Defining Technical Trade Barriers Questionable Legitimacy and That Potentially Represent a Net Cost to a Country

Defining Technical Trade Barriers questionable legitimacy and that potentially represent a net cost to a country. There are differing views on what constitutes a technical trade barrier. Earlier literature recognized quar- In this report, a standard is a technical specification antine policies and an amorphous array of other or set of specifications related to characteristics of a measures that restricted or delayed entry of products product or its manufacturing process. From this per- at the border as technical barriers. More recently, spective, standards can be either voluntary or estab- agricultural technical barriers have been viewed as a lished by government fiat.1 Several authors have subset of environmental regulations (Hillman). We pointed out that voluntary standards can effectively define technical barriers as regulations and standards bar imports if they become standard business practice governing the sale of products into national markets in the importing country, especially if they are that have as their prima facie objective the correction accepted as a legal defense against product liability of market inefficiencies stemming from externalities claims (Bredahl and Zaibet; Sykes). However, our associated with the production, distribution, and con- primary focus is on command and control measures, sumption of these products. These externalities may the most prevalent type of technical barrier in mar- be regional, national, trans-national, or global. This kets for primary and processed agricultural goods. definition centers the analysis of technical trade barriers on the economic concept of market failure This view of technical trade barriers is both broader rather than on a mutable list of policy instruments. and narrower than previous perspectives. We exclude incentive measures such as taxes and subsi- Technical trade barriers may be adopted in instances dies, even though these measures may have been when: established to address externalities. For example, our a countrys regulators conclude that market definition would not include a product packaging tax mechanisms alone will fail to prevent or correct with rates that varied with the degradability of the negative externalities that arise when imported packaging material, incorporating the social costs of goods may be accompanied by pests or diseases disposal into firms private costs. Our definition also that may reduce domestic output and/or increase excludes other regulatory non-tariff barriers (NTBs), production costs; such as quotas or domestic content regulations, regulators or industry representatives believe whose primary objective is redistribution, not effi- that information about the health, hedonistic, or ciency. However, this view of technical barriers is ethical attributes of agricultural products is broader than others in that it comprises more than either unknown or asymmetrically distributed just a small set of border measures, such as import between producers and consumers, and the bans, which often dominate discussion of agricultural transaction costs of obtaining this information technical barriers. It also includes measures ranging are prohibitively high for consumers; from maximum residue standards for pesticides on coordination costs and free-rider behavior in an fresh horticultural products to eco-labeling require- industry prevent development of compatibility ments for processed foods. standards that could increase firms potential for realizing economies of scale; or Given this definition, technical trade barriers can be regulatory authorities judge that markets fail to characterized as a subset of social regulations provide optimal amounts of unowned or com- (OECD, 1997; Viscusi et al.). Social regulations are monly owned environmental resources. all of those measures adopted by a country to achieve health, safety, quality, and environmental objectives; We use prima facie in our definition to acknowledge technical trade barriers can help realize these policy the existence of regulatory capture, when domestic groups with a vested interest in limiting competition 1 See OECD (1998) for an extensive discussion of alterna- successfully lobby for technical measures having tive definitions of the term standard. Economic Research Service/USDA Analyzing Technical Barriers to Trade 3 Figure 1: Trade-restricting measures viewed as subsets of regulations Economic Regulations Social Regulations Administrative Includes measures that Includes measures that Regulations affect pricing, competi- protect public interests Includes paperwork and tion, and market entry or such as health, safety, other administrative for- exit the environment, and malities (i.e., "red tape") social cohesion Examples: Examples: Examples: Quotas Food safety meas- Customs valuation, Contingent protec- ures classification and tion measures Environmental trade clearance procedures Domestic content measures Liberal licensing requirements Quality standards requirements Source: USDA, Economic Research Service, adapted from OECD. objectives by restricting entry of unsatisfactory prod- dards. This regulatory heterogeneity imposes costs ucts at the border (fig.1). By limiting imports, these for producers who must comply with multiple regula- measures might result in substantial regulatory pro- tory regimes. Harmonizing regulations among coun- tectionism for domestic producers, although (absent tries would help limit the unintended trade-restrictive political economy considerations) this is not their pri- consequences of legitimate technical standards. But mary intent. As noted above, technical barriers are achieving such harmonization is itself complicated by potentially welfare enhancing, a feature generally differences among nations in tastes and income, or, absent from other NTBs, such as those that are a absent such factors, may be too costly. Regulatory subset of economic regulations (fig. 1). A key point heterogeneity can also result from differences in from the theory of distortions and welfare is that the objectively assessed risk factors such as the presence optimal policy will correct the market failure as close of host organisms in some, but not all, importing as possible to the source of the distortion (Bhagwati). countries as well as differences in trans-scientific factors such as risk attitudes rooted in different cultural Although the public-good dimensions associated with norms and experiences. Thus, a certain amount of legitimate technical barriers are universally acknowl- regulatory heterogeneity is inevitable in international edged, even well-intentioned measures can create markets. More problematic is the widespread impediments to trade that lower net welfare, often as acknowledgment that agricultural technical barriers a byproduct of different bureaucracies in different have often provided an attractive pretext for regulato- countries autonomously developing national stan- ry protectionism (Kramer; Roberts and Orden). 4 Analyzing Technical Barriers to Trade Economic Research Service/USDA.

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