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WTO NEWS: 1997 PRESS RELEASES

PRESS/84
1 December 1997

Working party adopts recommendations on preshipment inspection

The Working Party on Preshipment Inspection (PSI) adopted today, 1 December, a set of recommendations aimed at enhancing the implementation of the WTO PSI Agreement. These recommendations, which will be forwarded to the WTO General Council, are the results of a year-long review of the Agreement.


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Members agreed to extend the life of the Working Party for another year to exchange views on a Code of Conduct/Practice of PSI entities, 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.

The Working Party also agreed to discuss next year technical assistance activities in areas such as tariff and customs administration reforms, simplification of modernization of systems and procedures, and the development of an adequate legal, administrative and physical infrastructure.

The following are the Working Party's recommendations for immediate action:

(1) Price verification by PSI entities for customs purposes shall be limited to provisions of technical advice to facilitate the determination of customs value by the user Member. In this regard, the ultimate responsibility for customs valuation and revenue collection rests with user Members. All activities of PSI entities should be monitored by user Members who should be encouraged to reflect this in national legislation or administrative regulations.

In order to ensure compliance with the requirements of Articles 2.5 to 2.8 on transparency, Article 2.1 on non-discrimination and Article 2.20 on price verification, a user Member should require PSI entities to:

(i) make publicly available a single set of price verification criteria; and

(ii) inform exporters and importers of the applicable valuation methodology.

Price verification criteria should include the customs valuation methodology, as specified in user Members' national legislation or administrative regulations, used when providing technical advice on customs valuation. In this regard, user Members should encourage PSI entities to utilize electronic means for purposes of providing required information to exporters and importers.

User Members shall ensure that requests for information do not go beyond Articles 2.12 and 2.20 of the Agreement on Preshipment Inspection. Reciprocally, exporter Members should inform user Members when they become aware that PSI entities' requests for information go beyond these Articles.

In conformity with Article 2.21, a user Member shall ensure that the PSI entity, when responding to a dispute on price verification, provides a detailed written explanation within 10 days of receipt of the complaint, setting forth the basis of its opinion of value by reference to the specific applicable elements of the price verification criteria.

(2) In accordance with Article 3.3, exporter members should ensure that their technical assistance activities are designed to address the specific needs of use Members in implementing the terms and objectives of the Agreement.

(3) User Members should ensure that PSI entities are encouraged to establish local focal points in countries where they do not have physical, on-site representation. The establishment of websites by IFIA and by PSI entities with on-line services would enhance efficiency of PSI operations in such areas as procedures, methods, inspection criteria, responses to inquiries, and dissemination of other usable, essential information by importers and exporters. In addition to providing hard copies, PSI entities should be encouraged to communicate Clean Reports of Findings (CRFs) to importers and exporters through electronic means.

(4) All Members shall notify their laws and regulations, in accordance with Article 5 of the Agreement, as well as any changes thereto. In submitting these notifications, Members should endeavour to provide additional descriptive information on how they are implementing the Agreement.

(5) In furtherance of Articles 2.9-2.13, user Members shall ensure that contracts with PSI entities or national implementing legislation or administrative regulations specify procedures to be undertaken by such entities to limit the confidential business information they seek from exporters to that provided for under the Agreement and to ensure that any such information obtained by PSI entities is not used for any other purpose than PSI activities for the user Members, as defined in Article 1.3. Any breach of the rule of confidentiality by the PSI entity is an action that may be brought against the PSI entity in the appropriate judicial or administrative forum of the user Member.

(6) User Members shall ensure that contracts with PSI entities or national implementing legislation or administrative regulations provide for fee structures that do not create incentives for potential conflicts of interest in any way that may be inconsistent with the objectives of the Agreement. Additionally, contracts with PSI entities or national implementing legislation or administrative regulations shall specify that PSI entities should not inspect transactions involving products in which a PSI entity or its related company may have a commercial interest.

(7) User Members shall ensure that PSI entities issue CRFs to importers and exporters immediately on receipt of the final documents and completion of inspection. As foreseen in Article 2.16, in no case must the issuance of a CRF exceed 5 working days after an inspection, In the event that a CRF has not been issued, the user Member shall ensure that the PSI entity issues a detailed written explanation specifying the reasons for non-issuance.

Note to editors:

Preshipment inspection is the practice of employing specialized private companies to check shipment details—essentially price, quantity and quality—of goods ordered overseas. Used by governments of developing countries, the purpose is to safeguard national financial interests (prevention of capital flight and commercial fraud as well as customs duty evasion, for instance) and to compensate for inadequacies in administrative infrastructures.

The WTO’s PSI agreement recognizes that GATT 1994 principles and obligations apply to the activities of preshipment inspection agencies mandated by governments. The obligations placed on PSI-user governments include non-discrimination, transparency, protection of confidential business information, avoidance of unreasonable delay, the use of specific guidelines for conducting price verification and the avoidance of conflicts of interest by the PSI agencies. The obligations of exporting members towards PSI users include non-discrimination in the application of domestic laws and regulations, prompt publication of such laws and regulations and the provision of technical assistance where requested.

Under the agreement, an independent review procedure had been established—the Independent Entity—involving the PSI agencies, exporters and the WTO Secretariat to resolve disputes between an exporter and a PSI agency.

The Working Party on PSI was established by the General Council in November 1996 to "conduct a review provided for under Article 6 of the Agreement on Preshipment Inspection and to report to the General Council through the Council for Trade in Goods in December 1997". The Working Party is chaired by Mr. Chiedu Osakwe (Nigeria).

Thirty-four WTO members use PSI services. The six members that presented their national experiences with PSI use to the Working Party--Colombia, C˘te d'Ivoire, Ghana, Kenya the Philippines and Peru--expressed satisfaction with the operation of the PSI Agreement.

A number of exporting members, including the United States, Australia, New Zealand and the European Communities, raised concerns on PSI use with respect to the following issues: price verification, confidentiality of business information, non-discriminatory application of inspection criteria, transparency, delays, on-site representation of PSI entities, and operation of the Independent Entity.