How can we bring the trade and regulatory communities together?

It is commonplace to state that markets nowadays are essentially segmented through regulatory barriers. True, tariff barriers matter in some markets, but in some markets only, and their impact on market segmentation is diminishing every day. The General Agreement on Tariffs and Trade (GATT) recipe to tame regulatory barriers is through the application of the non-discrimination principle. Non-discrimination means that policies are unilaterally defined and applied to domestic and imported goods in an even handed manner. There is no obligation to negotiate the rationality of domestic regulation. The WTO, with respect to the Technical Barriers to Trade (TBT),Sanitary and Phytosanitary Measures (SPS), and General Agreement on Trade in Services (GATS) agreements, has modified its attitude towards regulatory barriers. It is a good first step, but not enough. The WTO needs to enhance its existing initiatives, build bridges to the “hothouses” of regulatory cooperation, and learn from best practices worldwide. Unless it does so, its relevance on world trade risks being eviscerated in the years to come.

The GATT focus

The GATT text comprises various provisions dealing with tariffs and import and export quotas, but only one for all domestic regulation. This might come as surprise to today’s practitioners, but it was a rational policy back then.Baldwin has explained that it was high tariffs that segmented world markets. The bite of domestic regulation was almost impossible to quantify. Tariffs had to be dropped first. The GATT was thus a tariff bargain. Commitments with respect to regulatory barriers were a supporting act: it was the insurance policy that negotiators sought that protection would be negotiable and not a matter of unilateral policies. This is where non-discrimination kicked in.

Into the great wide open: WTO

The lowering of tariffs over the years led to the negotiation of three agreements that deal with regulatory barriers, the TBT, the SPS, and GATS. The first two go further than the latter. Moreover, the recent Trade in Services Agreement (TISA) initiative casts doubt on the continued relevance of the WTO in this context. The TBT and SPS Agreements provide for an obligation to base regulations on world-accepted standards, such as science and international standards; to adopt regulations that do not have a dramatic impact on international trade (a necessity); and to further require trading nations to be consistent in their formulation of policies (and thus curb even further uncertainty regarding their trade policies). In recent years, especially the TBT Committee has taken active steps to enhance regulatory cooperation by encouraging the adoption of best practices.

Is it enough? No. First, the scope of these agreements is narrow. Second, while these agreements take some steps towards rationalisation of unilateral policies, they fall short of providing a forum for cooperation. It is no accident that the WTO has not managed to add any new agreement dealing with regulatory barriers, other than theAgreement on Trade Facilitation. The legal institutions embedded in this agreement were already known though. This is not to say that there is paucity of initiatives in this realm outside the WTO. What follows is a highly selective discussion of substantive initiatives and institutions that have made headway in the realm of regulatory cooperation.

Clubs

Horn, Sapir, and Mavroidis examine free trade areas signed by the EU and the US between 1992 and 2008. The overwhelming majority of the content concerns the taming of regulatory barriers. Various other FTA-specific studies confirm this finding. Mechanisms for institutionalising regulatory cooperation, like the US-Canada Regulatory Cooperation Council, or Food Standards Australia-New Zealand, are frequently used.

Similar cooperation does not have to take place outside the WTO. Plurilateral agreements offer a very attractive option. Hoekman and Mavroidis explain why, from a multilateral perspective, plurilaterals are a more attractive option than FTAs, since they keep the umbilical cord to the WTO intact. They have been used in the government procurement area so far, but possibilities are endless.

Unilateral initiatives

The Obama administration has taken unilateral initiatives to assess the trade impact of US regulation. Coglianese explains in detail how the system works. What is of importance to our discussion here is a by-product of this initiative: the US regulatory and trade communities have to get together to honour this initiative. This is the basis for regulatory cooperation across nations as well, for a platform is necessary for the two communities to meet and discuss each other’s worries and solutions.

Lessons for the WTO

Where does all this take me? The WTO, its valiant efforts in the TBT/SPS context notwithstanding, has found it difficult to emerge as the forum for regulatory cooperation. The impossibility to conclude one agreement on this front following the enactment of the TBT and SPS Agreements is the best proof to this effect. Unless it does so though, it risks seeing its relevance diminished in a world where regulation (almost) exclusively nowadays segments markets. What could be done? Here is an inventory of proposals:

• Enhance cooperation within clubs under its aegis, build bridges with FTAs, and encourage establishment of plurilaterals. Intense regulatory cooperation will take place across like-minded countries, and the membership should be part of looser cooperation anyway;
• Request that WTO Members provide both ex ante as well as ex post assessments of the trade impact of domestic regulation. Bringing the two communities (regulatory, trade) together at the domestic level will facilitate cooperation at the international level as well. In this vein, it should encourage the participation of the civic and the business communities, domestic and foreign, in the elaboration of measures;
• Insist and enhance its current initiatives on
  • transparency, moving to “reasoned” transparency, as Coglianese has termed it. Transparency, as Wolfe has persuasively argued, is the first decisive step towards cooperation;
  • encouraging good regulatory practices, mimicking the best interventions around.

The WTO should become an information exchange system about regulatory interventions and a platform for solving, when appropriate, problems together.

This article is published in collaboration with the E15 Initiative. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Petros C. Mavroidis is the Theme Leader of the E15 Task Force on Regulatory Coherence and a member of the Expert Group on Competition Policy. He is the Edwin B. Parker Professor of Law at Columbia Law School, currently on leave at the Robert Schuman Centre at European University Institute (EUI), Florence.