Standards, regulations & trade in goods – a primer

‘Standards’ and ‘regulations’ are critically important for trade and have entered the public discussion about Britain’s future trade relationship with the EU and the rest of the world. But what are they’? Are they the same? Are they compulsory or voluntary?

This is an attempt to explain as simply as possible how they work in international trade. And to keep it simple, it only deals with standards for goods — key, for example, to what happens on the Irish border — even though standards also exist in services.

Standards and regulations were part of the Brexit debate from the start. Many standards applied in the UK are the EU’s, although quite a lot are the UK’s own. One purpose of Brexit is supposed to be to allow the UK to have its own standards or even to scrap some standards completely. That might be easier said than done.

A smooth-running Brexit will require the UK and its trading partners, including the EU, to try to recognise each other’s standards and regulations or to pool them in some way. And if standards diverge on either side of the Irish border, the border will no longer be frictionless.

What are product standards?

They are descriptions of criteria or specifications that products may have to meet for various purposes such as health and safety, or compatibility.

For example, food safety — 0.2ppm pesticide residue. On April 25, 2018 the US notified the World Trade Organization (WTO) that it intended to apply a new food safety standard that would set new limits in residues of a pesticide called clethodim in products ranging from almonds to brassicas and other vegetables. For almond husks it would be 0.2 parts per million (ppm); for green onions 2.0 ppm; and so on. The notification also says there is no equivalent international standard, so this is a US standard.

This was the 2,779th time the US notified the WTO about its draft, new, revised or updated pesticide residue standards and regulations since the WTO was set up in 1996.

For example, compatibility — plugs. When we travel we soon come across a problem — our plugs often don’t fit into the power sockets in other countries. Wikipedia lists over 30 different types of plugs used as standard in countries around the world. Although there will be safety aspects for all of them, that does not determine the number of pins (there are even two-pin plugs with separate earth contacts), or the pins’ sizes and shapes, or the dimensions of the plugs themselves. Note that the UK has its own unique plug standards as do several other EU members.

2018 05 08 PLUGS
Round holes and square pegs: over 30 standards cover safety but create compatibility problems

Are standards compulsory?

Some are, some aren’t. When a country adopts standards for food or electrical safety they are usually compulsory: all suppliers have to meet the standards by law. But standards can also be voluntary.

Standardising the electrical plugs and sockets in various countries is for convenience (within the country) as well as safety, but we often see other types of plugs used as well. It all depends on the country’s rules.

Even with food, some standards are not compulsory. Take “fair trade” and “organic” food. Or the UK’s voluntary standards for “Red Tractor”, “Lion Eggs” and other labelling. They are voluntary because producers can sell the products without complying, but compulsory if the producers want to use the label.

What about regulations and legislation?

Many regulations have nothing to do with standards. But when a country adopts a standard, either compulsory or voluntary, it usually does so through a regulation, which says what the adopted standard is. That regulation often comes under a law, for example saying the country’s food and drug authority or food safety agency has the power to issue regulations to ensure food is safe to eat.

So the hierarchy is usually:

(1) law assigning power or authority — but sometimes with more specific details;

(2) rules and regulations under the law;

(3) standards cited in the rules and regulations.

In other words a “standard” is a description; a regulation makes the standard a requirement.

Who sets the standards?

In the WTO, countries are free to choose what standards to adopt, but with some conditions. They are encouraged to use internationally-recognised standards. Or they can set their own provided they can justify the standards with scientific evidence and risk assessment. The purpose is to ensure the standards are genuine, not arbitrary or an excuse to be protectionist.

2018 05 08 LETTUCE SPRAYING
Spraying lettuces in Arizona: the US has close to 2,800 WTO notifications on pesticide residues | Jeff Vanuga, public domain

Who sets international product standards?

A common misunderstanding is that the WTO sets product standards. It doesn’t. The international standards-setting bodies are outside the WTO. To see how this works, it’s best to separate two sets of standards.

  1. Food safety, and animal and plant health (sanitary and phytosanitary measures — SPS). The WTO’s SPS Agreement identifies “three sisters” as recognised standards-setting bodies in its preamble:

The agreement leaves open the possibility of adding others. Countries are free to adopt standards from the “three sisters” or set their own — as the US has done with the pesticide residue. If they do use these international standards they are more or less safe from a legal challenge in the WTO.

  1. Other standards. These come under the WTO agreement on Technical Barriers to Trade (TBT) whose coverage also extends beyond standards to labelling, regulations, and how regulations are created.

Both SPS and TBT deal with human health. If it’s food safety, it’s SPS. If it’s nutritional requirements or labelling, or the safety of non-food products, it’s TBT.

The situation with TBT  is much more complicated than with SPS. There are hundreds of standards-setting bodies around the world, many specialising in specific industries, many involving the private sector.

The TBT Agreement doesn’t mention any particular bodies. Instead, it creates a “Code of Good Practice for the Preparation, Adoption and Application of Standards” and says any standard-setting body complying with the code is considered to be complying with the agreement. Note that the Code of Good Practice is itself a set of standards, and is required for more or less automatic safety against legal challenge in the WTO.

So who set the standards for those plugs? One set of standards is “CEE 7”. They come from the International Electrotechnical Commission (IEC), a not-for-profit, “quasi-governmental” organization whose delegates include representatives of government and industry.

Plugs are only a small part of IEC’s work. It has 203 technical committees and subcommittees working on standards and technical specifications of everything from miniature fuses and overhead cables to nuclear instrumentation. And that’s only in electrical technology. The International Organization for Standardization (ISO) lists over 22,000 standards in around 300 categories.

Do those two agreements only deal with standards?

No. Both cover broader regulations as well. For example in SPS, the OIE’s animal health measures include how to deal with an outbreak of disease such as foot-and-mouth: establishing zones to deal with different degrees of infection and risk, quarantine, treatment, how other countries might react and more.

The TBT Agreement includes broader provisions on regulations and labelling — such as nutritional information or health warnings.

Are CE marks EU standards?

Not exactly. They are certificates. Many — but not all — products sold in the European Economic Area (EU plus Iceland, Liechtenstein and Norway) have to have the CE mark. They are declarations by the manufacturer that the products meet the EU standards that apply to those products. They are not a guarantee that the products can be sold.

Because the EU and its EEA partners are such a large market, manufacturers outside the area use the CE mark even if some of their production is sold in countries that don’t require it.

Incidentally, this is different from the UK’s Kite Mark, which is owned by the British Standards Institution otherwise known as the BSI Group, and is intended to assure consumers that a product is safe but not necessarily that it meets any official requirements.

Are international standards compulsory or voluntary?

As far as the WTO is concerned, they are voluntary. Countries can choose whether to adopt them or not, but have to justify using alternative standards. The IEC says its standards are “entirely voluntary.”

But once adopted, a country’s standards — or the EU’s in the case of its member states — are compulsory for suppliers. So producers exporting almonds, green onions or brassicas to the US will have to meet the 0.2ppm to 3.0ppm maximum levels for clethodim residues, which apply only to the US.

Surely we should try to make life simpler?

Yes. Or as one person said on Twitter the aim should be to allow producers to “test once and export everywhere”.

The WTO’s TBT and SPS agreements encourage countries to move towards “harmonising” their standards. This can mean, for example, adopting identical standards, “regulatory alignment” or simply recognising that another country’s standards or methods of testing are equivalent to one’s own for a given purpose — such as protecting health — even if they are not identical.

One international body is working towards closing international gaps in regulations for cars. This is the UN Economic Commission for Europe (UNECE), which hosts the World Forum for the harmonisation of vehicle regulations. UNECE regulations for cars are increasingly cited in trade agreements such as the EU-South Korea pact, which lists EU regulations alongside the UNECE equivalents.

But countries often prefer tighter criteria, particularly if they are large enough and have enough bargaining power so that exporters have to meet their requirements. It’s easier to get the world to accept EU, US or Japanese standards than those of a smaller country such as Switzerland.

Does reclaiming sovereignty have a cost?

This is important for Brexit. Part of Brexit is about reclaiming the power to set the UK’s own product standards, in addition to the areas — like plugs — where the UK already has its own.

Achieving that comes at a price: in fact at two prices.

One price is creating costs and infrastructure for goods crossing the Irish border. It’s why the talk is now about recognition and harmonisation of UK-EU standards (or “regulatory alignment”). This might even mean the UK continuing to use EU standards, but from outside, unless another solution is found. As an EU member the UK always had a say in EU regulations.

The other price is more complexity and red tape in trade with the EU and other parts of the world more generally.

When British producers sell domestically and export to the US, at the moment they only have to consider two sets of standards, typically EU and US. If the UK has its own standards, they will have to consider three. In some sectors that will be easier to handle than others.

It will also be tougher for UK producers who currently only sell in the EU and want to replace some lost EU sales with exports to the US. They will face two sets of standards instead of one – at least.

And standards in services?

There are also standards and regulations in services. Financial regulations designed to make bank customers’ deposits secure can include requirements for how much capital a bank should have in proportion to deposits. The US and Eurozone both have these requirements.

There is even an international standard-setting body — the Bank for International Settlements in Basel, Switzerland — whose “Basel I” to “Basel III” regulatory frameworks include standards for capital requirements. The EU applies these standards through Regulation (EU) No 575/2013 and other documents. The parallels with standards and regulations in goods are clear. But this deserves separate treatment.

 

Peter Ungphakorn is a former WTO official and long-standing trade expert. He runs the Trade β blog, and contributes regularly to the UK Trade Forum.

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