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Importing goods from some countries is potentially a risky business for all parties concerned. To prevent fraud and to protect importers and exporters, some developing countries use pre-shipment inspection by independent agencies to make sure that the price, quality and quantity are correctly specified on shipment details.
Pre-shipment inspection is the practice by governments of employing independent private companies to inspect goods before these are exported to other countries. The goods are checked to ensure that the price, quality and quantity are correctly specified on the shipment details. Some developing countries have made presentation of a clean report by a pre-shipment inspection agency a condition for clearing imports through customs.
Pre-shipment inspection is important in two ways. Firstly, it is used by governments of developing countries to compensate for any inadequacies in the administrative infrastructures. Pre-shipment inspection is a way to prevent commercial fraud as well as customs duty evasion. Secondly, pre-shipment inspection provides exporters and importers with extra confidence that the goods match what is specified in the sales contract. This in turn inspires greater confidence in trading with developing countries.
The Agreement on Pre-shipment Inspection [external link to text on the WTO website] recognises the need, of developing countries in particular, to verify the quality and quantity or price of imported goods. Pre-shipment activities are defined as activities relating to the verification of the quality, quantity, price (including currency exchange rate and financial terms) or the customs classification of goods to be exported to the territory of the user member  . The agreement applies to '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'.
Members using pre-shipment inspection are obliged to ensure pre-shipment inspection activities are carried out in a non-discriminatory manner. Procedures and criteria used in carrying out the activities should be objective, and applied on an equal basis to all exporters affected by such activities. User members also have an obligation not to apply national regulations that result in less favourable treatment to inspected goods compared to domestic products that are the same.
Exporting countries are also obliged to ensure that their laws and regulations relating to pre-shipment inspection activities are applied in a non-discriminatory manner.
Transparency plays a significant role in the agreement. There are specific obligations on members to ensure that information is available to interested parties so that they can comply with inspection requirements. For instance, the agreement states that members shall ensure that when initially contacted by exporters, pre-shipment inspection entities provide to the exporters a list of all the information necessary for the exporters to comply with inspection requirements. Confidentiality rules do apply however, preventing inspection agencies from asking details of patented processes, internal costs, profit levels and contracts between exporters and their suppliers.
Under the agreement, all laws and regulations relating to pre-shipment inspection activities must be published promptly by members.
The agreement provides guidelines aimed at preventing over- and under-invoicing and fraud. Under-invoicing, unless detected, results in lower duties being imposed and a loss of revenue for the importing state. Over-invoicing provides an opportunity for the illegal export of capital.
A pre-shipment inspection company can reject a contract price agreed between an exporter and an importer if the pre-shipment inspection company can demonstrate that the price is unsatisfactory. The comparison of price must be based on the export price of identical or similar goods.
In addition to being identical/similar, the goods used for comparison must be exported:
The agreement establishes an independent review procedure, which is aimed at providing for the speedy, effective and equitable resolution of disputes between exporters and pre-shipment inspection entities. The review procedure is administered by an organisation representing inspection agencies and an organisation representing exporters. Decisions must be made within eight working days of the complaint, and the results are binding on the exporter and inspection agency. Governments can also take a complaint about the agreement to normal dispute settlement procedures.
 The term "user member" means a WTO member, whose government (or government body) contracts for or mandates the use of pre-shipment inspection activities.