Discriminatory Rules Hurt Trade

Updated: Apr 29 2004, 05:30am hrs
As tariffs and quota barriers to trade continue to decline, focus is shifting on the impact of product and process standards and technical regulations. Standards and regulations are applied to mitigate health and environmental risks, to prevent deceptive practices, and to reduce transactions costs in business by providing common reference points for notions of quality, safety, authenticity, good practice and sustainability.

In practice, however, standards and technical regulations are being used by developed countries strategically to enhance competitive positions of their countries or individual firms. Standards can potentially impede international trade by imposing unnecessarily costly and time-consuming tests or by laying out unjustified different requirements in different markets. Agriculture and agro-industries, especially processed food, are most vulnerable to these non-tariff barriers (NTBs) since health and environmental standards are proliferating rapidly in developed country markets.

In recent times, while almost all developing countries were subjected to such developed country-inspired NTBs, African countries were the worse affected. Amongst the developed countries, European Union and Japan have the notoriety of imposing the most invidious NTBs which impede market access. The oft-cited example is the implementation of EUs new aflatoxin standards. This particular standard could reduce African exports of cereals, dried fruits and nuts by more than 60 per cent or $670 million. All this for reduction of an insignificant health risk the probability of risk being 1.4 deaths per billion a year!

The importance of the issue of standards in India cannot be overstated. I am surprised it has found such little space in public debate. I am more perplexed that it did not feature in the numerous Euro Summits we have had or planning to have, although a large volume of Indian exports are affected by EU norms which are far beyond international standards. While there is much debate on agriculture subsidy removal, the four Singapore issues, TRIPs and Special and Differential Treatment, people are not fully aware of the issue of standards and its full implication for Indian exports.

The World Trade Organisation (WTO) does not require members to have product standards, nor does it develop or write standards. WTO rules in this area aim at ensuring that technical regulations, voluntary standards, and testing and certification of products do not constitute unnecessary barriers to trade. Two WTO agreements deal with product standards: the Agreement on Technical Barriers to Trade (TBT) and the Agreement on Sanitary and Phytosanitary Measures (SPS).

TBT requires that processes and production methods conform to basic principles of transparency and non-discrimination. Use of relevant international standards such as the ISO is encouraged wherever applicable. The SPS agreement seeks to minimise the negative effect on trade from the adoption and enforcement of SPS measures. Hence on the face of it, these agreements provide safeguards to market access by reducing transaction costs. These two agreements thus provide specific arguments that can challenge discriminatory measures.

Indeed, conforming to an internationally-accepted standard is essential not only for exports but also domestic sales. One also cannot ignore the fact that the issue of human and animal health and plant protection is getting very high up on developed countries agenda fuelled by recent cases of food poisoning, spread of pests among animals and environmental contamination. International trade is a conduit for spreading these. Hence, a balance has to be struck between adherence to a global threshold for standards and standards dictated by a few countries to protect their industry.

The first step for India is to make a lot of internal adjustments. The starting point is to have a single agency and enquiry point in charge of handling TBT- and SPS-related issues with implications for exports. It is a far cry from the present system that lacks any coordination. We have a plethora of regulatory authorities tackling these issues in a piecemeal manner with inadequate knowledge base. They are commerce, food & consumer affairs and food processing ministries, export promotion institutions, standard-setting bodies (24 of them), and a host of regulating bodies at the state level.

Apart from the ones cited, other important ones are the Bureau of Indian Standards, NABL, CCFS, STQC, and NQC. What is badly needed is integration among these bodies, harmonisation and national notification of standards. A transparent institution, like the currently non-functional Tariff Commission, can be entrusted with this task. It should build the knowledge base in collaboration with CII, FICCI, and other relevant NGOs. On critical issues where developed countries are going overboard on stringency of standards, support of international NGOs like Oxfam should be solicited. Moreover, the standard-related NTBs should feature as an important agenda item during our bilateral talks with developed countries, especially EU and Japan.

The author is senior advisor, International Trade, CII and former economic advisor, Ministry of Commerce. These views are personal