RESTRICTEDWORLD TRADE
ORGANIZATIONG/PSI/WP/W/19
5 October 1998
(98-3849)
Working Party on Preshipment Inspection Original:  English
COMMENTS TO THE WORKING PARTY ON PRESHIPMENT INSPECTION
Communication from the European Community
The following communication, dated 29 September, 1998, has been received from the
Permanent Mission of the European Community.
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GENERAL COMMENTS
1 On the basis of the work done so far priority should be given to the proper and effective
implementation of the PSI Agreement.  This includes speedy notifications, full transparency andeffective implementation according to the letter and the spirit of the PSI Agreement.
2. Related to the above and within the existing framework, particular attention should be paid to
avoid any arbitrariness, undue delays in exporting activities, as well as any "anti-market" biased
practices regarding issues such as price verification, model contract agreements, disclosure of
confidential information and data base prices.
3. As far as customs valuation regarding PSI ac tivities, the European Community fully supports
the speedy and faithful implementation of the WTO Customs Valuation Agreement.  Despite the
transitional period enjoyed by LDCs regarding th e application of the Customs Valuation Agreement,
PSI companies should give their advice on the basis of the letter and the spirit of said agreement.  This
would enable User Governments to adjust to th e new status quo following the expiry of the
transitional period.  Furthermore, it would contri bute to avoiding any arbitrary valuation methods
leading to undesirable results.
4. Finally, the European Community supports further work on the topics enumerated in the
recommendations for future action included in the PSI Working Party report mentioned above,namely on a Code of Conduct Practice for PSI activities, a standard inspection format, selective
examination of shipments, auditing of PSI entities, the promotion of competition among PSI entities,
fee structures for PSI entities, and the use, to User Members, of building price data bases.
SPECIFIC COMMENTS
1. The European Community sees PSI as a temporary phenomenon which should be phased out
with the help of technical assistance, as improvements are achieved in the efficiency and effectiveness
of customs regimes.  This view is clearly shared by others, including the World Customs
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2. A code of conduct/good practice for PSI entities:  There is currently a voluntary code of good
practice for members of IFIA (International Fede ration of Inspection Agencies) and WTO members
would need to work closely with them and exporters to see if this is failing and where improvements
can be made.  This must be the first step.  In any event, the Swiss proposal for a model PSI
Agreement/Contract included in the Communication from Switzerland could be an option.  However,
for the proposed model agreement to be useful it has to provide added value.  Also, it would be
important to ensure that the model agreement would not raise any incompatibility with the PSI
Agreement.  Otherwise, serious interpretation and enforcement problems might arise.
In addition, serious reflection is needed on the manner of enforcing these model agreements
as they would be agreements between User Members and private entities.  In this context, two specific
drafting changes to the Swiss text are suggested.  The first is to add the sentence "in case of conflictbetween the provision of the model agreement and the PSI Agreement, the provisions of the PSI
Agreement always prevail".  The second suggestion is  to add the sentence:  "the provisions of the
model agreement in no way affect the sovereignty of Member States and the freedom of contract".
3. A standard inspection format for PSI entities:  This would be of help to exporters particularly
where they are exporting the same product to different countries which use different PSI entities.  At
the moment they have to fill in different forms but basic information required by PSI agents is the
same and therefore, the usefulness of a standard form should be explored.  The principle of a standard
inspection format would be consistent with wider objectives on trade facilitation.  At the same time
though it should be noted that such formats could not be standardised completely.  Usually,inspections are product-related and a fully standardised form may not always be workable.
4. Selective examination of shipments:  This would be welcomed by exporters and would
greatly speed up the process.  One of the main complaints is that inspections are onerous, often
unnecessary and are extended to every shipment.  PSI entities/customs authorities often know whichshipments are likely to be illegal and should ta rget these rather than stretching resources and
increasing delays in order to examine every shipment.  At the same time though, serious thought
would have to be given to the criteria that would be used to avoid any discrimination and to promote
full transparency during inspections.
5. Auditing of PSI entities:  Further discussion is needed of what this would entail including the
scope of audits, who would undertake them, the independence of auditors and the need to protect
confidentiality.
6. Fee structures for PSI entities:  In cases where PSI agents determine the value of goods and
their fee is calculated on an ad valorem  basis, according to this valuation, it could be seen as being in
their interest to raise the valuation.  The operation of ad valorem  systems opens the way for
accusations of a conflict of interest.  In addition, the preamble to the PSI Agreement recognizes that
the principles of GATT apply.  GATT Article VIII states that all fees and charges concerned with,
inter alia , analysis, inspection, documentation and certification in connection with importation shall
be limited in amount to the approximate cost of services rendered.  This should, therefore, outlaw the
use of an ad valorem  system in PSI;  there should be a flat fee as is required for other forms of import
documentation such as import licensing.  In any case, there should be no cost incurred by the traders.
The fee costs related to goods valuation by PSI entities should be borne by User Governments.
7. The use (to User Members) of building price databases:  The use of price databases should
not be relied upon.  Using price databases entails the danger of leading to fictitious prices,
undermining the market structure, leading to a de facto  minimum price regime for customs valuation
and complicating, instead of simplifying, exporting practices.  This approach is in addition fully
consistent with the Customs Valuation Agreement, the PSI Agreement as well as Article VII of the
GATT 1994.G/PSI/WP/W/19
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8. Technical assistance activities:  This is needed by User States and is available through
international organisation, WTO members, and PSI agencies themselves.  Full use should be made of
technical assistance.  The provision of technical assistance should reinforce PSI as a temporary
phenomenon as the objective would be to reinforce the capacity of the national customs authorities.PSI tends to be introduced in countries where the quality, integrity and efficiency of customs
authorities are major problems.
The Working Party, however, would need before everything else to have an integrated, global
assessment of on-going technical assistance problems.  The Working Party should not engage itself in
the issue without having a clear picture of who is doing what bilaterally as well as multilaterally.  In
addition, specific requests for assistance are needed, as foreseen in Article 3 of the PSI Agreement.Coordination is also needed with other organisations and Members so that duplication of assistance is
avoided and that a more focused and targeted effort is made.  With these conditions and given the EU
technical assistance priorities and capabilities, the European Commission is willing to examine the
issue.
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