Technical Barriers to Trade in East Asia Standards Inventory and Trade Effects from Liberalization Silja Baller, East Asia PREM, World Bank World Bank – BFA Workshop Hainan, China, June 26-27, 2006

Overview Taxonomy of Standards Standards as Trade Barriers Technical Regulations in East Asia Overcoming Standards Barriers: TBT Liberalization Empirical Study: Trade Effects from TBT Liberalization

Taxonomy of Standards Case A: compatibility standards for inputs for inputs for final goods for final goods  standards are created by the market Case B: SHEC standards (Safety-Health- Environment-Consumer Protection) goods produced under asymmetric information: experience and credence goods goods produced under asymmetric information: experience and credence goods goods produced/consumed under negative externalities goods produced/consumed under negative externalities  market failures: standards need to be created by governments

Standards as Trade Barriers Case A: standards may initially differ by firm, but market will drive convergence Case B: standards will differ depending on the preference of individual governments  diverging national standards will effectively hinder trade by Imposing extra production costs on foreign suppliers Imposing extra production costs on foreign suppliers Acting to reduce economies of scale Acting to reduce economies of scale  Government action is required

Technical Regulations in East Asia Source: UNCTAD TRAINS database

Technical Regulations by Country Source: UNCTAD TRAINS database

Technical Regulations by Product Category Source: UNCTAD TRAINS database Including ChinaExcluding China

Overcoming Standards Barriers I – Product & Process Standards Mutual recognition of product standards and technical regulations Harmonization product-by-product (Old Approach) Harmonization by essential characteristics (New Approach) Compatibility Acceptance with specific exceptions Acceptance with broad exceptions

Overcoming Standards Barriers II – Conformity Assessment Procedures Measures aimed at reducing costs imposed by conformity assessment procedures (CAPs) Avoids costs of double testing Similar arrangements as for product standards themselves Most used: Mutual Recognition Agreements for Testing Procedures

East Asian TBT Liberalization In the framework of ASEAN ASEAN APEC APECMethods Harmonization Harmonization Mutual Recognition Agreements for Testing Procedures Mutual Recognition Agreements for Testing Procedures

Trade Effects of TBT Liberalization I Empirical study estimating the bilateral trade effects of harmonization and MRAs for testing procedures (Baller, 2005) Countries included: OECD + top 22 manufacture exporting developing countries East Asian countries in the sample: China, Hong Kong, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore and Thailand Sectors studied: Telecoms equipment Telecoms equipment Medical devices Medical devices Time period:

Two effects from liberalization On the probability that two countries trade with each other On the probability that two countries trade with each other On the volume of trade between two countries On the volume of trade between two countries Assessment of harmonization done for three types of countries Parties to the agreement Parties to the agreement Excluded OECD countries Excluded OECD countries Excluded developing countries Excluded developing countries Assessment of MRAs only for parties to the agreement Trade Effects of TBT Liberalization II

Trade Effects of TBT Liberalization III Empirical assessment shows MRAs increase the probability of export for any country pair that signs a mutual recognition agreement as well as the actual bilateral trade volume MRAs increase the probability of export for any country pair that signs a mutual recognition agreement as well as the actual bilateral trade volume Harmonization has positive effects on the probability of exports of competitive excluded countries (market size effect); results for excluded developing countries are ambiguous Harmonization has positive effects on the probability of exports of competitive excluded countries (market size effect); results for excluded developing countries are ambiguous

Conclude Concentration of standards by sector varies widely across the region Harmonization and MRAs are effective means of overcoming standards barriers as reflected in increased trade flows