Standards policy and international trade: Multilateralism versus regionalism

• DOI: http://doi.org/10.1111/jpet.12425
• Author: Akihiko Yanase,Yasuhiro Takarada,Yasushi Kawabata,Hiroshi Kurata
• Published date: 01 September 2020
• Date: 01 September 2020

J Public Econ Theory. 2020;22:1420–1441.wileyonlinelibrary.com/journal/jpet1420

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© 2020 Wiley Periodicals, Inc.

Received: 6 February 2019

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Accepted: 16 December 2019

DOI: 10.1111/jpet.12425

ORIGINAL ARTICLE

Standards policy and international trade:

Multilateralism versus regionalism

Yasuhiro Takarada

1

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Yasushi Kawabata

2

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Akihiko Yanase

3

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Hiroshi Kurata

4

1

Faculty of Economics, Nanzan

University, Nagoya, Japan

2

Graduate School of Economics, Nagoya

City University, Nagoya, Japan

3

Graduate School of Economics, Nagoya

University, Nagoya, Japan

4

Faculty of Economics, Tohoku Gakuin

University, Sendai, Japan

Correspondence

Yasuhiro Takarada, Faculty of

Economics, Nanzan University, 18

Yamazato‐cho, Showa‐ku, Nagoya 466‐

8673, Japan.

Email: ytakara@nanzan-u.ac.jp

Funding information

Japan Society for the Promotion of

Science (JSPS) Grant‐in‐Aid for Scientific

Research (B), Grant/Award Numbers:

16h03612, 16h03617, 25285079; JSPS

Grant‐in‐Aid for Scientific Research (A),

Grant/Award Number: 19H00598; JSPS

Grant‐in‐Aid for Scientific Research (C),

Grant/Award Number: 19K01609

Abstract

We develop a simple model of policy coordination on

domestic standards and examine whether domestic

standards policy can lead to regional and multilateral

harmonization of standards under the principle of

national treatment. This paper focuses on mandatory

product and process standards affecting the character-

istics of a final good that control negative consumption

externalities (e.g., vehicle emissions control and safety

standards, restrictions on the use of pesticides for

agricultural goods, and safety standards for electrical

products). Only the products that meet a country’s

national standards are allowed to circulate in that

country’s market. Raising standards reduces negative

externalities caused by consumption of a traded good

but increases firms’costs. We use the core as the

solution concept. A standards regime is considered to be

in the core if it is not blocked by any coalition within

countries. The main finding is that a multilateral

agreement on standards that maximizes world welfare

is only in the core if externalities are local or slightly

transboundary. Otherwise, only a regional agreement on

standards is in the core. As extensions, we consider

many and asymmetric number of firms, asymmetry in

market size, fixed costs for different standards, and a

multilateral agreement on different standards.

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INTRODUCTION

As tariff barriers have been progressively reduced through past multilateral trade negotiations,

the elimination of nontariff barriers is getting more attention. Nontariff barriers include matters

traditionally considered within the realm of domestic regulations. Country‐specific regulatory

systems create additional costs for foreign producers, especially in developing countries, by

forcing them to adjust their products and production processes to meet individual national rules

(Estevadeordal, Suominen, & Teh, 2009; Maskus, Otsuki, & Wilson, 2005).

Among nontariff barriers, this article focuses on standards policy, a typical example of

domestic regulation under the principle of national treatment (i.e., whereby the same standards

apply to both domestically produced and imported goods in each country’s market) under the

rules of the World Trade Organization (WTO). The primary roles of domestic standards are to

correct market failures and contribute to national welfare. A country typically introduces

minimum quality standards (MQSs) to guarantee the health and safety of its own consumers or

to protect the environment. In particular, this paper focuses on mandatory product and process

standards affecting the characteristics of a final good that control consumption externalities

(e.g., vehicle emissions control and safety standards, restrictions on the use of pesticides for

agricultural goods, regulations on food additives, and safety standards for electrical products).

These standards directly affect trade because (a) national standards often differ among

countries, and (b) only the products that meet a country’s national standards are allowed to

circulate in that country’s market.

The WTO has two agreements governing standards: the Agreement on Technical Barriers to

Trade (TBT Agreement) and the Agreement on the Application of Sanitary and Phytosanitary

Measures (SPS Agreement). Their aim is to ensure that country‐specific standards do not create

unnecessary obstacles to trade. The debate on standards is also important in preferential trade

agreements (PTAs) and most PTAs contain provisions about TBTs.

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Countries are required to

develop national and regional TBT and SPS regulations that conform to the WTO rules.

Three methods can be used to remove impediments caused by differences among national

and regional standards. First, WTO members may use the existing international standards set

by international standardization bodies such as the International Organization for Standardiza-

tion (ISO). Second, member countries may choose one common standard, which may differ

from existing international standards, through an agreement known as harmonization. Third, a

country may recognize standards imposed by another country as equivalent to its own

standards even if they differ and, therefore, grant unrestricted market access to products

meeting the other country’s standards; this approach is called mutual recognition.

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These three

methods are encouraged by the TBT Agreement and the SPS Agreement. This study focuses on

the harmonization of standards, because regional agreements tend to favor harmonization over

the other methods (e.g., see Piermartini & Budetta, 2009, p. 272).

This study is the first attempt to examine whether the transition from national standards to

the regional harmonization of standards is desirable and whether the regional harmonization

leads to the multilateral harmonization of standards. It is important to show clear answers to

1

According to Piermartini and Budetta (2009, pp. 271–278), 58 of the 70 PTAs surveyed—including the European Union (EU), North American Free Trade

Agreement (NAFTA), and the Mercado Común del Sur (MERCOSUR)—include provisions regarding TBTs.

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In general, mutual recognition applies to conformity assessment procedures for testing, certification, and accreditation. See, for example, Piermartini and

Budetta (2009, pp. 271–278). An exception is the EU, which has adopted the mutual recognition principle for both product standards and conformity

assessments. The EU also actively pursues harmonization of product standards. For more information, see “European Standards,”the European Commission

(http://ec.europa.eu/growth/single‐market/european‐standards; last accessed on August 20, 2019).

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