WORLD TRADE G/L/214
2December 1997
ORGANIZATION(97-5287)
Working Party onPreshipment Inspection
REPORT OFTHE WORKING PARTY ONPRESHIPMENT INSPECTION
TOTHE GENERAL COUNCIL
1. TheWorking Party onPreshipment Inspection wasestablished bytheGeneral Council atits
meeting of7,8,and13November 1996. TheWorking Party conducted thereview under Article 6
oftheWTO Agreement onPreshipment Inspection. Article 6states that:
"Attheendofthesecond yearfrom thedateofentry intoforce oftheWTO Agreement and
every three years thereafter, theMinisterial Conference shall review theprovisions,
implementation andoperation ofthisAgreement, taking intoaccount theobjectives thereof
andexperience gained initsoperation. Asaresult ofsuchreview, theMinisterial Conference
mayamend theprovisions oftheAgreement".
Theterms ofreference were asfollows:
"toconduct thereview provided forunder Article 6oftheAgreement onPreshipment Inspection
andtoreporttotheGeneralCouncilthroughtheCouncilforTradeinGoodsinDecember1997".
2. Thisreport isorganized intwosections: A.asummary ofthework undertaken overtheyear;
and,B.theWorking Party'srecommendations.
A. Summary ofwork
3. TheWorking Party heldfourformal meetings, on28February, 13June, 24September, and
1December 1997. Theminutes oftheformal meetings arecontained inG/PSI/WP/M/1, 2,3,and
4(tobeissued).
4. Early initsdeliberations, theWorking Party agreed withtheChairman 'sproposal toreview
onthebasisofafour-track process, the"provisions, implementation andoperation ofthisAgreement,
taking intoaccount theobjectives thereof". Thefourtracks were (a)theChairman 'sinformal
consultations withMembers; (b)submissions ofnational experiences withpreshipment inspection (PSI)
andwiththeAgreement onPreshipment Inspection; (c)adata-based Survey/Questionnaire; and
(d)exchange ofviews ontheidentified Checklist ofIssues.
(a) FirstTrack: Chairman 'sinformal consultations
5. TheWorking Party heldeight informal meetings during 1997, on14May, 24September,
13,20,and24October, and6,18and26November 1997. These consultations andinformal meetings
wereusedprimarily toallow afreediscussion inorder forMembers toinform andeducate themselves
ontheissues identified andconcerns expressed, andtoestablish theprocedures forthereview. The
lastfiveinformal meetings focused onthepreparation ofthefinalreport. TheChairman alsometwith
delegations overthecourse oftheyear.G/L/214
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(b) Second Track: Submissions ofnational experiences
6. Atitsfirstmeeting, theWorking Party agreed thatitwould benefit fromwritten submissions
byMembers ontheirexperiences withpreshipment inspection andwiththeAgreement. 37countries
usePSIservices, ofwhich 34areWTO Members. Outofthisnumber, sixMembers, Ghana, the
Philippines, Peru, Colombia, theCôted'Ivoire, andKenya, submitted national experiences. These
arecontained indocuments G/PSI/WP/W/3, 4,5,6,10,and14.TheUnited States circulated anon-
paperatthefirstmeetingexplainingitsexperienceswithpreshipmentinspectionandwiththeAgreement.
Switzerland submitted acommunication (G/PSI/WP/W/9) based onthedifferent issues identified in
theChairman 'sChecklist ofIssues (seeparagraph 8below). Question andanswer sessions followed
eachpresentation andprovided anopportunity forMembers tobetter familiarize themselves withvarious
PSIprograms, inprinciple andinpractice. Thequestion andanswer sessions alsoallowed Members
withspecific grievances regarding certain programs andmeasures taken within theframework ofPSI
torequest clarification andtoconsult bilaterally onthese problem areas. Questions andanswers were
circulatedindocumentsG/PSI/WP/W/7andRev.1,G/PSI/WP/W/12andCorr.1,andG/PSI/WP/W/13.
(c) Third Track: Data-based Survey/Questionnaire
7. Thistrack ofwork consisted ofaSurvey/Questionnaire containing 11questions designed to
garner uniform dataandtoprovide anempirical factual basis fortheWorking Party'sreview. The
results oftheSurvey/Questionnaire, compiled intoatabular format, provided anobjective andfactual
body ofinformation totheWorking Party. They supplemented thelimited number ofnational
experiences submitted withafactual picture oftheconduct ofpreshipment inspection activities and
withadditional elements onwhich toassess theeffectiveness oftheAgreement inregulating such
activities.
(d) Fourth Track: Exchange ofviews ontheChecklist ofIssues
8. Based ontheviews expressed atthefirstmeeting andinformal consultations, theChairman
presented, onhisownresponsibility, aworking document listing theidentified issues, toprovide a
framework fordiscussions andtoguide thereview process. This wascontained indocument
G/PSI/WP/W/2. TheChecklist elaborated on7issues: price verification, confidentiality ofbusiness
information, non-discriminatory application ofinspection criteria, transparency, delays, on-site
representationofPSIentities,andoperationoftheIndependentEntity.Duringthediscussions,Members
agreed toaddthree additional issues, conflicts ofinterest, notifications, andtechnical assistance. At
itsthirdmeeting, theWorking Party agreed thatthese10issues would formthebasisofitsfinalreport.
9. Intheexchange ofviews bytheWorking Party ontheissues ofprice verification, revenue
collection targets, andtheeradication ofcorruption, itwasfeltthattheviews oftheinternational financial
institutions, onthese issues, would beuseful. Consequently, their views were sought, andare
summarized intheAnnex tothisdocument.
B. Recommendations
Having regard toMembers 'experiences with thePSIAgreement, theresults ofits
Survey/Questionnaire, andanalysis, theWorking Party reached thefollowing understandings inorder
toenhance implementation oftheAgreement:
(a) Recommendations forimmediate action
1. Price verification byPSIentities forcustoms purposes shallbelimited toprovision oftechnical
advice tofacilitate thedetermination ofcustoms value bytheuserMember. Inthisregard, theultimateG/L/214
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responsibility forcustoms valuation andrevenue collection restswithuserMembers. Allactivities
ofPSIentities should bemonitored byuserMembers whoshould beencouraged toreflect thisinnational
legislation oradministrative regulations.
Inorder toensure compliance withtherequirements ofArticles 2.5to2.8ontransparency,
Article 2.1onnon-discrimination andArticle 2.20onpriceverification, auserMember should require
PSIentities to:
(i) make publicly available asingle setofprice verification criteria; and
(ii) inform exporters andimporters oftheapplicable valuation methodology.
Price verification criteria should include thecustoms valuation methodology, asspecified in
userMembers 'national legislation oradministrative regulations, usedwhen providing technical advice
oncustoms valuation. Inthisregard, userMembers should encourage PSIentities toutilize electronic
means forpurposes ofproviding required information toexporters andimporters.
UserMembers shallensure thatrequests forinformation donotgobeyond Articles 2.12and
2.20oftheAgreement onPreshipment Inspection. Reciprocally, exporter Members should inform
userMembers when theybecome aware thatPSIentities 'requests forinformation gobeyond these
Articles.
InconformitywithArticle2.21,auserMembershallensurethatthePSIentity,whenresponding
toadispute onprice verification, provides adetailed written explanation within 10daysofreceipt
ofthecomplaint, setting forththebasis ofitsopinion ofvalue byreference tothespecific applicable
elements oftheprice verification criteria.
2. Inaccordance withArticle 3.3,exporter members should ensure thattheirtechnical assistance
activities aredesigned toaddress thespecific needs ofuserMembers inimplementing theterms and
objectives oftheAgreement.
3. UserMembers should ensure thatPSIentities areencouraged toestablish localfocal points
incountries where theydonothavephysical, on-site representation. Theestablishment ofwebsites
byIFIAandbyPSIentities withon-line services would enhance efficiency ofPSIoperations insuch
areas asprocedures, methods, inspection criteria, responses toinquiries, anddissemination ofother
usable, essential information byimporters andexporters. Inaddition toproviding hardcopies, PSI
entities should beencouraged tocommunicate Clean Reports ofFindings (CRFs) toimporters and
exporters through electronic means.
4. AllMembers shall notify their lawsandregulations, inaccordance withArticle 5ofthe
Agreement,aswellasanychangesthereto.Insubmittingthesenotifications,Membersshouldendeavour
toprovide additional descriptive information onhowtheyareimplementing theAgreement.
5. Infurtherance ofArticles 2.9-2.13, userMembers shallensure thatcontracts withPSIentities
ornational implementing legislation oradministrative regulations specify procedures tobeundertaken
bysuchentities tolimittheconfidential business information theyseekfromexporters tothatprovided
forunder theAgreement andtoensure thatanysuchinformation obtained byPSIentities isnotused
foranyother purpose thanPSIactivities fortheuserMembers, asdefined inArticle 1.3.Anybreach
oftheruleofconfidentiality bythePSIentity isanaction thatmaybebrought against thePSIentity
intheappropriate judicial oradministrative forum oftheuserMember.G/L/214
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6. UserMembers shallensure thatcontracts withPSIentities ornational implementing legislation
oradministrative regulations provide forfeestructures thatdonotcreate incentives forpotential conflicts
ofinterest inanywaythatmaybeinconsistent withtheobjectives oftheAgreement. Additionally,
contractswithPSIentitiesornationalimplementinglegislationoradministrativeregulationsshallspecify
thatPSIentities should notinspect transactions involving products inwhich aPSIentity oritsrelated
company mayhaveacommercial interest.
7. UserMembers shallensure thatPSIentities issueCRFs toimporters andexporters immediately
onreceipt ofthefinaldocuments andcompletion ofinspection. Asforeseen inArticle 2.16, inno
casemusttheissuance ofaCRFexceed 5working daysafteraninspection. Intheevent thataCRF
hasnotbeenissued, theuserMember shallensure thatthePSIentity issues adetailed written explanation
specifying thereasons fornon-issuance.
(b) Recommendations forfuture action
8. ThelifeoftheWorking Party shallbeextended foroneyeartoexchange views onaCode
ofConduct/Practice forPSIentities; astandard inspection format; selective examination ofshipments;
auditing ofPSIentities; thepromotion ofcompetition among PSIentities; feestructures forPSIentities;
andtheuse,touserMembers, ofbuilding price databases.
9. Anassessmentoftechnicalassistanceactivitiesshouldbeundertaken,inaccordancewithArticle3
oftheAgreement, anddrawupontheassessment oftechnical assistance activities under consideration
intheCommittee onCustoms Valuation andtheintegrated framework fortrade-related technical
assistance endorsed bytheWTO High-Level Meeting forLeast Developed Countries. Technical
assistance activities, which should beadministered onarequest basis, could include areassuchastariff
andcustoms administration reforms; simplification andmodernization ofsystems andprocedures;
andthedevelopment ofanadequate legal, administrative, andphysical infrastructure.G/L/214
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ANNEX
Views ofInternational Financial Institutions
(a) TheWorld Bank
TheWorld Bank confirmed thatithasnoBank-wide policies dealing withtheuseofPSIto
address under oroverinvoicing oftrade transactions. Nevertheless, theWorld Bank hasincluded
conditions regarding theuseoradministration ofPSIintheterms ofitsloans toawide range of
countries, including structural adjustment loans inthe1990s toKenya, Togo, Côted'Ivoire, Sierra
Leone, Benin, Malawi, Mauritania, Jordan andMozambique. TheWorld Bank noted thattheprimary
focus ofitsstaffisontheimplications ofthetrade regime foreconomic efficiency, rather thanon
revenue-raising objectives. Typically, thisleads Bank stafftorecommend lowanduniform tariffs
andelimination ofnon-tariff barriers, andBank support forPSIwould beasameans toachieve such
atrade regime.
(b) TheInternational Monetary Fund
TheIMFconfirmed thatwhile itassesses andevaluates customs revenues andcompares amounts
collected toestablish targets, itdoesnotgenerally require theuseofPSIentities toenforce suchtargets.
TheIMFalsonoted thattheuseofPSIservices isnotalways oruniversally advisable andthatitshould
beconsidered onlyonacase-by-case basis. Incountries where customs revenue performance isweak
and/or corruption incustoms administration isthought tobeamajor problem, Fund staffhavefound
theuseofPSIservices tobeapositive element incustoms rehabilitation. However, theIMFemphasized
thatengagementofPSIserviceshasnotalwayseliminatedcorruption.TheuseofPSImaybeappropriate
iflocaladministrative capacity incustoms isexceptionally weak, ifthePSIprogram points totangible
andmeasurable revenue improvements, ifarrangements areclearly specified forthetransfer ofskills
andtechnology, andifthecostsarereasonable. TheIMFfurther expressed theviewthat,inallcases,
programmedwithdrawalofPSIservicesshouldbeundertakenasthenationalcustomsofficesdemonstrate
acapacity forimplementing reforms.