Part 9 - Non-tariff barriers to trade Flashcards
What are product standards?
Product standards relate to the design and manufacturing of consumer products to ensure that they do not present harm or hazards to consumers
Product standards may:
- Secure consumer confidence in a given product due to standardised quality and safety of products (e.g.,tools and equipment being designed and tested according to standards).
- Protect the environment and consumer‘s health (e.g., standards provide measurement methods to monitor and control air pollution or food hygiene standards provide classification and test methods for materials in contact with food).
- Improve interoperability between products or services -
Why product standards exists?
Product standards are imposed to overcome market failures and protect the health of domestic consumers.
Protectionism:
Product standards can be a trade policy tool to protect the domestic market from international competition.
Explain how product standards work for producers
- For producers, it is usually costly to comply with product standards.
- If producers consider exporting, they have to adapt their products to specific product standards in a given export destination, which is equivalent to a fixed costs to be paid to ente ra foreign market.
- If fixed costs rise with the level of the product standard, domestic firms have an incentive to lobby for the lowest product standard that excludes the foreign firm from the domestic market.
- In brief, an industrial country could set product standards strategically high to prevent firms from developing countries to enter its market.
One source of market failure:
Asymmetric information between producer and consumer about the quality of a good or its ingredients.
Do NTBs need to be notified to the WTO?
Yes
Food and Drug Administration (FDA)
is responsible for ensuring the safety of domestic and foreign products in U.S.
import refusals
The import shipments not complying with U.S. product standards are refused entry into the market by the FDA
Reasons for import refusals (with the first two reasons being official ones by the FDA):
- Adulteration: Product is inferior, impure and not genuine due to the addition of a substance.
- Misbranding: Missing product labels as well as untruthful or misleading statements on product labels.
- Lobbying and political pressure: For instance, U.S. cat fish producers‘ lobbying for more frequent inspections of cat fish imports.
Two type of inspections underlying a given import refusal:
- Field exams: overwhelming majority of inspections
* Product sample analysis, ex: laboratory test of product sample
FDA inspects 100% of shipments that come into the US
TRUE OR FALSE?
TRUE»_space; FDA is only able to inspect a small fraction of all shipments.
U.S. Unemployment Rate and Hidden Protectionism vs FDA inspections
- the US unemployment rate has increased due to the Great Recession in 2009-10
- correlation between unemployment rate and number of FDA inspections and refusals
U.S. Import Refusals and the Gravity Model:
- If import refusals indeed constitute a (potentially protectionist) trade barrier, we would expect a negative β3-coefficient.
- Newly collected data set covers the years 2002 to2014 and disaggregated U.S. imports and U.S. import refusals for 167 trading partners.
Costs of non-compliance with U.S. product standards:
- Import refusals decrease exports to the U.S (here: negative and statistically significant β3-coefficient).
- Trade reducing effect driven by developing (non-OECD) countries and by refusals without any product sample analysis, in particular during the Subprime Crisis and its after math.
- Evidence for stricter enforcement of given product standards during the crisis new channel through which countries might protect their domestic industries.
