reflected in the report.  The question was whether it should be reflected in
terms of a description of discussions in the Working Party on auditing and what the Working Party
had learned based on current auditing activities in certain user Members, or whether the WorkingParty could go further and actually make recommendations. From what the Working Party had
learned so far, his delegation still had some questions with respect to the auditing activities that were
currently employed by user Members.  The informal exchange had been useful;  a number of concerns
were raised regarding what would appear to be price verification activities of an auditing company
and exactly what an auditor should do.  Further examination was necessary to determine whether theWorking Party would be in a position to reach a recommendation on this issue.  He could imagine
promoting the principle of auditing - it was difficult to argue against the idea of auditing as an
independent watchdog on the activities of a private entity that was effectively engaged in a
governmental activity or function.  However, it may be necessary to set out what would be the desired
features of an auditing system.
2.15 The representative of the European Communities supported the views of the United States in
that it would be legitimate to envisage a recommendation on this subject.  Preliminarily he thought it
would be useful to delineate some general principles  that should govern the auditing process.  Four of
these principles that might be useful were that the auditing process:  should not lead to duplication ofPSI work;  should always apply consistently with GATT and WTO principles and Agreements;
should be undertaken by entities that satisfied reliable auditing credentials;  and should be undertaken
under conditions of independence and integrity.G/PSI/WP/M/8
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2.16 The representative of Colombia stated that his delegation did not feel comfortable with
putting forth such a recommendation.  It was true that some user Members had resorted to PSI to
solve some customs related problems as a transitional measure.  He was concerned that the Working
Party would come up with a recommendation to use priv ate auditing services.  He considered that this
should be within the discretion of each Member who should decide on their own whether they wantedto resort to such services and turn to private entities.  It was not really in the purview of the Working
Party to recommend that Members resort to the services of a private auditing entity.
2.17 The representative of the United States stated that the Working Party was clearly not in a
position at this meeting to look into the exact content of a recommendation on this issue.  His
delegation did not even have a view yet as to whether there should be a recommendation or simply a
description of the discussions in the Working Party.  However, he believed that if the Working Partywere to examine a possible recommendation, it would be difficult to have one that would require user
Members to implement an auditing system where they currently did not.  He saw a recommendation
more along the lines that if a Member were to use an auditing system, that it should respect certain
principles and the EU's four principles seemed to be well reasoned and could be a good starting point.
2.18 The representative of Switzerland considered this issue an important aspect that touched on
sensitive aspects such as transparency and price verification.  Her delegation started from the premise
that PSI activities already constituted a delegation of competence which belonged to the state and not
to private entities.  With auditing, there would be an additional delegation of competence which
should normally belong to the state and not to private entities.  The terms of reference of PSI activitieswere governed by the WTO Agreement, but auditing was not covered.  While her delegation was
interested in the principles put forward by the EU, it reserved its position on this issue.
E.  Issue No. 5:  promotion of competition among PSI entities
2.19 The Chairman considered that all could agree that promotion of competition was a healthy
concept.  However, the question arose of whether this was an area where the Working Party wanted to
make a statement or recommendation in its final report to the General Council.  He recalled that the
Philippines had asked for the views of exporters regarding their experiences with user Members that
had contracts based on competition among PSI entities.
2.20 The representative of the United States thought this issue needed further examination as it
was more complicated than first appeared.  It was easy to look at individual situations and assume that
the competitive instinct would lead to better service and more trade facilitation.  He was not sure what
his exporters' experiences had been so far and he would endeavour to find out more information on
this.   However, expectations regarding the positive benefits of competition would need to be carefully
assessed because his delegation had found that there was not much competition among PSI entities.Further reflection would be needed in order to determine whether the Working Party should make any
recommendation in this area.
2.21 The representative of New Zealand generally supported the comments by the United States.
He did not have feedback from exporters.  However, he thought that if choice among PSI entities was
available, this should be encouraged.
2.22 The Chairman encouraged Members to get feedback from their exporters as soon as possible
as the Working Party did not have much time left before it would have to issue its final report.
F.  Issue No. 6:  fee structures for PSI entities
2.23 The Chairman noted that the representative of IFIA had noted previously that they would
support changing the fee basis to ad valorem  of the declared value (as per seller's final commercialG/PSI/WP/M/8
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invoice) instead of the PSI company’s opinion of value for all new contracts, or renewals of existing
contracts, relating to PSI programmes for customs purposes.  The IFIA representative had also
explained that in some Latin American countries where there were several PSI companies operating,
although the user government fixed the maximum permissible fee ( ad valorem ) and a flat minimum
fee, the fees were freely and competitively negotiated between the importers and the PSI companieswithin these limits.  The IFIA representative had stated that these fees generally reflected
commercially applicable rates and approximated the cost of the service and, therefore, in their
opinion, this went towards meeting the requirements of Article VIII of GATT 1994 which had been
raised by several Members at the last meeting.  The Chairman acknowledged that this was an issue on
which several Members had strong views, and he asked Members to consider what, if anything, the
Working Party might be able to recommend in its final report on this issue.
2.24 The representative of the Philippines asked for clarification whether the Chairman had said
that IFIA had stated that the fee structure was negotiated between the importer and the PSI company.
As far as she knew, at least in the Philippines, the fee structure was negotiated between the Philippine
Government and the PSI entity.
2.25 The Chairman clarified that in some countries, particularly in Latin America, the importers, in
fact, paid the fees for the inspection.  Therefore, he believed that they were consulted on the fee
structures.
2.26 The representative of the United States welcomed the fact that IFIA had been forthcoming on
this issue to try to satisfy some of the concerns raised at previous discussions.  Some may perceive
their initiatives to recommend that IFIA Members apply ad valorem  fees on the basis of invoice value
as a step in the right direction.  His delegation continued to have doubts as to whether, in fact, this was
a step in the right direction and would have great difficulty in considering any kind of
recommendation that would endorse such a practice and would appear as prejudicing WTO rights andobligations that currently existed.
2.27 The Chairman wondered how much further the Working Party could go on this point.  He
understood the reservations that some may have on this point, but it was difficult to see how this issue
could be taken forward.
2.28 The representative of the United States stated that his delegation was yet to be convinced that
the only way IFIA members could do business was to charge fees on an ad valorem  basis, whether on
the basis of an assessed value or of an invoice value.   He recalled the requirement of the WTO that all
fees associated with importation be set on the basis of services rendered.  He saw no reason why there
could not be an alternative fee structure which clearly reflected services rendered, and would still
allow these companies to make money.  Perhaps there were such differences in views that it may notbe possible to practically address this issue.  However, he wanted to state his delegation's position.
2.29 The representative of the European Communities considered the IFIA initiative as a positive
step in the sense that it was preferable to struct ure the fees on the basis of the seller's invoice rather
than the PSI opinion.  On the other hand, his delegation agreed with the US that the fee structuresshould follow GATT principles in that it should reflect the cost of the services rendered.  In any case,
fees were freely negotiated between the user Member government and the PSI entity.  In no way
should the cost be borne by the trading community, especially by the exporters.  It should be borne
exclusively by the user Member governments.
2.30 The Chairman asked Members whether it was up to the Working Party to propose an
alternative to IFIA if their initiative was not acceptable.G/PSI/WP/M/8
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2.31 The representative of Canada agreed with th e EU that, however negotiated, the costs of PSI
services ought not to be borne by the traders but by the user government.  He suggested returning to
this issue after further reflection.  His delegation shared the concern about the use of ad valorem  fees
and would need to reflect on how best to tackle this issue for the final report.
2.32 The representative of New Zealand suggested examining the fees that were charged as to
whether they would facilitate entry, i.e. customs fees in the sense of Article VIII of GATT, or were
they fees that were being collected for services  rendered to the customs authority for a different
purpose.  He was not sure that Article VIII was necessarily relevant if these were fees that a
government was willing to pay to a PSI entity as pa rt of the cost of improving its revenue collection
and customs services so as to do away with PSI a ltogether.  Certainly costs should not be shifted to
traders, nor should they pay twice if they had to pay customs entry fees and formalities as well as PSIfees.  If these were fees for services rendered to a government connected with improving customs
capabilities, that cost should not fall to traders.
2.33 The representative of Peru considered it obvious that there were several view points on this
issue.  If the mandate of the Working Party was borne in mind, to exchange views on the various
issues, all that had to be done on this issue was to take note of the IFIA proposal and the views
expressed by various delegations.  The statements by the US and the EU served as points for
reflection and she agreed with the US that a recommendation on this issue would be difficult.
2.34 The representative of the United States shared the views of the EU, Canada, and New Zealand
that the costs associated with PSI should not be borne by traders.  Perhaps if the Working Party held
to that principle, there was no question about ot her WTO obligations outside of the PSI Agreement.
His delegation was concerned, however, that this wa s not always the case.  His delegation knew of
cases in which the costs were borne by the traders.  He referred to the submission by IFIA which
referred to situations in certain countries where fees were freely and competitively negotiated betweenthe importers and the PSI companies.  It was his understanding that, in fact, importers in some
circumstances did pay for the services of PSI entities and it was not the authorities themselves paying
for services being rendered to them.  Perhaps th e Working Party could get further clarification from
IFIA at a later point.
2.35 The representative of Canada agreed that further time was needed for reflection on this issue.
The Working Party should not lose sight of the fact that whether Article VIII may or may not be
involved, there was an Article on Conflict of Interest  in the PSI Agreement which should also be taken
into account.
G.  Issue No. 7:  the use, to user  Members, of building price databases
2.36 The Chairman considered that this issue seem ed to cut across some of the other issues, such
as auditing, selective examination of shipments and technical assistance, in part because price data
bases could be used for customs purposes in a number of ways, and because of the question of their
relationship to the WTO Agreement on Customs Valuation.  The Working Party had a discussion of
this issue at the last two meetings.  Provided that such databases were used in a WTO consistentmanner, that was, not as a basis to reject the transaction value but as one of many means available to
highlight possible inaccuracies, could the Working Party refuse to acknowledge the good intent of
countries that had proposed this item, especially as all Members were bound by the obligations under
the Customs Valuation Agreement?
2.37 The representative of Colombia agreed with the Chairman's introduction to this issue.  His
delegation considered that data bases were an important tool for having reference points concerning
possible prices.  However, they should not be used as sources or as minimum prices for valuation andG/PSI/WP/M/8
Page 7
his delegation would reject this use of data bases.  The correct use of such a tool was compatible with
the WTO Agreement on Customs Valuation.
2.38 The representative of the European Communities referred to its previous submission on this
subject.  His delegation did not believe that price data bases should not be used.2.39 The representative of the United States also referred to his delegation's submission on this
issue.  The concern had always been that price data bases were particularly susceptible to abuse in the
area of valuation.  He cautioned that any recommendation should be drawn up very carefully.
2.40 The representative of Switzerland shared the concerns expressed by the US and the EU that
the use of price data bases could lead to the use of fictitious prices.2.41 The Working Party took note of all statements made and agreed
 to revert to all the issues on
its work programme at the next meeting.3. Technical assistance
3.1 The Chairman recalled that at the informal meeting on 30 October 1998, the Working Party
had had a useful exchange of ideas on this issue.  He added that it would be useful if those Members
that had made interventions on ideas for recommendations could repeat those ideas here in this formal
setting.  In addition, Members had informally asked the Secretariat to update and circulate for theinformation of the Working Party the document that  had been prepared for the Customs Valuation
Committee on technical assistance.  The Secretariat had agreed to do so.
3.2 The representative of Canada considered that the most important element to be noted in this
area was that PSI was a transitional measure.  It was used to deal with transitional problems and to
help user Members to overcome any problems that they may have.  PSI was about capacity building;
this was mentioned by the private sector in the informal meeting and should be recalled and
emphasized in the final report.  Technical assistance should be provided in a coherent fashion, both as
concerned other WTO Agreements involved as well as activities in other organizations.  Regarding
efforts by exporters to assist the transitional process, he noted that Canada provided a full range of
technical assistance on customs services.  However, the question arose as to where efforts should be
targeted and what the real needs were as this was crucial for efficient delivery of technical assistance.
3.3 The representative of the European Communities said that her delegation would deal with the
issue of technical assistance in its forthcoming submission.3.4 The Chairman stated his understanding that the Working Party was not expected to come up
with recommendations on the type of assistance that would need to be given but perhaps a statement
that there should be no duplication and that technical assistance should be focused depending on the
needs of individual Members.  The Working Party took note of the statements made and agreed  to
revert to this issue at a later time.
4. Trade Facilitation
4.1 The Chairman recalled that at the previous meeting of the Working Party he had explained
that the Working Party had been requested by the Chairman of the Council for Trade in Goods (CTG)
to include this item on its agenda.  An initial exchange of views had taken place at the last meeting.However, he believed that some further discussion would be necessary to formulate ideas that could
go into the final report.  The task of the Working Party should be to reflect on whether any of these
core issues related to the issues the Working Party was discussing under its work programme.  He
noted that the EU had said that it intended to submit a paper on trade facilitation as well as technicalG/PSI/WP/M/8
Page 8
assistance.  He believed that if the Working Party could come up with some clear recommendations
on some of the issues in the work programme, like standardization of formats, this would further trade
facilitation efforts.
4.2 The representative of Canada agreed that a number of the issues on the work programme did
contribute towards smoothing the use of PSI and, to some degree, this could be said to be trade
facilitation.  But it was important not to lose sight of the fact that this would be during the transition
process when PSI would be used, and that PSI as a whole was designed to help Members move
towards modernizing and providing customs services directly.  While his delegation agreed that the
issues in the work programme could be seen as facilitation vis-à-vis the operation of PSI entities, his
delegation would want to make sure that it was the transition away from using PSI that was an
important trade facilitation element.
4.3 The Working Party took note of the statements made and agreed  to revert to this issue at its
next meeting.5. Other business
5.1 The Chairman considered that most of the work in the next year should be devoted to the final
report to the General Council.  This report should be  as comprehensive as possible, reflecting all the
points of views presented in the Working Party.  He  did not think this would be an easy task, but it
would be well worth it if the Working Party could pr ovide some useful ideas to the General Council as
well as to the CTG on trade facilitation.
5.2 The Chairman also noted that the Secretar iat had issued the report to the CTG on the
Independent Entity which was contained in G/L/269.  The report essentially said that there had been no
cases under the IE during 1998.
5.2 The Working Party agreed to hold informal mee tings in January and February that would allow
a continuation of an exchange of views, whilst at the same time, commencing work on the draft final
report.  This report would then be adopted at a form al meeting in March in time for it to be submitted to
the CTG and then to the General Council at their subsequent meetings.
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