Modernising Trade Rules: A New Way of Opening Markets

Modernising Trade Rules: A New Way of Opening Markets
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The international trade rules of the WTO were agreed over 25 years ago, and don’t always fit easily with a number of new issues of growing concern to many people, such as climate change, environmental issues, labour rights, and animal welfare. The rules need updating to better accommodate such concerns, but the prospect of a new multilateral round of negotiations to negotiate new rules is vanishingly small.

When the core WTO rules in the GATT agreement were negotiated over 70 years ago, the drafters understood the need for flexibility and exceptions to the general rules of non-discrimination, and agreed to a number of exceptions, including GATT Articles XX and XXIV. While keeping with the spirit of trade liberalisation we need now to show similar flexibility and imagination to accommodate the new challenges of the 21st century. Introducing rules of methods of production (ROMP), which reduce tariffs on products that conform with particular production standards, may provide a way forward.

Certification needs to be based on clear, objective, and verifiable criteria established in a transparent manner.

Essentially, ROMP are a variant of the rules of origin (ROO) contained in all FTAs. ROO determine which goods from the parties to an FTA benefit from trade preferences. If an importer wants to benefit from preferential trade provisions, they must be able to demonstrate that the goods were made in a particular way. Pies, for example, may not contain more than x% Canadian beef, even though it is no more possible to tell where the beef came from, from simply inspecting the pies, than it is to tell how the beef was raised. ROO rely on inspections and certifications along the supply chains.

In contrast, ROMP could be implemented to determine which goods from anywhere in the world, made by specified production methods, can benefit from trade preferences. Goods produced using the specified production methods would pay a lower tariff, while those that do not would continue to pay the applicable MFN tariff. They could be based on government regulations concerns production standards and methods, or they could be based on private production standard schemes. Either way, certification needs to be based on clear, objective, and verifiable criteria established in a transparent manner. As with GATT Art XX, these criteria must not be determined “in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade”. As well, as with GATT Art XX(g), “such measures (must be) made effective in conjunction with (like) restrictions on domestic production or consumption.”

ROO are always negotiated between the FTA parties. ROMP could also be negotiated as part of an FTA, such as the EU-Mercosur agreement on eggs and the USMCA agreement on autoparts, but they could also be established unilaterally and offered on an MFN basis.

Unlike the ROO in FTAs, which are agreed exceptions to the general non-discrimination rules, implementing ROMP:

  • Would not require an exception to the general rules of non-discrimination because they would not disadvantage anybody
  • Are entirely within the trade liberalising spirit of the GATT because their only effect on trade in to open markets
  • Help to address some of the new 21st century concerns
  • Could provide much needed public support for the international rules-based trading system

Reports that the UK are now proposing a “dual tariff” scheme that appears to be very similar to this, are very welcome news. It could make a great contribution to Global Britain showing the leadership needed to help modernise the international trade rules and make them better suited to the new challenges of the 21st century.

The post Modernising Trade Rules: A New Way of Opening Markets appeared first on Global Vision UK.

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