Published in The Financial Express on Sunday, 15 November 2015.
Its high time to resolve NTB issue
Mustafizur Rahman
Establishing connectivities in all key areas must be seen as strategic initiatives that ought to be undertaken if regional cooperation among South Asia Association for Regional Cooperation (SAARC) countries is to be deepened, and economic integration strengthened. Measures in this connection relate mainly to deepening five connectivities: trade, investment, transport, energy and people to people connectivities.
By any reckoning, trade connectivity is a critically important element in this wide-ranging spectrum of needed initiatives and in this context reducing tariff barriers and dismantling the non-tariff barriers (NTBs) are of crucial significance. Whilst the SAARC countries have been able to make notable progress in terms of bringing down tariff barriers in intra-regional trade, NTBs and related concerns continue to pose formidable challenges from the point of view of not only raising intra-regional trade but also creating opportunities of, and conducive environment for, greater intra-regional investment flows.
From a broader perspective, NTBs included measures, regulations, sanctions and additional duties which exporters have to either pay or comply with while undertaking trading activities (even when they were exempt from the obligations of paying the MFN duties). In case of intra-SAARC trade, these included a plethora of sanitary-phytosanitary (SPS) measures relating to health, hygiene and human safety concerns, and technical barriers to trade (TBT), rules of origin, compliance requirements as regards marking, labelling and packaging requirements in importing countries, onerous documentation needs and a host of other measures. In addition, these could be in the form of countervailing duties (CVDs) and anti-dumping duties (ADDs) that are imposed to safeguard against subsidies in exporting countries and dumping by exporting enterprises respectively. Some would also argue that infrastructure-related bottlenecks and lack of trade facilitation at the customs points be considered under the broader rubric of NTBs and non-tariff measures (NTMs). In case of trade in the SAARC region, the last argument is all the more significant and pertinent because a large part of the intra-regional trade takes place through land customs stations (LCS). Lack of appropriate financial instruments and absence of financial institutions to help conduct trading business also act as barriers to trade in the SAARC region. This is particularly true in case of conducting trade between Bangladesh and the North-East States of India.
Under the South Asian Free Trade Area (SAFTA) agreement, over the past years the SAARC countries have been reducing most favoured nation (MFN) tariffs according to the trade liberalisation plan (TLP) which was agreed under the SAFTA Framework and was put into effect in July, 2006. Number of negative list items (tradable items that are considered to be sensitive for various reasons and were kept outside of the purview of the TLP) has also been reduced as part of successive negotiations. Additionally, as is known, in a welcome move, India has offered duty-free, quota-free (DF-QF) market access for virtually all imports from the four 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 which led to considerable widening of the coverage of preferential market access in the region, both in terms of tariff lines and as share of preferential trade in overall intra-regional trade. However, the advantages which could have been potentially accrued from lowered duties, and the consequent opportunities of translating the comparative advantages into competitive advantages, have remained unrealised, to a large measure, because of the persistence of a wide range of NTBs.
NTBs as Impediments to Trade: It is generally agreed that the aforesaid NTBs harm the cause of trade, investment and business interests in a number of ways: they raise the cost of doing business, consumers suffer because of the resultant higher prices which are passed on to them, producers’ competitive strength is undermined and potential investors targeting the regional and the global markets by investing in the region are discouraged. Hence the urgent need to put in place policies, institutions and initiatives to address the attendant NTB-related concerns with a view 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’, in most instances these are concerned with compliance assurance as regards health-hygiene and scientific-technical standards in place in the importing countries, as required by respective national laws and regulations. It is also to be kept in mind that often such requirements are not applicable only for imports from the SAARC members; these are also equally applicable for imports from non-SAARC countries. Standards, testing, certification and food safety organisations in various SAARC countries maintain a wide range of measures under national acts, laws and regulations which can be viewed as NTBs, but actually should not be perceived to be necessarily so. 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. The standards they set are to be complied with by all producers, domestic as well as foreign.
However, NTBs give rise to problems of various kinds and there are several reasons for this. It is also not uncommon that problems arise because of lack of harmonisation in exporting and importing countries; sometimes there are definitional and interpretative ambiguities. Sometimes these 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. It is also not uncommon to misuse NTBs or impose standards that do not fall within reasonable application of SPS-TBT measures. These may be deployed by importing countries to serve protectionist purposes. As may be recalled, in the past India has applied CVDs and ADDs on some items of export from Bangladesh. These were often contested by Bangladesh, at times successfully, leading to their withdrawal. The ADD on dry-cell batteries is an example of a case of NTB that was subsequently withdrawn. The CVD on Bangladesh’s exported apparels items is another example of an ongoing concern.
An SPS-TBT Agreement: One way of addressing NTB-related problems would be to strengthen institutional capacities of standardisation institutions of the SAARC countries, build up their accreditation and certification capacities and go for signing of mutual recognition agreement (MRAs). Such MRAs are present among members of many similar 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 that an MRA would be signed between BIS and BSTI. However, MOUs may not always be the best options. Experience shows that customs officials often do not accept the validity of such agreements, raising objections on various grounds. It is reckoned in view of this that, SPS-TBT Agreements, signed on bilateral or multilateral basis, between and among member countries, could serve the purpose better. Such inter-governmental Agreements could also include MRAs between standardisation institutions of partner countries. The recently established South Asian Regional Standards Organization (SARSO), with its head office in Dhaka, could also play a positive role in setting up common and harmonised SAARC standards in SPS-TBT related areas. Indeed, SARSAO could in future facilitate the signing of a SAARC-wide MRA. As a matter of fact, SARSO has already initiated some work in terms of establishing SAARC standards for a number of items.
Global best practices show that a SAARC-wide SPS-TBT Agreement should include several elements and spell these out in a clear manner: (a) Objectives; (b) Scope and Coverage; (c) Harmonisation; (d) Mutual Recognition of Conformity Assessment; (e) Equivalence; (f) Dispute Settlement Mechanism (DSM) and Procedures; (g) SPS Committee and (h) Transparency, Technical Cooperation and Exchange of Information. Of crucial importance is the establishment of a DSM to address any NTB/NTM related disputes. As of now, the Committee of Experts (COEs) set up under the aegis of the SAARC is currently servicing this task. Given the experience, there is a need to set up a permanent DSM since it is to be expected that NTB/NTM related disputes tend to be a continuing and nagging concern even when there was a bilateral or multilateral SPS-TBT Agreement in place. The experience of ASEAN and other regional organisations testify to this.
An SPS Agreement between Bangladesh and India could help bridge the gap between the national standards of the two countries and reduce costs involved in bilateral trade. The Agreement will also provide opportunities for further cooperation, technical assistance, collaboration, and information exchange on SPS related matters consistent with the commitments to remove barriers to trade. To address the SPS issues, the Agreement will need to be designed in a manner that certification, laboratory tests and standards set by competent authorities in Bangladesh are accepted at customs points by India, and vice versa. SPS Agreement, both bilateral as well as multilateral, will ensure that SPS measures are not maintained and deployed without sufficient evidence, are applied only to the extent necessary to protect human, animal or plant life or health, and are based on scientific principles. Such an Agreement would have the power of enforcement since it is between two partner countries and just not institutions. Such an Agreement will also include provisions for Mutual Recognition of Conformity Assessment Procedures. Mutual recognition of standards and certification will be key to addressing SPS issues. Consumers will be benefited from such measures as they will enjoy the advantage of quality assurance concerning food and other products. The SPS Agreement will also help the two countries to integrate into regional and global value chains through quality assurance. If a bilateral SPS Agreement is signed between Bangladesh and India, this could serve as a role model for other countries in the SAARC region. The key point here is to build compliance capacities in SPS-related areas and to ensure that SPS measures do not act as NTBs that impede and inhibit bilateral and intra-regional trade. Whilst it is good that a part of the Indian LoC of USD 1.0 billion has been directed towards capacity building of BSTI, the amount has been rather paltry. This support may be further replenished through additional funds which can be earmarked from the proposed second LoC of USD 2.0 billion offered by India.
Going forward: 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). Bangladesh and India are also planning to have a separate connectivity protocols/agreement. The idea of BIMSTEC economic corridor has also been floated. Operationalisation of these new initiatives will call for initiatives to design standard operating protocols, establishment of electronic data exchange, putting in place single-window services and development of the needed hardware, software and physical infrastructure. The potential benefits of such initiatives, when in place, will be realised only if and when parallel initiatives are put in place to address the NTB concerns. If the border points are to be transformed from control and choking points to crossing points, all these measures will need to be taken forward in tandem.
Studies carried out at the CPD indicate that there were several items which individual SAARC countries were exporting to non-SAARC countries but not to SAARC members, and some of the SAARC countries were indeed importing the 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, particularly at the LCSs. The NTBs made importing from the region a rather more expensive exercise compared to doing so from alternative sources. If SPS Agreements are signed, SPS-TBT related institutions are strengthened, MRAs between relevant institutions are inked and trade facilitation measures are put in place at the borders, these will not only promote the cause of trade but also facilitate and stimulate investment. This then will help develop cross-border value and supply chains and deepen regional economic integration in the SAARC. Consequently, 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, one of the remaining frontiers to overcome, with a view to broadening and deepening regional integration, with the urgency that the task deserves. However, as was pointed out at the very beginning, trade connectivity is only one component in the wide-ranging spectrum of connectivities that will need to be established and strengthened to realise the full potential of regional integration in South Asia. Given this backdrop, initiatives will need to be taken on several fronts, and in tandem. In recent times a number of welcome steps have been taken towards the above. Future initiatives must take these forward and further. Signing an SPS-TBT Agreement could prove to be a smart option for Bangladesh, and this can be done both on bilateral basis with India, and on multilateral level encompassing the entire SAARC region.
Professor Mustafizur Rahman is executive director of the Centre for Policy Dialogue (CPD).