Copyright 1995 NLCIFT
Title:AGREEMENT ON PRESHIPMENT INSPECTION
AGREEMENT ON PRESHIPMENT INSPECTION
Members,
Noting that Ministers on 20 September 1986 agreed that "the
Uruguay Round of Multilateral Trade Negotiations shall aim to
bring about further liberalization and expansion of world trade,
strengthen the role of GATT and increase the responsiveness of
the GATT system to the evolving international economic
environment";
Noting that a number of developing country Members have
recourse to preshipment inspection;
Recognizing the need of developing countries to do so for as
long and insofar as it is necessary to verify the quality,
quantity or price of imported goods;
Mindful that such programmes must be carried out without
giving rise to unnecessary delays or unequal treatment;
Noting that this inspection is by definition carried out on
the territory of exporter Members;
Recognizing the need to establish an agreed international
framework of rights and obligations of both user Members and
exporter Members;
Recognizing that the principles and obligations of the
GATT 1994 apply to those activities of preshipment inspection
entities that are mandated by governments that are Members of the
MTO;
Recognizing that it is desirable to provide transparency of
the operation of preshipment inspection entities and of laws and
regulations relating to preshipment inspection;
Desiring to provide for the speedy, effective and equitable
resolution of disputes between exporters and preshipment
inspection entities arising under this Agreement;
Hereby agree as follows:
Article 1
Coverage - Definitions
1. This Agreement shall apply to all preshipment inspection
activities carried out on the territory of Members, whether such
activities are contracted or mandated by the government, or any
government body, of a Member (hereinafter referred to as "user
Member").
2. Preshipment inspection activities are all activities
relating to the verification of the quality, the quantity, the
price, including currency exchange rate and financial terms,
and/or the customs classification of goods to be exported to the
territory of the user Member.
3. The term "preshipment inspection entity" is any entity
contracted or mandated by a Member to carry out preshipment
inspection activities.
Article 2
Obligations of User Members
Non-discrimination
1. User Members shall ensure that preshipment inspection
activities are carried out in a non-discriminatory manner, that
the procedures and criteria employed in the conduct of these
activities are objective and are applied on an equal basis to
all exporters affected by such activities. They shall ensure
uniform performance of inspection by all the inspectors of the
preshipment inspection entities contracted or mandated by them.
Governmental Requirements
2. User Members shall ensure that in the course of preshipment
inspection activities relating to their laws, regulations and
requirements, the provisions of Article III:4 of the GATT 1994
are respected to the extent that these are relevant.
Site of Inspection
3. User Members shall ensure that all preshipment inspection
activities, including the issuance of a Clean Report of Findings
or a note of non-issuance, are performed in the customs territory
from which the goods are exported or, if the inspection cannot be
carried out in that customs territory given the complex nature of
the products involved, or if both parties agree, in the customs
territory in which the goods are manufactured.
Standards
4. User Members shall ensure that quantity and quality
inspections are performed in accordance with the standards
defined by the seller and the buyer in the purchase agreement and
that, in the absence of such standards, relevant international
standards apply.
Transparency
5. User Members shall ensure that preshipment inspection
activities are conducted in a transparent manner.
6. User Members shall ensure that, when initially contacted by
exporters, preshipment inspection entities provide to the
exporters a list of all the information which is necessary for
the exporters to comply with inspection requirements. The
preshipment inspection entities shall provide the actual
information when so requested by exporters. This information
shall include a reference to the laws and regulations of the user
Members relating to preshipment inspection activities, and shall
also include the procedures and criteria used for inspection and
for price and currency exchange rate verification purposes, the
exporters' rights vis-…-vis the inspection entities, and the
appeals procedures set up under paragraph 21 of this Article.
Additional procedural requirements or changes in existing
procedures shall not be applied to a shipment unless the exporter
concerned is informed of these changes at the time the inspection
date is arranged. However, in emergency situations of the types
addressed by Articles XX and XXI of the GATT 1994, such
additional requirements or changes may be applied to a shipment
before the exporter has been informed. This assistance shall
not, however, relieve exporters from their obligations in respect
of compliance with the import regulations of the user Members.
7. User Members shall ensure that the information referred to
in paragraph 6 of this Article is made available to exporters in
a convenient manner, and that the preshipment inspection offices
maintained by preshipment inspection entities serve as
information points where this information is available.
8. User Members shall publish promptly all applicable laws and
regulations relating to preshipment inspection activities in such
a manner as to enable other governments and traders to become
acquainted with them.
Protection of Confidential Business Information
9. User Members shall ensure that preshipment inspection
entities treat all information received in the course of the
preshipment inspection as business confidential to the extent
that such information is not already published, generally
available to third parties, or otherwise in the public domain.
User Members shall ensure that preshipment inspection entities
maintain procedures to this end.
10. User Members shall provide information to Members on request
on the measures they are taking to give effect to paragraph 9 of
this Article. The provisions of this paragraph shall not require
any Member to disclose confidential information the disclosure of
which would jeopardize the effectiveness of the preshipment
inspection programmes or would prejudice the legitimate
commercial interest of particular enterprises, public or private.
11. User Members shall ensure that preshipment inspection
entities do not divulge confidential business information to any
third party, except that preshipment inspection entities may
share this information with the government entities that have
contracted or mandated them. User Members shall ensure that
confidential business information which they receive from
preshipment inspection entities contracted or mandated by them is
adequately safeguarded. Preshipment inspection entities shall
share confidential business information with the governments
contracting or mandating them only to the extent that such
information is customarily required for letters of credit or
other forms of payment or for customs, import licensing or
exchange control purposes.
12. User Members shall ensure that preshipment inspection
entities do not request exporters to provide information
regarding:
(a) manufacturing data related to patented, licensed or
undisclosed processes, or to processes for which a
patent is pending;
(b) unpublished technical data other than data necessary to
demonstrate compliance with technical regulations or
standards;
(c) internal pricing, including manufacturing costs;
(d) profit levels;
(e) the terms of contracts between exporters and their
suppliers unless it is not otherwise possible for the
entity to conduct the inspection in question. In such
cases, the entity shall only request the information
necessary for this purpose.
13. The information referred to in paragraph 12 of this Article,
which preshipment inspection entities shall not otherwise
request, may be released voluntarily by the exporter to
illustrate a specific case.
Conflicts of Interest
14. User Members shall ensure that preshipment inspection
entities, bearing in mind also the provisions on protection of
confidential business information in paragraphs 9-13 of this
Article, maintain procedures to avoid conflicts of interest:
(a) between preshipment inspection entities and any related
entities of the preshipment inspection entities in
question, including any entities in which the latter
have a financial or commercial interest or any entities
which have a financial interest in the preshipment
inspection entities in question, and whose shipments
the preshipment inspection entities are to inspect;
(b) between preshipment inspection entities and any other
entities, including other entities subject to
preshipment inspection, with the exception of the
government entities contracting or mandating the
inspections;
(c) with divisions of preshipment inspection entities
engaged in activities other than those required to
carry out the inspection process.
Delays
15. User Members shall ensure that preshipment inspection
entities avoid unreasonable delays in inspection of shipments.
User Members shall ensure that, once a preshipment inspection
entity and an exporter agree on an inspection date, the
preshipment inspection entity conducts the inspection on that
date unless it is rescheduled on a mutually-agreed basis between
the exporter and the preshipment inspection entity, or the
preshipment inspection entity is prevented from doing so by the
exporter or by force majeure.
16. User Members shall ensure that, following receipt of the
final documents and completion of the inspection, preshipment
inspection entities, within five working days, either issue a
Clean Report of Findings or provide a detailed written
explanation specifying the reasons for non-issuance. User
Members shall ensure that, in the latter case, preshipment
inspection entities give exporters the opportunity to present
their views in writing and, if exporters so request, arrange for
re-inspection at the earliest mutually convenient date.
17. User Members shall ensure that, whenever so requested by the
exporters, preshipment inspection entities undertake, prior to
the date of physical inspection, a preliminary verification of
price and, where applicable, of currency exchange rate, on the
basis of the contract between exporter and importer, the
pro forma invoice and, where applicable, the application for
import authorization. User Members shall ensure that a price or
currency exchange rate that has been accepted by a preshipment
inspection entity on the basis of such preliminary verification
is not withdrawn, providing the goods conform to the import
documentation and/or import licence. They shall ensure that,
after a preliminary verification has taken place, preshipment
inspection entities immediately inform exporters in writing
either of their acceptance or of their detailed reasons for non-
acceptance of the price and/or currency exchange rate.
18. User Members shall ensure that, in order to avoid delays in
payment, preshipment inspection entities send to exporters or to
designated representatives of the exporters a Clean Report of
Findings as expeditiously as possible.
19. User Members shall ensure that, in the event of a clerical
error in the Clean Report of Findings, preshipment inspection
entities correct the error and forward the corrected information
to the appropriate parties as expeditiously as possible.
Price Verification
20. User Members shall ensure that, in order to prevent over-
and under-invoicing and fraud, preshipment inspection entities
conduct price verification according to the following
guidelines:
(a) preshipment inspection entities shall only reject a
contract price agreed between an exporter and an
importer if they can demonstrate that their findings of
an unsatisfactory price are based on a verification
process which is in conformity with the criteria set
out in (b)-(e) below;
(b) the preshipment inspection entity shall base its price
comparison for the verification of the export price on
the price(s) of identical or similar goods offered for
export from the same country of exportation at or about
the same time, under competitive and comparable
conditions of sale, in conformity with customary
commercial practices and net of any applicable standard
discounts. Such comparison shall be based on the
following:
- only prices providing a valid basis of comparison
shall be used, taking into account the relevant
economic factors pertaining to the country of
importation and a country or countries used for
price comparison;
- the preshipment inspection entity shall not rely
upon the price of goods offered for export to
different countries of importation to arbitrarily
impose the lowest price upon the shipment;
- the preshipment inspection entity shall take into
account the specific elements listed in
paragraph 20(c) of this Article;
- at any stage in the process described above, the
preshipment inspection entity shall provide the
exporter with an opportunity to explain his price;
(c) when conducting price verification, preshipment
inspection entities shall make appropriate allowances
for the terms of the sales contract and generally
applicable adjusting factors pertaining to the
transaction; these factors shall include but not be
limited to the commercial level and quantity of the
sale, delivery periods and conditions, price escalation
clauses, quality specifications, special design
features, special shipping or packing specifications,
order size, spot sales, seasonal influences, licence or
other intellectual property fees, and services rendered
as part of the contract if these are not customarily
invoiced separately; they shall also include certain
elements relating to the exporter's price, such as the
contractual relationship between the exporter and
importer;
(d) the verification of transportation charges shall relate
only to the agreed price of the mode of transport in
the country of exportation as indicated in the sales
contract;
(e) the following shall not be used for price verification
purposes:
(i) the selling price in the country of importation of
goods produced in such country;
(ii) the price of goods for export from a country other
than the country of exportation;
(iii) the cost of production;
(iv) arbitrary or fictitious prices or values.
Appeals Procedures
21. User Members shall ensure that preshipment inspection
entities establish procedures to receive, consider and render
decisions concerning grievances raised by exporters, and that
information concerning such procedures is made available to
exporters in accordance with the provisions of paragraphs 6-7 of
this Article. User Members shall ensure that the procedures are
developed and maintained in accordance with the following
guidelines:
(a) preshipment inspection entities shall designate one or
more officials who shall be available during normal
business hours in each city or port in which they
maintain a preshipment inspection administrative office
to receive, consider and render decisions on exporters'
appeals or grievances;
(b) exporters shall provide in writing to the designated
official(s) the facts concerning the specific
transaction in question, the nature of the grievance
and a suggested solution;
(c) the designated official(s) shall afford sympathetic
consideration to exporters' grievances and shall render
a decision as soon as possible after receipt of the
documentation referred to in (b) above.
Derogation
22. By derogation to the provisions of Article 2, user Members
shall provide that, with the exception of part shipments,
shipments whose value is less than a minimum value applicable to
such shipments as defined by the user Member shall not be
inspected, except in exceptional circumstances. This minimum
value shall form part of the information furnished to exporters
under the provisions of paragraph 6 of this Article.
Article 3
Obligations of Exporter Members
Non-discrimination
1. Exporter Members shall ensure that their laws and
regulations relating to preshipment inspection activities are
applied in a non-discriminatory manner.
Transparency
2. Exporter Members shall publish promptly all applicable laws
and regulations relating to preshipment inspection activities in
such a manner as to enable other governments and traders to
become acquainted with them.
Technical Assistance
3. Exporter Members shall offer to provide to user Members, if
requested, technical assistance directed towards the achievement
of the objectives of this Agreement on mutually agreed terms.
Article 4
Independent Review Procedures
Members shall encourage preshipment inspection entities and
exporters mutually to resolve their disputes. However, two
working days after submission of the grievance in accordance with
the provisions of paragraph 21 of Article 2, either party may
refer the dispute to independent review. Members shall take such
reasonable measures as may be available to them to ensure that
the following procedures are established and maintained to this
end:
(a) these procedures shall be administered by an
independent entity constituted jointly by an
organization representing preshipment inspection
entities and an organization representing exporters for
the purposes of this Agreement;
(b) the independent entity referred to in sub-paragraph (a)
of this Article shall establish a list of experts as
follows:
(i) a section of members nominated by an organization
representing preshipment inspection entities;
(ii) a section of members nominated by an organization
representing exporters;
(iii) a section of independent trade experts,
nominated by the independent entity referred
to in sub-paragraph (a) of this Article.
The geographical distribution of the experts on this
list shall be such as to enable any disputes raised
under these procedures to be dealt with expeditiously.
This list shall be drawn up within two months of the
entry into force of the Agreement Establishing the MTO
and shall be updated annually. The list shall be
publicly available. It shall be notified to the MTO
Secretariat and circulated to all Members;
(c) an exporter or preshipment inspection entity wishing to
raise a dispute shall contact the independent entity
referred to in sub-paragraph (a) of this Article and
request the formation of a panel. The independent
entity shall be responsible for establishing a panel.
This panel shall consist of three members. The members
of the panel shall be chosen so as to avoid unnecessary
costs and delays. The first member shall be chosen
from section (i) of the above list by the preshipment
inspection entity concerned, provided that this member
is not affiliated to that entity. The second member
shall be chosen from section (ii) of the above list by
the exporter concerned, provided that this member is
not affiliated to that exporter. The third member
shall be chosen from section (iii) of the above list by
the independent entity referred to in sub-paragraph (a)
of this Article. No objections shall be made to any
independent trade expert drawn from section (iii) of
the above list;
(d) the independent trade expert drawn from section (iii)
of the above list shall serve as the chairman of the
panel. He shall take the necessary decisions to ensure
an expeditious settlement of the dispute by the panel,
for instance, whether the facts of the case require the
panelists to meet and, if so, where such a meeting
shall take place, taking into account the site of the
inspection in question;
(e) if the parties to the dispute so agree, one independent
trade expert could be selected from section (iii) of
the above list by the independent entity referred to in
sub-paragraph (a) of this Article to review the dispute
in question. This expert shall take the necessary
decisions to ensure an expeditious settlement of the
dispute, for instance taking into account the site of
the inspection in question;
(f) the object of the review shall be to establish whether,
in the course of the inspection in dispute, the parties
to the dispute have complied with the provisions of
this Agreement. The procedures shall be expeditious
and provide the opportunity for both parties to present
their views in person or in writing;
(g) decisions by a three-member panel shall be taken by
majority vote. The decision on the dispute shall be
rendered within eight working days of the request for
independent review and be communicated to the parties
to the dispute. This time-limit could be extended upon
agreement by the parties to the dispute. The panel or
independent trade expert shall apportion the costs,
based on the merits of the case;
(h) the decision of the panel shall be binding upon the
preshipment inspection entity and the exporter which
are parties to the dispute.
Article 5
Notification
Members shall submit to the MTO Secretariat copies of their
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 Agreement comes into force for
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 MTO Secretariat immediately after their publication. The
MTO Secretariat shall inform the Members of the availability of
this information.
Article 6
Review
At the end of the second year from the entry into force of
the Agreement Establishing the MTO 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.
Article 7
Consultation
Members shall consult with other Members upon request with
respect to any matter affecting the operation of this Agreement.
In such cases, the provisions of Article XXII of the GATT 1994,
as elaborated and applied by the Understanding on Rules and
Procedures Governing the Settlement of Disputes, are applicable
to this Agreement.
Article 8
Dispute Settlement
Any disputes among Members regarding the operation of this
Agreement shall be subject to the provisions of Article XXIII of
the GATT 1994, as elaborated and applied by the Understanding on
Rules and Procedures Governing the Settlement of Disputes.
Article 9
Final Provisions
1. Members shall take the necessary measures for the
implementation of the present Agreement.
2. Members shall ensure that their laws and regulations shall
not be contrary to the provisions of this Agreement.