Strengthening the Compliance of the OIC Member States
to International Standards
12
Box 1: Empirical Evidence on the Trade Effects of Product Standards
Trade economists have only been able to conduct a limited number of studies quantifying the effects of
product standards because of the difficulty of obtaining reliable data for a wide variety of countries.
Most often, researchers need to use proxies in the absence of concrete data on standards stocks in
different countries, and their inter-relationships (for example, through harmonization). Recent
empirical work tends to use data from the WTO, based on country notifications to the SPS and TBT
Committees: WTO members are required to notify new mandatory measures in both areas. Moreover,
there is scope to identify when other members view a country’s TBT or SPS measures as unduly
restrictive by analyzing Specific Trade Concerns: standards-related issues raised by an exporting
country in relation to an importing country’s measures.
A number of research papers, including those cited in the main text, find that product standards in
importing markets are typically associated with lower exports from other markets, unless they are
harmonized with international standards. Until very recently, these mechanisms were examined using
country-level international trade data, which made findings subject to concerns about omitted factors
that may be driving trade between countries. More convincing evidence is presented by Fontagne et al.
(2015), who use firm-level data to examine the micro-effects of importing country SPS measures,
constructed using data on Specific Trade Concerns brought to the WTO SPS Committee. The authors find
that SPS measures in importing countries are associated with a lower probability of firms engaging in
trade with that country, which is consistent with a mechanism in which product standards like SPS
measures mainly serve to increase company fixed costs. In addition, they find that for those firms that do
enter the market, their average exports are reduced—which indicates that there are also some variable
cost effects. Importantly, the use of firm-level data allows the authors to show that these effects are
attenuated for larger firms—so by implication, the burden of foreign standards falls disproportionately
on small and medium enterprises (SMEs).
Although protectionist measures like tariffs raise trade costs in a way that can be analogous to some of
the effects of product standards, the policy issues that arise in the two cases are quite different:
economic logic suggests that tariffs should typically be lowered in order to increase welfare and
facilitate market access for exporters; by contrast, standards should not necessarily be “rolled back” in
all cases, as their regulatory objective may be valid and important. The issue is therefore how best to
design and implement standards so that the benefit/cost ratio is maximized. Typically, this approach
means ensuring that standards are not unduly costly to comply with, and represent the most efficient
way possible of achieving a given regulatory objective.