By UNCTAD Economists
Imported goods undergo multiple inspections for verification of conformity with the destination country’s standards and regulatory requirements.
When standards and regulations in the destination country differ from those in the home country, a situation commonly referred to as “regulatory divergence,” there could be high-cost implications for businesses, with a significant slowdown in trade.
The challenge gets aggravated during emergencies such as the COVID-19 pandemic, when there is a need to maintain speedy and seamless flows of essential goods across borders.
The pandemic showed how high demand for medical products to support prevention, diagnosis and treatment of the virus, such as medicines, medical supplies and personal protective equipment (PPE) created many challenges with regard to their domestic availability.
This often prompted countries to take temporary, sometimes drastic emergency trade-related measures such as export restrictions. Such restrictions, while seemingly necessary to protect public health, can be counterproductive, depriving the most vulnerable countries access to essential products.
An UNCTAD study shows how to improve access to these products through regional trade agreements (RTAs).
More regulatory cooperation needed
It calls for new and innovative approaches to bridge the divergence of regulatory practices. Increasing “regulatory cooperation” among countries could be an efficient way to achieve it.
Regulatory cooperation is a means of reducing trade costs, particularly through cutting high information costs and shortening the lengthy process of conformity assessment – all without undermining policy objectives such as protecting health, safety and the environment.
Such cooperation provides countries with an opportunity to minimize the negative impact of national regulatory measures on trade, particularly in times of emergencies. It can reduce trade costs by over 25%, according to UNCTAD estimates.
Regulatory cooperation can take the form of multiple actions, such as enhancing better information exchange and creation of a joint committee to implement chapters on sanitary and phytosanitary measures and technical barriers to trade.
It may also entail aligning with international standards, treating other parties’ standards as equivalent, among others.
Regional trade agreements can enhance cooperation
RTAs can be critical tools for enhancing regulatory cooperation in times of medical emergencies.
Inclusion and application of specific provisions such as emergency provisions can expedite trade in emergencies and ensure disharmonized standards and regulatory requirements do not hinder trade.
The UNCTAD study, “Improving access to medical products through trade: what can regional trade agreements do in times of crisis”, provides an assessment of how such regulatory cooperation can be achieved through RTAs.
It draws attention to three approaches most common in RTAs: mutual recognition, equivalence and harmonization.
Based on an in-depth, score-based systematic review of 107 RTAs in force and an examination of nine countries’ efforts to reduce regulatory divergence to facilitate trade in medical goods during the pandemic, the study advances the discussion on the need for emergency provisions in future RTAs.
Existing RTAs can provide a good base
A large proportion of existing RTAs put forward provisions for mutual recognition, equivalence, and/or harmonization with respect to the other parties’ or international standards, including conformity assessment procedures, be they mandatory or voluntary.
They provide a good base to build upon. Yet, many of these provisions are vaguely worded. There also lacks provisions promoting regulatory cooperation specifically for medical goods, or “emergency-specific” situations.
Country efforts have strengths and loopholes
Several countries pursued equivalence and harmonization of standards and conformity assessment procedures to facilitate the trade of specific medical products. Although such actions brought changes to only the imposing countries, they reduced regulatory divergence, benefitting not only themselves but also their trading partners.
Equivalence of standards and conformity assessment was applied temporarily along with other complementary measures. Countries did not seek to conclude a new mutual recognition scheme even though existing mutual recognition arrangements (MRAs) would have contributed to addressing the problem in part.
How to design more solid emergency provisions
Drawing on lessons from the analysis, UNCTAD’s study outlines “criteria” for incorporating emergency provisions in RTAs.
These include clearly defining a situation of “public health emergency” or a “shortage” of essential goods; classifying, at a tariff line level, “essential” goods that could be critical during an emergency; and agreeing to temporarily adopt international standards as a basis for regulatory cooperation.
The study also proposes six “model provisions” that can be a starting point for RTA negotiators and serve as a formal basis for advancing regulatory cooperation, while making good use of available mechanisms and possibilities.
The study is based on UNCTAD’s contribution to a policy hackathon on model provisions for trade in times of crisis and pandemic in regional and other trade agreements, organized by UN-ESCAP in 2020.
It was also presented during the UNCTAD Trade Policy Dialogue on model RTA provisions for trade in essential supplies in times of crisis, held in 2020.
UNCTAD economists Chi Le Ngo, Divya Prabhakar, Mingcong Li, Seul Lee and Taisuke Ito contributed to this commentary.