RESTRICTED
WORLD TRADE G/PSI/WP/M/1
26March 1997
ORGANIZATION(97-1251)
Working Party onPreshipment Inspection
MINUTES OFTHE MEETING OF28FEBRUARY 1997
Chairman: Mr.Chiedu Osakwe
1. TheChairman welcomed Members tothefirstmeeting oftheWorking Party onPreshipment
Inspection (PSI). Herecalled thattheWorking Party hadbeenestablished bytheGeneral Council
atitsmeeting of7,8,and13November 1996. Working under theCouncil forTrade inGoods, the
Working Party wastoconduct thereview provided forunder Article 6oftheWTO Agreement on
Preshipment Inspection withthefollowing terms ofreference:
"toconduct thereview provided forunder Article 6oftheAgreement onPreshipment Inspection
andtoreport totheGeneral Council through theCouncil forTrade inGoods inDecember
1997".
Thus, thereview thatwastohavetaken place attheendof1996 willnowbeconducted overaone
yeartimeperiod bythisWorking Party which willreport itsfindings andconclusions totheCouncil
forTrade inGoods bytheendof1997.
2. Herequested Members toexchange views ontheirexperiences withtheoperation ofthePSI
Agreementatthismeeting,ashadbeenrequestedintheconveningnoticeforthemeeting(WTO/AIR/529
andCorr.1). Inparticular, heasked tohearabout theexperiences ofuserMembers withtheAgreement.
Inthisregard, hereferred toaSecretariat note(G/PSI/WP/W/1) circulated before themeeting which
provided relevant background ontheAgreement.
3. Therepresentative oftheUnited States, considering theexploratory nature ofthemeeting,
noted thathisstatement would notreflect thefullbreadth ofhisGovernment 'sexperiences withthe
PSIAgreement, which hewould convey atfuture meetings. Hisdelegation sawthisfirstmeeting as
animportant beginning inbringing attention toasignificant, yetperhaps neglected, WTO Agreement.
ThePSIAgreement wasnegotiated toaddress arather unique problem ininternational traderelations -
thecontracting toprivate parties offunctions which areproperly under theauthority ofStates.
4. AtthetimetheAgreement wasconcluded, there wasageneral perception thatPSIactivities
hadattimes beentroublesome, butthattheproblems wereonthewane. Forthatreason, nostanding
body wasestablished under theAgreement tofacilitate implementation. Unfortunately, itappeared
thatproblems withPSImaybeontheriseagain andthatimplementation oftheAgreement wasmore
relevant thanever. Heconsidered thismeeting anopportunity toframe theissues thatwarranted
examination ofimplementation pursuant toArticle 6.These included conflicts ofinterest; transparency;
issuanceofcleanreportsoffindings;non-discrimination;protectionofconfidentialbusinessinformation;
operationoftheIndependentEntity(IE);and,mostimportantly,priceverification.Infuturediscussions,
hisdelegation would beintheposition toexamine theseissues andtheirpossible shortcomings indetail
andtodevise possible solutions.
5. With regard totheconflict ofinterest issue, hisdelegation understood thatcertain contracts
between Members andPSIentities mayinvolve payment tothePSIentity onanadvalorem basis.
Inother words, thepayment wasbased onthevalue ofthegoods inspected. Thisappeared topresent,G/PSI/WP/M/1
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atleastinappearance, aconflict ofinterest because suchanarrangement resulted inthePSIentity
having afinancial interest intheresults ofthepriceverification. Thismatter wascurrently notaddressed
bytheAgreement, butwarranted attention intheWorking Party.
6. Ontransparency, theexperience ofexporters suggested theneedtoaddress general transparency
ofPSIregimes asmany exporters hadnotbeenmade aware ofappeals procedures through PSIentities.
Moreover, thereshould beanexamination ofallmatters related totransparency, including notification
andtheimplementation ofthePSIAgreement 'sobligations through lawsorregulations. Withregard
totheissuance ofclean reports offindings, hisdelegation hadbeeninformed thatexporters wereoften
notprovided aclean report offindings (CRF) upon completion oftheinspection bythePSIentities.
Rather, theyweretransmitted totheimporting country, asdeemed appropriate bythePSIentity. This
precluded exporters fromtaking advantage oftherighttoappeal inaneffective manner. Article 2.16
ofthePSIAgreement alsorequired thatuponcompletion oftheinspection, within fiveworking days,
thePSIentity musteither issueaCRForadetailed written explanation specifying thereasons fornon-
issuance. Hisdelegation hadbeenmade aware thatwhen anon-issuance tookplace, there wasoften
noexplanationgiven,orthereasonswerenotwithoutanyspecificationthatcouldengenderanappropriate
response bytheexporter.
7. Fourthly, onnon-discrimination, hisdelegation hadbeeninformed ofnumerous cases where
different criteria, bringing different results, wereapplied toexports fromtheUnited States versus other
WTO Members. Hisdelegation understood thatothers mayhavehadsimilar experiences. Thistook
place evenwhen thesame goods weretranshipped. Suchpractices wereprohibited byArticle 2.1of
theAgreement andthere should beanexamination ofthemethods usedtoensure non-discriminatory
treatment. Onprotection ofconfidential business information, Article 2.9stated that"user Members
shallensure thatPSIentities treatallinformation received inthecourse ofthepreshipment inspection
asbusiness confidential totheextent thatsuchinformation isnotalready published, generally available
tothirdparties, orotherwise inthepublic domain". Hisdelegation wasaware thatPSIentities may
beaccumulatinginformationreceivedfromexportersinthecourseofitspreshipmentinspectionfunctions
andsharing itwiththirdparties. Anexamination ofsuchpractices, aswellasthesteps being taken
byuserMembers toensure compliance withalloftheAgreement 'sconfidentiality provisions, should
beundertaken.
8. Hisdelegation alsoconsidered thatthere should bediscussion ontheIEwhich wasprovided
forintheAgreement. Henoted thatthere hadbeennogrievances brought before theIE.Inresponse
tohisdelegation 'sinquiries, exporters haddescribed areluctance tobring cases based ontheabsence
ofclarity intheAgreement astotheprecedential value ofanydecision rendered. Exporters had
questioned whether decisions based onaparticular practice ofaPSIentity would beapplicable toall
subsequent shipments toonecountry, aswellastoother countries utilizing thesame ordifferent PSI
entities. Exporters hadalsoexpressed concerns overthepotential forexposure tofurther unwarranted
treatment thatmayresult foranysingle company bringing agrievance about aPSIentity, particularly
ifthatPSIentity wastheonlyoneutilized byanimporting country. Exporters hadinquired astowhether
theIEwould bebetter utilized ifassociations ofexporters could bring grievances before theIE.
9. Finally, theissue ofprice verification should beaddressed bytheWorking Party asitwas
theareaofgreatest concern totheUSanditsexporters. Price verification wasconducted toprevent
over- andunder-invoicing andfraud. Hisdelegation wasconcerned overinconsistencies intreatment,
theuseofarbitrary andfictitious prices, andrequests forproduction costs andother information
inconsistent withthedisciplines oftheAgreement. Hisdelegation hoped todiscuss allofthese issues
intheWorking Party thatwould leadtoameaningful contribution ofthisAgreement.
10. Therepresentative ofPakistan considered thatitwould beuseful fortheWorking Party to
havesome ideaoftheprocedure thatitwould useforthereview. Hisdelegation suggested thatoneG/PSI/WP/M/1
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waycould beameeting inwhich Members would share experiences intheareaofPSI. From this,
achecklist could bedeveloped onthebasis ofwhich further discussion andreview canensue. His
delegation appreciated theeffort bytheUSbutconsidered itearly tobegin detailed discussion onthe
issues.
11. Therepresentative oftheEuropean Union noted thathisdelegation considered thisAgreement
aspecific andimportant onebecause itdealtwithaparticular fieldwhere private companies carried
outfunctions which were usually carried outbytheState. Hisdelegation 'sconcern wasthatPSI
companies abided bytherules established bythePSIAgreement; hisdelegation haddoneallthatit
could andshould toensure thatwashappening. Public authorities ofbothexporters anduserMembers
hadacommon interest toseethattheywereapplying therules anddoing allnecessary tomake sure
thattheAgreement wasmutually beneficial. Therefore, thereview should beseenasanopportunity
toshare experiences andtoseethatbothbenefit asmuch aspossible.
12. Heagreed withPakistan thatanyreview would require achecklist ofspecific issues. Otherwise,
thediscussion would betooabstract. Examples would beneeded inorder tooutline theproblems in
amore concrete fashion. Henoted thathisdelegation hadalsoencountered problems witharbitrary
price verification. Suchpractices wereunacceptable and,inallcases where possible, hisdelegation
hadpointed thisoutdirectly totheentity concerned. Thiswasanissuewhere exchange ofinformation
could beuseful. Also, there hadbeenoccasions thatreports offindings hadnotbeensubmitted in
therequired timeperiod. Transparency wasalsoanimportant issueforexporters anduserMembers
sothatinformation ontheirrights andobligations andpossibilities forcomplaints wereavailable to
both. Heconcluded thatitwould beuseful tohavewritten contributions outlining specific problems,
ifpossible.
13. Therepresentative ofSwitzerland stated thatherdelegation attached great importance tothe
implementation ofthePSIAgreement. Anordinance governing these areas ofactivities wasadopted
inMay1995. Regarding herGovernment 'sexperience, PSIactivities hadbeencarried outwithout
anydifficulties sofar.Shepointed outthatthedomestic procedure forresolving disputes which had
beenestablished hadnotbeenputtouseyet,norhadherGovernment beeninformed ofanyspecific
difficulties encountered bySwiss exporting companies. Herdelegation considered thatthework of
theWorking Party should bebased onwritten submissions byMembers thathadencountered specific
problems. Atthenextmeeting, herdelegation hoped tobeinaposition tocomment onsome ofthe
concerns raised atthismeeting.
14. TherepresentativeofMexicoalsoconsideredthattheworkcouldmoveforwardmoreeffectively
throughwrittensubmissions.HisdelegationlookedforwardtoexaminingmorecloselytheUSstatement.
Hisdelegation alsoagreed thatitwasimportant forcountries thathadencountered concrete problems
withPSIintheirtrade relations torelate totheWorking Party theirexperiences. However, tobegin
specific examination, itwould beimportant tohavedocumentation which would guide thediscussion
ofissues andtheirpossible solutions within theframework ofthePSIAgreement.
15. Therepresentative ofGhana underlined theimportance ofthePSIAgreement. PSIwasan
important trade-policy instrument forhisGovernment. Hisdelegation waslooking forward toareview
which would allow hisGovernment toimprove theservices toitscountry; PSIwasconsidered by
hisGovernment asvitaltotheoperation offoreign trade athiscountry 'slevelofdevelopment. His
delegation alsowished tonotetheprovisions inthePSIAgreement which encouraged parties which
hadgrievances topassthemontothefacilities provided therein. Therefore, hisdelegation would like
towork onthebasis ofinformation onthegrievances taken tothese facilities andcautioned against
problemsbeingbroughttotheWorkingPartywhichhadnotbeenallowedtopassthroughtheappropriate
channels provided forinthePSIAgreement which allMembers hadsigned.G/PSI/WP/M/1
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16. Therepresentative ofSenegal noted thathehadreceived information from hisGovernment
regarding itsagreement withaPSIcompany anditsimplementation ofthePSIAgreement. Hewished
toairthisinformation atthenextmeeting when national experiences would beshared inmore depth.
Heconsidered thatanitematthenextmeeting could bedevoted tolistening tothesenational experiences.
17. Therepresentative oftheUnited States considered thediscussion constructive andagreed that
future discussions onthebasis ofwritten submissions andachecklist ofissues wasagood wayto
continue thework. Headded thattheprocess ofbuilding achecklist could begin today. Hisdelegation
hadidentified anumber ofissues thatwarranted examination intheWorking Party and,informally,
theprocess could begin withthese points. Hisdelegation would come backwithdetailed submissions
onthese issues.
18. Henoted thatproblems inthisareawere often transaction-specific andthere were limits to
which agovernment could relaythose experiences ingreatdetail. Theywould havetobecommunicated
inageneral manner. OntheIE,hebelieved thattheWorking Party would needtoexamine whythere
hadbeennogrievances. Thediscussion should notbelimited toissues thatwere raised through
grievances because itwould negate themandate inArticle 6toreview theAgreement andwould cede
theresponsibilityofthegovernmentrepresentativesattendingtheWorkingPartytoensureimplementation
oftheAgreement. Thefactthatthere hadnotbeenanygrievances should notdictate thecourse of
discussion intheWorking Party. Finally, henoted thatsome exporter Members hadhadproblems
while others hadnot.Thismayconstitute anissue, i.e.whydidthisoccur andwhatwerethereasons
forsuchdifferentiation inexperience.
19. Therepresentative ofNewZealand stated thatPSIhadbecome anincreasing problem forhis
country asanexporter. Itssmall sizeandrelative isolation meant thatNewZealand wasonthereceiving
endofsome oftheworst aspects ofPSI.Ithadhaddifficulties withPSIentities oftenhaving noeffective
representation inNewZealand. Thereason given wasoften thatitwascommercially notmeaningful
forthem tomaintain offices inNewZealand. Asaresult, itwasmore expensive tocarry outPSI
inNewZealand. There hadbeeninstances where PSIentities hadbeengiven alotofdiscretion as
tohowtocarry outtheircontract. There hadoften beendifferences inpricing andvaluation, for
example, thathadbeencarried outinNewZealand compared withthewaythatithadbeencarried
outinAustralia. Therefore, hiscountry hadsuffered withrespect toitsexports. Thiswascontrary
totheprovision thatthere benodiscrimination between sources ofsupply. Inanother example, an
importer wasbeing required towork through aPSIentity which hadanoffice onlyonpaper inNew
Zealand. Conflicts ofinterest hadalsobeenencountered assome PSIentities hadtrading armstotheir
operations. Hisdelegation alsosawthatthere would besome problems withrespect toanumber of
countries currently acceding totheWTO.
20. Hisdelegation considered thePSIAgreement generally solidasitwaswritten. Itcontained
goodprovisions ontransparency andnon-discrimination andthePreamble required Members tocontract
PSIentities inaccordance withgeneral WTO principles. Hisdelegation 'sconcerns related tothefact
thatMembers werenotbeing scrupulous intheiruseofPSIentities. Theapplication oftheprovisions
oftheAgreement leftagreat dealtobedesired. Inparticular, there wasaquestion astowhether the
anti-discrimination provisions werebeing adhered to.There needed tobeagreater onusonMembers
toaudit theactivities ofPSIentities toensure thattheywereacting consistently withtheAgreement.
PSIwasheavily usedbydeveloping countries yetinsome areas, forexample customs valuation, they
didnothavetoabide bycertain elements ofWTO Agreements which hadadirect relevance towhat
thePSIentities didbecause theyhadinvoked special anddifferential provisions. Thisrelationship
between thePSIAgreement andother WTO Agreements undermined theeffectiveness ofthePSI
Agreement. Thisraised anissue thatshould beaddressed intheWorking Party'sreview. Countries
making useofPSIshould berequired toimplement allrelevant WTO provisions regardless ofwhether
theymight beabletoclaim special anddifferential provisions.G/PSI/WP/M/1
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21. Headded thatthere wereinadequate provisions foractivities ofPSIentities andthecountries
thatcontracted themtobescrutinised. Asnoted intheSecretariat 'sbackground note(G/PSI/WP/W/1),
theIndependent Review Procedures inArticle 4hadnever beenused. Thismayindicate thatthis
procedure wasnotthemostappropriate one.Thereality wasthatcompanies forced tousePSIentities
were extremely reluctant tomake anissue ofinappropriate behaviour because theywere afraid of
upsetting thecommercial relationship thatexisted between them andtheentity concerned. While an
IEwasagood ideaintheory, itdidnotappear tobeeffective inensuring thatprovisions ofthe
Agreement wereadhered to.Consideration mayneedtobegiven tomore effective ways ofdealing
withproblems under thePSIAgreement. Asanalternative, heasked ifproblems arising under the
PSIAgreement could beraised, forexample, intheMarket Access Committee.
22. TheChairman tooknoteofthestatements made. Henoted thatdiscussions would befacilitated
bytheexpressions orstatements ofexperiences intheimplementation ofthePSIAgreement. However,
hebelieved thatthismight belimited given thefactthatthisAgreement dealt withprivate sector
involvement inthework oftheWTO. Thiswasnotnecessarily aproblem butithadimplications which
hadtoberecognized. Henoted thateven exporters themselves, either asgovernmental ornon-
governmental parties, weresensitive toconveying theirdifficulties except through associations orother
groups. Therefore, heconsidered thatitmight notbefeasible fortheWorking Party toexpect aMember
tocitedifficulties withspecific PSIcompanies, except ingeneral statements.
23. TheWorking Party agreed tothefollowing concluding statement which reflected consensus
atthemeeting:
"The Working Party mettoday andexchanged views onthereview ofthePSIAgreement,
asenvisaged under Article 6oftheAgreement. Members alsoexpressed several country
experiences ontheoperation oftheAgreement. Following thisexchange ofviews, theWorking
Party agreed to:
(a) thenecessity ofwritten submissions tobemade byMembers inrespect ofproposals
forthereview under Article 6,andwritten submissions alsoforindividual country
experiences inthefunctioning oftheAgreement;
(b) theimportance ofachecklist ofissues tobedrawn upthatwould guide theevaluation
ofcountry experiences andthereview process.
TheWorking Party tooknoteofthegeneral statements made bytheUnited States,
theEuropean Union andNewZealand, suggesting issues thatcould beexamined inthereview
process. Inaddition, theWorking Party tooknoteofthecountry experiences asstated by
Switzerland, Ghana andSenegal".
24. Thenextformal meeting oftheWorking Party willbeheldon3June1997. With aviewto
theexpected written submissions, theChairman leftopenthepossibility ofconvening informal meetings
intheinterim period.