Page 121 - DMGT546_INTERNATIONAL_TRADE_PROCEDURE_AND_DOCUMENTATION

International Trade Procedures and Documentation

Notes

Case Study Increasing the Effectiveness of Pre Shipment

Inspection Services

“ Preshipment inspection services can improve customs administration, but they are
P no substitute for comprehensive reform”.
Preshipment inspection refers to the verification of unit prices as well as the examination
and reporting of the quantity and quality of exports before they are shipped to the
importing country. Preshipment inspection can help control overinvoicing or
underinvoicing of imports, misclassification of imports, undercollection of taxes on imports,
and misappropriation of donor funds provided for import support. Other possible benefits
of preshipment inspection include monitoring of origin and of compliance with national
regulations and tariff exemption schemes, better data management, technical assistance
and training, trade facilitation and consumer protection.
Preshipment inspection services can provide information that is not readily available to
customs authorities in small countries. Such services are provided by private companies
in the exporting country. Thus, preshipment inspection can be thought of as a temporary
quasi-privatization or contracting out of selected customs functions to meet specific
objectives.
Of the various objectives for customs reform, trade facilitation is arguably the most
important for efficiency and growth. Because of the potential long-term gains from reform,
governments should focus on implementing an effective program for customs
modernization and institutional reform, and not view preshipment inspection services as
a substitute for this effort. This note reviews recent evidence on the effectiveness of
preshipment inspection services; for a comprehensive assessment of preshipment
inspection issues through 1994.

Use of Preshipment Inspection Services
The 1993 ratification of the World Trade Organization’s Agreement on Preshipment
Inspection gave preshipment inspectors new legitimacy in international trade. Since then
the number of countries using pre-shipment inspection has increased from 27 to 37, with
Africa having the most active programs.
Perhaps the most striking change in recent years has been the increase in the number of
split contracts. While in 1993. Peru was the only Latin American country allowing importers
to choose the company they wish to employ from a pre-approved list, in 1999 all Latin
American user countries had adapted this approach. This change has allowed more
providers to participate. Iran’s program involves 16 providers of inspection services.

The shift in preshipment inspection work away from capital flight and over invoicing
toward customs and underinvoicing is reflected in recent contracts. In 1993 all active
contracts embodied at least a small amount of capital flight work, but today most contracts
focus exclusively on customs work to minimize opportunities for tax evasion—reflecting
today’s more liberalized capital regimes.
Usefulness of Preshipment Inspection Services
In general, preshipment inspection is a second-best policy for countries with serious
weaknesses in customs administration. Wherever feasible, a preferred approach would
Contd...

116 LOVELY PROFESSIONAL UNIVERSITY