                   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.[1] 

      
                                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[2] 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[3].
      
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[4] 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.[5]

      
                                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.


1. It is understood that this provision does not obligate Members to allow 
government entities of other Members to conduct preshipment inspection 
activities on their territory.

2. An international standard is a standard adopted by a governmental or 
non-governmental body whose membership is open to all Members, one of whose 
recognized activities is in the field of standardization.

3. It is understood that, for the purposes of this Agreement, force majeure 
shall mean "irresistible compulsion or coercion, unforeseeable course of 
events excusing from fulfilment of contract".

4. The obligations of user Members with respect to the services of 
preshipment inspection entities in connection with customs valuation shall 
be the obligations which they have accepted in the GATT 1994 and the other 
Multilateral Trade Agreements included in Annex 1A of the Agreement 
Establishing the Multilateral Trade Organization.

5. It is understood that such technical assistance may be given on a 
bilateral, plurilateral or multilateral basis.



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