Negotiating FTAs – are we ready for MRAs?
As India has embarked on free trade negotiations with many of its important trading partners like the UK, Canada, Australia and the European Commission, one of the means for gaining freer access to our goods, MRAs i.e. mutual recognition agreements, is mentioned periodically by many commentators.
What really are MRAs and are we ready for these – these are questions that are not well understood and affect our readiness to sign such MRAs. Technically, MRAs, as the expression implies, mean mutual recognition of each other’s systems by the trading partners.
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What are these systems which need recognition?
These are essentially the domestic regulatory regimes (or SPS measures in the case of food) of each trading partner and in an ideal scenario, the products as regulated in a country should be acceptable in another country.
This is easier said than done, especially for developing economies like India.
The reason is twofold:
- One, in many areas, India does not have regulations in place – for example, machinery safety is not yet regulated although a draft regulation has been notified; medical devices and chemicals are only partially regulated. In short, there is no system available to be offered to the trading partner for recognition.
- Two, many of our regulations, like in pharma or food, are short of international standards and hence not suitable to be presented to the trading partner as they are.
It needs to be understood that both the WTO Agreements on Technical Barriers to Trade (TBT), which largely applies to industrial goods, and Sanitary and Phytosanitary Measures (SPS), which applies to food, plant and animal health, encourage members to base their regulations on international standards. These agreements also provide for adopting standards stricter than international standards based on scientific justification which many developed economies like USA and EC have invoked and which becomes another challenge for the developing economies.
In the above scenario, the importance of adopting international standards in our regulations should be obvious despite which unfortunately there are periodic calls for India-specific standards even in policy-making quarters, who should know better, without realizing the adverse impact on our programmes like ‘Make in India’ or ‘Local for Global’. We need to shut down this debate and make the adoption of international standards our default position unless there is a valid justification for deviating from them.
There is another issue that is not well understood either – that regulations, called technical regulations (TBT Agreement) or SPS measures (SPS Agreement), have two components:
- One, product-related or even production process-related requirements like good manufacturing practices (GMP) in pharma or good hygienic practices (GHP) in food
- Two, the manner of demonstrating compliance to the above requirements called conformity assessment
Both these have to be based on international standards to be acceptable overseas – it is not enough to meet international standards for products.
It may be pertinent to cite the case of the BIS Hallmarking system which is being made compulsory in the country in phases. While 18 or 22 or 24-carat gold is the same globally, the Hallmarking system is not acceptable abroad because it does not rely on assaying centres accredited to international standards, ISO 17025, and BIS chooses to approve them based on its own standard rather than rely on the national accreditation body designated for the purpose, the National Accreditation Board for Testing & Calibration Laboratories (NABL), under the Quality Council of India (QCI).
Similarly, some of the Quality Control Orders (QCOs) issued by various Ministries notifying compulsory BIS certification like in toys or electrical appliances are based on the adoption of international standards but BIS certification itself is not accredited as per applicable international standards, ISO 17065, and hence largely unacceptable abroad.
Unless we fix the above issues, there would be no MRAs or the industry would have to undergo an additional internationally acceptable certification which obviously adds to the cost of compliance.
Given the above scenario, where either we do not have regulations or the regulations are not based on international standards or the manner of demonstrating compliance is not internationally acceptable, it would appear we are not in a position to sign MRAs.
The good news is that while harmonization with international standards should be top of our priority, it is possible to sign MRAs even without that.
What is needed is to demonstrate that we can produce as per international standards and test and/or certify in internationally acceptable ways.
There are two good examples of the above approach – the marine product (seafood) certification system of the Export Inspection Council (EIC) which was recognized by EC as far back as 1997 and the organic certification system of APEDA developed in the early 2000s which went on to acquire US and EC recognitions, and remains a good bet despite the setbacks in last couple of years. It is surprising that despite these successes, India has not used this approach in a cohesive manner to develop an internationally acceptable regime and present it in its trade negotiations.
There are potential areas of exports like the AYUSH medicines and PPEs where the QCI did come up with Ayush Premium Mark and ICMED 13485 Plus schemes which were intended precisely to accomplish the same objective and need to be leveraged.
The lesson is that where we do not have regulations or the domestic regulations are not based on international standards, we should develop an alternate institutional system for certifying products to global standards and seek recognition of such mechanisms to secure freer access for our products.
Where we can fix our domestic regime in a reasonable time, we should do that as in the case of the BIS Hallmarking system and BIS certification in sectors which are based on international standards for products.
The signing of MRAs has another issue – it is about mutual recognition.
Therefore, if we seek recognition of our seafood or organic certification system or vice versa or if the USA seeks recognition of its test reports for electronics & IT goods, the trading partner or we respectively may not just be interested in one sector since it may not mean gain for one of the two parties. The most likely scenario is that negotiations for MRAs may therefore cover more than one sector. It is pertinent to recall that in the first FTA India signed with Singapore in mid-2000, each country identified two sectors of its interest – India identified agrifood and pharma and Singapore opted for electrical & electronics and telecom. Interestingly India did not have any regulations in telecom then and yet there was an MRA.
To sum up, India needs to follow the following strategy to be in a position to sign MRAs and realize better benefits from FTAs as far as TBT and SPS issues are concerned:
- Bring in regulations in areas which are still unregulated but usually regulated in developed economies – not to forget that regulations are primarily intended to protect the health and safety of one’s populace
- Base the regulations on international standards – where they are not, assess the preparedness of the industry and fix a reasonable time frame by which international standards would be adopted in the regulations
- Pending the adoption of international standards in domestic regulations develop institutional mechanisms for certifying to global standards in identified sectors where we may have an export interest like the AYUSH medicines, PPEs, chemicals etc.
- Identify products where such systems may already be in place – APEDA’s organic certification system, EIC’s seafood and other certifications like dairy products, QCI’s Ayush Premium Mark and ICMED 13485 Plus certifications which are based on international standards
- Make sure that not only product and production process-related standards are international but the manner of demonstrating compliance is also internationally acceptable e.g. BIS certification where international standards already are on the basis of regulations and the BIS Hallmarking scheme
The above strategy would place India in a much better position to negotiate MRAs in identified sectors and promote exports.
Anil Jauhri is the former CEO of the National Accreditation Board for Certification Bodies and has extensive experience in standards and regulations. This article is based on the presentation he made at the 7th National Standards Concave organized by the Department of Commerce on 19-20 Dec 2022. The views expressed are personal.