Rules Governing International Trade under WTO, Uniform Trade Practices Agreements

Rules Governing International Trade under WTO

Uniform Trade Practices Agreements on Anti dumping Subsidies and countervailing measures Pre-shipment Inspections

 

The World Trade Organization (WTO) is an organization  created   with the objective to supervise and liberalize international trade among member countries. WTO came into existence after replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948 in a form of international trade treaty among nations. The WTO after series of negotiations among members officially became functional in 1 January 1995 under the Marrakech Agreement. The organization primarily focuses on agreements among members’ nations and simultaneously focuses deals with regulation of trade between participating countries. WTO also created a formal framework for negotiating and formalizing trade agreements through Ministerial level conference among members. Unlike GATT there is also a dispute resolution process aimed at enforcing participant's adherence to WTO agreements, which are signed by representatives of member governments and ratified by their parliaments. Most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the Uruguay Round (1986–1994).

There Doha Development Round, which was launched in 2001 yet to be completed. There are repeated attempt to complete negotiations with an explicit focus on addressing the needs of developing countries.  But the future of the Doha Round remained uncertain: the work programme lists 21 subjects in which the original deadline of 1 January 2005 was missed, and the round is still incomplete.

The conflict between developed and developing countries  free trade on industrial goods and services but retention of protectionism on farm subsidies to domestic agricultural sector (requested by developed countries) and the substantiation of the international liberalization of fair trade on agricultural products (requested by developing countries) remain the major obstacles. These points of contention have hindered any progress to launch new WTO negotiations beyond the Doha Development Round. As a result of this impasse, there have been an increasing number of bilateral free trade agreements signed. As of July 2012, there were various negotiation groups in the WTO system for the current agricultural trade negotiation which is in the condition of stalemate. WTO's current Director-General is Roberto Azevedo, who leads a staff of over 600 people in Geneva, Switzerland. A trade facilitation agreement known as the Bali Package was reached by all members on December 7, 2013, the first comprehensive agreement in the organization's history.

Among various agreements reached in the various ministerial talks in WTO, agreements relate to Antidumping Subsidies and countervailing measures Pre-shipment Inspections are covered in this unit.

Anti-dumping:

Dumping has several definitions. In most of the cases dumping has been regarded if a company exports a product at a price lower than the home market.  WTO has also defined dumping in the similar way. It has been said in WTO also that “ if a company exports a product at a price lower than the price it normally charges on its own home market, it is said to be “dumping” the product”. Dumping happens when exporters sell their goods in foreign market at a price below than at what they are sold in the home market or below the cost of production. Therefore in these situations dumping can be established. An importing country in case of dumping has rights to levy anti-dumping duties to protect their home industries.  It has been that most of countries levy anti-dumping duties when they have substantial evidence that exporters are selling their goods in their market at a price below than at what they are sold in the home market (price discrimination) or below the cost of production (normal value). Price discrimination, when practiced with the intention to distort foreign markets is considered to be unfair and such practices lead to distortions of trade. The ant-dumping duties are primarily imposed to offset the distortion and injurious effect of the dumping margin in the importing country. Another important test in favour of dumping is to assess the nature and design of sale done by exporter in the importing country market.  “ When sales are made below cost in the domestic market they are not considered to be sold at ‘ normal value’, and a calculation is made of what the selling price would normally be in the domestic market, based on the producer’s costs of production”. This is then compared with the export price to determine if there is a dumping margin. The various situations in which this may arise are as follows:

 

Suppliers may have rational reasons to want to sell to sell below cost. For example, they have invested at a certain point in time and the prices in the market may have dropped below the original estimate.

Dumping is also a marketing strategy of firms those have a dominant position of monopoly or oligopoly position in international markets. By dumping their products at lower price and these monopolists and oligopolists firms wish to undermine its competitors by sales below cost. They can only do this if they have substantial cash flows with them. In this scenario, price is reduced below variable cost. Most of the new competitors find very difficult even to recover their variable cost because to meet the competition they have to reduce prices.  The objective of monopolist or a near monopolist is drive out competitors. When the monopolists or oligopolists are successful in their objectives they further raise the price.  In international marketing such kind of pricing practice is known as predatory pricing.

 In international trade agreements, the dumping has been regarded as unfair competition and this is against the spirit of free trade. Therefore in case of dumping WTO has provided adequate safeguard by defining scope and provision to protect the interest of many governments in case of dumping. Generally, it has been observed that many governments take action against dumping in order to defend their domestic industries. The WTO agreement has provisions for governments to protect from dumping although there is no system in WTO to pass judgment on dumping.  These provisions of protecting government from dumping actions are known as “Anti-Dumping Agreement”. These anti-dumping agreements have provision for government to act against dumping. But before acting against dumping there is need to ascertain that there is genuine material injury to the competing domestic industry. This preliminary investigation of material injury needs to be done by the government to show that dumping is taking place. Simultaneously, there is also need to calculate the extent of dumping.  This calculation of dumping can be done by taking into consideration that how much lower the export price is compared to the exporter’s home market price, and show that the dumping is causing injury or threatening to do so.

Once, dumping has established then WTO (Article 6) of anti-dumping agreement allows countries to take action against dumping. There is comprehensive and detailed explanation. The Anti-Dumping Agreement provided detailed explanation of anti-dumping in Article 6. There is a provision in this article for    countries to act in a way that would normally break the WTO principles of binding a tariff and non-discrimination between trading partners — typically anti-dumping action means charging extra import duty on the particular product from the particular exporting country in order to bring its price closer to the “normal value” or to remove the injury to domestic industry in the importing country. The detailed process of defining dumping and antidumping by WTO has been summarized below:-

·          It has been provided that there is need to calculate the impact of dumping. There are different impacts of dumping. It may affect industry marginally, moderately or heavily. There are many different ways of calculating whether a particular product is being dumped heavily or only lightly. The agreement provides provisions to narrows down the range of possible options. Currently there are three methods of calculations in agreement to calculate a product’s “normal value”. The most important method takes into consideration the price in the exporter’s domestic market. If there is a difficulty involved in using this method then there are also two alternatives available. These are based on the calculation of  price charged by the exporter in another country by taking into consideration  the combination of the exporter’s production costs, other expenses and normal profit margins. And the agreement also specifies how a fair comparison can be made between the export price and what would be a normal price.

·          WTO agreement has also provided that calculations of extent of dumping is not the sufficient condition to impose anti-dumping duties. There is also need to establish that dumping is hurting the industry in the importing country. Only as per provisions of agreements anti-dumping measures can be applied. Therefore in case of dumping there is need to conduct a detailed investigation according to agreement and specified rules. The investigation must evaluate all relevant economic factors that have a bearing on the state of the industry in question. If the investigation shows dumping is taking place and domestic industry is being hurt, the exporting company can undertake to raise its price to an agreed level in order to avoid anti-dumping import duty. It has been seen in practice that first calculation and further proving that dumping has taken place and also hurt the domestic industry has become very difficult and time consuming process in last two decades after the formation of WTO.

·         WTO agreements on anti-dumping measures also set up detailed procedures are set out on how anti-dumping cases are to be initiated, how the investigations are to be conducted, and the conditions for ensuring that all interested parties are given an opportunity to present evidence. WTO agreements has also provided  that anti-dumping measures must expire five years after the date of imposition, unless an investigation shows that ending the measure would lead to injury.

·         Anti-dumping investigations are to end immediately in cases where the authorities determine that the margin of dumping is insignificantly small (defined as less than 2% of the export price of the product). Other conditions are also set. For example, the investigations also have to end if the volume of dumped imports is negligible (i.e. if the volume from one country is less than 3% of total imports of that product — although investigations can proceed if several countries, each supplying less than 3% of the imports, together account for 7% or more of total imports).

·         The agreement says member countries must inform the Committee on Anti-Dumping Practices about all preliminary and final anti-dumping actions, promptly and in detail. They must also report on all investigations twice a year. When differences arise, members are encouraged to consult each other. They can also use the WTO’s dispute settlement procedure.

Subsidies and Countervailing Measures:

 WTO also provides comprehensive details not only of issues related to dumping but also scope of providing subsidies along with countervailing measures. The basic objective of subsidies and countervailing measures is primarily disciplines the use of subsidies and also regulate the actions countries can take to counter the effects of subsidies. There is also provision in WTO that a country can use the WTO’s dispute settlement procedure to seek the withdrawal of the subsidy or the removal of its adverse effects. Simultaneously there is also provision in WTO that  the country can launch its own investigation and ultimately charge extra duty (known as “countervailing duty”) on subsidized imports that are found to be hurting domestic producers.

There is broad definition of subsidy in the agreement. The concept of a “specific” subsidy — i.e. a subsidy available only to an enterprise, industry, group of enterprises, or group of industries in the country (or state, etc)  has been elaborated in the agreement. The disciplines set out in the agreement only apply to specific subsidies. They can be domestic or export subsidies.

The agreement defines two categories of subsidies: prohibited and actionable. It originally contained a third category: non-actionable subsidies. This category existed for five years, ending on 31 December 1999, and was not extended. The agreement applies to agricultural goods as well as industrial products, except when the subsidies are exempt under the agriculture Agreement’s “Peace Clause”

·         Prohibited subsidies: These are subsidies that require recipients to meet certain export targets, or to use domestic goods instead of imported goods. These kinds of subsidies have been prohibited because they are specifically designed to distort free international trade. In such scenario other countries trade likely to hurt. There is provision in WTO agreement to challenge these kinds of subsidies in the WTO dispute settlement procedure where they are handled under an accelerated timetable. If the dispute settlement procedure investigates and proves that the subsidy is prohibited, it must be withdrawn immediately. Otherwise, the complaining country can take counter measures. If domestic producers are hurt by imports of subsidized products, countervailing duty can be imposed.

·         Actionable subsidies:  Actionable subsidies means that there is provision in WTO to take action against government , which are providing such kind of subsidies  but in this category the complaining country has to show that the subsidy has an adverse effect on its interests. If complaining country fails to prove any adverse effect of actionable subsidies  then  the subsidy is permitted.  There are  defines three types of damage can be caused by these subsidies.  One country’s subsidies can hurt a domestic industry in an importing country. They can hurt rival exporters from another country when the two compete in third markets. And domestic subsidies in one country can hurt exporters trying to compete in the subsidizing country’s domestic market. If the Dispute Settlement Body rules that the subsidy does have an adverse effect, the subsidy must be withdrawn or its adverse effect must be removed. Again, if domestic producers are hurt by imports of subsidized products, countervailing duty can be imposed.

·         Some of the disciplines are similar to those of the Anti-Dumping Agreement. Countervailing duty (the parallel of anti-dumping duty) can only be charged after the importing country has conducted a detailed investigation similar to that required for anti-dumping action. There are detailed rules for deciding whether a product is being subsidized (not always an easy calculation), criteria for determining whether imports of subsidized products are hurting (“causing injury to”) domestic industry, procedures for initiating and conducting investigations, and rules on the implementation and duration (normally five years) of countervailing measures. The subsidized exporter can also agree to raise its export prices as an alternative to its exports being charged countervailing duty.

·         Subsidies may play an important role in developing countries and in the transformation of centrally-planned economies to market economies. Least-developed countries and developing countries with less than $1,000 per capita GNP are exempted from disciplines on prohibited export subsidies. Other developing countries are given until 2003 to get rid of their export subsidies. Least-developed countries must eliminate import-substitution subsidies (i.e. subsidies designed to help domestic production and avoid importing) by 2003 — for other developing countries the deadline was 2000. Developing countries also receive preferential treatment if their exports are subject to countervailing duty investigations. For transition economies, prohibited subsidies had to be phased out by 2002.

Safeguards: Emergency Protection from Imports

A WTO member may restrict imports of a product temporarily (take “safeguard” actions) if its domestic industry is injured or threatened with injury caused by a surge in imports. Here, the injury has to be serious. Safeguard measures were always available under GATT (Article 19). However, they were infrequently used, some governments preferring to protect their domestic industries through “grey area” measures — using bilateral negotiations outside GATT’s auspices, they persuaded exporting countries to restrain exports “voluntarily” or to agree to other means of sharing markets. Agreements of this kind were reached for a wide range of products: automobiles, steel, and semiconductors, for example.

The WTO agreement broke new ground. It prohibits “grey-area” measures, and it sets time limits (a “sunset clause”) on all safeguard actions. The agreement says members must not seek, take or maintain any voluntary export restraints, orderly marketing arrangements or any other similar measures on the export or the import side. The bilateral measures that were not modified to conform with the agreement were phased out at the end of 1998. Countries were allowed to keep one of these measures an extra year (until the end of 1999), but only the European Union — for restrictions on imports of cars from Japan — made use of this provision.

An import “surge” justifying safeguard action can be a real increase in imports (an absolute increase); or it can be an increase in the imports’ share of a shrinking market, even if the import quantity has not increased (relative increase).

Industries or companies may request safeguard action by their government. The WTO agreement sets out requirements for safeguard investigations by national authorities. The emphasis is on transparency and on following established rules and practices — avoiding arbitrary methods. The authorities conducting investigations have to announce publicly when hearings are to take place and provide other appropriate means for interested parties to present evidence. The evidence must include arguments on whether a measure is in the public interest.

The agreement sets out criteria for assessing whether “serious injury” is being caused or threatened, and the factors which must be considered in determining the impact of imports on the domestic industry. When imposed, a safeguard measure should be applied only to the extent necessary to prevent or remedy serious injury and to help the industry concerned to adjust. Where quantitative restrictions (quotas) are imposed, they normally should not reduce the quantities of imports below the annual average for the last three representative years for which statistics are available, unless clear justification is given that a different level is necessary to prevent or remedy serious injury.

In principle, safeguard measures cannot be targeted at imports from a particular country. However, the agreement does describe how quotas can be allocated among supplying countries, including in the exceptional circumstance where imports from certain countries have increased disproportionately quickly. A safeguard measure should not last more than four years, although this can be extended up to eight years, subject to a determination by competent national authorities that the measure is needed and that there is evidence the industry is adjusting. Measures imposed for more than a year must be progressively liberalized.

When a country restricts imports in order to safeguard its domestic producers, in principle it must give something in return. The agreement says the exporting country (or exporting countries) can seek compensation through consultations. If no agreement is reached the exporting country can retaliate by taking equivalent action — for instance, it can raise tariffs on exports from the country that is enforcing the safeguard measure. In some circumstances, the exporting country has to wait for three years after the safeguard measure was introduced before it can retaliate in this way — i.e. if the measure conforms with the provisions of the agreement and if it is taken as a result of an increase in the quantity of imports from the exporting country.

To some extent developing countries’ exports are shielded from safeguard actions. An importing country can only apply a safeguard measure to a product from a developing country if the developing country is supplying more than 3% of the imports of that product, or if developing country members with less than 3% import share collectively account for more than 9% of total imports of the product concerned.

The WTO’s Safeguards Committee oversees the operation of the agreement and is responsible for the surveillance of members’ commitments. Governments have to report each phase of a safeguard investigation and related decision-making, and the committee reviews these reports.

Safeguard measures

·         A WTO member may take a “safeguard” action (i.e., restrict imports of a product temporarily) to protect a specific domestic industry from an increase in imports of any product which is causing, or which is threatening to cause, serious injury to the industry.

·         Safeguard measures were always available under the GATT (Article XIX). However, they were infrequently used, and some governments preferred to protect their industries through “grey area” measures (“voluntary” export restraint arrangements on products such as cars, steel and semiconductors).

·         The WTO Safeguards Agreement broke new ground in prohibiting “grey area” measures and setting time limits (“sunset clause”) on all safeguard actions.

·         Nowadays, among WTO members, agricultural products are protected only by tariffs. All non-tariff barriers had to be eliminated or converted to tariffs as a result of the Uruguay Round (the conversion was known as “tariffication”). In some cases, the calculated equivalent tariffs — like the original measures that were tariffied — were too high to allow any real opportunity for imports. So a system of tariff-rate quotas was created to maintain existing import access levels, and to provide minimum access opportunities. This means lower tariffs within the quotas, and higher rates for quantities outside the quotas.

 

·         Pre-shipment Inspection

An exporter faces competition not only from the fellow exporters from his/her own country but also from other countries. He should formulate a proper quality strategy to gain a competitive edge over others in the market. The goods should be properly inspected to ensure that the quality of the export goods is maintained as desired by the buyer. Goods of poor quality spoil not only their own market but also bring bad name to the image of the country itself. It is, thus ,in the business interest of the exporter to send shipment of the right quality to the buyer. This would also facilitate effective penetration and sustenance in the export markets by improving the brand image of the goods. The Government of India had also recognized the need for effective pre-shipment inspection long back in 1963 itself when the Export (Quality Control and Inspection) Act, 1963 was enacted to provide for sound development of export trade through quality control and pre-shipment inspection.

·         Types of Pre-shipment Inspection

Pre-shipment inspection can be broadly classified into two categories as given below:

•             Voluntary Inspection

•             Compulsory Inspection

 

·         The primary responsibility for inspection of the goods rests with the exporter himself.

·         ESSENTIAL REQUISITES FOR EXPORT INSPECTION SYSTEM

·         An effective system for the inspection of quality of the export goods should provide the following:-

·         Quality Control &  Pre--shipment inspection

·         •         Testing Facilities

·         •         Procedural Details

·          

·         It is essential that the standards of the quality of various export products should be clearly laid down so that the same could form the basis for conducting pre-shipment inspection.

 

·         The inspection agencies should have adequate testing facilities for effective and successful implementation of any Quality Control and Pre-shipment inspection programme. Well equipped laboratory facilities thus, form the backbone of all quality control systems. Testing is carried out at different stages of processing, right from the receipt of raw material to the finished product stage. Besides, facilities are also necessary for individual commodity or groups of commodities at the level of pre-shipment inspection.

·         The practice of employing private companies to check shipment details such as price, quantity and quality of goods ordered overseas. The Agreement on PSI recognizes that principles of the GATT Agreement apply to such activities. 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 agreement recognizes that all basic principles and obligations of WTO agreement will be applicable in the activities of preshipment inspection agencies mandated by governments. These are primarily non-discrimination, transparency, and 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 exporting countries should not discriminate another nation in the application of domestic laws and regulations. As per agreement of WTO, there is also need of prompt publication of such laws and regulations and the provision of technical assistance where requested.

·         In the agreement there is also a provision of establishing an independent review procedure. This should be administered jointly by an organization representing PSI agencies and an organization representing exporters. The basic objective of establishing such kind of organization is to resolve disputes between an exporter and a PSI agency.

·         A transparent Pre-shipment inspection was thought to be a important agenda of WTO by Ministers on 20 September 1986. These ministers endorsed 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”.

·         In this ministerial conference it was  felt that there is need for developing countries along with developed countries to develop a transparent pre-shipment inspection system to verify the quality, quantity or price of imported goods.  They also felt that there is need among members to carry out such programme without giving rise to unnecessary delays or unequal treatment.  They also agreed that this inspection is by definition carried out on the territory of exporter Members.

In this Ministerial Conference there was also consensus among members to establish an agreed international framework of rights and obligations of both user Members and exporter Members. They also resolved that t the principles and obligations of GATT 1994 apply to those activities of pre-shipment inspection entities that are mandated by governments that are Members of the WTO. Further they elaborated that it is also equally significant to provide transparency of the operation of pre-shipment inspection entities and of laws and regulations relating to pre-shipment inspection.

They also felt that there is also need to speedy, effective and equitable resolution of disputes between exporters and pre-shipment inspection entities arising under this Agreement. Therefore major provisions in the agreement are:-

·         Article 1 of the agreement focuses on all pre-shipment 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.

·         Here in article 1 the term user Member has been used. User member has been defined “ a Member of which the government or any government body contracts for or mandates the use of pre-shipment inspection activities.

·         Article 1 of agreement also defines all activities that are involved in pre-shipment inspection. These 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.

·         Article 2 of the agreement discusses in details various obligations that are involved in case of user members. First obligation is Non- discrimination , it is obligatory on the part of user members that  pre-shipment inspection activities are carried out in a non-discriminatory manner, and 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 pre-shipment inspection entities contracted or mandated by them.

 

Article 2 also discusses in detail about the site of inspection, standards, transparency and protection of confidential information. As we are aware that in case of pre-shipment inspection these are essential requirement. Article provided that user Members shall ensure that all pre-shipment 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. This is explanation of site of inspection. Article also provided provision if inspection cannot be carried out on 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.

 

What are standards to be applicable in case of export inspection have also been discussed elaborately in agreement. It has been provided that all 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. Further it has been explained that in the absence of such standards, relevant international standards will apply.

 

Article also discuss and define the scope of transparency in pre-shipment inspection. There is need to User Members shall ensure that pre-shipment inspection activities are conducted in a transparent manner. It has further provided that for the purpose of transparency, pre-shipment inspection entities provide to the exporters a list of all the information which is necessary for the exporters to comply with inspection requirements. There is also need from the side of the pre-shipment inspection entities to provide the actual information when so requested by exporters. It has been provided that this information are reference to the laws and regulations of user Members relating to pre-shipment inspection activities, procedures and criteria used for inspection and for price and currency exchange-rate verification purposes, the exporters’ rights vis-à-vis the inspection entities, and the appeals procedures set up under paragraph 21.

 

Further it has also been elaborated that 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 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.

 

There is also need from the side of user members all information referred to in paragraph 6 is made available to exporters in a convenient manner, and that the pre-shipment inspection offices maintained by pre-shipment inspection entities serve as information points where this information is available. There is also obligation from the side of the user members to publish promptly all applicable laws and regulations relating to pre-shipment inspection activities in such a manner as to enable other governments and traders to become acquainted with them.

 

Article 2 also provides adequate provision for protection of confidential business information. All information received in the course of the pre-shipment inspection should be treated as business confidential by User Members. They should also ensure that pre-shipment inspection entities to the extent that such information is not already published and further generally available to third parties, or otherwise in the public domain. User Members shall ensure that pre-shipment inspection entities maintain procedures to this end.

 

There is also further discussed that all User Members shall provide information to Members on request on the measures they are taking to give effect to paragraph 9.  There is also discussion that by disclosing any confidential information, members would not jeopardize the effectiveness of the pre-shipment inspection programmes or would prejudice the legitimate commercial interest of particular enterprises, public or private.

 

There is also provision to ensure that pre-shipment inspection entities do not divulge confidential business information to any third party, except that pre-shipment inspection entities may share this information with the government entities that have contracted or mandated them. It has been further confirmed through agreement that User Members WOULD ensure that confidential business information which they received from pre-shipment inspection entities contracted or mandated by them is adequately safeguarded. However, Pre-shipment inspection entities are allowed to 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.

 

Article also discussed exception in case of information required by exporter in pre-shipment inspection. These are as follows:-

·         Exporter need not to provide information relating to manufacturing data related to patented, licensed or undisclosed processes, or to processes for which a patent is pending;

·         Exporter need not to provide information relating to unpublished technical data which has nothing to do to with compliance with technical regulations or standards,

·         Exporter need not to provide information relating  internal pricing, including manufacturing costs;

·         Exporter need not to provide information relating   profit levels;

·         Exporter need not to provide information relating  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.

·         Exporter need not to provide information relating the information referred to in paragraph 12, which pre-shipment inspection entities shall not otherwise request, may be released voluntarily by the exporter to illustrate a specific case.

 

Further there is also clarification that User Members should ensure that pre-shipment inspection entities should have provisions on protection of confidential business information in paragraphs 9 through 13. There is need to maintain procedures to avoid conflicts of interest.

 

There is an also elaborate provision to avoid delays in pre-shipment inspection. There is need from the side of User Members to ensure that pre-shipment inspection entities avoid unreasonable delays in inspection of shipments. It has been provided that once a pre- shipment inspection entity and an exporter agree on an inspection date; the pre-shipment inspection entity conducts the inspection on that date. If due to some unavoidable factors then date may be rescheduled on a mutually agreed basis between the exporter and the pre-shipment inspection entity, or the pre-shipment inspection entity is prevented from doing so by the exporter or by force majeure. There is need that following receipts of the final documents and after the completion of the inspection pre-shipment inspection entities, within five working days, either issues 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, pre-shipment 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. There is also need to ensure by the User Members that pre-shipment 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 should also confirm that a price or currency exchange rate that has been accepted by a pre-shipment inspection entity on the basis of such preliminary verification is not withdrawn, providing the goods conform to the import documentation and/or import licence. There is also need to ensure that, after a preliminary verification has taken place, pre-shipment 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.

In order to avoid delays in payment there is provision that pre-shipment inspection entities should send to exporters or to designated representatives of the exporters a Clean Report of Findings as expeditiously as possible.

 

In the event of a clerical error in the Clean Report of Findings there is provision that pre-shipment inspection entities should correct the error and forward the corrected information to the appropriate parties as expeditiously as possible.

 

There are also detailed guidelines for price verification in order to prevent over- and under-invoicing and fraud. There is need by pre-shipment inspection entities that in case of price verification there should be an appropriate allowances for the terms of the sales contract and generally applicable adjusting factors pertaining to the transaction; these factors should 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 should also include certain elements relating to the exporter’s price, such as the contractual relationship between the exporter and importer.

 

 Article 2 also discuss and provide User Members an opportunity to make appeal in case there are issues in pre-shipment inspection procedures. This article also explains the complete appeal procedure. As per provisions of article-2 there is need from the side of User Members to ensure that agencies responsible for pre-shipment inspection should establish procedures to receive consider and render decisions concerning grievances raised by exporters. There is also need to create a system by which all information concerning such procedures is made available to exporters in accordance with the provisions of article 2. Further following guidelines have been enumerated in article 2 for User Members to ensure that the procedures are developed and maintained in accordance with the rules:

·         Agencies involved in pre-shipment inspection should designate one or more officials who shall be available during normal business hours in each city or port in which they maintain a pre-shipment inspection administrative office. The main objective of this  administrative office is to receive, consider and render decisions on exporters’ appeals or grievances;

·         There is also need that all concerned exporters should provide to the designated officer all facts which are concerned to specific transaction in question, the nature of grievance and a suggested solution. These should be provided in writing.

·         There is need that designated officer should consider the appeal of exporters sympathically and also there is need to render a decision on grievances as soon as possible after receipt of the documentation referred to in article 2.

 

There is also a clause of derogation. By derogation means that user member should 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.

 

Article 3 discusses the scope of Non-discrimination as obligations of Exporter Members. There is need from the side of exporter members that rules and regulations in case of pre-shipment inspection should be applied in a non-discriminatory manner and there should not be any un-equal treatment to any member.

 

Article 3 also discusses the scope of transparency in pre- shipment inspection activities. There is need for Exporter Members to provide all information relating to exports in transparent manner. They should publish promptly all applicable laws and regulations relating to pre-shipment inspection activities in such a manner as to enable other governments and traders to become acquainted with them.

 

Article 3 also discusses the scope of providing technical assistance to user members. If any member is in need of technical assistance then it can be requested to export member. The technical assistance should be directed towards the achievement of the agreement on mutually agreed terms.

 

There is also provision of independent review procedures. Article 4 discusses and also encourages pre-shipment inspection agencies of exporters to mutually resolve their disputes.  There is need from the side of members to  take such reasonable measures to ensure that the following procedures are established and maintained to this end:

·         There is need that there is need to establish an independent review procedures. It should be administered by an independent agency  en constituted jointly by an organization representing pre-shipment inspection agency and an organization representing exporters for the purposes of this Agreement

·         There is need that the independent agency established for an independent review should also establish a list of experts. There should also be procedure to select experts. Among experts, it has been suggested that a section of members nominated by an organization representing pre-shipment agencies, there is also need to include a section of members nominated by an organization representing exporters. There is also need to represent to nominate a section of independent trade. These should be nominated by the independent agencies.

·         There is need to identify and select experts on the basis of geographical distribution to enable any disputes raised under these procedures to be dealt with expeditiously. This list should be drawn up within two months of the entry into force of the WTO Agreement and should be updated annually. The list should be publicly available. It should be notified to the Secretariat and circulated to all Members;

 

Article 5 discusses the scope of notification of all laws and regulations. There is need that members should submit to the Secretariat copies of the laws and regulations. There is also need to submit as well as copies of any other laws and regulations relating to pre-shipment inspection, when the WTO agreement enters into force with respect to the member concerned. In article 5, there is also provision that if there is any changes in the laws and regulations relating to pre-shipment inspection, it should only be enforced before such changes have been officially published. It should be notified to the Secretariat immediately after their publication. It is the duty that the Secretariat should inform the Members of the availability of this information.

 

Article 6 discusses scope review of these laws, rules and regulations. There is need that at the end of the second year from the date into force of the WTO Agreement and every three thereafter, the Ministerial Conference should 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 discussed the scope of consultation among members. There is need among members to consult with each others upon request with respect to any matter affecting the operation of this Agreement. In such cases, the provisions of Article XXII of GATT 1994, as elaborated and applied by the Dispute Settlement Understanding, are applicable to this Agreement.

Article 8 covers the scope of dispute settlement among members arising due in case of pre-shipment inspection. It has been provided that any disputes among Members regarding the operation of this Agreement shall be subject to the provisions of Article XXIII of GATT 1994, as elaborated and applied by the Dispute Settlement Understanding.

Article 9 concluded with some specific final provisions relating for necessary actions and measures for the implementation of the present agreement. There is also need to ensure those members’ laws and regulations should not be contrary to the provisions of pre-shipment agreement.

 

 

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