Trade effects of regional standards liberalization: a heterogeneous firms approach

This study investigates trade effects of regional liberalisation of technical barriers to trade (TBTs) in the form of harmonisation and mutual recognition agreements (MRAs) for testing procedures. The author argues that TBT liberalisation initiatives have been very effective and that MRAs and harmonisation have shown to affect firms’ decisions to enter new markets more strongly than the export volumes of those already exporting. It is argued that firms in developing countries are generally not in a position to take advantage of such reductions in fixed export costs. They are seldom partners to MRAs or fully implemented harmonisation initiatives and also do not seem to be benefiting from the market integrating effects of harmonisation in other regions. This is partly because integration relies heavily on enforcement by the individual member countries, for which institutions and capacities are often lacking in developing countries. Industrialised countries have therefore been reluctant to negotiate MRAs or harmonisation agreements with developing countries. It is further argued that the impact on parties to the agreement is negligible, but the impact on excluded OECD countries is large and positive. Third party developing countries do not seem to benefit from the market integration effect brought about by harmonisation in other regions. Overall, effects on the probability that a new firm will export are much more pronounced than effects on the trade volumes of incumbent exporters.

The author suggests that developing countries could follow a gradual approach to remedy this situation, first building the laboratory and accreditation infrastructure to facilitate MRAs. Since MRAs for testing procedures only apply to the export sector, their enforcement will be less costly than the enforcement of a certain harmonised standard in an entire sector. Deeper forms of integration such as the actual harmonisation of product standards could follow at a later stage.