The opinion-piece originally appeared on the SARCist website in September 2015.
NTBs: The Next Frontier to Overcome
Author: Professor Mustafizur Rahman
Whilst the SAARC countries have been able to make notable progress in terms of bringing down tariff barriers in intra-regional trade, non-tariff barriers (NTBs) and related concerns continue to pose formidable challenges from the point of view of deepening trade and investment cooperation within the region. As is known, under the South Asian Free Trade Area (SAFTA) agreement, the SAARC countries have been reducing respective most favoured nation (MFN) tariffs according to the trade liberalisation plan (TLP) which was put into effect in July, 2006. Number of negative list items (which were kept outside of the purview of the TLP) has also been reduced as part of successive negotiations. Additionally, in a welcome move, India had offered duty-free, quota-free market access for virtually all imports from the least developed countries (LDCs) of the SAARC, made effective from January 2012. These initiatives have significantly brought down the operative MFN tariff rates in the SAARC and have no doubt significantly widened the coverage of preferential market access in the region.
However, the advantages to be potentially accrued from lowered duties, and the consequent opportunities of translating the comparative advantages into competitive advantages, have remained largely unrealised because of the persistence of the diverse range of NTBs. From a broader perspective, NTBs included measures, regulations, sanctions and additional duties which exporters had to comply with and bear (even when they were exempt from the obligations of paying the MFN duties). In case of intra-SAARC trade, these included a wide range of sanitary-phytosanitary measures and technical barriers relating to health, hygiene and human safety concerns, countervailing duties (CVDs) and anti-dumping duties (ADDs) that are imposed to safeguard against subsidies in exporting countries and dumping by exporting enterprises, compliance requirements as regards marking, labelling and packaging requirements in importing countries and a host of other measures. Some would also argue in favour including infrastructure-related bottlenecks and lack of trade facilitation at the customs points as NTBs. The last argument is all the more relevant and pertinent because a significant part of the intra-regional trade in the SAARC takes place though land customs stations (LCS). Lack of appropriate financial instruments and absence of financial institutions to help conduct business also acted as a barrier to trade in the SAARC region. This is particularly true in case of conducting trade between Bangladesh and N.E. India.
It is generally agreed that NTBs harm trade, investment and business interests in a number of ways: they raise the cost of doing business, consumers suffer because of higher prices, producers’ competitive strength is undermined and potential investors targeting the regional market are discouraged. Hence the heightened need to address the attendant issues to advance the interests of SAARC trade and investment.
It is to be noted here that, whilst many of the SPS-TBT measures are often projected as ‘barriers’, for most instances these are concerned with compliance assurance as regards health-hygiene regulations of the importing countries as required by the laws of the land. However, these requirements are not unique to imports from the SAARC members; these are equally applicable for imports from non-SAARC countries. In India, for example, the Bureau of Indian Standards (BIS) and the Food Safety and Standards Authority of India (FSSAI) maintain specific guidelines as regards SPS and TBT, whilst in Bangladesh it is the Bangladesh Standards and Testing Institutions (BSTI) which has similar responsibilities. Sometimes problems originate when exporters lack compliance assurance capacities; at other times standardisation-related institutions lack oversight and enforcement capacities; at still other times problems arise because of lack of testing and laboratory facilities at the border which leads to delays and wastages on the part of exporters which in turn results in cost escalation and, consequently, loss of competitiveness.
One way of addressing the NTB-related concerns would be to strengthen standardisation related institutions in the SAARC countries, build up their accreditation and certification capacities and go for signing of mutual recognition agreement (MRAs). Such MRAs are present in many other regional associations. These could be part of bilateral, multilateral or SAARC-wide agreement or between and among relevant institutions in member countries. Indeed, when the Indian Prime Minister visited Bangladesh in June, 2015, there was an understanding as regards signing of an MRA between BIS and BSTI. The recently established South Asian Regional Standards Organization (SARSO), with its head office in Dhaka, could also play a positive role in helping set up common and harmonised SAARC standards in SPS-TBT related areas. SARSAO could in future facilitate the signing of a SAARC-wide MRA. Indeed, SARSO has already initiated some work in this regard.
A SAARC-wide SPS-TBT Agreement could include several elements: (a) Objectives; (b) Scope and Coverage; (c) Harmonisation; (d) Mutual Recognition of Conformity Assessment; (e) Equivalence; (f) Dispute Settlement Mechanism and Procedures; (g) SPS Committee; (h) Transparency, Technical Cooperation and Exchange of Information.
As is known, SAARC countries are expected to sign a Motor Vehicle Agreement (SAARC-MVA) in the near future. Bangladesh, Bhutan, India and Nepal have already signed such an agreement (BBIN-MVA). Operationalisation of these new initiatives will require initiatives in designing standard operating protocols, establishment of electronic data exchange, putting in place single-window services and development of the needed hardware, software and physical infrastructure. These trade facilitation measures will also go a long way in removing some of the major non-tariff barriers to trade in South Asia.
Studies indicate that there were several items which individual SAARC countries were exporting to non-SAARC countries but not to SAARC members, although some of the SAARC countries were indeed importing these same items but not from the SAARC region. A key reason for this was found to be the presence of the various NTBs and the lack of trade facilitation at the border which made importing from the region relatively more expensive. If SPS-TBT related institutions are strengthened, MRAs are signed and trade facilitation measures are put in place at the borders, these will help develop the cross-border value and supply chains and deepen regional economic integration in SAARC. In turn, this will also help strengthened global integration of the SAARC countries. It is high time that SAARC policymakers take on the challenge of addressing the NTBs with the urgency that the task deserves.
The author is Executive Director Centre for Policy Dialogue (CPD), Bangladesh