The Role of Standards in International Trade

An interview with Peter Chase of the German Marshall Fund of the United States.

Q. What do you see as the role of international standards in trade?

A. For me, standards exist in an economy to assure generally recognized levels of safety and interoperability in both products and processes, making it easier for buyers of goods and services to feel confident they are getting a certain level of quality. Standards also exist for manufacturers to know what’s expected of them; and for others to evaluate “best practices” in how to do certain things. This becomes even more important in international trade, where the buyers and sellers may not know each other as well, and so may need more confidence in quality assurance. 

Then, of course, there’s the policy side of this, where sellers need to meet the requirements set out in the laws and regulations of a country and where standards may actually be incorporated or referenced in that regulation. A business can only succeed in exporting to a different country if it knows and understands those requirements. Standards help here. Finally, there’s the ideal situation where all countries agree that certain international standards meet their regulatory requirements, so a business only needs to manufacture to a single level of quality. This makes a life considerably easier, especially for SMEs [small- and medium-size enterprises].

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Q. How do you see the EU-U.S. trade relationship evolving under the incoming European Commission?

A. I’m afraid that the EU-U.S. trade relationship will be rocky for the next few months. And I say that only because the United States has just been authorized to levy tariffs on $7.5 billion of imports from the European Union because of certain “launch aids” for Airbus.

Unfortunately, even without that immediate issue, the relationship is being rocked by the current administration’s decision to invoke national security to justify punitive duties on imports of steel and aluminum; Europe’s retaliation against that; additional restrictions on European access to U.S. government procurement; the French (and almost EU-wide) decision to place a corporate tax on income generated from exports of digitally enabled services; and, of course, the administration’s threat to block $60 billion of European auto and auto-parts exports, again on the basis of national security.

All that said, it does not have to be this way. Previously, the U.S. and EU were in the midst of negotiating what would have been a historic trade agreement between them, the Transatlantic Trade and Investment Partnership (TTIP). While there was considerable debate about that in Europe, and especially Germany and Austria, that was mostly about European fears that TTIP would somehow weaken European regulatory protections. The new Commission may have an opportunity to put things back on track in a way that satisfies the politics of both sides. It could do this by being open to a trade agreement that provides added market access to both sides, including in agriculture, while handling regulatory issues such as food safety outside the context of the trade talks.

Even if the EU and the U.S. don’t make that leap, the two sides are still trying to do some useful things, including — importantly for ASTM International members — a possible agreement on mutual recognition of conformity assessment procedures. I personally wish this “technical” work would go further and include standards that are incorporated into law (so-called “technical regulations”). The European refusal to recognize multiple standards (including those of ASTM) as meeting its regulatory requirements is demonstrably silly. There are ways both sides can progress on this, if they want to.

Q. What do you feel are the biggest challenges facing the EU and North America in their relations over the next few years?

A. Without question, the biggest challenge facing the EU and North America is from China. The current tiffs between the two are — again — silly when seen in that context. I do not mean this the way many people do when they talk about China. I grew up in Taiwan, and know and like the Chinese people. I do not see them as a “threat.” But the Chinese are increasingly leading technologically in a growing number of industries, including, for instance, electric vehicles and batteries, quantum computing, and genetic engineering. That leadership, as well as the size of China’s domestic market, could indeed allow China to set standards in many areas. American and European firms need to be able to work even more closely together to keep up their global competitiveness — the main reason for the two sides to do a trade agreement.

Q. How do tariffs, in your opinion, impact international trade, and what role, if any, do standards play in today’s environment, with the use of tariffs by the U.S., Europe, and Asia?

A. Put simply, tariffs add costs to imports. That can help some domestic producers that compete against those imports, but that protection at the same time denies them the stimulus to improve that competition brings, and imposes costs on the consumers of the imported goods, whether those consumers are citizens or businesses using imported components to make better final products. And while the administration does not appear to understand this, the importer pays the tariffs, not the exporter, so they’re a pretty lousy way to try to hurt the other guy. Further, the whole business of importing and distributing also creates jobs, something governments that are too focused on exports seem to forget.

Standards, and particularly technical regulations (where the standards are incorporated into law), can also act as a barrier to trade. Indeed, some think they do so more effectively than tariffs. Europe could eliminate its tariffs on imports of chicken, for instance, and American firms would still not be able to export their chicken meat to Europe, as U.S. production standards require companies to use anti-microbial treatments (AMTs) on poultry meat, while Europe’s production and consumption standards ban the use of such AMTs. To me, such process barriers are even worse than product regulations and standards, as they have nothing to do with consumer safety or health, which stems from bacteria on the meat. 

Both the U.S. and the EU are democracies. Our citizens demand safe products, and our political systems try to ensure that demand is reflected in our laws. In general, as they have similar high levels of income, people on both sides of the Atlantic look for the same levels of protection.

U.S. and EU regulators can and should be able to agree on the level of protection and then agree on common standards that will assure it, to help our firms expand their markets, grow our economies, provide jobs for our workers, and produce new goods for our people. 

We’ve done this already in numerous areas, for example, with large civil aircraft, where the U.S. Federal Aviation Administration and the European Air Safety Agency recognize each other’s airworthiness certifications, despite wide variations in the standards they require for individual components, and of course, the major dispute we’re having in this sector.

Q. The World Trade Organization Agreement on Technical Barriers to Trade (TBT) reaches a 25-year milestone next year. What do you feel has been the impact of the agreement and what is its future?

The TBT Agreement strives to help regulators avoid the obstacles to trade that regulations and standards can cause. Its chief tool is transparency: WTO members are meant to notify the body of any new technical requirements for imported products, but more than that, it insists that those regulatory requirements be justifiable based on evidence of a possible harm and a required proportional response. International standards can really help here. 

Unfortunately, not all WTO members comply fully with these requirements. But that is not a problem of the agreement, it’s a problem of enforcement. And here, I think all WTO members should realize that they have a responsibility to hold each other to account. This is not just a matter for governments. It is a matter for every SME and their employees who are trying to grow their business.

Q. Where do you think the digital economy is headed?

A. I usually don’t speak about the “digital economy.” I would rather say that virtually all economies are quickly becoming digital. There’s a danger, I think, that many firms believe digital policy issues affect only IT firms, whereas something like the EU’s General Data Protection Regulation is hugely significant for an auto manufacturer as we move to a world of connected cars, or to an appliance manufacturer as smart meters strive to squeeze every ounce of energy efficiency from electrical devices. 

Already we can sense and measure literally everything that moves or changes in temperature, and we have the computing and data analytics capability to use them more efficiently. And if we can do it now, we’ll be able to do it better in time. In that sense, I see the electrification and digitalization of all our economic activities as an unstoppable trend, although I am equally sure that, as with every trend, there will be bumps along the way.

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