How to ensure that technical regulations do not impede India’s international trade
Strong exports can be a major driver of a country’s economic growth. Hence, India has set the goal of increasing its share of global trade and integrating more deeply into global value chains. Mr Amitabh Kant, CEO of the government-think tank Niti Aayog, stressed the importance of exports in a recent opinion piece.1 He calls for policies supporting the scaling-up of Indian companies, the reduction of bureaucratic export procedures, and ensuring that Indian firms keep pace with international standards and technical regulations. Likewise, this article argues in favour of international standards and highlights three aspects to watch out for with regards to technical regulations in India: risk, international orientation, and good regulatory practices.
Standards increase the compatibility of products, strengthen consumer trust, and guide companies to follow established practices. The economic benefits of standards explain why around the world, companies voluntarily engage in the development of standards. International standards offer even further benefits as they represent a global consensus among leading experts on a specific issue. They therefore represent ‘best practices’, which can be used by companies for their products and services. Producing according to international standards enhances the efficiency of global value chains and facilitates access to foreign markets. The Indian Department of Commerce, Ministry of Commerce and Industry, embraced these advantages for the Indian industry when putting an emphasis on international standards in their first Indian National Standardization Strategy (INSS), which was released in June 2018.
When regulators make compliance to certain standards mandatory, they are usually called technical regulations. Mandatory requirements of technical regulations can refer to product labelling, testing procedures, or fulfilling certain product specifications. Until recently, India had few such technical regulations. It is now set to change this by prescribing more technical regulations which shall ensure a product’s safety as well as protect the climate and the environment. Recent legal changes make it easier for Indian ministries to issue mandatory technical regulations for products in their respective fields, so called ‘Quality Control Orders’.
India’s regulatory goals such as product safety are crucial and it is vital that India steps up its efforts to protect the population and the environment. For achieving this, the approach to technical regulation needs to be well-chosen. Unnecessary technical regulations or when used in the wrong way are less effective, create technical barriers to trade, and harm economic growth. This can happen for example when the underlying standards or testing procedures deviate from established international practices without sufficient reasons, such as different climatic conditions.
Moreover, technical barriers to trade are not all about trade. They affect domestic firms as much as foreign ones. Prescribing India-specific technical regulations sets Indian companies on a separate technological path. This reduces the economies of scale for export-oriented Indian companies, as both international and Indian specifications must be met. Strengthening the competitiveness of Indian companies therefore requires reference to international standards when prescribing mandatory requirements – whenever the local context it allows.
It is important that technical regulations encourage innovation and hence are technology-independent. In fast-changing sectors such as the digital economy or information technology it can be counterproductive to make compliance to a specific standard mandatory as the standard might be outdated tomorrow. At least for low-risk products, this can be avoided by allowing companies to develop their own ways to achieve regulatory goals such as product safety. In the highly-regulated EU, it proved successful to refer to voluntary standards that support fulfilling functional requirements (e.g. safety) without prescribing specific technological or design solutions. A positive side-effect is that it can help spur innovation as companies have the possibility to develop their own technological solutions to ensure that the objectives of regulations are met.
Due to existing regulatory gaps, India is strengthening measures to protect consumers, the environment, and climate. This is welcomed and much needed. At the same time, India aspires a greater integration into global value chains and to boost exports as a driver of economic growth. This makes it crucial for India to discuss the best way to regulate through technical regulations. Three aspects require attention:
- Risk: Choosing products to be covered by technical regulations according to a risk assessment. While there are technical regulations for wireless keyboards in India, a gap exists for example regarding the safety of machinery or gas appliances. Hence, the list of regulated products needs to be made based on their respective risk for people and the environment.
- International orientation: Following international standards wherever possible facilitates access to international markets for Indian companies and contributes to technological upgrading. This applies also to testing and certification procedures, which can pose a substantial barrier to trade.
- Roadmap for implementing good regulatory practices: Strong coordination among ministries is needed to ensure a coherent approach to technical regulations. This may be facilitated by developing a roadmap for implementing good regulatory practices, which guide regulatory impact assessments and procedures for stakeholder consultations.
This article was published on the website of the Observer Research Foundation (ORF) on 14 August 2018: https://www.orfonline.org/expert-speak/43290-regulating-goods-better-for-trade/
1 Amitabh Kant. “Export Or Perish: Why India must achieve a quantum jump in exports to drive growth.” Blog of Times of India, 20.07.2018. Accessed 24.07.2018. https://blogs.timesofindia.indiatimes.com/toi-edit-page/export-or-perish-why-india-must-achieve-a-quantum-jump-in-exports-to-drive-growth/