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Industrial Policy Space, Standards and Preferential Trade Agreements
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Industrial Policy Space, Standards and Preferential Trade Agreements
TOUITOU Mohammed1*GAIDI Khemissi2BOUDEGHDEGH Ahmed3
Senior lecturer A at university of Algiers 3, Faculty of Economics, *Email of corresponding author: [email protected]
Senior lecturer A at university of Bordj Bou Arreridj, Faculty of Economics.
Senior lecturer A at university of Jijel, Faculty of Economics.
After making the case for the integration of standards design into a framework of selective industrial policy, the paper investigates the availability of the necessary policy space for such a design in the context of preferential trade agreements signed by developing countries with, on the one hand, the United States of America and the European Union (North-South agreements), and in the other hand with China and India (South- South Agreements). While the former reduce systematically policy space for standards design at the national level, the later shows varied pattern ranging from the absence of any engagement to liberalize standards design to the inclusion of commitments going beyond engagements under WTO Agreement on Technical Barrier to Trade.
Keywords: Industrial Policy, Policy Space, Standards, WTO, Preferential Trade Agreements.
JEL classification codes : F13, F25, O57
Espace de politique industrielle, normes et accords commercial préférentiels
Après avoir plaidé en faveur de l’intégration de la conception des normes dans un cadre de politique industrielle sélective, le document étudie la disponibilité de l’espace politique nécessaire pour une telle conception dans le contexte des accords commerciaux préférentiels signés par les pays en développement avec, d’une part les États-Unis d’Amérique et l’Union européenne (accords Nord-Sud), et d’autre part avec la Chine et l’Inde (accords Sud-Sud). Alors que les premiers réduisent systématiquement la marge de manœuvre pour la conception des normes au niveau national, les modèles suivants vont de l’absence de tout engagement à libéraliser la conception des normes à l’inclusion d’engagements allant au-delà des engagements de l’OMC.
Mots-clés : Politique industrielle, Espace politique, Normes, OMC, Accords commerciaux préférentiels.
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Industrial policy has experienced a revival in recent years, both in terms of government practice and academic debate. Today’s discussion on Industrial policy seems to be more concerned about the how (application) and the content of industrial policy rather than the “why”. One important aspect of this debate is the changing international economic regime and, in consequence, the question of applicability of selective industrial policy in such a context. Accordingly, Development Economics has seen the emergence of the debate on Policy Space for Development that investigates, among other things, the availability of industrial policy tools, given the disciplines of the contemporary international financial, monetary, trade and investment regimes.
On the one hand, financial liberalization has created an environment where de facto control of national authorities over macroeconomic policy instrument has been weakened (Ocampo and Vos, 2011). On the other hand, the new international trading regime, with its core principles of reciprocity and non-discrimination, has reduced de jure autonomy of national policy makers (for theoretical conception of policy space, see UNCTAD, 2004; Hamwey, 2005; Mayer, 2009).
The present paper aims to contribute to the literature examining the extent to which the emerging international trade regime leaves nations the necessary policy space to deploy the as a tool of long-run diversification and development.
While tariff barriers have been substantially reduced during successive GATT and WTO negotiations, various non-tariff measures were relatively less liberalized at the multilateral level. This is why some trade negotiations, particularly at the bilateral level, have shifted from tariffs to more complex issues. Regulatory measures such as standards feature prominently in these agendas.
One of the policy tools that has received little attention in the debate on the industrial policy is standards. This might be due to the fact that the function of standards in economic development has tended to be reduced to instrument of public policy and trade policy. By contrast, literature on the economics of standards, both theoretical and empirical, highlights the contribution of standards to both overall and productivity growth, in addition to its role in the innovation.
The paper investigates the liberalization of Technical Barrier to Trade (TBT) under North-South and South-South preferential trade agreements (PTAs). It offers de jure assessment of the TBT provisions in the PTAs of United States of America (US), European Union (EU), China and India with developing countries. The reviewed PTAs cover different types of agreement, 9 free trade agreements with the US, 10 association and economic partnership agreements with the EU, 5 free trade agreements with China and 8 trade agreements with India. The aim behind the choice of these countries is to evaluate if there are significant differences between the conduct of emerging economies and core countries in their economic agreements with developing countries in a manner that impacts the policy space for industrial policy.
The article develops a framework that permit to compare PTAs to each other, through assessing their contents to WTO Agreement on TBT (WTO-TBT). To permit better comparative understanding, the content of the framework contains the most liberalizing provisions observed in the studied PTAs.
The results show that the liberalization of TBT under EU and US PTAs is the most extensive going systematically beyond commitments of the WTO-TBT. They enlarge liberalization coverage to include metrology and public procurement. EU has adopted harmonization toward its rules as liberalization approach with association agreements. US has adopted accepting as equivalent for technical regulations and introduced commitments to advancing liberalization of conformity assessment procedures. The overall result is that the PTAs of US and EU have introduced substantial disciplines on the design of standards in developing countries in a manner that hinders its integration into industrial policy framework.
China’s PTAs seem to adopt diverse approaches. Some agreements confirm engagements under WTO-TBT, though all PTAs consolidate it by establishing institutions to administer the engagements. Others have a tendency, rather than a firm obligation, to liberalize technical regulation through acceptance as equivalent approach. These commitments are contained in PTAs with countries having agreements with US and EU.
India’s PTAs have adopted position that affirms commitment to the WTO Agreement on TBT, with no additional engagements. Furthermore, one of India’s PTAs introduced derogations that permit the use of non-tariff restrictions for reasons of protection of local industries.
The article is structured as follows. Next section survey the literature. Section 2 attempts to theorize a rationale for the integration of standards design into an overall selective industrial policy framework. Section 3 presents an analytical framework that permits an examination of the PTAs. Section 4, present the results for each country in an attempt to deduce their approaches to the liberalization (or not) of the standards. Section 5 discusses the results and assesses the relative restrictiveness of observed approach on the standards design autonomy at the national level. Section 7 concludes.
Policy space available under the WTO agreements have been examined by several studies, especially in relation to industrial tariffs (Akyuz, 2005); industrial subsidies (Ayala and Gallagher, 2005); investment related measures (Kumar, 2005; Wade, 2003; Shadlen, 2005a) and technology related policy (Correa, 2000; Khan, 2009). In addition, some studies investigated the WTO agreements disciplines on policy space in several areas (Akyuz, 2009; Di Caprio and Gallagher 2008, UNCTAD, 2006; Kumar and Gallagher 2007, Bora et al, 2000).
By contrast, little attention has been paid to the impact of PTAs on the industrial policy instruments. Shadlen (2005b) examined intellectual property provisions in US’s PTAs. The study showed that many flexibilities existing under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights were eliminated in PTAs of US.
Khor (2008) showed that US’s PTAs not only eliminate WTO agreements flexibilities, but they also discipline policy areas which were not covered by the WTO.
Gallagher and Thrasher (2008) examined several trade related areas provisions across 13 trade agreements. Their results affirm the conclusions of previous studies about the PTAs of US, but find that South-South agreements provide ample policy space for industrial development and that EU agreements largely represent the middle of the spectrum.
However, there is an emerging literature that investigates the content of bilateral and regional trade agreements compared to the agreements of WTO but without special reference to the question of policy space. Horan et al (2009) is one of notable contribution on the PTAs of the US and the EU. It divides commitments under their agreements to WTO Plus to refer to commitments building on those already agreed to at the multilateral level, but introducing additional disciplines, and WTO extra to refer to commitments dealing with issues going beyond the current WTO mandate altogether.
Piermartini and Budetta (2009) survey 58 PTAs with TBT provisions. They analyzed its legal text and scrutinize whether regional liberalization of TBTs through harmonization or mutual recognition is pursued. They also examine transparency requirements, institutional and administrative frameworks, and cooperation between members on TBTs. The study shows that PTAs signed by the US promote the mutual recognition of conformity assessment procedures, whereas PTAs signed by the EU frequently promote further harmonization of technical regulations.
Lesser (2007) extends previous study mappingto 82 PTAs, with a special focus on Chile, Singapore, and Morocco. The study reveals that most provisions on TBT converge towards the multilateral trading system.
By using provisions of the WTO Agreement on TBT as a yardstick for their analysis, Meyer et al (2010) examine whether and how eight major regional integration agreements within the African region address TBT issues. They find that TBT are not an important issue in Sub- Saharan African RTAs.
Standards and industrial policy
In general, literature on standards in Development Economics is too limited. Moreover, functions of standards in economic policy are reduced to trade and public policies. Baldwin (1970) argued that standards adopted by economic agents can serve as non-tariff measures, affecting trade and world welfare. Fischer and Serra (2000) provide a ground to the use of product standard as an indirect trade policy to shift rents from the foreign to the domestic firms.
By contrast, several econometric studies have established a clear connection at a macroeconomic level between standardization in the economy, productivity growth, overall economic growth and innovation. These studies have been carried out for industrialized countries (UK, Germany, France, Canada and Australia). Estimates vary somewhat from study to study, but overall, the growth of the standards catalogue over recent years may account for between one eighth and one quarter of productivity growth over the period (see for example AFNOR, 2009; Centre for International Economics, 2007; Haimowitz and Warren, 2007; DTI, 2005; Blind, 2004; Blind et al, 1999b; Jungmittag et al, 1999; Blind and Grupp, 2000 and DIN, 2000). For example, Blind et al (1999) and Jungmittag et al (1999) try to identify the comparative contribution of capital, labour, patents, license expenditures and standards to German growth between 1961 and 1996. The average results over the period 1961-1990 indicate that capital contributes 1.6 percentage points per annum and standards 0.9 percentage points per annum towards a trend growth rate of 3.3 percent. The contribution of other factors, notably patents, is more modest. A survey of British companies found that over 60 percent of product and process innovators used technical standards as a source of information for innovation (DTI 2005).
Throughout this section, the article attempts to theorize a rationale for the integration of standards design into selective industrial policy framework.
2-1- standards and investment coordination failure
Investment coordination failure is one of the principle arguments in favor of industrial policy. This argument is traced back to the early year of Development Economics, and especially to four articulated and complementary works of Rosenstein-Rodan (1943) on the complementarities of intra-industry demand; Nurske (1953) on the underdevelopment as a product of offer shortage in investment; Sctiovosky (1954) on the investment pecuniary external economies and Hirschman (1958) on the optimal investment undertaking sequence. Policy implication of the argument is the need of “Big Push” by the state in the form of simultaneous and coordinated investment undertaking.
Recently, the argument found again its significance. According to Rodrik (2004) coordination problems typically arise when “profitable new industries fail to develop unless upstream and downstream investments are coaxed simultaneously ..More generally, coordination failures can arise whenever new industries exhibit scale economies and some of the inputs are non-tradable” (Rodrik 2004, p.13).
Standards might be seen as a pivotal tool to address the investment coordination failure. In fact, standards are commonly classified according to their specific function (DTI 2005; Swann 2000; Blind, 2004; and Guasch et al, 2007). We can highlight two interconnected categories of standards functions that are of special importance in relation to investment coordination failure.
The first category is the compatibility and interface standards, which define physical or virtual relationships between independent entities for the purpose of interoperability or communication (Guasch et al, 2007). Many positive effects for this category are recognized, especially the network effect or network externality.
The central feature of the market that determines the scope of the relevant network is whether the product of different firms may be used together (Katz and Shapiro, 1985). Swan
(2000, 2010) argues that compatibility and interface standards help to expand market opportunities because they help to increase both direct and indirect network effects1.
Network externalities may produce dynamic inefficiencies leading to excess inertia or excess momentum (Katz and Shapiro, 1985). In addition, supply-side mechanisms can lead to excess inertia, since in industries characterized by network externalities the dominant firm usually sets the standard. Competing firms may then wait to adopt a new technology because they fear being displaced by a subsequent innovation of a dominant firm (WTO, 2005). Such problems might produce lock-in in technological paradigms, and more generally it could produce lock-in in inferior set of standards from the point of view of the necessary restructuring of the economy.
Consequently, a distinction should be made between network externalities that correspond to the actual structure of economy to be changed, and the network externalities that facilitate and accelerate the structural transformation. Accordingly, the dynamic design and the continuous upgrading of standards could be seen as an important tool to alter existing network externalities. In general, one can say that compatibility standards are necessary condition, but not sufficient, for effecting measures of trade and investment policy aiming at enhancing domestic investments complementary.
The second category of standards function is the variety reduction or focusing device standards, where the majority of standards fall into this category (Guasch et al, 2007). These standards perform two different functions. First, it seeks to exploit economies of scale by minimizing the wasteful proliferation of minimally differentiated models. The second function influence technological capacity of the economy.
Swann and Watts (2000) argue that some technologies get locked into a pre-paradigmatic stage because suppliers and users are too dispersed and there is no focus or critical mass in developing a market for that technology. The variety-reducing standard can help to achieve that focus, and hence help the market to take off. As put by Swan (2000) “Standards play a role as a rallying post”.
2-2-Standards as an element of control mechanism
Today, many economists share the view that the key difference between failed and succeeded industrialization experiences is the presence or not of effective control mechanisms based on the principle of reciprocity, accompanying the different types of support provided by the state for local investors (Amsden, 2001, Lal, 2004).
In her influential work, Amsden (2001) defines the control mechanism as “a set of institutions that imposes discipline on economic behavior.” She adds, “A control mechanism involves a sensor, to detect the “givens” in the process to be controlled; an assessor, to compare what is happening with what should happen; an effector, to change behavior; and a communications network, to transmit information between all functions” (Amsden, 2001, pp.9).
Standards could be an element of control mechanism. The compatibility standards for complementary investments permit to give signs by involved producers about the conformity of their production inputs (which are output of others producer in the network) to an established standard. In addition, Standards are clearly adapted to the function of communication network.
If domestic producers participate in standardization process, the latter might become a forum to better comprehend the state of national industries, thus, facilitating the dynamic design of standards2.
In order to examine the content of TBT provisions in the studied PTAs, the article develops a framework that permit to compare PTAs to each other, through assessing their contents to Agreement of WTO on TBT. Piermartini and Budetta (2009) construct notable framework that adopt the same demarche, but present one covers some aspects that were not observed there. However, to permit better comparative understanding, the content of ours framework contains the most liberalizing provisions observed in the studied PTAs. The framework is organized in 4 sections.
3-1- The scope of liberalization
WTO-TBT covers three elements of standardization and quality assessment process: technical regulations, standards and conformity assessment (see Box for the definitions of these terms). At this level, the framework investigates if the studied PTAs broaden the coverage of liberalization through including new elements, such as Metrology.
The WTO Agreement on TBT covers all products, whether industrial or agricultural (article 1.3), but it excludes government procurement and the measure related to the sanitary and phytosanitary (article 1.5).
While examining the contents of PTAs chapters on sanitary and phytosanitary measures is beyond the scope of the study, it considers whether standards related to Public Procurement are liberalized by the studied PTAs.
3-2- The core approaches of liberalization
The WTO-TBT established both pillars of non-discrimination, national treatment and most favored nation principles, in respect to TBT (Article 2.1)3. In addition, the preparation, adoption and application of TBT should not create “unnecessary obstacles to international trade” (Article 2.2, Article 5.1.2)4.
Harmonization toward international standards is the main liberalization approach adopted under WTO-TBT, where several obligations were introduced:
-TBT should be based on international standard5, whenever they do exist. Exceptions have been made for situations when the international standards will be ineffective or inappropriate. Though these terms are not defined clearly, the agreement state that such situations may arise because of fundamental climatic or geographical factors or fundamental technological problems. Consequently, a considerable marge de maneuver is left when interpreting and operationalizing those terms at the national level.
An incentive for using international standards has been provided by the presumption that a national regulation will not be considered to be creating an unnecessary obstacle to international trade, if it is based on international standards. However such presumption is rebuttable by any affected member.
The framework examine if the studied PTAs tighten harmonization engagement under WTO, more precisely through examining two points:
If PTAs deepen the obligation to adopt international standards through the introduction of firm commitments to harmonization.
If the PTAs introduce commitment to harmonization on the basis of a party’s own TBT.
In respect to acceptance as equivalence, the WTO-TBT encourage to “give positive consideration to accepting as equivalent technical regulations of other Members”, and to accept as equivalent, “whenever possible”, other Members conformity assessments results and procedures. The framework examines the following points:
If international standards are promoted as basis for national TBT.
If party’s TBT promoted as basis for national TBT.
If justification is needed in case of refusing to accept as equivalent other party TBT.
Concerning the recognition of conformity assessment of other partner, the framework investigates the following points:
If PTAs introduce an illustrative list of mechanisms for mutual recognition of conformity assessment results and procedures.
Whether countries engage to negotiate mutual recognition within defined period.
If justification is needed in case of declining negotiation request for mutual recognition.
If national treatment is mandated for the accreditation of conformity assessment bodies.
3-3- Transparency requirements
Helble et al (2009) and Wolfe (2003, 2013) see that transparency is a key element for the functioning of whole system of trade liberalization. On the one hand, information asymmetries and procedural complexity might be seen as non-tariffs barriers. Therefore, transparency requirements reduce costs for the access of foreign goods. On the other hand, transparency is necessary to the verification of implementation of supranational rules, and thus, to the well- functioning of enforceability mechanism. Wolf (2013) argues that transparency, in general, serves three purposes. First it lets actors know what others are doing, so they can act accordingly. Second, transparency is the basis for one actor to try to influence another actor to act differently. Third, transparency is the basis on which an actor can be held accountable for obligations. Wolf (2013) concludes “The ultimate objective of transparency is systemic stability”.
The WTO Agreement on TBT introduces many transparency requirements in the case that member countries envisage to adopt a TBT not based on international standard, Members should notify other Members through the WTO Secretariat of the purpose of the proposed measure. In such circumstances, Members must allow “reasonable time” for other Members
to comment on proposed technical regulations and conformity assessment procedures, which the WTO TBT Committee has recommended to be “at least 60 days”. In addition, the Member should take comments it receives from other Members into account. (Art.2.9, Art.5.6). At this level, the framework investigates the following points:
If the notification period is extended beyond sixty days.
If the notification period is less than 60 days.
If justification is requested in case of not considering another party comments.
If the party should permit others to participate in the development of its own TBT.
If it defines delay for the application of transparency requirements.
3-4- The administrative structure
There may be a considerable difference between the text of the agreement and the extent to which commitments are implemented. Hence, similar provisions in two different PTAs may correspond to extremely different practices. In general, the gap between the law and the practice is likely to depend on the institutional settings and administrative procedures (Piermartini and Budetta, 2009). Two points are investigated here:
If committee on TBT is established.
If consultation should be undertaken under dispute settlement chapter.
3-5-The extent of overall liberalization
The analysis considers that the tightness of overall liberalization commitments depends on the combination of the following factors:
The scope of coverage of liberalization commitments.
The subject of liberalization: Standards, Technical regulation and conformity assessment.
The more subject are liberalized the tighter is the commitments.
The approach of liberalization. Here, the analysis distinguish between two elements:
The core elements of liberalization approach which deal directly with the subject of liberalization; harmonization, mutual recognition and accepting as equivalent. Here again, we have to distinguish between the different formulations of commitments in the case of each approach. For example, when justification of non-equivalence is needed, a distinction should be made between commitments defining the objective of justification by taking corrective measures, and those just requesting the justification without defining the objective. Thus the party could present its justification while maintaining the non-acceptance. Clearly the former is more stringent than the latter.
The administrative and institutional elements, i.e. the transparency requirements and enforceability provisions. Those elements concern the application and administration of liberalization commitments.
Hence, extensive transparency provision accompanied with limited coverage and soft-core commitments can be considered less liberal than an approach broadening the scope of liberalization and adopting hard-core commitments while not extending transparency requirements.
Overview of the Results
In this section the paper presents a general review of the studied PTAs (see table.1) grouped by countries. The annexe contains the detailed results presented in tables.
4-1- European Union
The PTAs of EU broaden the scope of TBT liberalization to cover the public procurement. The chapter on Public Procurement introduces many disciplines on the design of the “technical specifications”6. They should be based on international standards “except where the use of an international standard would fail to meet the procuring entity’s program requirements or would impose more burdens than the use of a government unique standard”; and should not create unnecessary obstacles to trade between parties. Importantly, it prohibits the interaction between the government and the private sector in the elaboration of TBT7.
While there is no any reference to metrology in the WTO-TBT, EU’s PTAs broaden its TBT coverage to include metrology. Some agreements (CARIFOUM, CA, Egypt, Chile and South Africa) aim at the cooperation in this domain, and other include an obligation to adopt metrology EU rules8.
It is apparent that the dominant approach in the EU PTAs is the harmonization. To achieve this aim two different methods are used9, the first adopt the harmonization toward standards and technical regulation of EU. While they use the term harmonization, what is observed is rather a unilateral recognition by one party of the EU standard, with engagement to adapt its own standard to the European ones. In the case of conformity assessment for MED countries, the engagement to the harmonization based on EU conformity standard is combined with article implying that eventual “mutual recognition” could take place when the MED countries laboratories are upgraded.
The second method adopts harmonization toward international standards. This approach is observed for agreements with Mexico, Andean Community, CARIFORUM and South Africa.
EU-Andean Community PTAs push toward extending the period of comment in case of introducing a modification of (new) measure that concerns TBT. The establishment of sub- committee on TBT is only observed in the EU-Chile PTAs.
4-2- United States
Similarly, the PTAs of US broaden the scope of TBT liberalization. It includes a chapter on Public Procurement that introduces disciplines on the design of “technical specifications”10. In general, these disciplines are the same as those found in EU Public Procurement chapter (That’s not to say that the US copies the EU). In addition, US agreement with Colombia, Peru,
CAFTA-DR and Panama include a footnote which affirm that any reference to “standard, technical regulation or conformity assessment procedure includes those related to metrology”.
The dominant liberalization approach11 is the acceptance as equivalent other party TBT. Concerning technical regulation, US PTAs push toward acceptance as equivalent through two provisions. The party refusing to accept as equivalent the other party technical regulation, should justify its non-acceptance12, in both cases where it provides that foreign technical regulation may be accepted as equivalent to its own, or not.
Concerning the conformity assessments, all US PTAs foster initiatives to develop mutual recognition, and, they enumerate list of mechanisms to achieve this aim. The PTAs of US go much further by introducing national treatment provision for the accreditation and recognition of conformity assessment bodies of another party (located in the territories of other Members (Art. 6.4, WTO-TBT). In case of non-compliance with these provisions, the refusing country must provide reasons behind its decision “so that corrective action may be taken, if necessary”. Finally, it goes beyond WTO Agreement on TBT, that only encourages countries to enter in negotiations to conclude mutual recognition agreements, by charging the country that decline the request with the burden of justification of its decision.
In addition to its encouragement for the extension of the period of comments in its PTAs with Peru and Colombia, it introduces novelty consisting of permitting and receiving comments from persons not only governments. Moreover, US’s PTAs introduce an obligation to permit all foreigners (not just agreements’ parties) to participate in the development of its TBT on terms no
less favourable than those accorded to nationals. Furthermore, it defines time period for the implementation of transparency requirements “in no event later than three years”13.
Regional bodies are established under PTAs of US. Some PTAs established committee (PTAs with Colombia, Peru, Panama, CAFTA-DR, Chile), and others established coordinator (PTAs with Oman, Morocco, and Bahrain). Anyway, the difference in names reflects differences in the structure and the functions. Agreements establishing committee, include provide that “the Parties shall make every effort to obtain a mutually satisfactory solution within 60 days » in case of consultation. Moreover, consultation should be conducted under consultation provision contained in the dispute settlement chapter.
China’s provisions on technical regulation restate two obligations of TBT WTO, the first is to use international standard as a basis for their technical regulations and related conformity assessment where “international standards exist or their completion is imminent, each Party shall use them, or relevant parts of them” and secondly, « Each Party shall give positive consideration
to accepting as equivalent, technical regulations of another Party” if it fulfills the objective of its own regulation. Some agreements (PTAs with Chile, Peru and ASEAN), go further by the inclusion of an obligation to provide explanation, under other party request, whenever technical regulations of that Party are not accepted as equivalent.
Although to variant degrees, the PTAs of china seek the mutual recognition on the base of international standard. Some agreements (ASEAN, Peru, Chile, Costa Rica) recognize the existence of broad mechanism to facilitate the acceptance of conformity assessment procedures and its results but without defining them, except for the agreement with Chile which enumerate illustrative list of such mechanisms. Some agreements require a justification in case of non-acceptance of conformity results of another party14. Agreements with Chile and Peru require justification for rejection of engagement in negotiations.
China-Peru PTA introduces provision similar to those of US and EU on encouraging extension of comments period. Moreover, it demands clarifications in case of non-extension under a request by the other party. China-Chile PTA introduces time limit of 3 years as a period to the implementation of transparency provision. China-Costa Rica and China-ASEAN introduce a time limit for the application of WTO-TBT engagement to provide the notification about the modification of TBT measure under request of other members15.
China PTAs established committees on TBT. Finally, PTAs with Peru and Chile provide the possibility to recourse to dispute settlement mechanism established by the agreement (Peru Article 101.4, Chile Article 69.5).
India’s PTAs do not include extensive provisions on TBT. Some agreements do not have direct indication to TBT . However, whenever direct reference to TBT does exist, it consists to affirm commitments under WTO-TBT. Agreements with MERCSOUR and Chile contain provision on cooperation on TBT (Mercsour Article 19, Chile Article XII, SAFTA Article.8).
Although there is no direct reference to TBT in PTA between India and Bhutan, it contains derogation that permit the use of non-tariff restriction “on the entry into Bhutan of certain goods of Indian origin as may be necessary for the protection of industries in Bhutan” (Article.II), and it permits to impose such measures on goods of a third country.
It hard to settle which overall approach of liberalization is the tightest, that’s of US or EU. While US provisions are more extensive and cover more subjects, the EU core element of liberalization approach in association agreements could be considered the most liberal. Although both models broaden the coverage of liberalization to include public procurement and metrology, there are many essential differences between the two approaches:
While EU establish direct obligation to harmonization toward both EU and international TBT, US adopt indirect obligation, but probably effective, to accept as equivalent the technical regulation and the conformity assessment of other party.
In contrast the EU PTAs, the US PTAs include extensive provision on transparency and enforceability.
In general, harmonization consists of a process that could take less or more time, and where parties could, deliberately, introduce obstacles to gain time, particularly where international standards doesn’t exist. However, the outcome of such possibility shouldn’t be overestimated, given the asymmetric bargaining powers of countries involved in negotiations.
Harmonization toward party’s standards could seriously impact developing countries by reducing their trade with third party, especially in the context of developing countries’ lack of resources, both financial and technical, to establish multiple production lines in conformity with the multiple standards requirements. Piermartini and Budetta (2009) concluded that harmonization on regional basis locks countries into some markets and reinforces hub-and-spoke trade structures. Disdier et al (2013) empirical study shows that hub-and-spoke trade structures, is not only promoted and enhanced by harmonization based on regional standards, but also by harmonization based on international standard included in North-South PTAs.
Even if harmonization had to occur at the multilateral level, the central question is whether international standards are compatible with developing countries needs and their level of development, technological capacities and more importantly with development strategy guided by the objective of structural transformation.
According to WTO (2005) “A priori, both the demand for standards and the capacity to develop standardization infrastructure and activities depend to a large extent on factors correlated with a country’s level of development, and especially their industrial development. Demand for network externality standards (compatibility/interface) that emanates from producers clearly increases with the level of industrialization and development of the country.Similarly, demand for information asymmetry standards and environmental standards, tends to increase with the level of income and development ” (WTO, 2005, pp.93).
WTO (2005) reported the results of a survey that was conducted by the International Organization for Standardization (ISO) in 110 developing countries showed that the level of participation of respondent countries in international standardization work was still very low. In 70% of respondent countries, more than half the standards were not based on international standards and in 61% of the countries, more than half the mandatory technical regulations were not based on international standards. 42% of the respondent countries were not registered as members of any ISO technical committee and 52% of the respondent countries had not attended any meetings of these technical committees. 48% of the respondent countries did not even follow the work by correspondence.
Morikawa and Morrison (2004) examined the regional representation in ISO’s technical committees (TCs) (see table.1). Their study illustrates that “ISO standards have historically, and continue to be, dominated by industrialized nations, especially Western European countries” (Morikawa and Morrison, 2004, Pp.25). The study shows that even when developing countries do establish Participating Member status in a TC, evidence suggests their involvement in standards development is typically not as substantive as developed nations, which tend to send far more delegates to meetings and to hold more leadership positions within TCs.
In contrast to harmonization, acceptance as equivalent does not requires extensive phase of preparation, thus leading to immediate liberalization. Moreover, when non-acceptance of party’s standards as equivalent needs to be justified “in order to take corrective measures”, technical expertise asymmetries could lead to de facto asymmetric liberalization in the interest of industrialized countries. Therefore, equivalence might be translated into unilateral liberalization of TBT in developing countries. In such scenario, equivalence may not only restrict the ability of developing countries to design their standards as part of industrial policy framework, but it might also deprive theme from effecting market access in sectors where they have comparative advantage, which is supposed to be the raison d’être of TBT liberalization.
Contrary to US and EU, China approach does not broaden the scope of liberalization. Approach of liberalization of TBT in PTAs involving China, whenever they do exist, adopt the indirect obligation, that is giving positive consideration the acceptance as equivalent, both technical regulation and conformity assessment. While some US PTAs (Peru and Colombia) define the objective of justification as to be “in order to take corrective action”, the Chinese approach still silent, alleviating the tightness of liberalization, and even making it ineffective. Moreover, all US PTAs include illustrative list of mechanism for accepting as equivalent conformity assessment results. China does not include such list except in its PTA with Chile.
PTAs involving China have extensive provision on Transparency, especially in respect to the comments period. Again, US approach in respect to transparency include the introduction of deep commitments, such as the permission to persons of others parties to participate in the development of its own TBT on the basis of national treatment and most favor nation clauses. In this respect china, introduce what could be considered as WTO minus provision excluding parties form justification of new TBT measure in case of urgency.
Similar to the US approach, PTAs that involve China introduce a sub-committee on TBT. By contrast, their functions are less clearly and extensively defined compared to US chapters, and more importantly, consultations should not have to take place under dispute settlement procedure.
It is important to note that the majority of provisions going beyond WTO are contained in PTAs with countries that have had another PTA with US and EU, especially Peru and Chile. By contrast, PTA with Costa Rica, who is a party of the PTA of US-CAFTADR, does not go beyond commitments under WTO. Consequently, questions are raised whether these provisions were requested by China or its partners? Such question gain momentum, giving that Chile and Peru, demonstrated a relatively liberal stance in their trade negotiations (See Berger, 2013).
While empirical investigation of negotiations conduct of China concerning TBT is beyond the scope of this paper, it worth noting that many studies underline that one of china PTAs’ characteristic is its flexibility and the ability to adapt to the circumstances and needs of each partner on a case-by-case basis. China tends to design individually tailored PTAs that address the varied preferences of its partners, resulting in agreements that are highly
differentiated in terms of their substance. However, such flexibility have its limits, where China refuse to go beyond certain degree of liberalization16 (Berger, 2013; Zhao and Webster, 2011; Yu, 2010). Concerning TBT, it seems that China’s ceiling liberalization is the soft indirect commitments to accept as equivalent other party’s TBT.
While WTO agreements on TBT is based on vision of standard reduced to public policy instrument and barriers to trade, it was a consensual outcome leaving marge de maneuver for the design of standards at the national level. North-South PTAs reduce systematically policy space for standardization at the national level, through the export of their own standards in the case of EU, or through the promotion of standards produced at international institutions dominated by industrialized countries.
The general rule in the studied South-South PTAs that whenever they include provision on standards, they do not go beyond WTO commitments. Exception is to include provision going beyond WTO commitments. However, those commitments either concern transparency and administrative aspects, or when they concern core elements of liberalization it is doubtful that they have effective implication. In both cases, those commitments are much less liberal than those found in North-South PTAs.
Although international trade regime reduces industrial policy space and offer developing countries no equal opportunity for development, its constraints are not identic, depending, inter alia, on the type of partnership. The present room for maneuver under WTO for the integration of standard design at the national level into overall industrial policy framework seeking the structural transformation is not reduced systematically in south-south PTAs in contrast to North- South PTAs.
The article basis its analysis on the attempts to enlarge the perception of standards beyond its standard functions as “barrier to trade” and public policy tools, by taking into consideration its function as economic policy tool that influence the very structure of the economy. Dynamic standards design could be an instrument in the overall policy framework addressing the investments coordination failure. In addition, standards could be designed as part of control mechanisms related to different types of government support for investments that have the aim of developing local productive capacities. Consequently, the development economics debate about the international cooperation in the domain of standards has some additional concerns to deal with, other than trade liberalization direct gain and cost. For example, to which extent the “one size fits all” models of international and regional standards are compatible with different economic needs of involved countries?
Although certain degree of coordination of standards is desirable, the question of compatibility of one standards design to different countries should be integrated in the overall analysis. In fact, countries differ in terms of levels of development, technological capacities and national economic policy preferences. By consequence, it is natural that optimal national standards differ across countries, giving that it is extremely rare that countries have identical policy objectives. Even if harmonization had to occur at the multilateral level, the problem exists as to whether developing countries can effectively participate in deliberations of international standard-setting bodies, as they might lack the technical expertise to influence the creation of some technical standards (WTO, 2005).
However, the disciplines introduced by studied trade agreements show a tendency to curtail the ability of countries to design TBT at the national level. Under the WTO, despite the constraint on policy space, there remains room to maneuver. While some PTAs push for broader and deeper liberalization of TBT, others continue to keep space for the policies aimed at industrial development. While the studied North-South PTAs include WTO plus commitments,the studied South-South PTAs show varied pattern ranging from just affirming engagement under TBT agreement under WTO to include commitment going beyond WTO engagements. However, WTO Plus commitments in South-South, are less liberal than those found in North- South.
It is important to point out that the paper proposes de jure assessment of studied PTAs, this is why it is unable to evaluate the extent to which rules are implemented. Taking into account that the application of some commitments is not mandated, rather, justification is required in case of not applying it. Therefore, a further investigation is needed to examine whether parties are resorting to such request or not and the implication in term of changing previous conduct.
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1- note page 4: Direct externalities (direct physical effect) arise where the increase in the number of users increases the utility of all participants in the network. Indirect externalities arise for products that require the presence of a complementary good or service.
2- note page 5: As Rodrik (2004) put it in generally “the task of industrial policy is as much about eliciting information from the private sector on significant externalities and their remedies as it is about implementing appropriate policies. The right model for industrial policy is not that of an autonomous government applying Pigovian taxes or subsidies, but of strategic collaboration between the private sector and the government with the aim of uncovering where the most significant obstacles to restructuring lie and what type of interventions are most likely to remove them.”
3- note page 6: The agreement addresses many concrete aspects in order to ensure the non-discrimination, such as the procedures, the fees and the location of facilities which are used in conformity assessment.
4- note page 6: Though the precise definition of “unnecessary obstacles to international trade” hasn’t been given, there are the following guidelines in this regard (Article 2.2 for technical regulation): (i)The risk of not having these regulations will have to be weighed against the effects on trade, to determine whether the regulations are disproportionate in the light of the risks. (ii) if an alternative measure is available which would meet the same objectif and permit to address policy concerns with “less restrictive manner”. However a technical regulation must not be continued if the need for it no longer exists.
5- note page 6: However the introduction of Technical Regulat ion is only permitted for « legitimate objective ». These objectives include: (i) national security requirements; (ii) prevention of deceptive practices; (iii) protection of human health or safety; (iv) protection of animal life or health; (v) protection of plant life or health; and (vi) protection of the environment (article 2.2). This is not an exhaustive list as Members may lay down other objectives which have not been specified.
6- note page 9: EU’s PTAs define technical specifications as “a specification which lays down the characteristics of the products or services to be procured, such as quality, performance, safety and dimensions, symbols, terminology, packaging, marking and labelling, or the processes and methods for their production and requirements relating to conformity assessment procedures prescribed by the procuring entities covered by this Chapter»
7- note page 9: It States that parties may not accept an “advice that may be used in the preparation or adoption of any technical specification from a person who might have commercial interest in that procurement”. (for example, EU- CARIFORUM Article.173.2)
8- note page 9: Tunis, Morroco and Jordan. In the case of Algeria an obligation to upgrade its metrology is introduced with no reference on which bases.
9- note page 9: The agreement with Chile combines the both methods for the Technical Regulation and Standards.
10- note page 10: US PTAs define technical specification as “tendering requirement that: (a) sets out the characteristics of: (i) goods to be procured, including quality, performance, safety, and dimensions, or the processes and methods for their production; or (ii) services to be procured, or the processes or methods for their provision, including any applicable administrative provisions; or (b) addresses terminology, symbols, packaging, marking, or labeling requirements, as they apply to a good or service”
11- note page 10: In the case of technical regulation it does not express the method for Morocco, Oman and Bahrain.
12- note page 10: Peru and Colombia use the term « Shall », Chile, CAFTA-DR and panama provide lesser obligation by introducing the term “may”.
13- note page 10: Peru and Colombia; the period is five years for agreements with Morocco, Oman, Bahrain, CAFTA-DR.
14- note page 10: (ASEAN Article 7.6 Peru Article 98.3, Chile Article 66.4, Chile and Peru do have the same with US, engagement included in ASEAN is more complex and liberal where an agreement on mutual recognition is signed)
15- note page 11: 5 days in China-Costarica PTAs (Article 75.1), and 15 days in China-ASEAN PTAs (Article 8.2) since the request of other party is received.
16- note page 13: For example the result of Berger (2013) empirical study on Chinese Preferential Trade and Investment Agreements shows that “treaty language diffuses from its partner country PTIA policies in the process of negotiations towards China’s PTIA policy ..China has been flexible and responsive to the model texts proposed by the respective partner countries, as is explained in greater detail below. The only limiting factor to China’s pragmatism was the inclusion of liberalization commitments in its PTIAs that are not in line with China’s industrial policy, which relies on a selective admission system that results in discriminatory treatment against domestic and foreign investors”.