RESTRICTED
WORLD TRADE G/TBT/W/44
13June1997
ORGANIZATION(97-2433)
Original: English Committee onTechnical Barriers toTrade
REQUIREMENTS OFTHE AGREEMENT ONTECHNICAL BARRIERS TOTRADE
CONCERNING THE PREPARATION, ADOPTION AND
REVIEW OFTECHNICAL REGULATIONS
Communication from NewZealand
Thefollowing communication dated 10June1997 withrespect totheTriennial Review of
theAgreement onTechnical Barriers toTrade hasbeenreceived from thePermanent Mission of
NewZealand withtherequest thatitbecirculated toMembers oftheCommittee.
_______________
I. INTRODUCTION
1. TheAgreementonTechnicalBarrierstoTrade(TBT)incorporateskeylegalrequirementsaimed
atensuring thatthestandards andtechnical regulations adopted byWTO Members areeffective in
achieving legitimate objectives while atthesametimeensuring thattheyarenot“more trade-restrictive
thannecessary tofulfilalegitimate objective, taking account oftherisksnon-fulfilment would create ”
(Article 2.2).
2. Inimplementing these requirements governments generally also have regard toafurther
objective, which istominimise theoverall economic costs ofregulation. Thisincludes bothdirect
costs ofcomplying withregulation, andtheindirect costs associated withtheeffect ofregulation on
innovation.
3. NewZealand isoftheview thattheTBTrequirements accommodate these complementary
objectives. However, effective implementation oftherequirements requires athorough examination
ofthenature oftheeffects oftechnical regulations ontrade andeconomic activity, andconsideration
ofthealternative approaches toachieving desired objectives. Using theTBT requirements asthe
framework, thispaper considers thefactors thatshould betaken intoaccount inthedevelopment of
technical regulations.
4. NewZealand considers thatthedevelopment ofabetter understanding between WTO members
onthepractical steps thatneedtobefollowed inthepreparation, adoption andreview oftechnical
regulations, inaccordance withtherequirements oftheTBTAgreement, willassist insecuring the
main objective oftheTriennial Review -themore effective implementation oftheTBTAgreement
bytheWTO Membership.
5. Theideasinthispaper havebeendiscussed intheAPEC (Asia Pacific Economic Cooperation)
Standards andConformance Sub-Committee.G/TBT/W/44
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Technical Regulations
6. Itisimportant todistinguish from theoutset between standards andtechnical regulations.
Standards arevoluntary. Incontrast, technical regulations arerequirements setbygovernments with
which compliance ismandatory. Technical regulations aresetbygovernments tomanage riskswhen
itislessefficient forconsumers tomanage themthemselves. Typically these ariseinareas ofhealth,
safety andtheenvironment. Theboundary between voluntary standards andtechnical regulations is
notalways clearbothbecause technical regulations areoftenbased onvoluntary standards, andvoluntary
standards often become sowidely usedthatcommercial considerations dictate adherence tothem in
asimilar waytotechnical regulations.
7. Asnoted above, theTBTAgreement recognizes theneedtoensure thattechnical regulations,
including packaging, marking andlabelling requirements, andprocedures fortheassessment of
conformity withtechnical regulations, donotcreate unnecessary obstacles totrade, andestablishes
asetofrequirements aimed atachieving thisoutcome.
8. However, inconsidering howtoapply these requirements itiseasytobecaptured byconcepts
suchasharmonization andrecognition ofequivalency, andnotgiveadequate attention tothebasic
analysis which should underpin good regulatory design. Different regulatory andpolicy approaches
atthenational levelarethemotivation forbothharmonization andmutual recognition initiatives. In
some instances inappropriate regulations developed atanational levelmaybeabandoned andreplaced
bymore appropriate regulations asaresult ofaninternational harmonization process. Inrecognition
ofequivalencynegotiationsmodificationstonationalregulationsmayalsoresult,aspartofacompromise
tosecure equivalency. However, thecapacity ofbothapproaches todeliver upresults mostinkeeping
withtheprinciplesandrequirementsoftheTBTAgreementisassistedifthedifferentnationalapproaches
thatform theingredients forharmonization andrecognition ofequivalency negotiations themselves
reflect therequirements ofgood regulatory design setoutintheTBT.
9. Thisisnottodiminish theimportance ofharmonization andrecognition ofequivalency astrade
liberalization strategies, butrather toemphasise thattheyarenotendsinthemselves. Asnoted above,
theymayalsobeimperfect solutions incases where theapproaches thatindividual countries bring to
suchnegotiations -theirnational regulations orpolicies -havenotbeendeveloped withconscious regard
totheTBTrequirements aimed atreflecting goodregulatory policy design. InNewZealand ’sview,
harmonization andrecognition ofequivalency aredesirable where thesimilar circumstances ineach
country make thisaviable option. However, decisions toharmonise ormutually recognize technical
regulations should evolve outofananalysis ofthemost efficient approach toreducing unnecessary
barriers totrade, rather thanbethestarting point inthisanalysis.
Harmonization
10. Anecessary condition forharmonization oftechnical regulations isthatsimilar circumstances
existinrelation torisksto,eg.health, safety ortheenvironment. Inreality, however, theissue is
often oneof“regulatory heterogeneity ”:circumstances indifferent countries vary, andthereby call
fordifferent approaches tomatters suchashealth andsafety. Insuchcases harmonization maynot
beeither necessary ordesirable. Negotiating aharmonized technical regulation toapoint where the
specific circumstances inplace inallcountries areadequately reflected, canbetimeconsuming and
costly. Further, harmonization oftechnical regulations hasthepotential toleadtoover-regulation
insome countries where theharmonized regulation ismore trade restrictive thannecessary toachieve
theobjectives ofthose countries. Suchamove, while designed tofacilitate trade, mayinfactnotbe
theleasttrade-restrictive option andmayinvolve increased costs tobusiness andconsumers.G/TBT/W/44
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Recognition ofEquivalency
11. Similarly, anecessary condition forthesuccess ofrecognition ofequivalency negotiations is
thatthecircumstances applicable inonecountry inrelation toaproduct arenotmaterially different
inrelation toaparticular regulatory requirement, thanthose inthecountry withwhich theyare
negotiating amutual recognition accord. While recognition ofequivalency favours diversity, simplifies
procedures andreduces thepotential forover-regulation thatmayresult fromharmonization, itneeds
toberealized thatitmaynotbeapossible solution inallcases. Forexample, because ofthehigh
riskofseismic activity inCountry Athelevelofregulation relating toparticular equipment suchas
cranes maybehigher thaninCountry Bwhere theriskofseismic activity islow. Itwould be
undesirable from Country A’sperspective toallow products tobesoldinCountry Athatdonot
adequately safeguard against itsgreater vulnerability toseismic activity. Accordingly, Country Amay
notbeinaposition torecognize theregulations ofCountry Basequivalent formeeting Country A’s
objective. Notwithstanding Article 2(7)oftheAgreement, Country Bmaynotbeprepared torecognize
Country A’sregulation asequivalent -eventhough itwould secure theirregulatory objectives.
II. ACHIEVEMENT OFGOOD REGULATORY DESIGN THROUGH EFFECTIVE
IMPLEMENTATION OFALL TBT REQUIREMENTS RELATING TODESIGN OF
TECHNICAL REGULATIONS
12. While theTBT encourages harmonization andrecognition ofequivalency, itshould be
acknowledged thatthese concepts aremerely aspects ofamuch more elaborate setofdisciplines and
rulessetoutintheAgreement aimed atproviding forgoodregulatory design, while avoiding thecreation
ofunnecessary obstacles totrade. Bythemselves theywillnotbeabletodeliver thefullpackage of
benefits theAgreement seeks toachieve.
13. NewZealand considers thattheachievement ofgoodregulatory design through thedeliberate
andeffective implementation ofalltherequirements oftheTBTAgreement inthedevelopment of
technical regulations atthenational levelisakeypriority fortheTriennial Review toaddress. This
paperseekstohighlightthepracticalstepsandconsiderationsthatneedtobeaddressedbyWTOmembers
inthisregard.
14. InNewZealand ’sview, these relevant steps andconsiderations areperhaps bestillustrated
byfirst,considering whether atechnical regulation isnecessary andsecond, ifthisisthecase,ensuring
thatthetechnical regulation isdesigned andimplemented inaccordance withtherequirements ofthe
TBTAgreement. These twosequential stages oftheprocess arefurther examined below:
(A) Isatechnical regulation necessary?
15. Thisquestion entails (a)anidentification ofthe“problem ”thatthetechnical regulation is
perceived asnecessary toremedy; and(b)consideration oftheoptions available toaddress
theproblem.
(i) Problem Identification
Establishing thenature oftheproblemG/TBT/W/44
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16. Thefirststepinthedevelopment process fortechnical regulations should betoclearly identify
theproblem thatneeds tobeaddressed. TheTBTAgreement states (Article 2.2)thatlegitimate reasons
forimposing technical regulations areinteralia:
- national security requirements;
- theprevention ofdeceptive practices; and
- protection ofhuman health orsafety, animal orplant lifeorhealth, orthe
environment.
17. Accurate problem definition reduces theriskofchoosing inappropriate options forgovernment
action orignoring more effective solutions, andreduces thelikelihood ofover-regulation.
Over-regulation occurs where theextent and/or nature ofregulation isgreater thanwhat isneeded
toaddress aproblem. Thisresults inadditional coststotheeconomy, forexample through increased
production costs, reduced competition, reduced innovation, orreduced customer choice.
18. Theoperation ofmarkets isingeneral themosteffective means ofensuring thatresources go
totheirhighestvalueduse,therebymaximizingtheircontributiontotheeconomy.Insomecircumstances
markets failtodothisaswhen amarket transaction creates anexternality theeffect ofwhich fallson
athirdparty, orwhen consumers lacksufficient information withwhich tomake informed choices.
However, government intervention isnotalways necessary toaddress market failures. Insome
circumstances theymaybeselfcorrecting, e.g.social pressures onbusinesses toreduce pollution.
Assessing themagnitude oftheproblem
19. Once thenature oftheproblem isestablished, themagnitude oftheproblem must thenbe
assessed.
20. Article 2.2goesontostatethatconsideration mustbegiven totherisksnon-fulfilment ofthe
legitimate objectives would create, and:
"Inassessing suchrisks, relevant elements ofconsideration are,interalia:available scientific
andtechnical information, related processing technology orintended end-uses ofproducts (Article 2.2)."
KeyQuestions inProblem Identification
What aretheGovernment ’sobjectives?
What istheproblem?
What isthesource oftheproblem?
How bigistheproblem?
Whoisaffected?
Whydoesthemarket failtoachieve thedesired outcome?
Whyisgovernment intervention required?
(ii) Options forAddressing theProblem
21. Having established thatsome formofgovernment intervention maybewarranted, itisessential
toclearly specify policy goals. These goals should focus onoutcomes, rather thanmeans toachieve
them, sothatallpossible alternatives forachieving adesired result canbeconsidered. KnowledgeG/TBT/W/44
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ofthenature oftheunderlying problem isimportant inassessing which alternative bestachieves these
policy goals. Itisalsonecessary toconsider whether legitimate objectives canbeadequately secured
bymeans other thangovernment regulation. Thisisthecorollary oftherequirement ofArticle 2(2)
that“technical regulations shall notbemore trade-restrictive thannecessary tofulfil alegitimate
objective ”.
22. Inorder toensure thatgovernment intervention meets theTBTobjective ofgood regulation
design, itisimportant thatallfeasible options areidentified andassessed. Inaddition totheoption
oftechnicalregulations,thereareanumberofalternativepolicyinstrumentswhichshouldbeconsidered.
23. Such alternatives could include:
- status quo;
- reliance ongeneral law;
- educational programmes;
- voluntary standards;
- economic instruments (taxes, tradeable property rights);
- insurance andliability laws;
- codes ofconduct/practice;
- industry selfregulation andco-regulation.
24. Afuller description ofthese alternatives isattached asAppendix A.
25. Theoptionsshouldbeconsideredwithinacost-benefitframeworkwhichwouldnormallybecome
progressively more detailed asspecific options areshortlisted. Thiscost-benefit analysis process is
auseful wayofmeeting therequirement of“leasttrade restrictiveness ”.
KeyQuestions inOptions toAddress theProblem
What arethealternatives including theimposition ofa
technical regulation todealwiththeproblem?
Arethere anyconstraints (islegalorfiscal) which maymake
some alternatives undesirable orunattainable?
Which option istheleasttrade-restrictive?
(B) Design andImplementation ofTechnical Regulations inConformity withRequirements of
TBTAgreement
26. Thissection assumes thataftercompleting theanalysis described above, adecision hasbeen
made thatimposing atechnical regulation isconsidered necessary onthebasis thatother lesstrade
restrictive means would notfulfil thelegitimate objective sought.
27. Article 2oftheTBT Agreement setsoutanumber ofkeyrequirements thatalltechnical
regulations must meet. Inthisregard, itshould benoted thattheconsiderations included inthese
paragraphs areinmany cases alsorelevant totheearlier question discussed above astowhether a
technical regulation isinfactnecessary. These requirements canbesummarized asfollows:G/TBT/W/44
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(i) Technical regulations shall notdiscriminate against imported products
28. Having determined thatGovernment action intheformofatechnical regulation iswarranted,
thetechnical regulations developed mustnotdiscriminate against imported products. Inother words,
products ofdomestic orimported origin shall begiven thesame treatment. Section 2.1ofthe
TBTAgreement states that:
"Members shallensure thatinrespect oftechnical regulations, products imported from the
territory ofanymember shallbeaccorded treatment nolessfavourable thanthataccorded to
likeproducts ofnational origin andtolikeproducts originated inanyother country".
29. Itisimportant torecognize thatnational treatment byitself isnotsufficient tomeet the
requirements ofArticle 2oftheTBT. While theremaybealevelplaying field, thetechnical regulations
maybeunnecessarily stringent forbothdomestic andforeign business. Accordingly, thefurther
requirements ofArticle 2needtobeconsidered.
(ii) Technical regulations arenottobemore trade restrictive thannecessary tofulfila
legitimate objective (Article 2.2)
30. Bothstandards andtechnical regulations havethepotential tobetraderestrictive, butbecause
oftheirexplicit mandatory nature, thisisparticularly sointhecaseoftechnical regulations. Hence
governments arerequired toensure thatrecourse totechnical regulations isminimized totheextent
possible.
31. Accordingly, ifadetermination ismade thatatechnical regulation solution isrequired, the
technical regulation mustbedesigned andimplemented inthemanner thanfulfils thelegitimate objective
intheleasttrade-restrictive manner. Athorough analysis andassessment isrequired oftheeffect of
theproposed regulation andofalternative technical regulations thatmight achieve asimilar objective
withlesseffect ontrade.
(iii) Technical regulations shall bemonitored andreviewed toaddress changes in
circumstances/objectives
32. Toensure thattechnical regulations arenomore trade-restrictive thannecessary itisimportant
thatprovisions areputinplace forthereview ofregulations when circumstances change orthere is
achange inobjectives. Inaddition, technical regulations shallbesubject toreview toassess whether
ornottheregulation isachieving thedesired objective. Thisisacknowledged inArticle 2.3ofthe
TBTAgreement:
"Technical regulations shallnotbemaintained ifthecircumstances orobjectives giving rise
totheiradoption nolonger existorifthechanged circumstances orobjectives canbeaddressed
inalesstrade-restrictive manner".
(iv) Adoption ofinternational standards where appropriate
33. Section 2.4oftheTBTAgreement states thatmembers shalladopt international standards or
therelevant parts ofthem, asthebasis foratechnical regulation except incircumstances when:
"...suchinternational standards orrelevant partswould beanineffective orinappropriate means
forthefulfilment ofthelegitimate objectives pursued, forinstance because offundamental
climatic orgeographical factors orfundamental technological problems".G/TBT/W/44
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34. Tominimise trade barriers, onlythatpartofaninternational standard which isnecessary to
achieve alegitimate objective should beusedtoestablish atechnical regulation. Voluntary standards
provideanimportantfoundationfortechnicalregulationsinmanysectors.However,voluntarystandards
reflect awiderange ofperspectives andneeds, andforthisreason willoftencontain requirements which,
while desirable, arenotessential tofulfil thelegitimate objectives oftechnical regulations. Calling
uptheentirety ofthese standards inregulation canhavetheeffect ofimposing unnecessary costs on
business.
35. Adecision tocallupinternational standards inregulation should onlybemade afteraccurately
defining theproblem which needs tobeaddressed, appropriate costs-benefit analysis andconsideration
ofalternative regulatory options. Thisapproach willensure thatthebenefits ofregulation areachieved
andadverse trade impacts andthecosts tobusiness ofregulation inbothdomestic andinternational
markets areminimized.
(v) Technical regulations should beperformance based
36. Section 2.8oftheTBTAgreement states that:
"Wherever appropriate, Members shall specify technical regulations based onproduct
requirements interms ofperformance rather thandesign ordescriptive standards".
37. Inorder tominimise thetrade barriers created bytechnical regulations, wherever possible
technical regulations should bedesigned insuchawaythattheyareperformance based rather than
prescriptive innature.
38. Prescriptive standards generally define theprocesses andprocedures required toachieve
compliance. Prescriptive standards focus onthemeans bywhich theobjective willbeachieved rather
thanontheoutcome. Although easier toenforce, suchstandards areoften considered tobeinflexible
andaremore likely torestrict competition andinhibit innovation.
39. Incontrast, performance standards arebased onoutcomes rather thaninputs. Themajor
advantage ofsuchanapproach isthatdifferent approaches togenerating desired outcomes canbe
accommodated, andarbitrary distinctions areavoided. Performance based standards provide both
flexibility andpredicability ofoutcomes. Flexibility incompliance provides incentives forfirms to
minimise thecostsofcomplying, therefore creating incentives toinnovate tofindmore efficient ways
ofcomplying. Performance based standards alsoallow fordevelopments intechnology. They are
more likely tominimise barriers totrade, inthatforeign goods entering themarket made todifferent
standards willbeaccepted provided theyachieve thedesired outcome required bythecountry of
importation.
40. ThislinkstoanotherTBTrequirement(Article2.7)whichencouragesrecognitionofequivalency.
Itshould benoted thatwhile Article 2.7iscommonly identified asthebasis for“mutual recognition
agreements ”,thewording oftheprovision ismuch broader thanthisinthatitencourages equivalency
being granted onaunilateral andnon-reciprocal basis. Thearticle states:
"Members shallgivepositive consideration toaccepting asequivalent technical regulations
ofotherMembers,eveniftheseregulationsdifferfromtheirown,providedthattheyaresatisfied
thatthese regulations adequately fulfil theobjectives oftheirownregulations".
41. Oneconcern regarding performance based standards isthelevelofuncertainty created bythe
flexibility inmethods ofachieving compliance. Itcanbeargued thatperformance based standards
disadvantage those firms thatareunable toinvest intheresearch anddevelopment ofnewmethodsG/TBT/W/44
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ofcompliance orthatneedmore guidance onhowtomeetthestandard. Onemechanism thatcanreduce
thisproblem istoprovide assistance tousers, byspecifying examples ofacceptable solutions which,
iffollowed, willensure compliance.
(vi) Theprocess ofadopting technical regulations should betransparent
42. Theprocess ofdeveloping technical regulations should beastransparent aspossible.
Transparencyisofparticularimportancegiventhepotentialfortechnicalregulationstoaffectinternational
trade. Consultation andtransparency processes provide greater discipline onregulation makers, and
provide amechanism forquality control. Article 2.9oftheTBTAgreement establishes processes for
consultation tobecarried outincircumstances where aproposed technical regulation isnotinaccordance
withthetechnical content ofaninternational standard, andtheresulting regulation islikely tohave
significant tradeeffects onotherMembers. Insuchcircumstances theTBTAgreement requires dialogue
andconsultation. Animportant means ofachieving thisobjective istherequirement established under
theTBTAgreement foreachWTO Member tohaveanEnquiry Point.
(vii) Conformity withTechnical Regulations
43. Theeffectiveness oftechnical regulations willdepend onthelevel ofcompliance. Hence,
consideration ofhowcompliance willbeachieved isanessential element oftheprocess.
44. Conformity assessment isthecomprehensive termusedformeasures taken orrequired by
manufacturers, theircustomers, regulatory authorities andindependent thirdparties toassess conformity
tostandards ortechnical regulations.
45. When deciding thelevelofconformity assessment required, consideration must begiven to
minimizing theeffects ofanyconformity assessment requirements oninternational trade. The
TBTAgreement (Article 5.1.2) states:
“Members shallensure thatconformity Assessment procedures arenotprepared, adopted or
applied withaviewtoorwiththeeffect ofcreating unnecessary obstacles tointernational trade.
Thismeans, interalia,thatconformity assessment procedures shallnotbemore strict orbe
applied more strictly thanisnecessary togiveimporting members adequate confidence that
products conform withtheapplicable technical regulation orstandard, taking intoaccount the
risksnonconformity would create. ”
46. Applying thisrequirement requires consideration ofthefollowing issues:
- theincentive onproducers tocomply. Intheabsence ofconformity assessment,
consideration must begiven totheincentives created bythepenalties for
non-conformance, thespecific demands ofcustomers andthepotential forprivate
liability.
- level ofrisk. Insome circumstances thelevel ofriskmayrequire mandatory
requirements forthirdparty conformity assessment. Thisissometimes warranted in
areas where public health, safety orenvironmental concerns arehigh.the costs. Legal
requirements forthirdpartyconformity assessment canbebothcomplex andexpensive.
Adecision toimpose mandatory conformity assessment requirements should onlyoccur
iftheserious riskofharm justifies thecostburden ofimposing thirdparty assessment.
47. Lackofacceptance oftestdataacross borders andofrecognition ofcertificates ofconformity
canalsocreate significant barriers totrade. Thiscanoften result inmultiple testing, timedelays andG/TBT/W/44
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anoverall reduction inthecompetitiveness ofimports. Onewayofovercoming thisproblem isfor
countries torecognize eachother’sconformity assessment procedures. TheTBTAgreement states
(Article 6.1)thatcountries arerequired torecognize theresults ofconformity assessment procedures
ofother countries, provided theyaresatisfied thatthose procedures offeranassurance ofconformity
withtheapplicable technical regulations. TheTBT Agreement does, however, recognize thatan
important precursor torecognition ofconformity assessment procedures isconfidence ineachother’s
systems andprocedures (Article 6.1.1).
48. While mutual recognition agreements areoneapproach togenerating thisconfidence, and
negotiation ofsuchagreements isencouraged intheTBTAgreement (Article 6.3), suchagreements
canthemselves impose costs bothinnegotiation andimplementation. Aswithtechnical regulations,
unilateral recognition oftestreports, certificates ofcompliance etc,should beconsidered anefficient
option forreducing technical barriers totrade created byconformity assessment requirements.
III. CONCLUSION
49. Technical regulations havethepotential tocreate significant barriers totrade. Thedifferent
circumstances pertaining indifferent countries maycallfordifferences intechnical regulations. In
suchcases, measures toovercome trade barriers, suchasharmonization ormutual recognition may
notnecessarily bethemostefficient orappropriate mechanism. However, evenincases where mutual
recognition andharmonization aredetermined tobeviable options topursue, negotiations willhave
amuch greater chance ofdelivering uplongtermbenefits iftheparticipants inthenegotiations have,
indesigning theirexisting national regulations andpolicies, taken fullaccount oftherequirements of
theTBTAgreement ontechnical regulations.
50. Insummary, inorder toensure effective implementation ofTBTrequirements fortechnical
regulations thefollowing steps andconsiderations areamong those thatneedtobeconsidered:
- identification oftheproblem (including itsmagnitude) andthelegitimate objective that
issought inrelation toit;
- consideration ofalloptions toaddress theproblem, bearing inmind thattechnical
regulations should onlybechosen asanoption ifnoother lesstrade-restrictive option
isavailable;
51. Iftechnical regulations arenecessary:
- consideration oftheeffects ontrade with aview toensuring thattheleast
trade-restrictive regulation isdesigned;
- positiveconsiderationtoperformancebasedstandardsratherthanprescriptivestandards;
- consideration ofwhether international standards existtobaseatechnical regulation
onandwhether theseareapplied interms ofachieving thedesired objective atminimum
cost;
- consideration ofcompliance mechanisms;
- provision forreview andmonitoring oftechnical regulations totakeaccount ofchanged
circumstances/objectives;
- provision foradequate consultation.G/TBT/W/44
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APPENDIX A
ALTERNATIVES TOTECHNICAL REGULATIONS
ThisAppendixdiscussesanumberofregulatoryandnon-regulatoryoptions,otherthantechnical
regulations. Themain options are:
- status quo
- reliance onthegeneral law
- educational programmes
- voluntary standards
- economic instruments
- liability laws
- codes ofconduct/practice
- industry selfregulation/co-regulation.
Each ofthese iselaborated onbelow.
Status Quo
Thestatus quoshould always beconsidered asanoption, toensure thatalternatives arenot
chosen which would infactleadtoworse outcomes thanthecurrent situation.
Reliance ontheGeneral Law
Consideration ofalternatives should alsoinclude assessing whether reliance onthegeneral law,
suchascompetition andconsumer protection laws, could sufficiently address theproblem.
Educational Programmes
Where thereisanasymmetry ofinformation between buyers andsellers aneducational strategy
canbeaneffective waytoremedy theproblem. Possible approaches include:
- Thepublication ofinformation, suchastheperformance ofdifferent products orservice
suppliers, bytheGovernment.
- Mandated information disclosure directly fromsellers tobuyers. Anexample ofsuch
information disclosure requirements istheNewZealand Credit Contracts Act1981,
which requires credit providers todisclose allterms ofthecontract andthetotalcost
ofcredit todebtors.
Educational programmes canimprove outcomes while stillpreserving consumer choice. Even
poorly-informed consumers havealotofinformation thatgovernments donot;about theirpreferences,
theirfinancial situation, theirskills andsoon.Governments, ontheother hand, canobtain critical
informationforconsumersbybuyingexpertiseortestingresources.Itisfareasiertogetthatinformation
intothehands ofconsumers thantotrytocollect alloftheinformation thatwould berequired for
thegovernment tosubstitute itsownjudgement about when andhowgoods andservices should be
used. Forexample, itmaybebetter tolabel appliances withenergy-use information thantoset
energy-efficiency standards, since thegovernment doesnotknow whether afurnace willbeinstalled
inawell-orpoorly-insulated house; whether anairconditioner willbeuseddaily, oronlyonweekends;
howmany people willbetaking showers fromawater heater; howmany people willbecontributingG/TBT/W/44
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laundrytoawashingmachine.Alltheseconditionschangethecost-benefitanalysisofspecificenergy-use
decisions.
Mandatory disclosure, however, isnotwithout cost. Theadministrative burdens ofcollecting
andmaintaining information canbehigh. Some form ofregistration requirement maybeneeded to
identify themembers ofaparticular industry oroccupation whowillbesubject toaninformation
requirement. Ifconsumers arenotabletointerpret disclosed information, mandated disclosure can
bemore confusing thanhelpful tothem.
Voluntary Standards
"Voluntary" or"consensus" standards enable suppliers toprovide consumers withimproved
information onthequality oftheirproduct orservice, without reducing consumer choice.
Economic Instruments
Economic instruments seektoinfluence market behaviour byaltering therelative prices of
goods orservices. Market behaviour canbeinfluenced either directly (e.g.through ataxorusercharge),
orindirectly (e.g.through controlling theoverall levelofsupply). Themostcommon useofeconomic
instruments isasaresponse toexternalities. Economic instruments areameans of“internalizing ”
thecostsofexternalities, sothattheywillbetaken intoaccount inproduction andconsumption decisions.
Thetwomain types ofeconomic instrument are:
- Taxes orcharges: These attempt toaltermarket behaviour through increasing prices.
Common examples areenvironmental charges onpolluting gases, suchascarbon
dioxide, which seektoinclude thecostsofenvironmental damage intheprices ofrelated
goods. Ataxorcharge usedtoinfluence behaviour inthiswayisdistinct fromatax
orcharge whose objective istoraise revenue andwhich would therefore seekto
minimise behavioural change;
- Tradable permits: These areameans ofcontrolling thequantity ofsome externality,
suchaspollution produced fromelectricity generation. Under tradable permit systems,
thegovernment setsamaximum supply levelforaspecific good. Producers musthold
apermit orarighttoproduce thegood, andmaynotproduce anymore thanthelevel
specified inthepermit. Allowing suchpermits tobetraded should ensure thatresources
continue tobeusedwhere theyaddthegreatest value. Inaddition, permit trading can
establish aprice forthegood which willbereflected indownstream prices, thereby
“internalizing”theexternalityinconsumptionaswellasproductiondecisions.Tradable
rights ofthistypehavebeenusedeffectively intheUnited States tocontrol emissions
ofsulphur dioxide, andinNewZealand toprovide forsustainable management of
commercial fisheries.
Liability Laws
Much regulation isintended toreduce risks andgovernments place anincreasing emphasis
onpreventative measures. Yetriskbyitselfisnotevidence thatgovernments should intervene toprevent
accidents. Technical regulations maynotbenecessary ifthose whoareabletoreduce theriskof
accidents and/or injury (usually services providers ormanufacturers) faceeffective incentives todo
so.Thiscanbeachieved through lawswhich make theservice provider/manufacturer accountable
foranydamage caused through theiractions. Robust, transparent liability lawscreate strong incentives
forservice providers ormanufacturers toeducate consumers, workers, andothers about risksthatmay
beoutside therealm oftheirdirect experience andhowtominimise oravoid them.G/TBT/W/44
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Codes ofPractice
Voluntary schemes maybeestablished byaprivate bodyorgroup ofprivate bodies intheform
ofcodes ofpractice. These cancover issues suchasstandards, information requirements, ordispute
resolution mechanisms. Codes ofpractice canbeeffective tools forbuilding consumer confidence,
andproviding foreffective communication between consumers andsuppliers. Theeffectiveness of
codes ofpractice depends onhowmany suppliers arecovered bythescheme, thesanctions for
non-compliance andthedegree towhich consumers areinvolved indeveloping andmonitoring the
scheme.
Codes ofpractice aredeveloped byconsensus between those whowillbeapplying them. As
aresult compliance should behigher thaninthecaseoftechnical regulations. Inaddition, codes of
practice tendtobedeveloped bypeople withagood knowledge ofmarket conditions, andsoshould
bebetter suited toeconomic andcompetitive conditions thanGovernment regulations. However, there
isariskthatcodes ofpractice canbeusedtoreduce competition, ortocreate defacto cartels. Care
needs tobetaken thatcodes ofpractice aresubject toeffective competition laws.
Industry self-regulation/co-regulation
Self-regulation canbedefined asanarrangement inwhich anorganized group (such asan
industry association) regulates thebehaviour ofitsmembers. Theadvantages ofself-regulation are
thatrulesmaybemore likely tobeobserved iftheyaremade byinsiders, changes andupdating can
bemore rapid, anditischeaper fortheGovernment because theregulated group bears thecosts of
regulating. Accountability, ontheother hand, isoften hardtoestablish, andoversight maybeneeded
toensure thatthepublic arebeing protected, rather thantheprivate interest oftheregulated group.
Co-regulation issimilar toself-regulation. However, under co-regulation, thegovernment
works together withtheindustry group todevelop rulesfortheindustry, withaviewtoensuring the
public policy objectives aremet.