FTAs and safety standards

Economic Times | 1 January 2008

FTAs and safety standards

Manish Bhatnagar,

There is general agreement that any free trade agreement (FTA) leads to greater economic benefits for both partners, and the FTA under discussion between India and the 10-member Asean is no exception.

While the FTA negotiations have been bogged down by disagreement on tariffs for specific agricultural goods, there is a widespread belief that the Indian industry has a lot to gain when this FTA gets operational. After all, the Asean countries comprise many fastest growing economies with a potentially vast demand for products and services.

In theory that may well be true. Asean’s trade with India is currently only about $30 billion, a mere 2% of its total trade. And the Asean-10, with its 600 million population of rapidly rising income levels and consumption patterns is a huge potential market for Indian manufacturers.

So conventional wisdom does suggest that this FTA, by reducing tariffs, will indeed make cross-border movement of goods more economical, and therefore lead to an upsurge in demand across both sides. While all of that is true, there remains unaddressed the more complex issue of technical barriers to trade that may lead to unexpected consequences.

Technical barriers to trade are regulations or standards that certain products need to comply with before they can enter a given market. These measures usually serve legitimate goals of public policy e.g., protecting user health or safety. Unlike India, most Asean countries have a very robust regime of quality and safety standards for products imported into their markets. What that means is that Indian manufacturers, despite having lower entry tariffs into Asean, will still not be able to export their products unless they meet the strict safety and quality regulations of those countries.

Lets us take Singapore as an example. SPRING, as the Safety Authority for Singapore, manages the Consumer Protection Scheme (CPS), where 45 categories of household products need to meet the specified safety standards before they are given Singapore’s Safety Mark and allowed to be sold in the country.

These products range from the simple adapters and plugs to air-conditioners, hair dryers and microwave ovens. For any of these to be sold in Singapore, they need to have mandatory compliance with the Singapore standards. Similar is the case with many Asean countries, including even smaller ones such as Cambodia (that very recently moved many of its products into the mandatory compliance list).

However is the reverse true? Does India have strict safety and quality standards for products to be imported? Unfortunately, no. Only a few commonly used household products need to have mandatory safety certification, as proposed by the Bureau of Indian Standards (BIS).

These include electric irons, electric stoves, immersion water heaters and household switches. So manufacturers do not need to comply with any safety standard (except for these few mandatory products) when exporting to India. Clearly, there is a minimal technical barrier to trading with India.

So now we may have a situation where Indian exports into Asean are only allowed when they meet the strict internal safety and quality standards of those countries. But India’s minimal safety standards imply little or no restriction for goods imported into the country. This FTA, therefore, makes it easier for low-quality manufacturers looking to dump cheap and unsafe goods into the country.

Does this mean that this FTA is bad thing for India? Of course not. But we must wake up to an unexpected consequence of this FTA. This is the threat of low-quality, and probably unsafe, imports from Asean countries into India. What we need to do is set in place a strict, robust regime of consumer safety standards.

These standards need to be made mandatory, at least, for common household products. BIS has probably one of the largest repository of standards anywhere in the world, but very few of them are mandatory. It is unfathomable that we do not have mandatory safety standards for products as widely used as fans and cookers. Even in the few categories where standards are mandatory, there is little follow-up of enforcement and compliance.

There is an increasing awareness of product safety standards amongst consumers in India, and recent examples of product recalls have only heightened this sensitivity and concern for user safety. For any government, safety for its consumers must take the same, if not higher, precedence as economic benefits from an FTA. While this FTA will indeed increase trade between the regions, it should not come at the cost of unsafe products being dumped into India.

(The author is Director, India & S E Asia, Underwriters Laboratories)

source: Economic Times