Economic Effects of Standard Harmonization between Technologically Asymmetric Countries

Since the fostering of trade liberalization in the 1990s, conventional trade barriers, such as tariffs, have been dropping steadily worldwide. Under the WTO regime, member countries are unable to impose higher tariff rates than the bound rates, and the effective tariff rates have been decreasing consistently as a result. In addition, the spread of multilateral and bilateral trade agreements have accelerated this phenomenon. It follows that many governments are resorting to non-tariff measures (NTMs), such as technological measures, standards, and intellectual property rights, as a means of strategic trade policies instead of conventional ones. The varieties and volume of NTMs have thus increased.Among NTMs, standards refer to a “document approved by a recognized body, that provides, for common and repeated use, rules, guidelines or characteristics for products or related processes and production methods, with which compliance is not mandatory.” (Annex 1.2 of the WTO TBT Agreement) Standards are intended primarily to improve the compatibility and quality of products and reinforce consumer protection, but may serve as de-facto trade barriers that prevent foreign corporations from entering the domestic market and protect domestic businesses, whether the domestic governments intend it or not. The U.S. Federal Motor Vehicle Safety Standards and Regulations (FMVSS) gives a good example of using standards as trade barriers. In most countries, vehicles are produced according to international safety standards called the United Nations Economic Commission for Europe (UNECE), which are accepted in just about every country in the world except the U.S. and Canada. Foreign automakers, who already produce their products under UNECE and wish to export them to the U.S. and Canada, must satisfy the FMVSS and thus must modify their UNECE-compliance models. This then creates additional costs for the foreign firms, who already face stiff competition from American firms in the U.S. market