Trade regulations and trade facilitation challenge

Trade has been the engine of growth and prosperity for much of the world since the end of the Second World War. Trade has also been a boon to the Bangladesh economy particularly since the launching of extensive liberalisation of trade through reduction and rationalisation of tariffs and quantitative restrictions. The volume of trade in relation to GDP (gross domestic product) has been rising steadily and is now close to 50 per cent against a mere 19 per cent in 1990. Without invoking causality, it is fair to say that for over two decades higher GDP growth and accelerated poverty reduction have been closely associated with the expansion of trade. Given its favourable impact on livelihoods of a large segment of the population, facilitating trade and augmenting competitiveness by removing barriers and streamlining of regulations become a national imperative.
As a member of the multilateral trading system symbolised by WTO (World Trade Organisation), Bangladesh subscribes to a rules-based and non-discriminatory regime of global trade, except for the special and differential (S&D) treatment that is justifiably meted out to developing and least developed economies. In the absence of conformable and compatible rules governing international trade, it would be a free-for-all resulting in a chaotic global trading system in which the least developed countries would lose out the most. So, with all the flaws in the multilateral regime of WTO, it has brought some order in what would otherwise have been an unmanageable trading environment scarcely better than the system that prevailed in the Middle Ages. Rather than policing global trade, WTO lays down certain guiding principles that help countries and institutions frame standards and regulations to govern an orderly exchange of goods as well as services between nations and firms. It then acts as a watchdog to ensure that fair and non-discriminatory trading rules are being complied with in order to foster and not impede the expansion of global trade. In this effort it also serves as a widely favoured dispute resolution body adjudicating on disputes arising between trading parties.
Rules exist to facilitate trade and contribute to prosperity and human well-being. When it comes to tariffs, preferential and duty-free access to LDC (least developed country) exports comes within the purview of S&D. Arguably, that sort of preferential treatment cannot be meted out to developing countries when it comes to compliance with standards and regulations intended for the safety and protection of consumers. Nevertheless, several developing countries have sought S&D treatment under WTO in meeting the standards. In that spirit, Bangladesh will have to face up to the challenge of meeting whatever gaps or shortcomings that might exist in the compliance of standards and regulations governing trade if it aims to maintain a high performing export sector for the medium- to long-term. That, in the practice of global trade, is the bottom line. Costs associated with adhering to globally recognised standards and regulations will have to be factored into any export competitiveness strategy over the longer term.
STANDARDS AND REGULATIONS IN TRADE: Product standards refer to standards which are most commonly associated with specifications and characteristics of particular products (auto parts), services (accounting practices) and materials (chemical polymer). In contrast, process standards specify manufacturing or quality control measures to be taken to ensure that product quality is maintained. These standard are developed in various ways, with the most effective being created through private sector-driven systems. For instance, in the case of information technology, product standards are developed through voluntary consensus of companies engaged in producing competing products (e.g. operating software). Regulatory standards, on the other hand, are mandated by governments and are formulated in a manner that protects health, safety, or environmental objectives. For both product and regulatory standards, a process described as conformity assessment involves testing and certification requirement to be fulfilled.
WTO AGREEMENTS ON STANDARDS AND REGULATIONS: By and large, world trade is governed by a number of WTO Agreements covering various aspects of goods (under GATT) and services (under GATS) trade:
For goods (under GATT)
Regulations for food safety, animal and plant health protection (SPS); Product standards (technical barriers to trade-TBT); Textiles and clothing; Agriculture; Investment measures; Anti-dumping measures; Customs valuations methods; Pre-shipment inspection; Rules of origin; Import licensing; Subsidies and counter-measures; Safeguards.
For services (the GATS annexes)
Movement of natural persons; Air transport; Financial services; Shipping; Telecommunications.
The first two WTO agreements guide the compliance of goods trade in respect of conformable standards and regulations, and comprise the most fundamental of rules governing trade. These are the Agreements on (a) SPS (Sanitary and Phytosanitary Measures), and (b) TBT (Technical Barriers to Trade).
A key objective of the WTO SPS Agreement is to minimise the effect of adoption and enforcement of SPS measures (that is, food safety and animal and plant health regulations) on trade. The Agreement recognises the rights of the WTO member nations to apply stricter standards, but such standards have to be grounded on sound scientific basis and they should not arbitrarily or unjustifiably discriminate between countries where identical or similar conditions prevail.
The TBT Agreement addresses 'product characteristics or the related processes and production methods' reflected in technical regulations and requires that these regulations conform to basic principles of transparency and non-discrimination. Relevant international standards developed by bodies such as the International Organisation for Standardisation (ISO) -- if they exist -- must be used as the basis for technical regulations unless this would be inappropriate because of climatic, geographic, or technological factors.
SPS standards generally apply to all traded agricultural and agro-processed products (HS-01-24) while TBT regulations guide trade in industrial goods (HS-25+). However, some overlap can be expected as in the case of TBT regulation on quality, grading and labeling of imported fruit.  
COMPLIANCE REQUIREMENTS AND ENFORCEMENT: The SPS and TBT Agreements within the WTO have set the benchmarks that must be met by exporting firms in developing countries. These agreements strongly encourage importing nations to adopt product standards that are at least as rigorous as those developed by international standard setting bodies. Over time, all WTO members can be expected to adopt such regulations, with the richer members choosing even stronger rules. Thus, developing economies like Bangladesh desiring to expand exports to global markets have no choice but to meet recognised international standards. The positive fallout is that while complying with standards for export products, it is expected that such standards would eventually be applied to all production within the country simply to inspire confidence in importing markets that goods are produced safely by all potential supply sources.
It is important to note that the WTO does not develop or write standards nor does it require that member nations have product standards. Instead the 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.
Sanitary and phytosanitary measures, by their very nature, may result in restrictions on trade. All governments accept the fact that some trade restrictions may be necessary to ensure food safety and animal and plant health protection. However, governments are sometimes pressured to go beyond what is needed for health protection and use sanitary and phytosanitary restrictions to shield domestic producers from economic competition. A sanitary or phytosanitary restriction which is not actually required for health reasons can be a very effective protectionist device and, because of its technical complexity, it can be a particularly deceptive and difficult barrier to challenge.
WTO member countries are encouraged to use the standards developed by the relevant international bodies whenever they exist. With regards to standards developing bodies, numerous such entities exist at national and international levels. International organisations, such as International Organisation for Standardisation (ISO) and the International Electrotechnical Commission (IEC), which develop voluntary consensus standards, such as the ISO 9000 series on quality and the ISO 14000 series on the environment, are also involved in the development of product standards.
DEVELOPING COUNTRY CONCERNS: Developing economies face several constraints in managing problems associated with standards, such as:
Lack of modern technical infrastructure: They generally lack capacity to engage in international standards development activities and to provide internationally recognised testing and certification procedures for products. Without the resources necessary for building and maintaining modern standards and conformity assessment systems, it is difficult either to ensure rights or to exercise responsibilities under existing WTO rules. If developing countries lack resources to access information on international standards or to participate in their development, a key link between the rule of law as specified in the WTO system and developing countries' ability to fulfill their obligations and defend their rights is called into question. Many developing countries support a targeted review of the TBT and SPS agreements in light of development needs.
Provisions relating to special and differential treatment in the TBT and SPS agreements: For example, India had recommended extending timeframe for compliance by developing country members with existing provisions of WTO agreements referencing standards. In a related vein, a number of developing countries have cited problems with their ability to react to notifications of new TBT and SPS measures.
Adherence to environmental standards:  Imports from developing nations may be restricted on grounds of maintaining environmental standards. This has been viewed with serious alarm by many countries with regards to both manufactured and agricultural goods. Among other issues, the lack of clear rules on the appropriate use of labels to indicate environmental impact and the rise in the use of standards for process and production measures in industrial countries have been noted in developing country submissions to the WTO.
Cross-country variability of standards and certification regimes across countries often stand as detriments to trade: Differing standards and regulations across different trading countries may lead to lack of faith in such standards in the importing country, concerning goods from the exporting country. In such circumstances these standards and regulations become effectively non-tariff barriers, and can provide a serious impediment to trade.
Thus adoption and rationalisation of international regulations can produce significant net welfare and trade benefits. This is particularly true for developing countries that confront the challenge of meeting differing, duplicative, or discriminatory standards with their scarce resources. An international focus on rationalisation of technical regulations worldwide, for further facilitation of trade, would involve a commitment to the following:
* Ending discriminatory treatment
* Eliminating duplicative testing requirements
* Recognising that foreign standards may achieve the same level of social or consumer protection as domestic standards
* Making regulation more transparent
* Scaling regulation at levels that do not impose excessive costs on consumers and firms.
Mutual Recognition Agreements (MRA): This has been raised as part of the resolution of the problems related to variability of standards. Such agreements are used to reduce the trade-impeding effect of technical barriers through mutual recognition of national product testing and certification procedures. However to date they have only been negotiated between industrial countries, although both TBT and SPS agreements encourage all WTO members to enter into MRAs. The related trade policy issue arises from the extent to which mutual recognition agreements may divert exports from non-signatories out of traditional markets or even preclude entry of firms in the first place.
Cost impacts of standards: One important issue is that relatively little is known about the cost impacts of differing product standards and how they affect exporters in developing countries. In addition to the direct costs of meeting prescribed process standards and certification and testing requirements, there are numerous costs associated with variability in standards across export markets and over time. At the same time, adopting stronger regulations may enhance technology transfer and raise confidence in the products of exporting countries. Hence a concerted effort is needed to be made to study cost and productivity impacts of meeting international mandates. The results of such studies may feed directly into international efforts to limit the trade-restraining impacts of proliferating and non-transparent technical barriers to trade.
When compared to classic trade barriers as tariffs and quotas (which are inefficient and discriminatory), standards and regulations primarily exist so as to achieve objectives which would not be served well by the private market. Thus these standards and regulations produce net social gains and have public goods features. However, there are also costs associated with their compliance. Some of these costs are inevitable: they arise from the testing and certification (conformity assessment) procedures necessary to determine whether a product, such as fresh fish or produce, meets standardised requirements. Inefficient and duplicative testing and certification requirements, however, represent unnecessary and significant costs to manufacturers, consumers and society. In particular, the cost and complexity of determining conformity with varying national technical regulations is high and rising. This is especially true with regard to the growth of mandatory third-party certification of conformity with technical requirements. Among the most important costs are those associated with mandates that industry retest and recertify products that have already been tested for conformity with similar standards in multiple markets. This results in higher costs to consumers and marks a key point at which trade policy intersects with standards systems and regulation.
Standards and regulations for protection? Sanitary and phytosanitary measures, by their very nature, may result in restrictions on trade. All governments accept the fact that some trade restrictions may be necessary to ensure food safety and animal and plant health protection. However, governments are sometimes pressured to go beyond what is needed for health protection and use sanitary and phytosanitary restrictions to shield domestic producers from economic competition. A sanitary or phytosanitary restriction which is not actually required for health reasons can be a very effective protectionist device and, because of its technical complexity, it can be a particularly cumbersome for exporters to comply.
In practice, countries are found to adopt several different approaches: (a) Technical regulations may discriminate against foreign suppliers, and may be used to gain strategic trade advantages for domestic firms over foreign firms. (b) Standards are often non-transparent and in some cases needlessly force firms to duplicate testing and certification costs. (c) Regulations may be drafted to exclude both domestic and foreign entrants into a particular market, so as to support entrenched monopolies.  (d) Finally, standards may be stronger than necessary for achieving optimal levels of social protection, thus imposing excessive costs on consumers and reducing net welfare.

Dr. Zaidi Sattar is Chairman of the Policy Research Institute of Bangladesh.
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