Trade Development Briefing Note Issue 3, June 2010 59983 Sanitary and phytosanitary measures Enhancing agro-food trade in the Lao PDR Key messages Methodology The requirements of the World Trade Organization (WTO) are acting as The study examines legal and regulatory measures, border crossing a key driver of sanitary and phytosanitary (SPS) capacity building efforts procedures and institutional capacities affecting Lao agro-food exports in Lao PDR -- directly through the accession process and indirectly and imports. It reviews the experiences of the private sector with SPS through the expansion of the country's agro-food trade. Increased levels export and import procedures, and identifies gaps and weaknesses in of imports raise the risk of Lao PDR being exposed to imported animal the implementation of SPS measures. and plant pests and diseases, or foods that are unsuitable for consump- tion. Increases in the volume of imported seeds, breeding stock, pesti- The report also looks at the SPS requirements of Lao PDR's main trad- cides, and veterinary drugs also pose heightened risks due to the grow- ing partners: China, Thailand, and Vietnam. Each importing country has ing commercialization of agriculture. Lao PDR's main trading partners its own requirements based on established practices and perceptions of are progressively implementing the same SPS principles in their own import-related risks. Requirements evolve with economic development, trade and domestic policies with implications for Lao agro-food exports. changing requirements in domestic and international markets, regional harmonization, continuing implementation of international standards, A recent study by the World Bank1 recommends actions that will have and perceptions of newly emerging SPS risks. Lao PDR not only satisfy its legislative agenda for WTO accession and comply with the principles of the WTO SPS Agreement, but also create Findings a food safety and agricultural health system that provides effective pro- The World Bank study has seven major findings on how Lao PDR could tection against trade-related health hazards, and allow the country to be better integrated into regional agro-food markets, as follows: participate more in regional and international trade. This will require the adoption of modern, science-based SPS measures, as well as the more 1. Increased SPS capacities are imperative for the successful ex- strategic use of limited resources and capacity to manage risks. Simi- port of plant products. There are a number of high-impact phyto- larly lack of information on the prevalence of pests and risks at home, sanitary constraints from importing or potentially importing countries constrains Lao PDR from challenging market access constraints im- that are acting as a major binding constraints to increased Lao agri- posed by trading partners. cultural exports. In particular, China is increasingly strict in applying a system of first-time import permits based on risk assessment, which requires surveillance data and criteria that cannot be met with the The WTO SPS Agreement present capacities in Lao PDR. Consequently, trade with China is In order to meet the country's stated objective of acceding to the WTO, constrained to small crop amounts for border trade under special the Lao PDR must adjust its laws and policies to comply with the princi- allowances. Fruit and vegetables, and most likely rice and other po- ples of the WTO SPS Agreement. At the same time, Laos PDR's main tential new crops, cannot be formally exported at the present time. trading partners and other countries in the region are rapidly upgrading their systems for plant and animal health protection and food safety in Although Thailand and Vietnam have similar legal requirements (for accordance with the same WTO SPS principles. new products or first time exporters of processed food to these coun- tries), these are often waived for goods being imported from Lao PDR The WTO SPS Agreement allows countries to protect the health of their since the pest situation in Lao PDR is considered to be similar to that consumers, crops, and livestock against trade-related health risks, but of Thailand and Vietnam. However, were plant pest or disease inci- requires that any protective action is applied in ways that are least dis- dents to occur then these requirements could be enforced at short ruptive to trade. notice. In comparison, the volume of processed food exports is small, and product safety and quality depends mainly on the capacities of The key principles of the Agreement are: exporters. Formal export of livestock products from Lao PDR is diffi- cult because of endemic contagious livestock diseases and formal Nondiscrimination. Measures are equally applied to importers as quarantine requirements. well as domestic producers. Similarly, all trading partners are subject to same requirements. 2. Lao PDR's SPS measures are not yet fully compliant with WTO principles. The decentralized system of the Lao PDR Government Transparency. Information on SPS measures is easily accessible. places important SPS responsibilities at the provincial level, such as There are set procedures for notification in cases of new or amended plant and animal quarantine border controls, issuance of phytosani- measures. tary and veterinary certificates, conducting related inspections, and Proportionality. Interventions are proportional to the health risks to collection of fees. However, the existing legal framework leaves much be controlled. room for provincial governors to adopt their own regulations and op- Equivalence. There is mutual recognition among trading partners of erational guidelines. According to WTO principles, there should be different measures that achieve the same level of protection. one authority that can promulgate trade policies, for example, one National Plant Protection Office in charge of plant quarantine and one Use of science-based measures. Measures to protect plant, animal, veterinary authority. Decentralization of authority in this case lacks and human health are based on scientific principles with sufficient transparency and does not promote uniformity of SPS measures in scientific evidence. Generally, this requires the assessment of risks accordance with WTO principles. Overcoming this requires attention involved and the definition of the level of risk that is acceptable. from policymakers and changes in the legal and regulatory system, Regionalization. The principle recognizes the possibility of disease particularly with regard to decentralization policies. or pest-affected countries having disease or pest-free areas or re- gions and allowing exports from such disease or pest-free areas or 3. More needs to be done for the SPS system to provide adequate regions. protection against potential health hazards in imports, and to protect the health of consumers, crops, and livestock. The con- Countries are encouraged to harmonize with international SPS stan- trols on international and local border crossings need to be strength- dards and measures but are allowed to apply stricter requirements as ened and unified. However, border controls are, in many cases, not long as these measures are based on scientific justification that includes the most important element in health control systems. Effective health an assessment of risks. control systems should be based on monitoring and surveillance of the prevalence of pests, diseases, and health hazards, providing both 1 World Bank (2009) Lao People's Democratic Republic: Sanitary and Phytosanitary Measures ­ the data required by trade partners and information needed for health Enhancing Trade, Food Safety, and Agricultural Health, Report No. 48802, Sustainable Devel- opment Department, East Asia and Pacific Region. Washington, D.C. risk managers. 4. Reforms to the SPS system could result in significant reduc- 7. Insufficient funding to operate a viable SPS system is at the core tions in the costs of doing business. Several unnecessary SPS of the problem for SPS capacity building. Although one-time im- requirements are imposed on exporters and importers because the provements in training, legal reforms, and diagnostic facilities can get authorities either lack knowledge for proper implementation or need temporary help from donor funding or lending from international finan- instruments to raise revenues. This affects the business environ- cial institutions, the recurrent costs fall upon Government resources. ment; and for imports, it can violate the WTO principles that SPS Hence, poor funding constrains the absorptive capacity for external measures should be science based and proportionate to the health support, and the sustainability of capacities created with external sup- risks. port is weak. 5. The lack of scientific expertise in Lao PDR constrains the coun- Recommendations try in defending its legitimate rights under the WTO SPS Agree- Table 1 (below) provides recommendations to solve gaps in the country's ment. At present Lao PDR lacks information on pests and risks at SPS capacities. The gaps and recommendations are characterized ac- home and in countries of export destination. It is virtually impossible cording to relevant WTO SPS principles. for the country to ask questions about the scientific legitimacy of measures imposed by its trading partners, such as market access Conclusions constraints and treatment requirements, and to propose modifica- The present technical, legal, and institutional environment should be tions on the basis of equivalence. strengthened to achieve effective health controls. Stronger capacities of the SPS authorities and national harmonization of operational rules will 6. Lao PDR's relatively weak capacity for SPS risk management give trade partners more confidence in the inspection, and health and not only has potential implications for the Lao PDR domestic safety certifications of Lao PDR. Legal and regulatory reform is key and a situation but also for the food safety, agricultural production, necessary first step for solving many of the weaknesses in SPS manage- and exports of its neighbors. The entry and establishment of an ment in Lao PDR. Most of the recommendations in the legal field are alien pest in Lao PDR could eventually affect the entire region. Vari- being addressed under the Trade Development Facility. However, other ous cooperative arrangements between Greater Mekong Subregion work, especially on surveillance and diagnosis, will require significant countries are based on the understanding that they share risks and support from the regular budget and additional grant and lending are mutually dependent on each other to effectively control health sources. hazards. Bilateral working groups are identified as effective tools for policy dialogue, setting a joint agenda for cooperation, and identify- ing priorities for technical assistance. Table 1: Gaps and Recommendations in Context of WTO SPS Principles WTO SPS Gaps in capacity Recommendations Principles Transparency Legal and regulatory framework Additions and amendments in the legal and regulatory framework to clarify insti- has gaps and is not sufficiently tutional roles and responsibilities (especially between national and provincial published. offices). Decentralization allows provincial Pertinent laws and regulations to be published and made available to exporters authorities too much discretion- and importers (such as mandatory fees). ary power. Proportionality Measures not significantly con- Amendments in the legal and regulatory framework to (a) repeal redundant tributing to better human and measures, (b) make measures not required by international agreements volun- agricultural health protection and tary, and (c) modify fiscal regulations in such ways that SPS measures are not are unnecessary and used for para-fiscal purposes. noncompliant. Uniform national Discretionary powers of provin- Design and implement a unified national system of laws and regulations for food measures cial authorities result in variance safety, plant health, animal health and related use of agro-inputs. in implementation of SPS Develop national inspection protocols. measures. Unify SPS controls at local and international border posts. Science-based Certain measures are not sci- Use of risk profiles, in the medium-term. measures ence-based. Build capacity on risk management and assessment, and data gathering on haz- ards from both imports and domestic markets, and establishment or assignment of offices responsible for risk management. Non discrimination Limited capacity to validate re- Capacity building for validating trading partner SPS requirements. quirements of trading partners. Equivalence Limited capacity to propose Capacity building for proposing equivalent measures on import requirements. equivalent measures. Harmonization SPS measures and capacities Amendments in the legal and regulatory framework to be consistent with interna- are not yet adequate to meet tional good practices on food safety and agricultural health. needs of trading partners. Regular bilateral consultations with neighboring countries on plant health, animal health and food safety. For further information, please contact: World Bank Office, Vientiane Produced with resources from the Trade Development Facility Poverty Reduction and Economic Management Multi Donor Trust Fund, financed by the European Commis- Patou Xay, Nehru Road sion and the Government of Australia, and administered by the Vientiane, Lao PDR World Bank. Information contained in this briefing note reflects the t: +856 21 414209 views of the authors, and not necessarily those of the f: +856 21 414210 Visit us at http://www.worldbank.org/lao/trade World Bank Group. e: laoinfo@worldbank.org