RESTRICTED
WORLD TRADE G/PSI/WP/W/9
31July1997
ORGANIZATION(97-3246)
Original: English Working Party onPreshipment Inspection
NATIONAL EXPERIENCE WITH THE
AGREEMENT ONPRESHIPMENT INSPECTION
Communication from Switzerland
Thefollowing communication hasbeenreceived fromthePermanent Mission ofSwitzerland.
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General Remarks
Thiscommunication isbased ontheListofissues outlined bytheChair during themeeting
heldinGeneva on13and18June1997 (Doc. G/PSI/WP/W/2 dated 12May1997). Thismeeting
provided afirstopportunity todiscuss anumber ofissues based onthemandate oftheWorking Party.
Thepresent communication isintended asafurther contribution tothedebate onPSIissues.
Ageneral andveryserious problem isthelackoftransparency which isduetoeither missing
orincomplete notifications. Forinstance, while various companies carry outPSIinSwitzerland on
behalf of(presently) 29User Members, lessthanhalfofthose Members havenotified theiruseof
PSItoWTO. Thisfactimpedes thesatisfactory implementation oftheAgreement andthusthereview
process conducted bytheWorking Party.
Aconsiderablenumberofthe"options"outlinedinthetextfromtheChairidentifytheinspection
companies asapartoftheproblem andseveral suggestions aremade toshifttheresponsibility for
implementing thePSIAgreement tothesecompanies. Whether ornotthereareserious implementation
problems arising from theactivities ofinspection agencies isapoint thatremains openforthetime
being. However, itshould beemphasized thatonlygovernments aremembers ofthisAgreement and
therefore solely responsible foritsimplementation, asindividual governments andalsocollectively
asWTO Members.
From theevidence athanditisnotclear whether theproblems mentioned bytheChair are
ofanoccasional nature orduetooneormore "system faults". However, apossible solution tomany
woeswould betoestablish a"model inspection agreement" which would assist UserMembers toensure
asmooth andfaithful implementation ofthePSIAgreement through theactivities oftheinspection
agencies. Thisproposal isdeveloped further inpara11below.
Price Verification
Price verification inthecontext ofpreshipment activities continues tobeaverysensitive issue.
Article 1.3oftheAgreement determines thescope ofPSIactivities asbeing quality, quantity, and
price verification, including currency exchange rates andfinancial terms, and/or thecustoms
classification. Suchprice classification determines onlywhether theprice ofamerchandise indicatedG/PSI/WP/W/9
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tocustoms authorities corresponds tothesalesprice agreed between theexporter andtheimporter.
Thepurpose ofthispartofPSIactivities isindeed toprevent fraud through under- orover-invoicing.
Onthecontrary, thepurpose ofcustoms valuation istoensure thatthepriceindicated tocustoms
authorities corresponds totheactual value ofthegood. However, customs valuation inexporting
countries isnotforeseen bythePSIAgreement. Customs valuation canonlytakeplace inaccordance
withArticle VIIoftheGATT towhich Art.2.20 ofthePSIAgreement refers initsfootnote. This
difference should beoutlined inanyfuture version oftheChair’spaper.
There isaneedforbasicuniform rules. Forinstance, itisnotsatisfactory toallow fordifferent
custom valuation systems depending onwhether goods havebeensubject toPSIornot. Thismay
involve aneedforamending theAgreement, andwearenotthere, yet.Butperhaps atsome earlier
stage "guidelines onprice verification" (additional tothose contained inArt.2.20) developed bythe
Working Party andendorsed bytheCouncil forTrade inGoods could leadthewayforimprovements.
Confidentiality ofBusiness Information
Protection ofbusiness secrets isenshrined inArticles 2.9-2.12. Thisissufficient. Since
theevidence atourdisposal hasnotbeensufficiently specified wecannot appreciate, atthispoint,
whether therearesufficient reasons forthe"deep andwide-spread concern" inletterBoftheChairman ’s
paper over"anincreasing breach ofprotection ofconfidential business information byPSIentities".
Ithasnevertheless beensuggested tointroduce "adirect obligation onPSIentities toprovide
declarations indicating measures theyhave taken toensure theintegrity ofconfidential business
information". Another proposal outlined intheChairman ’stextwasthat"PSIentities would provide
compensation tocover thedegree oflosstoacompetitor thatdemonstrates material loss/injury".
Whatever themerits ofthese proposals, theycanhardly bepursued further since, inanycase,thesole
responsibility ofimplementing thisAgreement lieswithWTO Members.
However, ifsufficient evidence isbrought byMembers claiming suchbreaches, itmight be
worthwhile toenquire whether User Members have taken allmeasures necessary toensure "that
preshipment inspection entities donotdivulge confidential business information toanythirdparty",
and"that confidential business information which theyreceive from preshipment inspection entities
contracted ormandated bythem isadequately safeguarded" (cf.Article 2.11).
Inorder tosolve suchdifficulties onecould alsothink ofelaborating a"model inspection
agreement" between aUserMember andaninspection entity which would contain allthesubstantive
provisions ofthePSIAgreement andwhich would takeintoaccount experience gathered sofarby
UserMembers andexporters intheimplementation oftheAgreement. Suchamodel agreement could
bedrafted bythisWorking Party andsubmitted forapproval totheCouncil forTrade inGoods. It
would thenbecirculated toallMembers wishing toavailthemselves ofPSIservices. Such amodel
agreement neednothaveamandatory character andcould beadjustable toparticular circumstances.
Nevertheless, itcould notonlycontribute toincreased efficiency ofPSIoperations butalsoaddress
some oftheconcerns expressed intheWorking Group, inawaythatwould fullyrespect thecontractual
autonomy ofUserMembers, inspection agencies andexporters.
Non-Discrimination
Atthisstage there isnotsufficient evidence (a)thatinspection criteria areapplied ina
discriminatory manner or(b)thatUserMembers maybeunable toensure non-discrimination according
totheirobligations under thisAgreement (Article 2.1). However, wecannot accept thesuggestion
thatUserMembers obligations simply beshifted toinspection entities. Ontheother hand, uniformG/PSI/WP/W/9
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formats ofinspection criteria (asapartofthe"model inspection agreement" outlined inthepreceding
paragraph) might beauseful form ofaddressing theproblem, onceevidence isbrought proving the
existence oftheproblem inconnection withtheimplementation ofthePSIAgreement.
Transparency
IstherealackoforientationofexportersbyPSIfirms?ThefirstsentenceofArticle2.6provides
aclear obligation, since itstates that"User Members shallensure that,when initially contacted by
exporters, PSIentities provide totheexporters alistofalltheinformation which isnecessary forthe
exporters tocomply withinspection requirements". ThisisthewaytheAgreement mustbeimplemented
including, ifneedbe,bywayoftheIndependent Entity. Hereagain, the"model inspection agreement"
mentioned before might provide asolution, often allowing toavoid using theIE.
Once more, itshould bepointed outthatWTO Members areresponsible under thisAgreement,
notprivate companies.
Delays
ThePSIAgreement isofgreat value asatoolagainst capital flight, customs crimes and
commercial fraud. Ofcourse, delays mayoccur onmany sides, including onthesideofexporters
failing toprovide thenecessary information/documents toinspection agencies. Also, inourexperience
ithasturned outthatcomplicated institutional arrangements (including sub-contracting ofPSImandates)
maynegatively impact onthespeed ofbusiness transactions. Itisclearthatthechoice oftheinspection
entity must takeintoaccount itscapacity todeliver theinspection services ontime.
Another instance where delays haveoccurred aresituations where PSImandates havebeen
changed atveryshort notice, ornewmandates introduced without sufficient advance information to
exporters. Ithasbeenbrought toourattention that,insuchcases, aminimum period of2months
isnecessary forbusiness andauthorities inexporting countries tocopewithsuchchanges andavoid
unnecessary delays inshipments.
On-Site Representation ofPSIEntities
On-site representation iscertainly mostsupportive ofasmooth implementation ofinspection
activities. Asamatter offactwerequire allinspection agencies wishing tocarry outactivities in
Switzerland tobeestablished inthiscountry. Also, intoday’sworld of"lean production" methods
and"justintime" deliveries, exporters andimporters cansimply notbeexpected tofacedelays from
theadministrative procedures necessary toshipmerchandise from onecountry toanother.
Atthesame timeweunderstand thatsmaller economies, exporters andimporters, mayface
problems inimposing suchanobligation toallagencies. Insuchcircumstances wewelcome theidea
tofurther explore thepossibility oflocalfocal points toprovide allrelevant information inrespect
ofinspection criteria andprocedures.
Operation oftheIndependent Entity (IE)
Thenon-utilization, sofar,oftheIEdoesnot,inouropinion, callforimmediate action by
theWTO. Wehave notreceived anyindication from Swiss business circles thattheyregret its
non-utilization. Ontheother hand, PSIwithout anIEmight sooner orlaterfaceserious problems.
Aswithanynewinstitution, there isaneedfortheinternational business community toadjust toit.
Itisalsotruethatthisnewform ofdispute resolution isquite costly. Butthereasons forthis
non-utilization arehardly thelackofprocedural guidance bytheAgreement andthe"precedential valueG/PSI/WP/W/9
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ofanydecision rendered". Itistherefore farfrombeing evident thatimmediate changes areneeded,
suchasarightofexporters ’associations tobring grievances before theIE.
Concluding Remarks
Itistheobligation ofallWTO Members tofindsolutions toanyimplementation problems
ofthePSIAgreement, within thepresent wording oftheagreement or,ifneedbe,through negotiated
amendments. Onehastoaccept thatgovernments onlyaremembers oftheAgreement andtherefore
solely responsible foritsfaithful implementation.
Technical assistance should beprovided onrequest toUserMembers facing problems inthis
regard. Thisbeing said,wealsobelieve thattheWorking Party willatsome stage havetoconsult
withthemainimplementing partners ofthePSIAgreement, i.e.theexport industry andtheinspection
agencies, through theirrespective tradeassociations (ICCandIFIA). Perhaps, attheappropriate time,
theChairman could organize ahearing withinterested groups inorder tofindouttheirviews onthe
functioning oftheAgreement.
Thusthereareseveral possibilities forimproved procedures inanopen, transparent andefficient
manner, including trough additional "guidelines onpriceverification" andthrough a"model inspection
agreement". TheWorking Party should proceed withitsbusiness without further ado.