4.3 Eliminating technical obstacles to trade for cosmetic products in the Pacific Alliance

Box 4.3 Eliminating technical obstacles to trade for cosmetic products in the Pacific Alliance

The Pacific Alliance (PA) parties (Chile, Colombia, Mexico, and Peru) committed to the following:a • Take the necessary steps to harmonize the definition of cosmetic products based on the • European Union (EU) definition Establish a market surveillance system based on international good regulatory practices and • • eliminate the need for prior sanitary authorization or replace it with an automatic notification Eliminate the free sale certificate Use the EU and US lists of prohibited and recognized ingredients as a reference and adopt • expedited mechanisms to include, prohibit, or restrict ingredients in the PA lists Harmonize labeling requirements for cosmetic products, basing them on international • standards and having only one format so as to protect consumers Harmonize the requirements and application of good manufacturing practices, based on international standards.

a. The listed provisions are from the Pacific Alliance Free Trade Agreement’s chapter on Technical Barriers to Trade, annex 7.11. Source: González 2020.

Regulatory cooperation in other sectors—medical devices, food supplements, household cleaning products, and pharmaceutical and organic products—is under negotiation or in implementation, but progress has been slow (Dorantes 2020; Fatat Romero 2020). In 2018, the PA Business Council urged governments to prioritize and move forward quickly on regulatory cooperation.

The EU–Central America PTA as a tool to foster the development and adoption of regional technical regulations

The inclusion of technical standards in the EU–Central American Association Agreement (EU–Central America PTA) was crucial for the integration of goods trade across the two regions. Regional economic integration in technical standards was essential for goods to circulate freely within the EU and the Central American countries of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama. In the context of this agreement (article 303), member countries agreed to adopt provisions to allow for the free circulation of goods.

The EU could comply by applying the mutual recognition principle governing trade to the areas of standards, technical regulations, and conformity assessments. But Central America does not apply the mutual recognition principle to intraregional trade. Instead, it harmonizes technical requirements and conformity assessment procedures, and countries can recognize the requirements or procedures of another Central American country as equivalent to their own.

The Central American countries committed to developing regional technical regulations and harmonizing a set of technical regulations. In the context of the EU–Central

America PTA, they agreed to adopt, within five years of the entry into force of the agreement in 2012, regional technical regulations and conformity assessment procedures prepared in accordance with international standards for the list of products in annex XX to the agreement.24 For products not yet harmonized and not included in annex XX, the Association Committee—the agreement’s top governance body—will establish a future work program. Although the Central American countries committed to submitting regular progress reports on implementation, these commitments are not subject to the agreement’s dispute settlement mechanism.

Harmonizing technical regulations among Central American countries in the context of the PTA with the EU has been achieved in several sectors. Most of the technical regulations that Central American countries committed to in the context of the agreement have been harmonized. These are in the areas of foods and beverages, drugs and related products, textiles and footwear, and agricultural inputs. The technical regulations predominantly relate to the adoption of harmonized good manufacturing practices and labeling and registration requirements. Because these regulations and procedures are mostly based on international standards, they should eventually facilitate Central American trade with countries outside the agreement (Molina and Khoroshavina 2015). In the context of the Central American integration process, the region has identified 22 additional technical regulations for harmonization.

Success factors and challenges in implementing SPS and TBT regulatory cooperation in PTAs

The three cases show how countries have explored ways to build and advance regulatory cooperation on SPS and TBT chapters in PTAs, particularly at the sectoral level. The cases provide examples of deeper regulatory cooperation, but they use different mechanisms to foster convergence, including equivalence, harmonization, and mutual recognition. Albeit in different ways, the regulatory cooperation provisions have moved member countries closer to international standards, which can then facilitate market access and reduce trade costs by addressing TBT and SPS frictions. Table 4.2 compares the main features of each of these mechanisms.

The US–Panama PTA is an example of success in implementing agreed-upon commitments on recognizing the equivalence of SPS. It implemented commitments on sanitary and technical standards for trade in agricultural products, and Panama adopted domestic legal and administrative provisions even before the free trade agreement’s negotiations were concluded.25 Effective implementation was facilitated by

• The focus on Panama’s unilateral actions on recognizing equivalence, accepting the results of conformity assessment procedures, and streamlining processes so that no long or complex negotiations on new or harmonized regulations were needed; and • The inclusion of detailed provisions and expedited mechanisms for notification and consultation.

Table 4.2 The main SPS measures and TBT regulatory cooperation features under selected Latin American and Caribbean trade agreements

Feature US–Panama Agreement Pacific Alliance

Parties’ level of development Scope of regulatory cooperation

Regulatory cooperation mechanisms

Monitoring and follow-up mechanisms Advanced and developing Developing

Meat (included but not limited to beef and pork), poultry, and products thereof, and all processed products, including but not limited to dairy products • Recognition of equivalence by Panama of US technical regulations and SPS measures • Acceptance by Panama of results of US conformity assessment procedures • Streamlining of procedures by Panama • Panama’s commitment to speedy notification to the

United States in case of shipment detentions • Panama’s commitment to notify new SPS measures applicable to US products before implementation Cosmetics, medical devices, food supplements, pharmaceutical products, organic products and household cleaning products; others to be defined

• Regulatory improvement • Harmonization of technical regulations based on international standards • Adoption of international good regulatory practices • Streamlining of procedures

• TBT committee to facilitate cooperation among regulatory authorities • High-level officials to monitor progress

Enforceability Separate agreement not subject to the FTA dispute settlement mechanism • Exclusion of chapter on regulatory improvement from the dispute settlement mechanism • Inclusion of sectoral regulatory cooperation agreements as annexes to the TBT chapter, which is subject to the dispute settlement mechanism

EU–Central American Association Agreement

Advanced and developing

Foods and beverages, drugs and related products, textiles and footwear, and agricultural inputs; others to be defined

• Harmonization among Central

American countries of technical regulations to international standards • Acceptance by Central American countries of the results of conformity assessment procedures from other Central

American countries

• Central America to provide detailed yearly progress reports and working programs until implementation is completed • TBT subcommittee to review progress in detail

Exclusion from the dispute settlement mechanism

Source: González 2020. Note: EU = European Union; FTA = free trade agreement; SPS = sanitary and phytosanitary; TBT = technical barrier to trade.

The US–Panama agreement supported a top-down system change in Panama toward greater alignment with international standards, acceptance of conformity assessments, streamlining of procedures in meat and dairy products, and improved transparency on SPS and TBT measures on agricultural products. This was done to prevent SPS and TBT provisions from hindering market access for the covered products. However, the approach taken by the US–Panama agreement was limited

in scope, and there is no formal mechanism in place to effectively promote similar processes for other types of products.

The EU–Central America PTA is an example of an agreement that fosters regional harmonization of standards and regulations. In a different but also successful way, it energized the bottom-up harmonization drive in Central America, providing guidance and support to existing convergence initiatives and helping to facilitate the free circulation of goods in the region for all partners, including from countries in the region. As regulatory rulemakers, the United States and the EU brought their respective preferred approaches to regulatory cooperation to the negotiations. Panama and Central America both gained from the process. In the case of the EU–Central America PTA, although a provision was made for Central America to harmonize additional areas in the future, it is not clear that future results will have the same outcomes, because there is an absence of the political dynamism needed for PTA negotiation and implementation.

The Pacific Alliance is an example of regulatory convergence among members with similar levels of development. The PA is a different story in that it is a bottom-up regulatory convergence process among members with no prior significant regulatory cooperation experience. Political commitment was thus critical in supporting early engagement by regulators and in ensuring results. In the face of political deceleration, the lack of a structured framework to support regulatory cooperation has hindered progress toward the originally planned sectoral regulatory convergence. Continued engagement from the private sector could help reenergize the process—if governments refocus their efforts.

Countries can leverage PTAs to foster regulatory improvement and regulatory convergence, but such processes can be challenging to implement. In the PA, parties engaged in a longer-term process of fostering regulatory improvement and regulatory convergence, but implementation has proven to be challenging. In accordance with the regulatory improvement chapter, the PA members have until 2023 to identify the scope of application. Regarding regulatory cooperation at the sectoral level, since 2012, priority products for collaboration were identified—with input from the private sector. But a specific annex was adopted only for the cosmetics sector. In the annex on harmonization, the commitments are phrased in broad and imprecise terms (for example, the steps necessary to harmonize). On process streamlining, the commitments are precise (see box 4.3), but they have no time frame for adoption. Despite private sector interest, lack of experience on regulatory cooperation among PA countries has hindered collaboration. So has diminished political attention.

By building on previous regulatory cooperation among Central American countries, and because of political support and regular monitoring from the EU, the implementation of the regulatory commitments in the EU–Central America PTA is on track. Of the 22 technical regulations that Central American countries agreed to harmonize, 20 have been implemented. These are detailed regulations agreed upon by

the respective regulatory authorities of the Central American countries. Once agreed upon, domestic regulations are replaced by regional regulations, and countries merely need to publish them in their official gazettes. No further steps are required to put them into practice.

Because of opposition from vested interests and bureaucratic resistance, adopting some of the regulations has been challenging. But several factors have contributed to the high rate of implementation: Central American countries have established a framework for putting negotiation of technical regulations on the political agenda. In addition, twice a year, the rotating Central American presidency of the trade ministers’ council identifies the biannual work plan, reviews priorities, negotiates calendars, and so on. And vice-ministers work with technical authorities to monitor progress. Regular reports are submitted, and the private sector follows the process closely. Finally, detailed monitoring by the TBT subcommittee of the Association Agreement—including regular monitoring reports and plans on next steps presented by the Central American Association to the EU—have significantly energized the process.

The US–Panama agreement, the PA, and the EU–Central America agreement confirm that advancing international regulatory cooperation via PTAs is difficult but feasible. Some of the challenges arise because trade negotiations differ from regulatory cooperation discussions (Goldberg 2019; Hoekman 2018). If the regulatory process extends beyond the trade negotiation time frame—as is often the case when searching for broader regulatory convergence—collaboration among regulators can lose steam. In addition,

• Weak domestic regulatory institutional and administrative capacity, or a lack of common interests and incentives to cooperate among regulators, will make it harder to deliver; • Broad and complex agendas, with overambitious regulatory objectives, could overwhelm collaboration efforts. Vested interests could capture the regulation process; • Mistrust from the public on the objectives of regulatory cooperation could affect the possibility of achieving results; and • Finally, because most international cooperation mechanisms are nonbinding in nature, even when they are part of PTAs, a lack of effective monitoring and follow-up mechanisms can result in partial or defective implementation.

Even when successful in the context of a specific agreement, PTA-driven regulatory cooperation entails risks, including risks on how to define the optimal level of regulation for the parties and whether results in different contexts could lead to regulatory conflict. But although there is no single approach to delivering results, several factors can help effectively advance international regulatory cooperation in deep PTAs (box 4.4).