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Raising the Bar on Products and Process Standards: Economic Principles J. Christophe Bureau Institut National Agronomique, Paris The World Bank, 2003.

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Presentation on theme: "Raising the Bar on Products and Process Standards: Economic Principles J. Christophe Bureau Institut National Agronomique, Paris The World Bank, 2003."— Presentation transcript:

1 Raising the Bar on Products and Process Standards: Economic Principles J. Christophe Bureau Institut National Agronomique, Paris The World Bank, 2003

2 Overview Definitions Definitions Economics of standards Economics of standards The political economy of standards The political economy of standards The role of standards in the process of market integration, trade and economic development The role of standards in the process of market integration, trade and economic development Conclusion Conclusion

3 Definitions Standards, technical regulations and other terms Standards, technical regulations and other terms Types of standards Types of standards Examples of standards Examples of standards Different roads leading to a standard Different roads leading to a standard International standards and standardization bodies International standards and standardization bodies

4 Standards, technical regulations and other terms "Standard" ("norme"): broad meaning in the general language "Standard" ("norme"): broad meaning in the general language More restrictive meaning in official and technical languages: refers to something voluntary More restrictive meaning in official and technical languages: refers to something voluntary Mandatory standards are called "technical regulations" ("r é glements techniques") Mandatory standards are called "technical regulations" ("r é glements techniques")

5 Standards, technical regulations (2) Standards provide "rules guidelines, or characteristics for activities or their results, aimed at the achievement of the optimum degree of order in a given context" (ISO) Standards provide "rules guidelines, or characteristics for activities or their results, aimed at the achievement of the optimum degree of order in a given context" (ISO) Standards include various layers of "quality insurance institutions": rule making, conformity assessment, accreditation Standards include various layers of "quality insurance institutions": rule making, conformity assessment, accreditation

6 Standards, technical regulations (3) Rule making: development of technical specifications Rule making: development of technical specifications Conformity assessment: ensures that one complies with requirements Conformity assessment: ensures that one complies with requirements Accreditation/recognition: ensures that the conformity assessment works Accreditation/recognition: ensures that the conformity assessment works Labels and conduct codes are special cases Labels and conduct codes are special cases

7 Definitions Standards, technical regulations and other terms Standards, technical regulations and other terms Types of standards Types of standards Examples of standards Examples of standards Different roads leading to a standard Different roads leading to a standard International standards and standardization bodies International standards and standardization bodies

8 Types of standards Various typologies including according to: Various typologies including according to: Area addressed: technical, environmental, sanitary and phytosanitary, labor standards, etc. Area addressed: technical, environmental, sanitary and phytosanitary, labor standards, etc. Economic impact: Compatibility (network effects), minimum quality and interface (information), variety reduction (minimize wasteful proliferation), information and measurement (compatibility and risk of litigation) standards Economic impact: Compatibility (network effects), minimum quality and interface (information), variety reduction (minimize wasteful proliferation), information and measurement (compatibility and risk of litigation) standards

9 Types of standards (2) A distinction particularly relevant in trade issues: Product standards vs Process and Production Methods standards A distinction particularly relevant in trade issues: Product standards vs Process and Production Methods standards Specific treatment of process standards in multilateral trade agreements (GATT) Specific treatment of process standards in multilateral trade agreements (GATT) However, hazy area between products and process standards often causes trade disputes However, hazy area between products and process standards often causes trade disputes

10 Definitions Standards, technical regulations and other terms Standards, technical regulations and other terms Types of standards Types of standards Examples of standards Examples of standards Different roads leading to a standard Different roads leading to a standard International standards and standardization bodies International standards and standardization bodies

11 Examples of standards Technical standards include: Technical standards include: standards sanctioned by an accredited standards body standards sanctioned by an accredited standards body de facto standards (Microsoft Windows; Video cassette recorders) de facto standards (Microsoft Windows; Video cassette recorders) ad hoc standards or consensus standards (widely used by mutual agreement; non proprietary Digital Video Disks standards) ad hoc standards or consensus standards (widely used by mutual agreement; non proprietary Digital Video Disks standards)

12 Examples of standards (2) Sanitary and phytosanitary standards: Sanitary and phytosanitary standards: Protection of human health, animal health, flora and fauna Protection of human health, animal health, flora and fauna Bans, quarantine regulations, inspection of products, specific treatment or processing of products, maximum allowable levels of residues, etc. Bans, quarantine regulations, inspection of products, specific treatment or processing of products, maximum allowable levels of residues, etc.

13 Examples of standards (3) Environmental standards Environmental standards Some mandatory, but many voluntary Some mandatory, but many voluntary Some international (ISO 14000, Forest Stewardship Council, etc.) Some international (ISO 14000, Forest Stewardship Council, etc.) Many national standards (Canadian Forest Management System Standard; New Zealand Forest Accord; Finnish Certification Standard; Living Forest Project in Norway, etc.) Many national standards (Canadian Forest Management System Standard; New Zealand Forest Accord; Finnish Certification Standard; Living Forest Project in Norway, etc.)

14 Examples of standards (4) Labor standards Labor standards Typically a process standard Typically a process standard No international agreement, but a core of United Nations standards; Often poorly enforced No international agreement, but a core of United Nations standards; Often poorly enforced Can lead to the exclusion of certain countries from international agreements (Myanmar) Can lead to the exclusion of certain countries from international agreements (Myanmar) Pressures may create a de facto standard (child labor in garments in Bangladesh) Pressures may create a de facto standard (child labor in garments in Bangladesh)

15 Examples of standards (5) Broader ethical standards Broader ethical standards Reflect new concerns of citizens Reflect new concerns of citizens Combine environment, labor, and possibly other ethical values (SA8000) Combine environment, labor, and possibly other ethical values (SA8000) Animal welfare standards (e.g. EU regulations) Animal welfare standards (e.g. EU regulations) Fair trade standards (Max Havelaar) Fair trade standards (Max Havelaar) No international agreement, source of disputes between countries No international agreement, source of disputes between countries

16 Definitions Standards, technical regulations and other terms Standards, technical regulations and other terms Types of standards Types of standards Examples of standards Examples of standards Different roads leading to a standard Different roads leading to a standard International standards and standardization bodies International standards and standardization bodies

17 Different roads leading to a standard Mandatory standards often government defined; Voluntary standards have public or private origin Mandatory standards often government defined; Voluntary standards have public or private origin Manufacturers, users, research organizations, government, consumers, work together to create standards Manufacturers, users, research organizations, government, consumers, work together to create standards National standardization bodies coordinate standard setting National standardization bodies coordinate standard setting

18 Different roads (2) Examples: Examples: American National Standards Institute (ANSI) American National Standards Institute (ANSI) British Standards Institution (BSI); British Standards Institution (BSI); European Committee for Standardization (CEN) European Committee for Standardization (CEN) German Institute for Standardization (DIN) German Institute for Standardization (DIN) French AFNOR; French AFNOR; Standards Australia, etc. Standards Australia, etc.

19 Different roads (3) Widespread use of voluntary standards sometimes makes them mandatory Widespread use of voluntary standards sometimes makes them mandatory National and international regulations rely on voluntary, sometimes private, standards National and international regulations rely on voluntary, sometimes private, standards Private standards may use public or non profit association standards (electric standards using fire hazards codes) Private standards may use public or non profit association standards (electric standards using fire hazards codes)

20 Definitions Standards, technical regulations and other terms Standards, technical regulations and other terms Types of standards Types of standards Examples of standards Examples of standards Different roads leading to a standard Different roads leading to a standard International standards and standardization bodies International standards and standardization bodies

21 International standards and standardization bodies Growing importance of international standards because of globalization Growing importance of international standards because of globalization International institutions setting standards (Codex Alimentarius) International institutions setting standards (Codex Alimentarius) Coordination in international fora (APEC) ; mutual recognition Coordination in international fora (APEC) ; mutual recognition International federation and management of voluntary standards (ISO) International federation and management of voluntary standards (ISO)

22 International standards (2) The ISO: The ISO: Non governmental; Worldwide federation of 146 national standard bodies Non governmental; Worldwide federation of 146 national standard bodies Promotes standardization to facilitate trade Promotes standardization to facilitate trade 2937 technical bodies; Staff of 500; experts participating a year 2937 technical bodies; Staff of 500; experts participating a year

23 Overview Definitions Definitions Economics of standards Economics of standards The political economy of standards The political economy of standards The role of standards in the process of market integration, trade and economic development The role of standards in the process of market integration, trade and economic development Conclusion Conclusion

24 Economics of standards Useful economic concepts Useful economic concepts Desirable economic effects of standards Desirable economic effects of standards Potential problems with standards Potential problems with standards Strategic use of standards Strategic use of standards Economic rationale of government intervention in standard setting Economic rationale of government intervention in standard setting The role of market forces The role of market forces

25 Useful economic concepts Quality includes several product attributes (Lancaster). Valued with different weights by consumers Quality includes several product attributes (Lancaster). Valued with different weights by consumers Lack or economic operability of the concept, leads to distinguish vertical and horizontal product differentiation Lack or economic operability of the concept, leads to distinguish vertical and horizontal product differentiation Quality refers to vertical, horizontal refers to "variety" Quality refers to vertical, horizontal refers to "variety"

26 Useful economic concepts (2) "Socially optimal quality" balances costs of higher quality and benefits for consumers "Socially optimal quality" balances costs of higher quality and benefits for consumers Example of product safety, when marginal cost of risk reduction increases. Defines of optimal level of safety (Antle, Viscusi) Example of product safety, when marginal cost of risk reduction increases. Defines of optimal level of safety (Antle, Viscusi) "Optimal environmental quality" based on equalization or marginal pollution abatement costs and marginal damage provides an economic basis for setting a standard "Optimal environmental quality" based on equalization or marginal pollution abatement costs and marginal damage provides an economic basis for setting a standard

27 Useful economic concepts (3) Economies of scale. Internal (e.g. fixed costs) and external (e.g. cluster of industries) Economies of scale. Internal (e.g. fixed costs) and external (e.g. cluster of industries) Network economies Network economies The value of a product for consumers increase with the number of consumers of compatible product (fax machines) The value of a product for consumers increase with the number of consumers of compatible product (fax machines) The value of the base product is enhanced as the variety of compatible products increases (CD player and CDs) The value of the base product is enhanced as the variety of compatible products increases (CD player and CDs)

28 Useful economic concepts (4) Imperfect information: search goods, experience goods and credence goods Imperfect information: search goods, experience goods and credence goods Moral hazard and adverse selection (important for safety standards, standards ensuring fairness of trade) Moral hazard and adverse selection (important for safety standards, standards ensuring fairness of trade) Social costs of imperfect information generating market inefficiencies Social costs of imperfect information generating market inefficiencies

29 Economics of standards Useful economic concepts Useful economic concepts Desirable economic effects of standards Desirable economic effects of standards Potential problems with standards Potential problems with standards Strategic use of standards Strategic use of standards Economic rationale of government intervention in standard setting Economic rationale of government intervention in standard setting The role of market forces The role of market forces

30 Desirable economic effects of standards Standards define the technology; Enhance innovation Standards define the technology; Enhance innovation Change in use of inputs; Changes in modes and forms of organisation in production (quality management standards) Change in use of inputs; Changes in modes and forms of organisation in production (quality management standards) Increase skill requirements; "race to the top" in terms of quality requirements Increase skill requirements; "race to the top" in terms of quality requirements

31 Desirable economic effects (2) Ensure product compatibility (compatibility and interface in information technology) Ensure product compatibility (compatibility and interface in information technology) Division of labor; Improves coordination of production and distribution Division of labor; Improves coordination of production and distribution Reduce transaction costs, between firms and with consumer, and lowers risks, including risks of litigation Reduce transaction costs, between firms and with consumer, and lowers risks, including risks of litigation

32 Desirable economic effects (3) Economies of scale ( components ). Larger market essential in industries with large fixed costs Economies of scale ( components ). Larger market essential in industries with large fixed costs Standards create credibility, focus and critical mass in markets for new technologies Standards create credibility, focus and critical mass in markets for new technologies Increase globalization of markets (mutual recognition, harmonization) Increase globalization of markets (mutual recognition, harmonization)

33 Desirable economic effects (4) Provide information to consumers (minimum quality standards) Provide information to consumers (minimum quality standards) Generate trust (safety standards; voluntary process standards for credence goods) Generate trust (safety standards; voluntary process standards for credence goods) Increase consumer awareness and concerns (environmental standards; ethical standards) Increase consumer awareness and concerns (environmental standards; ethical standards)

34 Desirable economic effects (5) Overall, significant economic impacts on: Overall, significant economic impacts on: Macroeconomic growth, in spite of lack of precise measurement (German study: 0.9 points out of 3.3 of GDP) Macroeconomic growth, in spite of lack of precise measurement (German study: 0.9 points out of 3.3 of GDP) Integration into a global market (electronics in South Asia). Obviously a necessary but not sufficient condition Integration into a global market (electronics in South Asia). Obviously a necessary but not sufficient condition Quality improvement (accessing countries to the EU) Quality improvement (accessing countries to the EU)

35 Economics of standards Useful economic concepts Useful economic concepts Desirable economic effects of standards Desirable economic effects of standards Potential problems with standards Potential problems with standards Strategic use of standards Strategic use of standards Economic rationale of government intervention in standard setting Economic rationale of government intervention in standard setting The role of market forces The role of market forces

36 Potential problems with standards Standards not always well defined (standards that involve a negative environmental balance) Standards not always well defined (standards that involve a negative environmental balance) Can drive the whole economy into technical errors (fire hazard standards and asbestos) Can drive the whole economy into technical errors (fire hazard standards and asbestos) Can be set at a level that is not socially optimal (environmental standards, under uncertainty on costs and damages) Can be set at a level that is not socially optimal (environmental standards, under uncertainty on costs and damages)

37 Potential problems (2) Can limit market coverage Can limit market coverage Minimum quality standards, or de facto requirements (airbags) may raise product prices Minimum quality standards, or de facto requirements (airbags) may raise product prices May prevent a fringe of some consumers to access lower quality but cheaper products (cars in Europe) May prevent a fringe of some consumers to access lower quality but cheaper products (cars in Europe) Can impose a particular burden on small enterprises Can impose a particular burden on small enterprises

38 Potential problems (3) Proliferation of standards inefficient. Lack of "standardization of standards" costly (US estimates of costs associated to complying to various national standards between bn$ 20 and 40 a year) Proliferation of standards inefficient. Lack of "standardization of standards" costly (US estimates of costs associated to complying to various national standards between bn$ 20 and 40 a year) Like patents, standards may have a dissuasive effect on innovation Like patents, standards may have a dissuasive effect on innovation This may involve costs for consumers This may involve costs for consumers

39 Economics of standards Useful economic concepts Useful economic concepts Desirable economic effects of standards Desirable economic effects of standards Potential problems with standards Potential problems with standards Strategic use of standards Strategic use of standards Economic rationale of government intervention in standard setting Economic rationale of government intervention in standard setting The role of market forces The role of market forces

40 Strategic use of standards Standards can lead to strategic behavior and can be used as barriers to entry against competitors or foreign firms Standards can lead to strategic behavior and can be used as barriers to entry against competitors or foreign firms Standard setting can provide opportunities for collusion (Shapiro) Standard setting can provide opportunities for collusion (Shapiro) Governments may use standards to favor domestic firms Governments may use standards to favor domestic firms

41 Strategic use of standards (2) Case for strategic use of standards firms well documented in academic literature: Case for strategic use of standards firms well documented in academic literature: Standards can serve to segment markets Standards can serve to segment markets Strategic incompatibility of standards can be used for organizing market power Strategic incompatibility of standards can be used for organizing market power Variety reduction standards may facilitate oligopolistic coordination within a cartel Variety reduction standards may facilitate oligopolistic coordination within a cartel Standards used by an oligopoly to discipline a potential competitor Standards used by an oligopoly to discipline a potential competitor

42 Strategic use of standards (3) Academic literature shows complex interaction between competition and informational effects of standards. Strategic standard setting may backfire Academic literature shows complex interaction between competition and informational effects of standards. Strategic standard setting may backfire Shapiro and Varian: "Winning a battle of standards depends on intellectual property rights, control over and installed base of users, ability to innovate, first mover advantages, manufacturing abilities, strength in complements and on brand name and reputation..." Shapiro and Varian: "Winning a battle of standards depends on intellectual property rights, control over and installed base of users, ability to innovate, first mover advantages, manufacturing abilities, strength in complements and on brand name and reputation..."

43 Economics of standards Useful economic concepts Useful economic concepts Desirable economic effects of standards Desirable economic effects of standards Potential problems with standards Potential problems with standards Strategic use of standards Strategic use of standards Economic rationale of government intervention in standard setting Economic rationale of government intervention in standard setting The role of market forces The role of market forces

44 Economic rationale of government intervention The regulator has to arbitrate between imposing standards in order to : The regulator has to arbitrate between imposing standards in order to : address informational market inefficiencies address informational market inefficiencies impose a socially optimal quality to an oligopoly that would not do so spontaneously impose a socially optimal quality to an oligopoly that would not do so spontaneously And the risk that the standards imposed limit competition, be eventually detrimental to consumers And the risk that the standards imposed limit competition, be eventually detrimental to consumers

45 Government intervention (2) Antitrust bodies have frequently ruled against strategic standards setting that is detrimental to the society as a whole (US macaroni in the 1960s to recent computer standards using patents) Antitrust bodies have frequently ruled against strategic standards setting that is detrimental to the society as a whole (US macaroni in the 1960s to recent computer standards using patents) However, in some cases the trade-offs betwen the "bads" and the "goods" of a standard is not obvious (e.g. governments hesitations on GM food in Europe) However, in some cases the trade-offs betwen the "bads" and the "goods" of a standard is not obvious (e.g. governments hesitations on GM food in Europe)

46 Economics of standards Useful economic concepts Useful economic concepts Desirable economic effects of standards Desirable economic effects of standards Potential problems with standards Potential problems with standards Strategic use of standards Strategic use of standards Economic rationale of government intervention in standard setting Economic rationale of government intervention in standard setting The role of market forces The role of market forces

47 The role of market forces Self control of quality can be based on market forces Self control of quality can be based on market forces Reputation may be a powerful instrument that can replace command and control instruments in case of product safety (e.g. brand name) Reputation may be a powerful instrument that can replace command and control instruments in case of product safety (e.g. brand name) Voluntary standards, codes of conducts, certification can be effective tools for ensuring that products are of high quality Voluntary standards, codes of conducts, certification can be effective tools for ensuring that products are of high quality

48 The role of market forces (2) Informational instruments can be a good substitute for mandatory regulation (unpasteurized cheese) Informational instruments can be a good substitute for mandatory regulation (unpasteurized cheese) Market based regulation is often less costly than command and control regulation Market based regulation is often less costly than command and control regulation It can also be more relevant (firms have more information on processes and costs) It can also be more relevant (firms have more information on processes and costs) Voluntary and informational instruments leave consumers freedom to chose Voluntary and informational instruments leave consumers freedom to chose

49 The role of market forces (3) Rather than costly inspection and control, liability can be a powerful way to ensure that firms do not sell hazardous or tainted product Rather than costly inspection and control, liability can be a powerful way to ensure that firms do not sell hazardous or tainted product The issue is however linked to the existing legal system (e.g. the existence of punitive damages) The issue is however linked to the existing legal system (e.g. the existence of punitive damages)

50 The role of market forces (4) However, market based instruments are not appropriate in all cases. There are many cases where mandatory standards are needed or useful However, market based instruments are not appropriate in all cases. There are many cases where mandatory standards are needed or useful Consumers trust implicitly come from the knowledge that the government will not tolerate tainted/hazardous product to be sold Consumers trust implicitly come from the knowledge that the government will not tolerate tainted/hazardous product to be sold

51 The role of market forces (5) Reputation based instruments are not effective for credence goods, or for experience goods where a damage appears much later in time (cancer inducing residues) Reputation based instruments are not effective for credence goods, or for experience goods where a damage appears much later in time (cancer inducing residues) Self discipline through liability runs into organized insolvency ( judgment proof ). Less effective for imported goods (environment, GM crops) Self discipline through liability runs into organized insolvency ( judgment proof ). Less effective for imported goods (environment, GM crops)

52 Overview Definitions Definitions Economics of standards Economics of standards The political economy of standards The political economy of standards The role of standards in the process of market integration, trade and economic development The role of standards in the process of market integration, trade and economic development Conclusion Conclusion

53 Political economy of standards Driving forces behind standards Driving forces behind standards Growing interactions in standard setting Growing interactions in standard setting Interest groups influencing standards Interest groups influencing standards

54 Driving forces behind standards Socio-economic changes (urbanization and relationship to agriculture/food) Socio-economic changes (urbanization and relationship to agriculture/food) Increase in income: risk less accepted Increase in income: risk less accepted Globalization: less familiar products on the shelves Globalization: less familiar products on the shelves New concerns (ethics, environment, animal welfare, etc.) New concerns (ethics, environment, animal welfare, etc.) All these factors are leading to a demand of more standards, regulations All these factors are leading to a demand of more standards, regulations

55 Political economy of standards Driving forces behind standards Driving forces behind standards Growing interactions in standard setting Growing interactions in standard setting Interest groups influencing standards Interest groups influencing standards

56 Growing interactions in standard setting Increasing interaction of the various stakeholders in standard setting Increasing interaction of the various stakeholders in standard setting Public and international standards rely on industry standards and vice versa (e.g. ISO and EU directives) Public and international standards rely on industry standards and vice versa (e.g. ISO and EU directives) Non governmental organization standards serving as a basis for voluntary / private as well as mandatory / public standards Non governmental organization standards serving as a basis for voluntary / private as well as mandatory / public standards

57 Growing interactions (2) Mandatory / public standards are becoming less constraining that voluntary standards Mandatory / public standards are becoming less constraining that voluntary standards Voluntary standards de become de facto mandatory because imposed Voluntary standards de become de facto mandatory because imposed by firms to suppliers (Ford and ISO 14001) by firms to suppliers (Ford and ISO 14001) by retailers (animal welfare in the UK) by retailers (animal welfare in the UK) by consumers (dolphin safe tuna in the US) by consumers (dolphin safe tuna in the US)

58 Political economy of standards Driving forces behind standards Driving forces behind standards Growing interactions in standard setting Growing interactions in standard setting Interest groups influencing standards Interest groups influencing standards

59 Interest groups influencing standards Scientists and engineers still play a major role in standard setting Scientists and engineers still play a major role in standard setting However, even in public and international institutions, scientists are subject to growing economic and political pressures However, even in public and international institutions, scientists are subject to growing economic and political pressures Typically the case in food when Codex Alimentarius standards became the reference for solving commercial disputes Typically the case in food when Codex Alimentarius standards became the reference for solving commercial disputes

60 Interest groups (2) Firms influent in public institutions of standard setting (Codex Alimentarius committees) Firms influent in public institutions of standard setting (Codex Alimentarius committees) Unions lobbying for standards (work safety standards) Unions lobbying for standards (work safety standards) Consumers more present in standard setting vociferous (food safety) Consumers more present in standard setting vociferous (food safety) Environmental groups develop significant activity of certification (organic, forestry) Environmental groups develop significant activity of certification (organic, forestry)

61 Interest groups (3) Other NGOs on ethical issues (animal welfare, human rights, fair trade) Other NGOs on ethical issues (animal welfare, human rights, fair trade) Shareholders concerned by public image (environmental standards) Shareholders concerned by public image (environmental standards) Pressure of citizens echoed by governments standards (mandatory disclosure, accounting, environmental reports) Pressure of citizens echoed by governments standards (mandatory disclosure, accounting, environmental reports)

62 Interest groups (4) Concerns of appropriation of standard setting by vested interests Concerns of appropriation of standard setting by vested interests NGOs criticizing choice of standards favorable to firms rather consumers or environment (Codex; ISO) NGOs criticizing choice of standards favorable to firms rather consumers or environment (Codex; ISO) Pressure for protectionist standards Pressure for protectionist standards Concerned consumers' demands converging with protectionist interests make the issue difficult to unravel (child labor) Concerned consumers' demands converging with protectionist interests make the issue difficult to unravel (child labor)

63 Overview Definitions Definitions Economics of standards Economics of standards The political economy of standards The political economy of standards The role of standards in the process of market integration, trade and economic development The role of standards in the process of market integration, trade and economic development Conclusion Conclusion

64 Standards, market integration, trade and development The trade facilitating role of standards The trade facilitating role of standards Harmonization and mutual recognition Harmonization and mutual recognition Standards as non tariff barriers Standards as non tariff barriers

65 Trade facilitation Standards have a major role in facilitating exports and in the global market Standards have a major role in facilitating exports and in the global market Product compatibility make trade possible Product compatibility make trade possible Standards restore trust of consumers on quality of unfamiliar imports Standards restore trust of consumers on quality of unfamiliar imports Standards reduce international transaction costs Standards reduce international transaction costs

66 Trade facilitation By raising requirements, quality standards on the world market pull the general level of the industry. This is an indirect, but considerable, effect of participation to the world market By raising requirements, quality standards on the world market pull the general level of the industry. This is an indirect, but considerable, effect of participation to the world market However, the cost of complying to international standards is a selection instrument, between countries and firms However, the cost of complying to international standards is a selection instrument, between countries and firms

67 Trade facilitation However, the standards that enhance trade are mainly: However, the standards that enhance trade are mainly: Product, rather than process, standards Product, rather than process, standards International standards International standards In other cases, standards may actually act as a barrier to trade In other cases, standards may actually act as a barrier to trade

68 Standards, market integration, trade and development The trade facilitating role of standards The trade facilitating role of standards Harmonization and mutual recognition Harmonization and mutual recognition Standards as non tariff barriers Standards as non tariff barriers

69 Harmonization and mutual recognition Harmonization of standards at the international level is a major drive for trade Harmonization of standards at the international level is a major drive for trade Estimates ( Moenius): 1% rise in shared standards between the US and trading partners would raise U.S. trade by $6 bn Estimates ( Moenius): 1% rise in shared standards between the US and trading partners would raise U.S. trade by $6 bn Full harmonization often too costly Full harmonization often too costly Mutual recognition is an alternative (basis of EU standard policy) Mutual recognition is an alternative (basis of EU standard policy)

70 Harmonization (2) If lack of international harmonization / recognition: standards may impedes trade If lack of international harmonization / recognition: standards may impedes trade Design of products for a given market, difficult to export is standards differ Design of products for a given market, difficult to export is standards differ Conformity assessment may be a large barrier to trade (administrative costs, delays, etc.) Conformity assessment may be a large barrier to trade (administrative costs, delays, etc.) Particularly a problem for some developing countries lacking skilled labor and capital Particularly a problem for some developing countries lacking skilled labor and capital Particularly a problem for small enterprises Particularly a problem for small enterprises

71 Standards, market integration, trade and development The trade facilitating role of standards The trade facilitating role of standards Harmonization and mutual recognition Harmonization and mutual recognition Standards as non tariff barriers Standards as non tariff barriers

72 Standards as non tariff barriers Some countries seem to use deliberately domestic standards in order to restrict imports Some countries seem to use deliberately domestic standards in order to restrict imports Several international disputes brought to the World trade organization, especially in the agricultural/food sector Several international disputes brought to the World trade organization, especially in the agricultural/food sector There are ongoing problems such as the EU-US disputes on GM standards, and the EU-Australian dispute on sanitary standards There are ongoing problems such as the EU-US disputes on GM standards, and the EU-Australian dispute on sanitary standards

73 Non tariff barriers (2) Since 1994, a more efficient mechanism for dispute settlement relyies on scientific elements and international standards through the SPS and TBT agreements Since 1994, a more efficient mechanism for dispute settlement relyies on scientific elements and international standards through the SPS and TBT agreements Because it is difficult to distinguish genuine protection of citizens, flora and fauna from protectionist measures, there is still scope for disagreement Because it is difficult to distinguish genuine protection of citizens, flora and fauna from protectionist measures, there is still scope for disagreement

74 Overview Definitions Definitions Economics of standards Economics of standards The political economy of standards The political economy of standards The role of standards in the process of market integration, trade and economic development The role of standards in the process of market integration, trade and economic development Conclusion Conclusion

75 Conclusion Standards can have a considerable role of facilitating trade, make market integration possible and contribute to growth Standards can have a considerable role of facilitating trade, make market integration possible and contribute to growth They can be beneficial to consumers by lowering production costs, facilitate trade and reduce informational market inefficiencies They can be beneficial to consumers by lowering production costs, facilitate trade and reduce informational market inefficiencies

76 Conclusion (2) However, the standard setting procedure can lead to poorly defined standards, strategically set standards, or standards that protect vested interests, including protectionist standards However, the standard setting procedure can lead to poorly defined standards, strategically set standards, or standards that protect vested interests, including protectionist standards This can result in costs for consumers This can result in costs for consumers

77 Conclusion (3) Market based standards can me more cost effective than mandatory public standards, but the latter are necessary in some cases Market based standards can me more cost effective than mandatory public standards, but the latter are necessary in some cases Trade facilitating standards tend to be international (rather than domestic) standards, and product (rather than process) standards Trade facilitating standards tend to be international (rather than domestic) standards, and product (rather than process) standards


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