The Hindu Business Line : Strict product standards obstructing exports of developing countries

A particular challenge for the WTO is to ensure that everything possible is done to enable developing countries participate effectively in the trading system.

New Delhi , July 3

DEVELOPING countries making a foray into developed countries' markets often find the going tough as strict product standards prescribed by the latter have become a sort of technical barriers to trade, thwarting their export efforts.

Exploring the link between a stable and mutually supportive relationship between standards regime and global trade rules, the World Trade Organisation (WTO) has said that "the design and operation of standards must be such as to avoid the misappropriation or capture of public policy in these areas to construct unwarranted obstacles to competition and trade".

Governments might contend that they have introduced a standard to correct market imperfections, but in reality the standard has been designed so as to create an artificial comparative advantage for domestic producers, which might be employed as a "disguised" form of protectionism.

The WTO Director-General, Mr Supachai Panitchpakdi, in a foreword to this study contained in the latest World Trade Report 2005, says a particular challenge for the WTO is to ensure that everything possible is done to enable developing countries participate effectively in the trading system.

Among the challenges here are those that ensure that developing countries possess the requisite infrastructure to meet standards and to shape their own standards' regimes, that they are not disadvantaged in the area of conformity assessment and that they can participate effectively in international standard-setting activities.

The International Organisation for Standardisation (ISO) had published 14,900 international standards by the end of 2004.

Among the factors accounting for heightened standardisation activity are demand by consumers for safer and higher quality products, technological innovations, the expansion of global commerce and increased concern over social issues and the environment.

It said standardisation infrastructure in developing countries has often been non-existent or rudimentary. National standardising bodies are in many cases governmental bodies weakly linked to markets and largely inward-oriented.

Product safety is an important area where standards are used to address information asymmetry problems that occur when producers have information about the characteristics of goods they produce which users do not.

A wide range of consumer goods — food, drugs, vehicles, electrical appliances, safety equipment— face many types of requirements from design (e.g. toys), to ingredients (chemicals), to the process of manufacture or production (e.g., pasteurisation of milk) and to performance (e.g. helmets).

Stating that the effects of standards on the direction and size of trade flows tend to be complex and need to be analysed on a case-by-case basis, the WTO said standards typically have an effect on both consumers and producers. They might affect the willingness of consumers to pay for product varieties meeting the standard, because they change consumers' perception or appreciation of these varieties. Standards might affect the costs of producing varieties to meet the standards and thus the prices at which producers are willing to supply them. Standards will affect trade flows if they have a different effect on the demand for and supply of varieties produced abroad and varieties produced domestically.

Independently of whether standards are harmonised or not, exporters might be faced with having to test or certify their products in each of the countries to which they are exporting.

This can substantially increase the costs of exports. The WTO said that in order to reduce such costs, a number of regional agreements on mutual recognition of conformity assessment procedures have been negotiated.

Though these agreements unambiguously foster trade among participating countries, they could divert trade from excluded countries, it said.

While the costs or price-raising effects of standards do not emerge as a major concern in industrial countries, the evidence on the cost of compliance by firms in developing countries is mixed.

Survey work suggests that some firms in developing countries face very high costs, sometimes almost doubling their production costs in order to meet technical requirements in major developed country markets, the WTO report said.

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