A matter of trust - Conformity assessment in a more complex world

The Viking warrior did not agonize much over choice. Assuming he intended to procure his sword in a civilized manner, he would go to Thor, his trusted village blacksmith – and he would not bother to ask him questions about the type of steel, the manner of shaping the cutting edge, the hilt or the pommel.

But imagine the modern-day Viking – he would face a more startling variety of swords indeed, and he may even end up confused. A sword made in Frankia ? From unheard-of lands in the East ? With such diversity, how can he possibly know that the sword will behave as it should !

The reader of this publication is likely to be familiar with the function of conformity assessment  2] in trade, in the more contemporary setting. The purpose of this article is to describe the relevant World Trade Organization (WTO) disciplines and illustrate two key challenges that the membership is facing in implementation.

My message is simple : in a globalized world, conformity assessment procedures matter more because they can potentially bridge the chasm of trust between buyers and sellers “ many villages ” apart. Current rules go some way, but there are areas that merit more attention – and not only by the WTO.

What is the relevance of the WTO ?

The WTO (currently with 157 members) is essentially about creating opportunities for international trade. It is a forum where international trade rules are negotiated between governments, implemented, monitored and – when countries don’t agree – disputes may be addressed (with sharp tongues rather than blades !). Non-tariff measures (NTMs) is an area of growing importance and the latest annual WTO World Trade Report is dedicated to the subject. 3

One reason for this focus on NTMs is that governments have done a rather good job in slashing tariffs and thereby exposing the need to tackle other types of measures that affect trade. However, these other measures, including regulations and standards, are not so easily chopped. They fulfil vital public policy objectives for governments, such as protecting human health and safety, or protecting the environment. And unlike tariffs, they are technically complex, less transparent and more difficult to quantify. This makes it more difficult to distinguish between legitimate regulation and disguised protectionism. Another type of instrument – more sophisticated than the sword – is needed. One agreement that disciplines these types of measures is the WTO Agreement on Technical Barriers to Trade (the “TBT Agreement”). 4] The committee that oversees the implementation of this agreement, the TBT Committee, often hears trade concerns related to the use of conformity assessment procedures.

The rules of the game

Trust

Consider first the issue. The starting point for a typical complaint voiced at the WTO about conformity assessment is not the underlying requirement against which conformity is being assessed. Indeed, there may be agreement all around about the specifics (e.g., a limit value for pesticides in food, or a zero tolerance for the use of lead in paint on toys). Rather, the issue is how to demonstrate – in a fair and impartial way – that the product actually complies with the underlying requirements. While countries have the right to impose conformity assessment requirements (because they have the right to check), the objective of the WTO TBT Agreement is to ensure that this right is not misused in a way that unduly hampers trade amongst countries. The conformity assessment requirements are (very briefly) quite straightforward and unsurprising : conformity assessment procedures should not be unnecessarily burdensome (meaning that the less trade-restrictive alternative procedure is preferable) ; they should not be discriminatory (meaning that governments should not treat countries differently in “comparable situations”) ; and, that governments are strongly encouraged to use a common benchmark for implementing conformity assessment procedures (in other words : relevant International Standards).

Governments also have to be transparent about measures they intend to implement ; thus the obligation to share information by “notifying”  5] other countries (through the WTO Secretariat and the TBT Committee) of new or changed conformity assessment procedures before they go into force – so that potential problems can be addressed before it is too late.
A closer look at nondiscrimination and necessity

Having said all of the above, in my view, the key challenges confronting those dealing with conformity assessment procedures are in the area of necessity and nondiscrimination, and the devil is in the implementation.

First, on nondiscrimination : put very simply, the TBT Agreement states that governments cannot grant access under more favourable conditions to domestic suppliers than foreign when situations are “comparable” (in WTO speak we refer to this as “national treatment”)  6]; in addition, such distinction cannot be made between foreign suppliers either (referred to as the “most favored nation” or the “MFN” principle).

But how many situations are actually comparable ? Back to the Vikings : what if, as chieftain of the village, I chose only to allow trade with swords from our friendly neighbouring village rather than from unknown blacksmiths in the South ? As an informed leader, I will argue that this is a legitimate regulatory distinction because the “situations” are not comparable. (I know my local blacksmith, but I don’t know and therefore do not trust blacksmiths on the Continent.) I am, consequently, not behaving in a discriminatory manner and am thus not in violation of WTO rules – I am just looking out for my people.

In the real world (in whatever era) trust matters : I will go with the supplier I know rather than the one I don’t. If this behaviour is labeled “discrimination” by the WTO, the rules would quickly become irrelevant. This does, however, present a challenge : how do you confer trust on products that are “just as good” but whose manufacturer, for whatever reason, lacks the opportunity to demonstrate this ?

Next, consider “necessity”. The TBT Agreement says that a conformity assessment procedure may not be stricter than what is necessary to give “adequate confidence” that a product complies with the established requirements “taking account of the risks non-conformity would create”. 7] But what happens if what I consider necessary is far too cumbersome from your perspective ? What is the benchmark ? This is not only a matter of using a relevant guide or recommendation issued by an international standardizing body for any given procedure (as is also required by the TBT Agreement  8]), it also boils down to the choice of a given procedure itself. And this choice – which by necessity must take place in a variety of different situations – is fertile ground for disagreement.

Why ? One reason is that countries (governments) are different : preferences diverge, countries have different levels of risk aversion, or they may simply have different capabilities. For instance, a lack of technical know-how and/or institutional capacity to actually perform the required testing may prompt a very strict measure. Our Viking chieftain cannot run the risk of his people going to battle with blunt blades – and he will certainly not waste time and effort checking the quality of every piece of steel in the village (market surveillance). And declarations from people he does not know (SDoC)  9] gives him no peace of mind. So he will ask a common acquaintance to check and assure him of which swords are good (third-party certification). And if that is too much of a bother, well then, he will stick with Thor.

Testing

While the TBT Agreement is about ensuring that conformity assessment procedures should not be more strict than necessary to give adequate confidence that products should perform to a defined standard, the choice of procedure to arrive at this level of confidence remains largely at the discretion of each WTO member. In practice, this choice may depend on factors some of which are not inherently related to the risk of the product. And this creates a grey zone.

Hardware and multilateral cooperation

So how do we address these challenges? From the point of view of the blacksmith, there is no escaping high quality standards. There is no gain in being “less safe” than products coming from competitors because few consumers negotiate on safety – although in the case of swords, regulators may face somewhat of a dilemma.

As we have seen above, the TBT Agreement sets out basic rules, and allows for flexibility in implementation. While this room for maneuver is crucial, continued efforts by trade delegations to reduce scope for arbitrariness are equally important.
There are two tracks worth highlighting.

First, weaknesses in the institutional landscape need to be addressed (the hardware). Countries, individually or on a regional basis, need to invest in quality and safety – they need to enhance their technical infrastructure (metrology institutes, standards bodies, laboratories, and certification and accreditation bodies). It is this infrastructure that will build the confidence needed to carry products across borders. This has been emphasized by WTO members but, in my view, merits greater attention. 10]

Second, finding common ground on conformity assessment is an area where international cooperation should go beyond what is in the TBT Agreement itself ; it is an area that can bear much fruit. Indeed, there is a mandate for this : the TBT Agreement directly encourages governments to “formulate and adopt international systems for conformity assessment and become members thereof or participate therein”.11] These types of international systems are important because they can potentially serve as the common currency of conformity assessment : they help convert different situations to comparable situations – reducing the scope for arbitrariness.

While much has been done since 1995 (when the WTO was created and the TBT Agreement entered into force), more could be done to promote international cooperation for the recognition of conformity assessment results.12] Also, and in the same vein, delegations at the WTO are considering ways and means of managing risk in the area of conformity assessment so as to reduce uncertainty and the margin for arbitrariness while leaving members sufficient flexibility to pursue legitimate policy objectives.

So this is the double-edge challenge for the Norsemen : good institutions and more cooperation between villages. If the chieftain of my village says that he trusts the swords from near and far so long as they carry the mark of the Circle of Accepted Blacksmiths, I will perhaps dare to try a sword produced in the Far East. And who knows, Thor may find that he too has something that merits similar recognition, and wider distribution.

Article & Image Credits: ISOorg- WTO