Why does international trade require a system

The Commission delegated to the private sector the writing of new technical standards linked to EU-wide essential product requirements. This system in which the private sector leads in standards development now mirrors, to a great extent, the U.

Pan-European technical standards are now being developed, under contract with the Commission, by three private standards-developing organizations see Box Standards developed by these organizations play a central role in determining what products may be marketed in Europe. Products complying with other standards are acceptable, as long as the alternative standards also meet the EU essential requirements.

The burden of proof in such cases, however, is on manufacturers. Participation in their standards-writing work is therefore of clear benefit to firms that market regulated products in Europe. Unlike most U. As outlined in Box , however, there are several avenues for U. With funding from the European Commission, CEN also writes standards to meet the "essential requirements" for product safety mandated in EU product directives.

The standards work program is directed by seven technical sector boards covering building and civil engineering; mechanical engineering; health care; workplace safety; heating and cooling; transport and packaging; and information technology.

CEN maintained 1, active standards and technical committees as of October CENELEC develops European Standards for electrotechnology, which includes areas such as consumer electronics, electric power generation, electromagnetic compatibility, and information technology. Membership is composed of the public telecommunications administrations of EU and EFTA nations, as well as manufacturers and trade associations.

ETSI develops European Telecommunications Standards, which may be adopted as mandatory by European national telecommunications systems. In , ETSI published standards and technical reports.

As of April , European standards organizations were at work on approximately 2, standards. This work was concentrated in the construction, aerospace, information technology, and machinery sectors, as well as public procurement. To the extent that European standards vary without justification from international standards in equivalent sectors, they represent barriers to imports from outside Europe. This pledge underscores the importance of U.

This strategy has been pursued successfully, for example, by the U. These include ongoing consultations and information exchange between ANSI and European standards organizations, which include ANSI-coordinated bilateral discussions held in Europe each year between industry and government officials; comments on official notices of new European standards work programs; and direct participation in European standards work by European subsidiaries of U.

The converse is not the case; foreign firms have open access to participate in the U. Maureen Breitenberg, ed. Gaithersburg, Md. On the whole, limits on U. To a greater extent than standards development, the most serious potential barrier to EU imports from the United States and other non-European countries is in the area of conformity assessment. In , the EU's New Approach to harmonization of standards was followed by a set of changes in mechanisms for proving product conformity to standards.

The framework consists of technical rules for conformity assessment procedures outlined by the European Commission. To prove compliance with product directives, manufacturers must use one or more specified conformity. In the product sectors in which third-party product testing, certification, or quality system registration is required by law, this approval may be granted only by organizations designated, or "notified," to the Commission by the member states as technically competent.

These "notified bodies"—and no others—may grant final approval of products for the European market. Certified products are identified with the newly introduced, European ''CE Mark. Products without the CE Mark may not be marketed in Europe at all. Although the new European testing and certification system will facilitate the flow of trade within Europe, it has raised potentially significant barriers to U.

The requirement that final assessments be performed by European "notified bodies" raises the costs of testing and certification to U. As outlined in the next section, this issue is now the subject of ongoing talks between the United States and the EU.

In early , the United States entered into negotiations with the EU on mutual recognition of conformity assessment systems. The goal of the negotiations is a framework under which European and U. EU negotiators seek improved access for European products to the U. They will gain this without the need for multiple accreditation by the U. The negotiations are intended to produce a series of bilateral, U.

Mutual recognition by national governments of testing data, laboratory accreditation, and product certifications against specific standards represents significant potential for increased trade.

The talks illustrate the potential economic. Under mutual recognition, European manufacturers would also gain greater access to U. MRAs are under discussion in 11 sectors: information technology; telecommunications products attached to public networks; medical devices; electrical safety; electromagnetic interference; pharmaceuticals; pressure equipment; road safety equipment; lawn mowers; recreational boats; and personal protective equipment such as helmets.

There are a number of benefits for U. At present, U. They can ship product samples to Europe for testing and certification by a European notified body and pay expenses for European inspectors to inspect their plants in the United States. They can have testing and certification performed by one of a growing number of U. Or in some product sectors, they can have testing performed by a U. In the latter case, the U. All three of these avenues exclude U. The seriousness of this burden varies for different product sectors.

In some sectors, such as the gas appliances industry, subcontracting to European laboratories has proved sufficient to meet U.

A key example is testing of electronic products for compliance with EU directives on electromagnetic interference. Under subcontracting arrangements, U. As a result, U. In summary, the present avenues for U. They frequently entail such unnecessary costs as redundant testing of products already tested against U.

Mutual recognition. It would open the market for third-party certification services to U. It would also directly benefit the U. There are several obstacles to successful completion of the U. Differences in the structure and operation of the systems create difficulty in developing means for full, reciprocal access to conformity assessment procedures. Apart from a few exceptions, such as drug certification and automobile emissions testing, the United States relies much more than the EU on manufacturer's declaration for regulatory approval.

These third-party procedures include testing and certification by independent laboratories, as well as quality system audit and approval by third-party registrars. As noted previously, only "notified bodies"—those designated as technically competent by their national government—may perform these third-party services.

At present, there is no mechanism for any non-European organization to become accepted by the EU as a notified body. Under an MRA, U. The EU has indicated that any mutual recognition will require some form of U. To minimize government involvement in the private U. NVCASE is designed to evaluate and officially recognize the competence of accreditation bodies accreditors who, in turn, accredit testing laboratories, certifiers, and quality system registrars.

NVCASE will not directly accredit testing laboratories or certifiers, unless there exists no private-sector accreditation program in a particular industry sector and firms in that sector ask NIST to set up a program.

In meetings in Washington, D. With government oversight and assurance at the top, private entities will perform the specific tests necessary for product approval. In fact, some European states—notably, the Netherlands—already rely on a similar system for designating notified bodies.

The Dutch government recognizes a private organization, the Raad vor Certificatie Certification Council , to accredit laboratories, certifiers, and quality system registrars for regulatory conformity assessment activities. The European goal for mutual recognition is to gain greater access to the U. European negotiators have expressed concern about the complexity of the U. They note, for example, the lack of a U.

As discussed in detail in Chapter 3 , the U. Its complexity imposes many obstacles to commerce within the United States, and this is true for both domestic U. It does not, however, in a legal, government-mandated manner, pose a discriminatory international trade barrier, as noted in several recent reports of the EU on trade and investment with the United States. In addition, unlike the European system, there is no U. Foreign laboratories can and do obtain accreditation within the U.

Although there is clearly duplication among state, local, and federal government rules and regulations regarding conformity assessment procedures in the U. EU policies mandate product certification by European notified bodies—selected testing laboratories, certifiers, and public agencies that can only be designated by national governments in the European Union. The system imposes duplicate testing costs on U.

It also prevents U. To overcome this barrier to U. It will also set a strong, favorable precedent for MRAs with other U. If European negotiators, however, refuse to accept the competence of the U. The MRA talks between Europe and the United States offer one model of how to structure dialogue on conformity assessment.

Success in opening market access through these talks will set a valuable precedent for similar agreements with other U. As the text of the Uruguay Round Technical Barriers to Trade Agreement acknowledges, mutual recognition of conformity assessment is important to future global trade expansion. MRAs are an important avenue, not only for overcoming existing barriers to trade, but also for averting the emergence of new barriers as nations develop increasingly complex conformity assessment systems.

Beyond the European Union, there are other priority regions where streamlined conformity assessment through MRAs would benefit U. This is particularly true in Asia and Latin America. In , President Clinton identified expanding U. The president's report to the Congress. Estimated Growth Rate, b Adapted from Table 2. Latin American markets, apart from Mexico, will grow at a 5. Table further underscores the importance of Asian and Latin American markets to U. Since , the rate of growth in U.

Growth of U. Indonesia, Argentina, Chile, and the Dominican Republic, meanwhile, are fast emerging as significant future U. The emerging markets of Asia and Latin America clearly represent a vast potential for future U. To the extent that standards and conformity assessment. Exports to Regional Partners —Changes since billions of U. Adapted from Table 1. Adapted from Table 4. Adapted from Table 3. Progress toward this goal has already begun in the Asian region.

In , preliminary discussions on mutual recognition of conformity assessment began within the APEC forum. Chile joined APEC in Together, these countries account for approximately 40 percent of global economic activity. That share is increasing rapidly. As noted earlier in this chapter, the USTR has identified significant technical trade barriers in Asian markets.

Mutual recognition of conformity assessment mechanisms, however, has the potential to further the goals of free and open trade in a. Early preparatory work for possible mutual recognition discussions began in an informal APEC working group on standards and conformity assessment. The declaration on an APEC standards and conformity assessment framework agreed to in Jakarta outlines several key principles for such mutual recognition.

The objectives of the framework include both reducing barriers to trade within the region and promoting "the further development of open regionalism and market-driven economic interdependence in the Asia Pacific region. These include the need for a clear definition of the scope of testing and certification procedures mutually accepted by the parties to the MRA; criteria for identifying competent, acceptable laboratories and certifiers in each country; provisions for information exchange, joint monitoring, and dispute resolution; and a commitment by government authorities in each country to oversee the performance of conformity assessment organizations and, if necessary, terminate their accreditation if they fail to maintain technical competence.

Further analysis will be necessary to support these negotiations. There are significant differences among APEC nations by level of industrialization, nature of government oversight of standards and certification systems, and state of technical infrastructure capacities.

As the experience of U. This approach should start with the development of specific proposals and a framework for information exchanges to build confidence in testing data throughout the region, for example, as a step toward acceptance of product certifications.

In addition, technical assistance from the industrialized nations of APEC will be necessary to enable the developing member nations to create transparent, competent systems for establishing product regulations and assessing conformity.

It is suggested that the following are likely to be desirable key elements in a government-to-government mutual recognition agreement, whether it be a broad overarching agreement or an agreement that is sector specific:. As discussed in the following section of this chapter, technical assistance related to standards and to conformity assessment benefits both recipient countries, by modernizing their economic infrastructure, and donor countries, by expanding their potential export markets.

The following material moves beyond current trade developments to identify links between standards and opportunities for U. The greatest potential for trade expansion in future years is represented by the dynamic economic growth in key emerging markets.

As Tables through illustrate, emerging Asian and Latin American markets represent especially promising opportunities for U. Export promotion activities are, along with trade barrier reduction, a central component of U. As discussed earlier in this chapter, expansion of U. A variety of U. These programs incorporate mechanisms such as the following: 1 direct funding to U. Eight U. These and other executive branch agencies coordinate U. Although U. These programs will create increased demand for goods and services, which U.

Technical assistance related to standards and to the technical infrastructure necessary to test and certify products represents a vital opportunity for promotion of U. Product standards, systems for developing them, and national frameworks for assessing conformity are all being put rapidly into place in newly emerging market economies worldwide.

This is particularly the case in Asia. Technical standards assistance and growing export opportunities are linked in two key ways. First, active promotion of U.

In addition to promoting specific U. International standards provide a developing country with the greatest possible range of choice of goods and services, and they create a level playing field for exports from the United States, Europe, Japan, and other industrialized regions. Second, as discussed previously in this chapter, there is a strong link between continued liberalization in global trade and rising wealth and standards of living in all nations, including the United States.

The Uruguay Round of GATT negotiations made great strides in extending obligations for fair trade practices to countries worldwide. Many developing countries, however, require technical assistance from industrialized nations in establishing standards systems that comply with their new, often challenging obligations under the Technical Barriers to Trade Agreement of the GATT Uruguay Round.

Recent economic reform and institutional change in Indonesia serve as a case example of how evolving national standards systems are important to international trade expansion. This is particularly true in regard to servicing the dynamic and rapidly growing new markets in the Asia-Pacific region.

Assistance by U. GDP in Indonesia grew 5. The growth rate of imports in was 7. This economic expansion has been driven by a series of domestic and foreign economic policy reforms launched in As part of these initiatives, the government liberalized Indonesian trade policies. Reform has included not only a sharp reduction in average tariff rates, but also the elimination of myriad licensing and other quantitative restrictions on imports.

In part due to these market-opening reforms, U. In , U. Economic opening and modernization of the Indonesian manufacturing sector have involved many important policy changes, including a set of changes associated with product standards. Although much of the economy is comprised of government-owned ''strategic" corporations, the private economy and nongovernment sector continue to expand. The government, through the National Standardization Council of Indonesia Dewan Standardisasi Nasional, DSN has moved to develop a new, modern framework for the development, adoption, and dissemination of product and process standards.

Assistance could be provided both unilaterally, and through regional mechanisms such as the APEC forum. The DSN and government ministries are currently working to construct new procedures and institutions for 1 product testing and certification, 2 oversight rules for laboratory and certifier accreditation, and 3 rules to accredit the competence of ISO quality system auditors in Indonesia.

The Indonesian government is revising standards and conformity assessment systems to meet the increasing demand for efficiency in the domestic market. These reforms are also motivated by increased competition in foreign markets and the demand for higher quality in Indonesian exports. The type of model Indonesia adopts for an evolving standards system—particularly, the extent to which it centers on either government or private-sector activities—will, therefore, have important implications for future economic growth.

The committees supporting standards activities of the DSN are currently comprised of only 50 percent private-sector representatives. The technical work and drafting of standards are completed by government ministries. There is the expectation that private-sector representation in this work will increase.

Expert advice and technical assistance on how to achieve this goal and the evolution of a private standards system are critical. The growth of efficient, private-sector-driven standards development would also serve to benefit foreign firms with manufacturing facilities in Indonesia, as well as exporters wishing to penetrate.

Indonesian markets. Through the provision of assistance by in-country experts, training seminars for government officials, and other mechanisms, the U. There are other ways in which developments in Indonesian standards policies will affect economic development and trade. In order to support global trade expansion and facilitation, it will be necessary to understand and monitor these developments, as they affect U.

There are currently 3, Indonesian standards in force under DSN authority. Only about 20 percent of these are based on international standards. The DSN has stated a goal of increasing the number of national standards based on international ones, including those developed in the United States. New cement standards in Indonesia, for example, are based on American Society for Testing and Materials standards. It is important that Indonesia and other new signatories of the Uruguay Round Technical Barriers to Trade Agreement be provided with expert assistance in the implementation of policies to fulfill new obligations under the GATT agreement.

This includes aid in creating systems that serve to support multilateral obligations in the agreement, such as increased use of international standards. Trade rules, and particularly multilateral trade rules, minimise fragmentation, inefficiencies, and a lack of transparency that reduce profit for companies large and small. Imagine what the benefits of a similar approach for services or investment facilitation would be. The trade rulebook also provides certainty for business that markets will not be slammed shut unexpectedly.

A world with no or minimal international guidelines for the standards countries use for public health and safety would be chaos for exporters and importers. We would all be eating fewer apples. Inconsistent product standards and higher trade costs are typically more difficult for smaller firms to bear. International collaboration on trade-related issues can also help deal with the tragedy of the commons.

One or two governments acting alone to end these payments, while commendable, will not be enough to solve the problem since fish swim across oceans. Action is needed through the World Trade Organization WTO , which has a general framework in place for collaboration on subsidies, and a mandate to tackle harmful fisheries subsidies.

The global trading system is far from perfect. Its monitoring and surveillance function could be more effective to ensure everyone sticks to the agreed rules and that unfair trade practices are curbed.

Despite the fact that services comprise some two thirds of global GDP, substantial policy barriers on services trade remain. But equally important, at home, much more attention needs to be paid to the types of policies that ensure the opportunities and benefits from trade are more widely spread and those that do lose jobs are not left behind — acknowledging there will be no one-size-fits all approach.

Walking away from the current trade system will have deep consequences in a connected, fragile and rapidly evolving world. A world of walls and barriers would be poorer and duller. Domestic sellers also benefit from trade. Domestic companies that export have the world as their marketplace, not just the domestic economy. Producing for this larger market gives them the opportunity to grow and produce on a larger scale.

These economies of scale enable them to take advantage of efficiencies and produce goods at a lower average cost. The lower production costs help make the companies more competitive and can result in lower prices for consumers. Benefits of trade extend beyond the immediate buyers and sellers.

Countries that engage in international trade benefit from economic growth and a rising standard of living. This occurs in two ways. First, trade gives countries access to physical capital technology, tools, and equipment that they might not produce domestically. This physical capital often results in increased productivity , which is a key driver of economic growth and a rising standard of living within a country. For example, China has become a manufacturing powerhouse 4 and India has become a leader in exporting services.

Economists suggest that trade provides an avenue for the poorest nations to escape poverty. Recent research suggests that the removal of trade barriers could close the income gap between rich and poor countries by 50 percent. At its core, international trade is similar to the cafeteria exchange—both buyers and sellers trade because both benefit from the transactions. Third parties, however, need to be taken into account because some are worse off from international trade.

The most obvious third-party losers are companies that sell products that cannot compete in a global marketplace. These companies must find ways to make their products competitive or produce other products, or they risk going out of business. When businesses shut down, people lose jobs. This is painful for workers because many of them must learn new job skills to find new employment. Economists find that—after taking both the winners and losers into account—trade has net benefits for society.

In other words, the benefits outweigh the costs. This does not seem obvious to many people because the costs are often more visible than the benefits. For example, it is relatively easy to identify businesses or industries that have shut down because of trade. Likewise, it is relatively easy to identify people who have lost jobs in those industries. Perhaps you know someone who has lost a job in this way.

However, it is more difficult for consumers to identify how much cheaper their car, clothing, and food are because of international trade. This new sharing of production across countries has enabled many more countries to participate in global trade, with developing countries increasing their share of global exports and imports. While the new environment for trade creates new opportunities, it also increases the costs of trade barriers. When goods and components cross borders many times in GVCs, even small tariffs can add up, and the costs of inefficient border procedures are multiplied.

Trade facilitation —the transparent, predictable and straightforward procedures that expedite the movement of goods across borders — is becoming ever more important, and is especially critical for trade in perishable agricultural products or high-tech manufacturing components, both of which are highly sensitive to delays. Trade facilitation is becoming even more important in the digital era.

TiVA data also highlight how important services are to global trade. Even though services generate more than two-thirds of global GDP, employ the most workers in major economies, create more new jobs than any other sector, and are critical to competitiveness, obstacles to trade in services remain pervasive.

Regulatory reforms and liberalisation of trade and investment in services are needed to enhance competition and increase the productivity and quality of services. Indeed, international trade can be strongly impacted by non-tariff barriers that originate from domestic regulations, or from limitations to foreign investment.