Regulations and Standards

Harmonized international standards and regulations can support trade and export expansion.  Duplicative and discriminatory regulations and standards, however, can be an important factor driving trade transactions costs.  There are only limited data sets available to examine the impact of standards on trade costs and facilitation.  The World Bank Technical Barriers to Trade (TBT) Database is one of the few sources of data available. 

The research on trade costs and facilitation will include analysis of the impact of standards and technical regulations on trade costs and developing countries.

Do standards matter for export success?, by Tsune Otsuki, Maggie Xiaoyang Chen, John S. Wilson, World Bank Policy Research Working Paper 3809.

In this paper the authors examine how meeting foreign standards affects firms' export performance, reflected in export propensity and market diversification. The analysis draws on the World Bank Technical Barriers to Trade Survey database of 619 firms in 17 developing countries. The results indicate that technical regulations in industrial countries adversely affect firms' propensity to export in developing countries. In particular, testing procedures and lengthy inspection procedures reduce exports by 9 percent and 3 percent, respectively. Furthermore, in the model, the difference in standards across foreign countries causes diseconomy of scale for firms and affects decisions about whether to enter export markets. The empirical analysis presented here implies that standards impede exporters' market entry, reducing the likelihood of exporting to more than three markets by 7 percent. In addition, the authors find that firms that outsource components are more challenged by compliance with multiple standards.

The cost of compliance with product standards for firms in developing countries: an econometric study, by Keith E. Maskus, John S. Wilson, and Tsunehiro Otsuki, World Bank Policy Research Working Paper 3590.

This paper uses econometric models to provide the first estimates of the incremental production costs for firms in developing nations in conforming to standards imposed by major importing countries. They use firm-level data generated from 16 developing countries in the World Bank Technical Barriers to Trade (TBT) Survey Database. Their findings indicate that standards do increase short-run production costs by requiring additional inputs of labor and capital. A 1 percent increase in investment to meet compliance costs in importing countries raises variable production costs by between 0.06 and 0.13 percent, a statistically significant increase.  We also find that the fixed costs of compliance are nontrivial-approximately $425,000 per firm, or about 4.7 percent of value added on average. The results may be interpreted as one indication of the extent to which standards and technical regulations might constitute barriers to trade. While the relative impact on costs of compliance is relatively small, these costs can be decisive factors driving export success for companies. In this context, there is scope for considering that the costs associated with more limited exports to countries with import regulations may not conform to World Trade Organization rules encouraging harmonization of regulations to international standards, for example. Policy solutions then might be sought by identifying the extent to which subsidies or public support programs are needed to offset the cost disadvantage that arises from non-harmonized technical regulations.

 

Help or Hindrance? The Impact of Harmonized Standards on African Exports, by Witold Czubala, Ben Shepherd, and John S. Wilson, World Bank Policy Research Working Paper No. 4400.

 

Product Standards, Harmonization, and Trade: Evidence from the Extensive Margin, by Ben Shepherd, World Bank Policy Research Working Paper No. 4390.

 

 

Last updated on Dec 3, 2007