By Chinmay Deshmukh
Multilateralism is at a crossroad. Over the years, eight successful rounds of trade liberalization at the WTO have brought down tariff barriers to a negligible level, as compared to earlier times. As the role of conventional tariff barriers is gradually diluting, preferential trade agreements aimed at tariff reductions have lost their importance, and therefore, the focus of international trade and investment policy has now shifted to the non-tariff barriers and behind the border measures, involving domestic regulations. Indeed, some scholars argue that if we intend to further the cause of trade liberalization on a global basis, global regulatory convergence calling for similarity in domestic regulatory institutions and procedures is the only way forward.
Why the need for Global Regulatory Convergence?
Absence of compatibility of regulations across various regulatory jurisdictions, in sectors varying from pharmaceuticals, chemicals, agricultural goods, to environmental protection standards, labour standard, food safety standards, competition law, and so on has the effect of significantly increasing the transaction cost, including the compliance and enforcement costs for both industry and the government agencies. Such domestic regulations can serve legitimate public policy objectives, such as protecting the consumers health and safety; however, a worrying trend is emerging where they are being employed for protectionist purposes. For businesses, the higher cost of dealing with border administration can considerably add to the price of goods, hindering their international competitiveness in modern global value chains framework. It also complicates the process of large scale transnational mergers and acquisitions. For consumers, who end up bearing the brunt of this sub-optimal regulatory environment, the cost of regulatory divergence, thus, translates into a hidden tax.
Whether Convergence is a desirable goal?
There is no denying the fact that an international trade framework where each country is asserting its own regulatory model is turning out to be highly inefficient as well as incapable of pushing for further trade liberalization. This is where the need for promoting regulatory convergence comes in. Regulatory convergence requires recognition by the WTO member countries of each others standards, while maintaining required safety, health and environmental protection levels, to avoid any needless restriction of trade flows advantageous to consumers and producers alike. With respect to standards, it means increased cooperation between standardization bodies across countries. Greater regulatory convergence will boost trade, reduce costs, generate employment, and improve the international competitiveness and export performance of the businesses, strengthening the industrial sector and its economic contribution in all regions. Efforts are already being made through negotiations over the much anticipated TTIP towards this end, and if successful, will provide great impetus to the global regulatory convergence movement.
Nevertheless, while current push for regulatory compatibility showcases a bona fide attempt to get rid of unnecessary trade barriers, there is good reason to be sceptical, or at least cautious, towards the recent calls for global regulatory harmonization as a correct response to these problems. Some critics have pointed that the push of global regulatory convergence might serve as a tool in the hands of powerful economies to arm-twist the negotiators from developing and least developed countries to serve their own national interests and expand their markets. They further argue that the objective of full harmonization or mutual recognition is impractical and unachievable considering the technical complexity and fundamental differences in countries existing legal frameworks, social preferences and priorities. Moreover, such harmonization might hinder the ongoing efforts towards policy experimentation and innovation in various domestic regulatory systems worldwide. The recent financial crisis has further added to the fear of the unknown in the minds of policy makers and implementers, concerning the repercussions of such extensive integration.
How the WTO can productively engage in the convergence process?
Genuine intentions alone do not make for good regulations. Efforts towards convergence would naturally call for an international regulatory organization that has crucial responsibilities in the global environment. This environment creates an ideal opportunity for the WTO, at a time when the organization seems to be losing its relevance, to actively engage in the harmonization process by creating an institution dedicated to the development of principles, approaches and enforcement mechanism for good regulations. This institution would act as a forum for public policy dialogues and regulatory negotiations among policy makers, researchers, practitioners, and stakeholders across the globe, from both legal and economic standpoints. The WTO also has a key role to play with its transparency mechanisms in ensuring the transparency of domestic regulations and practices, specifically those concerning the non-tariff barriers and services.
Conclusion
The path to convergence is not an easy one. On one hand, it promises to promote consistency, predictability and transparency in different regulations and standards, and on the other hand, it raises serious question as to the willingness of sovereign states to delegate their regulatory autonomy to international institutions. I am inclined to believe that as a result of progressive economic globalization and international interdependence, future regulatory convergence among the WTO members is inevitable. The only question is: at what cost?
Chinmay Deshmukh is a fourth year student at the National Law University, Jodhpur. He is pursuing B.P.Sc. (Hons.) LL.B. (International Trade and Investment Law Hons.) in the University. He is an associate editor at NLUJ Law Review. After completing the LL.B., he plans to pursue Masters of Public Policy. His interests includes International Relations, International Trade Law, Public Policy and Economics. He can be reached at chinmaydeshmukh1@gmail.com.