Food Quality and Safety - IV

The outcomes of SPS Agreement

The SPS Agreement and the related dispute settlement mechanism of the WTO are an important first step in strengthening the global trade architecture, in bringing in greater transparency and orderly conditions to world food trade. However, the implementation of new trade rules has turned out to be a more complex task than the traditional market access tasks undertaken by the WTO.  In particular, hampered by various resource constraints, and inadequate assistance from developed countries, developing countries have not become effective participants in the implementation process of the Agreement.

Unlike conventional trade policy reforms, SPS regulations cannot be implemented simply through legislative declaration. Their effective implementation in developing countries requires that binding commitments are made to provide adequate financial and technical assistance. In particular, there is a need for a global framework to support national capacity building and improve the design of international standards.  By its very nature, the WTO is unable to play a major role in addressing the supply-side and institutional constraints confronting low-income countries. Concerted multilateral efforts outside the WTO are needed to mobilize additional financial and technical assistance.  As Hoekman (2002) has argued, this is an area where there is a clear need for providing ‘aid for trade’. 

Dispute Settlement Mechanism (DSM)

The Agreement provides for the settlement of disputes about the legitimacy of SPS measures that affect trade through the general Dispute Settlement Mechanism (DSM) of the WTO.  (The dispute settlement system of the GATT was generally considered to be one of the cornerstones of the multilateral trade order. The Uruguay Round Understanding on Rules and Procedures Governing the Settlement of Disputes has further significantly strengthened the GATT system.) The Dispute Settlement Unit (DSU) at the WTO provides an integrated system for WTO members to base their claims on any of the multilateral trade agreements included in the Annexes to the Agreement establishing the WTO. The DSU emphasizes the importance of consultations in securing dispute resolution, requiring a member to enter into consultations within 30 days of a request for a consultation from another member. Where a dispute is not settled through consultation, the DSU requires establishment of a panel, at the latest, at the meeting of the DSB following that at which a request is made, unless the DSB decides by consensus against establishment.  The DSU contains a number of provisions that take into account the specific interests of developing and least-developed countries. 

In principle the SPS agreement should help facilitate trade between developing to developed countries by improving transparency, promoting harmonization and preventing the imposition of arbitrary SPS standards.  But this largely depends on the ability of developing countries to participate effectively in the implementation of the agreement.  For this reason, the agreement itself tries to facilitate effective participation of developing countries by encouraging developed-country members to provide technical assistance to them (Article 9) and by according them special and differential treatment (Articles 10).

In addition, the Dispute Settlement Understanding (DSU) of the WTO (which relates to dispute settlement under all WTO agreements) contains special clauses requiring special and differential treatments for developing countries. Article 4.10 of the DSU stipulates giving ‘special attention’ to the particular problems and interests of developing countries while Article 27.2 requires that they be provided with technical assistance to facilitate their effective participation in the dispute settlement mechanism.

Implementation 

The experience of the past several years shows that the achievements of the WTO SPS mechanism of enforcing effective discipline over the use of SPS measures have certainly lagged behind original expectations.  Nonetheless, several problems have emerged during the implementation of the agreement. The agreement allows too much latitude to importing countries in adopting SPS measures, allowing them to impose measures that impede imports, no matter how unlikely or how inconsequential the risk involved. Further, many of the provisions in the SPS agreement pose problems in their interpretation and application. For instance, the requirement that members may adopt more stringent measures if they can base them on ‘sound science’ is a vague provision which assumes that there exist a single objective and a correct view of any scientific issue.  These problems have raised serious doubts about the efficacy of the whole dispute settlement mechanism in solving SPS-related trade disputes. It is believed that this uncertainty have prevented many countries from further pursuing SPS issues beyond the point of discussion at the SPS committee stage.

The developing countries have so far failed to participate in the implementation of the agreement as equal partners. The formal compliance for has so far less than 60% of the total developing country membership of the WTO has formally complied with the SPS agreement.  Half to two-thirds of developing country members have not participated in discussions at SPS committee meetings. This poor participation is due to several reasons.

To benefit from the trade rules of the SPS agreement, developing countries have to set up an appropriate set of institutions, including establishment of ‘enquiry points’ to gain enhanced access to developed country markets.  This is excessively costly for many developing countries.  World Bank project experience over the past five years in helping a number of developing countries to build their capabilities in this area suggests that the financial resources needed to implement the WTO rules would amount to ‘an entire year’s development budget’ for most of the developing and transitory economies’.  The Dispute Settlement Understanding of the WTO is widely regarded as one of the positive outcomes of the Uruguay Rounds, making a move towards a more ‘automatic’ and ‘rule-oriented’ system.  However, the experience with the dispute settlement process over the past many years makes clearly that developing countries do not enjoy a ‘neutral’ playing field, and that they are unable to participate effectively in the WTO dispute settlement process. Even if a developing country makes the large initial institutional investments needed to comply with the agreement, it usually lacks the technical, scientific and legal resources needed to mount or defend a case in the dispute process. For example, most developing countries do not have the specialist knowledge in international law required to benefit from the DSM, and employing international lawyers is an extremely costly proposition.  ‘Much of the clauses in the DSU regarding developing countries have proved to be more declarative than operative and no initiatives have been taken to pay attention to the particular problems and interests of the developing countries.

Further, though the SPS agreement itself tries to facilitate effective participation of the developing countries in the agreement by encouraging developed-country members to provide technical assistance and accord special and differential treatment to developing countries, developed countries have failed so far to take any serious steps to assist developing countries in this way. This has prompted international organizations, such as the UNCTAD, the ITC and the World Bank, to begin to provide this kind of technical assistance to strengthen the institutional capacity of developing countries.  But these initiatives are still not created considerable impacts and the technical and financial support provided so far falls below what is required. In addition, a major problem is the paucity of much relevant information. There are concerns about the length of time given between the notification of new SPS measures and their application, and about delays and perceived developed-country bias involved in the standards setting mechanism under the CODEX.

However, the contribution that international initiatives can make in assisting developing countries to become effective participants of a rule-based world trading system should not be overstated. International initiatives are not a substitute for appropriate national action.  Developing countries should see the implementation of SPS standards as an integral part of the process of establishing a dynamic business environment in the domestic economy. As it is already observed, it is not accidental that some developing countries have performed much better than others in penetrating developed country food markets, despite all the inadequacies of the world trading system. Developing countries that are seeking to succeed in these markets should not only make full use of available international assistance initiatives, but should also try to learn from the experiences of these relatively more successful developing countries.