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Standards, testing and certification requirements is one type of a Non Tariff Barrier (NTB) faced by exporters that prevent them from effectively utilising the trade concessions available under the FTA framework. While MRAs are an effective tool in addressing standard related NTBs with 
any trading partner, they become even more relevant within the context of FTAs. This is because there is a tendency for NTBs to go up when tariffs go down and NTBs effectively erode the market access gained through tariff reductions making FTAs an ineffective tool to enhance exports. While most countries make MRAs an integral part of the FTA framework, Sri Lanka so far has failed to do so.
After a long period of silence in the field of trade negotiations, there is renewed interest in the country to forge new 
trade deals with countries like China and Japan and expand existing ones with countries like India. Therefore it is timely to take a look at ways to correct some of the weaknesses in the previous agreements when signing the new ones.
Standards, testing and certification requirements are necessary and legal
Every country has the right to impose standards on products imported into the country and they are necessary and legal. Examples are standards imposed on products to protect the health and safety of consumers and to protect the environment.
Testing and certification requirements are a means of assessing that the imported product meets with the set standard. Lack of such standards, testing and certification requirements exposes a country and its people to health and other risks that come into the country with imported items. Therefore requiring an importer to comply with such standards is not necessarily a barrier to trade.
Legal and necessary standards can however become NTBs
These perfectly legal and necessary standards, testing and certification requirements can be used as a Non Tariff Barrier to discourage imports and research as well as legal cases filed within the WTO framework has revealed that many countries do so. Given below are few examples.
If a country imposes a standard on a particular food item with the objective of protecting the health of the consumer, if the objective is genuine and is to be effectively achieved, all such food items must comply with the standards, whether they are domestically produced or imported. This is a legal requirement under the WTO law as well.
However, there are many instances where countries impose the standard only on imported products. This can be done directly, where the regulation clearly states that only imports are subjected to standard testing and not the domestically produced goods. It can also be done indirectly where standard in the regulation covers both imported and domestic products, but in implementation only the imported products are checked for compliance. In such instances it is obvious that the objective of the standard is not consumer protection, but discouraging imports.
The delays and bureaucratic red tape entailed in carrying out the testing and certification of imported items to assess their compliances can make the standard a NTB as well. The processed food products exporters of Sri Lanka experienced this type of NTB when exporting to India under the India-Sri Lanka FTA. The exported items had to wait in the port until the lab tests arrive from Indian labs, and these test reports took weeks to arrive at the port.
This delay made the exporters bear demurrage cost, damages to products caused by for example heat and made them lose valuable customers and sales (e.g. if goods were to be delivered to be sold during a festival season, the delay at the port makes the exporter miss the festival and therefore the sales expected). After lengthy negotiations for several years, the time taken to produce reports has been brought down; however, this is not a long lasting ideal solution to address the problem.
The fees levied to produce the test reports and obliging the exporter to obtain reports only from a few labs identified by the Government can also make standards compliance a NTB. This is another problem faced by medium scale processed food exporters from Sri Lanka to India whose export quantities are small and consist of different types of items.
When cost of obtaining test reports for each item is added, the cost of compliance relative to revenue from sales tend to be high and can negatively affect price competitiveness. The fees however become less of a problem if export quantities are large. Lack of reliable information about the standards, testing and certification requirements and frequent change of procedures and length taken to check compliance also make standards a NTB.
NTBs can completely nullify the benefits of low tariffs enjoyed under a FTA
If the objectives of the standards are legitimate and reasonable, if information about standards, testing and certification requirements are freely accessible and reliable, if they are made mandatory to both imported and domestically produced goods and equally applied in a transparent manner, if the time taken to issue reports is in line with the time required, and the fees levied in line with the costs incurred, then standards cannot be considered a barrier to trade. As the discussion above indicates, unfortunately this is not the case in the real world.
NTBs can completely nullify the benefits exporters get from low or zero tariffs granted by the partner country under a FTA. The access to market can be severely restricted by the time and cost taken to comply with the requirements. Therefore it is important to institute a mechanism to reduce the possible costs of NTBs that can result from mandatory standards, testing and certification requirements imposed by the partner country.
Mutual recognition without harmonisation is possible
Out of the type of NTBs discussed above, other than the discriminatory application of the standards; others can be addressed through a mutual recognition agreement or a similar type of a framework of understanding. The name of the agreement is not important, the content is what matters.
Many still seem to think MRAs require harmonisation of standards, but this is not the case. Harmonisation of standards is difficult and lengthy exercise. It requires countries to agree to adopt the same standard. For example, India may have a standard for a particular food item, which is lower than Sri Lanka and harmonisation will require either India to adopt the higher standard or for Sri Lanka to lower its standard, and arriving at an agreement as to who should do what is challenging. If the product basket is large, the task becomes daunting.
The easier and practical way forward is to keep each other’s standards as they are and limit mutual recognition to conformity assessment procedures. In other words, to test reports and certificates issued by credible and competent testing and standards institutes in each other’s country. This means when India requires a certain type of test reports to confirm that exported item from Sri Lanka is compliant with “the Indian standard,” the Indian authorities will accept the test report issued by a competent and registered organisation in Sri Lanka and vice versa.
The relevant authorities in each country can visit and confirm the technical competency of testing labs in each country to carry out the tests required prior to signing the agreement. By doing so the responsibility of compliance with Indian standards is transferred from the Indian Government to the Sri Lankan Government and vice versa. The advantage lies in the level of interest and motivation each country has to promote exports by facilitating compliance with standards fast and at a reasonable cost.
The countries in general view exports as a benefit and are eager to facilitate and promote exports, hence when compliance is assessed at the point of exports, it is likely to take less time and cost less. In contrast imports are viewed as a cost or a threat, and countries are eager to discourage imports especially if they are deemed domestic industry sensitive, hence compliance at the point of import is likely to take more time and cost more.
The arrangement Sri Lanka has with EU with respect to complying with EU Standards on fish imported to the EU is a good example of the success of this kind of formal agreements. Sri Lanka has not adopted EU standards on fish (which would be the case if standard are harmonised). Instead, to facilitate exports and to meet the stringent quality requirements of the EU, Sri Lanka has instituted a process and a lab certified by the EU to check and certify that fish exported from Sri Lanka complies with EU standards and EU accepts the certification issued by the Sri Lankan authority.
This has enhanced the quality of fish exported from Sri Lanka and reduced the cost of compliance to exporters. Further according to exporters, one factor that contributed to cushion the negative impact of losing GSP plus on fish exports is the satisfaction EU buyers have with the quality of the fish exported from Sri Lanka.
Misusing the system, forging documents and certificates
There is fear that exporters will forge documents or even that the institutes designated to issue certificates will issue reports without carrying out proper tests leading to sub standard products entering the country. The border agencies are there to facilitate trade of legal and safe products and to block illegal and harmful products. Trade barriers arise when border agencies block for various other reasons even the trade of legal and safe products.
The border agencies that enter into an agreement with a similar agency in another country to accept reports and certificates issued by that organisation and not to check each and every imported product at the point of imports do so on mutual trust. However, this does not mean that the agreement takes away the right of the local authorities to check products completely.
The agencies can continue to check from time to time to ensure that the agreement is adhered to and the products are of expected quality. This should be done based on risk assessment and with the genuine objective of preventing sub standard products entering the country and not with the intention of blocking imports. If it is found that the authorities in the exporting country are violating the agreement or exporters are forging documents, the legal authorities have the legal right to prevent entry of such products.
This is the practice of countries that put trade facilitation high on their agenda. Fewer and fewer countries are insisting on testing each and every product at the point of imports by organisations in the importing country and when they do, it is usually with a hidden agenda of protecting their domestic goods from import competition. However, they do have proper mechanisms to check from time to time that the products with third party certificates are in fact compliant with their standards.
Not repeating past mistakes
Exporters who became jubilant with the duty free access to Indian market and started exporting food items at the initial stages did suffer due to time and cost entailed in complying with Indian testing and certification requirements. Despite having a number of agreements with other countries, India is always pointed out as the guilty party, simply because trade with India has higher potential and is of higher interest to Sri Lankan exporters compared to other FTA partners. To this date, the issues faced by exporters are addressed on a case by case basis through government to government consultations which at times can take even years to resolve the problems. There is already a MRA between India and Sri Lanka; unfortunately it speaks of harmonisation of standards, and therefore has not been of any use to address NTBs faced by exporters.
On the part of exporters from India, the NTBs related to standards, testing and certification requirements of Sri Lanka has not been highlighted as a significant barrier maybe due to two reasons; one, Sri Lanka is a country that do accept test reports and certificates issued by authorities identified by them as competent and reliable on a unilateral basis and second, the Export Inspection Council (EIC) of India already has a one-way agreement with Sri Lanka Standards Institute where SLSI has agreed to accept test reports issued by EIC. This agreement signed in December 2002 makes one think that Indian authorities had been more forward thinking than Sri Lankan authorities in realising the importance of having a mutual recognition agreement on testing and certification to ensure that the market access gained for Indian exports through tariff reductions are not nullified by NTBs.
Maybe it is time to learn from the past mistakes and assign greater importance to having mutual recognition agreements or any other similar framework with the new FTA partners with respect to standards, testing and certification requirements and also negotiating ones with the existing FTA partners. This can be done in parallel with the trade negotiations, can be an annex of the FTA or can even be an agreement negotiated completely outside the FTA framework. What is important is to institute a mechanism where exporters can comply with importing country standards, testing and certification requirements at a reasonable cost and without undue delays.
(The writer is Senior Economic Analyst, Verité Research Ltd.)
