RESTRICTED
WORLD TRADE G/PSI/WP/M/3
7October 1997
ORGANIZATION(97-4249)
Working Party onPreshipment Inspection
MINUTES OFTHE MEETING OF24SEPTEMBER 1997
Chairman: Mr.Chiedu Osakwe
Theagenda proposed forthemeeting, contained inWTO/AIR/671, wasadopted asfollows:
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1. Exchange ofviews onnational experiences withpreshipment inspection
andwiththeimplementation oftheWTO Agreement onPreshipment Inspection
(G/PSI/WP/W/7; G/PSI/WP/W/9; G/PSI/WP/W/10) .................. 1
2. Datarelated topreshipment inspection: Survey/Questionnaire circulated by
theChairman (G/PSI/WP/W/8 andCorr.1) ......................... 5
3. Discussion oftheChairman 'stext"Issues forConsideration intheArticle 6.... 6
Review oftheAgreement onPreshipment Inspection" (G/PSI/WP/W/2) .......
4. Other business ........................................... 6
(a) Dateofthenextmeeting ................................ 6
TheChairman welcomed Members tothisthirdmeeting oftheWorking Party. Herecalled
thattheWorking Party hadbeenestablished toconduct theArticle 6Review oftheAgreement on
Preshipment Inspection (hereafter, "theAgreement"). Herecalled thathehadproposed conducting
thereview onthebasisoffourtracks: informal consultations; thenational submissions; theempirical
results oftheChairman 'sSurvey/Questionnaire; andtheChairman 'sChecklist ofIssues contained
inG/PSI/WP/W/2.
1. Exchange ofviews onnational experiences with preshipment inspection andwith the
implementation oftheWTO Agreement onPreshipment Inspection
1.1 TheChairman recalled thatatthelastmeeting, presentations ofsubmissions were made by
Ghana, thePhilippines, PeruandColombia. These were contained indocuments G/PSI/WP/W/3,
4,5,and6respectively. Thishadbeenfollowed byaproductive exchange ofviews, questions and
answerswhichweresummarizedindocumentG/PSI/WP/W/7.Delegationswhichwouldwishtoaddress
some ofthese issues again would havetheopportunity afterthepresentations bytheCôted'Ivoire
andSwitzerland ontheirsubmissions (G/PSI/WP/W/10 andG/PSI/WP/W/9 respectively).
1.2. Therepresentative ofSénégal stated thathisdelegation wasstillintheprocess ofpreparing
itsnational experience, although ithadresponded tothequestionnaire.G/PSI/WP/M/3
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1.3 Therepresentative ofSwitzerland noted thathehadsummed uphisdelegation 'sexperience
attheJulymeeting. Thepresent submission addressed theissues contained intheChecklist ofIssues
andpresented preliminary opinions. What wasdifferent from thesubmissions ofother delegations
wasthesuggestions ofsome instruments tobeusedastoolsforsolving some oftheproblems raised
inthepaper. Thefirstinstrument wasamodel inspection agreement which would takeup,interalia,
uniform inspection criteria. Thiswassomething hisdelegation considered would beadvisable forall
parties involved inPSIprocedures. Thesecond instrument wasguidelines forprice verification. His
delegation wasaware thatthissecond subject wasthemostdebated intheAgreement. However, his
delegation considered thatsome progress could bemade, ifnotimmediately, intheWorking Party
orintheCouncil onTrade inGoods. Herequested thatthese instrumental orprocedural proposals
remain onthetablewhen theWorking Party would reach thestage oftackling problems raised.
1.4 Therepresentative ofHong Kong, China stated thathisdelegation shared many oftheviews
presented intheSwiss paper, forexample, thereservation ontheimposition ofdirect obligations on
PSIentities andtheviews related tothefuture oftheIndependent Entity (IE). Hisdelegation considered
thatsuggestions forguidelines forprice verification andamodel inspection agreement were worth
exploring.
1.5 Therepresentative ofthePhilippines noted thattheSwiss submission wasunder consideration
inhercapital. Sheadded thatwhile there wassome merit tocreating amodel inspection agreement
anduniform inspection criteria, shewasnotsurethatthiswould bepossible foruserMembers since
eachwasusing aPSIcompany tosuititsownpurposes. Itcould onlybepossible ifitwasnotlegally
binding ontheuserMember.
1.6 Therepresentative ofGhana noted hisdelegation 'suneasiness about amodel inspection
agreement. HisGovernment haditsownobjectives withusing PSIandwould notwanttobebound
bysuchanagreement, although itswasnotclearhowitwould actually work. HisGovernment was
oftheview thattheproblems liedwiththecredibility ofthePSIcompanies. There wasaneedfor
userMembers toengage theservices ofreputable companies thatwererecognized byIFIA. Allsuch
companies should berepresented byaffiliates inallmajor exporting countries orrecognized focal
locations forother countries andterritories. Therefore, hisdelegation proposed thattheWorking Party
recommend abinding codeofethics forallPSIentities. Thisshould bebacked upbyperiodic auditing
ofPSIcompanies toensure compliance with, notonlytheAgreement, butalsowiththecodeofethics
andthecontracts between thecompanies anduserMembers. Thiswould address theconcerns of
transparency, confidentiality, neutrality, andgeneral corporate good behaviour. Hewould present
hisviews inaformal paper soon.
1.7 Therepresentative oftheUnited States found theSwiss submission constructive, particularly
thedevelopment ofinspection guidelines. Regarding thequestion ofwhether these would bebinding,
henotedthatPSIcompanieswereoftenengagedfordifferentpurposes,someofwhichdidentailelements
forwhich therewereother WTO agreements. Insuchcases, theWorking Party might wanttoexplore
anddiscuss thepossibility thatsome oftheguidelines should bebinding. Hisdelegation considered
theideaofauditing theperformance ofPSIcompanies withregard totheircontracts andobligations
under theAgreement, proposed bytherepresentative ofGhana, intriguing. Hisdelegation wasnot
surehowthispathwould befollowed, butwasinterested intheidea.
1.8 TherepresentativeofAustraliaconsideredtheSwisssubmissionusefulandwouldsupportkeeping
theproposals contained therein onthetable. Theideaofaninspection format andtheother ideasraised
were thebeginnings ofagood poolofproposals toconsider atalaterstage.
1.9 Therepresentative ofSwitzerland believed thattheWorking Party wasonapromising path
foritsnextsteps. Hisdelegation didnotbelieve itwould bepossible togiveamandatory nature toG/PSI/WP/M/3
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theoutcome oftheWorking Party'sresults because itwould imply amultilateral agreement oran
amendment thereto. Theterms ofreference oftheWorking Party didnotinclude amending the
Agreement. Thisshould assure those delegations thatfeared thathisdelegation wasinfavour ofa
binding model inspection agreement oruniform inspection criteria. TheWorking Party needed to
consider howtodesign suchinstruments, which hisdelegation considered should benormative for
practices ofuserMembers. Itwasclearthatthesituation ineachcountry varied andaccount ofsuch
differences would havetobetaken. Regarding themodel agreement, hisdelegation believed thatthe
Working Party would havetoconsult IFIAandtheInternational Chamber ofCommerce (ICC). The
former hadalready adopted acodeofpractice which hadbeenrevised inAugust 1997. Thisrepresented
asortofmodel agreement and,iftheWorking Party moved forward along these lines, itwould have
todecide ifitshould baseitselfonthisagreement. Finally, henoted thathisGovernment hadestablished
anintensive consultation mechanism which involved allparties concerned, forexample, companies
involved intheclassic Swiss export sectors andinspection services, tosolve problems which arose
inSwitzerland. Thepaper submitted wastheoutcome oftheseconsultations. Thus, national experience
would appear toindicate thatPSIinspections werebeing carried outsatisfactorily bothforexporters
andforinspection companies.
1.10 Therepresentative ofthePhilippines, referring totheoutstanding issues inherdelegation 's
submission, stated thatnon-US exports didnotreceive faster treatment byPSIcompanies normore
favourable treatment regarding price verification thanexports from theUS.Because herdelegation
tookthisquestion veryseriously, itwished theUStoprovide concrete cases sothatherauthorities
could takeappropriate measures. Concerning thepurpose oftheTechnical Committee mentioned in
herdelegation 'ssubmission, itwasestablished toensure compliance bythePSIcompany withtheterms
ofitscontract withtheGovernment ofPhilippines. Itwascomprised ofrepresentatives fromtheBureau
ofCustoms, theCentral Bank, theDepartment ofTrade andIndustry, theDepartment ofFinance,
theTariff Commission andtheBureau ofImport Services andoversaw theimplementation ofallaspects
ofthePSIcontract, except inmatters related toissuance ofClean Reports ofFindings (CRF). On
theprocedure, aconcerned party which could beeither animporter, animporter association, atrade
body oranygovernment body, which hadaproblem withtheoperation oftheterms ofthecontract,
would berequired towrite totheUndersecretary ofFinance (asChairman oftheTechnical Committee).
TheChairman would thenconvene theCommittee todiscuss theproblem raised andsolutions would
berecommended totheSecretary ofFinance andtheMonetary Board oftheCentral Bank forfinal
approval andimplementation.
1.11 Therepresentative oftheUnited States stated thathisdelegation would engage inconsultations
withthePhilippines onthematter ofpricediscrimination. Hisdelegation wasgathering information,
however, there weresome sensitivities involved regarding howtheinformation should bepresented.
Henoted thatthePhilippines 'submission stated thatthePSIcompany inthePhilippines wasnotand
hadnever beeninvolved inthecollection ofcustoms revenue. However, hehadcopies ofCRFs which
notonlyindicated acustoms valuation butalsoindicated duties payable; hewould share thiswith
thePhilippines delegation.
1.12 TherepresentativeofPerustatedthatherauthoritieshadindicatedthattheassignedFOBcustoms
value together withtheCRF must beconsidered inthecustoms declaration. Thisserved asabasis
forthecalculation forduties. There maybeaphysical check bycustoms; inreality 15percentof
thetotalgoods werechecked. During thephysical check ofgoods, thecustoms authority maymake
comments astothevalue, quantity andtariff classification oftheinspected goods, andmaymake
corrections onanyofthese elements. Insuchcases, thePSIcompany could befined foranyoffence.
Inaddition, there wasasubsequent random control ofimporters bythecustoms, prompted by
intelligence, accounting audits, denunciations byforeign trade operators, etc.Responsibility forthe
evaluationandcontrolofdiscrepanciesarisingfromcustomscontrolrestedwiththeInspectionCompanies
Control Division oftheNational Customs Inspectorate. Theformer wasaspecialized unitresponsibleG/PSI/WP/M/3
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fortheevaluation ofPSIcompanies, andhadthepower toapply thecorresponding sanctions asa
consequence ofdiscrepancy proceedings following aruleapproved inJanuary 1997. Discrepancies
regarding value werethemostrepresentative, amounting toabout 30percentofthetotal. ThePeruvian
customs retained therighttodetermine thecustoms value, tariffclassification andquantity ofthegoods,
either during theconcurrent control (physical inspection ofthegoods) orduring thesubsequent control
(four years ofrandom controls) ofthegoods. Thework ofthePSIcompanies wastechnical, since
thefinalword remained inthehands ofthenational authorities.
1.13 Regarding theclauses within thecontracts referring tonational mediation services, andthe
roleofthemultisectoral subcommission insuchmediation, shereplied thatnational legislation, in
accordance withtheAgreement, established thatthecontract between theimporter andthePSIcompany
mustinclude aclause under which importers maysubmit disputes forsettlement through thenational
arbitration procedures. InPeru, importers contracted withthePSIcompanies andpaidafeeof1percent
oftheFOB value ofthemerchandise inspected. Thislegislation alsoestablished amultisectoral
commission with representatives oftheMinistries ofEconomy andFinance which presided, a
representative oftheConfederation ofPrivate Enterprises andarepresentative ofthePSIcompanies.
Thissubcommission considered complaints concerning thenon-performance byPSIcompanies oftheir
contractual obligations withrespect toimporters. Thechairman hadacasting vote. TheNational
Customs Inspectorate oftheNational Customs Administration acted asthetechnical secretariat for
thesubcommission. Thework consisted inhearing complaints byimporters andmaking the
corresponding recommendations. Theprocedure established began withanimporter 'scomplaint against
aPSIcompany concerning non-performance ofitscontractual obligations. Forthesubcommission
tohearanappeal, importers mustdemonstrate thattheyhadpreviously sought asettlement withthe
PSIcompanies, andsubmit allsupporting information anddocumentation. Thesubcommissions would
thenmake theappropriate recommendations oneachindividual case. Ifitwasdetermined thatthe
PSIcompany wasresponsible, itwould havetopaytotheimporter anamount toamaximum often
times thefeecharged forthetransaction. Since itsestablishment inApril 1995, lessthantenappeals
havebeenheard. Thesubcommission wasnotinvolved inarbitration between thePSIcompanies and
importers,inwhichthetwopartiesdesignatedthearbitratortheyconsideredappropriateforthesettlement
oftheirdispute. Accordingly, arbitration wasaprocedure inwhich customs didnotintervene, and
wassubject totheprovision oftheLawonArbitration.
1.14 Therepresentative oftheUnited States asked therepresentative ofPeruifthereference to
"supervisory companies" referred toPSIcompanies ortoadifferent typeofcompany. Healsoasked
iftherewasanyreference torights ofexporters, astherewasto"rights ofimporters," inthelegislation
relating totheability toseekrecourse intheevent ofdiscrepancies found between theresults ofthe
inspection companies 'findings andthose ofthenational customs authority.
1.15 Therepresentative ofPeruclarified that"supervisory companies" referred toPSIcompanies.
Innational legislation, theterm"supervisory" wasused, butthemeaning wasthesame. Regarding
thesecond question, shenoted thattheusers ofPSIinPeruwerethenational importers. They were
required tofollow thenational system andtheyhadtocontract withthePSIentities andpaytheirfees.
IfthePSIservices were conducted incorrectly, theimporters inPeruwould beaffected. Thiswas
whythenational legislation established aprocedure fortheresolution ofdiscrepancies. There were
nolawsthatcovered exporters because itwastheimporters thatwould beaffected.
1.16 Therepresentative ofColombia recalled thathisdelegation hadresponded indetail atthelast
meeting when thequestions tohisdelegation hadbeenraised. Ifthere wereanyadditional concerns
regarding thefunctioning ofthePSIsystem inColombia, hisdelegation would beplease torespond
either intheWorking Party orbilaterally.G/PSI/WP/M/3
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1.17. Therepresentative ofGhana underlined thatpriceverification, partofitsPSIprogram, ensured
thattransaction prices were notsetbeyond reasonable levels andshould notbeconstrued tobethe
same ascustoms valuation where national customs authorities laiddown procedures fordetermining
thevalue ofgoods forcustoms purposes. There wasalways thepossibility thatthetransaction price
could bedubious; thisunderlaid suchconcepts asdumping, anti-dumping andcountervailing measures.
Ontheother hand, national obligations under theCustoms Valuation Agreement should berecognized
andnotbesubjected toanyinterpretations intheWorking Party.
1.18 Therepresentative oftheUnited States asked therepresentative ofColombia whether PSI
companies wereinvolved inanti-dumping andsafeguard investigations. HisGovernment wasaware
thatPSIwasmandatory when suchprocedures hadbeenevoked, however itsought confirmation that
PSIcompanies were notinvolved intheproceedings themselves.
1.19 Therepresentative ofColombia stated thatPSIcompanies were innowayinvolved insuch
proceedings.
1.20 TherepresentativeoftheUnitedStatesnotedthatthesubmissionfromtheCôted'Ivoireindicated
thatoneoftheobjectives oftheuseofPSIrelated toelements ofcompetition. Thesubmission said
thattheobjective ofPSIwasto"observe therulesofcompetition". Hisdelegation sought anexplanation
from Côted'Ivoire astohowthisobjective wasbeing met.
1.21 Therepresentative ofCôted'Ivoire stated thatthePSIlegislation hadbeenestablished atthe
timeCôted'Ivoire hadalsoestablished aprogram forthestabilization ofitseconomy, including the
liberalization oftrade. Ithadbeen determined thatunder-invoicing was, infact,notrespecting
competitiveness rules. Inthe1991 lawwhich established competitiveness, Côted'Ivoire determined
thatrules ofcompetitiveness should berespected. ThePSIprogram wasconsidered ameans of
countering unfair competition which tended tomanifest itself through under-invoicing. Thiswasthe
background totheestablishment ofthePSIprogram. Theattempt wastocreate alevelplaying field
forallimporters, particularly where invoicing wasconcerned. Shecould provide more detail later
ifnecessary.
1.22 TheWorking Party agreed thattheSecretariat would update document G/PSI/WP/W/7 totake
intoaccount theresponses represented andoutstanding issues, andtokeepthisitemontheagenda
ofthenextmeeting oftheWorking Party. TheChairman requested those Members whohadnotmade
national submissions todosoforthenextmeeting.
2. Datarelated topreshipment inspection: Survey/Questionnaire circulated bytheChairman
2.1 TheChairman explained thattheresults oftheSurvey/Questionnaire hadbeencompiled into
atablewhich wascirculated toparticipating Members ofthemeeting. AllMembers whohadresponded
were included inthetable. Headded thatthequestions hadbeendrafted objectively andhadbeen
informally verified withtheStatistics andInformation Systems Division oftheWTO. Theresults were
important fortheWorking Group 'swork because theyprovided anempirical, factual basisformoving
thereview process forward bycomparing these results withthenational experiences presented and
theChairman 'sChecklist ofIssues. Informal consultations would becarried outfrom nowonwith
aviewtoelaborating theresults ofthereview. Herequested those Members which hadnotresponded
totheSurvey/Questionnaire todosoassoonaspossible.
2.2 Therepresentative ofEgypt presented hisGovernment 'sresponse totheSurvey/Questionnaire.
These havebeenadded tothetableofresults ofthesurvey.G/PSI/WP/M/3
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2.3 Therepresentative ofHong Kong, China asked thatareply from hisGovernment beadded
tothesecond question ofthetabletoreflect itsstatus asanexporting country withon-site presence
ofPSIcompanies.
2.4 Therepresentative ofSénégal noted thefollowing phrase should beadded tohisGovernment 's
contribution inquestion 8oftheSurvey/Questionnaire: "itwasnotpossible toobtain thestatistics
ontheclaims made bytheexporters from themany offices ofSGS". Also, inquestion 11,theyear
oftheParis seminar was1993 andtheDakar seminar was1996.
2.5 Therepresentative ofthePhilippines agreed thattheresponses totheSurvey/Questionnaire
wereencouraging. AsauserMember, herdelegation considered thatitwould behelpful tohavemore
replies onquestions 8(b), 9and10from exporters sothatherGovernment could lookmore closely
atthesecomplaints. Shealsoconsidered thatitwould beuseful tohaveadescription ofpossible practical
solutions totheproblems.
3. Discussion oftheChairman 'stext"Issues forConsideration intheArticle 6Review ofthe
Agreement onPreshipment Inspection"
3.1 TheChairman noted thatatthesecond meeting, some representatives hadmentioned the
possibility ofsubmitting additional textsorproposals tobeadded totheChairman 'stext. Heasked
ifthere were anysuchsubmissions.
3.2 Therepresentative ofGhana indicated thathisdelegation would submit itsconcluding views
inthisregard aimed atfinding agreeable solutions totheproblems thathadbeenraised intheWorking
Party.
3.3 Therepresentative oftheUnited States stated thathisdelegation wasnotsubmitting apaper
atthistimebecause itbelieved thattheWorking Party wasreaching thepoint where itwould need
tobegin synthesizing thefourtracks andmove toanother stage ofwork. Atthatpoint, hisdelegation
maymake afurther submission.
4. Other business
4.1 TheChairman stated thathewassatisfied withtheWorking Party'swork uptothepresent.
Hewasconvinced thatthefourtrack process forthereview made theprocess credible andbalanced
among allMembers, bothusers andexporters.
4.2 TheWorking Party agreed toholdaseries ofinformal meetings during theperiod before the
nextformal meeting involving allinterested Members, although participation inthemeetings would
beopen-ended. Theaimwastocreate anewdocument, containing theresults ofthereview exercise,
which would beadopted bytheWorking Group atitsnextandlastformal meeting. Thisdocument
would beeventually communicated totheGeneral Council through theCouncil onTrade inGoods.
a) Dateofthenextmeeting
4.3 Thenextformal meeting oftheWorking Party would be6-7November 1997.