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DDG Wolff: International Regulatory Co-operation Key To Managing Trade Frictions

The Daily Work of the WTO Contributes to International Well-being
Remarks of Alan Wm. Wolff –Deputy Director-General, WTO

TBT Side Event on International Regulatory Co-operation (IRC)
Organized by the Delegation of Chile to the WTO

My thanks to Mr. Iván Favereau (1) for taking the lead in organizing this Side Event to the TBT (Technical Barriers to Trade) Committee.  Invigorating the work of the WTO regular Committee is I think both a useful and timely initiative – although, I have to say, having seen this week’s agenda I don’t think this Committee needs much reviving, but most endeavors in life can be improved.

This is the first time that I am participating in an event in the context of a TBT Committee meeting; this is not the first time that I have been in contact with TBT matters.

I have some history with this Agreement as well as with a number of standards issues in government as well as later for private clients.

At the time of my first visit to Geneva before the Tokyo Round was launched, I was a young lawyer with the U.S. Treasury Department.  My assignment was to explain why a proposed U.S. tax provision designed to help US exports was consistent with US GATT obligations.  The difficulty for my mission was that the particular tax proposal was not consistent with US GATT obligations.  As I was to be in Geneva, my boss asked me to attend a three-week drafting session on what became the TBT agreement. Four years later, after I had become U.S. Deputy Trade Representative, I was celebrating the conclusion of the Tokyo Round and giving speeches about creation of a landmark agreement on standards.

It is a pleasure on my return to the WTO to see the great progress that has been made under the TBT agreement.  There is more than one jewel in the crown of the WTO and this is clearly one.

I have essentially three observations and three recommendations:

The first observation concerns the vital part that standards play in the lives of the peoples whom you represent and the importance of the TBT Agreement to world trade.

Most goods traded today that cross borders are affected in one way or another by standards. Indeed, it is often when standards fail that we notice them: electrical plugs that don’t fit foreign sockets, or complicated and parallel safety requirements in different countries that render uneconomic registration of vehicles while supposedly aimed at the same thing: safe cars.

While a tariff might make a product more expensive, it usually does not actually prevent access to the market. In addition, a tariff is both transparent and predictable and there is not much uncertainty involved. This is not to suggest that tariffs are a welcome trade instrument, they are just preferable to those which are worse.

A standard can be a formidable barrier.  

I am using the term “standard” in a broad sense to describe product requirements. A product that does not meet a requirement set out in a regulation may not enter at all.  Or perhaps worse: a product might actually comply with all the necessary requirements but because the importer lacks a means of demonstrating conformity through certification, testing, etc.,  the product may nevertheless not gain access. While not all standards and regulations are unjustified – far from it – there is plenty of potential for both misuse and inefficiencies. These types of barriers are less transparent and very technical and interfere with the international exchange of goods.

UNCTAD has recently found, based on data from December 2017 comprising 109 countries and covering 90 per cent of global trade, that TBT measures are the most frequent form of NTMs, affecting 65 per cent of world trade in terms of value, and 35 per cent of product lines.(2)

But standards are also necessary, and increasingly so. In a globalized world where production is fragmented across borders and firms, production lines necessarily need to merge at some point so as to deliver the final product. When this happens all the bits and pieces need to “fit”. Inter-operability is essential. Standards are crucial in ensuring compatibility, quality and safety. They help build trust backward through the chain, from the original suppliers of components, through the various dispersed producers, to the consumer – wherever she may happen to be.

So, what, then is the challenge?

Well, as you are keenly aware of governments greatly prize their freedom to regulate as a sovereign right. No government really wants to be told by another government (let alone an international organization) how to protect their consumers, animals, plants or the environment.

They have not given up this right under the TBT Agreement. The Agreement aims to do away with unnecessary friction that arises because approaches chosen in standards differ. This does not impinge on the right to regulate. It is about reducing unnecessary trade costs that arise from different choices made in crafting national and regional standards while not jeopardizing their underlying purpose.

My second observation is that international regulatory co-operation is part of the solution.

International regulatory co-operation — interaction between peers, between regulators, trade officials, and officials working in standardizing bodies – is a primary means of engendering trust.  Regulatory matters are often in the forefront of trade policy recently, they are at the heart of the future of UK – EU trade relations. The threat of a hard Irish border illustrates that differing standards can cause serious problems for any product crossing any border.  What is done on a global level is every bit as important as solving regional issues.    A personal example: I cannot take my BWM that I drive here back to the states and get it registered for use on American highways.  Standards make that impossible as a practical matter.

Finding better ways of cooperating on regulation is increasingly part of regional co-operation and global initiatives. All regional trade agreements (RTAs) signed since 2010 and notified to the WTO systematically include TBT provisions. Some RTAs closely mirror WTO provisions, while others go beyond these provisions by clarifying or complementing them.

Your work here in the TBT Committee has itself provided material for RTAs.  In almost a third of all RTAs that cover TBT issues, the Parties commit to implement the TBT Committee’s Six Principles(3) way to identify relevant international standards. These RTAs, which involve some 27 WTO members, were signed a few years after the TBT Committee decision on the Six Principles was adopted. The very first RTA to cite this particular Committee decision was the agreement between the EU and Chile (from 2002).  Chile is by far a party to the most RTAs that cite the TBT Committee’s decision on international standards.

A third observation: How the TBT Committee can contribute to promoting regulatory co-operation between countries

Besides providing a basis for regional trade agreements through the normative work you produce here, the TBT Committee heads off issues before they become serious problems for dispute settlement. 

The TBT Committee is a forum where Members see where regulatory regimes meet and sometimes clash. There have been over 550 trade concerns discussed in the TBT Committee since the WTO was founded.   And I see that your agenda over the next few days you will cover another 57.  Since 1995, there have only been some 54  formal dispute settlement cases with claims made under the TBT Agreement, and much fewer have gone through to final adjudication dispute settlement, only slightly more than a handful.

This is, in fact, quite a good record of dispute avoidance. In a sense, the Specific Trade Concern (STC) mechanism developed by this Committee is an enhanced form of regulatory cooperation. The discussion of STCs reveals and disseminates information about regulations. This information is relevant both to firms seeking to access markets, and regulators developing new rules. The discussion provides a valuable opportunity to learn from the experiences of others, through peer feedback about the design and performance of regulations. These debates make it easier for Members to cooperate and find solutions to regulatory differences that are impeding trade.

There are at least three key ways I which the Committee facilitates co-operation on regulations between Members:

  • First, the Committee is an international forum with regular annual meetings and broad participation. Not only is participation broad, it is also deep: many of you are capital-based experts with intimate knowledge of the diverse subject matters. And this has delivered as a result not only in shared knowledge and guidance within the WTO but in existing regional and plurilateral trade agreements and initiatives as well.
  • Second, this Committee along with the SPS Committee has the strongest record on transparency in the WTO.  I understand that your annual review – which you will consider later this week – shows that fully one-half of the WTO Membership has submitted at least one notification in 2017. But this is not only about notifications and specific trade concerns. Work in this Committee also has a potentially important incubating role; it is a place where there is scope for early cooperation in areas where regulation may not even have developed yet (e.g., for drones, nanotechnology, autonomous vehicles).
  • Third, the private sector is engaged. This cannot be over-emphasized. To be able to participate in international trade, individuals and companies have to know as much as possible about the conditions of trade. Standards and regulations have real consequences for market access. This is a win-win situation: more cooperation between countries can reduce trade costs without impinging on core aspects such as quality and safety.  I understand that almost half of the subscribers to ePing – the WTO’s new alert mechanism on notifications – are from the private sector.

There is a wide range of approaches and mechanisms of regulatory co-operation suitable for different products or members. The beauty of the TBT Agreement is that it does not prescribe one specific approach, but rather sets out basic disciplines that provide a launch-pad for regulatory cooperation – for Members to use to go further and deeper in particular sectors or with particular trading partners.  

This Side Event is a good example of how WTO committees can engage on current and very real policy issues. I encourage you to purse all of the above and do more.

I have three suggestions for your consideration:

  • First suggestion — With respect to micro, small and medium size enterprises (MSMEs). Obstacles arising from standards and regulations are particularly pernicious for small firms. Smaller firms often lack the necessary resources to seek information about foreign regulations that may affect their trade. Also, they are extremely unlikely to be able to engage directly with trading partners. And it is difficult for them to ensure that standards being developed at home – let alone in international settings – take into account their particular commercial interests. In the burgeoning world of electronic commerce, MSMEs are going to account for an increasing share of world trade.  I hope that you will consider what more can be done to enhance the collective voice of MSMEs in the standard-setting context so that they can participate to a greater extent in being standards makers and less standards takers.
  • Second suggestion — Regarding the Standards Trade and Development Facility (STDF). Consider whether the STDF should be limited in scope to food safety, animal and plant health covered by the SPS Agreement.  Would there be benefit in creating a parallel TBT mechanism or incorporating it in the STDF?  Seen from trade and development perspective would it not make sense to go beyond the agricultural area so that also projects related to food quality and/or sustainability could be covered?  After all if food safety standards are met, trade might still be stifled by quality or other standards.
  • A third suggestion — Better, not more regulation. This discussion is not only about ironing out unnecessary differences in standards and regulations; it is also about questioning the need for regulation in the first place – a key principle of good regulatory practices.  Think about the current political atmosphere in at least Europe and America and perhaps elsewhere.  Consider how to convey this aspect of your work to a non-technically audience, to legislators and to political levels of government more generally?  It is necessary to explain that implementation of the TBT Agreement can help achieve better outcomes while making trade less encumbered by unnecessarily burdensome regulation.  It will pay dividends to do a better job of quantifying the cost savings accomplished by cooperating more in the area of standards and regulations.

Thank you.  I wish you well in the important work that you do.

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Publication  World Trade Organization [5F]
Core Series Globelex ,GPETR
Topic codes

98IGO , 151WTO

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