Cambodia WTO Preshipment Inspection, 2008

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Cambodia WTO Preshipment Inspection, 2008

  1. 1. Report on Current State of Compliance by Cambodia to The WTO Agreement on Preshipment Inspection November 2008 Prepared by Dr. Cheaseth Seng Official in Cabinet of H.E. Deputy Prime Minister, Minister in charge of Council of Ministers Kingdom of Cambodia Associate Dean, Faculty of Business and Economics Pannasatra University of Cambodia
  2. 2. Table of Content Page 1. Introduction 2 2. Preshipment Inspection and Cambodia Customs Administration 2 3. Situation Analysis 3 4. Gap Analysis 7 5. Conclusion 10 6. Appendix 11 6.1 Prakas Regulation on PSI activities 11 6.2 WTO Agreement on Preshipment Inspection 23 Table 3.1: Summary of Headings and Indications of Fulfilment 8 Table 4.1 Gap Analysis on Conformance to API 8 2
  3. 3. Analysis Report on Cambodia compliance with WTO Agreement on Preshipment Inspection 1. Introduction This report aims to bring to knowledge the current state of compliance that Cambodia has to the WTO Agreement on Preshipment Inspection (API). The report will conduct a comprehensive legal analysis on Cambodia law on Customs, including Prakas (regulation) and API. Similarities and differences will be identified and, in turn, the level of compliance is determined. The report also recommends change(s) if necessary to make Cambodia law on Customs/Prakas to conform to API. In other words, the report conducts situation and gap analysis on the matters. 2. Preshipment Inspection and Cambodia Customs Administration Preshipment Inspection (PSI) is a service that carries out inspection of goods at the country of origin before shipment. The inspection includes but not limit to price verification, quantity and quality check, tariff classification and Customs valuation and import eligibility. Historically PSI was used for foreign exchange control purposes and was employed by central bank of the user country instead of Customs administration or government1. There are only a handful of PSI providers in the industry. The industry leaders are Société Générale de Surveillance (SGS) of Geneva, Bureau Veritas Group (BIVAC) of Paris, COTECNA of Geneva, Intertek and Inspectorate of the US. Cambodia Customs agency, the Customs and Excise Department (CED) is a department of the Ministry of Economy and Finance (MEF). This ministerial structure required any outsourcing to be contracted by the MEF instead of CED. The MEF, on half of the Royal Government of Cambodia (RGC) has contracted PSI providers to provide quality and quantity check, determine country of origin, Customs classification and valuations, assessment of duties and taxes and import eligibility2. The first contract was awarded to SGS in 2000 and a recently signed contract is given to BIVAC3. According to Naron (2003) and Köhler (2002) PSI services are used as an instrumental part of CED Customs’ operations and its reform and modernisation processes. PSI reports are used as base for Customs duty assessment and streamlining trade facilitation4. Moreover, Article 4 of Prakas No.599 (discuss in detail below) entrusts the CED the responsibility to 1 Anson. J., O. Cadot., and M. Olarreaga (2006), ‘Tariff Evasion and Customs Corruption: Does Pre-shipment Inspection Help?’, Contributions to Economic Analysis and Policy, Vol. 5, No. 1, Article 33 (Electronic Journal) 2 BIVAC Contry Datasheet: http://www.bureauveritas.com/wps/wcm/connect/f1c2a7004b5e3e6b858b8793f26b1a3d/CAMBODIA+Datasheet+ Rev2.pdf?MOD=AJPERES&CACHEID=f1c2a7004b5e3e6b858b8793f26b1a3d 3 Naron. H. C., (2003), ‘Trade liberalisation: a Cambodian perspective’, Asia Pacific School of Economics and Government Working Papers on World Trade Organisation; CED website: http 4 Naron. H. C., (2003), ‘Trade liberalisation: a Cambodian perspective’, Asia Pacific School of Economics and Government Working Papers on World Trade Organisation; Köhler (2002), ‘Cambodia- Letter of Intent, Supplementary Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding’: available on http://www.imf.org/External/NP/LOI/2002/khm/01/index.htm 3
  4. 4. administer the implementation and operations of PSI contracts. Therefore, CED is the body responsible for PSI operation and in turn makes the API directly affect the CED. 3. Situation Analysis The Cambodia law on Customs does not have any provision deals with PSI5. The law provides the MEF the power to make Prakas on any matters that not included in the law that affecting Customs operations; ranging from reporting and temporary admission to PSI. A Prakas is issued for every PSI contract. The Prakas details the administrative and operational arrangements of PSI activities between MEF/CED and PSI providers. For the purpose of this report, Prakas No. 599, which dated on 31 August 2000, is used. The situation analysis is carried out according World Bank’s guidelines on WTO Trade Facilitation Negotiations Support Guide6. The API came into force on the 20th September 1986 and addresses the international trade problems associated with the use PSI7. API is divided into two main sections with the first deals with user Member obligations and the second deals with the obligations of the Exporting Member. A user Member is a WTO Member that employs a private company to conduct PSI services. In our case, Cambodia is the user Member. The Exporting Member is the Member that the good exported from. Since the focus is on Cambodia, the situation analysis is conducted on whether Cambodia and the CED have conformed to user member obligations. The obligations of the PSI user Member are listed in Article 2 of the Agreement and comprise of 10 headings and 22 provisions. The situation analysis is carried on heading by heading basis as follow. 1. Government Requirements This heading required the user government to mandate PSI activities and administrative arrangements into laws or regulations and with regarding to paragraph 4 of Article III of GATT 1994. The Kingdom of Cambodia is fully conformed to this heading’s requirement. Prakas No.599 and Prakas March06 that issued by the MEF/CED to regulate PSI activities and administrative arrangements with SGS and BIVCA respectively act as the evidence of this conformance. 2. Site of Inspection This heading determines the place that PSI activities can be carried out in the country of origin. It directed that the inspection activities, including the issuance of a Clean Report of Findings (ROF) and other reports, are to be performed in a Customs territory of the country of origin or in a Customs territory that the country of origin’s Customs, the PSI providers and the exporters agree upon. These requirements are partially conformed to by Cambodia. The Prakas provides where preshipment inspection activities can place in provision 5.5 as follow: The Pre-shipment Inspection may be performed at the seller’s premises or such other appropriate place prior to the shipment of the Goods to the Kingdom of Cambodia. The Inspection Company shall be entitled to re-inspect Goods at any time during the course of 5 Cambodia Law on Customs, available on: http://www.customs.gov.kh/laws_files/CED%20laws%20En.pdf 6 World Bank (2005), ‘WTO Trade Facilitation Negotiations Support Guide’, March 2005, Prepared by Centre for Customs and Excise Studies, University of Canberra 7 Agreement on Preshipment Inspection, available on: http://www.wto.int/english/docs_e/legal_e/21-psi_e.htm 4
  5. 5. supply or delivery, prior to the shipment of the Goods to the Kingdom of Cambodia and to seal containers as may be deemed necessary and feasible by the Inspection Company8. The above provision provides PSI providers and the exporters the power to decide where PIS activities can take place. The place that PSI providers and the exporters agree upon may not be a Customs territory. Thus, provision 5.5 is different from API’s requirement as it omitted that the specific requirement that inspection activities shall take place in Customs territory or a place that Customs agreed upon. Therefore, only partial conformance is made for this heading. 3. Standards This heading concerns with standards that used to determine the quality and quantity of the goods being inspected. The standards should be determined by both the exporters and importers and in the absence of such agreement relevant, international standards will be used. The requirements of this heading are partially met by Cambodia. Prakas No. 599 does not include any provision to deal with inspection standards. The contractual agreement between MEF/CED and BIVAC- Country Data Sheet does not include any inspection standard guidelines also9. The exclusion of this provision is critical since MEF/CED required PSI providers to carry out quality and quantity check on the goods to be imported. Moreover, it provides PSI providers the discretion to decide on applicable standards, which could be different from the standards required by Cambodia quality control agency (CamControl). In addition, since Cambodia is a member of International Standard Organisation (ISO) any discrepancy in the standards used may cause problem regard to Cambodia’s ISO agreements and obligations and a reinspection of the goods may require. Nevertheless, an implicit agreement on the standards of goods may be indicated in the sell contract between the exporter and importer. Therefore, a full detail clarification of the standards used for PSI activities is needed. 4. Transparency This heading is about transparency matters of PSI activities. It dictates obligations to the user member and PSI providers. The obligations of PSI providers are (1) on request, provide laws and regulations regarding to PSI to the exporters, (2) provide procedures and criteria used for PSI and for price and current exchange-rate verification, (3) provide information on exporters’ rights vis-á-vis the PSI providers, and (4) appeal procedures. The user member on the other hand needs to ensure PSI providers provide the information listed above to exporters in a timely manner and shall promptly publish PSI regulations in a way that other governments and the traders become acquainted with them. This heading’s requirements are only partially fulfilled by Cambodia. The Prakas deals mainly on the obligations of the exporter/importer side of the PSI activities. It provides extended details on what exporter/importer should comply with (Article 4 and 5) but no provision about to regulate PSI providers regarding to providing information to exporters. On the user member’s obligations, the MEF/CED has fulfilled its obligation of promptly publish its PSI requirements. 8 Prakas No.599 issued 2000, see appendix 6.1 9 See footnote 2 5
  6. 6. The Prakas and other discussions on PSI are presented on CED website and in many other trade facilitation documents10. 5. Protection of Confidential Business Information This heading focuses on regulating PSI providers regarding appropriate measures put in place to safeguard confidential business information that provided by the exporters/importers. The requirements in this heading are directed to user member. The user member is obligated to (1) ensure that PSI providers put in place necessary measures to safeguard confidential business information, (2) communicate the measures put in place by PSI provider, to extent that it is prejudice PSI provider’s business and PSI activities and other companies, to the other WTO members, (3) safeguard confidential business information provided by PSI provider, and (4) ensuring that PSI providers do not request exporters to provide the following information: (a) manufacturing of data related to patented, licensed or undisclosed processes, or to processes for which a paten is pending; (b) unplublish technical data other than data necessary to demonstrate compliance with technical regulations and 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 inspection in question. In such cases, the entity shall only request the information necessary for this purpose11. The full extent of this heading’s requirements is not been met by Cambodia. The Prakas on PSI does not mention any provision protecting confidential business information or how MEF/CED handles the information. As mention above, the Prakas is mainly concerned on the traders’ side and according provision 5.4 of Article 5 the traders need to provide considerable amount of information to PSI providers without any protection guaranteed. 6. Conflict of Interest This heading is an additional integrity provision, which deals with conflict of interest between PSI providers and its associated entities that may have detrimental effects on importers/exporters. The heading thus provided that the PSI providers shall maintain procedures to avoid conflict of interest regarding to the following situations: (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 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 government entities contracting or mandating the inspections; 10 Naron. H. C., (2003), ‘Trade liberalisation: a Cambodian perspective’, Asia Pacific School of Economics and Government Working Papers on World Trade Organisation; CED website: http; Köhler (2002), ‘Cambodia- Letter of Intent, Supplementary Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding’: available on http://www.imf.org/External/NP/LOI/2002/khm/01/index.htm 11 WTO Agreement on Preshipment Inspection: see Appendix 6.2 6
  7. 7. (c) with divisions of preshipment inspection entities engaged in activities other than those required to carry out the inspection process. The requirements of this heading are also not met by the Prakas. There is any provision included in the Prakas to deal with conflict of interest between PSI providers and their associated companies. 7. Delays This heading required the user member to ensure the following: 1) PSI provider shall avoid unreasonable delays in inspection of shipments; 2) PSI provider shall carry out inspection on the agreed date unless reschedule on mutually agreed basis or PSI providers are prevented from doing so by the exporter or by force majeure; 3) PSI providers need to issue a clean report of finding (CRF) or a written explanation specifying the reasons for non-issuance of such report within five working days after receipted of final documents and inspection; 4) PSI provider needs to carry out price and current exchange of the goods based on the contract between importers and exporters and pro forma invoice when requested by exporters; and the accepted price and exchange rate will be withdrawn after completion of inspections; 5) In event of critical error in the CRF, the PSI provider is required to correct the error and forward the correct information to the appropriate parties as soon as possible. Provision 4.2 and 4.5 of Prakas No. 599 provided upon receiving information and documentations from importer in Cambodia, the PSI providers’ affiliate in Cambodia is required to register inspection order and issue a register import advice (RIA) to the importer within 24 hours. The RIA is than send to the PSI providers’ affiliate at the country of export and the affiliate is required to immediately contact the exporter. Provision 5.1 required the exporter to contact PSI providers within three working days and upon goods available for inspection, the PSI providers will carry out urgent inspection without delay. These provisions fulfilled requirements 1) and 2). Despite of these fulfilments, the Prakas does not mention the urgency requirement in issuing of CRF. Nevertheless, provision 6.1 required after satisfactory completion of the inspection and other matters, PSI providers need to issue CRF to the importer. This provides in an effect meeting requirement 3). There is any provision to deal with requirements 4) and 5); however it can be reasonably suggest that the preliminary price verification and correction of errors would be carried when required. Therefore, Prakas No. 599 fulfils the requirements under this heading, but clarifications are needed regarding requirement 3) to 5). 8. Price Verification 7
  8. 8. This heading imposes obligation to the user member to provide guidelines for PSI providers in conducting price verification. It directed that the PSI providers: shall only reject a contract price agreed between an exporter and an importer if they can demonstrate that their findings of unsatisfactory price are based on a verification process which is in conformity with the criteria se out in subparagraphs (b) through (e) [of this heading]. Paragraphs (b) to (e) provide detail guidelines for reasonable price verification process, which required PSI providers to consider factors such economic, country and markets into consideration. The above obligations are not met by Cambodia. The MEF/CED Prakas on PSI only include price verification as one of the tasks set forth to the PSI providers but not detail of how price verification should be conducted. In other words no detail guidelines like those provided in the heading. This opens to the PSI providers’ interpretation of the methods to be employed. Problems of inconsistencies in price verification may arise as the result and thus reducing traders’ confidence with PSI services and hindering trade facilitation. Casella (1989) provided there many complain and disputes against PSI providers on the matter of arbitrarily adjust and reject traders’ prices12. 9. Appeals Procedures The heading required the user member to mandate a regulation that requires the PSI providers to have dispute resolution procedures to hear any dispute arises associated with PSI activities. The PSI providers shall have an office, which open during normal business hours, to consider and render decisions on exporters’ appeals or grievances. The PSI providers need to solve the disputes as soon as possible. The requirements of this heading are fully met by Cambodia. Article 8 ‘Disputes’ and 9 ‘Working Committee’ of the Prakas details dispute resolution procedures. It provided that importers have the rights to question or dispute the opinion of the PSI providers relating to importer’s goods by making a request in writing to PSI provider affiliate in Cambodia. The PSI providers are required to solve the matter within a week. If the importer does not satisfy with PSI providers’ decision then appeal can be made to a government established dispute resolution panel- the Working Committee. 10. Derogation This heading required the user member to list, exhaustively, goods, shipments that exempted from PSI. Moreover, minimum value and any exceptional circumstances that lead to exemption will need to be disclosed as well. These requirements are met by the Prakas under Article 3. Table 3.1 provides a summary of Cambodia current state of conformance to API. Table 3.1 Summary of Headings and Indications of Fulfilment 12 Casella. M., (1989), ‘Pre-shipment Inspection Negotiations- GATT Update’, Business America, Oct. 1989, Available on: http://findarticles.com/p/articles/mi_m1052/is_/ai_8043163, Accessed on 25/10/2008 8
  9. 9. API Headings Degree of Conformance Government Requirements Full Site of Inspection Partial Standards Partial Transparency None Protection of Confidential Business None Information Conflict of Interest None Delays Full Price Verification None Appeals Procedures Full Derogation Full 4. Gap Analysis This gap analysis is prepared according to World Bank’s guidelines on WTO Trade Facilitation Negotiations Support Guide. Table 4.1 Gap Analysis on Conformance to API Proposal being Examined: Conformance to API Element of Existing National Implementation Issues to be Considered Legislation/Process Benefits The full conformance to API provides several benefits to the traders as well as the user government. The traders receive benefits in terms of reducing discrepancies of price verification and quality verifications, confidential business information is protected, and no conflict of interests that lead to detrimental to their businesses. The government would benefit in term of having PSI activities fully under monitor of Customs officials, reduce number of complain and disputes and improve integrity of PSI providers in carrying out their activities. The government also get benefit in term of improving trade facilitation, which achieved by reducing the needs for reinspection of quality standards and price verification. Benefits also receive in term of improve traders’ confident with PSI services and thus boost trade to the country Legal framework In order to fully conform with API, Prakas No. 599 needs to be amended to include the followings: 1. Include the requirement that PSI activities must take place in a Customs territory or a territory that agreed by Customs. 2. Include clear guidelines on standards used for quality and quantity verification. Moreover, a clearly stated on quality agreed by importers and exporters should be added. 9
  10. 10. 3. Include a transparency provision(s) that gives the effect of API’s Transparency heading. 4. Include a provision or provisions to deal with protecting confidential business information. A provision(s) that gives the effect of API’s Protection of confidential business information provisions would be sufficed. 5. Include a provision or provisions that give the effect of API’s conflict of interest provisions. 6. Include a provision or provisions to deal with price verification matters. 7. Lastly, amend provisions 4.2, 4.5 and 6.1 to clearly state the requirements of API’s Delay provisions. Existing commitments This report is prepared base on Prakas No.599 that issued in 2000. A recent Prakas, which issued in 2006, has similar heading provisions to the Prakas No. 599. Notice that the annex to this recent Prakas is not available through publicly mean. Therefore, on the matter of existing commitment to update or amend Prakas No. 599, the report suggests that there isn’t any work in progress on it. Administrative policy and procedure Once the Prakas is amended, some administrative policies and procedures change are required. First, there will be greater involvement between CED, PSI providers and Importers in selecting place to conduct PSI activities. Second, the MEF/CED needs to devise and enforce policies that ensure that PSI providers provide necessary information to the importers on a timely manner. Third, the MEF/ CED needs to cooperate with PSI providers in placing measures to ensure confidential business information is safeguarded. Fourth, conflict of interest measures between PSI providers and its associates need to be determined and regulated. Lastly, price verification guidelines need to be developed and abided by PSI providers. Government coordination The move to full conformance with API required little coordination with other ministries or agency. The only agency concerned is the quality inspection agency (Comcontrol). Thus, Camcontrol needs to be on board with the setting of quality inspection standards. Resource requirements Some financial supports may be required to implement the change; however it is not a significant matter. The MEF/CED can make the legal amendments required and publish the amended Prakas on its website as it currently has and forward to Ministry of Commerce to circulate to importers/exporters. The administrative and policy 10
  11. 11. change required cooperation with PSI providers, thus sharing resources may be warranted. Timeframe for implementation The MEF/CED and the PSI providers need to work together in setting up a timeframe to successfully implement the change. For the tasks listed above a reasonable timeframe of 2 years is suggested. The gap analysis above indicated that the MEF/CED needs to work in cooperation with the contracted PSI providers to fully compliance with WTO Agreement on Preshipment Inspection (API). Changes in both legal framework and administrative policy and procedure are essential to fulfil API’s requirements. 5. Conclusion Preshipment inspection is an instrumental part of Cambodia Customs operations. The CED uses reports provided by PSI providers to assess dutiable value and for other purposes. In its current state, the regulation on PSI activities-Prakas No.599, fulfilled four API’s essential requirements, namely Government Requirements, Delays, Appeals Procedures and Derogation. In addition, the Prakas is partially fulfilled API’s requirements on Site inspection and Standards. Nevertheless, the Prakas left out some important requirements. These deficiencies can be fulfilled by working together with the contracted PSI providers. 6. Appendix 11
  12. 12. 6.1 Prakas Regulation on PSI Draft For Review – V06/03/06 KINGDOM OF CAMBODIA Nation-Religion-King Ministry of Economy and Finance No. ____ Phnom Penh, ___ March 2006 PRAKAS On the Implementation of the Pre-Shipment Inspection Service Senior Minister, Minister of Economy and Finance - Having seen the Constitution of the Kingdom of Cambodia; - Having seen Royal Decree NK/RKT/1198/69 dated 25 November 1998 on the appointment of the Prime Minister of the Kingdom of Cambodia; - Having seen Royal Decree NK/RKT/1198/72 dated 30 November 1998 on the establishment of the Royal Government of the Kingdom of Cambodia; - Having seen the Law on the establishment and Function of the Council of Ministers which was promulgated by Royal Kram No. 02 NS.94 dated 20 July 1994; - Having seen the Law on the establishment of the Ministry of Economy and Finance which was promulgated by Royal Kram NS. RKM. 0196/18 dated 24 January 1996; - Having seen the Agreement between the Royal Government of Cambodia and BIVAC dated 28 February 2006 on the Pre-Shipment Inspection (PSI); and - Having referred to the necessity of the Ministry of Economy and Finance. HAS DECIDED Article 1: Promulgate the Regulation on the Implementation of the Pre-Shipment Inspection Service which appears as Appendix to this Prakas. Article 2: The Regulation, which is the Appendix to this Prakas, is the guidelines for the implementation of the Agreement between the Royal Government of Cambodia and BIVAC on Pre-Shipment Inspection dated 28 February 2006. Article 3: Companies or persons who fail to apply for Pre-Shipment Inspection of goods, except the exempt goods as referred to in Article 3 of Chapter 2 of the Regulation, and have transported the goods into the Customs territory of the Kingdom of Cambodia will be imposed a penalty in the amount of 7% of the goods CIF value. In the case of necessity, external assistance might be required for customs clearance of goods which circumvented PSI. Article 4: Delegate of the Royal Government in charge of Customs and Excise Department, Secretary General, Director of Cabinet, Directors of relevant Departments of the Ministry of Economy and Finance, must effectively implement this Prakas from the date of signature. Senior Minister 12
  13. 13. Minister of Economy and Finance (signature and seal) KEAT CHHON cc: - The Council of Ministers - Cabinet of the Prime Minister Office - General Secretariat of the Parliament - Ministry of Interior - Ministry of Commerce - The Council for the Development of Cambodia - Municipal and provincial authorities - Phnom Penh Chamber of Commerce - BIVAC Liaison Office in Cambodia - Documentation Unofficial Translation KINGDOM OF CAMBODIA Nation-Religion-King Ministry of Economy and Finance No. 599 SHV.PRK Phnom Penh, 31 August 2000 PRAKAS On the Implementation of the Pre-Shipment Inspection Service O t n Senior Minister, Minister of Economy and Finance - Having seen the Constitution of the Kingdom of Cambodia; - Having seen Royal Decree NK/RKT/1198/69 dated 25 November 1998 on the appointment of the Prime Minister of the Kingdom of Cambodia; - Having seen Royal Decree NK/RKT/1198/72 dated 30 November 1998 on the establishment of the Royal Government of the Kingdom of Cambodia; - Having seen the Law on the establishment and Function of the Council of Ministers which was promulgated by Royal Kram No. 02 NS.94 dated 20 July 1994; - Having seen the Law on the establishment of the Ministry of Economy and Finance which was promulgated by Royal Kram NS. RKM. 0196/18 dated 24 January 1996; - Having seen the Agreement between the Royal Government of Cambodia and SGS dated 14 August 2000 on the Pre-Shipment Inspection (PSI); - Having referred to the necessity of the Ministry of Economy and Finance. HAS DECIDED 13
  14. 14. Article 1: Promulgate the Regulation on the Implementation of the Pre-Shipment Inspection Service which appears as Appendix to this Prakas. Article 2: The Regulation, which is the Appendix to this Prakas, is the guidelines for the implementation of the Agreement between the Royal Government of Cambodia and SGS on Pre-Shipment Inspection dated 14 August 2000. Article 3: Companies or persons who fail to apply for Pre-Shipment Inspection of goods, except the exempt goods as referred to in Article 3 of Chapter 2 of the Regulation, and have transported the goods into the Customs territory of the Kingdom of Cambodia will be imposed by a penalty in the amount of 7% of the goods CIF value. In the case of necessity, external assistance might be required for customs clearance of goods circumvented PSI. Article 4: Delegate of the Royal Government in charge of Customs and Excise, Secretary General, Director of Cabinet, Directors of relevant Departments of the Ministry of Economy and Finance, must effectively implement this Prakas from the date of signature. Senior Minister Minister of Economy and Finance (signature and seal) KEAT CHHON cc: - The Council of Ministers - Cabinet of the Prime Minister Office - General Secretariat of the Parliament - Ministry of Interior - Ministry of Commerce - The Council for the Development of Cambodia - Municipal and provincial authorities - Phnom Penh Chamber of Commerce - SGS Liaison Office in Cambodia - Documentation KINGDOM OF CAMBODIA Nation Religion King Annex to the Prakas of the Ministry of Economy and Finance No 599 dated 31 August 2000. REGULATION On the implementation of Pre-shipment Inspection Services This regulation is made under the authority of the Ministry of Economy and Finance to implement the procedures for pre-shipment inspection of goods imported into the Kingdom of Cambodia. 14
  15. 15. INTERPRETATION ARTICLE 1 – DEFINITIONS 1.1 Bureau of Customs means the Bureau of Customs for the Kingdom of Cambodia. 1.2 Discrepancy Report means a report issued by the Inspection Company whenever a Pre-shipment Inspection indicates the existence of any unrectified discrepancies between the actual quantity or quality or both of the Goods and the Importers specifications. 1.3 Customs Declaration means the import entry form completed by the importer based on the information contained in the ROF. 1.4 Exempt Goods means the goods referred to in Article 3 (3.1). 1.5 Goods means goods and related services (other than exempt goods) which are proposed to be imported into the Kingdom of Cambodia and where the value of the shipment is FOB United States Dollars Four Thousand (FOB $US4000.00) or greater and includes partial shipments of goods and associated services with a lesser value but where the aggregate value of all such partial shipment is FOB United State Dollars Four Thousand (FOB $US 4000.00) or greater. 1.6 Government means the Royal Government of the Kingdom of Cambodia. 1.7 Fees The fees for the provision of PSI Services are: (a) 0.80% ad-valorem of the FOB value of the Goods inspected as declared in the exporter’s final or pro-forma invoice and indicated in the Reports of Findings, applicable for all Goods with the exception of bulk petroleum products. (b) USD 0.30 per metric tone applicable for bulk petroleum products only inspected as declared in the exporter’s final or pro-forma invoice and indicated in the Reports of Findings. (c) Applicable for both (a) and (b) a minimum fee per intervention of USD210.00 shall be applied in all cases where the ad-valorem rate or the case of (b) the tonnage rate would produce lesser than amount. SGS shall be entitled to its fees regardless of whether, after an inspection of the Goods, the exporter or importer does not provide the information of documents necessary for the issuance of a ROF or, for any reason, does not process with the shipment of the Goods. 1.8 Importer Specification means the specifications or, in the absence of specifications, the description of the Goods, which have been communicated to the Inspection Company by the importer as set out in Article 5.3 1.9 Inspection Company means the company, which has the duty to execute an agreement with the Government granting such company the right to conduct pre- shipment inspection services on behalf of the Royal Government of Cambodia. 15
  16. 16. 1.10 Inspection Company Liaison Office means the liaison office established in the Kingdom of Cambodia by the Inspection Company to co-ordinate Pre-shipment Inspections. 1.11 Ministry of Commerce means the Ministry of Commerce of the Government. 1.12 Ministry of Economy and Finance means the Ministry of Economy and Finance of the Government. 1.13 Pre-shipment Inspection means the inspection on quantity and quality of Goods and related activities to be performed by the Inspection Company. 1.14 Price Verification means a verification of the price of the Goods in order to determine: (a) Whether the amount invoiced by a seller in respect of those Goods corresponds with prevailing export price for Goods in the country of supply or, where applicable, international market prices, and if these prices do not correspond, the extent of the variation. (b) The value for duty purposes. 1.15 RIA and Registered Import Advice means the confirmation document which is issued by the Inspection Company Liaison Office to the importer in connection with the application by the importer for Pre-shipment Inspection. 1.16 ROF means the report of findings containing the result of the Pre-shipment Inspection issued by the Inspection Company whenever the Pre-shipment Inspection indicates: (a) that there are no discrepancies between the Goods and the Importer Specification, or (b) any previously identified material discrepancies between Goods and Importer Specifications have been confirmed as acceptable by the importer provided that 1.17 Security Label means the label affixed to one copy of the seller’s final settlement invoice by the Inspection Company in respect of Goods for which an ROF is to be issued which confirms that the Goods have been inspected. 1.18 Tariff Nomenclature means the Tariff Nomenclature of the Kingdom of Cambodia. 1.19 Total Value means the total contracted value of Goods. 1.20 References to a person include a body corporate, partnership or other legal entity. 1.21 References to Articles are references to Articles of this regulation. 1.22 Headings are inserted for convenience and shall not affect the interpretation of Regulation. 16
  17. 17. the effect of any material discrepancy is limited to incorrect classification of the Goods (as per Tariff Nomenclature) the ROF shall nevertheless be issued. SCOPE OF PRE-SHIPMENT INSPECTION ARTICLE 2 – GOODS SUBJECT TO PRE-SHIPMENT INSPECTION 2.1 Commencement This regulation shall apply to all Goods other than Exempt Goods as specified in Article 1.4 shipped to the Kingdom of Cambodia as from the …………………………………… 2.2 Registration All Goods other than Exempt Goods as specified in Article 1.4 imported into the Kingdom of Cambodia starting from the ………………… shall be registered with the Inspection Company. 2.3 Inspection of Goods All Goods imported into the Kingdom of Cambodia from the ………………. shall be subject to Pre-shipment Inspection by the Inspection Company in the relevant country of supply prior to shipment to the Kingdom of Cambodia. 2.4 Transitional Importer may arrange shipment of Goods to the Kingdom of Cambodia prior to …… ………… without Pre-shipment Inspection provided the relevant Bill of Lading or Airway Bill or other transport document or title is dated prior to ………………………… ARTICLE 3 – GOODS EXEMPT FROM PRE-SHIPMENT INSPECTION 3.1 The following goods shall be exempted from Pre-shipment Inspection: (a) Precious stones, and precious metals; (b) Object of arts, (c) Explosives and pyrotechnic products, (d) Ammunition, weapons, implement of war (e) Live animals, (f) Current newspapers and periodicals. (g) Household and personal effects. (h) Parcel post or commercial samples. (i) Gifts made by foreign governments or international organizations to foundations, charities and recognized humanitarian organization. (j) Gift and supplies to diplomatic and consular missions and to agencies depending from the United Nations Organization imported for their own needs. (k) Grants in kind. (l) Goods imported for government use under government order. (m) Scrap metals. (n) Cigarettes (o) Temporarily admitted goods (temporary import for inward processing for export) PROCEDURE 17
  18. 18. ARTICLE 4 – GENERAL CONDITIONS 4.1 Copies of orders All importers shall provide to the Inspection Company two copies of each order for every purchase or importation of goods. The documents submitted shall comprise an application to the Inspection Company completed by the importer, attaching, where relevant, a copy of any official document such as proforma invoices, purchase orders, contracts showing contract specifications, transportation documents and relevant import documents. 4.2 Issue of RIA The Inspection Company Liaison Office shall register all such orders of Goods and issue a RIA, which shall be released to the importer within 24 hours of receipt of the documentation from the importer. 4.3 Reference Number The RIA shall contain a unique reference number, which shall serve to identify the transaction and may be used for all correspondence with the Inspection Company. 4.4 Inadequate documentation Any document supplied to the Inspection Company by an importer which is incomplete, illegible or otherwise unclear shall be returned to the importer for correction before a RIA will be issued. 4.5 Request for information The Inspection Company Liaison Office shall transmit the RIA details to the office of the Inspection Company or its affiliates in the county of supply of the Goods which shall immediately send a request to the seller for the supply of information regarding the Goods and arrange Pre-shipment Inspection of the Goods. ARTICLE 5 – PRE-SHIPMENT INSPECTION OF GOODS 5.1 Pre-shipment Inspection The seller shall contact Inspection Company to arrange a Pre-shipment Inspection at least three working days prior to the Goods being available for such Pre-shipment Inspection. The Inspection Company will carry out urgent inspection without delay notwithstanding that less than three working days notice is given by the seller. 5.2 Required Tasks The Inspection Company or its affiliate in the country of supply of the Goods shall perform the following tasks in relation to the Goods using all information at its disposal: (a) Pre-shipment Inspection, (b) Price verification, 18
  19. 19. (c) Verification of the total value of the Goods (d) Determination of the dutiable value of the Goods in accordance with the Tariff Nomenclature, (e) Calculate duties and taxes payable on the Goods in the Kingdom of Cambodia. 5.3 Documentation to be provided The seller shall provide the Inspection Company or its affiliate with copies of purchase orders, price lists, letters of credit and all other documents, which the Inspection Company may deem necessary for the purpose of the Pre-shipment Inspection. 5.4 Provision of Facilities The seller shall provide the Inspection Company or its affiliate with all necessary facilities as well as relevant testing certificates where applicable to enable the Inspection Company to conduct the Pre-shipment Inspection. The seller shall make the necessary arrangements for handling, presentation, sampling and shop testing of the Goods for the purpose of the Pre-shipment Inspection. 5.5 Place of Pre-shipment Inspection The Pre-shipment Inspection may be performed at the seller’s premises or such other appropriate place prior to the shipment of the Goods to the Kingdom of Cambodia. The Inspection Company shall be entitled to re-inspect Goods at any time during the course of supply or delivery, prior to the shipment of the Goods to the Kingdom of Cambodia and to seal containers as may be deemed necessary and feasible by the Inspection Company. 5.6 Repeated Visits by Inspection Company If the seller arranges for a Pre-shipment Inspection by the Inspection Company without having prepared the Goods for inspection, or if the Goods have been certified and are found not in accordance with the Importer Specification, the Inspection Company’s costs for repeated visits and further Pre-shipment Inspection shall be payable by the seller. 5.7 Inability to Inspect If for any reason the Inspection Company shall be unable to carry out any Pre-shipment Inspection, the Inspection Company shall immediately notify the Director of Customs in writing. 5.7 Final Settlement Invoice Upon satisfactory Pre-shipment Inspection and Price Verification by the Inspection Company or its affiliate, the seller shall submit a final invoice and relevant information to the Inspection Company, which shall include the following details: (a) description of the Goods, (b) weight and volume, (c) mode of shipment, (d) port or airport of loading (including any port of transhipment), (e) port or airport of discharge, and 19
  20. 20. (f) anticipated date of shipment to the Kingdom of Cambodia 5.8 Price Verification restrictions In countries where price comparison is subject to legal restrictions, the Price Verification shall be performed within the existing framework of the laws of those countries and all restrictions shall be reported by the Inspection Company to the Government. ARTICLE 6 – POST-INSPECTION AND CLEARANCE PROCEDURES 6.1 Issue of ROF When a Pre-shipment Inspection has been satisfactorily completed and final invoices and relevant information have been presented by the importer to the Inspection Company, the Inspection Company shall issue a ROF to the importer. 6.2 Contents of a ROF (a) the nature of Goods (b) the number or quantity of the Goods, (c) the quality or actual specification or both of the Goods, (d) Price Verification for the Goods, and (e) the appropriate customs classification of the Goods in accordance with the Customs tariff. 6.3 Copies of ROF The ROF shall be produced in a set of one original and five copies, which shall be distributed by the Inspection Company to the importer (one original and three copies). Upon clearance of the Goods through the Bureau of Customs, the ROF shall be retained as follows: (a) importer – one original, (b) Bureau of Customs – two copies after receiving three copies from the importer and forwarding one copy to the Inspection Company. (c) The Inspection company – one copy received from the Bureau of Customs after payment of duties and taxes by the importer, endorsed with details of payment. 6.4 Discrepancy Report Where a Pre-shipment Inspection has in any way not been satisfactorily completed, an ROF shall not be issued by the Inspection Company, which instead shall issue a Discrepancy Report which shall be distributed in accordance with Article 6.3. 6.5 Correction of Discrepancies 20
  21. 21. If the seller fails to correct discrepancies in a timely manner prior to shipment of the Goods, the Inspection Company shall withhold the ROF and shall clearly identify all uncertified discrepancies by means of Discrepancy Report. If the necessary corrections are effected by the seller after the issuance of the Discrepancy Report but prior to the shipment of the Goods, the Inspection Company shall then issue a ROF in replacement of the Discrepancy Report. 6.6 Security Label For each shipment of Goods the seller shall receive from the Inspection Company, the original copy of the final invoice submitted to the Inspection Company, duly attested by the Inspection Company by means of a Security Label confirming that the Goods described in the invoice have been inspected and that an ROF will be issued. 6.7 Customs Declaration (CD) The importer shall use the ROF as the basis for completion of the CD and the payment of duties and taxes payable to the Bureau of Customs at the port of entry into the Kingdom of Cambodia. In case there has been an amendment to the Customs Tariff prior to clearance, the importer must have his ROF amended accordingly by the Inspection Company. 6.8 Submission of CD The importer shall sign the CD which it has prepared and present it to the Bureau of Customs with all required supporting documentation and shall pay the applicable duties and taxes specified in the CD. No Goods shall be cleared through the Bureau of Customs without an original signed and completed CD being presented with the corresponding ROF. 6.9 Notification to the Inspection Company The Bureau of Customs shall supply details of the Customs duties and taxes paid by the importer on the copy of the ROF to be provided to the Inspection Company, pursuant to Article 6.3 (c) and provide the Inspection Company with a legible copy of the CD received by the Bureau of Customs pursuant to Article 6.8. 6.10 Submission of Documentation The Inspection Company shall request sellers to submit copies of the final settlement invoice, the Bill of Lading, Airway bill and other transport documentation or title. Receipt of these documents from the seller shall not be a pre-condition for the issuance by the Inspection Company of a ROF. 6.11 Re-inspection of Goods The Inspection Company or their designated agents and the Bureau of Customs shall be entitled to jointly conduct a re-inspection of Goods upon arrival in the Kingdom of Cambodia where a Discrepancy Report has been issued or where there are grounds for a reasonable belief that the Goods are not in conformity with the ROF or where a re- inspection of the Goods is requested by the importer. INSPECTION FEES 21
  22. 22. ARTICLE 7 – FEES 7.1 Amount of Fees All goods other than Exempt Goods as specified in Article 1.4 imported into the Kingdom of Cambodia shall be subject to the Fees as described in Article 1.7. 7.2 Payment of Fees The Fees shall be payable to the Standard Chartered Bank Phnom Penh 89, Norodom Boulevard, Sangkat Boeung Raing, Khan Daun Penh (PSI Account number …….) after RIA application to Liaison Office of the Inspection Company for the purpose of issuance of a RIA. 7.3 Receipt to be issued Upon payment of the Fees, the Standard Chartered Bank Phnom Penh shall issue a receipt to the importer. The importer shall submit the receipt to the Liaison Office of the Inspection Company with the import documentation. RESOLUTION OF DISPUTES ARTICLE 8 – DISPUTES 8.1 Discussions with the Inspection Company Any importer may question or dispute the opinion of the Inspection Company relating to that importer’s Goods by making a request in writing to the Inspection Company Liaison Office in Phnom Penh. If the matter is not resolved to the satisfaction of the importer within one week of the importer’s request, the importer may refer in writing the matter to the Working Committee. 8.2 Release of Goods While the Working Committee is reviewing a matter referred to it in writing by an importer, the importer may apply to the Bureau of Customs to have the Goods released against a surety bond which shall be fixed at the sole discretion of the Bureau of Customs. ESTABLISHMENT OF WORKING COMMITTEE ARTICLE 9 – WORKING COMMITTEE 9.1 Establishment The Ministry of Economy and Finance shall establish a Working Committee to review any decision of the Inspection Company referred to it in writing by an importer. The Working Committee shall comprise representatives from the Ministry of Economy and Finance, the Bureau of Customs, the Ministry of Commerce, the Council for the Development of Cambodia and the private sector. 9.2 Chairman The Working Committee chairman will be appointed by the Ministry of Economy and Finance for an initial period of twelve (12) months and subject to reappointment for further period of twelve (12) months at the discretion of the Minister of Economy and Finance at the end of that period. 9.3 Decisions Final The decision of the Working Committee should be made within a maximum period of one month from the importer’s application and shall be final and binding on the Inspection Company and the importer and shall not be subject to appeal. OBLIGATIONS OF IMPORTERS AND SELLERS 22
  23. 23. ARTICLE 10- COMPLIANCE BY IMPORTER The issuance of a ROF is an evidence only that a Pre-Shipment Inspection has been conducted. The issuance of a ROF does not relieve the importer from its obligation to comply with all laws, rules or regulations relating to the importation and sale of Goods in the Kingdom of Cambodia. ARTICLE 11 – SELLER’S OBLIGATIONS TO IMPORTER The Pre-Shipment Inspection conducted by the Inspection Company shall not affect the rights of the buyer of the Goods against the seller and shall not relieve the seller of the goods of its contractual responsibilities to the importer of the Goods. LETTER OF CREDIT ARTICLE 12 – REQUIREMENT FOR LETTERS OF CREDIT 12.1 Application If payment for Goods is to be made by Letter of Credit, the letter of credit application submitted by the importer shall contain a description of the Goods including, without limitation, the type, quantity, quality and Total Value of the Goods. 12.2 Payment by Letter of Credit For transactions effected by Letter of Credit, payment shall only be made to seller unless the original invoice in respect of the Goods is affixed with a Security Label and is presented to the importer’s bank along with all other shipping documents required for the negotiation of payment. NON-COMPLIANCE ARTICLE 13- PENALTIES After the ………………., any person who fails to obtain Pre-Shipment Inspection of any Goods other than Exempt Goods as specified in Article 1.4 which are shipped to the Kingdom of Cambodia shall be subjected to severe sanctions from the relevant Authorities. 6.2 WTO Agreement on Preshipment Inspection Agreement on Preshipment Inspection Members, 23
  24. 24. 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 in so far 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 GATT 1994 apply to those activities of preshipment inspection entities that are mandated by governments that are Members of the WTO; 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. 2. The term “user Member” means a Member of which the government or any government body contracts for or mandates the use of preshipment inspection activities. 3. 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. 4. The term “preshipment inspection entity” is any entity contracted or 24
  25. 25. 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, 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 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 paragraph 4 of Article III of 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 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-à-vis the inspection entities, and the appeals procedures set up under paragraph 21. Additional procedural requirements or changes in existing procedures shall not be 25
  26. 26. 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. 7. User Members shall ensure that the information referred to in paragraph 6 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. 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 26
  27. 27. 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, 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 through 13, 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 27
  28. 28. 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 subparagraphs (b) through (e); (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: (i) 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; (ii) the preshipment inspection entity shall not rely upon the 28
  29. 29. price of goods offered for export to different countries of importation to arbitrarily impose the lowest price upon the shipment; (iii) the preshipment inspection entity shall take into account the specific elements listed in subparagraph (c); (iv) at any stage in the process described above, the preshipment inspection entity shall provide the exporter with an opportunity to explain the 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 and 7. User Members shall ensure that the procedures are developed and maintained in accordance with 29
  30. 30. 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 subparagraph (b). 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. 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 30
  31. 31. 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 subparagraph (a) 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 subparagraph (a). 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 WTO Agreement and shall be updated annually. The list shall be publicly available. It shall be notified to the 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 subparagraph (a) 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 subparagraph (a). 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. The independent trade expert 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 31
  32. 32. 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 subparagraph (a) 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 Secretariat copies of the laws and regulations by which they put this Agreement into force, as well as copies of any other laws and regulations relating to preshipment inspection, when the WTO Agreement enters into force with respect to the Member concerned. No changes in the laws and regulations relating to preshipment inspection shall be enforced before such changes have been officially published. They shall be notified to the Secretariat immediately after their publication. The Secretariat shall inform the Members of the availability of this information. Article 6: Review At the end of the second year from the date of entry into force of the WTO Agreement and every three years thereafter, the Ministerial Conference shall review the provisions, implementation and operation of this Agreement, taking into account the objectives thereof and experience gained in its operation. As a result of such review, the Ministerial Conference may amend the provisions of the Agreement. Article 7: Consultation Members shall consult with other Members upon request with respect to any matter 32
  33. 33. 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: Dispute Settlement 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: 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. 33

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