Heterogeneous Trade Effects of Pre-Shipment Inspections

We analyze the trade impact of pre-shipment inspections (PSI)-a practice under which imports need to undergo a third-party review process before shipment, and whose utilization has been limited by the WTO Trade Facilitation Agreement. We show that PSI requirements had a negative impact on imports, and were most harmful for trade in differentiated manufacturing products (administrative trade cost channel). In contrast, PSI were facilitating trade in products subject to conformity assessment procedures related to sanitary and phytosanitary measures (information channel). Counterfactual analysis suggests that the reduction in administrative costs outweighed the provision of information, with the removal of PSI leading to a slight increase in developing countries' imports. The removal of PSI could also induce a cost: the relaxation of controls on custom misinvoicing. We show that PSI had a limited effect on trade misinvoicing at the intensive margin, and on lost exports at the extensive margin.