e. International cooperation on non-tariff measures in a globalized

World TrAde reporT 2012

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The focus of this section is international cooperation on non-tariff measures (NTMs) and services measures. The section first reviews the economic rationale for such cooperation in the context of trade agreements. It then looks at the practice of cooperation in the areas of technical barriers to trade (TBT), sanitary and phytosanitary (SPS) measures and domestic regulation in services. The third part deals with the legal analysis of the treatment of NTMs in the GATT/WTO system and the interpretation of the rules that has emerged in recent international trade disputes. The section concludes with a discussion of the challenges of adapting the WTO to a world where NTMs are a growing concern.

e. International cooperation on non-tariff measures in a globalized world

II – TRADE AND PUBLIC POLICIES: A CLOSER LOOk AT NON-TARIFF MEASURES IN THE 21ST CENTURY

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Contents 1 TheregulationofNTMsintradeagreements 162

2 Cooperationinspecificpolicyareas:TBT/SPSandservicesmeasures 176

3 GATT/WTOdisciplinesonNTMsasinterpretedindisputesettlement 187

4 AdaptingtheWTOtoaworldbeyondtariffs 203

5 Conclusions 216

Some key facts and findings

• WTO rules help to deal with the problem of countries replacing

tariffs with non-tariff measures, but the changing nature of trade

creates new complexities that call for deeper forms of institutional

integration.

• Countries cooperate on TBT/SPS measures and domestic regulation

in services to address information problems and to complement

market access commitments.

• Distinguishing legitimate NTMs from measures designed for

protectionist purposes has been the key issue in GATT/WTO dispute

settlement concerning NTMs and in establishing new disciplines

for domestic regulation in services.

• The tension between economic analysis and legal practice can

inform future efforts to address NTMs in the WTO system in an

evolving trading environment.


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Thissectionbeginsbyreviewingtheeconomicreasonsforinternationalcooperationonnon-tariffmeasuresinthe context of trade agreements. This theoreticalapproach provides a framework for considering theefficientdesignofrulesonNTMsinatradeagreementandhowtheymaybeaffectedbydiversefactors,suchas the development of global production chains andtheopaquenatureof variousNTMs.ThesecondpartlooksathowcooperationonNTMshastakenplaceinthe multilateral trading system and within otherinternational fora and institutions. Specifically, thefocus ison technicalbarriers to trade (TBT), sanitaryand phytosanitary (SPS) measures (regarding foodsafety and animal and plant health) and servicesregulation, stressing the similarities and thepeculiarities of the underlying problems and of thewaysinwhichcooperationhastakenplace.

The third part of the section deals with the legalanalysisofthetreatmentofnon-tariffmeasuresintheGATT/WTOsystemandtheinterpretationoftherulesthat have emerged in recent international tradedisputes. Special attention is given to how theagreements and the dispute settlement system havedealt with the distinction between legitimate andprotectionist NTMs. The section concludes with adiscussionofthechallengesofadaptingtheWTOtoaworld where non-tariff measures are a growingconcern.Thisbringstogetherthemaininsightsoftheprecedinganalysisofthetheory,evidenceandevolvingpracticesofNTMscontained inthedifferentsectionsoftheReport,andofferssomepolicyobservations.

1. TheregulationofNTMsintradeagreements

Whydocountriescooperateontrade?Why is thereaneed for cooperation on non-tariff measures? HowshouldNTMsberegulatedinatradeagreement?Thissection anchors the discussion of internationalcooperationonNTMs inatheoretical framework.Thefollowing section provides a specific focus on threerelevant policy areas: TBT measures, SPS measuresand services measures, particularly with respect todomesticregulation.

SectionE.1firstreviewsthetwomaintheoriesoftradeagreements: the terms-of-trade approach and thecommitment approach (see below). These theoriesprovide a rationale for trade cooperation and offer aframeworkforconsideringtheroleanddesignofNTMregulation in a trade agreement, such as the WTO’sagreements.

Asdiscussed inmoredetailbelow, theterms-of-tradeapproach has a simple and powerful result. Ifgovernmentssetpolicytomeettheirobjectivesinthemost efficient way possible, they would not choosenon-tariff measures to distort international trade intheirfavour.Tariffswouldbetheonlypolicyinstrument

involved.Inthisbasictheoreticalsetting,governmentssetNTMstoaddresslegitimatepublicpolicyconcerns,andrulesonNTMsinatradeagreementonlyneedtoaddresspotential “policysubstitution”between tariffsand non-tariff measures (see Section B). Efficiencycan be obtained with a simple set of rules, such asnational treatment and non-violation (see SectionE.1(b) below). This set of rules leaves substantialautonomy to national governments in setting NTMs(“shallow”integration).

Whilecertainfeaturesoftradeagreementscorrespondtothebasicpredictionoftheterms-of-tradeapproach,actualcooperationonnon-tariffmeasuresintheWTOandotherarrangements(particularlypreferentialtradeagreements) goes generally beyond a “shallow” level,encompassing “deep” forms of integration. Thissuggests that governments may be trying to addressproblems beyond substitution between tariffs andNTMs.Whataretheseproblems?

SectionE.1reviewssomeoftheseadditionalrationalesfor cooperation on non-tariff measures. A firstexplanation may be provided by the commitmentapproach. In that framework, it can be shown thatcertain features of WTO rules on NTMs can bejustifiedwhengovernmentssuffercredibilityproblemsvis-à-vis domestic constituencies, such as special-interest groups. Another issue is that the changingnatureofinternationaltradeandtheriseinoffshoringcreatesnewpolicyexternalities thatmayalsopromptdeeperformsofinstitutionalintegrationbeyondsimplemarket preservation rules. Finally, cooperation onNTMsintradeagreementscanbemotivatedbysomeadditional complexities that are not captured by thebasic model, but that may be relevant in practice. AfirstissueisthatseveralNTMsarehighlyopaque.Thissuggeststhatmembercountriesneedtocooperatetoidentifywhatconstituteanefficientandlegitimateuseof NTMs. Another issue is that market actors, ratherthangovernments,cansetde factoNTMsbyadoptingvoluntaryprivatestandards.

Finally, this analysis turns to a consideration of theefficient design of a trade agreement that deals withnon-tariff measures. Specifically, using the terms-of-trade approach as a benchmark, the last sub-sectionevaluates the efficiency of certain GATT/WTOprinciples. While this analysis is by necessityspeculative,itmaybeusefultoinformadiscussiononinstitutional strengths and weaknesses. The sectionconcludeswith adiscussionof the trade-offs impliedby different forms of deep integration, such asharmonizationofstandards.

(a) WhydocountriescooperateonNTMs?

Recent economic literature has developed two maineconomic theories regarding trade agreements: theterms-of-tradetheoryandthecommitmenttheory.Theensuingdiscussionconsiderswhateachtheoryhasto


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say about the treatment of non-tariff measures intrade agreements. The terms-of-trade approach andthe commitment approach argue that governmentsnegotiate international treaties to address certaininternational and domestic externalities associatedwith trade policy. These effects were also touchedupon in Section B. While the two economic theorieswere developed primarily for explaining the use oftariffs,similarmotivesmightapply forcooperationontheuseofNTMs.

The logic of the terms-of-trade and commitmentapproachesdoesnotprovideasatisfactoryexplanationof the economic rationale for services tradeagreements. While some of the insights from thesetheoriesarerelevanttoexplaincertainfeaturesoftheGeneral Agreement on Trade in Services (GATS),economists recognize that there are importantdifferences between trade in goods and trade inservices. A discussion of the current debate oninternational cooperation on services trade iscontainedinBoxE.1.

(i) The terms-of-trade approach

Accordingtotheterms-of-trade(ortraditional)theory,governments are attracted to trade agreements as ameans of escaping from a terms-of-trade drivenPrisoners’ Dilemma (Bagwell and Staiger, 1999,2002), i.e.anon-cooperativesituation in internationaltradepolicy.The“problem” thatarises in theabsenceofatradeagreementcanbeexpressedasfollows.

When a government chooses the level of a tariffunilaterally, or a non-tariff measure that takes theplace of a tariff, it will not consider the welfareconsequences for foreign exporters in its decision.Section B describes how the incentive to use tradepolicy inways thatbenefitdomesticproducersat theexpense of foreign exporters causes governments toimpose high trade restrictions that alter the terms oftrade (i.e. the price of exports relative to imports) totheadvantageof thedomesticeconomy.However,asthis logicapplies toallcountriesandeachoneseekstoraisetariffs,theresult–knownasNashequilibrium–isthatthetermsoftradeareunaffectedoverall,butthevolumeoftradeisinefficientlylow.Thisoutcomeisthewell-knownPrisoners’Dilemma.

Accordingtotheterms-of-tradetheory,thepurposeofatradeagreementistogiveforeignexportersa“voice”in the tariff choices of their trading partners, so thatthrough negotiations they can make their tradingpartners responsive to the costs that these traderestrictions impose on foreign exporters. Inaccomplishing this, a trade agreement based onreciprocity and non-discrimination (the most-favourednation–MFN–clause)naturallyleadstolowertariffsand an expansion of market access to internationallyefficientlevels.

Governments can use non-tariff measures instead oftariffs to alter trading partners’ market access andtherebymanipulatethetermsoftrade(seeSectionB).This indicates that the principal design features oftariff agreements, reciprocity and MFN, can facilitatecooperationonNTMs.However,eveninthecontextofa complex policy environment, there is no need forgovernments to negotiate directly over the levels oftheir NTMs. Rather, in the traditional approach, themain purpose of a trade agreement is to raise tradevolumes without introducing distortions into theunilateral choices of NTMs, such as domesticregulatory and tax policies, as a result of thenegotiatedconstraintsontariffs(BagwellandStaiger,2001; Staiger and Sykes, 2011). Intuitively, a tariff isthefirst-bestinstrumentformanipulatingthetermsoftrade: if governments have both tariffs and NTMs attheirdisposal,theyhavenoreasontousethelattertorestricttrade(Staiger,2012).

The terms-of-trade theory of trade agreementsprovidesstrongsupportfor“shallow”integrationasthemost direct means to solve the policy inefficienciesthatwouldariseintheabsenceofatradeagreement.Negotiations over tariffs alone, coupled with a set ofrules that address the policy substitution problembetweentariffsandnon-tariffmeasures(e.g.a“marketaccesspreservationrule”),canbringgovernmentstoahigher efficiency level (the efficiency frontier). At aconceptual level, this resonates with the approach oftheGeneralAgreementonTariffsandTrade(GATT)todomestic NTMs, whereby negotiations focus on tariffreductions as a means to expand market access.Under this approach, various GATT provisions aremeant to protect the value of negotiated marketaccess agreements against erosion by NTMs. Inaddition,WTOmembersarerequiredtoforgotheuseofquotasandotherquantitative restrictions in favourof tariffs. This institutional solution allows WTOmemberstoachievetheefficientcombinationoftradepolicy and domestic NTMs, even when governmentsfacetheincentiveofusingthesemeasurestoundothemarket access granted to trading partners throughtariffreductions(BagwellandStaiger,2001).

Notwithstanding this important result, two relatedquestions remain open. Are there features of thetreatmentofnon-tariffmeasures intradeagreementsthat thebasic versionof the terms-of-tradeapproachfailstoexplain?Whydogovernmentsoftencooperatespecifically on NTMs in the context of tradeagreements? These questions are addressed in twosteps. First, we introduce an alternative rationale fortrade agreements, the commitment approach, andargue that the treatment of NTMs in treaties mayrespondtotheneedto“buy”crediblecommitmentstoefficient policies. In the following sub-section, wediscussadditionalconcernsrelatingtocooperationonNTMsthatarenotcapturedbythebasicversionoftheterms-of-tradeapproachdiscussedabove.


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BoxE.1: Economic theories of the GATS

Economic analysis of the GATS tends either to emphasize the economic advantages of efficient andliberalized services markets or to use the theories borrowed from trade in goods to explore the logic ofservicestradeopening.Whiletheseapproacheshavegonesomewaytowardsexploringtheroleofservicestrade in the broader economy and identifying the parallels between trade in goods and trade in services,neitherapproachspeaksdirectlytothequestionofinternationalcooperationonservices.

This box first outlines the reasons why the frameworks laid out in Section E.1 are unsatisfactory forcooperationinservices,andsummarizestwoapproachestoexplaininginternationalcooperationonservicestrade. The first argues that services commitments in international trade agreements provide a credibleinstrument for anchoring unilateral policy reforms and limiting policy substitution. The second sees theprocessofservicestradeopeningaspartofgovernmentresponsestochangesinthenatureofproductiontowardsinternationalsupplychains.

The principal argument for applying theories developed for trade policy cooperation in goods to servicestradeistherecognitionthatpolicy-makerscansufferfromthesameincentiveproblemsinbothsectors. Inparticular, the international terms-of-trade theory and the domestic commitment theory may extend toservicesmeasures (CopelandandMattoo,2008).However, thedistinctive featuresof servicesmaymeanthatthetheoriesusedtoexplaintheGATTmaynotbesufficienttoexplaincooperationundertheGATS.Forexample, one of the main modes of services provision is through local establishment or foreign directinvestment. This mitigates the incentive to manipulate international terms of trade because with verticalintegration, international firms partially internalize the foreign costs of trade policy (Blanchard, 2007). Inaddition,MarchettiandMavroidis(2011)suggestthattheGATSisflexibletothepointthatitishardtoarguepersuasivelythatcommitmenttheoryexplainsitsadvent.

Copeland and Mattoo (2008) point to another challenge of applying the terms-of-trade and commitmenttheories to trade agreements in services. Services play an important role in the broader economy bycomplementing outcomes in other markets. For example, a well-functioning financial sector transformssavings into investment and can allocate capital towards higher returns. Transport services reducethe frictions in exchange, facilitating both domestic and international trade. Finally, communicationstechnologydoesnotjustfacilitatetransactionsbutmayleadtothedisseminationandcreationofknowledge(Copeland and Mattoo, 2008). These potential efficiency gains would motivate a government to open upservices markets unilaterally, without the need for international cooperation or a services agreement.

Inadditiontounilateralincentivestoopenupservicesmarkets,technologicalchangeshaveledtoanexpansioninservicestrade,whichitselfleadsgovernmentstoseekmultilateralcommitments.AccordingtoMarchettiandMavroidis(2011),somecountriesworriedthatwhiletheopeningofservicemarketswasprogressingthroughthe1980s,barriers loomedon thehorizon.Specifically, theconcernwas thatservices trade thatwasenabledbytechnologicalchangewouldleadgovernmentstoreplacethelosttechnologicalbarrierswithnewpolicybarrierstoservicestrade,akintopolicysubstitutiondiscussedwithregardstogoods.Thethreatofpolicysubstitutionledthesecountriestoadvocateamechanismtoopeninternationalservicestrade,includingtheGATS.

Ontheotherhand,HoekmanandKostecki(2001)arguethatchangesinthefragmentationoftheproductionled firms to require more access to efficient services inputs, which in turn encouraged governments to putservicestradeopeningontheagenda.Similarly,Deardorff(2001)findsthatbecauseservicesplayanimportantroleinfacilitatinginternationalproduction,openingtradeinservicesincreasesthereturnstotradeopeningingoods.Becauseglobalproductionchainsplayan important role in international trade,enactingprotectionistpoliciesinservicesandinvestmentmayenduprestrictingtradeingoods.Recentworkontheeffectsassociatedwithinternationalproduction(discussedinSectionE.1(b))maythereforeprovideusefulinsights.

Inbrief,currenteconomictheoriesoftheGATSprovideonlyapartialpictureofthecomplexworldofservicesnegotiations.Thisissomehowincontrasttothemoredevelopedframeworkthateconomistsusetoanalyseinternational cooperation on trade in goods. This is an area where more economic research would haveimportantpay-offs.


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(ii) The commitment approach

Thus far, we have described a theory of tradeagreementsthatemphasizesthecontrolofthebeggar-thy-neighbour motives associated with terms-of-trademanipulation.Adistinct,thoughpossiblycomplementary,theoryoftradeagreementspositsthatthepurposeofatrade agreement is to tie the hands of its membergovernments,andtherebyofferanexternalcommitmentdevice. Governments might benefit from a tradeagreement that couldhelp themcommit to apolicyofopen trade as tariffs benefit the protected sector, butcreate distortions that lower aggregate welfare(see Maggi and Rodríguez-Clare, 1998, 2007;Matsuyama,1990;StaigerandTabellini,1987).1

Most research adopting the commitment approach totradeagreementshas focusedon tariffs only, and theimplications of the commitment approach for thetreatmentofnon-tariffmeasuresintradeagreementsislesswellunderstood than in thecaseof the terms-of-trade theory. Two recent papers, however, use thecommitmentapproachtooffer insightsintofeaturesofthe treatmentofNTMs in theGATT/WTOsystem thatcannot be understood through the terms-of-tradeapproach. Brou and Ruta (2009) show that anagreement that allows tariffs to be constrained, butleavesotherNTMssuchasdomesticsubsidiesunboundor open to manipulation, will not provide an effectivecommitmentdevice.Thiswouldallowpolicy-makers tosimplyuseNTMsmore intensivelyonce tariffbindings(i.e.ceilings)havebeennegotiated(aclearexampleofpolicy substitution). In this context, a government isbetter off under an agreement that imposes rules onNTMs because only under a more complete tradeagreement can policy credibility be achieved. Thisapproach, therefore, provides insights into policyprerequisites for handling domestic NTMs, such asdomesticsubsidiesorregulations,intheWTOsystem.

In a similar modelling environment, Potipiti (2006)offers an explanation for the different treatment oftariffs and export subsidies in the WTO. Both tariffsand export subsidies may distort the allocation ofinvestment,whichgeneratesasocialwelfare loss.Ontheotherhand, thegovernmentmaybenefit from thelobbying contributions from the protected import andexport sectors. The rules that the policy-maker willchose to sign in a trade treaty reflect this trade-off.Potipiti (2006) shows that, because of the differentgrowth perspectives of the import and the exportsectors, a government finds it efficient to commit todifferentrulesonexportandimportpolicy.Specifically,ahighergrowthprospectoftheexportsectorrelativetotheimportsectormakeslobbyingcontributionsfromexporters less attractive, while increasing the socialcostofexportsubsidy.Hence,WTOrulesthatbanthelatterbutonlylimittheuseoftariffs,whichisdifficultto explain in the terms-of-trade approach, can beunderstood from the perspective of the commitmenttheory.

(b) WhydocountriescooperateonNTMs?Beyondpolicysubstitution

The previous section emphasized the similaritiesbetween tariffs and non-tariff measures and arguedthat NTMs can be used by governments to take theplace of tariffs. This provided a first rationale for theregulationofnon-tariffmeasuresintradeagreements.ThereplacementoftariffswithNTMs,however, isnottheonlyproblemthattheregulationofNTMsintradeagreementsattemptstoaddress.Thissectionfocusesontheseadditionalconcerns.

Non-tariffmeasuresdifferfromtariffsinseveralways;these differences and the changing nature ofinternational trademayprovideadditional reasons forcooperation on non-tariff measures within tradeagreements. NTMs often address vital domestic andinternational public policy concerns. They may bedirectedatprotectingbroadconsumer interestsmorethan narrow producer concerns. Protecting plant,animal and human health, food safety, and theenvironment,orestablishing thestandardsnecessaryfor fair market exchange are public policy objectives.These objectives, while broadly shared by WTOmembers, often present a wide spectrum of policypreferences. In addition, non-tariff measures andtariffs are different in terms of their longevity. NTMsaresubject tochangebecause regulatoryneedsvaryin line with changes in the economic and socialenvironment. What is the role of the WTO in thiscontext?

This section provides two sets of reasons forincorporating disciplines on non-tariff measures intothe tradesystembeyond thedisciplinesnecessary topreventpolicy substitutionbetween tariffs andNTMs(the next section offers specific examples based onTBT/SPSmeasuresandservicesmeasures).

The first explanation focuses on the differencesbetween tariffs and non-tariff measures and therationalefortheregulationofNTMsthatrelatetothesedifferences. From this point of view, there are threeadditionalconcernsintheregulationofNTMs.Thefirstis the opacity of certain NTMs in terms of intent andeffect.Secondly,NTMsandtariffsaffectcompetitionindifferentways,asanNTMregulationmayincreasefixedcosts and therefore deter market entry. Finally, not allNTMsare imposedbygovernments,andmay take theformofprivatestandards.

Thesecondexplanationconcernsthechangingnatureof international trade. The rise in global productionchainsmaycreatenew formsofpolicy spillovers thatalsorequiredirectcooperationonnon-tariffmeasures.The toolbox to deal with NTMs also depends onwhethertheproblemthatthetradeagreementistryingto solve is tariffs being replaced by NTMs or theseadditional dimensions of cooperation. This issue isaddressedinSectionE.1(c).


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(i) Opaque instruments

SectionsBandCdocumenttherise intheuseofnon-tariffmeasures.Asconcernsaboutfoodsafety,financialstabilityandenvironmentalissuesincrease,governmentswill rely more on NTMs to achieve domestic policyobjectives. The wider use of NTMs, along with thecomplexity and opacity of several non-tariff measures,pose three new and related challenges for domesticregulators and international trade negotiators. First,there can be uncertainty on what constitutes theefficient level of a non-tariff measure. Secondly,cooperationonNTMscansufferbecauseenforcementof agreements requires observing the compliance ofeach government, whereas some NTMs are not easilyobservable.Finally,ifNTMsareopaque,theymaybeonlyoflimiteduseasamechanismforsecuringcommitmentsbygovernmentsunderaninternationalagreement.

Shallowintegrationisefficientinasettingwheretherearenoinformationproblems,asshownintheworkbyBagwell and Staiger (2001. However, the lack ofperfect information can itself bea reason for deepercooperation on non-tariff measures in tradeagreements.Specifically, thecomplexityofNTMscancreateinefficienciesevenifgovernmentsareperfectlyinformed about their own regulatory needs and theeffects of their own policy choices, but do not knowthe efficient level of NTMs for their trading partners.This is because governments may mislead theirpartners about their policy intentions, making evenmutually beneficial communication difficult. Thisinformationasymmetry(i.e.whereonepartyhasmoreor better information than the other) poses problemsfor many areas of international cooperation, but isparticularly important in the context of domesticregulation, as disagreement over public policy goalscanmaskfundamentallyuncooperativebehaviour.

In addition, the efficient level of a non-tariff measuremaychangeovertime.For instance,regulatorytargetsdepend on factors such as the state of technology,awareness of the effects of market failures, industrypractices and societal needs (see Section B). Whennew situations arise, either governments remainunconstrained by their international commitments orthey may seek new regulatory provisions byrenegotiatingtheirtradeagreementswiththeirpartners.

Updating commitments to reflect the new regulatoryneeds may affect the agreement’s existing balance.For example, suppose two governments come to anagreement on health and environment inspectioncertificates for dairy product imports and chickenexports. If there is a discovery of a new pollutant incheeseproductsthatisnotcoveredintheagreement,the dairy-consuming state may seek to imposeregulationsnotcoveredintheinspectionagreement.Ifthe dairy producer seeks to renegotiate, they do sohavingalreadymadeconcessionsonchickenexports.Inexpectationofrenegotiation,bothgovernmentsmay

seek to avoid efficient agreements for fear that theirpositionwouldbeeroded.Withoutsomemechanismtoaddress these new contingencies, governments’inabilitytoputallfuturecontingenciesintoacontractprecludes writing an efficient agreement for the longrun(BattigalliandMaggi,2003).2

Another concern is that the opacity of non-tariffmeasuresoftenmakesitdifficulttoenforceagreements.A government can theoretically threaten to withholdfuturecooperation ifapartnerrenegesonadeal.Thisthreat, however, depends on the ability of eachgovernmenttoobservehowtheotherisrespectingtheagreement.Inthecaseoftrade,thisrequiresmonitoringofthelevelofmarketaccess.While lawsaregenerallypublished for the public, the actual application of thelawmaybeopaqueandvaryaccordingtothechoicesofregulatoryagenciesandprevailingeconomicconditions.

In an uncertain economic environment, governmentsmay have difficulty distinguishing whether a drop inimports is due to higher productivity of the import-competing sector or due to help from the governmentthrough hidden protection (Bajona and Ederington,2009).Thismakesenforcementchallenging;retaliationmaybetriggeredwithoutcause,oragreementviolationsmay go unpunished. Moreover, the potential formistakenretaliatoryactionsmaymakepartieshesitanttoagreetomoreliberalcommitments,thusharmingtheprospectsforinternationalcooperation.

The opacity intrinsic to the application of non-tariffmeasuresandthechallengeofidentifyingtheireffectsmay also exacerbate commitment problems betweengovernments and domestic investors. Tradeagreementsaregenerallythoughttohelpgovernmentsmake policy commitments to investors and voters.However, international agreements may lose theirbinding power if domestic actors are unclear aboutpolicychoices.Firmsmustdecidetomakecostlyandirreversible investments inorder tosell newgoodsorenter new markets. Uncertainty over trade policycreatesanincentiveforfirmstowaitandevaluatetheeffects of regulations before investing. This delayreduces the positive effects of trade opening andreducesthecommitmenteffectsofatradeagreement.

Handley (2011) finds that uncertainty over theapplication of trade policy in Australia reducedthe level of firm market entry after trade opening by30 per cent. In a related study, Handley and Limao(2011) show that uncertainty over trade policysignificantly suppressed Portuguese firms’ access toECmarketspriortotheaccessionofPortugalin1986.Theseresultsindicatethatthecomplexityandopacityofnon-tariffmeasuresmay limit theefficacyof tradeagreementsinsolvingcommitmentproblems.

(ii) Private standards

The majority of this report focuses on measuresimposed by governments to address behaviour by


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private actors in the market, but the emphasis ongovernment policy somewhat obscures the capacityfor collective action on the part of non-governmentalagents.Privatestandardsadoptedbyeconomicagentscanserveasnon-tariffmeasures,affectingtradeandworld welfare in the same way as governmentmeasures (Robert E. Baldwin, 1970). Therefore, thesame type of problems that characterize the use ofNTMs,andthathavebeendiscussedsofar,mayarisefor private standards. To address these impacts,governmentscansigntradeagreementsinwhichtheycommit to regulate private standards and standard-setters.BoxE.2providesexamplesofcommonlyusedprivate standards. This sub-section evaluates theconditions under which governments would developtrade agreements that cover private standards invariousmarketconditions.

When trade is in final goods and standards remainvoluntary, private standards primarily address marketfailures. Section B describes conditions under whichthese standards can serve as a signal to the marketregarding theparticular characteristicsof theproduct.Suchvoluntarystandardscanenhancetradebyallowingfirmstoestablishsystemsthatprovideconsumerswithinformationabouttheirproductswithouttheneedforatrade agreement. Consider an economy with a singlestandardthatopensuptrade.Evenwithoutgovernmentintervention, coalitions of firms may alter standards tomatchtheneedsofdifferentconsumersineachmarket.Trade opening may produce harmonization “from thebottom”(initiatedbyprivateindustrygroups)thatavoidswasteful replicationof national standardsanda largernumber of specialized international-standard groups(Casella,2001).

BoxE.2: Examples of private standards

Privatevoluntarystandardsaredevelopedbyanumberofdifferent typesofentities, includingcompanies,non-governmental standardizing bodies (including regional or international bodies), certification and/orlabelling schemes (e.g. the Forest Stewardship Council and the Marine Stewardship Council schemes),sectoral trade associations (Florverde for flowers; the Better Cotton Initiative for cotton), and other non-governmentalorganizations.Somebodiesmaybebothsectoral innature (e.g. covering forestryproducts)and international.3 Among the very many examples of private voluntary standards, we consider the threeareasdescribedbelowforillustrativepurposes.

Forests and certification

TheForestStewardshipCouncil(FSC),establishedin1993asaresponsetoconcernsaboutdeforestation,isaninternationalnon-profitorganizationaimedatprovidingforestmanagementcertification.4TheFSChasten principles and associated criteria for responsible forest management; these describe, among otherthings, how forests have to be managed to meet social, economic, ecological and cultural needs – theyinclude managerial aspects as well as environmental and social requirements.5 Another example is theProgrammefortheEndorsementofForestCertification(PEFC),anumbrellaorganizationthathasendorsedsome30nationalforestrycertificationsystems.

Thesetwoorganizationsrepresentthelargeststandardschemesintermsofcertifiedforestarea,withsome15percentoftheworld’sproductiveforests.Apartfromforestmanagementcertification,standardschemesin theareaof forestrycommonlyofferchain-of-custodycertification tomanufacturersandtraderswhodonot grow and harvest trees. This type of certification is based on requirements to ensure that the woodcontainedinproductsoriginatesfromcertifiedforests.Chain-of-custodycertificationshaverisenrapidly inrecentyears,reflectinggrowingconsumerdemand.6

Carbon labelling

Carbonfootprintlabellingschemesandtheirrelatedstandardsaimtoreflectthetotalamountofgreenhousegasesemittedduringaproduct’s lifecycle, including its production, transportation, sale, useanddisposal.Existinginitiativesdifferinrationale,context,informationdisplay,andassessmentmethodology.Whilesomelabellingschemesindicatetheamountofcarbonemittedduringaproduct’slifecycle,othersmentionthattheproducerhascommitted to reducingoroffsetting itscarbonfootprint,or that theproduct ismorecarbon-efficientthanacomparableproduct.

Thefirstcarbon-labellinginitiativewaslaunchedin2007bytheCarbonTrust,anindependent,not-for-profitcompanycreatedbytheUKgovernment;itwasfollowedbyseveralotherinitiatives.Effortstoharmonizetheunderlying methodology of carbon footprint labelling schemes are on-going at the international level.7 Anincreasing number of governments have adopted, or are in the process of developing, carbon-labellingschemes.Todate,however,theseareallvoluntaryinnature(Brentonetal.,2009;BolwigandGibbon,2009).


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On the other hand, once production expands beyondborders,governancebetweenandwithinfirmsrequiresincreased coordination and monitoring. In thisenvironment, firms increasingly employ privatestandards to address these challenges in governingtheir supply chains, with implications for marketaccess. For example, in a world of local production,private food safety and quality standards werepredominantlybusiness-to-businessrequirementsandnotasignificantchallengetotrade,butwiththeriseofoffshoring, these private standards have evolved intocollective standards as leading firms have madeefforts to manage the transaction costs associatedwith their global supply chains (Henson, 2008). Asthese supply chains have begun to span nationalborders, private standards have become increasinglyprevalent(HusseyandKenyon,2011).

Theestablishmentandadoptionofaprivatestandardentails costs that have different effects across firmsand countries. For example, the global adoption of astandardusedinthedomesticmarketentailscostsforforeign firms that domestic counterparts do not face(BütheandMattli,2011).Whenprivatestandardshavedistributional consequences, governments may usetrade agreements to limit the negative tradeconsequencesofinternationalanddomesticstandard-settingbodies.

Even without a trade agreement, firms may limit theinfluence of a particular standard by creating acompetingprivateregulatortodevelopmorefavourablerules. For example, the World Wide Fund for Naturehelped create a private standard-setting body, theForest Stewardship Council (FSC) to promotesustainableforestry.Inresponse,producersdevelopedcompeting standard-setting programmes to satisfyconsumers without undertaking the costly measurespromotedbytheFSC(Cashore,2002).

Depending on the needs of citizens and firms,governments may sign agreements to promote orconstraincompetitionamongstandard-settingbodies.Such an agreement can significantly alter theregulatory environment. For instance, Büthe (2010)points out that in the electronics sector, theInternational Electrotechnical Commission (IEC)managed to leverage WTO recognition and its ownincumbentpositiontoplayacentralroleininternationalregulation. Besides this example, the experience ofthe European Union shows that the designation orsubsequent recognition of a particular private rule-maker affected competition (Cafaggi and Janczuk,2010).

Moreover, a “private” standard that becomes widelyused may be a precursor to government regulation(whether in the form of a technical regulation,conformityassessmentprocedureoranSPSmeasure).One recent example, relevant to the issue of carbonfootprint labelling, is France’s Grenelle 2 Law.8 Thislaw includes provisions on product carbon footprintlabelling and environmental lifecycle analysis. Somedelegations at the WTO have expressed concern (inthe TBT Committee) that carbon-labellingrequirementscouldbecomemandatoryinthefuture;infact, an earlier draft of the measure had foreseenmandatory carbon footprint labelling. The EuropeanUnion has clarified that the law is not compulsory: itwas designed to introduce consumers to additionalenvironmentalinformationprovidedonproducts.

The analysis above examines voluntary standard-setting and the role of agreements in regulatingstandard-setting bodies when production is localizedin a single country. However, when productionnetworks are global and tasks are traded acrosscountries, firms may set standards for their inputsuppliers, establishing an additional reason for

Food safety standards

In responsetoevolvingeconomicconditions, including increasedconsumerdemandforquality,safetyandprocess attributes and increased concentration in the agro-food retail sector, private firms have beendevelopingagrowingnumberoffoodsafetystandards(HensonandReardon,2005).Thesestandardsaretypically higher than public mandatory standards and are integral to the contracting obligations of firmsalongasupplychain.

Private standards can contribute to the governance of food safety across regions and sectors but whenthere isamultitudeofcompetingstandards,compliancecosts forsuppliersalso increase(Fulponi,2006).Thus,anotherrecenttrendintheareaofprivatefoodsafetystandardsistheemergenceofglobalcoalitionsforsettingstandards.Thesecoalitionsrepresentanattempttoharmonizeeffortstoachievefoodsafetyandmutualrecognitionofnationaland/orregionalstandardsamongfoodretailers.Forexample,theGlobalFoodSafetyInitiative(GFSI)waslaunchedin2000toencourageconvergencebetweenfoodsafetymanagementsystemsthroughmaintainingabenchmarkingprocessforsuchsystems.

Throughthebenchmarkingprocess,theGFSIseekstoidentifyfoodsafetyschemesthatproduceconsistentfoodsafetyresults.RetailersguidedbyGFSIrecommendationsshouldbeabletoidentifysuppliersthatmeettherequirementsofrelevantstandardswithoutrequiringanaudit.Thistypeofinitiativecouldprovideretailerswithflexibilitytosourceacrosstheworldandcontributetoenhancedefficiencyoftheglobalfoodsystem.


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international agreements on voluntary standards. Asmentionedabove,firmschoosestandardstoensurealevel of quality or to make the input compatible withotherstagesoftheproductionprocess,oftenrequiringinputmanufacturers topurchaseor licensestandardsfrom private firms. However, in industries with only afew input purchasers, these firms may be able to setstandardsinwaysthatleveragetheirmarketpower.

Forexample,supposethatanumberoffirmsproduceoranges for sale to one large orange juicemanufacturer. Themanufacturer canset standards inawaythatextractprofitsfromtheorangefarmers,forexampleby requiringorangesselectedbyapatentedorange-grading machine, or that orange growersobtainalicensedmanagementcertification.Ifthefirmis vertically integrated, the standard can be set toensurethatprofitsremaininhouse,effectivelyshuttingout competition for the input. Imperfect competitioncreates conditions under which governments canprofitablysignagreementstolimittheextenttowhichprivatestandardsaffecttrade.Ifthestandard-setterisinadifferentcountrythantheinputsuppliers,theuseof that private standard could inefficiently decreasetrade.Inthisenvironment,thegovernmentoftheinputsuppliers would prefer to limit the ability for thedownstreamfirmtosetstandards.

Because both incumbent firms and their governmentshaveanincentivetoinfluenceprivatestandardssothattheycancapturemarketsattheexpenseofcompetingfirms and economies, reciprocal negotiation of privatestandardizing organization regulations may improveefficiency.However,whiletherearesignificantpotentialwelfare gains for improving market access for non-incumbentfirms,foreignexportersandtheirrespectivegovernments, each of whom lack influence in privatestandard-setting,thesegainsmaycomeattheexpenseof some domestic regulatory interests. For example,while some governments require private standardizingbodies to include consumer representatives in thedevelopment of a standard, in an internationalcooperative environment, consumer interests wouldcompete with foreign firms or governments whoseinterestsaretoopenmarkets.

Inmany cases,market access considerationsarenotaligned with consumer concerns, such asenvironmental and safety protection. Moreover,because producer interests generally face lowercollectiveactioncosts,theytendtobemorepoliticallyorganizedthandiffuseconsumerinterests.Becauseofthese political forces, it is possible that internationalcooperationonprivatestandard-settingmayaffecttherepresentation of consumer interests in thedevelopmentandgoalsofstandards.

(iii) Compatibility standards, technical regulations and fixed costs

AsdiscussedinSectionB,severalnon-tariffmeasuresmay differ from tariffs in their effects in imperfectly

competitive markets. This sub-section argues thatgovernments may cooperate to limit the strategiccompetitive effects of NTMs under three differentmarket conditions. Specifically, a rationale for NTMcooperation emerges in markets with horizontallydifferentiated goods and services, when productsexhibit quality differences, and when NTMs createfixed costs that alter firm entry and industrycomposition.

When goods and services are not consumed inisolation and there are differences in compatibilityacross types of products, it may be necessary to setup rules to reduce unnecessary conflicts betweenformats. In perfectly competitive markets, goods andservicesareassumedtobeeconomicallyidentical,butin many markets consumers exhibit preferences forone or another variety of goods. These consumerpreferences inducefirmstoalter thefeaturesof theirproduct to distinguish it from those of competitors,producing what the economic literature callshorizontallydifferentiatedproducts.

Moreover, each variety can exhibit higher or lowerlevelsofcompatibilitywithcomplementaryproductsinthe market. To encourage compatibility acrossproducts, firms and occasionally governments mayappeal to a compatibility standard. Because thesestandards can affect trade, international cooperationonsuchstandardscanpromotebothmarketefficiencyand consumer welfare (World Trade Organization(WTO), 2005b). For example, while there may be noobjective quality differences between two possiblecomputer ports, one of the two may interface betterwith a popular portable music device. A compatibilitystandardwouldensure that theport set-up increasesthe compatibility with the other devices available onthemarket.Internationalcooperationonthatstandardcan ensure that foreign devices do not need to berefittedtomeetlocaldemandspecifications.

One consideration to bear in mind is that whilecompatibility standards improve welfare, thebeneficiary of this policy reform may depend on whosets the standard. To the extent that promoters ofcompeting standards can come from differentcountries and the winner can claim profits from theadoption of its standard, strategic trade policyconsiderations can come into play (World TradeOrganization(WTO),2005b).Governmentsmayrefrainfrom eliminating certain non-tariff measures in aneffort to promote the standards adopted by theirdomestic firms. However, when production involvespurchasing parts from foreign affiliates or unrelatedparties, promoting standards reduces search costsand production costs. As production becomesincreasingly reliant on global production chains, theneed for deeper policy integration becomes morepressing, lowering the attractiveness of strategicstandard-setting.


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A second rationale for cooperation over non-tariffmeasuresistheneedtoaddressgovernments’strategicbehaviour in setting these measures. For example, inmarketswithqualitydifferentiation,consumerstakethequality of a product into account when makingpurchasingdecisions.Ifconsumerscanobservequality,economic theory indicates that firms that produce agood of higher quality replace the previous vintage ofgoods on the market, taking market share fromcompeting firms’ product lines. In the short run, thetechnology leadercanbehaveasamonopolist, raisingpricesandprofits,butnotraisingthepricesohighastoallowcompetitorstoenter.Laggingfirmswouldhavetoovercome the costs of innovation as well as themonopolist’s prices to sell any products (Motta et al.,1997). This process generates a ladder effect, witheachnew incumbentsellingahigher-qualitygoodatahigh price and all other firms exiting, a phenomenonSchumpetertermed“CreativeDestruction”.

The main danger in such a scenario is thatgovernments may strategically adopt technicalregulations to favour domestic firms.9 Whatever firmends up producing, the higher-quality good receiveshigher profits, benefiting the host country andgovernment (Lehmann-Grube, 1997). This potentialadvantage has important implications for domesticwelfare, and creates powerful incentives for laggingindustriesaswellastheirnationalgovernmentstosetpolicies that allow domestic firms to leapfrog leadingfirms and take over the market in high-quality goods(Herguera and Lutz, 1998). Boccard and Wauthy(2005)describehowgovernmentsmayusenon-tariffmeasures in thisprocess toensure that thedomesticfirm comes out as the quality leader. For example, atechnicalmeasurethathastheeffectofrestrictingthequantity of imports may allow the domestic firm todevelop products in the high-quality range whileforcing the foreign firm to produce lower-qualityproducts.Becausetheforeignfirmlosesitsleadershipstatus, the advantages of “leapfrogging” come at thecost of lowering foreign profits. Because bothgovernments face this incentive, each may seek tomutuallytietheirhandstoavoidthissortofcompetitionbyenteringintoaninternationalagreementonNTMs.

A third rationale for cooperation on non-tariffmeasures relates to the fact that these measurescreate a fixed cost for the entry of foreign firms(seeSectionsBandD).Theabovediscussionassumesthattechnologyorsomeotherfactorcausesimperfectcompetition,butNTMscanalsodetermine theextentofcompetition.Everyfirmthatentersaforeignmarketwould have to file paperwork, familiarize itself withcustoms procedures, and pay licensing fees, thusincurring fixed costs of doing business rather than aper unit charge. While adding fixed costs affects theinternationaltermsoftradeinthesamewayasatariff,NTMswouldhaveanadditionaleffectonmarketentrydecisions in the foreigncountry. The larger theNTM,the more firms will have to be able to produce to

engage in trade. If firms are not identical and NTMsimposefixedcosts,tradewillbeconcentratedinlargerand more productive firms, while at the same timeincreasing the number of small, less productive firms(NockeandYeaple,2008).

Countries have several reasons to cooperate onreducing fixed costs of market entry. For instance,governmentsmay limitnon-tariffmeasurestopreventthe over-reliance of the domestic economy on a fewlargefirms thatareable toovercome thefixedcosts.Policy-makersmaybewaryoftheeffectsofeconomicshocks, which can propagate faster and be moredifficult toabsorbwhentherearetoofewlargefirms.In particular, if an industry is highly concentrated,capitalmisallocationsthatwouldbereducedinamorecompetitive market may reverberate, increasing thefrequencyandcostofeconomicshocks.Theseeffectswould not only depend on regulations in the goodssector;asdiscussedinSectionE.4(e),pro-competitiveregulation in the context of domestic regulation inservicesisanimportantareaofactivecooperation.

(iv) Offshoring

Theproliferationofglobalproductionchains increasesinternational interdependency and may provide arationale for deep cooperation on non-tariff measureswithintradeagreements.AsdiscussedinSectionE.1(a),theories of international trade until recently identifiedone main international spillover associated with tradepolicy:howitaffectstermsoftrade.Thebreak-upoftheproduction process across different countries createsnewformsofcross-borderpolicyspillovers.AntràsandStaiger(2008),forinstance,buildamodelwherepricesare determined by bilateral bargaining becauseinternational production involves exclusive contractswithinputsuppliers.Inthisenvironment,thegainsfromtrade are divided between the two or more firmsinvolved, and the prices of traded goods and servicesreflect the relative contribution of each node of thesupplychain.Becauseproductionisinternational,someof the costs of trade frictions are borne by firms inforeign states. An international externality occursbecausegovernmentsdonottakeintoaccountthefullvalueof the internationalproductionchain,butonlyofitsdomesticcomponent.

Specifically, when prices are set by bargaining, theinput producers experience rent-shifting (i.e. shiftingprofits from the input supplier to the domesticproducer),whiledownstreamproductsexperiencethetraditional terms-of-tradeeffects.Toaddress thenewconcern, a trade agreement should ensure that tradepolicies over the later stages of production do notdistort bargaining between producers and inputsuppliers.Whenpricesaresetinacompetitivemarket,it is sufficient for an input-exporting country tonegotiate over the tariff directly tied to the inputproduct. However if prices are set via bargaining, inaddition to obtaining market access, or a lower tariff


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on the imports of the input, governments mustadditionallynegotiatethetariffsanddomesticpolicieswhich affect the final product. For example, supposecountryAisseekingtoexportautopartstocountryB.Country A’s interest is no longer only to seekreductions in tariffs on auto parts, but also thedomestic regulations and standards in country B forthe sale of completed automobiles. Without such acommitment, countryBmay inefficiently regulate, taxorprotectthefinalgoodmarket,knowingthatpartofthe pain is suffered by auto parts manufacturers incountry A. With a rise in offshoring, these deepercommitmentsmaybecomeincreasinglyimportant.

The internationalization of production exemplifies whythe traditional trade opening toolbox (i.e. tariffreductions) fails to offer a satisfactory solution in thecase of non-tariff measures. Consider the concept ofreciprocity. In the current system, this principle isintendedasreciprocalmarketaccessopeningforfinalgoods. It is not hard to see why this concept fails toprovideausefulguidingprinciple for tradenegotiatorsin thecontextofnon-tariffmeasuresandglobal valuechains.Morebroadly,existingtraderuleswereoriginallydraftedforaworldofinternationaltradeinfinalgoods.The extent to which this institutional framework canaddress thenew formsof interdependencyassociatedwith global production networks is a complex matter.ThisissueisdiscussedinSectionE.4.

(c) DifferentapproachestotheregulationofNTMsintradeagreements

Thissection reviews the recenteconomic literatureonthedesignofdisciplinesonnon-tariffmeasures.First,itargues that shallow integration can ensure thatgovernments have the ability to efficiently employNTMs,solongastheydonotreplaceboundtariffswithnon-tariffmeasures.Inparticular,thesectionexaminestwo rules that enable the legitimate use of NTMs –national treatment and non-violation provisions – andhighlightstheirinstitutionalstrengthsandweaknesses.Theserulesrelyonwell-informedgovernments,whichisatoddswiththecomplexityandopacityofmanyNTMs.In light of this, the role of disciplines to improvetransparencyintradeagreementsisdiscussed.

Secondly, the section maintains that the differencesbetweennon-tariffmeasuresand tariffs requireanewset of institutional tools that go beyond shallowintegration. Specifically, we review the literature ondeep integrationanddiscuss the trade-offs impliedbymutualrecognitionofdomesticregulatoryrequirements,thejointnegotiationoftariffandnon-tariffmeasuresintrade agreements, and the harmonization of NTMs atthemultilateralandregionallevel.

(i) Shallow integration

Shallow agreements are those that directly regulatetariffs and other border measures, but stop short of

intervening in domestic measures beyond therequirement of non-discrimination of foreign goodsand services. As seen in previous sections, thefundamental goal of a shallow trade agreement is toguard against the possibility that governments mayreplacepolicymeasuresexplicitlyboundinascheduleofcommitmentswithunconstrainedpolicy inorder todiscriminate against their trade partners. In thefollowing, we discuss two rules which aim at limitingthis sort of non-cooperative behaviour, assumingperfectly informed governments. When governmentsare not perfectly informed, there is a role fortransparencyprovisionswhichwillbetakenupfurtherinSectionE.2aswellasinSectionE.4.

National treatment

According to economists, trade agreements areincompletecontracts.By this, it ismeant thatno tradeagreement can possibly cover the myriad ways thatgovernments may wish to regulate economic life and,therefore,agreementshavegaps.However,ifnotboundbyagreement,governmentsmaybetemptedtosetnon-tariff measures without regard to the implications forforeignmarketaccess.Thisposesanobviouschallengeinthedesignoftradetreaties.Addingspecificprovisionsto the agreement may partially address some of itsgaps, but each new rule adds to the complexity andenforcement costs of the agreement. For this reason,trade treaties sometimes include explicit and rigidlimitationsonNTMs(BattigalliandMaggi,2003).Hornetal. (2010)show thatsimpleandbroad rules,even ifoccasionally inappropriate in certain circumstances,maygenerallybemoreefficient.

One of the principal constraints on discrimination vianon-tariff measures is the obligation to treat foreignproducts at least as favorably as “like” domesticproducts. This obligation for national treatmentappears in Article III of the General Agreement onTariffs and Trade (GATT), Article 2.1 of the TBTAgreement, is implied in Article XVII of the GeneralAgreement on Trade in Services (GATS) as well asArticle 3 in the Trade-related Aspects of IntellectualPropertyRights(TRIPS)Agreement.10

Agreements including national treatment obligationslimit the use of internal measures that affect theeconomic conditions of imported products. Nationaltreatment requires that any internal tax or regulationmust not discriminate between domestic and foreignsources of supply and is therefore deemed not to beprotectionist.Supposethatacountrywantedtouseahealthwarninglabeltolimittheimportofforeignpaint,increasingthesalesofdomesticpaintmanufacturers.A national treatment provision requires that the labelon foreign products would have to be applied todomesticproductsaswell.Becausethelabelwouldnolongerdistributecompetitivebenefits,thegovernmentmaybedissuaded fromusing thehealthmeasure forprotectionist reasons.Asa result, only tariffs are left


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to restrict trade, and under the most-favoured nation(MFN)clause,thosetariffsmustbenon-discriminatory.

While national treatment limits the use of non-tariffmeasures for discriminatory purposes, some authorshavearguedthat incertaincasestherulecanbetooblunt to meet the legitimate policy objective ofcountries.11 Horn (2006) describes ways in whichnational treatment can be insufficient to limit theprotectionist use of NTMs (in this case a Pigouviandomestic tax). First, a national treatment provision isonlyeffectivewhenthereisa“like”domesticproduct.If there are no domestic paint manufacturers, thegovernmentwillnotbeinviolationofnationaltreatmentwhatever themotivesor severityof theNTM,despitethe fact that such NTMs would still confer anadvantagetoacountry’stermsoftrade.

Secondly, when a negative externality is associatedwith the consumption of a foreign product – forinstance, if foreignpaintsaremoreharmful tohumanhealth than the domestically produced ones, and yetare“like”productsfromtheperspectiveoftherule–anational treatment provision constrains thegovernment’s ability to limit the scope of a costlyregulation to just the goods that produce theexternality.12 This limitation on regulation requirestrade negotiators to set their tariff commitmentscarefully.Note,however, thatwhilenational treatmentrules set a blanket requirement that may constrainregulatory authority, rigid rules decrease contractingcosts and may facilitate agreements in uncertainregulatoryenvironments(Hornetal.,2010).

Recent research has suggested that the WTO’sdisputesettlementmechanismcan lowerthecostsofusing rigid national treatment rules while stilladdressing potential policy substitution by WTOmembers.BattigalliandMaggi(2003)characterizethework of the WTO panels and Appellate Body asproviding arbitration that improves the efficiency ofpreviously bargained agreements when the explicitterms of the agreement are insufficient. The authorsargue that, while panellists and Appellate Bodymembers may be less informed about the optimalobligations of member states than the membersthemselves,thepresenceofanarbitratorcorrectsthemisuse of a non-tariff measure caused by the rigidapplicationofanationaltreatmentrule.

For example, suppose that governments negotiatedmarket access while assuming that all computermonitors have equal, and environmentally acceptable,amountsofmercury. If foreignproductionofcomputermonitors switches to a more mercury-intensivemanufacturing process, a rigidly applied nationaltreatment provision may not allow governments torespond to the change. Because each WTO membercanhave recourse todisputesettlement,governmentscanefficientlyfulfiltheobligationsoftheagreementonthenewproductwhilemaintainingnationaltreatment.

So far, it has been assumed that the mechanismthrough which WTO panels and the Appellate Bodyimprove the efficiency of trade agreements whennational treatment is too rigid or incomplete has notbeen analysed. However, what practical role do WTOpanels and the Appellate Body play in reaching ajointlyefficientoutcome?

Maggi and Staiger (2011) argue that the disputesettlement mechanism can play an important role intheinterpretationoftradeagreementswhentherulesare incomplete and it is difficult to write efficientagreements.Theauthorsconsideravarietyofpotentialroles of WTO panels and the Appellate Body thatrange from fairly conservative, applying the existingobligations to ensure enforcement, to more “activist”,inwhich theymayfill gaps in theobligationsofWTOmembers, or even going as far as to modify existingobligations.Theauthorsevaluate the idealscopeandspecificityoftherulesembodiedintradeagreements,such as national treatment, under each of thesehypothetical degrees of court involvement. They findthat more flexible disciplines are preferable to rigidrules when it is difficult for WTO panels and theAppellateBodytocorrectlyidentifytheefficientpolicy.

Non-violation

TheframersoftheGATTsoughttoassuagefearsthatcontractingpartiesmightactinwaysthat,whilenotinviolation of the agreement, could underminecommitments made in the course of negotiations.Article XXIII of the GATT and Article XXIII:3 of theGATSpermitgovernmentstoseekdisputesettlementthrougha “non-violation”complaint.Suchacomplaintisallowedifonegovernmentcanshowthatithasbeendeprived of an expected benefit because of anothergovernment’saction,orbecauseofanyothersituationthatexists.Theaimistohelppreservethebalanceofbenefits struck during multilateral negotiations. Forexample,acountrymayhaveagreedtoreduceitstariffonaproductaspartofamarketaccessdeal,butlateraltered itsregulatorystancesothattheeffectontheconditionsofcompetitionarethesameastheoriginaltariff.Anon-violationcaseagainst thiscountrywouldbe allowed to restore the conditions of competitionimpliedintheoriginaldeal.Thissub-sectionillustrateshow non-violation complaints address the problem oftariffsbeing replacedbyNTMsand the limitationsofthisapproach.

As described in Section B, in a setting where the onlycross-borderspilloverofapolicy ishowitaffectstermsof tradeandwherethereareno institutionstofacilitateinternationalcooperation,governmentswouldefficientlyregulatethedomesticmarketbutwouldhaveanincentiveto set inefficiently high trade restrictions (Bagwell andStaiger, 2001). The reason for this is that the onlyinefficiency associated with unilateral policy choicesderivesfromthedesiretoobtainaterms-of-tradegainattheexpenseoftradingpartners.Becausetheexternality


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addressedbythedomesticregulationdoesnotaffectthewelfare of foreign citizens, the government has noincentive to under- (or over-) regulate from a globalwelfareperspective.

Onthecontrary,whentariffsarecommittedinatradeagreement, governments may be tempted toinefficiently use domestic regulatory policy to affectthetermsoftrade,alteringnon-tariffmeasurestotakethe place of tariff measures. In this context, BagwellandStaiger (2001)showthat theexistenceofanon-violationrule inatradeagreementdiscouragespolicysubstitution. Specifically, in the presence of a non-violation remedy, governments understand that theyrisk a legal challenge if they manipulate theirregulations for protectionist purposes after agreeingtoatariffbinding. Ifagovernmentdoesneedtoalterits regulation to address a new domestic marketfailure, the non-violation rule allows that governmentto lower its tariff to compensate trading partners foranytrade-restrictiveeffectofthenewmeasure.

A separate issue is the extent to which the economicviewofthenon-violationruleisreflectedinthepracticeof the GATT/WTO system. For instance, Staiger andSykes(2011)arguethatnon-violationclaimsareunlikelytobeusedtolimitnon-discriminatoryregulationseveniftheydistort trade. The three successful casesof non-violation claims address discriminatory bordermeasures.Accordingtotheauthors,undertheJapan – Film panel’s interpretation of the non-violation rules,discrimination is a prerequisite for a claim, whichprevents the use of non-violation claims to addressmany of the regulatory balance concerns describedabove. This interpretation would suggest that non-discriminatory changes in regulatory policy appear tofalloutsidethescopeoftheGATT,asubjectdiscussedinmoredetailinSectionE.3andE.4.

Anotherissue,whichwasdiscussedintheWorldTradeReport2010(WorldTradeOrganization(WTO),2010),is whether the non-violation doctrine could beextended to cover other situations where the use ofnon-tariffmeasuresgrantsmore(andnotless)marketaccesstotradingpartners.Underthesecircumstances,should governments be allowed to adjust (bound)tariffsupwardsonceregulatoryneedshavechanged?Ifsuchapossibility isnotallowed, itcouldbearguedthat governments may hesitate to enact efficientregulations whenever such a policy changedifferentiallyimpactsdomesticproducers.

Consider a specific example. Suppose there is anegativeexternality,suchaspollution,generatedbyadomestically produced good. If the governmentaddressestheexternalityby tighteningenvironmentalregulations, itsdomesticproducersbearaproductioncost that foreign producers do not, shifting marketshareawayfromdomesticfirms.Intermsofeconomicefficiency, an increase in a tariff that preserves thelevelofmarketaccessofforeignproducersatthelevel

implied by the previous regulatory stance may bejustified inthesecircumstances.Thechangeinpolicymix in the domestic economy improves welfare,becauseitallowsgovernmenttoaddressthepollutionproblem, while preserving the level of market accessgrantedtoforeignexporters.

Transparency

As discussed above, transparency on non-tariffmeasures is a necessary condition to achieve (andenforce) trade policy cooperation. This explains whythe multilateral trading system aims at improvingtransparencyofNTMs.TheGATT, theGATS,and theSPSandTBTagreements includevariousobligations– requiring publication and notification of NTMs andservicesmeasures–thatseektoimprovetransparency.Thesetransparencyobligationshavebeenthesubjectof important discussions in the relevant WTOcommittees, and several actions have been taken tofurtherimprovetransparency.Forinstance,duringtheFourth Triennial Review of the TBT Agreement, theTBTCommitteeagreedtoshareexperiencesongoodregulatorypractices.AreportbytheSwedishNationalBoard of Trade goes as far as to argue that “goodregulatorypracticeatnational level isthesinglemostimportant aspect in the efforts to avoid unnecessaryTBT” (Kommerskollegium, 2010). These efforts, aswellassimilareffortsonservicesmeasuresandSPSmeasures,arediscussedfurtherinSectionE.2.

The principal idea behind these efforts is thatgovernmentscanbenefitfromthetechnicalknow-howand experiences of other governments’ efforts inpromotingefficientandtransparentpolicy.Cadotetal.(2011) argue that documenting and understandingnon-tariffmeasuresandtheireffectsisthefirststageinaneffort tomakeNTMsmoreefficient,particularlyin countries that are struggling with legacies ofcomplicated and penalizing regulations. Governmentsmaypursuesub-optimalpoliciesbecausetheyarenotfully aware of their effects and of the existence ofbetteralternatives.

This said, economic reasoning in Section E.1(b)indicates that governments also have an incentive touse opaque instruments to gain advantage at theexpenseofothergovernments.AswillbediscussedinSectionE.4(b),governmentsmaylacktheincentivetoadopt transparency measures because they aresuccessful in lowering barriers to trade. Throughgovernmentcommitmentstonotifydomesticmeasuresandengage ingood faithdiscussionsabout reducingthe trade impact of non-tariff measures, the WTOSecretariat may be able to play an important role inilluminating opaque measures (Collins-Williams andWolfe, 2010). The economic role of the notificationprocess and the efficient design of rules to addressgovernments’ incentive problems to offer informationare areas of research where more work would behighlydesirable.


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(ii) Deep integration

Asargued in thehistoricaloverview inSectionA, thetreatment of non-tariff measures in the multilateraltradingsystemhasevolvedovertime. InitialemphasiswasontheneedtoassurethattariffreductionswerenotoffsetbyNTMs.Theshallowintegrationapproachbuilt into rules such as national treatment and non-violationdiscussedabovefollowspreciselythislogic.

Overtime,traderelationshaveevolvedinresponsetoa number of factors, including the increasingimportanceof internationalproduction, theexpandingregulatory needs to protect consumers and otherbroadsocietalinterests,suchaspublichealthandtheenvironment. These changes have put pressures ontheinstitutionsgoverningtrade,andgovernmentshavelooked for ways to go beyond shallow integrationarrangementsintodeeperformsofcooperation(atthemultilateralorregionallevel).Thedesignofdeeptradeagreements to regulate non-tariff measures is thetopicofthissub-section.

There is no generally agreed definition of “deep”integration. According to Lawrence (1996), who firstusedthisterm,tradeagreementsthatincluderulesondomesticpoliciesthat“fallinsidetheborder”aredeepagreements.Ontheotherhand,oftendeepintegrationis simply defined in contrast to the shallowarrangements presented in the previous sub-sectionasanyagreement that imposes further limits to localregulatory autonomy. While the World Trade Report2011 (WorldTradeOrganization (WTO),2011b)hasamore detailed discussion of the concept of deepintegration,thefocushereisonthreedeepapproachesthatoftenemerge intheacademicandpolicydebate:mutual recognition, linking tariffs and non-tariffmeasuresintradenegotiationsandtheharmonizationof domestic measures. These different approachesofferdiversetoolstocooperateonnon-tariffmeasureswithinatradeagreement.

Mutual recognition

Governments have adopted rules beyond nationaltreatment to limit the discriminatory use of non-tariffmeasures, ranging from “regulatory competition” to“harmonization” (Hussey and Kenyon, 2011). Mutualrecognition of domestic regulations is one suchapproachwhichhasbeenadopted,mostnotablybytheEuropean Union. Specifically, so long as another EUmember sells a product within its border, it ispresupposedtomeetdomesticregulatoryrequirementselsewhere in the Union (see also Section D.3). Undermutual recognition, this means that each governmenthas full sovereignty over its own technical regulationsfordomesticallyproducedproductsbutalimitedabilityto project those policies onto its trade partners or todetermine the characteristics of products consumeddomestically.

Mutual recognition has benefits and costs comparedwith national treatment disciplines discussed above(Costinot, 2008). Consider a specific example.Suppose that there is an externality associated withthe consumption of either a domestic or foreignproduct. Ifthereisanationaltreatmentprovision(andgovernments are not otherwise coordinating ontechnical regulations), whatever regulation is chosenwill be extended to products from the foreign state.There is effectively one technical regulation for all“like”products.Inthissetting,theproblemisthatpartofthecostsofmeetingtheunifiedtechnicalregulationis borne by foreign producers, whose welfare is nottaken intoaccount by thedomesticgovernment. Thismay result in an excessively stringent regulation.Becausethegovernmentonlyinternalizesthecostsofregulations on the domestic and not on the foreignproducers, it weighs domestic consumers’ concernsmoreheavily.

On the other hand, if countries adopt mutualrecognition,governmentsmaybetemptedtosetlooseregulations, leading to a “regulatory race to thebottom”, because the rules will not account forexternalities on the foreign market. Keeping in mindthese trade-offs that characterize national treatmentand mutual recognition, Costinot (2008) findsconditionsunderwhichoneapproachissuperiortotheother. Specifically, the author finds that nationaltreatment tends tobemoreefficientwhenthe tradedgoodsareassociatedwithahighlevelofcross-borderspillovers.

Governmentscanalsoaltertheagreementtoaddresssome of the weaknesses of this approach. A set ofpre-negotiated minimal standards may serve thepurpose of avoiding extreme (and socially inferior)outcomes. For instance, in 1985 when the EuropeanUnion adopted mutual recognition of member states’legislationconcerningproducts, theEUdirectivessetout “the essential requirements to be fulfilled toprovide for protection of life, health and environmentetc.”, with the specific intent of avoiding a regulatoryracetothebottom(Kommerskollegium,2010).

Linking tariffs and NTMs in trade negotiations

Commentatorshavedevelopedtwosetsofargumentsthat support the view that tariffs and non-tariffmeasures, for instance domestic environmental orlabour regulations, should be linked in tradenegotiations.Below,theyarereferredtoasthe“grandbargain”andthe“enforcement”argument.

According to the “grand bargain” perspective,cooperation on tariff and non-tariff policy is mutuallybeneficial and self-reinforcing. Therefore, linkingdifferent measures in a single grand bargain, forinstanceexchanginglowertariffsfornewenvironmentalregulations,maysucceedinachievingmutuallywelfare-enhancingcooperationtoalargerextentthanseparate


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negotiations(Abregoetal.,2001).Whilethisargumenthasacertainappeal,linkingnegotiationsoverdifferentmeasures and diverse policy areas also comes at thecost of increasing complexity. The probability of asuccessfuloutcome,therefore,maywellalsodependonthismorearticulatedcontractualenvironment.

A second argument to regulate and link non-tariffmeasures in a trade agreement is the possibility ofusing tariffs as an enforcement device (Ederington,2002; Limao, 2005; Spagnolo, 2001). In a settingwheregovernmentshaveanincentivetousedomesticmeasurestomanipulatethetermsoftrade,Ederington(2002) argues that retaliation through tariffs is themost efficient way to enforce cooperation on bothtariffsandnon-tariffmeasures.Bycontrast,itisneverefficient to permit governments to distort theirregulatorychoicesformarketaccesspurposes.

Inadifferentsetting,whereregulatorycooperationonnon-tariff measures is beneficial but suffers from anenforcementproblem,embeddingthesemeasuresinatrade agreement may provide a means of punishingviolators and, hence, increasing welfare (Spagnolo,2001).On theotherhand, linkagesmayworkagainsttrade opening efforts. According to Limao (2005),linkingtheregulationoftariffsandNTMsmaystillbewelfare improving whenever cross-border spilloversare sufficiently large (i.e. when policies are strategiccomplements).

Harmonization

Section D defines harmonization of non-tariffmeasuresastheestablishmentofcommonmeasures,suchastechnicalorsafetystandards,acrossdifferentjurisdictions.Thefocus in thatsection isonthetradeeffects of these common measures. The emphasishere is on an institutional design issue: under whatconditionsdocountriesbenefitfromtheharmonizationofNTMs.

Economists have developed a simple principle tounderstandthecostsandbenefitsoftheharmonizationofpoliciesacrossdifferentjurisdictions,knownastheOates’ Decentralization Theorem (Oates, 1972). Thistheoremshowsthatthereisabasictrade-offinsettingcommon policies, such as harmonized technicalregulations. The benefits depend on the extent ofcross-border policy spillovers, for instance the extentto which a certain national environmental regulationimpacts on the welfare of foreign citizens. The costsdependontheimportanceofthedifferencesinpolicypreferences across countries. Specifically, forindividualcountriesthecostofharmonizationofanon-tariffmeasureisthatitmovesthemeasureawayfromits preferred national policy (i.e. a loss in nationalsovereignty); the benefit is that a harmonized NTMtakes intoaccounthow themeasure impactsonboththe national and the foreign welfare (i.e. the policyspilloverisinternalized).

TheOates’DecentralizationTheoremhasasimpleandintuitivepredictionthatcanserveasaguidingprincipleforpolicy-makers.Harmonizationofnon-tariffmeasuresis an efficient institutional response whenever cross-borderpolicyspilloversareconsideredtobelargeand/or differences in policy preferences across countriesarenot important.For instance,BirdsallandLawrence(1999) argue that deep integration with advancedeconomies may create advantages for developingcountries that import best regulatory practices, butthesebenefitsneed tobe tradedoffwith thecosts togovernmentsofadoptingcommonrulesthat, incertaincases,donotmatchnationalpreferencesandtheneedsof developing countries. This theoretical framework,therefore, offers important insights to negotiators toidentifyareaswheresocialwelfareconsiderationsmayjustifypolicyharmonization.

A related issue is the proper forum where thisharmonization should take place. Insofar as non-tariffmeasurescreatecross-borderpolicyspillovers,asinthecaseof climate change relatedpolicies or food safetystandards,thereisaneedforinternationalcooperation.However,thiscooperationmaywellbecarriedoutinthecontext of a sector-specific agreement orstandardizationbody,whichareoutsidethecompetenceoftheWTO.Fromtheperspectiveofatradeagreement,thequestion isoneof internationalcoherence.That is,how the environmental measures or the food safetystandards relate to the international trade rules. WecomebackonthispointinSectionsE.2andE.4.

Asecondissueiswhetherharmonizationofnon-tariffmeasures ismoreappropriateat themultilateral levelorattheregional/bilaterallevel(i.e.withinpreferentialtrade agreements – PTAs). The World Trade Report 2011 (World Trade Organization (WTO), 2011b)documentsthatagrowingnumberofPTAsgobeyondtariff reductionsand includecommonrulesonNTMs,such as harmonized standards or harmonizedconformity assessment procedures (these practiceswere found in more than 40 per cent of a sample of58PTAssurveyed).Inlightoftheprecedingdiscussion,this finding is not surprising. Members of a PTA mayshare more similar policy preferences and/orexperience stronger policy spillovers than the broadmembership of the multilateral trade system. In thissense, harmonization in the regional context couldprovideanappropriateintermediatelevelofintegrationamongcertainnationsandthegloballevel.

However,asdiscussedintheWorld Trade Report 2011(World Trade Organization (WTO), 2011b), PTAs alsohave systemic effects through market segmentationthat could lead to regulatory divergence and haveadverse effects on world welfare. For example, animportant trade-off discussed in the literature is thatregulatory harmonization among countries of varyinglevelsofdevelopmentcanreinforcea“hub-and-spoke”trade structure, with the larger partner representingthehubtowhosestandardsthespokesconform.This


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structure may carry costs. Disdier, Fontagné, andCadot (2012) use a gravity model to show that whendeveloped trading partners take steps to harmonizetheir regulations with a developed partner, trade withthedevelopingcountriesdeclines.

2. Cooperationinspecificpolicyareas:TBT/SPSandservicesmeasures

The previous section provided a theory-baseddiscussion of the economic rationale for cooperationon non-tariff measures in a trade agreement. Thissection illustrates why and how countries cooperateover NTMs in specific policy areas. In particular, thefocus is on SPS/TBT measures and domesticregulationinservices.

(a) CooperationonSPS/TBTmeasures

This section argues that countries cooperate onSPS/TBT measures to address information problemsthat arise when governments try to balance traderestrictiveness and achievement of policy objectives,and when seeking to follow best practice in theregulatoryprocess.Inthisrespect,countriescooperateby developing, disseminating and adopting commonapproaches to regulation. These activities, whichpromote regulatorycooperation, takeplace invariousfora. For instance, this cooperation occurs in theWTO’s TBT and SPS committees, in regulatorycooperation arrangements, and in internationalstandardizingbodies.ThefocushereisoncooperationinimplementingtheexistingTBTandSPSagreements.

(i) Why do countries cooperate on SPS/TBT measures?

Countries use SPS/TBT measures, which includetechnical regulations, standards and conformityassessment procedures, to achieve legitimate policyobjectives,suchasprotectionofhumanhealthandtheenvironment,orpreventingthespreadofdiseasesandpests.Inordertoachievetheirstatedobjectives,thesemeasuresinvariablyhavetradeimpacts;somemaybejustifiable while others could be challenged asdiscriminatory or simply unnecessary to achieve theobjectivesought.Hence,theneedfordiscipline.

The TBT and SPS agreements require that WTOmembers balance achievement of legitimate policyobjectives against trade restrictiveness in the designand implementation of measures. In particular,members should ensure that measures are not moretraderestrictivethannecessaryforthepolicyobjectiveathand,areproportionallyrestrictivetotheriskofnotmeeting the policy objective, are based on scientificprinciples and not maintained without sufficientscientificevidence,anddonotarbitrarilyorunjustifiably

discriminate between members where the sameconditionsprevail.

Membershavesovereignauthorityindecidinghowtoregulate under the SPS/TBT agreements. However,membersdonotalwayshavesufficientinformationorcapacity to regulate effectively or efficiently.Members may face, among other challenges, twoinformation problems in this regard. First, membersmaynotknowwhichmeasurewillbemostefficientinstriking the aforementioned balance between traderestrictiveness and policy fulfilment. Second,members may not know how best to design andimplementSPS/TBTmeasuresacrosstheregulatorylifecycle.ThefactthatSPS/TBTmeasuresareoftenopaque and complex, as discussed in Section E.1,compoundthesechallenges.

Indeed,regulatoryprocessesandtheirimpactsmaybedifficult to grasp, and governments often faceproblemsunderstandingregulatoryneeds,orthecostsand benefits of their interventions (Harrington et al.,2000). Members may therefore use a particularSPS/TBTmeasurewhen it isneitheranefficientnoreffective instrument for their policy objective orgenerates unnecessary hindrances to internationaltrade.IfmembersimposeSPS/TBTmeasuresthatfailto efficiently strike the balance mandated by theagreements, they riskbeingchallenged in theTBTorSPScommittees,orultimately,indisputesettlement.

Setting an internationally agreed benchmark of anefficientregulationforaparticularpolicyobjectivecanhelpaddressthefirstsortof informationproblem.ThisbenchmarkcanbeusedtoassesswhetheraSPS/TBTmeasure adequately reflects policy objectives; thosemeasures that are more trade restrictive than thebenchmark may raise questions. The SPS/TBTagreements do this by strongly encouraging membersto align their SPS/TBT measures with relevantinternational standards, which ideally are developedusingtheworld’sbestavailablescientificandtechnicalknow-howregardingaparticularpolicyproblem.

With respect to the second sort of informationproblem,theuseofanagreedsetofregulatorystepsthatdefineanefficientregulatoryinterventionmaybebeneficial. Sharing a common regulatory languageincreasestransparencyandpredictabilityofSPS/TBTmeasures,andprovidescommoncriteriaagainstwhichto judge measures. Members encourage one anotherto follow common approaches, such as “goodregulatory practice” (GRP), when crafting SPS/TBTmeasures,andCommitteediscussionprovidesfurtherreinforcementofthis.

(ii) How do countries cooperate on SPS/TBT measures?

Members cooperate to address information problemsrelated to SPS/TBT measures in at least three


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ways: at the multilateral level, through discussions inthe TBT and SPS committees; by using internationalstandards as a basis for regulation; and, moregenerally, by using and disseminating GRPs, andengaginginregulatorycooperation.

WhileGRPisnotexplicitintheTBTorSPSagreements,thediscussionsinbothcommitteespromote“regulatoryconvergence”by reducingunnecessarydiversity in thewaygovernmentsregulate.

Good regulatory practice and regulatory cooperation

Even when intended to address the same policyobjective,notallregulationsarecreatedequal–therearesignificantvariationsacrosscountries.Whilesomedifferences are certainly inevitable and may even benecessary, some general lessons that are broadlyapplicablehavebeenidentifiedabouthowtoregulateefficiently and effectively across the regulatorylifecycle. These lessons are, essentially, what isincorporatedingoodregulatorypractice(GRP).

ExperienceandguidanceonGRPhavebeencompiledby bodies such as the World Bank, the OrganisationforEconomicCo-operationandDevelopmentandAsiaPacific Economic Co-operation (APEC).13 GRPemphasizes, inter alia, a deliberative process foridentifying public policy problems, considering thecostsandbenefitsofalternative regulatorymeasures(or of no regulatory intervention), using regulatoryimpact assessments (RIAs), relying on performance-basedregulation,effectiveinternalpolicycoordination

(vis-à-visWTOobligations),andensuringtransparencyandopennesstofacilitatestakeholderparticipationintheregulatoryprocess.Thus,theuseofGRPcanhelpimprove regulatory performance by increasing thetransparencyandopennessof theregulatoryprocessand by subjecting regulatory decision-making toimpactanalysisandperiodicreview.

WiderdisseminationanduseofGRPcantoacertainextent provide a common, predictable frameworkwithin which countries make regulatory interventions;it induces countries to speak the same “regulatorylanguage”. This is why WTO members engage inbilateral and plurilateral regulatory cooperationarrangements.14 Regulatory cooperation is a processbywhichofficialsengagewiththeircounterpartsfromdifferentgovernmentsinformalandinformalsettings,including by exchanging information on rules andprinciples for regulating markets, the objectives ofwhichincludetheformulationofmorecompatibleandtransparent regulations and testing procedures,simplification and the lowering of trade barriers, andmaking it easier and less costly for exporters todemonstrate conformity with different requirements(see Box E.3 for some examples of regulatorycooperationintheTBTarea).

Examples of regulatory cooperation arrangementsamong countries include initiatives such as the Trans-PacificPartnership,theTransatlanticEconomicCouncil,theUS-EUHighLevelRegulatoryCooperationForum,the Trans-Tasman Mutual Recognition Arrangement,and work in organizations such as the South AsianRegional Standards Organization, APEC, the

BoxE.3: Examples of regulatory cooperation in the TBT area15

APEC: green technologies

MembersoftheAsiaPacificEconomicCooperation(APEC)sharepolicyobjectiveswithrespecttotradeand environmental protection, which they seek to forward through regulatory cooperation in emergingenvironmental technologies. The 2011 APEC Meeting of Ministers Responsible for Trade stressed thesignificantroleofopentradeandinvestmentintheAsiaPacificregioninfulfillingthecommonobjectiveofenvironmental protection. The rationale behind such cooperation is that a reduction in unnecessarybarriers to trade and investment in environmental goods and services would reduce their costs, andincrease access to green technology, and therefore further achievement of the shared objective ofenvironmentalprotection.

The APEC Sub-Committee on Standards and Conformance (SCSC) has worked to promote regionalcooperationingreensectorsthroughinformationexchange,enhancedtransparency,andprovidingabaselinefor the use of standards, technical regulations and conformity assessment procedures. These initiativesinclude the “Solar Technologies Standards and Conformance Initiative”, and “Green Buildings and GreenGrowth”. In the context of these initiatives, APEC members have recognized the need to conform withinternational standards, to promote mutual recognition of certification, and to increase stakeholderparticipationinthestandards-settingprocess.

Severalcasestudieshavebeenundertakenongreen technologiesunder theumbrellaof these initiatives,particularlyon“greenbuildings”,andinthisrespectworkisbeingundertakenincooperationwiththeWorldBankandtheWorldGreenBuildingCouncil. Inthiscontext, therewasrecognitionoftheneedtoenhanceconsistencyintheuseofterminologyrelatedtogreenbuildingsinordertoincreasetransparencyandenableproducers to better meet requirements across different regional partners. Standards development


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AssociationofSoutheastAsianNations(ASEAN),andtheUnitedNationsEconomicCommissionforEurope.17

Regulatory cooperationarrangementscanprovideanopportunity to influencehowSPS/TBTmeasuresareimplemented in other countries. Promoting GRP inthese arrangements facilitates discussion andinformation exchange on the trading partner’smeasuresbyprovidingcommoncriteriaand languagefor assessing measures. Formalized, standingregulatorycooperationarrangements(forexample,theTransatlantic Economic Council between the UnitedStates and Europe) may increase certainty about apartner’s regulatory responses to future problems orproducts.Moreover, regulatorycooperation ingeneral

isaboutbuildingtrustamongregulatorswithregardtoregulatory systems and outcomes. This helps toprovide confidence that SPS/TBT measures andconformity assessment procedures will strike anefficientbalancebetweenpolicyobjectivesand traderestriction.

Therearedifferentlevelsoftrust,formalityanddegreeof engagement. The most basic category ofcooperation is simple informationexchangeand trustbuilding, which will lower transaction costs. A moreadvanced category of cooperation is mutualrecognition of accreditation systems and testingprocedures,whichlowerscostforexportsbyenablingconformity assessment to the requirementsofexport

work at APEC on green buildings involves both public and private stakeholders. The APEC SCSC is alsocollaboratingwiththeASEANConsultativeCommitteeonStandardsandQuality inthecontextofworkongreenbuildings.

ThisinitiativeillustrateshowapolicyobjectivethatiscommontotheAPECmembership,namelyaddressingmarket failures with cross-border effects related to environmental pollution, is being tackled throughregulatorycooperation.Inaddition,thisexampleshowshowcountriesaretryingtoengageatanearlystageon regulatorycooperationwith respect togreen technologies toensure that future regulatoryapproachesfurtherenvironmentalprotectionandtrade.

EU-China: Toys

RAPEX16-China isanonline informationexchangemechanismwhichseeks toenhanceandregularize thetransmission of data onproduct safety administration and enforcement between China and the EuropeanUnion. The initiative emerged from the Memorandum of Understanding signed in 2006 between theEuropean Commission Directorate-General for Health and Consumers (DG SANCO) and the GeneralAdministration of Quality Supervision, Inspection and Quarantine of China (AQSIQ). It is one element ofregulatorycooperationbetweentheEuropeanUnionandChina.

The initiative comprises information exchange between DG SANCO and AQSIQ with respect to toys ofChineseorigin thathavebeen identifiedasunsafeand thereforebannedorwithdrawnfromtheEuropeanmarket(asnotifiedtotheEuropeanCommissionviaRAPEX).Foritspart,AQSIQworkstowardspreventingfuturebansonChinesetoysintheEuropeanmarket,andinformstheEuropeanCommissionoftheresultsofinvestigationsconductedinresponsetothesenotifications,includinganymeasuresadopted.

Theinitiativeaimstoensurequalityandsafetyofconsumerproducts,protectconsumerrightsandinterests,andenhanceconsumerconfidenceinthecontextofgrowthoftradebetweenChinaandtheEuropeanUnion.Furthermore, the initiative seeks to enhance coordination in toy standards work at the InternationalOrganization for Standardization (ISO) level, and to improve awareness in China about applicablerequirements for toys in the European Union. It also includes technical cooperation activities to improveproduct quality and safety. RAPEX-China helps to build trust between regulators and consumers, reducetrade frictions, and create a culture of product safety, while maintaining an open market between theEuropeanUnionandChinafortoys.

Thisexampleisofinterestbecauseitusesanovelinformationexchangemechanismforcooperationtowardsthe achievement of toy safety. China and the European Union follow different national regulations orstandards for toy safety, given differing national preferences in this respect. Under this arrangement,cooperationlargelyconcernstheone-wayflowoftradeintoysfromChinatotheEuropeanUnion.Alternativestothisinformationexchangearrangementcouldbeharmonizationtointernationalstandardsorfullalignmentoftechnicalrequirements,butthesemaybeunrealisticobjectivesforvariousreasons. Instead, informationexchangeenablesbothChinaandtheEuropeanUniontoworktogethertomeetsharedpolicyobjectivesbyreducinginformationasymmetries.


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markets to be carried out in domestic laboratoriesprior to export. Other categories of arrangementsinvolving still greater levels of trust and engagementinclude mutual recognition of conformity assessmentresults, mutual recognition of technical regulations,including through recognition of equivalence, and fullharmonization of both technical regulations andassociatedconformityassessmentprocedures.

RecallingthediscussioninSectionE.1(c)onthedepthof integrationindifferingapproachestoaddressnon-tariff measures, the level of ambition for a particularregulatory cooperation activity may differ dependingon the contexts of the countries involved.18 Forexample, regulatory cooperation between two majortradingpartnerswithstrongeconomictiesmayaspiretofullharmonization,therebyleadingtoahighlevelofconvergence. On the other hand, regulatorycooperation between two economies with verydifferentpoliticalsystems,incomelevels,andlevelsofdevelopmentmayhavea lower levelofambition–forinstance, to increase understanding and confidence-buildingtofacilitatetrade.

Sharedregulatorytraditionsandinstitutionalstructurescan make the deep forms of regulatory cooperationeasier to achieve. Differences between countries,however,arenotnecessarilyanobstacletocooperation.In fact, differences between countries engaging inregulatory cooperation may provide impetus forregulatory innovation that increases efficiency andlowerscosts.19

Ofcourse,notallformsofregulatorycooperationcanbecaptured by these broad categories, and manyarrangementsinvolveaspectsofdifferentcategories.Forinstance,regulatorycooperationonasectorbasisoccursbetween partners in regional organizations such asAPEC and ASEAN, including various mechanisms withprogressive levels of ambition under the umbrella of asinglescheme.Thisenablespartnerstocooperatetoanextentappropriatetotheirnationalcircumstances.20

Novel cooperation between member states of theCommon Market for Eastern and Southern Africa(COMESA), the East African Community (EAC) andtheSouthernAfricanDevelopmentCommunity(SADC)is occurring in the form of the Tripartite Non-TariffBarriers (NTB) Mechanism. A web-based platformallowsexporterstosubmitcomplaintsaboutSPS/TBTmeasures in export markets that are creating tradeproblems,andthenforwardscomplaintstoresponsiblenational authorities for resolution through bilateralconsultations among the member states affected, orthroughrelevantregionalstructures(Kalenga,2012).

Both the TBT and SPS agreements encourage WTOmembers to cooperate. The SPS Agreementencourages bilateral equivalence arrangements (seeBox E.4 and Section B), two of which have beennotified to the SPS Committee. Similarly, the TBT

Agreementencouragesmemberstoreachagreementson mutual recognition of results of each other’sconformityassessmentprocedures (seeSectionD.4).Thesearrangementsarebeneficialbecausetheylowercosts to exporters relating to the need to monitorpotential policy changes in export markets (WorldTradeOrganization(WTO),2011b).

International standard-setting

The development of international standards is, bydefinition, a form of multilateral cooperation.Standardization activities are a process wherestakeholders, including governments, cooperate onmatters that may have a direct bearing on SPS/TBTmeasures.Theoutcome–aninternationalstandard–is a tangible result of such cooperation and is,essentially(andwhenatitsbest),ameansofcodifyingand diffusing state-of-the-art scientific and technicalknowledge related to a particular product or policyproblem.21

BoththeTBTandSPSagreementsstronglyencouragethe use of international standards – as well asparticipation in the development of such standards.Theagreementsincludearebuttablepresumptionthatregulations which are in accordance with relevantinternationalstandardswillbe, inthecaseoftheTBTAgreement, “presumed not to create an unnecessaryobstacleto internationaltrade”and inthecaseoftheSPSAgreement, “presumedtobeconsistentwith the…provisionsoftheAgreement”.22

Internationalstandardsaredevelopedbygovernmentalbodies, non-governmental bodies (including “privatestandards”),orsometimesacombinationofboth.Whilethe SPS Agreement specifically names threeinternational bodies that develop internationalstandards which serve as benchmarks, the TBTAgreement does not name any specific body in thisregard.23 However, international standards are not apanacea – and the international standardizationprocessitselfmaynotalwaysfunctionideally;thishasbeenattherootofmanydiscussionsattheWTO,andpresentsaparticularchallengeforWTOmembers(thisisfurtherdiscussedinSectionE.4).

Conformity assessment procedures

Cooperationdoesnotonlytakeplaceatthestandards-development phase; it is also relevant to conformityassessment, and, more specifically, to facilitating therecognition of the results of conformity assessment(e.g. mutual recognition arrangements, equivalenceagreements and the Supplier’s Declaration ofConformity). In other words, actually meeting thestandardmaynotbeenough,itisalsonecessarytobeable todemonstratecompliance tocreateconfidencein the quality and safety of exported products (formany developing countries, there are capacityconstraints in this regard24). Members of the TBT


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Committeehavebeguntoconsiderthedevelopmentofpractical guidelines on how to choose and designefficient and effective mechanisms that can assistcountriesincooperatingalsointheareaofconformityassessment.

Inthisregard,bothregionalandinternationalsystemsfor conformity assessment can contribute to solvingthe problems related to multiple testing andcertification/registrationfortradersandindustries–achallengethatcanbeparticularlydifficulttoovercomefor small and medium-sized enterprises (SMEs).DelegationsintheTBTCommitteehaverecentlybeendiscussing the work of the International LaboratoryAccreditationCooperation(ILAC)andtheInternationalAccreditation Forum (IAF) as useful examples ofinternational cooperation in the area of conformityassessment.26

The ILAC is the global authority for laboratory andinspection body accreditation, and the IAF overseesaccreditation in the fields of the certification ofmanagement systems, personnel and products. Theobjective of both organizations is the same: oneconformity assessment result accepted in everymarket place. The main tool used by the twoorganizations is multilateral mutual recognitionarrangements among accreditation bodies with ashared vision of a single global system of conformityassessment. This reduces risks for business,regulatorsandtheconsumerbyensuringthattheycanrely on accredited services. In the on-going SixthTriennialReviewoftheTBTAgreement,promptedbyaproposalfromtheUnitedStates,27thereisdiscussiononhowmembers’experiencesintheuseofthesetwointernational systems for conformity assessment canserve to strengthen the implementation of the TBTAgreement.

BoxE.4: Equivalence in the SPS Agreement

TheSPSAgreement createsa framework that supports convergenceofpolicies tominimize thenegativeimpactsofSPSmeasuresontrade,whileat thesametimesupportingpolicydiversity.Todothis, theSPSAgreementexplicitly recognizes that althoughmeasuresmaydiffer among tradingpartners, this doesnotimplythattheydonotachievethesamelevelofappropriatelevelofprotection(ALOP).Indeed,intermsofthe SPS Agreement, trading partners are obliged to accept SPS measures as equivalent if the exportingcountryobjectivelydemonstratesthatitsmeasureachievestheimportingcountry’sALOP.Equivalencecanbeacceptedforaspecificmeasureormeasuresrelatedtoacertainproductorcategoriesofproducts,oronasystems-widebasis.TheAgreementalsospecifiesthatexportingcountriesshouldfacilitatethisprocessbyprovidingimportingcountries’accessforinspection,testingandotherprocedures.

ALOPcanbeachieved indifferentways,andcountries’measuresmaydivergeduetopoliticalandhealth-relatedfactors.Theobligationtoexplorewhethermeasuresareequivalentcreatesincentivesforcountriestolearnfromtheexperienceoftheirtradingpartnersandthusmaycontributetocapacitybuilding.Still,giventhe technological requirements inherent inmanySPSmeasures, developingcountriesmayhaveconcernsaboutallocatingresourcestoimprovingSPScapacityiftheydonothaveconfidencethattheirSPSmeasureswillberecognizedasequivalent.

To address the concerns of developing countries regarding the implementation of equivalence, the SPSCommitteedevelopedguidelines(G/SPS/19/Rev.2).Theseguidelinesoffermoredetailsaboutthetypesofinformation thatshouldbeprovidedbyboth importingandexportingmembers.Specifically, theguidelinescall for importingcountries to identify relevant risks, explain itsALOP, andprovide its riskassessmentortechnicaljustificationforitsmeasures.Theguidelinesalsoindicatethatimportingcountriesshouldtakeintoaccountthehistoryoftradewiththeexportingcountrysinceahistoryoftradeimpliesafamiliaritywiththeinfrastructure and measures. The three sisters – Codex Alimentarius, the World Organization for AnimalHealth and the International Plant Protection Convention – have also developed guidance in the area ofequivalencerelatedtotheirspecificareasofexpertise.

Given the importance of dialogue among trading partners in order for the concept of equivalence to beeffectively implemented, transparency should play a key role. The SPS Committee includes the issue ofequivalence as a standing item on the agenda and has developed a notification template that capturesinformation on equivalence agreements. Importing countries that have accepted the equivalence of SPSmeasuresofothercountriesareexpected tonotify therelevantmeasuresandaffectedproducts.Todate,onlytwonotificationshavebeensubmitted.Whilethenotificationsfromcountrieshavenotbeenforthcoming,contributionsduring theSPSCommitteeby the threesisters25on theirworkprogrammesonequivalenceenhancestransparencyofmultilateraleffortsinthisarea.


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TBT and SPS committees

TheTBTandSPScommitteesprovideWTOmemberswith the opportunity to discuss specific SPS/TBTmeasures as well as more general issues, such asgoodregulatorypractices,internationalstandardsandtransparency. With respect to GRP, members shareinformation on the development and application ofthese practices. Members have emphasized thatregulations developed in the spirit of GRP are morelikelytoachievetheirpublicpolicyobjectives,andlesslikelytobedrivenbycompetitivenessconsiderations.28Both committees hold regular discussions oninternational standards, and receive updates fromobserverbodiesthatsetsuchstandards.

WTO members also discuss specific trade concerns(STCs – see Sections B.2 and C.2) in the SPS/TBTcommittees. In some cases, the concern is simply amatterofclarificationaboutthescopeorstatusofthemeasure;inothercases,theconcernrelatestoactualorperceiveddiscriminatoryortrade-restrictiveaspectsof draft or applied measures. These discussionsencouragemembers to follow thebenchmarkssetbyinternational standards, and to use GRP whenformulating measures – thus promoting regulatoryconvergence. For instance, over one-third of the330 specific trade concerns raised in the TBTCommitteesince1995havebeenrelated, inonewayoranother,tointernationalstandards.

Issuesthatarise in theSPS/TBTcommittees includewhetheraninternationalstandardwasusedasabasisfor a particular measure, whether members havedeviated from relevant international standards, andwhether relevant international guidance exists. Inaddition, most specific trade concerns raised in theTBT Committee are indirectly related to the use ornon-useofGRPinthecontextofaparticularmeasure– for example, with respect to the rationale for ameasure, transparency questions (e.g. publicconsultation),orregulatorydesignandanassessmentofitsimpactontrade(e.g.theuseofregulatoryimpactassessments). The discussion of specific tradeconcernsintheSPSCommitteecoversimilarthemes,with the same proportion of such concerns explicitlyreferring to international standards. Out of the327 specific trade concerns raised in the SPSCommittee since 1995, almost one-third referred tointernational standards. The largest proportion ofconcerns (about 40 per cent) have been related toanimal health and zoonoses.29 Food safety and planthealthconcernseachconstituteaboutaquarteroftheremainingconcerns.

The multilateral review of trade concerns in theSPS/TBTcommitteeshelpstoshedlightonpotentiallyproblematic SPS/TBT measures, and encouragesWTOmemberstoavoidunnecessarilytrade-restrictivemeasures that exceed benchmarks or do not followbest practice. In addition, members whose measures

are challenged often provide information or updateswhich increase the transparency of SPS/TBTmeasures and regulatory processes (see G/SPS/GEN/204/series and G/TBT/GEN/74/series).Furthermore, information about the impact that acertain measure has on trade can help membersidentify regulatory inefficiencies and further developGRP.ThisisdiscussedinmoredetailinSectionE.4.

Both committees also give members the opportunityto highlight draft SPS/TBT measures. The TBT andSPS agreements oblige members to notify the WTOSecretariat when they are drafting new SPS/TBTmeasures that are not in accordance with relevantinternational standards, and that may have a‘significanteffectontrade’.Suchnotificationscontaininformation about the products covered by themeasure, its objectives and the rationale for themeasure.Theyalsoallowothermembers tocommentonthedesignofmeasures.

Since1995,theTBTandSPScommitteeshavetakendecisions and developed recommendations30 toextend the notification requirements laid out in therelevant agreements in order to further enhance thetransparencyofmeasuresandtogivemembersbetteraccess to information contained, or referred to, innotifications.Someexamples includegivingguidancetomembersaboutwhichmeasuresshouldbenotified,developingrecommendedtimeframesfornotificationsaswellascommentperiods(minimumof60days)andentry intoforce(minimumofsixmonthsfromtheendof the comment period) and establishing proceduresfor making the full texts of SPS/TBT measuresavailable in multiple languages. Other decisions andrecommendations include encouraging members torespond to comments and to take these commentsintoaccountwhenfinalizingmeasuresanddevelopingweb portals for the WTO Secretariat to disseminateinformationonSPS/TBTmeasures.31

(b) Cooperationonservicesmeasures

As explained in Section B.3, the nature of servicesmakesregulationstheprincipallimittomarketaccess.Firstandforemost,thefeasibilityofapplyingatarifftotheinternationalprovisionofservicesisremote.Tradeprotectioninservices,whereitexists,willbefoundininternallaws,regulations,rules,procedures,decisions,administrative actions, and other such measures.Although services regulations often do not primarilyhaveatrade-relatedfocus,theremaybecaseswhereregulations have unnecessarily trade-distortive andrestrictive effects. Distinguishing between thoseregulations which are legitimate and those which areconsidered protectionist is fraught with difficulties.The sub-sections below review how countriescooperate in services depending on the type ofmeasureinquestion.


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(i) How do countries cooperate on trade in services?

To facilitate cooperation, services trade agreements,most notably the GATS, have distinguished betweenthreetypesofservicesmeasures,namely:

(i) measures restricting market access by settingquantitative restrictions and requirements onlegal form (i.e. restrictions on the entry of, orlimitsontheoutputby,theservicessupplier)

(ii) measures which discriminate against foreignservices and services suppliers by modifyingconditions of competition in favour of nationalservicesandservicesuppliers32

(iii) domesticregulationswhicharenon-discriminatoryandnon-quantitativeinnature.

The extent to which countries have been willing tocooperate on trade in services differs depending onthe measures involved. The GATS framework definesmeasures in categories (i) and (ii) as market accessand national treatment limitations which are to bereduced or eliminated through successive rounds ofnegotiations. Measures in category (iii), on the otherhand, have largely not been subjected to tradedisciplines, apart from certain general obligationsunder GATS. There is, however, a mandate inArticleVI:4of theGATStonegotiatedisciplinesonaspecific set of domestic regulations, namely thosemeasures relating to licensing, qualifications andtechnical standards. The rationale for negotiatingdisciplinesonthisparticularsetofdomesticregulationsis not too different from that of the TBT and SPSagreements, with the focus on ensuring that licensingand qualification procedures and requirements andtechnical standards do not constitute unnecessarybarrierstotradeinservices.

AlthoughtherearestrongparallelsbetweentheTBTandSPS agreements and the type of domestic regulationdisciplines being negotiated under Article VI:4 of theGATS, the GATS framework for regulatory cooperationon services, apart from the negotiations of specificcommitments,remainsatanascentstage.Thediscussionthatfollowsexaminestheextenttowhichcooperationoneachofthesebroadcategoriesofmeasurescanbesaidtobetakingplaceinrespecttotheimplementationandoperation of the agreement. In the case of category(iii)domesticregulation,itshouldbenotedthatthefocusis on those measures for which disciplines are beingnegotiated as the rationale, issues and challenges arevery similar to those encountered in the TBT and SPSagreements.

(ii) Cooperation on progressive liberalization

Section B.3(c) has already provided a discussion ofwhy quantitative restrictions and discriminatory

measuresarethemosttradedistortive,thusprovidinga stronger case for cooperation. In principle, suchcooperation is undertaken through negotiations toremove market access limitations and nationaltreatment discrimination. The results of suchnegotiations are “bound” through a legal instrument,whichcanaddcredibilitytoexistingandfuturereformastheyarecostlytorevoke.

InthecaseoftheGATS,cooperationonthemeasuresincategories(i)and(ii)culminates inaWTOmemberundertaking to guarantee a minimum level of marketaccess and national treatment for each committedsector.Schedulesforspecificcommitmentsinservicesthusperformasimilar function to tariffschedules forgoods, in the sense that they facilitate cooperationthrough reciprocal bargaining. In the case of trade inservices, this occurs through request-offernegotiations between pairs or groups of WTOmembers with common interests or demands, andcouldbethoughtofasaframeworkofcooperation.

Therearegoodpolitical economic reasonswhyWTOmembersmighthavebeenwillingtocooperateontheremoval of market access and national treatmentlimitations. Some of these have been discussed inSection B.3 and Section E.1. What is noteworthy isthattheexperienceoftheGATS,aswellaspreferentialtradeagreements,asshownbyRoyetal.(2007),hasmainly concerned liberalization commitments relatingto market entry and discrimination and not otheraspectsofamember’sregulatoryregimeorconduct.

Indeed,suchanapproachwastheintendeddesignofthe GATS, which was why a separate mandate tonegotiate disciplines on domestic regulation wasnecessary. Thus, when a WTO member removes alimitationon thenumberof foreignservicessuppliersthat can operate in its territory, other types ofregulationsremainunaffected.

The regulator could still require that the servicessupplier obtain a licence before the service can besupplied. Obtaining such authorization could includethe fulfilment of both substantive and proceduralrequirements.Employeesoftheservicessuppliermayneed to satisfy particular qualification requirements.The services supplier may need to ensure that theservices provided conform with certain technicalrequirements. In addition, any business operationwouldbesubject toenvironmental,health,safetyandlabour regulations. All of these non-discriminatorymeasures, which are typically found in licensing andqualificationregimes,oftenhavetobefulfilledbeforeauthorization to supply a service is provided. Thus,theymay haveaprofound impact on services marketaccess but would not be subject to negotiations onprogressiveliberalization.

In particular, domestic regulations in the form ofcumbersomeand/oropaquelicensingandqualification


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procedures, subjective or partial licensing andqualification criteria, excessively burdensomerequirements and administrative “red tape” can servetoobstructtradeinservices,eveniftheydonotappeartobeprimarilydirectedattrade.Thesheerdiversityofregulatory systems and standards in marketsinternationallycanalsosignificantlyraisethecostsofcompliancefortheservicessupplierandactasindirectbarriers to the supply of services, even in situationswhere there are no market access restrictions ordiscriminatorymeasuresinforce.ThisiswhytheGATSframework for cooperation had to go beyond theremoval of market access and national treatmentlimitationsof the typedescribed incategories (i) and(ii) and address particular aspects of domesticregulation.

(iii) Cooperation on domestic regulation

While theeconomic theory forcooperationunder theGATS is in part different from the one for the GATT(see Box E.1), there is an important similarity that isaddressed here. The policy substitution problemdiscussed in Section E.1, with specific reference totradeingoods,couldalsoapplytotradeinservices.

WhenWTOmembersmakecommitmentsonservicesmeasures in categories (i) and (ii), governments mayface incentives to alter domestic regulations or toimplement them in a particularly obstructive manner(i.e. Article VI:4 measures as described above). Inpractice,theproblemmaynotariseinthesamewayinservicestradeasitdoesingoodstradesincethereisa large gap between GATS bindings and actualmeasures. There is less incentive to use domesticregulation as an alternative way of limiting marketaccess or national treatment, since a member canchange its regime up to the level of the binding.Indeed,policysubstitutioninservicesmightalsooccurinreverse.Governmentsthatlackadequateregulationsandenforcementcapacitymightbe reluctant toopenmarkets and might therefore maintain market accessrestrictions.

Unlike the TBT and SPS agreements, the GATS hasyet to fully develop a framework for cooperation ondomesticregulationinservices.ThereisamandateinArticle VI:4 of the GATS to negotiate any necessarydisciplines toensure thatmeasuresrelated tocertaintypes of regulations (qualification and licensingrequirementsandprocedures,andtechnicalstandards)are, among other things, based on transparent andobjective criteria and not more burdensome thannecessary to ensure the quality of the services. TheDecision on Domestic Regulation (S/L/70) specifiesthree separate areas for the development of anynecessary disciplines. This includes: (i) thedevelopment of generally applicable disciplines (i.e.horizontal disciplines to be applied to all sectors);(ii)disciplinesfor individualsectorsorgroupsthereof;and(iii)disciplinesforprofessionalservices.

In1998,theDisciplinesonDomesticRegulationintheAccountancy Sector (S/L/64) were adopted by theWTO’s Council for Trade in Services. The relevantCouncil Decision (S/L/63) provides that the“accountancy disciplines” are applicable only to WTOmembers with specific commitments in accountancy.The disciplines are to be integrated into the GATS,togetherwithanynew results that theWorkingPartyonDomesticRegulationmayachieveintheinterim,attheendofthecurrentroundoftradenegotiations.

Subsequent to the Accountancy Disciplines, WTOmembers embarked on the negotiation of “horizontaldisciplines”but thisdidnotprecludethepossibilityoffutureworkon“sectoraldisciplines”.Issuesconcerningthenegotiationofhorizontaldisciplinesarediscussedlater in this section. It shouldbenoted that therearealready some existing general obligations requiringcooperationamongmembers,particularlywithrespectto transparency and administrative procedures, andthat the disciplines to be negotiated are expected tobuild upon them. The following sub-sections discusshowthesehavebeenusedandthetypeofcooperationthat would be required by domestic regulationdisciplines.

Existing disciplines and mechanisms

Article III of the GATS requires WTO members topublish all measures pertaining to or affecting theGATS.Inaddition,forserviceswhicharecoveredbyamember’sspecificcommitments,thereisanobligationto notify all laws, regulations or administrativeguidelines significantly affecting trade in services.Membersarealsoobliged toestablishenquirypointstoprovidespecificinformationtoothermembersuponrequest.Notifications,iffullyimplemented,couldbeanimportant avenue to improve information sharing andto address issues of regulatory transparency inservices. However, in practice, obtaining compliancewith the notification obligation has been difficult toachieve. Several reasons for this low compliance arediscussedinSectionCandSectionE.4(b).

Other transparency requirements relate to therecognition of the education or experience obtained,requirementsmet,orlicencesorcertificationsgrantedtoaservicessupplierinaparticularcountry.ArticleVIIof the GATS does not set any particular substantiverequirementsonhowrecognitionshouldbeundertakenbut it requires the notification of existing recognitionmeasures, as well as the opening of any newnegotiations. In such a case, adequate opportunityshouldbeprovidedtoanymemberwhichindicatesitsinterest in participating. However, as with thenotification requirement in Article III, compliance hasbeenlimited.

Nevertheless, WTO members adopted a set ofvoluntaryguidelinesformutualrecognitionagreementsor arrangements in the accountancy sector. These


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guidelinescover theconductofnegotiations, relevantobligationsundertheGATS,andtheformandcontentof agreements. The objective is to make it easier forparties to negotiate recognition agreements and forthirdpartiestonegotiationtheiraccessiontothem,ortonegotiatecomparableones.

Apart from transparency,cooperation isalso requiredon the administration of domestic regulation. Theseprovisions, which are contained in Article VI of theGATS, have the goal of ensuring due process andopenness in decision making. For instance, allmeasures of general application affecting trade inservices,forwhichcommitmentshavebeentaken,areto be administered in a reasonable, objective andtransparent manner. Information must be provided onthe status of applications for the authorization tosupply a service. Where specific commitmentsregardingprofessionalserviceshavebeenundertaken,adequate procedures to verify the competence ofprofessionals of another country must be provided.WhilealloftheseGATSprovisionssuggestthatWTOmembers saw a need for cooperation on regulatorymatters affecting trade in services, it is not clear towhat extent these existing provisions have beenutilized.

However, the adoption of Disciplines on DomesticRegulationintheAccountancySector(S/L/64)bytheServicesCouncilinDecember1998wasanoteworthyachievement. These disciplines are to be integratedintotheGATS, togetherwithanynewresults that theWorkingPartyonDomesticRegulationmayachieve,atthe end of the current round of negotiations. A corefeature of the disciplines is their focus on (non-discriminatory) regulations that are not subject toscheduling under Article XVI (market access) andArticle XVII (national treatment). The AccountancyDisciplinesalsoincludedaprovisionthatwouldrequireWTOmemberstoensurethatsuch“measuresarenotmore trade-restrictive than necessary to fulfil alegitimate objective”. Legitimate objectives weredefined as including the protection of consumers(which includes all users of accounting services andthe public generally), the quality of the service,professional competence and the integrity of theprofession.

Developing new disciplines

Apart from requiring adherence to the obligationsdiscussed above and completing the AccountancyDisciplines, the GATS has not ventured much furtherintosubjectingnon-discriminatorydomesticregulationtotradedisciplines.Yet,WTOmembersrecognizedtheneedtocooperateonregulatoryissuesbyestablishinga mandate on domestic regulation disciplines inArticle VI.4 of the GATS. Reaching understanding ontheappropriatescopeandambitionforsuchdisciplineshas been fraught with difficulties. A central problemhasbeenhowtodistinguishbetweenrequirements in

pursuit of legitimate objectives and those which areaimedatrestrictingtrade.Somemembershavearguedin favour of a necessity test, while others are of theviewthatsuchatestwouldbetooonerousandwouldunduly restrict the freedom of regulators. Thediscussion in Section B points to difficulties inansweringthisquestionfortradeinservicesgiventherelativelylimitedtheoreticalandempiricalworkonthisissue.

It also begs the question as to what extent couldgovernments cooperate to minimize the negativeeffects arising from domestic regulation, amidst theconsiderable regulatory diversity across sectors andcountries.Inthisregard,theexperienceoftheTBTandSPS agreements are instructive where cooperation isfocused on encouraging members to work towardseliminating or reducing requirements which are notnecessaryfortheachievementofthepolicyobjectiveathand. Similar mechanisms could be used in services.Thesecouldincludestrongertransparencyprovisions,ageneralpresumptioninfavourofinternationalstandardsand an institutional framework for monitoring andinformation exchange. The TBT and SPS agreementsalso contain a necessity test, a subject of muchcontention in the context of the domestic regulationnegotiations(seeSectionE.4(e)(iii)).33

Despitethesesimilarities,thereisacriticaldifferencein that services are intangible and thus cannot besampled, testedand inspected.Thus,proceduresandmethods used in TBT and SPS measures cannot beeasily applied to services – for instance, thedevelopment of science-based standards throughlaboratorytestingismuchharderorsimplynotfeasiblefor services. This in turn suggests that evaluation,verificationandassuranceofconformitycanoftennotbe undertaken on the service itself but has to be onthe service supplier. Since the “product” cannot beeasily examined, regulatory precaution is likely to behigherinservicesthanitisforgoodsandestablishinga commonly acceptable level of risk tolerance hardertoachieve.

Below isadescriptionof the typeof issuesonwhichcooperation among countries is being sought in thecontext of the domestic regulation negotiations. Itshould be noted that services negotiations dealseparately with the issues related to transparency,objectivityandthesimplificationofprocedures.

Transparency

The negotiations seek to ensure that information onregulatory requirements and procedures areaccessible toallpartiesconcerned.This includes thepublication and availability of information onregulations and procedures, the specification ofreasonabletimeperiodsforrespondingtoapplicationsfor licences, information on why an application wasrejected and notification on what information is


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missinginanapplication.Italsoincludesspecificationof reasonable time periods for responding toapplicationsandinformationonproceduresforreviewofadministrativedecisions.

Thenewdomestic regulationdisciplinesare intendedtotakeaccountof,andbuildon,ArticleIIIprovisionsoftheGATSonpublicationandnotificationofmeasures(see also Section E.4). Should the transparencyprovisions be agreed, it would contribute to reducinginformation asymmetries which are prevalent inservices sectors and would provide greater certaintytoservicessuppliers.

Impartiality and objectivity

Services suppliers typically want to be assured thatassessmentsbyregulatoryandsupervisoryauthoritiesfor authorization to supply a service, if suchauthorization is required, will be conducted in areasonable, impartial and objective manner. It is alsowell recognized that efficient outcomes are bestachieved when decisions are independent from anycommercial interests or political influence. In thisconnection, the formulation of clear criteria andprocedurescanbevitallyimportanttoavoidexcessivediscretion and to help ensure reasonableness,impartialityandobjectivityintheregulatoryprocess.

Simplification of procedures

Long and complex procedures for assessing anapplication for authorization to supply a service maydiscourageservicessupplierstoseekaccesstoahostmember. Such complexity may also serve to hideprotectionist intentions. Simplification of procedureswill facilitate the activities of services suppliers andreducetheopportunitiesforhiddenprotectionism.

Nonetheless, in many services sectors, thecharacteristicsoftheservicessuppliedmaynotalwaysallow for very simple procedures to be adopted. Forinstance, several authorities may need to be involvedin ensuring the quality of the service, in avoidingnegative impact on the environment or in enablingpublic consultations. The complexity of a procedurethusneeds tobeconsidered in its context.Linked tothe issue of simplification is procedural certainty. Itstandstoreasonthatservicessupplierswouldexpectthat assessment criteria are not modified during thecourse of an application. Should this be unavoidable,applicants would need to have a reasonable timeperiodtoadjusttoamendedcriteriaorprocedures.

Recognition of equivalence

To ensure that foreign services suppliers meet thequalificationandotherstandardsimposedonsuppliersof national origin, regulators are often called upon toassess the equivalence of domestic and foreignqualifications. Inmanycases, theymay require foreign

applicants for licencesorotherbadgesofauthority tosubmit a service to tests or to fulfil conditions todemonstrateequivalence.Sincesuchtestsareimposedtoensurethatadomesticstandardismet,theymayberegarded as domestic regulations. Negotiations onArticle VI.4 disciplines have been grappling with thequestion of how to ensure that such requirementsshould be no more burdensome than necessary toensure the quality of the service. Regulators in thesesituations could be obliged to take account ofqualificationsalreadyearnedinthehomecountryoftheforeignservicessupplierandtomodifyaccordinglyanyadditionalrequirementsimposeduponthem.

Theconceptofequivalencehasalreadybeenused inthe qualification requirements section of theAccountancy Disciplines, in Article 2.7 of the TBTAgreementandinArticle4.11oftheSPSAgreement.Complementing this principle, governments areencouraged to negotiate agreements to accept theequivalence of qualifications obtained under otherjurisdictionsorunilaterallyrecognizeequivalence.34

International standards

Acceptance of international standards could facilitatethe evaluation of qualifications obtained abroad andhelp promote services trade. Governments involved instandard-settingattheinternationallevelshouldensurethatthisisdoneinastransparentamanneraspossiblein order to avoid “capture” by specific-interest groups.GATS Article VI:5(b) says that in determining whetherthe requirementsarecompatiblewith theprinciplesofnecessity,transparencyandobjectivity,accountshallbetakenofinternationalstandardsofrelevantinternationalorganizationsappliedbyWTOmembers.

The term “relevant international organizations” refersto international bodieswhosemembership isopen totherelevantbodiesofatleastallmembersoftheWTO.The TBT and SPS agreements already contain astrong presumption in favour of internationalstandards.Inservices,whilstthereisastrongincentivefor a similar presumption in favour of internationalstandards, therearesignificantobstacles.Forastart,international standards are less prevalent in servicesas compared with goods. There are also questionsconcerningtheexactnatureof technicalstandards inservices; are they predominantly product or processstandards, or both, and to what extent could a tradediscipline cover voluntary standards, which may beissuedbynon-governmentalorganizationswithoutanydelegatedauthority.IntheTBTcontext,adistinctionismadebetween“standards”asvoluntarymeasuresand“technical regulations” as mandatory. The GATS,however,makesnosuchdistinction.

Cooperation will not in itself be sufficient to addressall externalities which might arise from regulatorydivergence. The relative scarcity of internationalstandards in services, as compared with goods,


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reflects in part the differences in regulatorypreferences. In such a situation, the regulatorydivergencebetweenjurisdictionscouldwellbeadirectconsequenceofapreferenceforaparticularobjectiveaswellasitslevelofattainment.Itisnotobviouswhycountrieswouldcompromiseonachievingaregulatoryobjective which is considered legitimate andnecessary. At best, cooperation might be sought onfinding less trade-restrictivemeansofachievingsuchan objective or on ways to help services suppliersmeet particular standards or other substantiverequirements.

Cooperationondomesticregulationinserviceswouldrequire a mix of negative integration, in terms ofcommon prohibitions on particular practices and/oradherence to a particular set of principles. It wouldalsoneed tobe complemented bypositive actions toimprove regulators’ understanding of, and confidencein, standards and requirements with which they maynotbefamiliar.

Cooperation on domestic regulation in services maythusrequireactiontobetakenonatleastthreefronts:(i) establishing an appropriate framework of rules toensurethatdomesticregulationdoesnotconstituteanunnecessarybarriertotradeinservices;(ii)promotinggreater use of trade instruments for pro-competitiveregulation; and (iii) supporting regulatory capacitybuilding for trade in services. The first of these isalready being undertaken through the domesticregulation negotiations under the GATS Article VI:4mandate. Theother twoactionpoints call forgreaterregulatory cooperation among agencies andinternationalorganizations,andcouldbelinkedwithatechnical cooperation agenda to address regulatorysupply-side constraints. These challenges arediscussedingreaterdetailinSectionE.4.

(iv) Other forms of cooperation

Cooperationamongregulatorshasbeenmostevidentin the telecommunications sector. Going beyond theelementscontainedintheGATSArticleVI:4mandate,the Reference Paper containing a set of pro-competitiveprincipleswasamajorachievementofthe1997 Agreement on Basic Telecommunications. TheReference Paper has helped shape the regulatoryenvironment for telecommunications by elaborating asetofprinciplescoveringmatterssuchascompetitionsafeguards, interconnection guarantees, transparentlicensing processes and the independence ofregulators.

Unlikeageneralobligation, this instrumententers intoforce when it is attached by a WTO member to itsschedule of specific commitments. Strictly speakingthis instrument deals with a broader set of regulatoryissues than those contained under the Article VI:4mandate. It is mentioned here as it provides a usefulexampleofregulatorycooperationwhichmightperhaps

be emulated in other sectors. The Reference Paperapproach which is undertaken as additionalcommitments(ArticleXVIII)couldalsoserveasamodelfor cooperation on other regulatory issues, includingdomestic regulation disciplines under Article VI:4.TheseissuesarediscussedfurtherinSectionE.4.

ThevariousGATSbodiesdealingwithimplementationandoperationoftheAgreementalsoprovideforaforcooperationonotheraspectsofservicesregulations.Memberscan,andhaveraised,regulatorymattersfordiscussion. For example, the Council for Trade inServices has been examining regulatory issuesrelatingtointernationalmobileroamingcharges.TheCommittee on Trade in Financial Services haspursued discussions on the financial crisis andregulatoryreformissues.TheCommitteeonSpecificCommitments, in addressing regular issues such astheclassificationofservices,requirestheinteractionof regulators with specific expertise and knowledgeoftheindustry.Thatbeingsaid,thesebodies–unlikethe TBT and SPS committees – were not primarilydesignedasforaforregulatorycooperation.ThefactthatthereisnosuchforumisnotsurprisingsincetheGATS has yet to negotiate a set of disciplines thatwould serve a similar purpose as the SPS and TBTagreements.

Outside of the WTO, cooperation on regulationaffecting trade in services occurs in many differentfora.Royetal.(2007)havefoundthatoverallservicesliberalization commitments in preferential tradeagreements (PTAs) have gone beyond current GATScommitments as well as offers tabled in the DohaRound negotiations. There is, however, little evidencetosuggestthatPTAshavegonefurtherthantheGATSindevelopingdisciplinesondomestic regulationor inestablishing new avenues for regulatory cooperation.MostPTAshavereplicatedtheprovisionscontainedinArticleVIof theGATS. ItwouldseemthatPTAshaveencounteredthesamedifficultiesasatthemultilaterallevel in moving this subject forwards. There are,however,someexceptions.

MattooandSauvé(2010)havenotedtheinclusionofanecessity test in the Switzerland-Japan PTA, a fullchapter on domestic regulation in the Australia-NewZealand Closer Economic Relations Agreement, andadditionalservices-specificprovisionsontransparencyin US agreements. There are also necessity testprovisions in the Trans-Pacific Strategic EconomicPartnershipAgreementandinMercosur.

Outside the context of trade negotiations, certainregional organizations have developed principles orcodes of good regulatory practices that wouldcomplementservices liberalization.Someof themostdeveloped of these include the OECD GuidingPrinciplesonRegulatoryQualityandPerformanceandthe APEC-OECD Integrated Checklist on RegulatoryReform. These instruments, which deal with all


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regulations and not just those involving the servicessector, provide non-binding principles on how todesign regulations which support market opennessandcompetition.

There is also a relatively long history of regulatorycooperationatthesectorallevel,suchasinpostalandcommunications services, financial services,transportation, education as well as certainprofessional services. Such cooperation has beennecessary to deal with the effects of internationalinter-dependencies which demand coordinatedregulatory response from different jurisdictions inorder to be effective. Cooperation has also beenrequired to achieve compatibility and inter-operabilitybetweendifferentsystemsandnetworks.

For example, the International Federation ofAccountants (IFAC), the International AccountingStandards Committee (IASC) and the InternationalOrganization of Securities Commissions (IOSCO) setinternational standards for the accountancy sector.The Universal Postal Convention defines generalguidelines on international postal services andregulations on the operations of mail services. Thestandards developed by the InternationalTelecommunication Union (ITU) are fundamental tothe functioning and inter-operability of information,communication and technology (ICT) networksglobally.Ineducation,theRegionalConventionsoftheUnited Nations Educational, Scientific and CulturalOrganization (UNESCO) have been the maininternational instruments addressing the recognitionof academic qualifications for academic andsometimesprofessionalpurposes.

In the financial sector, the Basel Committee onBanking Supervision provides a forum for regularcooperationonbankingsupervisorymatters,withtheobjective of enhancing understanding of keysupervisory issues and improving the quality ofbanking supervision worldwide. A Financial StabilityBoard (FSB), which brings together nationalauthorities responsible for financial stability insignificant international financial centres,international financial institutions, sector-specificinternationalgroupingsofregulatorsandsupervisors,and committees of central bank experts, has alsobeen established. The FSB coordinates the work ofnational financial authorities and internationalstandard-setting bodies, with the aim of developingand promoting effective regulatory, supervisory andotherfinancialsectorpolicies.

Althoughnotundertakenprimarilyforthepurposesoftrade,suchcooperationhasimportantimplications,asit can encourage greater understanding, if notharmonization, among regulators. Thereare, however,risks as international standard setting or regulationmay by chance or by design serve the interests ofthose that have the resources to participate in and

influencetheprocess.Whilesuchconcernshavebeenverymuchattheforefrontingoodstrade(seeSectionE.4),therehasbeenlessdiscussionandawarenessofitinservicestrade.Someofthishastodowiththefactthattheregulationofservicesislessdevelopedattheinternational level and where such instruments doexist,theytendtofocusonparticularsectors.

3. GATT/WTOdisciplinesonNTMsasinterpretedindisputesettlement

Thediscussioninprecedingsectionsofthisreporthasexplained that, while some non-tariff measures aremotivated principally by a desire to protect import-competing sectors, others pursue legitimate publicpolicy objectives, such as safeguarding human andanimal health, consumer protection, or promotingenvironmental sustainability. In this sub-section, welook at GATT/WTO rules, as interpreted in disputesettlement,withaviewtounderstandinghowtheymayormaynotreflectsomeoftheinsightsdrawnfromtheeconomicanalysisinprevioussections.

Morespecifically, thissub-sectionfirstdiscusseshowGATT/WTO rules reflect the economic motivationsfor multilateral cooperation that were analysed inSectionE.1.Secondly,itdiscussestheextenttowhichGATT/WTO rules on non-tariff measures take intoaccount the economic rationales for adopting suchmeasures, which were analysed in Section B.Section E.4 will then take this analysis further bydiscussing some specific issues that arise whenGATT/WTO rules are contrasted against the insightsprovidedbyeconomictheory.

(a) GATT/WTOrulesontradeingoodsandreasonsformultilateralcooperation

Inthecaseofgoods,theGATT/WTOagreementslimitthepolicyinstrumentsthatWTOmembersmayusetoprotect import-competing industries. Tariffs are theonly legitimate form of protection that may be used.Members have negotiated maximum levels of tariffs(knownas “tariff bindings”) andmaynot apply tariffsthat exceed those levels (see GATT Article II). Themaximumlevelsoftariffsthatamembermayapplyareset out in the member’s schedule of concessions.Members are also prohibited from applying “all otherduties or charges of any kind imposed on or inconnection with the importation” unless they havereserved the right to do so in their schedules ofconcessions.

Formanyyears,theprincipaldisciplinesthatappliedtonon-tariff measures were the prohibition onquantitative restrictions in GATT Article XI and thenon-discrimination obligations in Article I (most-favoured nation – MFN) and Article III (national


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treatment) of the GATT. These disciplines weresupplemented by the possibility of bringing a non-violation claim where a contracting party consideredthat a measure, despite being consistent with theprovisions of the GATT, nevertheless “nullified orimpaired” any benefit accruing to it under theAgreement.

TheMFNobligationappliestobothinternalandbordermeasures. It requires WTO members to treat animportedproductfromonemembernolessfavourablythanthe“like”domesticproductimportedfromanothercountry. The national treatment obligation concernsinternal measures, such as internal taxes andregulationsrelatingtothesaleofaproduct.Itrequiresmembers to treat an imported product no lessfavourably than the likedomesticproduct.Oneof thekey issues that has been discussed in GATT/WTOdispute settlement in connection with the nationaltreatment obligation is the extent to which it forbidsmeasuresthathaveadisparateimpactonimports,butcan be objectively shown to have a legitimateregulatory purpose. This issue is further discussed inSectionE.3(b).

Asexplained inSectionE.1, theoverall frameworkofthe GATT is consistent with a policy substitutionapproach.TheGATTalsohadcertain rules thatwentbeyond constraining members from replacing onepolicy(suchastariffs)withanother,suchasnon-tariffmeasures. In particular, the GATT included importanttransparency obligations that respond also to theproblemofincompleteinformation.

Someof theUruguayRoundagreements introducedobligationsthatextendsignificantlybeyondthepolicysubstitutionapproachoftheGATT.Thesehavebeenreferred to as “post-discriminatory” obligations(Hudec,2003).Ofparticular relevancetothisreportare the obligations contained in the SPS and TBTagreements. Both of these agreement contain non-discriminatory obligations. However, they set outadditional requirements that apply to non-tariffmeasures within their scope. Thus, for example, theSPSAgreementalsorequiresthatSPSmeasuresbebased on scientific principles. For its part, the TBTAgreementrequiresthattechnicalregulationsnotbemore trade-restrictive than necessary to fulfil alegitimateobjective.

One result of this “post-discriminatory” approach isthat the link with the market access concessionsprotectedunderapolicysubstitutionapproachismoretenuous. Despite the underlying policy substitutionrationale underlying the GATT/WTO agreements,today there does not appear to be an overarchingrequirementthataWTOmembershowhowitsoverallmarket access has been undermined when itchallenges a non-tariff measure. The only measuresfor which there is a requirement to demonstratenegative effects as part of a claim of violation are

actionable subsidies. By contrast, a memberchallenging, for instance, an advertising ban underGATT Article III:4 need not demonstrate any tradeeffects to succeed in its claim. Nor is there arequirement to show trade effects when challengingSPSmeasuresortechnicalregulationseither.

Insum,thedisciplinesthatapplytonon-tariffmeasuresotherthanactionablesubsidiesarenotdirectlytiedtospecificmarketaccessconcessions.Putdifferently,amembercanchallengeanNTMirrespectiveofwhetherit has demonstrable trade effects. Having said that,one would expect that members normally will notinvest the resources necessary to prosecute acomplaintunlessthemeasurehassometradeimpact.

Asoriginallyframed,ArticleXXIIIoftheGATTrequireda contracting party challenging a measure taken byanothercontractingparty todemonstrate that suchameasure “nullified or impaired” a benefit expected bythatcontractingpartyundertheGATT(J.H.Jackson,1989). In 1962, however, a GATT dispute settlementpanel determined that where there was a “clearinfringement” of a GATT provision, “the action would,prima facie, constitute a case of nullification andimpairment…” (GATT Uruguay – Recourse to Article XXIII, para. 15). This legal presumption was latercodifiedand isnow incorporated inArticle3.8of theDisputeSettlementUnderstanding(DSU).

The claim of nullification or impairment has been thesubject of discussion in economic literature where ithas been identified as an efficient mechanism todisciplinenon-tariffmeasures(seeSectionE.1(c))Itisstill possible for a WTO member to challenge ameasure that is not inconsistent with the GATT, butthat nonetheless “nullifies or impairs” benefits itexpectedtoobtainundertheAgreement.However,asexplained below, non-violation claims are subject tostringent requirementsandareseldompursuedotherthanwhentheyare“thrownin”asanalternativeclaimincasetheclaimsofviolationdonotsucceed.

ThevastmajorityofWTOdisputesconcernallegationsof violation. No WTO member has successfullyrebuttedthepresumptionofnullificationorimpairment,resulting from a finding of violation, by showing thatthe measures had no actual effect on trade (WorldTradeOrganization(WTO),2004).

In EC – Bananas III, the European Communitiesattempted to rebut thepresumptionofnullificationorimpairment with respect to the panel’s findings ofviolations of the GATT 1994 on the basis that theUnitedStateshadneverexporteda singlebanana tothe European Community, and therefore, could notpossiblysufferanytradedamage.TheAppellateBodyrejectedtheEuropeanCommunities’argumentand,indoing so, endorsed the following reasoning by anearlierpanel:


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“Article III:2, first sentence, cannot beinterpreted to protect expectations onexportvolumes;itprotectsexpectationsonthe competitive relationship betweenimportedanddomesticproducts.Achangein the competitive relationship contrary tothat provision must consequently beregarded ipso facto as a nullification orimpairmentofbenefitsaccruingunder theGeneral Agreement. A demonstration thata measure inconsistent with Article III:2,first sentence, has no or insignificanteffects would therefore in the view of thePanel not be a sufficient demonstrationthat the benefits accruing under thatprovisionhadnotbeennullifiedorimpairedeven if such a rebuttal were in principlepermitted”(PanelReport,US – Superfund,para.5.19).

The claim of non-violation has been described as an“exceptional remedy” which “should be approachedwithcaution”(PanelReport,Japan – Film,para.10.37andAppellateBodyReport,EC – Asbestos,para.186).

(b) GATT/WTOrulesontradeingoodsandeconomicrationalesforNTMs

SectionBexplained thatnon-tariffmeasuresmaybejustified where such measures address a genuinesituationofmarketfailure.SectionBfurtherexplainedthat, whereas the welfare effects of an NTM thataddresses a genuine market failure are positive, thetradeeffectsareambiguous.

Since its inception, the GATT/WTO regime hasrecognized that WTO members may need to adoptnon-tariffmeasurestoaddressmarketfailures.Inthisregard,GATT/WTOrulesonNTMscanbeunderstoodas providing “devices” that help distinguish measuresthat genuinely seek to address a market failurefrom those that have opportunistic motivations(see Trachtman, 1998; Marceau and Trachtman,2009). Insomecases,GATT/WTOrulesalsoseektominimize the trade impact of an NTM otherwiseadoptedforalegitimatepolicypurpose.

Despitewhatsomecriticshavesaid,GATT/WTOrulesdo not establish a hierarchy between the tradecommitmentsofWTOmembersand thepublicpolicyobjectives that these members may pursue throughdomestic regulation. Ultimately, GATT/WTO rulesallow for the application of non-tariff measures thatpursue a legitimate non-protectionist purpose, evenwherethemeasureshavetradeeffects.The“devices”set out in the WTO agreements to draw the linebetweenprotectionistandnon-protectionistNTMsaredescribedbelow.

(i) Non-discrimination and the relevance of intent or purpose

As discussed in Section E.1, the non-discriminationobligations in Articles I and III of the GATT are theprimarydevicesused in theGATT toconstrainpolicysubstitution.Additionalflexibilityisprovidedunderthegeneral exceptions in Article XX of the GATT, whichallowscertainmeasures thatpursue thepublicpolicyobjectives recognized in that provision, such as theprotectionofhuman,animal,orplantlifeorhealth,andtheconservationofexhaustiblenaturalresources.

Even with the additional flexibility provided underArticle XX, some fear that the national treatmentobligationinArticleIIIcanbetoobluntaninstrumentifit is applied mechanically. Those who hold this viewadvocate an interpretation of the national treatmentobligation thatdoesnot focusexclusivelyonwhetherthe challenged non-tariff measure has an impact onimports that isdifferent from the impacton the “like”domestic product. Rather, in their view, the analysisshould also take account of the intent or purposebehind the challenged measure, thereby onlyconstraining those measures that do not pursue alegitimatepurpose.

As Lester (2011) explains, three positions have beenadvocatedastotherelevanceofintentorpurposefortheassessmentofadomesticregulationunderArticleIII. Those in the first group consider that intent orpurposehasnoroletoplayintheanalysisofnationaltreatment.Instead,theyconsiderthatintentorpurposemayberelevant,ifatall,wheretherespondentmemberinvokesoneofthegeneralexceptionsinArticleXXoftheGATT.Theothertwogroupsbelievethat intentorpurposemustnecessarilybeconsideredintheanalysisunderArticleIII,yetdifferastowherepreciselyintentor purpose comes into the analysis. One groupadvocates consideration of intent or purpose indetermining whether the imported and domesticproducts are “like”. The other group sees intent orpurposesasbeingpartoftheanalysisofwhethertheimportedproductisbeingtreatedlessfavourablythanthedomesticproduct.

Two GATT panels sought to include consideration ofregulatorypurposeintheassessmentofdiscriminationinwhatbecameknownasthe“aimsandeffectstest”(US – Malt Beverages and Canada – Provincial Liquor Boards (US)).Hudecdescribes the “aimsandeffectstest”asmakingthefollowingtwoimprovementstothetraditional approach. First, the new approach“consigned the metaphysics of ‘likeness’ to a lesserrole intheanalysis,andinsteadmadethequestionofviolation depend primarily on the two most importantissues that separate bona fide regulation from tradeprotection–thetradeeffectsofthemeasure,andthebonafidesoftheallegedregulatorypurposebehindit”.Secondly, “by making it possible for the issue ofregulatory justification to be considered at the same


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time the issue of violation itself is being determined,the ‘aim and effects’ approach avoided both theprematuredismissalofvalidcomplaintsongroundsof‘un-likeness’ alone, and excessively rigoroustreatment”(Hudec,2003:628).

Regan(2003)hasalsoadvocatedincludingconsiderationofregulatorypurposeaspartoftheassessmentofnon-discrimination under GATT Article III. In his view, thecentral inquiry in the assessment of non-discriminationunder Article III should be whether the measure is theresult of aprotectionist legislativepurpose.Heclarifiesthat this is not a question of the subjective motives ofindividual legislators. Rather, it is a question at a moregenerallevelaboutwhatpoliticalforceswereresponsiblefortheultimatepoliticaloutcome.Reganrecognizesthattheremaybemultiplepurposesbehindtheenactmentofa regulation. In such a case, he suggests that theregulation be invalidated only if the contribution ofprotectionist purpose was a “but for” cause of theadoptionoftheregulation.

Itiscommonunderstandingthatthe“aimsandeffects”test was rejected in Japan – Alcoholic Beverages, thefirst non-discrimination dispute about internal taxesdecidedundertheWTOdisputesettlementmechanism(seeRoessler,2003).The issuealsocameup inEC – Bananas III,wheretheAppellateBodyrefusedtoapplythe“aimsandeffect”testinthecontextofanalysingaclaimunderArticlesIIandXVIIoftheGATS.However,some commentators have noted that subsequentAppellate Body reports would appear to recognizesome role for regulatory purpose in the assessmentunder GATT Article III (Regan, 2003; Porges andTrachtman,2003).35This isamatterofcurrentdebateasaresultoftheAppellateBody’srulingsonArticle2.1of the TBT Agreement in US – Clove Cigarettes and US – Tuna II (Mexico)(seebelow).

Both the SPS and the TBT agreements include non-discrimination obligations, although they operatesomewhat differently. The SPS Agreement providesthatSPSmeasuresmustnot“arbitrarilyorunjustifiablydiscriminate between Members where identical orsimilarconditionsprevail, includingbetweentheirownterritoryandthatofotherMembers”.This languageisa recognition of the fact that, due to differences inclimate, existing pests or diseases, or food safetyconditions, it is not always appropriate to impose thesame sanitary and phytosanitary requirements onfood, animal or plant products coming from differentcountries. SPS measures sometimes vary, dependingon the country of origin of the food, animal or plantproduct concerned. Marceau and Trachtman (2009)contrast this provision with Article III of the GATT,notingthattheformerdoesnotseemtocallfora“likeproduct” analysis, but rather is focused on thejustificationforthediscriminationbetweensituations.

The languageofArticle2.1of theTBTAgreement iscloser to that of Article III of the GATT. The TBT

Agreement provides that WTO members shall ensurethat in respect of technical regulations, productsimported from the territory of any member shall beaccorded treatment no less favourable than thataccordedtolikeproductsofnationaloriginandtolikeproductsoriginatinginanyothercountry.

As noted above, the relevance of the rationale orpurpose of the measures has been the subject ofintense debates in the context of Article III of theGATT.TheissuehasnowbeenraisedinthecontextofArticle2.1oftheTBTAgreement.Itisworthrecalling,in this regard, that the TBT Agreement does notincludeageneralexceptionsprovisionsimilartoGATTArticleXX.

Three recent panels took differing approaches withrespect to the relevance of intent or purpose for theassessment of likeness under Article 2.1 of the TBTAgreement.ThepanelinUS – Tuna II (Mexico),referringbacktotheAppellateBody’sinterpretationofArticleIII:4oftheGATTinEC – Asbestos,interpretedtheterm“likeproducts”inArticle2.1oftheTBTAgreementasrelatingto the nature and extent of a competitive relationshipbetweenandamonggroupsofproducts (PanelReport,US – Tuna II (Mexico), para.7.225). Inotherwords, thispanelwasreluctanttotaketheintentorpurposeofthemeasure into account at this stage. The panel in US – COOL (Certain Country of Origin Labelling) took asimilarapproach.

Bycontrast,thepanelinUS – Clove Cigarettes,whichexamined a claim against a tobacco measure thatprohibitscigaretteswithcharacterizingflavours,otherthan tobacco or menthol, refused to undertake theanalysis of likeness “primarily from a competitionperspective”. Instead, the panel was of the view thatthe weighing of the evidence relating to the likenesscriteria should be influenced by the fact that themeasure at issue was “a technical regulation havingtheimmediatepurposeofregulatingcigaretteswithacharacterizing flavour for public health reasons”. Thismeant that it had to “pay special notice to thesignificance of the public health objective of atechnical regulation and how certain features of therelevant products, their end-uses as well as theperception consumers have about them, must beevaluatedinlightofthatobjective”.

The panel therefore concluded that “the declaredlegitimate public health objective” of the measure atissue–thatis,thereductionofyouthsmoking–“mustpermeate and inform our likeness analysis”. Inparticular, the panel considered that the declaredlegitimate public health objective was relevant in theconsideration of the physical characteristics that areimportant for the immediate purpose of regulatingcigaretteswith characterizing flavours, aswell as theconsumer tastes and habits criterion where theperception of consumers, or rather potentialconsumers, can only be assessed with reference to


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the health protection objective of the technicalregulation at issue (Panel Report, US – Clove Cigarettes,para.7.119).

AnotherinterestingaspectofthepanelproceedingsinUS – COOL is that the parties extensively arguedaboutallegedactualtradeeffects–andwhethersucheffectswereattributabletothemeasuresatissue(theCOOL measure) or to other factors. The partiessubmitted economic figures and analyses, includingeconometric studies. For the panel this was animportant factual matter in the dispute: the panelfounditimportanttomakefindingsontheactualtradeeffectsoftheCOOLmeasure,evenif,underthelegalstandard it had identified for Article 2.1 of the TBTAgreement, thesefindingswerenot indispensable forthe analysis of the complainants’ claim. Indeed, thepanelwentfurther,arguingthatithadtheright,“andinfact the duty, to make the factual findings necessarytocarryoutanobjectiveanalysisofthedisputeandallof the evidence before us”, and the basic function ofpanelsdidnotexclude–andcould,infact,necessitate– the review of economic and econometric evidenceandarguments.

Hence,whilethepaneldidnotactuallyundertakeanyeconometric analysis of its own, it assessed therobustness of the contradictory US and Canadianstudies,stressingthattheeconometricstudies,unlikethe descriptive analyses, were able to isolate andquantifythedifferentfactorsatplay.ItconcludedthattheCanadian(Sumner)EconometricStudyhadmadeaprima faciecasethattheCOOLmeasurehadarobustnegative and significant effect on the import sharesandpricebasisofCanadianlivestock.Italsoconcludedthatthis impactdemonstratedbytheCanadianStudy,and not refuted by the USDA Econometric Study,concurred with its finding that the COOL measureaccorded less favourable treatment (for muscle cuts)withinthemeaningofArticle2.1oftheTBTAgreement(PanelReport, US – COOL,paras.7.444-7.566).

Allthreepanelreportswereappealed,butatthetimeof writing only the Appellate Body reports in US – Clove CigarettesandUS – Tuna II (Mexico)hadbeencirculated.

The Appellate Body disagreed with the US – Clove Cigarettespanel’sinterpretationoftheconceptof“likeproducts” inArticle2.1of theTBTAgreement,whichfocusedonthepurposesofthetechnicalregulationatissue, as separate from the competitive relationshipbetween and among the products. In the AppellateBody’s view, “thecontextprovidedbyArticle2.1 itself,by other provisions of the TBT Agreement, bythe TBT Agreement asawhole,andbyArticleIII:4oftheGATT 1994, as well as the object and purpose ofthe TBT Agreement, support an interpretation of theconcept of ‘likeness’ in Article 2.1 that is based onthe competitive relationship between and among theproducts”. Regulatory concerns underlying a technical

regulationmaybetakenintoaccountonlytotheextentthat they are relevant to the examination of certainlikeness criteria and are reflected in the products’competitive relationship.36 Ultimately, however, theAppellate Body found that the “likeness” criteria thatthe panel had examined supported the panel’s overallconclusion that clove and menthol cigarettes are likeproducts within the meaning of Article 2.1 of theTBT Agreement (Appellate Body Report, US – Clove Cigarettes,paras.156and160).

TheAppellateBodyalsoaddressedthelessfavourabletreatmentelementofArticle2.1oftheTBTAgreement,notingthatapanelexaminingaclaimofviolationunderArticle 2.1 should seek to ascertain whether thetechnicalregulationatissuemodifiestheconditionsofcompetitioninthemarketoftheregulatingmembertothedetrimentofthegroupofimportedproductsvis-à-visthegroupoflikedomesticproducts.

TheAppellateBodyfurtherexplainedthat“thecontextandobjectandpurposeoftheTBT Agreementweighinfavourofinterpretingthetreatmentnolessfavourablerequirement of Article 2.1 as not prohibitingdetrimental impact on imports that stems exclusivelyfrom a legitimate regulatory distinction”. This meansthat where a technical regulation does not de jure discriminate against imports, “the existence of adetrimental impact on competitive opportunities forthegroupof importedvis-à-vis thegroupofdomesticlike products is not dispositive of less favourabletreatment under Article 2.1”. Panels must furtheranalyse whether the detrimental impact on importsstems exclusively from a legitimate regulatorydistinctionratherthanreflectingdiscriminationagainstthe group of imported products. In doing so, panelsmust carefully scrutinize theparticular circumstancesofthecase,that is,thedesign,architecture,revealingstructure, operation, and application of the technicalregulation at issue, and, in particular, whether thattechnical regulation is evenhanded, in order todetermine whether it discriminates against the groupof imported products (Appellate Body Report, US – Clove Cigarettes,paras.180-182).

Intheend,theAppellateBodyagreedwiththepanel’sconclusion that,byexemptingmentholcigarettes fromthe ban on flavoured cigarettes, the US measureaccords to clove cigarettes imported from Indonesialess favourable treatment than that accorded todomesticlikeproducts,withinthemeaningofArticle2.1oftheTBTAgreement.TheAppellateBodyconsideredthat the detrimental impact of the US measure oncompetitive opportunities for clove cigarettes did notstem from a legitimate regulatory distinction becausementhol cigarettes have the same productcharacteristics(theflavourthatmaskstheharshnessoftobacco) that, from the perspective of the statedobjectiveoftheUSmeasure,justifiedtheprohibitionofclovecigarettes.


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However, theAppellateBodysoughttoclarifythat itsrulingdidnotmeanthatWTOmembers“cannotadoptmeasures topursue legitimatehealthobjectivessuchas curbing and preventing youth smoking”. Itemphasized that, even though the measure at issuepursued the legitimate objective of reducing youthsmokingbybanningcigarettescontainingflavoursandingredientsthatincreasetheattractivenessoftobaccoto youth, “it does so in a manner that is inconsistentwiththenationaltreatmentobligation inArticle2.1ofthe TBT Agreement as a result of the exemption ofmenthol cigarettes, which similarly contain flavoursand ingredients that increase the attractiveness oftobaccotoyouth,fromthebanonflavouredcigarettes”(AppellateBodyReport,US – Clove Cigarettes,paras.226and236).

The Appellate Body also addressed a claim underArticle 2.1 of the TBT Agreement in US – Tuna II (Mexico). The likeness of tuna products of differentorigins was not appealed. The debate on Article 2.1thuswas limitedtothe“treatmentno lessfavourable”element of Article 2.1. The Appellate Body began byexplaining that technical regulations are measuresthat, by their very nature, establish distinctionsbetweenproductsaccordingtotheircharacteristicsortheir related processes and production methods.Therefore,Article2.1shouldnotbereadtomeanthatany distinctions, in particular ones that are basedexclusivelyonparticularproductcharacteristicsoronparticular processes and production methods, wouldper se constitute “less favourable treatment”(para.211).

TheAppellateBodydescribedtheanalysisofwhetherthereislessfavourabletreatmentunderArticle2.1asinvolvingthefollowingtwosteps:(i)anassessmentofwhetherthetechnicalregulationatissuemodifiestheconditions of competition to the detriment of theimported product as compared to the domestic likeproduct or the like product originating in anothermember; and (ii) a determination of whether thedetrimental impact reflects discrimination against theimportedproductofthecomplainingmember.

Referring back to its earlier ruling in US – Clove Cigarettes, the Appellate Body explained that theexistence of a detrimental effect is not sufficient todemonstrate less favourable treatment underArticle 2.1; instead, a panel must further analysewhether the detrimental impact on imports stemsexclusively from a legitimate regulatory distinctionratherthanreflectingdiscriminationagainstthegroupof imported products (paras. 215 and 231). TheAppellateBody further said that in this case itwouldscrutinize in particular, whether, in the light of thefactual findings made by the panel and undisputedfactsontherecord,theUSmeasureisevenhandedinthemannerinwhichitaddressestheriskstodolphinsarising from different fishing methods in differentareasoftheocean(para.232).

Turning to the US “dolphin-safe” labelling provisions,theAppellateBodyfirstfoundthatthepanel’sfactualfindings “clearly establish that the lack of access tothe ‘dolphin-safe’ label of tuna products containingtuna caught by setting on dolphins has a detrimentalimpact on the competitive opportunities of MexicantunaproductsintheUSmarket”(para.235).Asforthequestion of whether the detrimental impact reflecteddiscrimination, the Appellate Body examined whetherthedifferentconditionsforaccess toa “dolphin-safe”label are “calibrated” to the risks to dolphins arisingfromdifferentfishingmethodsindifferentareasoftheocean, as the United States had claimed. TheAppellate Body noted the panel’s finding that, whilethe US measure fully addresses the adverse effectson dolphins (including observed and unobservedeffects) resulting from setting on dolphins in theEasternTropicalPacific, itdoesnotaddressmortalityarising from fishing methods other than setting ondolphins in other areas of the ocean. In thesecircumstances, the Appellate Body found that themeasureatissueisnoteven-handedinthemannerinwhich it addresses the risks to dolphins arising fromdifferent fishing techniques in different areas of theocean.Onthisbasis,theAppellateBodyreversedthepanel’s finding that the US ”dolphin-safe” labellingprovisions arenot inconsistentwithArticle2.1of theTBT Agreement, and found, instead, that the USmeasureisinconsistentwithArticle2.1.

TheAppellateBody reports inUS – Clove Cigarettes and US – Tuna II (Mexico) focused on Article 2.1 ofthe TBT Agreement; the Appellate Body addressedArticleIII:4oftheGATTonlyasrelevantcontextforitsinterpretation of Article 2.1 of the TBT Agreement.Nevertheless, the reports have given rise to debateabout their implications for theanalysisunderArticleIII:4oftheGATT(seetheInternationalEconomicLawandPolicyBlogat:http://worldtradelaw.typepad.com).

As noted earlier, the TBT Agreement and the GATTarestructureddifferently.TheGATTincludesageneralexceptionsprovision(ArticleXX)thatmaybeinvokedtojustifyameasurethatisotherwiseinconsistentwithArticle III:4 (or another obligation in the GATT).ArticleXXreferstosomeofthepolicyobjectivesthatare also mentioned in the Preamble of the TBTAgreement,suchastheprotectionoftheenvironment.TheAppellateBodyobserved,inthisregard,thatwhilethe GATT and the TBT Agreement seek to strike asimilar balance, “in the GATT 1994 this balance isexpressedbythenationaltreatmentruleinArticleIII:4as qualified by theexceptions inArticleXX,while, inthe TBT Agreement, this balance is to be found inArticle2.1itself,readinthelightofitscontextandofitsobjectandpurpose”(AppellateBodyReport,US – Clove Cigarettes, para. 109). This could be read bysomeassupportingadifferentapproachunderArticleIII:4 than under Article 2.1 of the TBT Agreement,whereupon any legitimate policy basis for thedifferentialtreatmentoftheimportedproductandthe


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like domestic product would be considered in theassessmentoftheArticleXXdefenceandnotaspartof the assessment of whether there is discriminationunderArticleIII:4.

Another point to note is that Article XX of the GATThas a closed list of policy reasons that could beinvoked to justify an otherwise GATT-inconsistentmeasure. By contrast, the TBT Agreement does notexpressly limit the policy objectives that could bepursued through a technical regulation. The range ofobjectives that could justify a measure is potentiallymore “open” under the TBT Agreement than undertheGATT.

Appellate proceedings in US – COOL had notconcludedatthetimeofwriting.

(ii) Appropriate level of protection

Like Article III of the GATT, the SPS and TBTagreements do not establish minimum or maximumlevels of regulatory protection. For example, the SPSAgreement does not require a WTO member toregulate in relation to a particular risk. Thus, a WTOmembermaychoosenottoregulateatall.Atthesametime,theSPSAgreementdoesnotimposeaceilingonthe maximum level of regulation. The Appellate Bodyhasemphasizedinthisregardthatitisthe“prerogative”ofaWTOmembertodeterminethelevelofprotectionthat it deems appropriate (Appellate Body Report,Australia – Salmon,para.199).

Although WTO members have the prerogative todetermine their level of protection, they must complywiththerequirementofconsistencyinArticle5.5oftheSPS Agreement. An SPS measure would fail theconsistencyrequirementofArticle5.5if:(i)thememberimposing the disputed measure has adopted its ownappropriatelevelsofsanitaryprotectionagainstriskstohuman life or health in several different situations;(ii) those levels of protection exhibit arbitrary orunjustifiabledifferences (“distinctions” in the languageofArticle5.5) in their treatmentofdifferentsituations;and (iii) the arbitrary or unjustifiable differences mustresult in discrimination or a disguised restriction ofinternational trade. The analysis under Article 5.5proceeds,however,onlyifthesituationsexhibitdifferentlevelsofprotectionandpresentsomecommonelementor elements sufficient to render them comparable(Appellate Body Report, EC – Hormones, paras. 214-215and217).

(iii) Scientific or technical basis

The SPS Agreement requires that SPS measures bebased on scientific principles and not be maintainedwithoutscientificevidence.UnlesstheSPSmeasureistakeninanemergencyorisbasedonaninternationalstandard,itmustbebasedonariskassessment,whichtheAgreementdefinesas:

“The evaluation of the likelihood of entry,establishmentorspreadofapestordiseasewithintheterritoryofanimportingMemberaccording to the sanitary or phytosanitarymeasures which might be applied, and ofthe associated potential biological andeconomic consequences; or the evaluationof the potential for adverse effects onhuman or animal health arising from thepresenceofadditives,contaminants, toxinsor disease-causing organisms in food,beverages,orfeedstuffs”.

TBTmeasuresmayalsobesupportedbyscientificortechnicalstudies,althoughinsomecasesthescientificortechnicalinformationmaybeoneofseveralfactorstakenintoconsideration.Indeed,Article2.2oftheTBTAgreement includes available scientific and technicalinformation among the elements that may beconsidered in assessing the risks that would becreated if the legitimate objective pursued by thetechnical regulation were not fulfilled. While it isfeasible to consider technical studies providingbackingfor theneedforcertain technical regulationsrelatingtoconsumersafety,theusefulnessoftechnicalstudies for other technical regulations – such ascertain labelling requirements for foods subject toreligiousrestrictions–islessobvious.Thedraftersofthe TBT Agreement would appear to have foreseenthat such measures could involve complex technicalassessments in that they explicitly provided for thepossibility that panels reviewing such measures inWTO dispute settlement could rely on experts“to assist in questions of a technical nature”(seeArticle14andAnnex2oftheTBTAgreement).

The additional requirements of the SPS and TBTagreementshavegivenrisetoconcernsbysomethatthe WTO will interfere with legitimate democraticchoicesofthecitizensoftheWTOmembersadoptingthe SPS or TBT measures. Writing about the SPSAgreement, Howse (2000) has argued that theserequirements “do not have the effect of usurpingdemocraticjudgmentaboutriskanditsregulationandplacingthesemattersundertheauthorityof‘science’”.Rather,inhisview,“theSPSAgreementbringssciencein as one necessary component of the regulatoryprocess, without making it decisive”. Howse findssupport for his views in the approach taken by theAppellate Body in EC – Hormones. He refers, forexample, to the Appellate Body’s acknowledgmentthatWTOmembersmayadoptSPSmeasureseven ifscientificopinionisdividedorthereisuncertainty.

Sykes (2006) is less optimistic. He has argued thataccommodation between the SPS Agreement’sscientific evidence requirement and respect for WTOmembers’ regulatory sovereignty “is exceedinglydifficult if not impossible”. In his view, “(m)eaningfulscientific evidence requirements fundamentallyconflict with regulatory sovereignty in all cases of


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seriousscientificuncertainty”.Heseesthisasforcinga choice on the WTO “between an interpretation ofscientific evidence requirements that essentiallyeviscerates them and defers to national judgmentsabout ‘science’, or an interpretation that gives themreal bite at the expense of the capacity of nationalregulators to choose the level of risk that they willtolerate”.Amiddlegroundisonlypossible“intherarecases where scientific uncertainty is remediablequicklyatlowcost”.

HoekmanandTrachtman(2010)havearguedthatthescientific evidence requirement of the SPSAgreementdoesnotentailadramaticdeparturefromthe general policy of the GATT of preventingdiscriminatory measures (understood narrowly asonly covering measures that have a differentialimpact without an adequate rational justification intermsofachievinga legitimate regulatoryobjective).They assert that the scientific evidence requirementmaybeunderstoodasanobjectiveindicatoror“proxymeasure” of protectionist intent. Hoekman andTrachtman explain that the scientific evidencerequirement (including the requirement that SPSmeasures be based on a risk assessment) wouldseem to evaluate directly “the extent and quality ofthe non-protectionist aim”. Alternatively, therequirement may be understood to establish apresumption of protectionist aim where the SPSmeasure is found not to be based on scientificevidence. Described in this manner, the scientificevidence requirement would be mostly concernedwiththeproblemofpolicysubstitution.

The concern about intruding into the regulatorydomain of national governments on such sensitivemattersashealthandsafetymeasuresfindsreflectioninthe“standardofreview”thatappliestothereviewofsuchmeasuresbytheWTO’sadjudicatorybodies.ThestandardofreviewreferstotheintensityofthescrutinyofdomesticmeasuresbyWTOpanels.Asnotedabove,SPSmeasuresmustbebasedonscientificprinciplesandmaynotbemaintainedwithoutsufficientscientificevidence. This sometimes means that the WTOmember applying the SPS measures must haveconducted a risk assessment in accordance withArticle5.1oftheSPSAgreement.

ApanelassessingtheconsistencyofanSPSmeasurewithArticle5.1ismeanttoreviewtheWTOmember’srisk assessment and not to conduct one itself. TheAppellate Body has cautioned that “[w]here a panelgoes beyond this limited mandate and acts as a riskassessor, it would be substituting its own scientificjudgmentforthatoftheriskassessorandmakingade novo review and, consequently, would exceed itsfunctions under Article11of theDSU”. Itwent on toexplain that “the review power of a panel is not todeterminewhethertheriskassessmentundertakenbya WTO Member is correct, but rather to determinewhetherthatriskassessmentissupportedbycoherent

reasoning and respectable scientific evidence and is,in this sense, objectively justifiable” (Appellate BodyReport, US/Canada – Continued Suspension, para.590).

It could be suggested that a deferential standard ofreview, similar to that applied to the review of SPSmeasures, would be justified in relation to measuresunder the TBT Agreement that are based on somekindof technicalassessmentcarriedoutbydomesticauthorities.Sofar,however,thestandardofreviewhasnotreceivedmuchattentioninthedisputesbroughttotheWTOundertheTBTAgreement.

Arelatedissuethathasbeenraisedinconnectionwithboth the SPS and TBT agreements is whether WTOadjudicators have the required level of expertise toadjudicatedisputesthatmayinvolvecomplexscientificor technical debates. The lack of such scientific andtechnicalexpertiseisoneofthejustificationsgivenfora deferential standard of review. The SPS and TBTagreementsbothprovideforthepossibilitythatpanelsseek advice from experts and several panels havedone so. Panels must consult the parties whenchoosing the experts and must respect the parties’due process rights. Thus, a panel was faulted forconsulting two experts that had participated in theevaluationofsixhormonesforpurposesofdevelopinginternational standards when the adequacy of thatevaluationwasanissueintheWTOdispute(AppellateBody Report, US/Canada – Continued Suspension,para.481).

Moreover, experts cannot do the job of the parties,especially the complainant who bears the burden ofproof (Appellate Body Report, Australia – Salmon,para.222).Theuseofexpertsmustbeconsistentwiththestandardof review. In thecaseofSPSmeasures,theconsultationswiththeexperts“shouldnotseektotest whether the experts would have done a riskassessmentinthesamewayandwouldhavereachedthesameconclusionsastheriskassessor”(AppellateBody Report, US/Canada – Continued Suspension,para. 481). In other words, the assistance of theexperts is constrained by the applicable standard ofreview.

(iv) A less trade-restrictive requirement

As noted earlier, a WTO member taking a domesticmeasurethatisinconsistentwithoneoftheobligationsof the GATT nevertheless may be able to justify it ifthe measure pursues one of the policy objectivesrecognized under Article XX and is otherwiseconsistent with the other requirements of thatprovision. Article XX allows, among other things,measuresthatare“necessary”toprotectpublicmoralsor to protect human, animal or plant life or health.Under the approach followed by some panels duringthe GATT, a measure would be considered to be“necessary”onlyiftherewerenoalternativemeasures


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consistentwith theGATT,or less inconsistentwith it,that the member taking the measure could beexpected to employ to achieve the relevant policyobjective(seeGATTPanelReport,US – Section 337 Tariff Act,para.5.26andGATTPanelReport,Thailand – Cigarettes,para.75).

The Appellate Body has taken a more nuancedapproach to necessity. The determination of“necessity”, as articulated by the Appellate Body,involves a weighing and balancing of the relativeimportanceoftheinterestsorvaluesfurtheredbythechallenged measure and other factors, which wouldusuallyincludethecontributionofthemeasuretotherealization of the ends pursued by it and therestrictive impact of the measure on internationaltrade.Ifthisanalysisyieldsanaffirmativeconclusion,thenecessityofthemeasuremustbethenconfirmedby comparing the measure with possible lessrestrictivealternatives.Theburdenofidentifyinglessrestrictivealternativesisonthecomplainingparty.Toqualifyasanalternative,themeasuremustallowtherespondent member to achieve the same level ofprotection and must be reasonably available – therespondingmembermustbecapableoftakingitandthe measure may not impose an undue burden onthatmember,suchasprohibitivecostsorsubstantialtechnicaldifficulties–takingintoaccountthelevelofdevelopment of the member concerned (AppellateBody Report, Brazil – Retreaded Tyres , paras. 143and156).

InaccordancewithArticle5.6oftheSPSAgreement,a WTO member establishing or maintaining SPSmeasures toachieve theappropriate levelof sanitaryor phytosanitary protection must “ensure that suchmeasuresarenotmoretrade-restrictivethanrequiredto achieve their appropriate level of sanitary orphytosanitaryprotection,takingintoaccounttechnicaland economic feasibility”. Footnote 3 to Article 5.6clarifies that “a measure is not more trade-restrictivethan required unless there is another measure,reasonablyavailabletakingintoaccounttechnicalandeconomic feasibility, that achieves the appropriatelevel of sanitary or phytosanitary protection and issignificantly lessrestrictivetotrade”.Theassessmentdescribedinfootnote3couldbeunderstoodasatypeofcost-benefitanalysis.

InAustralia – Salmon, theAppellateBodystated thatArticle 5.6 provides a three-pronged test. Thecomplaining party must prove that there is anothermeasure that: (i) is reasonably available, takinginto account technical and economic feasibility;(ii)achievesthemember’sappropriatelevelofsanitaryor phytosanitary protection; and (iii) is significantlyless restrictive to trade than the SPS measurecontested.Thesethreeelementsarecumulativeinthesense that, to establish an inconsistency with Article5.6,allofthemhavetobemet:

“If any of the elements is not fulfilled, themeasure in dispute would be consistentwith Article 5.6. Thus, if there is noalternative measure available, taking intoaccounttechnicalandeconomicfeasibility,or if the alternative measure does notachieve the Member’s appropriate level ofsanitaryorphytosanitaryprotection,orifitis not significantly less trade-restrictive,themeasureindisputewouldbeconsistentwith Article 5.6” (Appellate Body Report,Australia—Salmon,para.194).

InAustralia – Apples,theAppellateBodyaddedthat,indeterminingwhether thefirst twoof theseconditionshavebeensatisfied(whetherthereisameasurethatisreasonablyavailable,takingintoaccounttechnicalandeconomic feasibility, and achieves the member’sappropriate level of sanitary or phytosanitaryprotection),apanelmustfocusitsassessmentontheproposed alternative measure. Only in examiningwhetherthethirdconditionisfulfilledwillapanelneedtocomparetheproposedalternativemeasurewiththecontested SPS measure (Appellate Body Report,Australia – Apples,WT/DS367/AB/R,atpara.337).

Marceau and Trachtman (2009) suggest thatArticle 5.6 of the SPS Agreement, as interpreted,wouldseem to involveabalancingexercisesimilar totheoneespousedbytheAppellateBodyinrelationtothe assessment of necessity under Article XX of theGATT. One difference they identify is that, unlike theassessment of necessity under Article XX of theGATT, the evaluation under Article 5.6 of the SPSAgreement would not include consideration of thedegree of the measure’s contribution to the endpursued.

Foritspart,Article2.2oftheTBTAgreementprovidesthat “Members shall ensure that technical regulationsarenotprepared,adoptedorappliedwitha view toorwith the effect of creating unnecessary obstacles tointernational trade. For this purpose, technicalregulations shall not be more trade-restrictive thannecessarytofulfilalegitimateobjective,takingaccountoftherisksnon-fulfilmentwouldcreate.Suchlegitimateobjectivesare,inter alia:nationalsecurityrequirements;the prevention of deceptive practices; protection ofhumanhealthorsafety,animalorplantlifeorhealth,orthe environment. In assessing such risks, relevantelements of consideration are, inter alia: availablescientificand technical information, relatedprocessingtechnologyorintendedend-usesofproducts”.

The panels in US – Clove Cigarettes, US – Tuna II (Mexico) and US – COOL each addressed andinterpretedArticle2.2oftheTBTAgreement.Despitethedifferencesinthepanels’analyses,therearesomecommon elements that can be discerned in theirapproaches.


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Allthreepanels interpretedthisprovisionasrequiringan enquiry regarding the following elements:(i)whether themeasureat issuepursuesa legitimateobjective; (ii) whether the measure at issue fulfils, orcontributes to the achievement of, the legitimateobjectives, at the level the member deemedappropriate; and (iii) whether there is a less trade-restrictive alternative means of achieving the samelevelofprotection.Moreover, inallthreedisputes,theUnitedStates,astherespondent,consistentlyarguedthat the jurisprudence relating to Article XX of theGATT1994wasnotrelevantininterpretingArticle2.2oftheTBTAgreement,andthatinsteadpanelsshouldrely on Article 5.6 of the SPS Agreement and itsjurisprudence (see above). None of the three panelsaccepted the US argument in toto. Rather, they drewupontheAppellateBody’sjurisprudenceonArticleXXoftheGATT1994invaryingdegrees,fortheiranalysisunderArticle2.2.ThepanelsinUS – Tuna II (Mexico) and US – COOL also relied on Article 5.6 of theSPS Agreement and its related jurisprudence ininterpretingArticle2.2.

Thethreepanels,however,adopteddifferentstandardsfortheindividualelementsofthetest.ForthepanelinUS – Clove Cigarettes, thefirststepunderanArticle2.2 analysis requires an examination of whether themeasure itself is necessary to fulfil the legitimateobjectives. Borrowing from the Appellate Body’sinterpretation of “necessary” under Article XX of theGATT1994, thepanelobservedthatameasuremustmakea “materialcontribution” to the fulfilmentof thelegitimateobjectiveforittobeconsidered“necessary”forthepurposesofArticle2.2.

HavingfoundthatIndonesiafailedtodemonstratethatthe US measure at issue makes no “materialcontribution”tothestatedobjective,thepanelturnedtothesecondstageofitsanalysis–theidentificationofaless trade-restrictive alternative – adopting the testdevelopedbytheAppellateBodyunderArticleXX(b)inBrazil – Retreaded Tyres. The panel concluded thatIndonesia, by “mere[ly] listing two dozen possiblealternatives”,hadfailedtoestablishaprima facie case.Moreover,relyingagainontheAppellateBodyReportinBrazil – Retreaded Tyres, thepanel said that even if a prima facie case was established, the United StatesrebutteditbyhighlightingthatseveralofthealternativesproposedwerealreadyinplaceintheUnitedStates.

ThepanelinUS – Tuna II (Mexico) adoptedadifferentapproach. In itsview,Article2.2doesnotrequirethatthe measure itself be necessary for the fulfilment ofthe legitimate objective. Instead, it requires that thetrade restrictiveness of the challenged measure benecessaryforthefulfilmentoftheobjective.ThepanelnotedthatArticle2.2differsfromArticleXX(b)and(d)oftheGATT1994,whichrequirethatthemeasurebenecessary.Despitethisobservation,asafirststep,thepanel embarked on an assessment of the manner inwhich,andtheextenttowhich,themeasuresatissue

fulfiltheirlegitimateobjectives,takingintoaccounttheWTO member’s chosen level of protection. Here,however, the panel’s analysis differs from the oneconductedbythepanelinUS – Clove Cigarettes, asitfocused not on “material contribution”, but on the“manner and extent” to which the US “dolphin-safe”labelling provisions fulfil the objectives identified bytheUnitedStates.

Havingfoundthatthemeasureshavethecapabilitytocontribute to the fulfilment of these objectives, thepanel examined whether there is a less trade-restrictivealternativemeasurethatachievesthesamelevelofprotection.

In US – COOL, the panel focused exclusively onwhether the US measure fulfils its stated objective,eventhoughitsinterpretationofArticle2.2envisagedotherstepstobeassessed,suchasanexaminationofwhether the measure at issue is “more trade-restrictive”thannecessarybasedontheavailabilityofless trade-restrictive alternative measures that couldequally fulfil the identified objective. Here too, thepanel relied upon the Appellate Body’s jurisprudenceonArticleXX,observingthatameasurecanbesaidtocontribute to the achievement of its objectives whenthere is a “genuine relationship of ends and means”between the objective and the measure. However,having found that the measure does not fulfil theobjective it had determined the United States to bepursuingthroughitsmeasure,thepaneldidnotassessthe availability of less trade-restrictive alternativemeansofachievingthatobjective.

As noted above, the appellate proceedings in US – Clove Cigaretteshaveconcluded.However,thepanel’sfindingsonArticle2.2oftheTBTAgreementwerenotappealed and thus were not addressed by theAppellateBodyinthatcase.

TheAppellateBodyinterpretedArticle2.2oftheTBTAgreement in US – Tuna II (Mexico), describing theassessment requiredunder thatprovisionas follows.First,apanelmustassesswhatobjective(s)amemberseekstoachievebymeansofa technical regulation.In doing so, it may take into account the texts ofstatutes, legislative history, and other evidenceregardingthestructureandoperationofthemeasure.Apanel isnotboundbyamember’scharacterizationoftheobjectivesitpursuesthroughthemeasure,butmust independently and objectively assess them.Subsequently, theanalysismust turn to thequestionof whether a particular objective is legitimate (para.314). Moreover, a panel must consider whether thetechnical regulation “fulfils” an objective. This is aquestion concerned with the degree of contributionthat the technical regulation makes towards theachievement of the legitimate objective.Consequently, a panel adjudicating a claim underArticle 2.2 of the TBT Agreement must seek toascertain towhatdegree,or if at all, thechallenged


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technical regulation, as written and applied, actuallycontributestothelegitimateobjectivepursuedbythemember.

The degree of achievement of a particular objectivemay be discerned from the design, structure andoperation of the technical regulation, as well as fromevidence relating to the application of the measure(para. 317). Furthermore, the assessment of“necessity” under Article 2.2 involves a relationalanalysis of the trade-restrictiveness of the technicalregulation,thedegreeofcontributionthat itmakestotheachievementofalegitimateobjective,andtherisksthat non-fulfilment would create. In most cases, thiswouldinvolveacomparisonofthetrade-restrictivenessandthedegreeofachievementoftheobjectivebythemeasure at issue with that of possible alternativemeasures that may be reasonably available and lesstrade restrictive than the challenged measure, takingaccount of the risks that nonfulfilment would create.AsclarifiedbytheAppellateBodyinpreviousappeals,the comparison with reasonably available alternativemeasures is a conceptual tool for the purpose ofascertaining whether a challenged measure is moretraderestrictivethannecessary.

The obligation to consider “the risks nonfulfilmentwouldcreate”furthersuggeststhatthecomparisonofthe challenged measure with a possible alternativemeasureshouldbemade in the lightof thenatureoftherisksatissueandthegravityoftheconsequencesthat would arise from non-fulfilment of the legitimateobjective.Thissuggestsafurtherelementofweighingand balancing in the determination of whether thetrade-restrictiveness of a technical regulation is“necessary” or, alternatively, whether a possiblealternative measure, which is less trade restrictive,wouldmakeanequivalentcontributiontotherelevantlegitimate objective, taking account of the risks thatnon-fulfilmentwouldcreate,andwouldbe reasonablyavailable(paras.318-321).

As regards the measure challenged by Mexico underArticle 2.2, the Appellate Body reversed the panel’sfinding that Mexico had demonstrated that the US“dolphin-safe” labelling provisions are more traderestrictive than necessary to fulfil the United States’legitimateobjectives. Indoingso, theAppellateBodyreasoned, inter alia, that the panel had conducted aflawed analysis and comparison between thechallenged measure and the alternative measureproposedbyMexico(theco-existenceofthelabellingrules in the Agreement on the International DolphinConservationProgramandtheUSlabellingprovisions).The Appellate Body also noted that the alternativemeasure proposed by Mexico would not make anequivalentcontributiontotheUnitedStates’objectivesas the US measure in all ocean areas. On this basis,the Appellate Body reversed the panel’s finding thatthe measure is inconsistent with Article 2.2 of theTBTAgreement(paras.328-331).

AppellateproceedingsinUS – COOL remainpendingatthetimeofwriting.

Sykes (2003) has suggested that the least trade-restrictiverequirementisa“crude”formofcost-benefitanalysis that is “highly attentive to error costs anduncertainty”.Hedescribesitas“crude”becausethereisno actual quantification of the costs and benefits ofalternative regulatory policies in monetary terms orusing another metric. Instead, he portrays the WTOdecision-makerasproceeding“moreimpressionisticallyand qualitatively” when assessing the trade effect ofalternative policies, their administrative difficulties andresource costs, and their regulatory efficacy. SykesreviewsWTOdisputedecisionsup to2003aswellasearlier GATT panels, and finds that they support hisunderstandingofthe lesstrade-restrictiverequirementasa“crude”formofcost-benefitanalysis.

Bown and Trachtman (2009) are critical of theAppellateBody’sarticulationofthenecessitytestanditsapplicationintheBrazil – Retreaded Tyresdispute.TheysubmitthattheAppellateBodyhasshownitselfunwilling toevaluate for itself,or require thepanel tohavedoneso, inanymeaningfulway the factors thatare supposed to be weighed and balanced under itstest.Intheabsenceofsuchevaluation,theadjudicatorybodies effectively defer to the domestic authority.Bown and Trachtman ask whether this degree ofdeference satisfies the mandate of the WTO’sadjudicatorybodies.Astowhichshouldbethepropertest to apply in this context, Bown and Trachtmanobserve that the text of Article XX, in particular theterm “necessary”, most naturally suggests a “least-treaty-inconsistent-alternative-reasonably-available”test,whichinthiscontextwouldcallforacomparativeanalysisofwhetherthereexistsanothermeasurethatwould achieve the same regulatory benefits as thechallenged measure, while imposing lower trade-restriction costs, without excessive costs ofimplementation.Yet,ontheassumptionthatthetreatytextcouldbeamended,BownandTrachtmanproposethatamoreappropriateapproachwouldbeonebasedon a welfare-economics analysis and they illustratehow this approach would proceed using the facts oftheBrazil – Retreaded Tyresdispute.

Regan (2007) also criticizes the balancing test asarticulated by the Appellate Body. Like Bown andTrachtman,Reganarguesthattheterm“necessary”inArticle XX suggests a “less-restrictive alternativetest”.Regangoesontoarguethat,whiletheAppellateBody has described its approach as one involvingweighingandbalancing, it is in realitydecidingcaseson thebasisofa less-restrictivealternative test.Oneof the reasons that he gives for arriving at thisconclusionisthatheconsidersthatthereisaninherentinconsistency between a balancing test and the viewalso espoused by the Appellate Body that WTOmembers are entitled to determine for themselvestheirappropriatelevelofprotection.


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Regan has what he considers is a more importantobjection. He does not believe that the WTOadjudicatory bodies have the authority to judge therelativeimportanceofvarious(non-protectionist)goalsthatWTOmembersmightwishtopursueandconsidersthat, if this were indeed done, it would be a seriousintrusion into members’ regulatory autonomy. Reganexplains that the advantage of a “less restrictivealternative” test – the test he thinks the AppellateBodyhasactuallyapplied–isthat itdoesnotrequiremaking such judgments, but rather is limited tobalancing the trade costs against administrative/enforcementcosts(asopposedtotheachievementoftheunderlyinggoal).

(v) International standards

AsdiscussedinSectionE.1andSectionE.2,regulatorydivergence may result in higher costs for producers,exportersand importers.TheWTO isnotastandard-setting body. The principal means through which theWTO promotes regulatory convergence is byencouraging its members to use internationalstandards. Neither the TBT Agreement nor the SPSAgreement, however, requires aWTOmember touseinternational standards. WTO members may adoptSPS measures or technical regulations that departfrominternationalstandards.

Article 3.1 of the SPS Agreement provides that “toharmonizesanitaryandphytosanitarymeasuresonaswide a basis as possible, Members shall base theirsanitary or phytosanitary measures on internationalstandards,guidelinesorrecommendations,wheretheyexist”. Article 3.3, however, allows WTO members tointroduceSPSmeasureswhichresultinahigherlevelof SPS protection than would be otherwise achievedby measures based on international standards,provided that there is scientific justification or as aconsequence of the level of SPS protection that amemberdeterminestobeappropriate.

The legal incentive for harmonization is that, underArticle3.2oftheSPSAgreement,measuresbasedoninternationalstandardsaredeemedtobenecessarytoprotect human, animal or plant life or health andpresumedtobeconsistentwiththerelevantprovisionsoftheSPSAgreementandtheGATT.Yet,itisimportanttonotethat,evenwhereaWTOmemberchoosesnottobaseitsSPSmeasureonaninternationalstandard,nonegative presumption attaches to that measure. If themeasure is challenged in WTO dispute settlement,the complaining member must demonstrate that themeasure is inconsistentwith theSPSAgreement. It isnotenoughtoshowthattheSPSmeasureisnotbasedon the international standard (Appellate Body Report,EC – Hormones,paras.102and171).

Inthecaseoftechnicalregulations,Article2.4oftheTBT Agreement provides that where “relevantinternational standards exist or their completion is

imminent”, WTO members “shall use them, or therelevant parts of them, as a basis for their technicalregulations”. Nevertheless, Article 2.4 allows WTOmembers to depart from an international standard,even when such a standard already exists, if “suchinternational standards or relevant parts wouldbeanineffectiveorinappropriatemeansforthefulfilmentofthe legitimate objectives pursued, for instancebecause of fundamental climatic or geographicalfactorsorfundamentaltechnologicalproblems”.

Similarly to SPS measures, there is a legal incentivefor using an international standard in preparing atechnicalregulation.Article2.5oftheTBTAgreementstates that, where the technical regulation pursuesoneof the legitimateobjectivesrecognizedunder theAgreement and is in accordance with relevantinternationalstandards,itshallberebuttablypresumednottocreateanunnecessaryobstacletointernationaltrade. As with SPS measures, there is no negativepresumptionwhenaWTOmemberchoosesnottousean international standard as a basis for a technicalregulation.IfthattechnicalregulationischallengedinWTO dispute settlement, the complaining membermust demonstrate that the international standard orrelevantpartswouldbeeffectiveorappropriatemeansfor the fulfilmentof the legitimateobjectivespursued(AppellateBodyReport,EC – Sardines,para.275).

The SPS Agreement expressly recognizes threeinternational standard-setting bodies: the CodexAlimentariusCommission, the InternationalOfficeofEpizootics (now called the World Organization forAnimal Health – OIE) and the Secretariat of theInternationalPlantProtectionConvention(IPPC).Formattersnotcoveredbythesethreeorganizations,theSPS Agreement leaves open scope for “appropriatestandards … promulgated by other relevantinternational organizations open for membership toall Members, as identified” by the WTO’s SPSCommittee.

The TBT Agreement does not specify which bodiesmay issue “relevant international standards”. Thesubject of “naming” or not naming bodies under theTBT Agreement has come up for discussion in thecontext of on-going negotiations in the Doha Roundon non-agricultural market access. Here, the WTOmembershipisdividedintotwocampsbutfornowthebodiesarenotlisted.

One group of WTO members argues that relevantinternationalstandardizingbodiesshouldbeexplicitlynamed.SincethegoaloftheTBTAgreementitselfisoneofpromotingharmonization,thisveryobjective,itisargued,willbeimpededifmultiplestandard-settingorganizations co-exist, creating duplicative andpossibly contradictory requirements. In a contextwhere regulators are strongly encouraged to basetheirmeasureoninternationalstandards,competitionbetween standard-setting bodies will lead to


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fragmentation of markets, unnecessary compliancecostsandevencaptureofregulatorsbyprotectionistinterests. The opposite needs to be achieved: closecooperation, greater inclusiveness and sharing ofgovernance at the international level. Focusing thedevelopment of standards used for regulatorypurposes within a few international bodies willincentivize a broad participation by stakeholders, inparticular industry, thus ensuring market relevanceand reflecting technological developments (JOB/MA/81andJOB/MA/80).

It is further argued that naming the relevantinternational standard-setting bodies would facilitateparticipation by developing countries because thesecountries will be better able to prioritize scarceresources. Following on from this, an increase inparticipation by developing countries will help ensurethat standards reflect the widest interests possible,thusprovidinggreaterlegitimacyandglobalrelevanceto the international standard itself (JOB/MA/81 andJOB/MA/80).

AnothergroupofWTOmembersarguestheopposite:international standardizing bodies should not benamed because whether a standard is relevant,effective and appropriate in fulfilling a member’sparticular regulatory or market need depends on thestandard itself, not on the body that developed thestandard. They argue that Article 2.4 of the TBTAgreement links the relevance of a “standard” to theobjectivepursued; the term “relevant” isnot linked tothe body. Furthermore, they suggest that bydesignating a particular body as a “relevantinternational standardizing body”, WTO memberswouldessentiallybeendorsingallstandardsthatsuchbodies produce without reviewing their content, evenin cases where the standard might not reflect theinterestsofallmembers,or,disproportionatelyreflectsthoseofonlyafew(G/TBT/W/138).

ItisalsoarguedthatalimitednumberofnamedbodiescannotproducethebreadthanddiversityofstandardsneededtofulfilalloftheregulatoryandmarketneedsthatarethepurviewoftheTBTAgreement.37Instead,itisthediversityofbodiesthatwillpromoteinnovationandhelpensurethatstandardsareofhighqualityandrespond to regulatory and market needs. Greaterharmonization will result from increased use of suchstandards(G/TBT/W/138).

Itisfurtherarguedthatmostbodiesproducingmarket-relevantstandards(thatareactuallyused)areprivatesector entities that need to cover their own coststhrough the sale of standards; naming bodies wouldeliminate this source of revenue and concentrateproceedsinafewhands.Finally,namingbodieswouldrender any standard produced by a designated bodyas “relevant”, regardless of whether that standard infact responds to the needs of developing countries,and this would counteract the goal of promoting the

development of standards to meet the diverse needsofdevelopingcountries(G/TBT/W/138).

Despite these different views, neither “camp” disputesthe importance of using international standards as ameans of reducing unnecessary non-tariff measures,and all WTO members agree on the importance ofadhering to the 2000 TBT Committee Decision thatsetsoutsixprinciplesandprocedures(DecisionoftheTBT Committee on Principles for the Development ofInternationalStandards,GuidesandRecommendationswithRelation toArticles2,5 and Annex3,G/TBT/1/Rev.9, p.38).38ThisDecisionwas recently recognizedas having interpretative value as a “subsequentagreement”withinthemeaningofArticle31(3)(a)oftheVienna Convention on the Law of Treaties (AppellateBodyReport,US – Tuna II (Mexico,para.372).

An issue that came up in WTO dispute settlement iswhether an international standard had to be adoptedby consensus in order to be a “relevant internationalstandard”underArticle2.4oftheTBTAgreement.TheExplanatoryNotetothedefinitionof“standard”intheTBTAgreementstatesthat“standardspreparedbytheinternationalstandardizationcommunityarebasedonconsensus”. It then adds that the TBT Agreement“covers also documents that are not based onconsensus”. This language was interpreted in EC – Sardines as applying also to international standards.TheAppellateBodyconfirmedthepanel’sfindingthatthe definition of a “standard” in Annex 1.2 tothe TBT Agreement does not require approval byconsensus for standards adopted by a “recognizedbody”oftheinternationalstandardizationcommunity.

TheAppellateBodywentontoclarifythatitsrulingwasrelevant only for the purposes of the TBT Agreement.Furthermore,itsaidthattherulingwasnotintendedtoaffect, in any way, the internal requirements thatinternationalstandard-settingbodiesmayestablish forthemselves for the adoption of standards within theirrespectiveoperations.AstheAppellateBodyputit,“thefact that we find that the TBT Agreement does notrequireapprovalbyconsensusforstandardsadoptedbythe internationalstandardizationcommunityshouldnotbeinterpretedtomeanthatwebelieveaninternationalstandardization body should not require consensusfor the adoption of its standards. That is not for us todecide” (Appellate Body Report, EC – Sardines,paras.222and227).

The question of what constitutes an “internationalstandard”forthepurposesoftheTBTAgreementwasmore recently discussed in US – Tuna II (Mexico).TheAppellateBodynotedthat,withrespecttothetypeof entity approving an “international” standard, theISO/IEC Guide 2: 1991 refers to an “organization”,whereas Annex 1.2 to the TBT Agreement stipulatesthata“standard”istobeapprovedbya“body”.However,theAppellateBodyobserved that theTBTAgreementestablishes that the definitions in that Agreement


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prevailoverthedefinitionsintheISO/IECGuide2:1991.Consequently, theAppellateBodyheldthat inorder toconstitutean“internationalstandard”,astandardhastobeadoptedbyan“internationalstandardizingbody”forthepurposesoftheTBTAgreement.

The Appellate Body further explained that a requiredelementofthedefinitionofan“international”standardforthepurposesoftheTBTAgreementistheapprovalof the standard by an “international standardizingbody”, that is,abody thathas recognizedactivities instandardizationandwhosemembershipisopentotherelevant bodies of at least all WTO members. TheAppellateBodyadditionallyobservedthattheconceptof “recognition” has both a factual and normativedimension. A body with “recognized activities instandardization”doesnotneedtohavestandardizationasitsprincipalfunction,orevenasoneofitsprincipalfunctions.At thesame time, the factualdimensionofthe concept of “recognition” would appear to require,ataminimum, thatWTOmembersareaware,orhavereason to expect, that the international body inquestion is engaged in standardization activities. Inexamining whether an international body has“recognized activities in standardization”, evidence ofrecognition by WTO members as well as evidence ofrecognitionbynationalstandardizingbodieswouldberelevant.Astandardizingbodywillbeconsideredopenif membership to the body is not restricted. Thestandardizing body must be open to the relevantbodies of at least all WTO members and on a non-discriminatory basis. Furthermore, it must be open ateverystageofstandardsdevelopment.

Having provided its views on the definition of an“international standard” for the purposes of the TBTAgreement, the Appellate Body next consideredwhether the dolphin-safe definition and certificationcontained in the Agreement on the InternationalDolphin Conservation Program (AIDCP) qualified asone. TheAppellateBody reversed thepanel’s findingand held that AIDCP is not an “internationalstandardizing body” for the purposes of the TBTAgreement because acceding to it requires aninvitationbytheparties,adecisionthatmustbetakenby consensus, and the Appellate Body was notpersuaded that being invited to join is a mere“formality”(paras.398-399).

ThepanelandAppellateBodyreportsinUS – Tuna II (Mexico) alsoaddressed the issueofwhether theUSdolphin-safe labelling measures constituted atechnical regulation or a voluntary standard. ThefindingsonthisissuearediscussedinSectionE.3(vi).

(vi) Regulating private conduct

The WTO agreements primarily regulate governmentconduct. Nevertheless, as discussed in Section E.1,privateconductcansometimeshaveeffectsequivalenttothoseofagovernment-imposednon-tariffmeasure.

The intervention of some element of private conductdoes not necessarily mean that a WTO member isrelieved of its responsibility to comply with itsobligations under the WTO agreements. Thus, forexample, in Korea – Various Measures on Beef, therewas a reduction in the number of retail outlets forimported beef that followed from decisions ofindividualretailerswhocouldchoosefreelytosellthedomestic product or the imported product. TheAppellate Body, however, explained that the legalnecessity of making a choice – between sellingdomestic or imported beef – was imposed by thegovernment measures itself. In such circumstances,“the intervention of some element of private choice(did)notrelieveKoreaofresponsibilityundertheGATT1994 for the resulting establishment of competitiveconditions less favourable for the imported productthan for the domestic product” (Appellate BodyReport,Korea – Various Measures on Beef,para.146).

A similar situation arose in the recent US – Tuna II (Mexico) dispute, where the Appellate Bodyconsidered whether the detrimental impact onMexican tuna products resulted from governmentintervention or was merely the effect of the privatechoice of US consumers. The Appellate Body heldthatthemodificationoftheconditionsofcompetitionand, hence, the detrimental impact on Mexican tunaproducts resulted from the challenged USgovernmentmeasure– that is, theUS“dolphin-safe”labelling provisions. It based its finding on the factthat it is the government measure that establishesthe requirements under which a product can belabelled“dolphin-safe”intheUnitedStates.Moreover,while US consumers’ decisions whether to purchasedolphin-safetunaproductsaretheresultoftheirownchoices, it is the government measure that controlsaccesstothelabelandcircumscribeshowconsumersmayexpresstheirpreferencesfor“dolphin-safe”tunaproducts(para.239).

The TBT Agreement makes some inroads intoregulating non-governmental standard-setting bodiesasaresultofthecommitmentsrelatingtotheCodeofGood Practice. The application of the Code to non-governmental standardizing bodies is explained inSectionE.2.

Article 14.4 of the TBT Agreement is an interestingprovision in termsofattribution toaWTOmemberofprivate conduct. It states that the dispute settlementprovisionsoftheWTOcanbeinvokedwhereamemberhas not achieved satisfactory results under certainprovisions and the interests of another member aresignificantly affected. Article 14.4 goes on to statethat“(i)nthisrespect,suchresultsshallbeequivalenttothoseasifthebodyinquestionwereaMember”.

The SPS Agreement also requires WTO members to“take such reasonable measures as may be availableto them to ensure that non-governmental entities


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within their territories … comply with the relevantprovisions of this Agreement”. It similarly states thatmembers must not take measures which have theeffectof,directlyorindirectly,requiringorencouragingsuchnon-governmentalentitiestoactinamannerthatisinconsistentwiththeAgreement.

Given their increasing use, private standards havebecomeasubjectofgrowingattention.The issueofprivate standards was first raised in the SPSCommittee in 2005. Committee discussions onprivate standards initially focused on three themes:market access, development and WTO law. In theareaofmarketaccess,WTOmembersdiffer in theirviews on whether standards are an opportunity orthreat to exporters. Many members are concernedthat the cost of certification, sometimes for multiplesets of standards for different buyers, can be aproblem, especially for small-scale producers andparticularly (but not exclusively) in developingcountries. Members also have differing views as towhether private standards fall under the jurisdictionof the SPS Agreement. The concern that theproliferation of private standards could underminesome of the progress made in regulating SPSmeasures through the adoption and implementationof the SPS Agreement is at the root of thesedivergentviews.

Despite the lack of consensus on whether and howprivatestandardsfit into theoverall frameworkof theSPSAgreement,theissuehasbeenontheagendaofevery meeting of the SPS Committee since June2005. Inaddition, theWTOSecretariathasorganizedtwoinformalinformationsessionsonthetopic,andtheStandards and Trade Development Facility, a globalpartnership that supports developing countries inimplementing international SPS standards, held aworkshop on the issue in 2008. The informationsessions and workshop provided the opportunity fortwo-wayeducationandawareness-raising: increasingthe knowledge and understanding of governmentregulatory officials about the operation of variousprivatestandardschemesandtheirobjectives,whileatthe same time making the operators of the privateschemesawareof theconcernsandeffectsof theseondevelopingcountries.

InMarch2011, theSPSCommitteeagreed topursuefive practical actions recommended by an ad hocworkinggroup39ontheissueofprivatestandards(seeG/SPS/55 and G/SPS/R/62). While WTO membersremainhighlydividedas towhetherprivatestandardslegallyfallwithinthescopeoftheSPSAgreement,theCommittee agreed to develop a working definition ofprivate standards related to SPS measures, and tolimitanydiscussionstoprivatestandards identified inthedefinition. In addition, theCommitteeagreed thatinformation regarding the work of the threeinternational standard-setting organizationsreferenced in the SPS Agreement (Codex, IPPC and

OIE) as well as relevant developments in other WTOcouncilsandcommitteesshouldberegularlysharedinthe Committee. Members agreed to educate relevantprivate sector bodies in their countries so that theyunderstand the issues raised in the SPS Committeeand the importance of the international standards ofCodex, IPPCandOIE.TheCommitteealsoagreed toexplore cooperation with these three bodies indeveloping information material underlining theimportanceofinternationalSPSstandards.

As noted earlier, one of the distinctions drawn in theTBT Agreement between a technical regulation and astandard is that compliance with the former ismandatory,whilecompliancewiththe latter isnot.Therecent panel in US – Tuna II (Mexico) had to decidewhether the US dolphin-safe labelling measures were“technical regulations” within the meaning of the TBTAgreement as argued by Mexico or rather a voluntarystandardasadvocatedbytheUnitedStates.Thepanelheld that “compliance with product characteristics ortheir related production methods or processes is‘mandatory’ within the meaning of Annex 1.1, if thedocumentinwhichtheyarecontainedhastheeffectofregulatinginalegallybindingorcompulsoryfashionthecharacteristics at issue, and if it thus prescribes orimposesinabindingorcompulsory fashionthatcertainproduct must or must not possess certaincharacteristics, terminology, symbols, packaging,markingorlabelsorthatitmustormust notbeproducedbyusingcertainprocessesandproductionmethods”.

The panellists, however, disagreed as to whether theUSmeasuresaremandatory.Themajorityofthepanelfound that theUS labelling requirement ismandatorybecauseit(i) is legallyenforceableandbindingunderUS law (it is issued by the government and includeslegal sanctions); (ii) prescribes certain requirementsthatmustbecompliedwithinordertomakeanyclaimrelating to themanner inwhich the tunacontained inthe tuna product was caught, in relation to dolphins;and(iii)embodiescompliancewithaspecificstandardas the exclusive means of asserting a “dolphin-safe”statusfortunaproducts.

The dissenting panellist noted that “the measures donotimposeageneralrequirementtolabelornottolabeltunaproductsas ‘dolphin-safe’”.Rather, theuseof thelabel“remainsavoluntaryanddiscretionarydecisionofoperators on the market to fulfil or not fulfil theconditionsthatgiveaccesstothelabel,andwhethertomakeanyclaiminrelationtothedolphin-safestatusofthetunacontainedintheproduct”.ThepanellistfurtherdeterminedthatMexicohadfailedtodemonstratethatthemeasureswerede factomandatory,becauseMexicohadnotestablished“theimpossibilityofmarketingtunaproductsintheUnitedStateswithoutthe‘dolphin-safe’label” and that “such impossibility (arose) from factssufficientlyconnectedtotheUSdolphin-safeprovisionsortoanothergovernmentalactionoftheUnitedStates”(PanelReport,US – Tuna II (Mexico),paras.7.111-7.188).


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TheAppellateBodyupheldthepanelmajority’sfindingthat theUSmeasure isa technical regulationsubjectto the disciplines of Article 2 of the TBT Agreement.TheAppellateBodynotedthatthemeasurechallengedby Mexico is composed of legislative, regulatory andjudicialactsoftheUSfederalauthoritiesandincludesadministrative provisions. The measure sets out asingle and legally mandated definition of a “dolphin-safe” tuna product and disallows the use of otherlabels on tuna products that use the terms “dolphin-safe”,dolphins,porpoisesormarinemammals thatdonotsatisfythisdefinition.Indoingso,theUSmeasureprescribes in a broad and exhaustive manner theconditions that apply for making any assertion on atuna product as to its “dolphin-safety”, regardlessof the manner in which that statement is made(para.199).

(vii) Transparency

Transparency is an important element of all WTOagreements.SectionE.2describedsomeof themostimportanttransparencyprovisionsoftheSPSandTBTagreements, andexplained theeconomic rationaleoftheexchangeofinformationamongWTOmembers.

TransparencyobligationsarenotfrequentlythesubjectofWTOdisputesettlement.However,inarecentcase,US – Clove Cigarettes ,aviolationwasfoundofArticle2.12 of the TBT Agreement, which provides that “(e)xceptinthoseurgentcircumstances…,MembersshallallowareasonableintervalbetweenthepublicationoftechnicalregulationsandtheirentryintoforceinordertoallowtimeforproducersinexportingMembers,andparticularly in developing country Members, to adapttheir products or methods of production to therequirementsof the importingMember”. Inparagraph5.2 of the Doha Ministerial Decision, WTO membersagreedthat“thephrase‘reasonableinterval’(inArticle2.12 of the TBT Agreement) shall be understood tomean normally a period of not less than 6 months,except when this would be ineffective in fulfilling thelegitimateobjectivespursued”.

TheUS – Clove CigarettescaseconcernedatechnicalregulationadoptedbytheUnitedStatesthatcameintoforce three months after it had been published. Aninitialquestionthatwasraised inthecaseconcernedthe legal status of paragraph 5.2 of the DohaMinisterialDecision.TheAppellateBody rejected thecontentionthatparagraph5.2constitutedamultilateralinterpretation of the TBT Agreement adopted inaccordance withArticle IX:2 of theWTO Agreement.The reason for this was that paragraph 5.2 had notbeen adopted pursuant to a recommendation of theCouncil on Trade in Goods – the Council thatsupervisestheTBTAgreement,asrequiredbyArticleIX:2oftheWTOAgreement.

Asthepanelhaddone,theAppellateBodyconsideredthat paragraph 5.2 has interpretive value because it

constitutes a subsequent agreement between theparties, within the meaning of Article 31(3)(a) of theVienna Convention on the Law of Treaties, on theinterpretation of the term “reasonable interval” inArticle2.12oftheTBTAgreement. Itthenfoundthat,read in the light of paragraph 5.2, Article 2.12 of theTBT Agreement “establishes a rule that ‘normally’producers in exporting Members require a period of‘not less than 6 months’ to adapt their products orproduction methods to the requirements of animportingMember’stechnicalregulation”.

The Appellate Body further explained that once it isshown that the WTO member adopting a technicalregulation has not allowed a period of at leastsixmonthsbetweenthepublicationandtheentryintoforce of that technical regulation, such a membercarries the burden of demonstrating that a shorterperiod was justified because (i) the “urgentcircumstances” referred to in Article 2.10 of theTBT Agreement surrounded the adoption of thetechnical regulation; (ii) producersof thecomplainingmembercouldhaveadaptedtotherequirementsofthetechnical regulation within the shorter interval that itallowed; or (iii) aperiodof “not less than” sixmonthswouldbe ineffective to fulfil the legitimateobjectivesofitstechnicalregulation.Inthisparticularcase,itwasfound that the United States had failed to establishthat any of the above-mentioned circumstancesjustified a period shorter than six months (AppellateBodyReport,US – Clove Cigarettes ,paras.255,268,and290).

(c) IssuesrelatingtotheGATS

The principal disciplines on measures affecting tradein services are similar to those applying to non-tariffmeasures forgoods trade. These servicesdisciplinesfocusonMFN(Article II),marketaccess(ArticleXVI)andnationaltreatment(ArticleXVII).However,nationaltreatment under the GATS is significantly differentfrom that in goods trade, since it applies only to thesectorsforwhichcommitmentshavebeentaken,andcanbemadesubject to limitations.Thus, thenationaltreatmentobligationinservicescannotbeviewedasameanstocurbpolicysubstitution.Rather,byrequiringthat limitations on market access and nationaltreatment be subject to scheduling, the Agreementseeks to constrain the trade implications of thesemeasuresinthesamewaythattariffsareboundundertheGATT.

TheGATShasaverybroadscope,whichresultsfromthe four modes of supply that constitute trade inservices.Moreover,unliketraditionaltradeagreements,the GATS is primarily concerned with internalmeasures.Whatmattersinservicestradeisoftentheoveralllevelofcontestabilityofthemarkettonewandexistingentrants,andnot just itsopennesstoforeignsuppliers.ThebreadthoftheGATSisalsoreflectedbythe wide range of measures within its scope. In


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accordance with Article I, the GATS “applies tomeasuresbyMembersaffectingtradeinservices”.

The Appellate Body has explained that the “use oftheterm‘affecting’reflectstheintentofthedrafterstogive abroad reach to theGATS” (AppellateBodyReport,EC – Bananas III,para.220).Thecoverageofthe GATS can extend as well to measures that arewithin thescopeof theGATT. In thesamecase, theAppellateBodynotedthat,whilesomemeasureswillfall under one or the other agreement, there maybe measures that could be found to fall within thescope of both the GATT and the GATS. Thesewould be “measures that involve a service relatingto a particular good or a service supplied inconjunction with a particular good”. In such cases,“while thesamemeasurecouldbescrutinizedunderboth agreements, the specific aspects of thatmeasure examined under each agreement couldbedifferent” (AppellateBodyReport,EC – Bananas III,para.221).

The policy substitution problem as discussed inSectionE.2between tariffsandnon-tariffmeasurescould in principle only exist for services if WTOmembers,havingremovedmarketaccessornationaltreatment limitations, were then to use domesticregulations as a substitute instrument. So far,domesticregulationdisciplinesunderthenegotiatingmandateofArticleVI:4(seeSectionE.4)haveyettobedefined.Pending thosedisciplines,membersmaynotunderArticleVI:5maintaindomestic regulationson licensing,qualificationand technicalstandards ina way that would nullify or impair specificcommitments. These domestic regulations shouldalso be based on objective and transparent criteria,not be more burdensome than necessary to ensurethe quality of the service, and not have reasonablybeen expected at the time when the relevantcommitmentsweremade.

So far, WTO dispute settlement cases have notaddressedArticleVI:5,althoughtherehasbeensomeguidanceonotheraspectsofdomesticregulation.ThedistinctiondrawnintheGATSbetweenmarketaccessrestrictions (Article XVI) and domestic regulations(ArticleVI)wasexaminedinUS – Gambling. Theissuethatarosewaswhetherabanonameansofsupplyinga service constituted a market access restrictionunder Article XVI:2(a) and (c), or whether suchprovisionscoveredonlymeasuresthatwereexpressedintheformofanumericvalue.Thepanelfoundthataban is, in effect, a “zero quota”, and is thereforecovered by these provisions. This finding was upheldonappeal(PanelReport,US – Gambling,paras.224-239; Appellate Body Report, US – Gambling, para.265).

TheMexico – Telecoms casedemonstrated thecloserelationship between domestic regulation andcompetition policy. The measures at issue were

Mexico’s domestic laws and regulations that governthesupplyoftelecommunicationsservicesandfederalcompetition laws. The panel found that theinterconnection rates charged by Mexico’s majorsuppliers were not “cost-oriented”, as required by thenon-discriminatorydisciplines in theReferencePapercontained in Mexico’s schedule of commitments.Furthermore, thepanel found that,with respect to itsregulations on interconnection costs, Mexico had nottaken appropriate measures to prevent “anti-competitive”practices,as itwas required todoundertheReferencePaperdisciplines.Thepanelalsofoundthat US suppliers had not been provided access topublic telecommunications transport networks on“reasonable terms”, contrary to Mexico’s obligationsundertheAnnexonTelecommunications.

4. AdaptingtheWTOtoaworldbeyondtariffs

This final section sketches some of the mainchallenges in dealing with non-tariff measures in themultilateral trading system. Sub-section (a) illustrateswhy improvements in the treatment of non-tariffmeasures intheWTOmaybecomemoreimportant inlight of rapid changes in the global economy (cross-border production chains) and the growing use ofNTMs to address broad consumer and generalinterests, such as food safety and environmentalquality.

Sub-section (b) focuses on the scope for policyflexibility in setting non-tariff measures in the theoryandpracticeof non-violationcomplaints andof otherapproaches, such as mutual recognition andharmonization. Sub-section (c) takes up the currenttransparencyprovisionsintheWTOandthechallengeof aligning incentives when transparency has costs.Sub-section (d) focuses on addressing the challengeof distinguishing between legitimate and illegitimateusesofNTMs.

Sub-section (e) discusses policy challenges tointernational cooperation on non-tariff measures. Inparticular, it considers the issue of regulatoryconvergence, the development of rules on privatestandards, disciplines on domestic regulation and“pro-competitive” regulations in services. Sub-section(f)concludeswitha focuson theneed for regulatorycapacitybuildingindevelopingcountries.

(a) NTMsinthe21stcentury

Recent changes and foreseeable changes in thetradingenvironmentalterboth theneed fornon-tariffmeasuresand thestructureofgovernment incentivestousethesemeasuresforprotectionistpurposes.TheReport has discussed in detail the implications ofdiverseareasofeconomicchangeforNTMs,suchasthediffusionofglobalproductionnetworks,difficulties


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associated with the recent financial crisis and theneed to address climate change. Some of thechallengesarediscussedbelow.

The rules of the GATT were designed for a world inwhich international trade predominantly consisted oftradeinfinalgoodsandprimarycommodities.However,the modern economic environment has grown morecomplexasproductionnetworksspanborders.Thesechangesposechallengesforgovernance,asthekindsofproblemsthatariseinaworldofoffshoringrequirerethinkingthecurrentmarketaccessbasedframeworkofthemultilateraltradingsystem.

AsAntràsandStaiger(2011,2012)haveargued,deeprather thanshallow integration isneededtosolve thetype of policy problems associated with theproliferation of global production chains. Specifically,the theory outlined in Section E.1(b) suggests that ifproducers are locked into trade relationships withforeign firms, governments must consider not onlymarketaccessbutalsotheupstreamanddownstreameffects of their measures. One possibility to accountfor theseneeds is thatWTOrulescouldbeamendedor reinterpreted to allow non-violation complaints tocover “intra-firm market access”. This would requireexpandingnon-violationcomplaintstocover“benefits”accruingnotonlyfromtheagreedmarketaccess,butfrom the range of policies that affect the bargainingrelationship between the input supplier and thepurchaser of those inputs. Such a change wouldnecessitate significant departures from currentpractice and open challenging questions oninstitutional design. Part of the challenge lies indistinguishing between those situations in whichindustries set prices through bargaining rather thancompetitively. Trade rules would have to reflect suchsectoraldifferences.

Little work on the theory of trade agreements underoffshoring has attempted to evaluate the substantiveimportance of price formation through bargaining,making it difficult to determine the need for aninstitutional response (Staiger, 2012). As a first steptowards a test of the theory, Section C.2 examinesthose sectors that have a higher share of trade inintermediate goods. While not identical to offshoringandbilateralbargaining, thepresenceof intermediategoodsisindicativeofthekindsofinternationalsupplychainsthatwouldbesubjecttobargainingoverpricesandthereforeprofits.

The statistical analysis finds, however, that the shareof intermediate goods is negatively associated withtheamountoftradecoveredbyspecifictradeconcerns(and by extension the amount of trade affected bynon-tariff measures). This indicates either that theincentivetouseNTMstoshiftfirmprofitsisdominatedbyotherconsiderations(suchasthedesiretomakeanattractive environment for global production), orpossiblythatgovernmentshavealreadyaddressedthis

issue in existing “deep integration” preferential tradeagreements (see World Trade Organization (WTO),2011). Even if PTAs promote deep integration, thechallengefortheWTOistoensurecoherenceamongdivergent regulatory regimes that in practice maysegmentmarketsandraisetradecosts.

Changes in international markets do not only arisefromdifferencesinhowbusinessesorganize.Itisalsolikely that the use of non-tariff measures will beresponsive to a number of foreseeable trends in theglobal economic environment. Section B highlightsthree areas in which economic changes create newchallenges for the regulationofNTMs.Theseare theway food isproducedandconsumed, thecentral roleof international finance in the economy and ineconomic crises, and the fundamental challenges ofclimatechange.Eachofthesefactorsisofconcernforgovernments seeking to promote a regulatoryenvironment that protects broad consumer andsocietal interests,whichmayhoweverhavean impactontrade.

The increasingly globalized agri-food system showshow organizing and regulating global supply chainsinvolvesbusiness,governmentandconsumerinterests.Section B argues that as consumers’ standards rise,thereisagreaterneedforbusinessestomanagetheirsupply chains and for governments to ensure thedesired level of quality and safety. This effort iscomplicatedbytheeverexpandinginternationalizationof food production, and the difficulty in tracingproductsthatchangehandsveryquicklyandtraversemultiplejurisdictions.

International finance services are similarly complexand fast moving, but play a central role in the globaleconomy. In this environment, challenges to financialmarkets threaten the stability of entire economies.When crises arrive, governments use a variety ofmeasures to contain the systemic damage and toboostconsumerdemand.Atthesametime,economiccrises are associated with increased demands forprotectionist policies that stabilize the domesticeconomy at the expense of other countries, fuellingeconomic tension. This challenge is particularlyrelevantinlightoftheapparentinstitutionalfailuresofthe 2008 financial crisis and the subsequent globaleconomicrecession.

While the recession itselfcreatespoliticalchallengesfor international cooperation in general, theconcentration and severity of the crisis in countrieswithsophisticatedregulatoryregimesandopencapitalaccounts may derail efforts to harmonize regulationsin the financial services sector. As financial servicescontinuetomakeupalargeportionoftheeconomyofmanycountries,facilitatingtradeintheseservicesmayrequire additional mechanisms to coordinate crisisresponse.


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Financial crises, while harmful, have happened before,andhavelimitedlifespans.Climatechange,ontheotherhand,causesbothglobaland long-lastingeffects.Thediscussionofclimatechange inSectionBemphasizesthe challenge of balancing legitimate concerns aboutcarbon leakage with an equitable distribution of thecosts of carbon dioxide abatement. As governmentsincreasinglyattempttoregulatecarbonemissions,partof the discussion inevitably revolves around the tradeimplicationsofthesemeasures.

(b) Policyflexibility:tensionsbetweenlawandeconomics

Whengovernmentsbindtariffsandcommittoalevelofmarketaccess,theirpartnersmayworrythatmeasuresto address domestic concerns may in fact circumventtheobligationsintheagreement.OnewaythatcurrentrulesoftheWTOenablegovernmentstoemploypublicpolicy oriented measures is by allowing non-violationcomplaints,asdescribedinSectionE.1(c).Non-violationcomplaints allow WTO members to be “compensated”afteroneof their tradingpartnersestablishesa trade-alteringnon-tariffmeasurebywithdrawingconcessionsto rebalance the level of market access. This remedyconfers a high degree of domestic policy flexibility toWTO members, in line with their internationalcommitments. It might serve to encourage confidencein the value of a trade negotiation and discouragesgovernments from using NTMs to renege oncommitments. In practice, however, WTO membersgenerally do not invoke non-violation complaints intradedisputes.

Several reasons have been advanced to explain whycomplaintsbasedonnon-violationclaimsarerare.Oneis that the Uruguay Round agreements reduced thescope for non-violation cases because GATT/WTOlaw became “more and more comprehensive andcomplete”, shrinking “the legal vacuum around GATT… in particular with respect to subsidization”, whichwas the target of most of the non-violation claimspursued during the GATT years (Kuijper, 1995).Anotherreasonthathasbeenputforwardisthatthereremain a number of ambiguities concerning theelementsthatacomplainantmustsatisfyfor itsclaimofnon-violationtosucceed.

A non-violation complaint is usually understood toprotecttheexpectationsofaWTOmember(“benefitsaccruing to it directly or indirectly under the relevantcovered agreement”) (Roessler and Gappah, 2005).Nevertheless, questions have been raised as topreciselywhichexpectationsareprotectedandwhenthose expectations can be said to have beenfrustrated. Finally, the remedy available when a non-violation complaint is successful is weaker than theremedies available in cases of violation. In the firstcase, the respondingparty isnotunderanobligationto withdraw the measure. Instead, the respondentmember must “make a mutually satisfactory

adjustment”, which may include compensation (seeArticle26(1)oftheDisputeSettlementUnderstanding).

Under the Dispute Settlement Understanding (DSU),WTOmembersarenotgenerallyrequiredtoshowthata non-tariff measure actually harms market access.Instead,membersgenerallychallengetheNTMonthebasisofthespecificruleitallegedlyviolates.Thereis,therefore,atensionbetweentheeconomicframework,whereby rebalancing can be used to confer policyflexibility, and the legal framework which relies on“clearinfringement”ofaGATTprovision.Moreover,theinfringement principle exacerbates the problemregarding the asymmetric application of the non-violationruledescribedinSectionE.1.

Ideally, a government could efficiently correct adomesticmarketfailurebyusinganon-tariffmeasurewithout being accused of violating the agreement solong as this measure is balanced with a tariffadjustment so as not to alter overall concessions totradingpartners.As interpreted,however,GATT rulespreclude this form of readjustment. Addressing thisasymmetrywould,ataminimum,requirereinvigoratingthe non-violation rules to cover market access, butseveral additional problems could arise. Staiger andSykes (2011) indicate that a requirement to maintainbalance in market access, while limiting policysubstitution,woulddiscourageeconomicallydesirableregulationforfearofsanctionsbyforeigngovernments.Whilethisincentivecouldbelimitedbycalibratingtheallowedresponse,achievingbalancewouldbedifficult,particularlyasthewelfareeffectsofregulatorypolicyareoftendifficulttomeasure.

Increasingly, the WTO membership addresses non-tariffmeasuresanddomesticregulationinservicesbyusing one of two tools, harmonization or mutualrecognition (discussed inSectionDandSectionE.1).Harmonization sets both common policy objectivesand the measures needed to achieve them, whilemutualrecognitionreferstothereciprocalacceptanceofthemeasuresappliedinbothcountries.

Inthepolicyareascoveredbyeitherkindofagreement,harmonization and mutual recognition reduce thediscriminatoryeffectsofnon-tariffmeasures,buteachhasadifferenteffectontrade.SectionBarguesthatthe economic theory on the relative trade effects ofharmonization and mutual recognition does notindicateageneraladvantageofoneruleovertheotherintermsoftradeflows.Lookingtoactualpractice,theempiricalanalysisinAppendix5ofSectionDindicatesthatmutual recognitionprovisionsappear tobemoretradeenhancingthanharmonizationprovisions.

Beyond the trade effects, Section E.1 indicates thatgovernmentsmaysetlooserthanoptimalregulationsifa mutual recognition rule ensures access to foreignmarkets. This means that, even if trade is enhanced,there are potential consequences for consumer


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welfare.Finally,SectionE.1alsopointstothepotentialtrade-offs implied by harmonization of non-tariffmeasures whenever policy needs differ acrossdevelopedanddevelopingcountries.

The asymmetry in the application of non-violation inthe GATT/WTO system, the trade-offs implied byharmonization and mutual recognition and theambiguityoftheirtradeeffectspointtothedifficultiesthat still persist in the multilateral trade regime infindingtherightbalancebetweenpolicycommitmentsandflexibility.Beyondtheissuesdiscussedabove,partof the complexities of this problem is tied to theopaque nature of many non-tariff measures andthe difficulty in discerning the protectionist and thelegitimate intent of governments. These challengesarediscussedinmoredetailbelow.

(c) Transparencyisno“freelunch”

Transparency is an important dimension ofinternational cooperation on non-tariff measures andservicesmeasures.Previouspartsof this reporthaveshownthat:(i)bothNTMsandservicesmeasuresraisetransparency issues (see Section B); (ii) opacityimposes costs on certain firms but it may benefitothers (import-competing firms) and, depending oncircumstances,politicallymotivatedgovernmentsmayhaveapreference foropaquepolicy instrumentsovertransparent ones (see Section B); (iii) availableinformation on both NTMs and services measures islimited in coverage and of generally low quality (seeSection C.1); (iv) international cooperation on NTMsandservicesmeasures ismademoredifficultbytheiropacity(seeSectionE.1);(v)anumberoftransparencyprovisionsintheWTOagreementsaddresstheopacityproblems (see Section C.1 and Section E.2). Thissub-section examines whether existing transparencyprovisions address all the problems raised by theopacity of NTMs and services measures. It identifiesa number of remaining challenges and points atpossiblesolutions.

As discussed in Section E.1, the opacity of non-tariffmeasures and services measures raises four mainproblems for international trade cooperation whichtransparency provisions can help address. First,opacity creates rule-making inefficiencies due toregulatory uncertainties. Secondly, cooperation onNTMs or services measures can suffer becauseenforcement of agreements requires that thecompliance of each government can be observed.Thirdly,ifmeasuresareopaque,anagreementmaybeonly of limited use to correct governments’ lack ofcommitment. Finally, transparency may induce or bepartofaregulatoryimprovementprocess.

Fourmaintypesoftransparencyprovisionshavebeendeveloped over the years to address the problemsoutlined above (see Section C.1). Publicationrequirements,inGATTArticleX,ArticleIIIoftheGATS

and inotherWTOagreements,are theoldest typeofprovision.Notificationsareanothercore transparencymechanism, whose importance has substantiallyincreased over the years. The WTO’s Trade PolicyReview Mechanism and its monitoring reportsconstituteathirdmechanism.Finally,thepossibilitytoraise specific trade concerns in the TBT and SPScommittees(seeSectionC.1)andtosomeextent thedispute settlement mechanism represent a fourth.40The question is whether these four mechanismsensure sufficient transparency to make cooperationpossible.

The answer to this question is that transparencyprovisions in the WTO agreements help address theproblemsraisedbytheopacityofnon-tariffmeasuresandservicesmeasuresbuttheyarenotsufficient.Oneproblemisthefailureofnotifications,oneofthepillarsof the WTO transparency system, to provide theinformation they should. WTO members’ compliancewith certain notification requirements is low and thequality of the information notified is not alwayssufficient.Asalreadymentioned,partofthereasonforthis appears to be that notifying can be difficult andcostly.

Over the years, various measures have been taken tofacilitate and enhance the quality of notifications. TheSPSCommittee,forexample,hasdecidedthatitwouldbe useful to be alerted when notified regulations areadoptedorenterintoforce,andhasrecommendedtheuseofaddendaforthispurpose.Ithasalsobeentestingan electronic notifications mechanism to facilitate andimprove the quality of notifications. Furthermore,notificationsaccountforasmuchas10-20percentoftechnicalassistanceactivities.However,muchremainstobedoneandcompliancewillmostlikelybedifficulttoimprove without taking into account the politicaleconomyoftransparencyandnotifications.

Contrary to what is often claimed, not everyonebenefits from transparency. There are winners andlosers from increased transparency. As has beenargued in this report,governmentsmayhave reasonstopreferopaquemeasuresandsomefirmsmaybenefitfrom the higher market entry costs associated withopaqueness.Thismeansthatwhileeverygovernmentis interested in its partners’ measures, it may bereluctanttodiscloseinformationonitsownmeasures.Thetemptationtofreerideonthesystemclearlyexistsand, if they consider past records, governments maynot be too afraid of sanctions for not complying withtheir notification obligations, except for some finger-pointing.

As for the possibility to use “reverse notifications”, itcould help but has not been used very actively sincetheUruguayRound.41Howmuchitcouldhelpdependsonvariousfactors.First,itisnotclearhoweasyitisfora WTO member to identify another member’s non-tariffmeasures.Secondly,membersmaybe reluctant


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to denounce trading partners for fear of retaliation.Thirdly,othermechanismsmayhavetakentheplaceofreversenotifications.42

If notifications fall short in terms of providinginformation, what about the WTO’s Trade PolicyReview Mechanism and its monitoring reportsmentioned earlier? Both these transparencymechanismsrelyoninformationfrommultiplesourcesandarethuslessdependentonthedispositionofthegovernment imposing the measures. Trade policyreviews clearly represent an important transparencymechanismbut frequencyandcomprehensiveness, inparticularontheservicesside,areissues.43

As for the monitoring reports, at the 8th WTOMinisterial Conference in December 2011, Ministersdirected the monitoring mechanism to be continuedand strengthened.44 They have also committed tocomply with existing transparency obligations andreporting requirementsneeded for thepreparationofthese monitoring reports, and to continue to supportand cooperate with the WTO Secretariat in aconstructive fashion.Thequestions that remain tobeanswered pertain to the quantity, quality andaccessibility of the information collected for themonitoring reports. At this stage, it is not clear howcomprehensivetheircoverageis,howmuchitcouldbeexpanded and whether and when it can besystematicallycodedandstoredinadatabase.45

Another mechanism which usefully complementsnotifications and the monitoring reports is thediscussionof“specifictradeconcerns”intheSPSandTBT committees.46 These discussions provide anopportunity for multilateral review that enhances thetransparencyandpredictabilityofregulatorymeasurescovered by the TBT and SPS agreements. Since theissues discussed relate to specific measuresmaintained by other WTO members, there is noincentive problem. Another advantage of thismechanism is that itcoversconcernsrelatednotonlyto the measures themselves but also to theirimplementation.

There are two main limitations to the role that thediscussion of specific trade concerns can play. Firstand foremost, only SPS and TBT measures arecovered. Secondly, it is not clear that, even in thecoveredareas,allmeasuresthatviolatecommitmentswill be raised. For any concern to be raised, it firstneedstobeidentifiedbyanexporter.Itthenneedstobe communicated to the government. Finally, thegovernmentneedstoraise itat theWTO.Thismeansthatevenifaconcernisidentifiedandcommunicatedtothegovernment,itmaynotberaisedif,forexample,thegovernmentisafraidofreprisal.

Thechallenge,at this juncture, is thus to improve thequantity,thequality,andtheaccessibilityofinformationcollected through active and passive transparency

mechanisms, both on measures and on problemsassociated with the measures. As far as theaccessibility is concerned, the situation will improvesignificantlyifandwhenalltheinformationnotifiedto,orcollectedby,theWTOSecretariatismadeavailablethrough the recently launched Integrated TradeIntelligencePortal(I-TIP).47

Improving the quantity and quality of information,however, is more difficult. Further work in thecommittees and through technical assistance will nodoubtcontinuetohelpimprovethecontributionofthenotificationmechanismtotransparency,but,giventheincentiveproblem,thismaynotbeenough.Oneoptionmentionedabove is toempower theWTOSecretariatwiththeresourcesnecessarytoindependentlymonitorgovernments and markets. Without a significantimprovement in the compliance and quality ofnotifications,thiswouldbeaverycostlyoption,whichwould have significant budgetary implications for theWTO. The mobilization of additional resources on asustainablebasiscouldraiseincentiveissues.

Another option, which has helped improve thetransparency of tariffs, is to make it easier for WTOmemberstocomplywiththeirtransparencyobligationsbyallowingtheWTOSecretariattouseotherrelevantofficial sources on a “no objection” basis, if suchsourcesareavailable.48Thisoption,however,willshiftthe incentive problem to other information-collectingagencies.Finally,athirdoptionisformemberstoenterintobilateraland/orplurilateralnegotiationsovermoreenforceabletransparencyobligationsinthesamewaythat negotiations have taken place over the years torevampexistingrulesorintroducenewones.

DependingonwhichoptionisadoptedtoaddresstheincentiveproblemandtoensurethatWTOmechanismsgenerateasufficientleveloftransparency,relianceonexternal sources to fill information gaps may vary. Itseemsclear,however,thatatleastintheshortrun,thesystemwillcontinuetobenefitfromother institutions’collectionefforts.Asdiscussed, theWTOSecretariatand other agencies have revamped the existinginternational classification to facilitate the integrationof all available sources of non-tariff measureinformation. From this perspective, the multi-agencyTransparencyinTrade(TNT)initiative(seeSectionC)would have an important role to play in boosting thecollection and dissemination of data on non-tariffmeasuresandservicesmeasures.

The TNT initiative could be used by partners as anopportunity to put in place a sustainable governancemechanism for transparency in non-tariff measures.Such a governance mechanism would need to takeintoaccountthecentralrolethattheWTOshouldplayin thisarea. Itwould relyprimarilyonmultilateralandregional institutions. Regional secretariats andregionalbanks,suchastheLatinAmericanIntegrationAssociation (ALADI) or the African Development


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Bank, have already made substantial contributions tothe data collection efforts and the Inter-AmericanDevelopmentBankhasexpressedinterestinbothdatacollection and analytical work in the WesternHemisphere. Whatever the model adopted, it willrequiresubstantialcapacitybuildingandassistanceinview of the technicalities. However, if incentives areproperly taken into account, there is no fundamentalreasonwhy, inthelongrun, informationonNTMsandservices measures could not be collected anddisseminated in the same way as equally sensitiveinformationonotherdimensionsoftradepolicy.

(d) Theimportanceofpolicyrationale

AsdescribedinSectionE.3,WTOagreementsseektodisciplinemeasuresthatdistorttradewhilerecognizingWTO members’ right to take measures that pursuelegitimate public policies (on such matters asenvironmental protection, health, and consumersafety).Drawingthelinebetweenthosemeasuresthatshouldbeallowedandthosethatshouldbeforbiddenis often a difficult exercise both with non-tariffmeasuresanddomesticregulationinservices.

Thebasicapproachof theGATT is toallowdomesticregulatory measures provided that they do notdiscriminate against the imported products (nationaltreatment obligation). One of the challenges that hasariseninconnectionwithnationaltreatmentconcernsthe relevanceandweight tobegiven to the rationaleorpurposeofthemeasure.Forseveralcommentators,whether or not the regulatory measure has aprotectionist rationale or purpose should be thedecisive criterion in a determination of discrimination(Regan,2003;Hudec,1993).

Consideration of the rationale for measures is a lessfirmly settled approach in the jurisprudence of theAppellate Body, which has made it clear that the“broad and fundamental purpose of Article III is toavoid protectionism in the application of internal taxand regulatory measures” (Appellate Body Report,Japan – Alcoholic Beverages II,pp.16-17).

The first sentence of Article III:2 concerns taxmeasuresthatdiscriminatebetween“like”products. Itwould appear that there would be little scope forconsiderationof therationalefor themeasuresunderthe Appellate Body’s interpretation of this provision,according to which the provision is violated any timethe imported product is taxed in excess of the likedomestic product (Appellate Body Report, Canada – Periodicals,p.19)ThesecondsentenceofArticleIII:2concerns tax discrimination between directlycompetitive or substitutable products (a broadercategorythan“likeproducts”underthefirstsentence).

As a result of the cross-reference to Article III:1, thesecondsentenceofArticleIII:2hasbeeninterpretedtorequirethecomplainingpartytoshowthattheimported

anddomesticcompetitiveorsubstitutableproductsarenot similarly taxed “so as to afford protection to thedomestic industry”. The Appellate Body clarified thatthe “so as to afford protection” requirement “is not anissue of intent”, but rather “of how the measure inquestion is applied” (Appellate Body Report, Japan – Alcoholic Beverages II,pp.27-28)Atthesametime,theAppellateBodysaidinthesamecasethat“(a)lthoughitis true that the aim of a measure may not be easilyascertained,neverthelessitsprotectiveapplicationcanmost often be discerned from the design, thearchitecture,andtherevealingstructureofthemeasure”(AppellateBodyReport,Japan – Alcoholic Beverages II,pp.29).Thisreferencetothe“design,thearchitecture,and the revealing structure” of the measure has beenunderstood by some as necessarily includingconsiderationsrelatingtotherationaleforthemeasure.

ArticleIII:4concernsdomesticregulatorymeasures.Itdoesnot includeacross-referencetoArticle III:1andtherefore the Appellate Body has said that “adeterminationofwhethertherehasbeenaviolationofArticle III:4doesnot requireaseparateconsiderationofwhetherameasure“afford(s)protectiontodomesticproduction”(AppellateBodyReport,EC – Bananas III,para. 216). Article III:4 requires WTO members toaccord imported products “no less favourable”treatment than that accorded to like products ofnational origin in respect of all domestic regulations.“No less favourable treatment”, in turn, has beeninterpreted to mean that “the measure modifie(s) theconditionsofcompetitionintherelevantmarkettothedetriment of imported products” (Appellate BodyReport,Korea – Various Measures on Beef,para.137).

In a subsequent case, EC – Asbestos, the AppellateBodymadetwostatementsthatcanbereadasgoingindifferentdirectionsastotherelevanceoftherationaleforthemeasureunderArticleIII:4.Ontheonehand,theAppellate Body said that if there is less favourabletreatmentofthegroupoflikeimportedproducts,thereisconversely“protection”ofthegroupoflikeproducts.This suggests that once a complainant hasdemonstrated that the conditions of competition havebeenmodifiedtothedetrimentoftheimportedproducts(thatis,“lessfavourabletreatment”),thereisnoneedtomakeaseparateshowingofprotectionistintent.Ontheotherhand, theAppellateBodyadded that “aMembermay draw distinctions between products which havebeen found to be ‘like’, without, for this reason alone,accordingtothegroupof ‘like’ importedproducts ‘lessfavourable treatment’“ (Appellate Body Report, EC – Asbestos, para. 100). This statement has beenunderstood by some as allowing for distinctionsbetween importedanddomesticproducts thatarenotmotivatedbyprotectionistpurposes.

Another device that has been used in WTO disputesettlementtoassistindistinguishingpermissiblenon-tariffmeasuresfromimpermissibleonesisabalancingtest. This test has been used in the context of


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assessing a respondent member’s assertion that itsmeasure is justified under the general exceptions ofArticle XX of the GATT and particularly that themeasure is “necessary” to protect human, animal orplantlifeorhealthundersub-paragraph(b).

AsdevelopedbytheAppellateBody,thedeterminationof “necessity” involves a weighing and balancingprocessthatbeginswithanassessmentoftherelativeimportanceoftheinterestsorvaluesfurtheredbythechallengedmeasure,andalsoinvolvesanassessmentof other factors, which will usually include thecontribution of the measure to the realization of theends pursued by it and the restrictive impact of themeasureoninternationaltrade.Ifthisanalysisyieldsapreliminary conclusion that a measure is necessary,thismustbethenconfirmedbycomparingthemeasurewith possible less restrictive alternatives. The burdenof identifying less restrictive alternatives is on thecomplainingparty.Furthermore, inorder toqualifyasanalternative,themeasuremustallowtherespondentmember to achieve the same level of protection andmustbereasonablyavailable(AppellateBodyReport,Brazil – Retreaded Tyres,paras.143and156).

The relevance of the purpose of a measure for theassessmentofdiscriminationandofthebalancingtestforassessing“necessity”havecomeupinthreerecentdisputes under the TBT Agreement. As noted inSection E.3, in US – Clove Cigarettes , the AppellateBodyinterpretedArticle2.1oftheTBTAgreementasnot prohibiting detrimental impact on imports thatstems exclusively from a legitimate regulatorydistinction (Appellate Body Report, US – Clove Cigarettes,paras.180-182).

The economic theory reviewed in Section B hasdiscussedanumberofways that canhelp to identifysituationsinwhichgovernmentsmaybemorelikelytoemploy non-tariff measures for competitivenessreasonsratherthanthestatedpublicpolicyrationale.49These include an analysis of the efficiency andincidence of the measure in question, and the widersectoralandpoliticalcontextthatmayalsoinformthechoiceofaparticularmeasure.

InSectionB.1,itwasfoundthatassumingaparticularpublicpolicygoal,differentmeasurescanberankedinterms of their economic efficiency. Governments thatfailtousethemostefficientmeasure50maybesubjectto institutionalandpoliticalpressures thatencouragetheadoptionofmeasuresforcompetitivenessreasons.For example, in order to provide assurance toconsumers as to the presence or absence of certaincharacteristics of a product, a ban or a labellingscheme could be employed. Provided thecharacteristicsarenotparticularlyharmful,thelatterissuperiorfromaneconomicpointofview,asitdoesnotartificially limitconsumerchoice. Inpractice,themostefficient instrument may not always be easy todetermine.Itstronglydependsontheparticularpublic

policy concern and market conditions, and it istherefore difficult to establish a general ranking ofalternative measures. Although quantitativerestrictions rarely constitute a first-best policy, animport ban may be optimal if the costs of acquiringrelevant information or the risks associated withconsumptionoftheproductareextraordinarilyhigh.

The relative incidence of a public policy measure onconsumers and producers at home and abroad canalsobetellinginrespectofapossiblecompetitivenessrationale. For instance, in Section B.2, it has beenmentioned that profit-shifting in a situation ofoffshoring and bilateral bargaining might lead agovernmenttochangeenvironmentaltaxesfromtheirefficient levels in order to maximize national welfare,with the burden being shared between domesticconsumers and foreign producers. In practice, theincidenceofapolicymaybedifficulttomeasure,anditcanbe instructive togatherevidenceon thedemandforpublicpolicy insteadinordertogaugetherelativeinfluence of domestic producers and to put tradeeffectsintoperspective.51

Certain features of the sector in question, while notmechanistically determining the prevalence ofcompetitiveness objectives, can give an indication ofcircumstances under which a competitiveness-oriented policy benefitting the sector in question ismorelikely.The“protectionforsale”literaturereviewedinSectionB.152hasshownthatthedegreeoflobbyingand organization within a sector increases thelikelihood of obtaining protectionist measures. Otherrelevant sector characteristics relate to the level ofcompetitionandconsumerbehaviour,asexpressedforinstance in the degree of import penetration and thelevel of responsiveness of demand to price changes,wherelowerlevelsareassociatedwithhigherlevelsofprotection.53

Thenewtradeliteraturewhichemphasizesdifferencesin firm characteristics (heterogeneous firm theory)providesfurtherinsightsintorelevantindicators.54Forinstance, in Section B.2, it was noted that even insectorswithhighimportpenetration(and,therefore,ahigher productivity of foreign firms on average), anincentive to increase protection can still existdepending on the distribution of productivity levelsacross domestic firms. Firm characteristics may alsohelp to identify whether the implementation of non-tariff measures involving fixed cost increases formarket entry could be related to the dominance oflarge,organizedfirmsinthesectorratherthanagivenpublicpolicygoal.

Finally,inSectionB.2,theobservationwasmadethatacloser examinationof thepolitical context canprovideinsights into why certain non-tariff measures may beused to benefit producer interest groups despite theirstated public policy objective. For example, certainNTMsarebettersuitedtotargetpoliticalsupportersor


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more likely to persist beyond election periods andtherefore lead to higher levels of political support. Insum,while the “indicators”mentioned inSectionBarecertainly neither exhaustive nor able to provide aconclusive answer to the question of the true policyrationaleofanNTMaffectingforeigntradeinterests,itstillappearsthatthistypeofanalysiscouldusefullybeemployed inordertonarrowevidentiarygapsthatmayariseintheexaminationofcertaintraderules.

(e) Challengestoexpandingcooperation

While the challenges discussed above call fornegotiations, international cooperation on non-tariffmeasures is proving to be difficult for a number ofreasons.Herewediscussspecificareasofconcern.

(i) International coherence

AsmentionedinSectionE.2,boththeTBTAgreementandtheSPSAgreementgivesignificantdeferencetogovernments following international standards.Additionally, GATS Article VI:5(b) says that pendingthe completion of disciplines on domestic regulation,in determining whether the requirements arecompatible with the principles of necessity,transparencyandobjectivity,accountshallbetakenofinternational standards of relevant internationalorganizations applied by WTO members. TheseprovisionsconstituteauniquefeatureintheWTO:therecognition of other international organizations.However,internationalstandardsarenotapanacea.

First,countriesdifferwithrespecttoriskpreferences(values) and tastes. To the extent that there is anabsenceofcross-bordereffectsinsuchareasaslocalenvironmental protection, labour standards, orminimum product quality standards, harmonization tointernational standards may not be a realistic oreconomically optimal objective (World TradeOrganization (WTO), 2005; World Trade Organization(WTO), 2011). If a country chooses to follow aninternational standard that does not completelyachieve its policy objectives or reflect its nationalpreferences, that country may endure costs due toinappropriate regulation, or be required to undertakefurther regulatory interventions at additional cost tomeetitsobjectives.

Secondly, the international standardization processmaynotalwaysfunctionideally,withtheresultthatnotallstandardsaresetequally.Indeed,discussionsintheregular work of the WTO have raised concerns withrespect tohowstandardsclaimed(by thebodies thatset them or certain members that use them) to be“relevant” or “international” are actually set. Theseconcernsareabout issuessuchastheopportunity toparticipate in and influence the standard-settingprocess and disagreement on the scientific ortechnicalcontentoftherequirementsstipulatedinthestandard itself. Due to lack of regulatory capacity,

developing and least-developed countries may faceparticular challenges in influencing the standardsdevelopmentprocess.55

In the area of SPS measures, since the internationalstandard-settingbodiesareexplicitlyrecognizedintheAgreement,therearenoquestionsaboutwhethertheyare relevant or international. SPS internationalstandardsareset throughamultilateralprocess,witheachof the three standard-settingbodiesadoptingadifferent approach to standard-setting (for moreinformationonthedifferentapproaches,seeG/SPS/GEN/1115). Nevertheless, similar concerns aboutparticipationandinfluencehavebeenraisedinrelationto standard-setting in Codex, OIE and IPPC. Forexample,giventheinformationanddatarequirementsfor scientific risk analysis, countries that have astrongercapacitytogeneratedatamayhaveagreaterabilitytoinfluenceoutcomesininternationalstandard-settingbodies(JacksonandJansen,2010).

Thus, there isa “lineof tension”between,on theonehand,a legalobligation (albeitaqualifiedone) touseinternationalstandards,and,ontheother,thefactthatactuallyusinga“relevant”internationalstandardisnotalways straightforward. The regular work of the TBTandSPScommitteesandcertainaspectsofon-goingnegotiations in the Doha Round are affected by thistension.

Thereisanotherpotential“tension”between,ontheonehand, the SPS and TBT principles and mechanismsfavouring international cooperation and regulatoryconvergence of standards (including through thepresumption of compatibility offered to domesticmeasures that comply with “relevant” internationalstandards) and, on the other hand, WTO members’fundamentalright,alsorecognizedintheGATT,SPSandTBT agreements, to not use international standards –eitherbecausetheyare ineffectiveor inappropriate(forinstance,becausehigherstandardsaredesired)–andtoadoptandimplementtheirowndomesticstandards.Itislikelythatparticipationinthenegotiationofinternationalstandards will be most effective when participantsbelieve that the resultingstandardswill in factbeusedbyotherparticipants.Ifmembers’sovereigntymayjustifya right tosetasideexisting internationalstandards, thelegitimate non-application of international standards bysomemembersmayreducetheincentiveforinternationalcooperationandnegotiationofsuchstandards.

Inservices,whilethereisastrongincentiveforasimilarpresumption in favourof international standards, thereare significant additional obstacles. For a start,internationalstandardsarelessprevalentinservicesascompared with goods. Observers some ten years agowere of the view that “it is unlikely that meaningfulinternational standards for most services will bedeveloped any time soon” (Mattoo and Sauvé, 2003).Has anything changed since then? One factor is thatoffshoring may have given greater incentive to private


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industry to develop common standards. Another hasbeen the growing understanding of the relationshipbetween goods and services in global value chains.Since services are heavily embedded in goods, couldthe pervasiveness of international product standardscreate an incentive for services suppliers to supportinternationalstandards?Thesearequestionsonwhichfurtherresearchcouldshedlight.

Apart from the challenge of developing internationalstandards for services, there are also questionsconcerning the applicability of technical standards toservices, and the extent to which a trade disciplinecouldcovervoluntarystandards,whichmaybeissuedbynon-governmentalstandardizingbodieswithoutanydelegatedauthority.

The WTO legal deference to international standardspromotes a form of multilateral convergence. Thisconvergence allows parties in the WTO to refer tostandards set by other international organizations,even if the requirements theyarebasedonare traderestrictive. This improves international coherence.However, the challenges outlined above remain,specifically in deciding whether any particularinternational organization sets “relevant” internationalstandards.

(ii) Private standards

The topic of “private standards” arises across theWTO’s regular work in contexts as diverse as greenprotectionism, food safety and social responsibility.While some WTO members see no place for thisdiscussion in the WTO, others are keen to engage.ObligationssetoutinWTOagreementsarebindingongovernments, and only governments can make legalchallenges through the WTO’s dispute settlementsystem. Considering that private standards are non-governmental by definition, this gives rise to at leasttwo questions: what responsibility do governmentshavewith respect toprivatestandards,andwhat roledoes–orshould–theWTOhaveinthisregard?

Before looking at the law and role of the WTO, it isuseful to recall why this has been a matter ofdiscussionintheWTO.Althoughcastas“voluntary”innature(becausetheyare imposedbyprivateentities),private standards may become de facto a necessarycondition for market access even if not imposed bylaw.Themagnitudeofthetradeeffectwilldependonthemarketpoweroftheindividualcompaniesrequiringadherencetothestandardaswellasthenumberthatdo so. Indeed, the effect of a particular privatestandard, ifpervasive,couldbegreater than thatofagovernmentregulationofasmallercountry.

Moreover,a “voluntary”standardthatbecomeswidelyused may be a precursor to government regulation.Differententitiesareinvolved.Theymaybecompanies,non-governmental standardizing bodies, certification

and/or labelling schemes,56 as well as other non-governmentalorganizations.Therequirementssetoutinthestandardsdevelopedbythesebodiesaddressarangeofperceivedoractualconsumer-drivenconcernsthat are associated with products (or process andproduction methods used). These may beenvironmentally,sociallyorfoodsafetymotivated.Theconcerns thathavebeen raisedat theWTO–mainlyby developing countries – are that the requirementsaremorestringentde facto than regulations imposedby governments, that they are proliferating, and thatthereisnorecoursetodisciplinethem.

The texts of both the SPS and TBT agreementscontain disciplines that are relevant to non-governmentalbodies.57Inparticular,bothagreementshave an obligation on governments to take “suchreasonablemeasuresasmaybeavailable to them” toensure that non-governmental bodies/entities withintheir territoriescomplywith the relevantprovisionsoftheagreements.

TheSPSAgreementstatesthatWTOmembersshould“formulate and implement positive measures andmechanisms in support of the observance of theprovisions of [the SPS Agreement] by other thancentralgovernmentbodies”–andthatthey(members)shall take “such reasonable measures as may beavailable to them to ensure that non-governmentalentities within their territories… comply with therelevant provisions of this Agreement”.58 The TBTAgreementhassimilar language.59Yet, inthecaseoftheTBTAgreement, there is adifference. It containsan annex (Annex 3) specifically addressed tostandardizing bodies. This annex (the “Code of GoodPractice”) is open to acceptance also by non-governmentalbodies.Thisissignificant.Asmentionedelsewhereinthisreport,thetextoftheTBTAgreement–unliketheSPSAgreement–doesnotreferexplicitlytoanyparticular internationalstandardizingbody. It isthereforeuptogovernmentstodecide,onacase-by-case basis, which standards may be a relevant basisforregulationindifferentsituations,andthisdoesnotexcludestandardssetbynon-governmentalentities.

Akeyquestion,therefore, isthelevelofresponsibilitythat governments have with respect to what non-governmental (standardizing) bodies do within theirterritories.Itcouldbearguedthatthebest-endeavourlanguage attributes to governments a certain degreeofresponsibility.However,theextentisnotobvious:forsome WTO members, private standards are seen asbeyond the grasp of WTO disciplines – and indeed,WTO members remain divided as to whether privatestandardslegallyfallwithinthescopeoftheTBTand/orSPSagreements.

Legal issues aside, and granted that concern aboutthe impact of private standards is being voiced inrelevantWTOcommittees,whatshouldtheroleoftheWTObe– if, indeed, itshouldhaveone? It isnotable


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that the kinds of issues that arise in discussions onprivate standards are not novel: they revolve aroundsuch matters as inadequate design, the basis of ameasure, transparency, the need for commonbenchmarks (harmonization), and acceptance thatdoing things differently does not necessarily meannon-compliance (equivalence). Few, if any, of theseissues are fundamentally different from those thatarise in thecontextofSPS/TBTmeasures (technicalregulationsorconformityassessmentprocedures).

IntheSPSarea,delegationsarecurrentlyworkingonenhancing information exchange and increasingunderstanding and awareness of how privatestandardscomparewithor relate to standardssetbyrecognizedinternationalstandard-settingbodies(suchasthoseoftheCodex)andgovernmentalregulations.ThesituationintheareaofTBTissomewhatdifferent.The TBT Agreement does not refer explicitly to anyrecognized international standardizingbodies. In fact,governments frequentlybase regulationonstandardsthataredevelopedbynon-governmentalbodies,somewith international reach.60 WTO members havedeveloped a refined toolkit of rules and proceduresthatarehelpingregulatorsandtradeofficialsincreasethetransparencyofSPS/TBTmeasuresandtoensurethat they do not unnecessarily affect trade. Thesesamerules, togetherwiththeexperiencegained,mayalso provide useful guidance for the development ofprivatestandards.

(iii) Disciplines on domestic regulations in services

How best to strengthen trade disciplines in serviceswithoutundulycurtailingnationalregulatoryfreedomshas been a central question unresolved by themultilateral community. The GATS framework hasfocusedprimarilyonthenegotiationofmarket-openingcommitments, leaving other aspects of domesticregulation and practice largely untouched. Yet, sincetheestablishmentoftheWTOin1995,WTOmembershave grappled with the question of what additionaldisciplinesare requiredon licensing,qualificationandtechnical standards to ensure that they are not moreburdensome than necessary to achieve legitimatepolicyobjectives. Thepervasivenessof regulations inserviceshasmadeitvitaltoensurethatmarketaccessandnationaltreatmentcommitmentsarenot impairedbyundulyburdensomeorprotectionistpractices.

Despiteitsobviouscomplementtomarketaccess,whyhas it been so difficult for the multilateral tradecommunity to conclude this set of disciplines? Onereason has been the debate over whether suchdisciplines should be “sectoral”, affecting only onespecified sector, or “horizontal”, in the sense ofapplying to all services sectors. Progress made in1998ontheconclusionoftheAccountancyDisciplineshave led some WTO members to conclude that“sectoral” negotiations could potentially be a more

practical route to pursue as the disciplines could beshaped in accordance with the specificities of thatsector.Othershavearguedthata“horizontal”approachwouldbemoreefficientastherationaleforregulationand the reasons for transparency, objectivity andimpartialityintheregulatoryprocessaresimilaracrossservicessectors.

A deeper consideration of this issue would tend tosuggestthatdiscussionsontheformandscopeofthedisciplineshidesamore fundamental tension,namelythe principal concern that common rules at themultilateral level will result in a loss of regulatoryfreedom to pursue non-trade objectives for services.Thisbegsthequestionwhyifgovernmentshavebeenable to agree to TBT and SPS disciplines to ensurethat technical regulations, standards and procedureson goods do not create unnecessary obstacles tointernationaltrade,hasitprovensomuchmoredifficultinservices?

One reason, thoughnot theonlyone,mayhavebeenthedifficultyindesigninga“necessitytest”thatwouldaccommodate the depth and range of regulatoryprecautionthatWTOmembersappeartowishtoretainfor services. The Accountancy Disciplines, not yet inforce, containa “necessity test”, similar to that in theTBTandSPSagreements,whichrequiresmemberstoensure that “measures are not more trade restrictivethannecessarytoachievealegitimateobjective”,withan illustrative list of objectives provided. Such a testwas designed to leave the choice of objectives tomembers, with the focus of the discipline on thenecessityof themeasureused toachieve itsavowedpurpose.However,itshouldbekeptinmindthatunlikein the case of TBT and SPS measures, there is no“product” in services which can be sampled, testedand inspected based on scientific methods. Thus,reachingagreementonwhatwouldbetheappropriatecriteriafordeterminingandevaluatingnecessitycouldbeinherentlymoredifficult.

Couldsucha“necessitytest”,oravariationofit,suchas one on “disguised trade restrictions”, be used in“horizontal” domestic regulation disciplines? Thenegotiations, so far, have found no common view onthisissue.Yet,arecurringprincipleintradeagreementsistherequirementthatthemeasureusedtoachieveacertain legitimateobjectiveshouldbethe“least traderestrictivereasonablyavailable”. Ifsuchatestweretoexist, governments would need to assess, whenadopting regulations, whether they could use analternative measure that would be equally able toachieve the policy objective chosen, but which wouldbelesstraderestrictive.

Uncertainty remains among certain regulators as towhether their autonomy to regulate would beexcessivelyrestrictedbyanecessitytest.Ontheotherhand, proponents of the principle of necessity haveargued that a test could be designed that does not


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questionthenecessityofthepolicyobjectiveschosen,but solely the necessity of the measure used. Manyquestionshaveariseninthediscussions.Theserelate,for example, to the factors to be considered indetermining what is “necessary” and what is not andwhethertheimplementationofanecessitytestshouldalso require consideration of whether the policyobjectiveislegitimateornot.

The challenge of disciplining any undesired tradeeffects of regulation cannot, of course, be reducedonly to the question of the “necessity” test. Despiteover a decade of negotiations, much remains to bedone to improve cooperation and awareness amongregulators,policy-makersandtradenegotiatorsofthelinks between regulatory issues and trade principles.Therearealsoproblemsofcapacitywhichhavemadeitdifficultfornegotiatorstoengageonissuesthatarenot within the traditional realm of trade policy.Regulatorycapacitybuilding, in termsof theabilityofauthoritiestoformulateandenforcerulesappropriatetoservicestradeopeningmaynotbeanewchallenge,butitiscertainlyonewhichhasyettobeaddressedina systematic and meaningful way by the multilateraltradecommunity.

Beyondnegotiatingnewdisciplines,thereremainsthechallengeofadvancingharmonizationandrecognition.There isanobvious linkbetweenmultilateral rulesondomestic regulation and efforts to harmonize andrecognize standards, qualifications, requirements andprocedures. The need for disciplines to curbunnecessarilyburdensomedomestic regulationwouldclearly be diminished if jurisdictions were to movetowardscommonregulatorypracticesordevelopmorearrangements for recognition. These considerationsraise the question whether international standardscouldbeusedtoagreaterextentinservices.Commoninternationalstandardswouldneedtobesetataleveland in a manner that does not favour those with thegreatest capacity to influence the process andoutcomes.For themostpart, thisworkwouldhavetobeundertakenoutsidetheWTO,whichisnotaforumforsettingstandards.

(iv) Pro-competitive principles for services regulation

A unique feature of the GATS is its promotion ofcompetitionwithinaswellasacrossborders.Inaway,disciplines under Article VI:4 – by curbingunnecessarily burdensome regulatory practices inlicensingandqualification regimes– facilitatemarketaccess and thereby potentially enhance competition.Indeed,given thatdomestic regulationwouldapply toforeign and domestic suppliers alike, any applicableGATS disciplines that result from these negotiationswouldineffectimprovemarketcontestability.

Going beyond the negotiation of domestic regulationdisciplinesunderArticleVI:4,whichonlyaddressesa

very particular set of regulatory issues, there is thequestionofhowmuchfurthercanandshoulda tradeagreement go in requiring adherence to certain pro-competitive principles. This question has been mostprominently answered in the telecommunicationssector,wherea“ReferencePaper”whichincludedpro-competitive principles was negotiated and thencommittedtobyasignificantnumberofWTOmembersintheirschedulesofcommitments.

The Reference Paper specified pro-competitiveregulatoryprinciplesforthetelecomssectorandwasamajor achievement of the 1997 Agreement on BasicTelecommunications.Ithashelpedshapetheregulatoryenvironment in this sector over the past decade byelaboratingasetofprinciplescoveringmatterssuchascompetition safeguards, interconnection guarantees,transparentlicensingprocesses,andtheindependenceof regulators in a commonly negotiated text. Everygovernment that has acceded to the WTO since thebasic telecommunications negotiations has also takenon these disciplines. Furthermore, the fact that theReference Paper obligations are binding helps propelthedomesticreformagendaneededtofullyimplementtheopeningofthissectortocompetition.

TheexperienceoftheReferencePaperprovidessomeinteresting lessons on what might be some of thefundamental ingredients required to facilitateagreement on the adherence to certain pro-competitiveprinciples.First,therewasasharedpolicyvision for the sector concerned and of the role thatmarket-oriented regulation could play in improvingefficiency,aswellasachievingsocialequityobjectives.For example, regulators agreed on the need forgovernments to control the dominant incumbentsupplier so as to prevent it from engaging in anti-competitivebehaviour.

Secondly,theinstrumentestablishedasetofcommonunderstandings which were sufficiently broad as toallow fordiverse rulesandpractices,butat thesametime sufficiently specific to hold governmentsaccountable to transparent, objective and impartialpro-competitive regulation. Thirdly, sector regulatorswere directly involved in negotiating such aninstrument. This was important since in-depthunderstanding was required of how the marketfunctioned, what market failures needed to becorrected, and how such problems might beappropriately addressed. Fourthly, the instrumentallowedforself-selection,asitonlyenteredintoforcethroughincorporationinaWTOmember’sscheduleofspecific commitments.Eighty-twomembers (countingEUmember states individually) have, so far, attachedthe Reference Paper to their schedules ofcommitments.

The success of the Reference Paper raises thequestionwhethersuchaninstrumentcouldbeusedinother sectors? Most obvious would be those which


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shareasimilarmarketstructureastelecommunicationsservices, with a major supplier – usually a formermonopoly–thatcontrolstheinfrastructureornetworknecessary for the supply of services. In such asituation, the major supplier can block new marketentrantsby restrictingaccess to the infrastructureornetwork,bylimitingparticipationintherelevantmarketthroughitscontrolofessentialfacilitiesorbytheuseofadominantpositioninthemarket.Collectiveactionto agree on a set of pro-competitive regulatoryprinciples would thus be necessary to ensure thatthere is a level playing field. Another feature of themarketmightbethatscarceresourcesareneededforthe delivery of services, and the manner by whichthese are allocated would determine whetherparticipationispossibleornot.Sectorssuchasenergy,certain forms of transportation, waste and watermanagement, and postal and courier services, togreaterorlesserdegrees,tendtosharesomeofthesecharacteristics.

For such sectors, an instrument which uses similarregulatoryprinciplesas those found in theReferencePaper could help specify the safeguards needed toprevent a major supplier from engaging in anti-competitive practices. Such principles would need tobe implementedbya regulatorybodywhichwouldbeseparate from, and not accountable to, any servicessupplierinthemarket.Whilesuchinstrumentscouldintheory be negotiated outside the context of a tradeagreement, in practice there are political economicreasonswhycollectiveactionaspartofatradedealisoftenrequired(seeSectionE.1(c)).

AninterestingfeatureoftheReferencePaperwasthefactthatitwasnegotiatedbyagroupofMembersnotasanannextotheGATSbutasasetofprinciplesthatwouldonlybe legallybinding for thoseMemberswhosubscribe to it. This rather unique feature of theReferencePaper alloweda criticalmassofMemberstodevelopasetofdisciplineswithouthaving tohaveconsensus. The document itself did not have anyparticularlegalstatusasitwouldonlyenterintoforcefor those Members who attach it to their schedules.This is possible because members can undertakeadditional commitments under Article XVIII of theGATS in their schedules of specific commitments. Itwould be interesting to consider whether such anapproachcouldbeused for theArticleVI:4domesticregulationdisciplines.

Under Article XVIII, WTO members may negotiatecommitmentswithrespecttomeasuresaffectingtradeinserviceswhicharenotmarketaccessandnationaltreatment limitations, including those regardingqualifications, standards or licensing matters. Thus,domestic regulation disciplines could be undertakenasanadditionalcommitment.

(f) Investingininstitutions

(i) Supporting regulatory capacity building for trade in goods

EvenpriortotheestablishmentoftheWTO,countriesrecognized that capacity constraints relating to thestandards of bodies, technical infrastructure and thedevelopmentofregulationsingeneralwereofconcernfor developing countries, and particularly least-developed countries (LDCs). Both the WTO SPS andTBT committees include “technical assistance” as anagenda item at every committee meeting. Thediscussions in the SPS and TBT committees havefocused on facilitating the implementation of theagreements’provisionsontechnicalassistance.

The TBT Agreement obliges WTO members to giveadvice toothermembers (onTBTmatters),especiallydeveloping country members, and to provide othermemberswith technical assistance (onTBTmatters).The text of the Agreement illustrates how theestablishment of national standardizing or conformityassessment bodies or institutions and a legalframeworkwouldenabledevelopingcountrymemberstofulfiltheobligationsofmembershiporparticipationin international or regional systems for conformityassessment. The Agreement also provides advice onsteps that should be taken by developing countries’producers if theywish to have access to systems forconformity assessment operated by governmental ornon-governmentalbodies.ThereisalsoamoregeneralobligationtogiveprioritytotheneedsofLDCs.

TheSPSAgreementcontainssimilarprovisionsrelatedto technical assistance. According to the Agreement,WTO members agree to facilitate the provision oftechnical assistance to developing country members,either bilaterally or through the appropriateinternationalorganizations.Assistancemaybeadvice,credits,donationsorgrantsandshouldallowcountriesto adjust to and comply with SPS measures in theirexport markets. In addition, when substantialinvestments are needed for developing countries tofulfil SPS requirements in export markets, membersagree to consider providing technical assistance thatwouldpermitdevelopingcountrymemberstomaintainandexpandmarketaccessopportunities.

Technical assistance in the TBT area

The TBT Committee oversees the implementation ofthe Agreement’s provisions on technical assistance(containedinArticle11),anditsroleisessentiallyoneof information exchange. One insight that emergesfrom the work of the TBT Committee is the need forthecreationof lasting infrastructures,bothregulatoryandphysicalinnature,whichmaysetinplacetherightconditionsfor theefficientandeffectivedevelopmentand design of technical regulations, standards and


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conformity assessment procedures. In particular, thelack of technical infrastructure (or inadequacy ofexisting infrastructure) constrains many developingcountry members from accessing markets. Meetingthestandardmaysometimesnotbeenough–itisalsonecessary to be able to demonstrate compliance tocreateconfidenceinthequalityandsafetyofexportedproducts.

Quality infrastructure, including laboratories andaccredited certification bodies, is essential fordeveloping countries’ competitiveness. The TBTCommitteehasencouragedWTOmemberstoprovidetechnical cooperation in the area of conformityassessment specifically aimed at improving technicalinfrastructure(e.g.metrology,testing,certification,andaccreditation).

Technical assistance in the SPS area

In overseeing the technical assistance provisions oftheSPSAgreement (contained inArticle9), theSPSCommittee facilitates the exchange of informationwhere WTO members identify specific technicalassistanceneedswhichtheymayhave,and/or reporton any SPS-related capacity building activities inwhich they are involved. Among the most pressingneeds highlighted through the work of the SPSCommittee,apart from information requirements,wasthe development of laws and regulatory frameworksandinstitutionbuilding.

Theneedforhardinfrastructureincludinglaboratories,although important, did not generally represent themost serious obstacle to an appropriateimplementationoftheSPSAgreement. Inthisregard,the SPS Committee continues to encourage itsmembers to provide targeted technical assistancewhich responds to the identified needs of members.Discussions within the SPS Committee have alsohighlighted the technical and scientific expertise andfunding available in other international organizations,while emphasizing the need to improve inter-agencycoordination(see,forexample,G/SPS/GEN/875).

Standards and Trade Development Facility

If trade is to serve as an engine of growth and aninstrument to tackle poverty reduction, developingcountries must have effective systems in place tocontrol their SPS risks and meet internationalstandards. Controlling SPS risks will have marketaccessbenefits,aswellasdirectbenefitstodomesticproducers and consumers by reducing pest anddisease prevalence, raising production and improvingfood security. Improved compliance with internationalSPS standards may also contribute to improvedbiodiversity and environmental protection. However,given capacity constraints developing countries maynothaveadequateSPSsystems inplace.Toaddressthese impediments, notably in the public sector,

sustained long-term commitment to funding withinnational government budgets and by donors will berequired to ensure minimum levels of capacity withultimatepositiveeffectsonmarketaccessandhumanandenvironmentalhealth.

In2002, recognizing thesignificantbenefits that canarise from investments in SPS capacity, fiveinternationalorganizations–theFoodandAgricultureOrganization of the United Nations (FAO), the WorldOrganisationforAnimalHealth(OIE),theWorldBank,theWorldHealthOrganization(WHO)andtheWTO–jointly established the Standards and TradeDevelopment Facility (STDF).61 The STDF is a globalpartnership that supports developing countries inbuildingtheircapacitytoimplementinternationalSPSstandards, guidelines and recommendations as ameanstoimprovetheirhuman,animalandplanthealthstatus, and ability to gain and maintain access tomarkets. Its mandate is to: (i) increase awarenessabout the importance of SPS capacity building,mobilize resources, strengthen collaboration, andidentifyanddisseminategoodpractice;and(ii)providesupport and funding for the development andimplementation of projects that promote compliancewithinternationalSPSrequirements.

The STDF plays an important role in facilitatingdiscussionofpast,on-goingandplannedSPS-relatedtechnical cooperation programmes and initiatives. Itidentifies cross-cutting topics of thematic interest topartners,donorsandbeneficiariesandorganizesjointconsultations at global and regional level to furtheraddress these issues. Examples of successful STDFworkinthepastrelatetogoodpracticeinSPS-relatedtechnicalcooperation,theuseofeconomicanalysistoinform SPS decision-making, SPS risks and climatechange, indicators to measure the performance ofnational SPS systems, regional and national SPScoordination mechanisms, and public-privatepartnerships in support of SPS capacity. Enhancingthe awareness in developing countries, notably atpolitical and decision-making levels, about theimportance of SPS compliance and the need foradditional investments in this area is another centralthemeintheSTDF’swork.

Given the success of the STDF in the area of SPScapacitybuilding, somesuggestionshavebeenmadethattheSTDFmodelcouldalsobeadoptedtoaddressstandards implementation intheareaofTBT. Inorderfor this approach to work, there would need to beclarity, among other issues, regarding which specificinternationalstandardswouldberelevant.Furthermore,thistypeofinitiativewouldrequireasignificantamountof resources in order to be initiated and sustained.Still, lessons learned from the STDF experienceindicate that capacity building efforts of this naturecan efficiently provide practical economic and healthbenefitstocountries.


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Capacity building and international standards

DuetolackofregulatorycapacityintheareasofTBTand SPS, developing and least-developed countriesmay face particular challenges in respect ofparticipating in international standard-settingactivities. Enhancing developing country participationininternationalstandard-settingprocessesisacrucialstep in improving developing countries’ ability to useand adapt international standards. Today, actualparticipation in standard-setting activities bydevelopingcountriesremainsachallenge.Onlyasmallproportionofdevelopingcountriesareresponsibleforthe management of working groups and technicalcommittees, where the detailed work takes place.Standardizing bodies and international standard-setting organizations should increase their efforts inbuilding understanding of the standard-settingprocess and in strengthening institutional capacity indevelopingcountries,andparticularlyLDCs.

(ii) Supporting regulatory capacity building for trade in services

Given the importance of regulation to the properfunctioningofservicesmarkets,weaknessinregulatorycapacitycouldactuallyhaveanegativeimpactontradeopening. Without the reassurance of a regulatoryapparatuscapableofidentifyingandremedyingmarketfailures,theremightbestrongreluctancetoundertakedomesticreformsandtoopenmarketsto internationaltrade. If there is no regulatory capacity to curb anti-competitiveconductortoimplementeffectiveprudentialregulation, there isadownsiderisk tomarketopening,as profits might only be transferred from domesticagents to foreign ones with no discernible efficiencygains.Greaterregulatorycapacitycouldalsohelpbuildgreater support for market opening by givingreassurancethatthepursuitofsocialequityobjectiveswouldbepartof the regulatory framework.Enhancingcapacitywouldalsofacilitateregulatorycooperation,beit through the negotiation of domestic regulatorydisciplines,thedevelopmentof internationalstandards,orinitiativesonharmonizationandrecognition.

Finding ways to support regulatory capacity buildingandcooperationsoas tocomplementservicespolicyreformanddevelopmentisthusanimportantchallengeforthefuture.TheOECDandAPEChaveestablishedvariousprocessesforbringingtradeofficialstogetherwith regulators. The World Bank has launched aninitiative on Services Knowledge Platforms, with theaimofestablishinga forum for sharingknowledgeofregulatory experiences and impacts. This wouldinclude information on the factors underlyingsuccessfuleffortstoexpandtradeinservicesandthecomplementary policies that can be used to addressmarket failures and distributional concerns. Such abroad forum, although focused on internationalregulatory cooperation in services, could do much tofostertradeanddevelopment.

In sum, addressing regulatory challenges in trade inservices requires doing more than curbing non-transparent or unduly restrictive regulatory practices.The challenge which services regulation poses fortrade opening should not be seen simply in terms ofhaving lessregulation,butmore intermsofachievingbetter regulation – that is, regulation which moreeffectively achieves public policy objectives with theleastdistortionoftrade.Workonhowcountriescouldobtainsuchresultsremainsatanascentstage.

Two priority reforms could be assisted by thedevelopment community under the “Aid for Trade”initiative. The first would be to support regulatorycapacity building so as to strengthen the ability ofregulatory institutions to identify, design andimplement policies that address market failures andundertakeregulatoryimpactassessments.Thesecondwould be to encourage international cooperation toaddress theregulatoryeffectson thirdpartiesandtoshareknowledgeongoodpractices.Suchworkneednot be linked to trade negotiations, yet it could domuch to improve the climate for opening up trade inservices. The WTO has no particular comparativeadvantage in regulatory matters but it could act as afocal point, as it does for many other supply-sideinitiatives,tobuildcapacityfortrade.

5. Conclusions

This section has three substantive parts addressingthe theory, the practice and the challenges ofcooperationonnon-tariffmeasures.SectionE.1offersa theoretical framework for understanding therationaleforcooperationonNTMsintradeagreements.Itshowsthatthisrationalerelatestopolicysubstitutionas well as governing international production,improving transparency, limiting the competitioneffects of NTMs and ensuring the efficient use ofprivate standards. Addressing the first problemprimarily motivates shallow integration but the otherconcernsoftenrequiredeepformsofintegration.

SectionE.2andSectionE.3analysethewaythatthemultilateral trading system deals with non-tariffmeasures.InsightsfrompracticeintheSPS,TBTandservicesareashighlighthowactualcooperationattheWTO seeks to address the problems identified inSectionE.1.Inparticular,thesearchforefficientpolicyis bolstered by regulatory dialogue at the multilaterallevel (for instance, through committee work in goodsandnegotiations inservices)andona regionalbasis,the development and adoption of good regulatorypractices, and through the development and use ofinternational standards. Section E.3 focuses on howcasesinvolvingtheuseofNTMshavebeendealtwithbytheWTOlegalframeworkanditsdisputesettlementsystem. Specifically, it describes the key ways thatWTO disciplines address the challenge ofdistinguishingbetweenlegitimateNTMsandmeasures


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designed for protectionist purposes and how theseprovisionshavebeeninterpretedinactualdisputes.

SectionE.4providesaspeculative(andnotnecessarilyall-encompassing) view of what lies ahead for theWTO in dealing with non-tariff measures. While themultilateral trading system has developed severalmeans to promote deep integration, challenges andopportunities remain. These include: (i) challenges infinding the right mix between internationalcommitmentsanddomesticflexibility insettingNTMsand in improvingtransparency,particularly inthefaceof economic, social and environmental change;

1 Nevertheless,abasicfeatureofthecommitmentapproachtotradeagreementsisworthemphasizinghere:unliketheterms-of-tradetheory,whichoffersarobustreasontoexpectthattradeagreementsoughttobetradeliberalizing,thereisnopresumptiononewayortheotherunderthecommitmenttheoryastowhethertradeagreementsshouldincreaseorreducetrade.

2 Internationalagreementsoftenincludeprovisionsthatcanbeappliedtofuturecaseswithoutreferencetospecificcases.Becausetheseprovisionsaregeneral,theywouldrequireinterpretationtoapplytonewindividualcases.Thisex ante indeterminacyisknownintheeconomicsliteratureasan“incompletecontract”.

3 TheInternationalTradeCentrehasdevelopeda“StandardsMap”,whichcontainsinformationon74privatestandardsschemesoperationalinover160countriesandcoveringover40economicsectorsandproductgroups.Itmainlycoversagricultural(organic),textileandflowerproducts,whichareofsignificantinteresttodevelopingcountries.Examplesinclude:informationoncurrentandpotentialgeographicdistributionofprivatestandardssuchasFairtrade,theForestStewardshipCouncilandtheCarbonTrustFootPrintingLabel.Thisweb-basedportalallowstheusertoselectstandardsbasedoncriteriasuchascoverage,economicand/orqualityrequirements,typeofcertificationprocess.Althoughthisisnotanexhaustivedatabase,itprovidesusefulinformation.Itisavailableat:www.standardsmap.org.

4 Severalothervoluntarystandardsschemeshaveemergedinbothdevelopedanddevelopingcountriessince1992.Whilesomeoftheseschemesareprivateinitiatives,othersaremanagedbygovernments.ExamplesofgovernmentschemesincludetheSustainableForestManagementStandardinCanada,CERFLORinBrazil,LEIinIndonesia,theMalaysianTimberCertificationCouncil,andtheSustainableForestryInitiativeandtheAmericanTreeFarmSystemintheUnitedStates.

5 Moreinformationisavailableat:www.fsc.org.

6 Auldetal.(2008);FSCandPEFConlineinformation.

7 ISOisworkingonaproject(ISO14067)thatseekstodevelopaninternationalstandardonquantificationandcommunicationofgreenhousegasemissionsofgoodsandservices.Inaddition,theWorldResourceInstituteandtheWorldBusinessCouncilforSustainableDevelopmentareworkingontwonewstandardsforproductsandsupplychaingreenhousegasaccountingandreporting.

8 Loi.No.2010-788:TheNationalCommitmentfortheEnvironment.

9 ThediscussionofqualitystandardsandlabelsbuildsonthediscussionintheWorld Trade Report2005(WorldTradeOrganization(WTO),2005b),whichprovidesdetailedandthoroughanalysisofglobalcooperationonstandardsandregulation.

10 Inadditiontothearticleslistedhere,ArticleXVIIoftheGATSiswherememberscommitthroughnegotiations,alongmodallinesintheirschedules,toextendnationaltreatmenttoforeignservicesandservicessuppliers.Inthiscase,nationaltreatmentistreatedlikenegotiatedmarketaccessratherthanageneralprincipleofconductasitisinArticleIIIoftheGATTortheotherlistedarticles.

11 Theuseoftheterm“discrimination”sometimesdiffersacrossdisciplines.Foreconomists,anypolicythatdifferentiallytreatsproductsisdiscriminatory,independentlyofthelegitimacyofthemeasure.Forlawyers,ontheotherhand,thetermdiscriminationoftencarriesanormativeimplicationandislimitedtothosesituationswhereapolicydifferentiallytreatsproductsinawaythatisinconsistentwithWTOrules.Inthisdiscussion,theworddiscriminationisusedinitseconomicmeaning.

12 Aseparatelegalissueiswhetherthesetypesofconcernscanbeaddressedwithinthecontextofexceptions,suchastheonescontainedinGATTArticleXX.

13 APEChasdoneworkspecificallyontheimplementationoftheTBTAgreementandGRP.TheAPECCommitteeonTradeandInvestment’sSubcommitteeonStandardsandConformancehasdevelopedadocumentthatlaysouttheprinciplesandpracticesofGRPastheyrelatetoimprovingtheimplementationofsubstantiveobligationsundertheWTOAgreementonTechnicalBarrierstoTrade.Thisstudy,“SupportingtheTBTAgreementwithGoodRegulatoryPractice:ImplementationOptionsforAPECMembers”,buildsupontherecognitionoftheWTOTBTCommitteethatuseofGRPscanmakeanimportantcontributiontotheeffectiveimplementationoftheTBTAgreement,andtoreducingunnecessarytechnicalbarrierstotrade(G/TBT/W/350,16March2012).TheWTOSecretariathasissueda“CompilationofSourcesonGoodRegulatoryPractice(GRP)”,G/TBT/W/341,13September2011.

14 G/TBT/26

15 TBTRegulatoryCooperationWorkshop,8-9November2011.See:http://www.wto.org/english/tratop_e/tbt_e/tbt_events_e.htm

Endnotes

(ii) opportunities to improve the dispute settlementmechanism of the WTO through better integration ofeconomic and legal analysis in the determination oflegitimateNTMs;(iii)improvementsinthecurrentrule-making to adapt the trade system to a fast evolvingworldinareassuchasprivatestandardsanddomesticregulationinservices;(iv)betterglobalcooperationonNTMs which can hardly be achieved without majorsteps to bolster regulatory capacity in developingcountriesthroughconcreteactions.


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16 RAPEX(RapidAlertSystemforNon-FoodProducts),theEU-widealertsystemforalldangerousconsumerproducts,pharmaceuticalproductsandmedicaldevices,allowsrapidexchangeofinformationbetweenEUmemberstatesaboutmeasuresundertakentopreventthemarketingoruseofproductswhichposeaseriousrisktoconsumerhealthandsafety.

17 G/TBT/W/340

18 G/TBT/W/340

19 ReportofchairpersontoTBTCommitteeonTBTRegulatoryCooperationWorkshop:http://www.wto.org/english/tratop_e/tbt_e/docs_wkshop_nov11_e/chair_report_e.pdf

20 SeeAPECElectricalandElectronicEquipmentMutualRecognitionArrangement(EEMRA),atwww.apec.org/

21 Blind(2004);GermanInstituteforStandardization(DIN)(2000);UKDepartmentofTradeandIndustry(DTI)(2005).

22 Article2.5oftheTBTAgreement,Article3.2oftheSPSAgreement.

23 TheSPSAgreementnamesthefollowingasinternationalstandard-settingorganizations:FAO/WHOCodexAlimentariusCommission(Codex),theFAOInternationalPlantProtectionConvention(IPPC),andtheWorldOrganizationforAnimalHealth(OIE).TheTBTAgreementdefinesbotha“standard”(Annex1,para.2)andan“internationalbodyorsystem”(Annex1,para.4)butdoesnameaparticularinternationalstandardizingbody.

24 Intheareaofconformityassessment,theimportanceof“Qualityinfrastructure”isoftenreferredtoandlinkedtocompetitiveness.Thisincludes,forinstance,adequatelaboratoriesandaccreditedcertificationbodies.TheTBTCommitteehasencouragedmemberstoprovidetechnicalcooperationintheareaofconformityassessmentspecificallyaimedatimprovingtechnicalinfrastructure,e.g.metrology,testing,certification,andaccreditation.(ThisisalsodiscussedinSectionE.4.f.)

25 FAO/WHOCodexAlimentariusCommission(Codex),theFAOInternationalPlantProtectionConvention(IPPC),andtheWorldOrganizationforAnimalHealth(OIE).

26 Accreditationisdefinedas“theindependentevaluationofconformityassessmentbodiesagainstrecognizedstandardstoensuretheirimpartialityandcompetencetocarryoutspecificactivities,suchastests,calibrations,inspectionsandcertifications”(G/TBT/GEN/117,moreinformationcanbeobtainedatwww.ilac.organdwww.iaf.nu.).

27 G/TBT/W/349,dated13March2012.

28 Referencetomembers’submissionstoG/TBT/26.

29 Zoonosesaredefinedasanydiseasesorinfectionsthatarenaturallytransmissiblefromvertebrateanimalstohumans(WorldHealthOrganization(WHO),2012).

30 DecisionsandRecommendationsAdoptedbytheWTOCommitteeonTechnicalBarrierstoTradeSince1995,G/TBT/1/R.10(9June2011);RecommendedProceduresforImplementingtheTransparencyProceduresoftheSPSAgreement,G/SPS/7/Rev.3(20June2008).

31 SPSInformationManagementSystem,http://spsims.wto.org/;TBTInformationManagementSystem,http://tbtims.wto.org/.

32 MFN-inconsistentmeasuresalsofallintothiscategory,andaretheonesmoreseverelysanctionedbytheGATS.Infact,barringanyexemptions,theMFNobligationappliesunconditionallytoalltheservicescoveredbytheAgreement.

33 SeeDelimatsis(2008)andKrajewski(2008)foradiscussiononcreatinganecessitytestofthetypecontainedintheTBTandSPSagreements.

34 GATSArticleVIIallowsforrecognitionmeasuresaslongasthereareadequateprovisionsforothermemberstonegotiateaccessionand/orachieverecognitionoftheirrequirementsandcertificates,andthemeasuresdonotconstituteameansofdiscriminationoradisguisedrestrictionontrade.

35 ThepanelreportinEC- Approval and Marketing of Biotech Productsisalsocitedasanexampleofasituationinwhichdifferentialtreatmentoftheimportedanddomesticproductswasconsideredinsufficientforaviolationofthenon-discriminationobligationinArticleIII.Inthatcase,thepanelsaidthatitwasnotevidentthatthelessfavourabletreatmentwasexplainedbytheforeignoriginratherthanbyperceiveddifferencesintermsofthesafetyoftheproducts(seePanelReport,EC – Approval and Marketing of Biotech Products ,paras.7.2509and7.2516;MarceauandTrachtman(2009)).

36 In EC – Asbestos ,theAppellateBodyfoundthatregulatoryconcernsandconsiderationsmayplayaroleinapplyingcertainofthe“likeness”criteria(thatis,physicalcharacteristicsandconsumerpreferences)and,thus,inthedeterminationoflikenessunderArticleIII:4oftheGATT1994.

37 Article1.3oftheTBTAgreementstates:“Allproducts,includingindustrialandagriculturalproducts,shallbesubjecttotheprovisionsofthisAgreement”.Ontheotherhand,theSPSAgreementhasamuchnarrowerscope,whichmaymeanthatnamingbodiesismoreappropriateinthatcontext.

38 Theseprinciplesare:(1)transparency;(2)openness;(3)impartialityandconsensus;(4)effectivenessandrelevance;(5)coherence;and(6)development.ThesearecontainedinfullinG/TBT/1/Rev.10(AnnexB),9June2011,p.46.

39 TheSPSCommitteehadestablishedtheadhocworkinggroupinOctober2008.MembersoftheadhocworkinggrouponSPS-relatedprivatestandardswere:Argentina,Australia,Belize,Brazil,Canada,Chile,China,Colombia,CostaRica,DominicanRepublic,EuropeanUnion,Ecuador,Egypt,Guatemala,Japan,Mexico,Mozambique,NewZealand,Nicaragua,Norway,Pakistan,Paraguay,Peru,St.VincentandtheGrenadines,SouthAfrica,ChineseTaipei,Thailand,UnitedStates,UruguayandtheBolivarianRepublicofVenezuela.

40 OtheractivitiesthattakeplaceinthecommitteesbetweenthecirculationofthenotificationsandthefilingofanSTCmaycontributetotransparency.

41 TheexampleofthenotificationrequirementsofArticle25oftheAgreementonSubsidiesandCountervailingDuties,whichinvitesmemberstonotifymeasuresofothermembershavingtheeffectofasubsidythathavenotbeennotified,isillustrative.DespitetheobligationformemberswhichconsiderthattherearenomeasuresrequiringnotificationintheirterritoriestosoinformtheSecretariatinwriting,only78countrieshadmadeanotificationin2009.

42 SeeforexampleArticle25.10oftheAgreementonSubsidiesandCountervailingMeasures.Notethatmembersalsohavethepossibilitytoaskquestionsaboutothermembers’notifications–forinstance,iftheyconsiderthattheyareincomplete.

43 Sixyearsormoreforallcountriesbutthe20largesttraders.

44 SeeWTOdocumentWT/L/848.


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45 Partoftheanswertothesequestionsobviouslydependsonhowmuchresourcescanbeallocatedtothemonitoringexercise.

46 Thecommitteeontradeinservicesalsooffersmembersthepossibilitytoshareinformationonnationalexperiencesandregimes.

47 Thenewportalwillforexampleallowuserstoaccessallnotifiedinformationontrade,tariffsandNTMsthatrelatestoagiventarifflineinonesinglequery.Allthisinformationwaspreviouslystoredinseparatesiloswhichhadtobeaccessedseparatelyiftheywereaccessibleonlineatall.

48 ThedecisionoftheMarketAccessCommitteeona“FrameworktoenhanceIDBNotificationsCompliance”[G/MA/239of4September2009]madeiteasierfortheSecretariattoassistmembersinprovidingtheirtradeandtariffnotificationsbyallowingtheuseofotherrelevantofficialsources.

49 Criticsof“deepintegration”questionthecapacityofinternationalorganizationstomakethesedeterminations.Forexample,Rodrik(2011)arguesthatthedeterminationoflegitimateorillegitimatetrademeasuresshouldarisefrominformeddeliberationsatthenationallevel,includingbothimportersandexportersinordertobalancecompetinginterestsinatransparentmanner.

50 Itshouldbekeptinmindthatthemostefficientmeasuremaywellbeadiscriminatorymeasureifthesourceoftheexternalityliesabroad.Italsodependsonwhetheragovernmenttakesintoaccountonlydomesticwelfareorforeigninterestsaswell.Thelatterwouldbeparticularlyimportantwheree.g.transboundaryexternalitiesareconcerned.AsmentionedinSectionE.1,ifseveralcountrieshavecommoninterests,cooperationcanensurethatglobalwelfareismaximized.

51 Forexample,SwinnenandVandemoortele(2009)andMaretteandBeghin(2010)holdthatmanypublicstandards,e.g.relatingtotheregulationofGMOs,areintroducedfollowingdemandsbyconsumers,eventhoughtheirtrade-restrictingeffectsalsobenefitsomelocalproducers.However,evensuchanassessmentmaynotbeaneasytask.FalveyandBerti(2009)provideaconcisetheoreticalframeworkthatillustratesthedifficultiesinvolvedindisentanglingproducerfromconsumerinterestswhenidentifyingtheappropriatelevelofaminimumqualityregulationthatwouldaddressinformationasymmetriessufferedbyconsumers.Carpenter(2004)developsamodelinwhichnewproductrequirementsseemtoconferacommercialadvantagetoestablishedfirmseveniftheregulatorwasmotivatedonlybyreputationconcernsandaninteresttoberesponsivetoconsumers.

52 SeeparticularlyalsoBoxB.4.

53 Althoughitisoftenbelievedthatprotectionshouldincreasewiththeratioofimportpenetration,thelatterresultbroadlyreflectstheideaof“sensitive”sectors.Anumberofpapers,suchasGoldbergandMaggi(1999)andGawandeandBandyopadhyay(2000),havefoundwaystomeasurethesevariablesandempiricallyconfirmthefindings.Thelatterauthorsalsoemphasizethatthesethreefactors(importpenetration,importelasticityandwhetherindustriesarepoliticallyorganized)goalongwayinexplainingthepatternofprotectionandreducetheneedtoanalysealargersetoffactors,includingskillcompositionofemployees,averageearnings,laboursharesandgeographicalconcentration,thathavebeenemployedintheempiricalliterature,withoutbeingderivedfromtightly-knittheories.

54 FischerandSerra(2000)highlighttheimportanceofanalysingthecharacteristicsofforeignfirmsandmarketsaswellinordertounderstandtheincentivesofdomesticfirmstolobbyforprotectionistmeasuresandgetanindicationofwhichindustriesfacehigherpressureforprotectionthanothers.Oneimportantconsiderationis,forexample,theavailabilityandsizeofalternativemarketsforforeigncompetitorsandthefixedcostassociatedwithproducingundermultipleproductregulations.Inanextensiontothisapproach,MaretteandBeghin(2010)furtheremphasizetheimportanceoftakingintoaccountfirmheterogeneityandinternationalmarketconditions.Theyshowthatamorestringentproductrequirementcomparedtoaninternationalstandardmaynotalwaysresultinprotectionism,butcanevenbe“anti-protectionist”ifforeignproducersaremoreefficientataddressingtherelatedexternalitythandomesticproducers.

55 In2000,theTBTCommitteeagreedonsixprinciplesandproceduresthatshouldbeobservedduringthedevelopmentofinternationalstandards,guidesandrecommendationsforthepreparationoftechnicalregulations,conformityassessmentproceduresandstandards.ThisCommitteeDecisionhasrecentlybecomethesubjectofdiscussionbothintheCommitteeandintheNAMAcontext(G/TBT/1/Rev.10(AnnexB),9June2011,p.46).

56 Forexample:FSC,MSC,Carbonfootprintlabelling,sectoraltradeassociations(Florverdeforflowers;BCIforcotton,orinthefoodsector:theGlobalFoodSafetyInitiative(GFSI).SeeexamplesdiscussedinBoxE.2.

57 TheTBTAgreementdefinesanon-governmentalbodyasfollows:“Bodyotherthanacentralgovernmentbodyoralocalgovernmentbody,includinganongovernmentalbodywhichhaslegalpowertoenforceatechnicalregulation”(TBTAgreement,Annex1,para8).TheSPSAgreementusestheterm“non-governmentalentity”butitisnotdefinedintheAgreement.

58 SPSAgreementArticle13(onimplementation).

59 TBTAgreement,inparticularArticle4.1;articles3.1,8.1and9.2arealsorelevant.

60 Forinstance,membersfrequentlyreferredtotheISOandtheIECintheTBTcontext;boththesebodiesarenon-governmentalinnature.

61 MoreinformationonSTDFcanbefoundat:http://www.standardsfacility.org/en/index.htm.

Documents

e. International cooperation on non-tariff measures in a globalized