SIXTH REVIEW OF THE AGREEMENT ON PRESHIPMENT INSPECTION

report by the Secretariat[1]

As agreed at the meeting of the Committee on Customs Valuation on 15 November 2023, the Secretariat was requested to prepare a factual report to assist Members in considering matters relating to preshipment inspection (PSI) during the Sixth Review of the WTO Agreement on Preshipment Inspection (PSI Agreement). This report outlines the structure of the PSI Agreement, summarizes prior reviews, contains information from Member notifications and other sources regarding the use of PSI programmes, and provides information relating to the Independent Entity, which was established to address disputes between PSI entities and exporters.

1  structure of the PSI Agreement

1.1.  Preshipment inspection is the practice of employing specialized private entities to check shipment details (such as the quality, quantity, price, or customs classification) of imported goods. Under the PSI Agreement, user Members – those contracting for or mandating the use of PSI activities – are subject to several obligations under Article 2, including those relating to non‑discrimination, transparency, protection of confidential business information, avoidance of unreasonable delays, the use of specific guidelines for conducting price verification, and the avoidance of conflicts of interest by PSI entities.

1.2.  The obligations of exporting Members under Article 3 include non-discrimination in the application of domestic laws and regulations relating to PSI activities, prompt publication of such laws and regulations, and the provision of technical assistance where requested on mutually agreed terms.

1.3.  The PSI Agreement also provides for a mechanism called the Independent Entity to conduct reviews of disputes between PSI entities and exporters (Article 4) and prescribes certain notification requirements (Article 5) and periodic review by Members (Article 6).

2  triennial reviews of the PSI Agreement

2.1.  Article 6 of the PSI Agreement provides that:

         "At the end of the second year from the date of entry into force of the WTO Agreement and every three years thereafter, the Ministerial Conference shall review the provisions, implementation and operation of this Agreement, taking into account the objectives thereof and experience gained in its operation. As a result of such review, the Ministerial Conference may amend the provisions of the Agreement."

2.2.  In November 1996, the General Council agreed to establish a Working Party under the Council for Trade in Goods to conduct the First Review under Article 6 of the PSI Agreement. The Working Party met during four formal meetings in 1997 and proceeded with its review along a four-track process. First, the Chair held informal consultations with Members. Second, Members provided submissions regarding their national experiences. Third, a survey was compiled on the basis of a questionnaire provided to Members. Fourth, Members exchanged views on the following issues: (i) price verification; (ii) confidentiality of business information; (iii) non-discriminatory application of inspection criteria; (iv) transparency; (v) delays; (vi) on-site representation of PSI entities; (vii) operation of the Independent Entity; (viii) conflicts of interest; (ix) notifications; and (x) technical assistance. In a report provided to the General Council in December 1997 (_G/L/214), the Working Party made seven recommendations to enhance implementation of the PSI Agreement. The term of the Working Party was extended to allow for additional exchanges of views on various issues.

2.3.  In reports to the General Council in November 1998 (_G/L/273) and March 1999 (_G/L/300), the Working Party indicated that it held four formal meetings to exchange views on the following additional issues: (i) Code of Conduct/Practice for PSI entities, (ii) a standard inspection format; (iii) selective examination of shipments; (iv) auditing of PSI entities; (v) the promotion of competition among PSI entities; (vi) fee structure for PSI entities; (vii) the use of price data bases; (viii) trade facilitation; and (ix) technical assistance. During informal meetings, the views of various international organizations and associations were heard. The Working Party made several recommendations based on its review, including that "future monitoring of the Agreement should be undertaken initially by the Committee on Customs Valuation (the Committee), and that PSI should be a standing agenda item."

2.4.  The Second Review was held during the meeting of the Committee on Customs Valuation in October 2006. The Chair reported to the General Council in December 2006 (_G/L/809) that no submissions were received from Members in advance of the review and that two Members made statements at the meeting on the importance of continuing to monitor PSI activities.

2.5.  The Third Review was held during the meeting of the Committee on Customs Valuation in October 2014. The Chair reported to the General Council in November 2014 (_G/L/1081) that no Member had provided either written submissions or oral statements during the review.

2.6.  The Fourth Review was held during the meeting of the Committee on Customs Valuation in November 2017. The Chair reported to the General Council in May 2018 (_G/L/1236) that no Member provided written submissions in advance of that meeting. Although the review was suspended in order to consider a proposal advanced by one Member at the meeting, the proposal was later withdrawn, and the review was concluded at the meeting held in April 2018.

2.7.  The Fifth Review was launched at the meeting of the Committee on Customs Valuation in October 2020 and concluded in October 2021. The Chair reported to the General Council in October 2021 (_G/L/1409) that he had offered to hold consultations and invited Members to provide written submissions. No written submissions were received but certain Members made statements that were reflected in the minutes of the meetings (_G/VAL/M/70, _G/VAL/M/71, and _G/VAL/M/72).

2.8.  The Sixth Review was launched during the last meeting of the Committee on Customs Valuation in November 2023.

3  Notifications and other sources of information regarding the use of preshipment inspection

3.1.  Article 5 of the PSI Agreement provides that:

"Members shall submit to the Secretariat copies of the laws and regulations by which they put this Agreement into force, as well as copies of any other laws and regulations relating to preshipment inspection, when the WTO Agreement enters into force with respect to the Member concerned. No changes in the laws and regulations relating to preshipment inspection shall be enforced before such changes have been officially published. They shall be notified to the Secretariat immediately after their publication. The Secretariat shall inform the Members of the availability of this information."

3.2.  Information pertaining to notifications from Members pursuant to Article 5 of the PSI Agreement is regularly issued in the document series _G/PSI/N/1, which lists Member notifications in four categories: (i) laws and regulations putting the PSI Agreement into force; (ii) other laws and regulations relating to PSI; (iii) changes in laws and regulations relating to PSI; and (iv) Members notifying that they have no laws or regulations relating to PSI. Annex I contains information compiled in a format to allow Members to easily review that information, particularly in instances where they have provided multiple notifications listed under different category headings.[2] Members may wish to review this information to ensure that it is accurate and complete, and to inform the Secretariat regarding any possible corrections or comments.

3.3.  Moreover, Members may recall that the Agreement on Trade Facilitation (TFA) also contains certain obligations pertaining to PSI. Specifically, Article 10.5.1 of the TFA provides that Members shall not require the use of PSI in relation to tariff classification and customs valuation. Article 10.5.2 of the TFA recognizes the right to use types of PSI other than in relation to tariff classification and customs valuation but encourages Members not to introduce or apply new requirements regarding their use. Dates for the implementation of these specific provisions by Members may be found at https://tfadatabase.org/implementation.

3.4.  In addition, Members are provided with certain information by an association representing PSI entities which lists countries that engage the services of those entities.[3] Such information has been provided prior to each formal meeting of the Committee on Customs Valuation in the document series _G/VAL/W/63. As of 2023, this association has stated that it no longer has any PSI programmes to report as governed by the PSI Agreement (_G/VAL/W/63/Rev.31).

4  Independent Entity

4.1.  Article 4 of the PSI Agreement governs the creation and operation of the Independent Entity, a mechanism to conduct reviews of disputes between PSI entities and exporters in cases involving an alleged violation of the Agreement, where the internal appeals procedure of the PSI entity has not resolved the dispute. Procedures in Article 4 relate to the initiation of disputes, the composition of review panels, the scope of review, and various other matters, including those relating to voting, timing of reviews, costs, and the binding nature of panel decisions.

4.2.  The Independent Entity was established through an agreement between the WTO, the International Federation of Inspection Agencies (IFIA), and the International Chamber of Commerce (ICC), and was adopted by the General Council in December 1995 (_WT/L/125/Rev.1). The Independent Entity is a subsidiary body of the Council on Trade in Goods. Pursuant to Article 4(b) of the PSI Agreement, a list of experts for independent review panels was established and circulated to Members in March 1996 (_G/PSI/IE/1).[4] The Independent Entity commenced operations in May 1996 (_G/PSI/IE/2).

4.3.  Since its inception, the Independent Entity has received two requests for review arising from disputes between an exporter and a PSI entity, both of which resulted in panel decisions that were issued in October 2005 (_G/PSI/IE/R/1) and October 2006 (_G/PSI/IE/R/2), respectively.

4.4.  In February 2023, the Independent External Auditor issued a performance audit report that contained a recommendation regarding the Independent Entity as follows:

"RECOMMENDATION No. 1. Close the support fund of the Independent Entity - Pre‑Shipment Inspection, inactive since 2006, and terminate the agreement that created it because it is no longer needed." (_WT/BFA/W/622, pp. 18-19)

4.5.   Pursuant to the arrangements for the operation of the Independent Entity (_WT/L/125/Rev.1), exporters and PSI entities are required to provide, prior to the initiation of a review, an advance deposit in the amount of CHF 17,500 to cover estimated costs of the review. Several PSI entities agreed to provide this advance deposit on a standing basis, resulting in a present account amounting to CHF 88,000 (_WT/BFA/W/622, pp. 14 and 41). This is the "support fund" to which the Independent External Auditor refers in its report. In addition, in December 2023, the Secretariat was contacted by a PSI entity that stated that it no longer engaged in PSI activities and that it was requesting a refund of its deposited amount of CHF 17,500.

4.6.  As part of the Sixth Triennial Review, Members may wish to consider what action to take in response to the recommendation of the Independent External Auditor.

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Annex I

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