While there has been a lot of talk about tariff barriers that Indian exporters face while shipping goods and services overseas, discussions on non-tariff barriers have been kept restricted to narrow confines. The reason is simple – lack of awareness about non-tariff barriers amongst Indian exporters. The fact though is that non-tariff barriers are increasingly posing a bigger challenge to India's exports than traditional tariffs. What can Indian trade authorities do to minimise the pain caused by these masked barriers to free trade, if not eliminate them altogether? The Dollar Business analyses.
TDB INTELLIGENCE UNIT | September 2017 Issue | The Dollar Business
A few decades ago, high tariffs or import duties were considered to be the prime challenge to cross-border trade. But, over the years as markets opened up, tariffs have rapidly declined under the World Trade Organisation (WTO) regime. One would therefore imagine that free trade would have certainly received a thumping boost from the lowered tariffs. Not so.
Countries have now found new methods, some entirely justified while others not so, to restrict trade without increasing tariffs. Let us take the case of Algeria as an example. In FY2013, India’s exports from the automobile sector to Algeria was $437.28 million. Now compare this to FY2017 when India's exports of automobiles to the country grossed just $122.16 million, reporting a massive decline of over 72%! What brought about the fall?
While there were many changes in the world economy, a closer look reveals that during the said duration, Algeria imposed a series of regulations on imports of automobiles and components – from imposing a new regulation with regards to airbags in vehicles to a 17% VAT exemption for domestic manufacturers. Interestingly, the Algerian government is now attempting a clampdown on 'disguised' imports (where assembling and local parts are minimal). Similarly, some Indian exporters of garments to EU end up paying as much as $3 per piece to meet the labelling and packaging specifications that further eats into their already narrowing margins. There are umpteen similar cases.
This means a country or a region can effectively restrict imports without imposing higher tariffs on imports. These are called non-tariff barriers (NTBs), which are now posing a much bigger challenge to cross-border trade than tariff barriers. Reason - exporters are less aware of NTBs and in absence of ad-valorem taxes, as in the case of tariff barriers, they find it difficult to calculate the damage suffered.
NATURE OF THE BEAST
So, what are non-tariff barriers? In simple terms, non-tariff barriers refer to any non-tariff restrictions on a country’s exports and imports. The United Nations Conference for Trade and Development (UNCTAD) developed the first classification system for non-tariff barriers and measures (NTBs/ NTMs) in 2008. The list classifies non-tariff barriers into 16 chapters, namely: Sanitary and Phytosanitary measures, Technical Barriers to Trade, pre-shipment measures, price control measures, quantity control measures, finance, anti-competitive measures, Trade-Related Aspects of Investment Measures (TRIMS), subsidies, rules of origin, Trade-Related Aspects of Intellectual Property Rights (TRIPS), export and distribution-related measures, charges/taxes, etc.
Decline in India's exports to certain countries across sectors, from automobiles to agricultural products and from pharmaceuticals to textiles,
can be traced back to certain non-tariff barrier that have been imposed on India.
While timely intervention by WTO and a growing global economy has to a certain extent helped stabilise tariffs, non-tariff barriers are a much more complicated case altogether. Harsha Vardhana Singh, Executive Director, Brookings India says, “NTBs are not easy to estimate. When it comes to tariff, it is ad valorem which is a clear, non-complicated mechanism. On the other hand, a non-tariff barrier can be of different kinds and it's difficult to estimate its impact. However, studies show that the impact of NBTs is bigger than the impact of tariff measures, per se.”
PROTECTIONISM?
These challenges are more evident when talking about trade between developed and developing countries. Lourdes Casanova, Academic Director of the Emerging Markets Institute at Samuel Curtis Johnson Graduate School of Management at Cornell University gives an example of subsidies, which is a non-tariff measure that aims to assist domestic farmers to produce better quality and larger volumes.
Exports from the agricultural sector from many countries, including India, has been at the
receiving end of a variety of sanitary and phytosanitary measures from developed countries.
“Farmers in US and Europe receive certain subsidies which provide them an unfair trade advantage over farmers in developing countries like India and Africa who cannot therefore compete with them.” For instance, she explains, although sugar is produced throughout the world, farmers from developing and emerging economies cannot compete with farmers from US and Europe when it comes to production cost because their countries cannot afford to grant them higher subsidies, not to the tune their counterparts in developed economies receive from their governments.
Another non-tariff barrier that shows a variable impact is Sanitary and Phytosanitary measures (SPS), which aims to standardise health and product safety. While SPS is important to safeguard the health and safety of citizens, for exporters from developing countries, the complex and stringent regulations add to the cost of compliance and restricts movement of goods. So much so that at times large shipments of perishable items have been known to be held in quarantine and then rejected based on SPS standards causing huge losses to exporters from developing countries. The agriculture and fishing industry from India have been at the receiving end of these norms many times. In fact, till date 1,270 Sanitary and Phytosanitary measures have been imposed by a variety of nations on India.
FIGHT-OH!-SANITARY
WTO, through the Agreement on Sanitary and Phytosanitary Measures, aims to balance a country’s right to protect and maintain certain standards of health and sanitation while also ensuring that these rules do not restrict or curtail free trade across borders. Under SPS, countries are permitted to set standards for “health and product safety”. WTO allows for flexibility in these standards if the exporting country can provide adequate proof that the measures that they follow provide similar quality in their products even if the procedure followed is different. Despite this flexibility, for Indian exports, Sanitary and Phytosanitary measures turning into trade barriers are not new. An example one could look at is China's use of SPS measures to ban the import of Basmati rice from India. While China has lifted restrictions on imports of Basmati rice (China lifted the ban in November 2016), it was not the first time that Indian exports of Basmati rice to China faced a roadblock. China has often cited SPS concerns behind placing such bans.
EU has also over the last few years gained infamy amongst Indian exporters for imposing stringent SPS rules and regulations. Recently, EU announced that it will be lowering the Minimum Residual Level (MRL) of the fungicide Tryclazole that is permissible in the imports of Basmati Rice – this issue is currently under discussion with concerns being raised that if implemented, India would lose its marketshare to Pakistan.
The agriculture sector, both in India and around the world, has been impacted by SPS and Technical Barriers to Trade, agrees Michele Ruta, Lead Economist at the World Bank Group’s Trade & Competitiveness Global Practice. He explains, “The coverage ratio, which captures the percentage of trade subject to non-tariff measures, is as high as 90% for SPS and TBT measures in agriculture. And, it is difficult to disentangle the protectionist intent of these measures from the legitimate public policy needs. The measures adopted at the multilateral level are the reference to international standards. The perception is that if a certain regulation is in line with international standards, it is not framed to discriminate foreign producers.”
Ruta feels that regional regulatory cooperation can be used as a tool to reduce trade costs incurred by exporters. “A lot can be done to improve the ability of the exporters to meet regulatory requirements in other countries. This includes policies to promote appropriate skills and creation of facilities to provide appropriate testing for agricultural products,” he tells The Dollar Business.
In India, export promotion councils like APEDA have been working towards overcoming these barriers by setting up in-house laboratories for basic testing of the produce. “For sophisticated testing such as aflatoxins and pesticides residues, APEDA has recognised 41 laboratories. APEDA has also been assisting exporters financially for implementing quality management systems such as ISO series, Hazard Analysis Critical Control Points (HACCP), Good Agricultural Practices (GAP), etc.,” explains D. K. Singh, Chairman, APEDA. Despite the efforts, cases of shipments being stopped and sent back are a rather regular occurrence.
TO EACH HIS OWN
Apart from Sanitary and Phytosanitary measures, Indian exports is also impacted by many Technical Barriers to Trade (TBT) – in terms of various rules and regulations on size, quantity, labelling as well as the functionality of the product and its purpose amongst others. For the exporting country, the challenge that it brings includes readjusting the size of a product or making changes in the ingredients and the production process to meet the requirements of each individual country which tends to add to the cost of production and can hurt profits of many small-scale exporters. EU and US standards have been a major concern for India when it comes to imposition of regulations under TBT for India's processed agri and marine products.
Interestingly, seafood and agriculture sectors aren't the only ones who've been on the receiving end of TBT measures. M. Mody, Director, R. F. International, a manufacturer and exporter of fashion garments, explains, “Foreign buyers generally insist on getting tests done at their nominated labs only, and these labs charge sky-high fees. Also, many buyers insist on getting tags and labels (for the product) from a designated company in Hong Kong only. This results in delays of many of our consignments and we also then have to add the cost of labelling to the final price.” For instance, if the production cost of a scarf without a tag and international testing is $4, the cost of the same scarf post these requirements increases by $2.50-3. The final cost is to be borne by the end customer, which may therefore result in a loss of business.
DEVELOPING STANDARDS
Such matters boil down to one parameter - quality perception! Question is, in terms of quality, what has been really preventing India from being on a par with its trading partners?
Bal Krishna Kabra, Managing Director of Kabra Exports, a Noida-based exporter of home furnishing items, says, “There is a significant difference in the quality of input items that we use here in our country, compared to those used in other countries. So, one who trades globally, has to be ready to adapt to the requirements of overseas markets. There is no escaping this.”
Talking about the standards in India, Dr. Biswajit Dhar, Member, Board of Trade, Ministry of Commerce, GoI, says, “I have been very disappointed with the performance of India’s standard setting organisations. India has been way behind most major economies (including the advanced developing countries) in setting effective standards to protect consumers. At the same time, the importing countries have provided few technical inputs to assess whether a standard facing Indian exports is really justified or not. While Indian businesses and exporters have complained about this, they have put in negligible efforts to work out a solution with the help of government agencies.”
Most exporters and importers The Dollar Business spoke to were of the opinion that at the end of the day matters of health and safety are important and should not be considered as barriers per se. Rahul Thakral, Managing Director of Biotic Healthcare Pvt. Ltd., says, “I don’t regard non-tariff barriers as any barrier per se. I rather regard them as an integral part of the pharma and drugs business. We are dealing with the health of human beings and we are dealing in administered products. So, in that sense, the stricter norms we have, the better it would be for the country and its exim fraternity.” These strict norms, he says, would lead to standardisation and harmonisation of globally accepted best practices across the spectrum – which definitely is a good outcome. “Ours is a WHO-certified plant and many countries also take this fact into consideration while giving us licenses – so you see it helps to have global standards. Likewise, being Good Manufacturing Practice (GMP) and ISO certified has also helped in our global expansion,” adds Thakral.
Casanova of Cornell University too points out that it is difficult for a country to refuse to comply with standards being set by other countries when health and quality is at stake. She says, “The problem with non-tariff barriers is – who can speak against health and safety? In case of tariffs they can say that for 1 kilogram of sugar we will charge a particular tariff, and that can be negotiated. If we say that for sugar we require a certain level of quality and testing – who can speak against that? How can someone from India say (s)he wants to deliver a lower quality product.”
William Krist, Senior Policy Scholar - Wilson Centre, Washington D.C. suggests that Indian authorities could go the FDI way and encourage testing laboratories from developed countries to set up base in the country. He believes that the more such labs open in India, more will be the competition, and that will help lower the cost of testing. “Additionally, when you negotiate free trade agreements you can seek to include provisions that your partner country will recognise your certifications,” adds Krist.
SUPPORT SYSTEMS
While many exporters blame the government for not taking adequate steps to build test facilities, Singh of APEDA is quick to point out that it is not that the government has not been working on these issues. He explains, “The Government of India has entered into agreements with various countries. Quite a lot of progress has been made on this front. We have set up and upgraded many of our labs. There is a lot that is being done. In fact, there are memorandum of understanding (MoUs) in place now with several countries that have now allowed certifications from our testing labs.”
The problem, many in the trade fraternity say, arises from the fact that the standards keep evolving. Singh agrees, “In a world where the ground keeps shifting under your feet you have to keep moving and that is where one needs to have a system which is both well informed and can react quickly.” He continues, “We are taking action, but this will always remain a work in progress, especially for a developing economy. Even in the developed economies, it is a work in progress. The same problems exist there too, but they have the capabilities to deal with these issues. They are also larger economies and have the leverage to insist that testing takes place in their country.”
IPR OR AFFORDABILITY?
The pharmaceuticals sector is an important sector for Indian exports and the impact of IPR (yet another non-tariff measure under TRIPS agreement) is high here. In fact, the Indian pharma industry has been accused of weak IPR standards, time and again. Abhijit Das, Professor at IIFT, explains. “IPR is mostly concerned with goods. The TRIPS agreement provides the baseline of IPR. But it has many issues. For example, it provides that the baseline for patents should be 20 years. Countries are free to have a protection for patents for 25 years, but they cannot go below 20 years. But the TRIPS agreement has certain flexibilities which India is leveraging. This is something that the developed world is unhappy with and they are trying to curtail.”
While the government has been investing in setting up and upgradation of accredited testing
laboratories, many small exporters are still not aware about them.
Das explains that these developed countries want India to refrain from exercising these flexibilities which are legally available to India under WTO’s TRIPS agreement. Succumbing to pressure will not only have major implications on our domestic products, but will also question the viability of India's generic pharmaceuticals exports.
AT YOUR SERVICE
While merchandise trade hogs the limelight in all discussions on NTBs, our services exports also face a few problems. This issue has become more prominent in the recent past because of the rise in protectionism across the globe. A major threat for Indian services exports seems stemming from its largest markets – US and EU. With the Trump presidency in US, concerns have grown even further regarding the impact on the services sector from visa restrictions on movement of talent across borders. Krist feels that this is an important sphere that needs to be looked into in the coming days. He says, “It is really important for US and India to address these issues in an open and cooperative manner. Both countries have important and globally competitive services industries. While US imported $26 billion worth of services from India in 2016, it exported services worth about $20 billion. We have a lot at stake in this.”
To overcome this issue, Das suggests mutual recognition as the way forward, whereby countries mutually recognise each other’s qualifications. He explains, “India has been attempting that in some of its FTAs. ln India-Singapore CECA, there was a provision to get into a mutual recognition agreement in some services.”
Another issue for India's services outsourcing industry has been the concerns raised on data protection. Rohitash Gupta, CFO of eClerx, a Mumbai-based knowledge process outsourcing firm, feels this is an issue of the past and India is now better positioned to handle data security. NASSCOM, he says, has worked with both US regulators and Indian authorities on prevention, detection and prosecution aspects to build confidence among customers.
INDIA PLAYS IT TOO!
While Indian exporters complain about NTBs imposed on them, India too has imposed similar barriers on other countries. The most prominent example being anti-dumping duties and countervailing duties (which are placed under Contingent Trade Protection Measures) on imports into India. Currently, India has imposed around 599 anti-dumping measures (ADDs; initiated 818 cases) against its trading partners. Das says that with regards to ADDs, the issue is not about the measure, as the rules are straightforward. The problem, he says, is with anti-dumping rules that allow countries to impose anti-dumping duties for a maximum period of five years and thereafter the anti-dumping duty can be extended for another five years. “So, many countries have chosen this option for misusing or abusing the anti-dumping rules and some of the anti-dumping rules go on for 20-30 years!” That is the kind of protectionism that needs to be questioned, we believe.
INTO THE FUTURE
While the WTO acts as an important institution in laying down guidelines and providing a forum for redressal of issues related to NTBs, at the end of the day it is up to the countries to follow the mandate and find reasonable solutions. We should realise that NTBs are here to stay and as consciousness about health, safety and the environment grows, the count of NTBs will increase. What India and Indian exporters need to do is find a way out from being at the receiving end. There are ways to achieve that goal. The first and foremost of them is being aware of the regulations. Knowing the beast allows us to manage it better. The second is to create systems, processes and facilities that elevate the quality standards of our products so that the question of unacceptable standards does't come. The third, and equally important is engagement at the bilateral, regional and multilateral level with trading partners through well-defined trade agreements that protect our interests. Easier said than done, but of course, it can be done; and sooner the better for India's foreign trade.
DR. AJAY SAHAI, DG & CEO,
FEDERATION OF INDIAN EXPORT ORGANISATIONS (FIEO)
TDB: Non-tariff barriers are hurting Indian exporters in many major markets. What recommendations has FIEO made to the relevant bodies to tackle this?
Dr. Ajay Sahai (AS): FIEO has proposed wide-spread awareness and education programmes in agriculture sector to make our products adhere to international standards. We believe in a standard-based production system – hence advocate Good Agricultural Practices (GAP), particularly in bigger farms.
While many non-tariff barriers aim at addressing region specific issues, countries tend to apply them to products from the entire partner country. For example, Kuwait imposed a ban on imports of poultry products from India due to the outbreak of H5N1 virus in Tripura, during late 2015. In this case, the outbreak was limited to just the state so a complete ban on Indian poultry products was not necessary. But for that to be addressed, India needs to assure and demonstrate globally its resolve to meet global standards when it comes to supplies in the international market. Dedicated teams in the ministries need to explain our position and negotiate with the ban imposing countries. Awareness and education amongst the exporters of industrial products on non-tariff measures is also very essential to reduce the cost of compliance. FIEO, under the advice of the Department of Commerce, has created a database of Sanitary and Phytosanitary (SPS) and Technical Barriers to Trade (TBT) measured at tariff-line level and made it available free of cost to the industry through the Indian Trade Portal. Since the cost of compliance for market access is high, FIEO has also proposed to create a “Market Access Fund” for MSMEs. The basic objective is to provide low-cost testing solutions and small-scale innovations to meet the compliance.
TDB: Exporters believe that some countries use currency manipulation as a kind of non-tariff barrier. Is it true?
AS: Rupee appreciation is compounding the problem of exporters and the bigger worry is that in the short-term it is projected to appreciate further. India is one of the very few countries in which global investors are putting money, both in debts and equities as well as through FDI and the trend is likely to continue for some more time. However, global trade is all about competitiveness: For instance, if our currency depreciates by 5% and our competitor’s currency depreciates by 7%, then we are the net loser. This is the precise reason why rise in rupee value from Rs.68 to Rs.62 per dollar has not helped the efforts of our exports, as Brazilian real, Russian ruble, South African rand, Indonesian rupiah, etc., have fallen sharply. In the last seven months of CY2017, rupee has appreciated by about 6.6% while other Asian currencies (with the exception of Philippines pesoand Hong Kong dollar) have also appreciated, but at a much slower pace. I do believe that currency fluctuation is one of the factors that is affecting exports. But, there are equally important factors that impact the supply constraints which need to be looked into to sustain exports on long-term basis.
TDB: When it comes to China, the country’s SPS certification requirements exceed international standards. How do you see this impacting Indo-China trade?
AS: This is an arbitrary decision of China. In fact, as we all know, rules are tweaked in China to suit the domestic industry. This is a one-off measure specific to China and such rules need to be disputed and need to be taken up with the WTO's dispute settlement board. But, many of these rules are unwritten and not notified to WTO. Thus, each affected ministry should have a team of officials to look into the issues of non-tariff barriers that effect India’s exports and take them up with the concerned countries. In these matters, the dispute settlement body can be approached wherever it falls under the ambit of WTO, but incidentally, we are not very active on that front.
TDB: How can we empower Indian exporters to combat challenges arising from non-tariff measures?
AS: The more the measures, the more the compliance requirements – which in turn increases the cost of production. For instance, US's product liability clause requires a local representative of the exporting company to be present in US. This raises the cost of doing business with US. The Indian government needs to understand the challenges and hand-hold the MSMEs to sustain and take up exports – because developing countries like India have minimum resources, technology, equipment, know-how, capital, access to credit, etc. Institutions like the District Industries Centres, Department of MSME, etc., need to play a crucial role in growing and sustaining exports.
TDB: Many of India’s neighbours impose strict non-tariff barriers and, interestingly, blame India of doing the same. Your thoughts.
AS: Earlier, developing countries like India and other SAARC countries did not have Sanitary and Phytosanitary (SPS) and Technical Barriers to Trade (TBT) measures in place. But, because of the growing awareness about animal and plant health, environment, safety and security of the citizens, these countries are now in the process of adding NTBs on more and more products – which is very normal. For instance, India made the Bureau of Indian Standards (BIS) mark mandatory on about 109 items. Likewise, Sri Lanka too has made Sri Lanka Standards (SLS) mark mandatory on 123 items. So, as we evolve, the numbers of non-tariff measures are going to grow.
ABHIJIT DAS, HEAD & PROFESSOR,
CENTRE FOR WTO STUDIES, IIFT, NEW DELHI
TDB: Are all non-tariff barriers legitimate?
Abhijit Das (AD): When an exporter comes across hurdles, in the importing country, that are not in the form of import duties then that is a non-tariff barrier. However, the non-tariff barriers could be genuine or illegitimate under international trade rules. What is important is to recognise barriers that may be disguised as measures pretending to abide by international trade rules, but are not designed or implemented the way they should have been or for the stated purpose. It does require a fair bit of legal analysis to unearth these non-tariff barriers.
TDB: Can a non-tariff measure be considered a non-tariff barrier even if it does not comply with WTO requirements?
AD: A non-tariff measure is always a barrier – whether it is or it is not in accordance with the WTO requirements. For example, the WTO agreement says that if the Sanitary and Phytosanitary (SPS) standards in a particular country are based on international standards, then those standards will be treated to be in conformity with the SPS agreement. However, if more stringent standards have been imposed compared to the standards mentioned by international organisations like CODEX Alimentarius, then these standards will have to be backed by rigorous scientific proof and risk assessment.
TDB: Indian agri-exports have been at the receiving end of SPS measures. Why hasn’t India been able to find a solution?
AD: There are many reasons. Let us look at a couple of examples. The maximum residue limit (MRL) of the active ingredient ethephon that US demands from exporters of eggs is 100 times lower than the CODEX’s requirement. Also, for barley, the MRL standard of Diquat Dibromide is 250 times lower than CODEX’s requirement. So, some of the SPS standards that the developed countries impose are more stringent than the international standards – which makes it impractical for a developing country like India to comply with. There is no information on whether the domestic supplier of that product [in the developed country] can actually meet the SPS standards being set for foreign exporters. We don’t know if the standards are being discriminately imposed only on imports. And, the fact that the standard requirements in India and the foreign markets are different, Indian traders find it difficult to maintain the difference in requirements for exports and domestic markets. On top of that, the process of getting an Indian lab recognised by a developed country is expensive and time consuming.
TDB: Service exports are also exposed to several barriers. Do you think are ways to overcome them?
AD: Services sector is important for India as it contributes a large share to India's exports. However, the restrictions that are imposed are difficult to identify and act upon. For example, visa restrictions that could impact movement of natural persons or domestic regulations like licensing, qualifications, etc. One way to tackle the issue would be through mutual recognition of each other’s qualifications or degrees. India has been attempting to realise that through some FTAs – like India-Singapore Comprehensive Economic Cooperation Agreement.
TDB: How important are trade agreements in overcoming these barriers?
AD: Many issues relating to non-tariff barriers are mentioned in the trade agreements. If you look at some of India's FTAs, most of them contain the intention to get into a mutual recognition agreement (MRA). However, the problem is that it is an aspiration for the future as the text of the agreement itself does not contain details of the MRA. We could have taken the stand that we will not sign FTAs until MRAs are in place. This could have been a strategy that might or might not have worked but is worth attempting in the future. Given that non-tariff barriers are more crucial than tariffs, any arrangement that addresses some of these issues will help our exports.
LOURDES CASANOVA, SENIOR LECTURER & ACADEMIC DIRECTOR, EMERGING MARKETS INSTITUTE, SAMUEL CURTIS JOHNSON GRADUATE SCHOOL OF MANAGEMENT, CORNELL UNIVERSITY
TDB: Developing nations have been at the receiving end of non-tariff barriers. How can they overcome these barriers?
Lourdes Casanova (LC): Often, developed countries impose non-tariff barriers (NTB). It's not easy for developing nations to comply with these standards. Sometimes the intention is correct – it's about health or environmental issues, but at other times they are designed to favour local products & companies.
The NTBs often require that the exporter from India, China, Brazil, etc., have to get some certificates that are not easy or cheap to acquire. Factors like these add to the costs and problems of the exporters. FTAs are a way out as they put everything in writing. If everything is in writing then it is easier to comply with. They provide a more stable framework for trade. For example in the case of NAFTA, when it was first implemented 22 years ago, Mexican exporters suffered for some time. But, they were able to adjust and thrive under the framework. But now, the President of the United States, Mr. Trump, is questioning the validity of the trade agreement, so, it is a completely different ball game. But for 22 years, NAFTA provided a stable framework to exporters from Mexico, Canada and US.
TDB: Apart from FTAs, how can bodies like WTO help developing and emerging nations when it comes to NTBs?
LC: WTO is a world organisation for trade disputes. When a country believes that the measures are unfair, for certain products, the WTO provides an institution where countries can complain and modify these non-tariff barriers. Another thing is that the developing countries in WTO are very well organised through G20. Developing countries can put pressure on the developed world to modify their trade agreements and trade conditions. Till recently, developing countries had no voice in trade agreements. So, trade rules and agreements were often unfair for developing countries. But, with the rise of emerging markets, these countries now have more negotiating power in organisations like WTO.
TDB: Large developed countries provide their farmers and exporters with subsidies. This could be a disadvantage for developing/ emerging nations. How can countries like India overcome these challenges?
LC: Farmers in US and Europe receive certain subsidies which creates an unfair trade environment for farmers in developing countries like India and Africa. So, tea, sugar and many products face a lot of unfair practices. For example, sugar, is available throughout the world but they cannot compete with the subsidies that farmers receive in US and Europe. So, an agri-product from India cannot compete with agri-product from US and EU. Talking about solutions, the voice of emerging markets is getting stronger, they are more organised and there are now also many financial organisations available for the developing world like AIIB, the new development bank of BRICS, etc. But, of course, we still need to do a lot more.
TDB: In trade between developing nations and a developed country, the balance of power is still tilted towards the developed nation. When will we see change?
LC: The current situation is a bit unfair, but I see potential for change if the developing nations unite. The Indian economy is strong but it needs to work with other strong developing economies as it is still smaller when compared with countries like US whose economy is around 10 times bigger than the Indian economy. If the developing nations are willing and able to unite their views in order to reach a consensus on priorities in trade and other issues it will give them leverage in international trade. If you put together all the strong developing nations – it is a huge economy that no one can ignore.
DEVENDRA KUMAR SINGH,
CHAIRMAN, APEDA
TDB: What is APEDA doing to counter non-tariff barriers?
Devendra Kumar Singh (DKS): Nearly all WTO member countries notify non-tariff measures on a regular basis. However, from Indian exporters’ point of view, some of the measures imposed by US, EU, ASEAN, etc., have been challenging. We have also found that fruits and vegetables, cereal and meat products have been the key targets of non-tariff barriers. Some of these measures have become even more stringent, primarily due to technological advancement in tracing pesticide residue levels. However, to understand the emerging scenario on pesticides better, APEDA has been corresponding on a regular basis with the countries where it finds such non-tariff barrier-related issues. In addition, APEDA has put in place TraceNet, GrapeNet, MeatNet and HortiNet systems to help exporters.
TDB: In a move to overcome non-tariff barriers on mango exports, APEDA had arranged visits of quarantine officials from a few countries to irradiation and vapour heat treatment centres. Do such initiatives help?
DKS: The visit of quarantine officials from US, Japan and South Korea are a mandatory requirement before exporting fresh mangoes to those countries. The visits of those officials proved to be indeed very helpful. US has assured that in the next mango season, their inspectors would not be posted at the centres in India. Instead, the National Plant Protection Organisation India has been authorised to issue the plant quarantine phytosanitary certificate.
TDB: How successful have the APEDA-recognised labs and National Referral Laboratory (NRL) been in complying with international standards?
DKS: The concept of the National Referral Laboratory (NRL) is in line with the requirements of major importing countries such as EU, US, CIS, GCC, Japan, etc. One of the key mandates of NRL is to develop and harmonise methods of sampling and analysis to be followed by commercial testing laboratories recognised by APEDA for products of plant origin. NRL also organises proficiency test programmes periodically based on ISO-17043 compliance requirements. APEDA’s laboratory recognition and authorisation procedures related to sampling, analysis, consignment stuffing witness and health certificate are accepted by major trading partners like EU, US, GCC, CIS as well as Japan, Thailand, Korea, Vietnam, Indonesia, China, Iran, etc. And, to overcome the challenges in complying with those norms, APEDA has strengthened its export procedures and laboratory recognition criteria.
TDB: How can exporters make their cultivation and manufacturing processes comply with various international quality norms?
DKS: Exporters can go for certification of Global Good Agricultural Practices (GAP) and Hazard Analysis and Critical Control Point (HACCP) or ISO certification for the process of production and manufacturing of products to comply with the international quality norms.
BISWAJIT DHAR, MEMBER,
BOARD OF TRADE, MINISTRY OF COMMERCE, GoI
TDB: Of late, one of the biggest concerns of exporters have been SPS and TBT barriers. How serious are the issues?
Biswajit Dhar (BD): In most major markets, standards have become effective entry barriers. The problem is more daunting for Indian entities as they have generally been reluctant to take cognisance of this new reality. As a result, India’s export prospects are getting seriously undermined. The rate at which Sanitary and phytosanitary (SPS) and Technical Barriers to Trade (TBT) standards are being put in place is indeed a cause of concern. And it’s not only US and EU, but an increasing number of developing countries, especially in India’s eastern neighbourhood, are a part of this phenomenon.
TDB: At present, do you think WTO member countries are really striving for a free and fair global trade as envisioned by the WTO? Or, are they just guided by domestic interests that go against the ideals of the WTO?
BD: I do not subscribe to the view that all SPS and TBT measures are non-tariff barriers. SPS measures are necessary to protect human life and health. Similarly, TBT measures are also intended to protect the interests of the consumers. Of course, efforts need to be made to ensure that these measures are not used for protectionist purposes. While SPS measures can be imposed only when there is scientific evidence to back them, like those taken in response to problems like avian flu, no due diligence is required to be taken in case of TBT measures. Major industries and key governments, including the Government of India, need to coordinate their efforts to prevent TBT from becoming a non-tariff barrier.
TDB: Despite efforts at various rounds of trade negotiations by developing countries on eliminating non-tariff barriers, accomplishments have been minor. Are you hopeful that the concerns of India will be heard in the future?
BD: Ever since the multilateral trading system was established, it has been grappling with the problems of non-tariff barriers without making much headway. I am therefore not very hopeful that this problem can be tackled anytime soon. The FTAs are mirroring the WTO as far as SPS and TBT issues are concerned.
However, the standard setting agencies and the businesses in India have to be more proactive to ensure that India’s interests are protected. As a country, we can make efforts to ensure that the interests of Indian businesses in the international markets and consumers in the domestic market are effectively protected. I am disappointed at the performance of the India’s standard setting organisations because India is way behind most major economies (including the advanced developing countries) in setting effective standards to protect the consumers. Standard setting agencies have provided few technical inputs to assess whether standard-related barriers faced by Indian exports are really justified. Meanwhile, Indian businesses too have complained, but little has been done to work with the government agencies to find solutions to the problems.
MICHELE RUTA, LEAD ECONOMIST,
TRADE & COMPETITIVENESS GLOBAL PRACTICE, WORLD BANK GROUP
TDB: What worries do non-tariff measures currently pose to global trade?
Michele Ruta (MR): From a global perspective, there are two main concerns. First, some non-tariff measures have a protectionist intent. This is clearly the case with measures that interfere directly with market mechanisms – but a protectionist intent may also be hidden in the regulatory system. The problem here is that non-tariff measures may substitute tariffs as a less transparent instrument of protection, leading to lower efficiency and higher costs for consumers. However, WTO mechanisms (monitoring and dispute settlement) are in place to limit the abuse of these measures. The second concern is that the regulatory differences may lead to higher trade costs. This can be the case even in the absence of a protectionist intent – when, for instance, non-tariff measures do not discriminate between domestic and foreign producers. And, in this case, regulatory cooperation at the global level or, more often, in the context of regional trade agreements can help reduce costs and facilitate cross-border trade.
TDB: How does the profile of non-tariff measures vary across economies and sectors?
MR: The official data from 50 countries reported in a recent study for the G20 by World Bank Group (WBG), International Monetary Fund (IMF) and World Trade Organisation (WTO) show that the share of imports subject to regulatory non-tariff measures – including Sanitary and Phytosanitary Standards (SPS) and Technical Barriers to Trade (TBT) – is higher for advanced economies than for developing economies, reflecting that the advanced economies’ have more elaborate regulatory systems. In contrast, quantity and price controls, which are more likely to distort trade directly, are more prevalent among low-income countries. This, in part, reflects the lower regulatory capacity of developing countries. Across all income groups, regulatory non-tariff measures are more prevalent in agricultural trade than in non-agricultural trade.
TDB: How have non-tariff measures evolved over time?
MR: I think the data on non-tariff measures are highly incomplete and subject to measurement problems – particularly with regard to the proper identification of discriminatory measures. Keeping that caveat in mind, the general perception is that non-tariff measures are pervasive and their occurrence has increased in parallel with the decreasing importance of tariff barriers. However, this correlation may not necessarily imply causality. Some non-tariff measures represent the manifestation of domestic regulations as applied to imported goods. While these may impact trade flows and in some cases may have a hidden protectionist intent, their stated aim is to protect health, workplace safety, the environment or consumers. They evolve as societal preferences on these issues change.
TDB: Are there ways to counter SPS and TBT imposed on agricultural products?
MR: The coverage ratio which captures the percentage of trade subject to non-tariff measures is as high as 90% for SPS and TBT measures in agriculture. But, it is difficult to disentangle the protectionist intent of these measures from the legitimate public policy needs. The measures adopted at the multilateral level are the reference to international standards. The perception is that if a regulation is in line with international standards, it is not framed to discriminate foreign producers.
HARSHA VARDHANA SINGH,
EXECUTIVE DIRECTOR, BROOKINGS INDIA
TDB: How has the role of non-tariff barriers in international trade changed over the years?
Harsha Vardhana Singh (HVS): 20 years ago, non-tariff barriers was a subject that hardly anybody paid attention to. But as the markets kept opening, different ways of looking at issues were introduced to check if certain measures could selectively replace the existing impacts of tariff. When we do not have a tariff measure to restrict trade, then we rely on another measure. And this is a reason why GATT and WTO systems have developed disciplines on measures, other than tariffs. Measures are required to achieve certain objectives such as health and safety – for instance, an exporting country must meet certain standard of a product to be eligible for exports and that is understandable. Per se, these non-tariff measures are not the problem, but at times they can be difficult to understand and can become non-excisable. In the case of tariff barriers, the tariff is ad valorem. However, when it comes to non-tariff barrier, it’s not easy to estimate the barriers. Estimates show that the impact of non-tariff barriers is bigger compared to that of tariff barriers.
TDB: India has been facing several SPS and TBT barriers. Can something be done to counter them?
HVS: The government has been working on this regard and has also made some progress by getting into agreements with various countries. But, India can use other mechanisms such as those available with the WTO. Even otherwise, India can also move along with the changes globally and introduce a system that can disseminate information quickly since the problem arises because the standard keeps on evolving. We also need capable people to certify and accredit products and systems. And, the government is working on this too. Indeed, it has even been a part of a United Nations Forum on Sustainability Standards (UNFFS), a platform where five different UN firms are jointly organising a coherent dialogue of areas of concern. It is a platform which now enables all the stakeholders, whenever it is required, to move towards policy making and much more. But, this is an area that will always remain a work in progress, especially for a developing economy. The same problems exist even in developed economies, the only difference is that, they have the capabilities to deal with these issues.
TDB: Do you think FTAs can help overcome trade barriers?
HVS: We are in a world where the Internet enables people to provide services from outside their own territory. And, if we want to have an adequate regulatory oversight, then we need to connect with the regulators of other economies – which requires some kind framework. This was taken up significantly in the TPP. Also, now that we have established standards as an important factor, it requires us to see how our own domestic standards compare to what is emerging in the global market. There are three levels at which standards can be seen; domestic, regional and global, and we can have different tiers or different transition phases to meet them. In the first stage one enables the supply and may be in the second can create conditions, so that our supply can effectively enable us to sell our product. My argument is that, the inclusion of all these elements may make a trade agreement burdensome. We can go ahead with a trade agreement, but one way or the other, through a trade agreement or independently, we must develop some regulatory coherence. It is important to raise our own standards to be able to effectively compete.
DHIRAJ MATHUR, PARTNER, PwC INDIA
TDB: Has trade become more free over the last few years?
Dhiraj Mathur (DM): With various trade agreements and the WTO Agreement, there has been an increasing preference for free trade, the world over. Also, in the case of India, after it signed the WTO Agreement in 1991, we undertook major trade reforms, which drastically reduced tariffs, quantitative restrictions (QRs) and other protectionist measures, brought transparency in trade policy, and so on. We also started negotiating and signed a number of free trade agreements (FTAs) and, consequently, we are now a low-tariff economy, with peak tariffs at about 10%. So, we have made significant progress and we are today a very open economy. We have been generous in giving market access for goods and services, but have not been able to fully leverage the advantage that our large market can give us in trade negotiations. The present government is aware of this and is now more selective and strategic in starting negotiations. But, when it comes to non-tariff barriers, it is a fact that they are being universally used even by countries that have very low tariffs. Unfortunately, over the last couple of years, there has been a surge in protectionism in many parts of the world because the perceived benefits of trade have not been felt across all countries.
TDB: Does India face more barriers than it imposes?
DM: Yes, I don’t think India imposes many non-tariff barriers. For example, in the civil aviation space, if an aircraft has been certified by EU or US regulator, then we do not require additional testing for certification and registration in India. But, the reverse is not true. While there has to be a reciprocity in this matter, we need to have strategic clarity on what we want while negotiating with any country. For instance, anti-dumping measures are often mistaken for non-tariff barriers or protectionist measures. However, they are corrective and not restrictive measures, and duties are imposed to remove trade distortions and level the playing field for our domestic industry. They are not non-tariff barriers. Though India is one of the most active users of anti-dumping duties, we have not been very strategic in imposing these duties.
TDB: Can opening our market for foreign labs help us reduce the standards-related barriers?
DM: The first and most important thing would be to have standards of our own. We can look at established global standards, we can definitely pick and choose, but as a nation we certainly should have our own set. Allowing foreign labs to set up businesses in India might help, provided their results are accepted by the importing country. What is important is to have our own standards that are at par with global standards. We should be in a position to decide what's good and what isn’t, and develop our domestic testing & certification eco-system
ROHITASH GUPTA
CHIEF FINANCIAL OFFICER, eCLERX
TDB: How severe is the impact on short-term movement of skilled people on the services sector because of the restrictive measures by EU and US?
Rohitash Gupta (RG): Sectors that rely on mobility of skilled labour will face a short-term adverse impact of increase in barriers. The impact will vary across companies – depending upon their business mix and ability to quickly move to alternate models. Many companies will use alternate models of local delivery and increased offshoring in tandem to negate the impact. A lot of IT companies are increasingly hiring local talent.
TDB: One of the key concerns for the industry is the data protection regulations in EU. How critical is the issue?
RG: Data protection regulations have been there for long and the newest avatar – EU General Data Protection Regulation (GDPR) – is slated to come into effect in May 2018. But, I think, the new regulations offer new opportunities to the IT-Business Process Management (BPM) sector to re-structure their systems and processes. The restructuring process, however, will add to the work load of the data processors in offshore companies in the form of obtaining specific customer consent before processing the personal data. In any case, the data protection regulations don’t prevent processing or accessing data outside the native jurisdiction. Those restrictions only come with an additional cost of compliance in terms of storing, treating, recycling and killing data.
TDB: Have industry bodies like NASSCOM taken any measures to overcome the data transfer-related barriers?
RG: Sometimes, incidents on personal data breaches get hyped in the media and dent the image of the outsourcing industry. But, in reality, such instances have been negligible compared to the volume of work that gets done offshore. NASSCOM has worked with both US regulators and the Indian regulatory machinery on prevention, detection and prosecution to build confidence on the sectors. Authorities have undertaken training for the police cyber crime cells and are developing data sharing structures in collaboration with various agencies such as US Federal Trade Commission.
TDB: What changes will the visa-related issues, particularly in US and EU, bring to the IT-BPM sectors?
RG: As a positive outcome of such restrictive measures, outsourcing services providers will make their business models leaner and more resilient. Indian companies will now be able to retain better-skilled talent offshore. Companies will definitely relook into the operation dynamics. They will switch to a more automation and artificial intelligence-driven delivery model. Some companies have already started opting for these elements to overcome issues related to workforce mobility.
SATISH W. WAGH, CHAIRMAN, CHEMEXCIL
TDB: What are the major non-tariff barriers faced by exporters from your sector?
Satish Wagh (SW): Exporters in this sector primarily face two types of barriers: chemical control legislations (CCL) and globally harmonised systems (GHS) formulated by the Organisation for Economic Co-operation and Development (OECD). CCL is a regulatory framework adopted by various countries to protect human health and environment from the probable risks of chemicals. However, while ensuring safety, CCL also ends up enhancing the competitiveness of the domestic chemical industries in those countries. Meanwhile, more countries are increasingly adopting the GHS framework to ensure safe use of chemicals by workers at factories, transport, packaging, etc. The framework also requires some tests as per OECD Good Laboratory Practice (GLP) and these tests are expensive and are conducted by a limited number of labs.
TDB: Can you explain how these non-tariff barriers are impacting exports from the chemical sector?
SW: There are quantitative restrictions, customs control, price regulations, lack of transparency in customs procedure and administrative practices, which often restrict exporters access to Commonwealth of Independent States (CIS) markets. Moreover, the cost of registration is also high for cosmetic or herbal products in those markets. Add to that, the exhaustive and time-consuming registration process that comes with huge documentation and the challenge to overcome language barriers. For instance, in February 2016, Egypt came out with a Technical Barriers to Trade (TBT) notification on certain cosmetics product such as hair dyes, soaps, etc. It made it mandatory for exporters to provide quality control mechanism certificates by the International Laboratory Accreditation Cooperation (ILAC) or International Accreditation Forum (IAF) or an Egyptian or foreign governmental entity approved by the Ministry of Foreign Trade. Regulations like these become a problem because not every manufacturer can afford to go to an ILAC or IAF laboratory.
TDB: Exporters in the sector are also facing market access issues in Australia due to SPS and TBT. Can you elaborate?
SW: Certain biological products like dehydrated culture and peptone and tryptone are difficult to export to Australia because of the SPS and TBT measures that the country has implemented. In addition, Indian-origin products from animal sources are not allowed to be exported to Australia. These products are used in industrial and clinical microbiology sectors. Despite providing necessary supporting documents or testing reports to prove adherence to international quality management and food safety norms, exporters are facing such deterrents in exporting to Australia.
WILLIAM KRIST, SENIOR POLICY SCHOLAR,
WILSON CENTER, WASHINGTON D.C.
TDB: In an era where countries are becoming more protectionist, what are the ways to find a common ground?
William Krist (WK): In most trade negotiations, all the parties look for reciprocity, i.e. one country’s ‘concessions’ are supposed to provide as many market opportunities as the other parties. Additionally, a number of the non-tariff barrier provisions are believed to be in the interests of the country that ratifies them. For example, if a country adheres to an internationally recognised standard like an ISO standard, it makes it easier for its exporters to compete in world markets.
TDB: Countries like India often face issues regarding recognition of certification and testing labs in the international market. What are the ways to overcome them?
WK: One measure India could consider is encourage testing laboratories to invest in India and provide certification services. And, once you have several such labs, the price will become more competitive and ultimately the compliance cost will go down. In addition, when you negotiate free trade agreements, you can seek to include provisions that your partner country will recognise your certifications. Also, if your government doesn’t already have a ‘one-stop shop’ for exporters to find out about other country requirements, you might consider setting this up. This way, a small company can easily find out what the standards requirement are in potential export markets.
TDB: How can countries find a balance between providing free access to markets and protecting their domestic markets without having to consider anti-dumping measures?
WK: The rules of WTO regarding anti-dumping duties require that the duty be no higher than what is needed to off-set the dumped price. Obviously, this isn’t always followed. Countries are supposed to have an independent body that importers and exporters can appeal to in such situations.
TDB: Services exports is expected to be a critical conflict area in US and India trade. Your comment.
WK: It is really important for India and US to address these issues in an open and cooperative manner. Both countries have important and globally competitive services industries. In 2016, US imported some $26 billion in services from India and exported some $20 billion. So, we have a lot at stake in this.
TDB: What, in your opinion, are ways for developed and developing countries to overcome non-tariff barriers?
WK: Negotiating FTAs is important. Additionally, countries can participate in WTO trade policy reviews, which give them the opportunity to raise specific concerns about another country’s practices. World Bank and IMF are additional venues for issue addressal. Indian industries should also engage actively with their counterparts in other countries.
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