“Trade and Public Policies: A closer look at non-tariff measures in the 21st Century”

> Pascal Lamy’s speeches
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Ladies and Gentlemen,

Good morning


This is the tenth report in this flagship series which began in 2003.  We have looked at many pressing and topical issues over the years, and this year is no different. The report takes an in-depth, and I believe fresh look, at non-tariff measures (NTMs). These measures, appearing in many guises and serving many different purposes, have been a core topic of the GATT/WTO’s work since the birth of the multilateral trading system. Much has been written on NTMs, reflecting not just their ubiquity and complexity, but also the fact that they are important determinants of international trade and investment. And what is more, their importance is increasing as we see tariffs diminishing in terms of their levels and incidence.

Our recent report to the G-20, undertaken jointly with the OECD and UNCTAD, documents the increasing use of trade restrictions recently, after a period in the immediate aftermath of the great recession that began in 2007-08. The main measures that are used, mostly as a short-term reaction to current economic hardships, are traditional trade policy measures such as tariffs and non-tariff contingency measures, including anti-dumping and countervailing duty measures and safeguards. We also tracked a range of other NTMs, such as subsidies. The G20 recognized at their most recent meeting that there was a need to avoid restricting trade, thereby reducing growth and recovery opportunities. Containing protectionism is a vital component of a successful exit from the present difficulties afflicting the world economy. The recourse to NTMs thus necessitates short-term vigilance.

But there is a longer-term reason for focusing on NTMs. The universe in which they operate has changed and will continue to change, raising new challenges for the multilateral trading system. These are the challenges that this year's World Trade Report focuses on.

I shall first characterize the forces at work and the nature of the changes that are occurring, and then discuss the challenges that all this raises for the WTO.

A clear trend is emerging where NTMs are less about shielding producers from import competition – where non-tariff measures can often simply be characterized as non-tariff barriers. Instead, the focus is increasingly on the attainment of a broad range of public policy objectives. You could say we are moving from protection to precaution. Traditional NTMs, such as quotas or contingent protection measures, were mostly driven by competitiveness concerns. The new NTMs, typically SPS [sanitary and phytosanitary] and TBT [technical barriers to trade] measures, but also domestic regulation in services, address concerns over health, safety, environmental quality and other social considerations.

And this trend is unlikely to weaken. These concerns clearly take a more central role in policy as economies develop and become more interdependent, and as incomes grow. Today, they are more prevalent in the richer countries but the trend is present in practically every economy. Moreover, with the expansion of global production sharing, product and process standards are becoming increasingly relevant in linking various stages of global value chains. These developments clearly indicate that NTMs will not shrink in importance.

Identifying the trade effects of NTMs

More analysis is needed to understand — and where appropriate act upon — the trade effects of public policies. The trade effects can, of course, be positive or negative.

Our understanding of the trade effects of public policies is complicated by four factors.

First, the effect of technical measures, such as those covered by the SPS and TBT agreements, depends significantly on how they are applied, or administered. Evidence from business surveys shows that procedural obstacles, for instance conformity assessment procedures, can be a major source of difficulties for exporting firms.

Second, while public policies need not be trade distorting or trade restricting in and of themselves, they may be designed in such a way as to impart an intentionally protectionist effect while serving a public policy objective. Such measures assume a “dual purpose”, and this interface between public policy and protectionism poses an important challenge for the WTO and has been at the heart of a growing number of dispute settlement cases.

Third, even in the absence of protectionist intent, national policies that result in regulatory discrepancies can substantially raise trade costs and reduce or distort trade flows. There are various reasons why national policies may diverge. Divergence can be incidental or path dependent. Different regulatory approaches may not be intentional, but rather rooted in habit or custom.  Divergence between national or regional public policies may also reflect different social preferences. In other words, value systems among societies may vary, giving rise to contrasts in approaches to precaution that can be difficult to reconcile.

While it can be argued without too much controversy that it is desirable to reduce the deadweight costs of inefficient systems, or to address protectionist measures hidden behind legitimate public policy interventions, it is by no means obvious that we can argue for uniformity in the substantive objectives behind public policy, even if differences impact trade. Here, the challenge is more nuanced. We would like to minimize incidental divergence, but trade can hardly trump social preferences in matters of public policy. In these circumstances — where genuine differences prevail in public preferences and objectives — regulatory harmonization or mutual recognition arrangements may be a better avenue. But what is clear is that greater political energy is necessary to reduce these divergences in order to level the playing field.

The fourth reason why NTMs can be difficult to gauge in terms of their trade impact relates to measurability. With tariffs, it is a relatively straightforward matter to estimate trade impact. But NTMs are much harder to assess in these terms. Sometimes, economists resort to various kinds of price gap analysis, which require a good deal of information not always easy to obtain, and these calculations inevitably involve certain assumptions. Even more tentative are analyses that rely on counting measures and then assuming that numerical incidence is a good proxy for impact.  We have no easy solution to these measurement challenges, short of detailed product-level analyses.

Challenges for the multilateral trading system

The multiplication of public policy measures raises a number of challenges for the multilateral trading system.

More transparency is needed. We know far less than we should about the existence and effects of public policies that carry potentially significant trade effects. This means that information on the measures themselves, while necessary, is not sufficient. It is crucial to assess how much the measures diverge from each other or from international standards. When they exist, the modalities of application should also be documented. It is no secret that many members have not been as diligent or prompt as they could have been in making notifications required by the WTO Agreements. The rising importance of NTMs for trade will continue to increase the cost of information deficiencies.

With its various transparency mechanisms, the WTO has a major role to play in reducing opacity. The post-financial crisis monitoring mechanism has been helpful. It is working as an effective tool to document the short-term evolution of trade policies. The very existence of the mechanism may also influence government behaviour.

As a parallel initiative, we have started an important project aimed at facilitating access to information from notifications. The new Integrated Trade Intelligence Portal (I-TIP), which will be formally launched at the end of this year, will provide unified access to all WTO databases, and in particular to all information on NTMs collected through notifications. While other international organizations are also making important contributions in this area, through increased compliance with notification obligations, it is clear that governments hold the key to a sustainable improvement in the level of transparency.

Our committee structure and the continuing work of various committees, such as the SPS and TBT committees, play an important role in helping members to reduce conflicts and find cooperative solutions to problems that arise in relation to public policies. Such work generally takes place unnoticed by the public and with little fanfare. When, however, opinions differ as to the justification for regulatory divergence, or over procedural approaches to administering regulation, dispute settlement procedures may kick in. The essential challenge is to ensure that legitimate differences are preserved and respected at minimum cost in terms of trade effects.

Growing interdependence among nations, as well as growing consumer awareness, have certainly focused greater attention on NTMs. As the use of NTMs increases, the potential for friction is likely to increase. A number of high-profile disputes have already arisen around public policy measures. The SPS and TBT agreements go beyond non-discrimination and include the need to ensure that measures are not unnecessarily trade restrictive. As has been made clear by recent decisions of the Appellate Body, this can involve WTO adjudicators being called upon to assess the legitimacy of the objectives that a member pursues through domestic regulation, and to scrutinize the regulatory choices and distinctions that it makes in seeking to achieve those objectives.  Some question the appropriateness of adjudicators having to do this, and ask, more generally, how the line should be drawn between an inappropriate inquiry into government motivation and an appropriate assessment of measures that have trade effects and that are challenged by other members.

The difficulties faced by poorer countries in meeting standards in major markets are another source of concern. For poor country exporters, the problem is often one of capacity. It may be too costly for firms to adapt to stringent standards required to access rich countries' export markets, and for governments to supply the appropriate infrastructure for conformity assessment. The Standards and Trade Development Facility (STDF) has proven to be very relevant for building the necessary capacity for poorer countries in the SPS area but there is no similar tool to address standard implementation in the area of TBT.  Some developing country exporters also face other problems. First, their involvement in international standard setting is limited at best. Second, they are very concerned that private standards, which increasingly affect trade, may fall outside the coverage of WTO disciplines.

Future challenges

Looking ahead, it seems to me that with NTMs we need to reflect more carefully on our core culture and approach to trade opening. A new horizon and context must be defined. With tariffs and quotas, the long-term objective of negotiations has been the progressive reduction or elimination of measures and their consolidation — or binding — under the WTO’s legal instruments. Public policies, however, cannot simply be reduced and eliminated. In other words, the “zero” horizon for tariffs or quantitative restrictions, implicit as it may be, does not work for NTMs.  

The old reciprocity concept in the form of mutual exchanges of market access commitments is difficult to apply to public policies. Bringing public policies to zero is certainly not applicable. And special and differential treatment in the form of exceptions or exclusions from the application of these public policies is difficult to imagine.

This re-orientation in our thinking is a basic challenge. In an era where public policies move towards centre-stage in trade politics, the objective of trade opening, and the pursuit of opportunities stemming from specialization through trade, requires a clear understanding of how, when and where regulatory convergence should be promoted. The potential for harmonization among a large set of countries is limited by differences in preferences, levels of development, and the capacity to ensure good governance. The potential for mutual recognition, which requires a high degree of trust, is also limited to “clubs” of countries sharing a similar approach. These two options may take root more easily through regional cooperation agreements than multilaterally. At the multilateral level, the WTO promotes convergence through its transparency provisions, through Aid for Trade and by encouraging governments to embrace best practices and adopt international standards. But the WTO is not the place where these standards are crafted. This task belongs to other international bodies.

At the same time, as suggested by recent Appellate Body rulings, existing disciplines do leave considerable scope for the unilateral pursuit of public policy objectives without running afoul of trade commitments. How to use the current framework of rules that seeks to strike the right balance between the pursuit of public policy objectives and the pursuit of gains from trade is a question that members will probably have to contemplate, with increasing frequency.

I look forward to further discussion and debate of these issues as members inevitably focus on the future of our core business which remains to open trade, and, in order to do so, to address obstacles to trade in a way that respects legitimate public policy concerns. Let me, in closing, thank the Secretariat team for the huge amount of work they have put into what I believe is a great intellectual contribution. But of course, as usual, it is up to you to judge!

Thank you for your attention.

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