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Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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4
International Trade

Over the past decade, rising exports have become a principal source of U.S. economic growth. The expansion of global trade in the postwar era has promoted higher standards of living worldwide. Today, many nations around the globe have made great progress in moving toward market systems based on the principles of open trade and investment. For U.S. exporters seeking to take advantage of expanding opportunities, the relationship among standards, conformity assessment, and global trade is increasingly important. Since international trade constitutes a growing share of highly specialized production and services in the U.S. economy, for example, barriers to trade reflected in discriminatory standards and conformity assessment systems threaten to retard U.S. economic progress.

Considerable progress has been made since the Second World War in lowering international trade barriers, particularly those associated with tariffs. As tariff barriers have decreased, however, the relative significance of non-tariff barriers to trade, including those related to standards, has increased. In 1994, a major multilateral trade agreement was concluded in the Uruguay Round of the General Agreement on Tariffs and Trade (GATT). The Uruguay Round made significant progress in addressing the rise of non-tariff trade barriers. Strengthening of GATT provision on standards and conformity assessment-related barriers to trade, combined with the establishment of new enforcement mechanisms through the World Trade Organization (WTO), indicate the potential for significant progress in facilitating U.S. exports and future economic growth.

Realizing the full benefits of these opportunities, however, will require creative, forward looking, and aggressive U.S. trade policies. This will involve

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
×

work to support (1) implementation of the multilateral standards agreements under the WTO; (2) innovative new efforts to link standards and U.S. export promotion services; (3) policies and programs to ensure systems surveillance in areas of growing significance to trade, especially environmental management systems standards and national conformity assessment regimes; and (4) possible aggressive, unilateral use of U.S. law to counteract unfair foreign trade practices in standards.

One of the most significant advances in the Uruguay Round, for example, was the expansion in the number of countries brought under disciplines on standards first negotiated in the Tokyo Round of the GATT. Many U.S. trading partners, especially the developing nations of Asia and Latin America, will require assistance in constructing modern standards and conformity assessment regimes. By providing this assistance, the United States has an opportunity to support successful implementation of the GATT, as well as U.S. global export expansion and economic progress.

In the context of these developments, issues concerning standards and conformity assessment have moved to a central position in future U.S. foreign economic policy. This chapter outlines the link among product and process standards, global trade, and U.S. economic interests. As discussed in this chapter, our national trade policy objectives are served through the removal of technical trade barriers in key export markets; participation in international, mutual recognition of conformity assessment systems; and expanded efforts at export promotion through cooperation and assistance to standards bodies in existing and emerging U.S. export markets.

Standards, Trade, And U.S. Economic Progress

Trade and the expansion of global exports are directly linked to U.S. economic vitality and future standards of living. Exports provide for domestic economic growth, increased labor productivity, and creation of jobs in the manufacturing and service sectors that pay wages well above the national average.1 Future U.S. economic success, as a result of these factors, centers to an increasing extent on removing barriers to international trade, as well as creating innovative export promotion programs to help expand markets for U.S. goods and services overseas.

Standards and the Economic Benefits of Trade Expansion

There are many indicators of the importance of exports to the domestic economy. U.S. exports have grown at a rapid rate as a percentage of Gross Domestic Product (GDP) over the past decade. Goods and services exports rose from 7.5 percent of GDP in 1986 to approximately 13 percent in 1993.2 Merchandise

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
×

exports alone rose from 5 percent of GDP in 1984 to 8 percent in 1993. Total U.S. exports have more than doubled over the period 1985-1993, from $218 billion to $464 billion.

In particular, merchandise exports of advanced technology products have risen sharply. Many of these exports are directly affected by international standards, as well as technical regulations of governments overseas. Strong export growth in advanced technology goods resulted in a U.S. trade surplus in these accounts at $25.8 billion.3 This surplus has offset trade deficits in non-advanced technology products each year since 1982. The estimated non-advanced technology U.S. trade deficit was $141.6 billion in 1993, with a total merchandise trade deficit estimated at $115.8 billion. Moreover, advanced technology product exports rose as a share of total merchandise exports to 23 percent in 1993.

The rapid expansion of exports has played an important part in U.S. employment growth over the past decade. As of 1990, there were 7.2 million U.S. workers employed in export-related jobs. This represented 20 percent of the total 10.4 million job increase in U.S. employment over the period 1986-1990. Moreover, jobs linked to exports paid wages on average 17 percent higher than the national average for all U.S. workers in 1990 ($11.69 versus $10.02, respectively).4 It is clear that to the extent the U.S. continues to pursue a trade policy focused on the opening of global markets and trade expansion, such a policy will provide greater employment opportunities in high-paying jobs.

The benefits of open markets and specialization are important to multinational firms with operations across the globe. They also benefit small and medium-sized firms, whether they export directly or supply components that other firms incorporate into exported products. As outlined in Chapter 1, standards help foster economies of scale in the production process. Economies of scale through open trade allow wide consumer choice and increased purchasing power and consumer welfare.

Access to foreign markets also maximizes benefits available through the globalization of production, including access to diversified sources of technology, manufacturing advances, and information on best practices in marketing, sales, and service. In addition, through increased market size on a global scale, firms are able to spread the costs of investment in research and development across larger numbers of sales. In sum, open trade provides the platform through which firms and nations can leverage the benefits of competitive forces in support of long-term economic advance, consumer welfare, and productivity growth.

Standards and conformity assessment are closely linked to these benefits of international trade. Standards development systems and the infrastructure necessary to ensure conformity to standards—including testing, certification, and laboratory accreditation—are an important part of modern industrial processes, as discussed in previous chapters. In general, the benefits of standards observed in the domestic economic context increase in proportion to their application on an increasingly larger, international scale.

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
×

Efficient international standards regimes accomplish several important goals. These include facilitating the diffusion of innovative technologies and production techniques, as well as supporting global economies of scale.5 When different countries or regions have different technical standards for essentially the same product, manufacturers selling into multiple markets are forced to produce multiple versions of the same product. For example, automobile production lines must be switched between right-hand and left-hand drive cars for the United Kingdom and continental Europe. Consumer electronic devices and household appliances must be adapted for different power supplies in the United States and Europe—110 and 220 volts, respectively.

By fragmenting the prospective markets for products that could otherwise be produced and marketed on a global scale, the lack of internationally harmonized standards reduces the economic advantages of free-flowing international markets. Harmonization entails the revision or interpretation of different standards in such a way as to render them equivalent. International harmonization of standards enables manufacturers to produce more efficiently for a larger, combined market.

In addition to promoting economies of scale to facilitate multiple export markets, common standards and conformity assessment procedures benefit manufacturers in other ways. Standards convey information to customers about products and services in a technically precise, consistent manner, as outlined in Chapter 1. This is an important benefit when manufacturer and customer are separated across linguistic, cultural, and geographic distances. Well-organized, open, and transparent standards systems also promote compatibility of key components in national infrastructure, such as telecommunications and computer networks.6 Finally, standards and technical regulations can operate to support public welfare by promoting health, safety, and environmental goals. These affect not only the quality of domestic industrial production, but also the operation of international markets and U.S. export success within those markets.

Conformity assessment procedures are also directly linked to the efficient functioning of international markets. Even when standards in different countries have been harmonized, the free flow of trade is inhibited if products are subjected to redundant testing and certification requirements in multiple export markets. When conformity assessment procedures performed within the United States are not accepted as valid by regulators or purchasers in foreign markets, U.S. exporters are forced to ship products abroad for costly, wasteful retesting. They also may have to support the costs associated with bringing foreign inspectors to visit and inspect U.S. manufacturing facilities. When nations, states, or local governments here in the United States refuse to accept competent and scientifically sound testing and certification performed abroad without reasonable justification, the costs of imported goods are raised in a discriminatory manner. This is true whether the underlying standards for a product are harmonized between an exporter's home and final destination.

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
×

Cost of Protection: Non-Tariff Barriers to Trade

Trade protection that restricts competition or restrains circulation of products in international markets reduces global efficiency and slows economic advance. A number of policy tools are used by nations to shelter firms from international competition.7 These include high tariff rates; voluntary export restraints; production subsidies; import quotas; and a wide range of non-tariff barriers, including those related to standards and conformity assessment mechanisms. Standards that discriminate against imports and nontransparent or discriminatory requirements for showing conformity to standards can create significant non-tariff trade barriers.

The economic harm caused by trade discrimination and protection of domestic markets is well documented.8 Most empirical research and data on the costs of instruments to either block imports or subsidize exports have focused on indirect measures of trade protection. Their effect on increased consumer prices and reduction of global wealth is clear. A recent study of the cost of protection in textiles, apparel, autos, and steel, for example, found that removal of all quantitative restrictions, such as quotas, on imports into the United States would result in a 0.5 percent increase in national income. This increase would be worth $25 billion to $29 billion dollars. The same study found that the reduction in welfare caused by U.S. non-tariff barriers in these sectors is equivalent to that which a 49 percent tariff would produce.9

Great progress has been made in reducing worldwide tariffs since the Second World War. Prior to 1947 and the establishment of the GATT, for example, average weighted tariffs on goods in the industrialized nations stood at 35 percent. A tax of $35 per $100 of products traded before 1947, therefore, was paid by final goods producers on imported components and by consumers of finished products. After the Tokyo Round of GATT trade negotiations ended in 1979, average tariffs in the major trading markets of the United States, Japan, and Europe were lowered to about 3.8 percent. The Uruguay Round of negotiations completed in 1994 cut tariffs in major industrial markets to zero in many sectors. These include construction, agricultural, and medical equipment; pharmaceuticals; paper; toys; and furniture, among others.10 Tariff cuts ranged from 50 to 100 percent on semiconductors and computer components. The agreement also committed many emerging, newly industrializing markets to cut tariffs sharply in these sectors.

Although global tariffs have been reduced, there has been a rise in the use of other mechanisms to deny access of goods to national markets. Whereas the extent and costs of traditional forms of trade protection are well documented, less attention has been devoted to analyzing or measuring the effects of non-tariff barriers to trade.11 This is particularly true of analysis on the trade effects of discriminatory standards and conformity assessment procedures.12 It is clear, however, that non-tariff barriers raise costs of production in a manner similar to

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
×

tariffs, by increasing the price of imported materials and components and reducing a manufacturer's ability to profit from economies of scale. At the same time, they block more competitive and efficient producers from reaping the benefits of superior products through expansion of sales in export markets. In many cases, especially in the capital goods sector, the world's most efficient and competitive producers are U.S. firms.

Although the definitions of non-tariff barriers varies among academic studies, the consensus of several studies is that they are spreading worldwide.13 A study by the World Bank in 1987, for example, found that the share of imports from industrialized nations subject to ''hard-core" non-tariff barriers in the Organization for Economic Cooperation and Development (OECD) nations rose from 13 to 16 percent from 1981 to 1986. These hard-core barriers included import prohibitions, quantitative restrictions, voluntary export restraints, variable levies, restrictions on textiles and apparel, and nonautomatic licensing.14 Since 1970, the United States, Europe, and Japan have been the most active in implementing these restrictions. To the extent that increases in non-tariff barriers offset the gains achieved in the past few decades from lowering tariffs, this trend is a cause for serious concern.

To the detriment of sound public policymaking, particularly as it relates to future trade negotiations, there have been no comprehensive analyses of standards and conformity assessment systems as non-tariff barriers to trade. There is a significant and growing need for academic and policy-oriented studies and research in this area. Within the context of the work related to the general subject of non-tariff barriers to trade, however, there is evidence to indicate that significant barriers to global trade are embedded in existing standards and will continue to grow in complexity.

This conclusion is based, in part, on observations such as the following: (1) standards that differ from international norms are employed as a means to protect domestic producers; (2) restrictive standards are written to match the design features of domestic products, rather than essential performance criteria; (3) there remains unequal access to testing and certification systems between domestic producers and exporters in most nations; (4) there continues to be a failure to accept test results and certifications performed by competent foreign organizations in multiple markets; and (5) there is a significant lack of transparency in the systems for developing technical regulations and assessing conformity in most countries. Moreover, observations from U.S. government and industry sources indicate that domestic firms continue to confront problems associated with systems in overseas markets, as discussed in the following section.15

Barriers to Trade in Key U.S. Export Markets

The National Trade Estimate (NTE) Report on Foreign Trade Barriers, produced annually by the Office of the U.S. Trade Representative (USTR), outlines

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
×

foreign use of discriminatory standards, testing, and certification requirements as barriers to U.S. exports.16 In a number of foreign markets, U.S. goods are subject to more stringent standards and testing requirements than domestic products (for selected examples, see Table 4-1). Many of the barriers to U.S. products outlined in the NTE reports affect sectors in which U.S. industry enjoys substantial comparative advantages over foreign competitors. This is true, for example, in the capital goods and high-technology sectors, including transportation equipment, electrical machinery, medical devices, biotechnology, and pharmaceutical products, among others. In the absence of trade barriers, these are sectors in which U.S. firms have strong potential to gain export market share.

One example of foreign technical regulations as unfair barriers to U.S. exports is the case of the European-wide ban on use of livestock growth hormones.17 In 1989, the European Union (EU) banned the import of meats and meat products, except pet food, produced with the aid of natural or synthetic growth hormones. The U.S. considers this a trade violation. An increasing number of U.S. producers employ these hormones. There is no internationally recognized scientific evidence to support EU regulation. The ban eliminated most U.S. red meat and meat product exports, causing $97 million per year of economic harm. In retaliation, the United States imposed an equal value of tariffs on EU agricultural products and brought the dispute for resolution to the GATT. As of September 1994, the EU has successfully blocked resolution of the GATT case. However, new dispute procedures instituted in the Uruguay Round agreements, discussed later in this chapter, will lead to more rapid resolution of cases such as this.

Data on the total volume of global trade subject to conformity assessment regulations are limited. Increased attention by U.S. government agencies to data gathering and analysis would be of significant benefit in formulating sound U.S. trade policies, as well as supporting U.S. export promotion programs. As noted previously, conformity assessment systems have the potential to create equal or greater barriers to trade than standards. Worldwide growth in the complexity of mechanisms for approval of regulated products, such as food additives and medical devices, is of particular concern. As discussed in Chapter 3, government agencies and private-sector firms in the United States and abroad are involved in performing redundant testing, certification, quality system registration, and laboratory accreditation. If not monitored and addressed in a systematic manner, these systems will provide a great number of opportunities for nations to employ a variety of extremely complex and nontransparent barriers to imported goods.

There have been only a limited number of recent attempts to estimate the impact of standards and conformity assessment barriers on U.S. trade. The Department of Commerce and Trade Policy Coordinating Committee (TPCC) have, however, completed preliminary work in this area. The project could not independently verify the department's analysis, because supporting data and a detailed methodology employed in the work were unavailable for review. The

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
×

TABLE 4-1 —Standards and Certification: Selected Barriers to U.S. Exports

COUNTRY

TRADE BARRIERS

European Union (EU)

In 1989, the EU banned meat and meat products produced from livestock treated with natural or artificial (biotechnology-derived) growth hormones. The EU has stated its recognition that there is no scientific evidence to support the ban; however, it remains in effect. Damage to U.S. exporters is measured at $97 million per year. STATUS: Unresolved; U.S. retaliation under Section 301 remains in effect.

 

The EU's "Global Approach to Testing and Certification," instituted in 1990, mandates that certification of regulated products be performed by European testing laboratories and certifiers. This system imposes unbalanced costs on non-European manufacturers for obtaining product approvals. (U.S. government accreditation, by contrast, does not discriminate between U.S. and foreign laboratories.) In some sectors, testing can be performed by a U.S. laboratory under subcontract to a European laboratory. Success in U.S.-EU mutual recognition agreement (MRA) negotiations, which began in 1994, would remove or reduce this barrier. STATUS: MRA negotiations ongoing.

Japan

Prescriptive design standards under the High Pressure Gas Law favor Japanese producers. Affected sectors include air conditioners, refrigeration equipment, supercomputers, and aircraft support equipment. Performance standards would be less trade restrictive and more flexible in accommodating technological innovations. STATUS: Ongoing.

 

Barriers to imported wood products were estimated, in 1989, to restrict U.S. exports between $500 million and $2 billion annually. Key among the barriers were restrictive fire and building codes and refusal to accept foreign testing procedures. The National Forest Products Association petitioned the USTR to initiate a Super 301 case against Japan. STATUS: Case was resolved in April 1990. Japan agreed to increase reliance on performance-based standards and to accept foreign test data. International technical committees monitor implementation, which has been largely successful.

China

China does not accept U.S. certifications of quality. Procedures for obtaining a required "quality license" are costly and discriminatory, often imposing higher standards for imports than domestic goods. Many regulatory requirements are unknown or unavailable to non-Chinese firms. STATUS: In 1991, USTR self-initiated a Section 301 investigation of these and other Chinese trade practices. China agreed to publish notice of regulations and to discuss other issues. Implementation remains unclear.

Indonesia

Acceptance of new pharmaceutical imports can take more than a year. Copied products are often available on the local market before the original is accepted. STATUS: Ongoing.

Republic of Korea

Many regulatory standards, such as shelf-life standards for processed foods, differ substantially from international practices without scientific basis. Public notice of rule making is often inadequate. Some standards are applied unequally to imported and domestic products. Medical equipment and processed agricultural products are among imports facing nontransparent or unclear standards. STATUS: Ongoing.

Taiwan

Agricultural imports are routinely tested, unlike domestic products. Complex registration procedures exist for approval of imported pharmaceuticals, medical devices, and cosmetics. STATUS: Ongoing.

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
×

COUNTRY

TRADE BARRIERS

Mexico

Beginning in July 1994, regulated products must be tested and certified by laboratories accredited by the Mexican Director General for Standards (DGN) or by DGN itself. Quality system registrations must be performed by DGN-accredited ISO 9000 registrars. In practice, DGN has accredited no non-Mexican laboratories or registrars and very few Mexican ones. It is not obligated to accredit or recognize foreign organizations, under the North American Free Trade Agreement, until 1998. STATUS: Ongoing.

 

SOURCES: U.S. Trade Representative, Office of the. 1994 National Trade Estimate Report on Foreign Trade Barriers. Washington, D.C.: U.S. Government Printing Office, 1994.

Bayard, Thomas O. and Kimberly Ann Elliott. Reciprocity and Retaliation in U.S. Trade Policy. Washington, D.C.: Institute for International Economics, 1994.

American National Standards Institute. New Certification Methods Established for Exports to Mexico That Are Subject to Mandatory Standards. 1994.

Retlif Testing Laboratories. U.S./EU Trade Negotiations. 1994.

department indicates, however, that $300 billion of the $465 billion in U.S. merchandise exports in 1993 were affected by foreign technical requirements and standards. A total of $180 billion is reportedly subject to certification to non-U.S. standards in such sectors as automotive, aerospace, computers, telecommunications, pharmaceuticals, and chemicals. An additional $70 billion was subject to quality or environmental management system registration.18

These estimates and the analysis supporting the work need to be carefully examined and reviewed. They provide some indication, nevertheless, that the addition of new layers of complexity and cost in international commercial transactions is cause for concern. There is danger that a proliferation of complex, costly, and redundant conformity assessment systems among nations will present serious problems in future international trade. Duplicative or discriminatory requirements threaten to undermine the trade-enhancing benefits of international standards by adding layers of costly and redundant requirements for showing conformity to specifications in multiple export markets.

The request by Congress for this study specifically identified the evolving product approval systems in the European Union as a source of concern for the United States. For example, the expense of meeting EU approval requirements can be a particular obstacle to small and medium-sized U.S. firms. This is true whether the firm exports directly to European markets or acts as a supplier of components to manufacturers of exported goods.19 With Europe as the largest single destination for U.S. exports, accounting for 25 percent of total U.S. merchandise exported, European barriers to U.S. products have a direct and substantial impact on U.S. trade performance.20

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
×

According to estimates by the Department of Commerce's International Trade Administration, $66 billion of the $110 billion in U.S. merchandise exports to Europe in 1993—more than half—was subject to some form of EU-required product certification. Approximately $30 billion required government-issued certificates, with pharmaceuticals, automobiles, and engines accounting for the majority. An additional $25 billion required a manufacturer's declaration of conformity (self-certification), while $10 billion was subject to private, third-party certification—primarily in the information technology sector.21

The transition to a unified European economic market has included a number of measures to remove barriers to trade in regulated products among European nations. To the extent that market unification enables U.S. exporters to access all nations of the European Union by meeting the import requirements of any single European country, these changes facilitate increased U.S. exports. New EU requirements for product approval, however, have raised serious concern about U.S. access to the European market. Changes in EU procedures for setting standards and verifying product compliance with them, their potential effect on U.S. trade, and the utility of U.S.-EU agreements on conformity assessment in mitigating these effects are discussed in detail in the section on mutual recognition negotiations.

A forceful effort at streamlining international systems in standards, certification, and quality regulations at the regional and multilateral levels is an appropriate priority for U.S. trade and standards policymakers. The goal of these efforts is clear. They should provide a mechanism for manufacturers servicing global markets to obtain testing, certification, and registration of quality systems one time, and in one market, to have products accepted globally. The goal of assured credibility in these systems is also essential. Reaching this goal should be a multilateral priority, however, work to advance this principle can be undertaken unilaterally and at the regional level, as outlined later in sections on the use of U.S. trade law to lower barriers and regional dialogue on mutual recognition agreements (MRAs) in the Asia Pacific Economic Cooperation Council (APEC) forum. As the next section outlines, international mechanisms also exist to reduce standards-related trade barriers. These mechanisms are part of the GATT and new World Trade Organization created through the Uruguay Round of multilateral negotiations.

Multilateral Trading System: The Uruguay Round

The Uruguay Round of multilateral trade negotiations under the General Agreement on Tariffs and Trade concluded in 1994 with the signing of a world trade agreement.22 Significant progress was made in advancing the goal of reducing barriers to trade, including both tariffs and non-tariff barriers. Members accepted a revised Agreement on Technical Barriers to Trade (TBT). The TBT

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
×

agreement, or Standards Code, was first incorporated in the previous Tokyo Round of the GATT.23 A new Agreement on Sanitary and Phytosanitary Standards (SPS) was also concluded, with special implications for global agricultural trade.24 President Clinton signed the U.S. law to implement these agreements on December 8, 1994. It is expected that the GATT obligations will enter into force on January 1, 1995, for all member nations.

Table 4-2 describes major advances in coverage related to standards and conformity assessment in the Uruguay Round Agreements.25 The TBT agreement covers "product characteristics or their related processes and production methods," as reflected in mandatory technical regulations of national governments. The agreement attempts to reduce barriers to trade reflected in the preparation, adoption, or application of standards in a discriminatory manner. It also addresses the prevention of new barriers, particularly as they might arise in divergent conformity assurance systems. The TBT agreement also has important implications for standards set by subnational and regional governments (such as the EU) and private-sector bodies. This section outlines the key elements of the agreement to reveal progress made in the Uruguay Round in relationship to the existing Standards Code negotiated in the Tokyo Round, as well as areas of uncertainty in its implementation and impact on trade.26

Membership and Expansion of Scope

The most important progress made in the Uruguay Round TBT and SPS agreements is related directly to the expanded scope and coverage of international disciplines on technical regulations as they affect trade. This includes both the increase in the number of countries bound by the obligations in the new agreement and the extension of TBT rules to cover new areas of standards and conformity assessment systems.

The expansion in coverage of the Uruguay Round TBT code to include all members of the newly established World Trade Organization is an important move toward strengthened international discipline (see Table 4-3). As of November 1993, there were 46 signatories to the Tokyo Round TBT code. Most of these members are the industrialized nations of the European Union, with the United States and selected Asian and Latin American countries represented. The signatories to the Uruguay Round Agreement and the new TBT agreement include 68 additional nations. Many of these are among the most rapidly developing nations of Asia and Latin America. Based on 1991 data, new signatories of the Uruguay Round TBT agreement represent an expansion of approximately $182 billion in global imports subject to international discipline. This is a 17.5 percent increase over imports covered under the Tokyo Round Standards Code.27

The extension of rules and procedures on standards and conformity assessment is an important part of strengthening the multilateral trading system. The TBT code helps support progress toward global market liberalization worldwide.

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
×

TABLE 4-2 —Standards, Conformity Assessment, and the GATT: Key Provisions of the Tokyo and Uruguay Rounds

KEY PROVISIONS

TOKYO ROUND [completed 1979]

URUGUAY ROUND [completed 1994]

World Trade Organization (WTO)

Prior to the Uruguay Round, enforcement of GATT disciplines was through the GATT Secretariat. Not all signatories to the GATT were parties to the Standards Code. This led to a "free-rider" problem. Dispute settlement process lacked "teeth."

Created a new body, the WTO, as the administering body of the international trading system. Membership is available only to countries that are signatories to the GATT and agree to adhere to all of the Uruguay Round agreements.

Technical Barriers to Trade (TBT) Agreement—Standards Code

The GATT negotiations produced a series of new international agreements relating to non-tariff measures, including the TBT Agreement (the Standards Code). The Standards Code's purpose was to ensure that technical regulations and standards would not be prepared, adopted, or applied with a view to creating obstacles to international trade.

Imposes no obligation to lower standards for public health, safety, or environmental protection. Obligation is to treat foreign and domestic products without discrimination, and to use international standards where possible and appropriate.

The requirement of transparent and nondiscriminatory procedures for issuing product approval was expanded to cover the range of conformity assessment procedures, including testing, certification, accreditation, and quality system registration. Encourages mutual recognition of conformity assessment procedures between countries. Expands coverage to nongovernmental and regional standards development.

Same as Tokyo Round. In addition, states explicitly: "Members shall give positive consideration to accepting as equivalent technical regulations of other Members, even if these regulations differ from their own, provided they are satisfied that these regulations adequately fulfill the objectives of their own regulations."

Sanitary and Phytosanitary Measures

Not a separate agreement.

A stand-alone agreement. For the first time, establishes multilaterally recognized rules and disciplines for the development and application of measures taken to protect human, animal, or plant life or health in the areas of food safety and agriculture.

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
×

Applicability to GATT members

Standards Code (Technical Barriers to Trade Agreement) was a stand-alone agreement with its own institutional provisions (e.g., dispute settlement procedures). GATT members were not obligated by the code unless they specifically accepted it. As of 1993, 46 GATT members had signed the code.

The TBT and SPS agreements are binding on all members of the WTO. They impose obligations on the members' central governments, local governments, nongovernmental bodies, and international and regional standardization and conformity assessment bodies. They call for national governments to take "reasonable measures" to ensure compliance with the disciplines in the agreement by subnational and nongovernmental bodies. As of 1994, more than 120 nations had signed the WTO agreement.

Standards-related activities: definition and coverage

 

 

Technical regulations

Technical specifications with which compliance is mandatory. Signatories to the Standards Code are required to notify other members of proposed new or revised technical regulations.

Explicitly states that technical regulations should not be maintained if the circumstances or objectives giving rise to their adoption no longer exist or if the changed circumstances or objectives could be addressed in a less trade-restrictive manner.

Standards

Technical specification approved by a recognized standardizing body for repeated or continuous application, with which compliance is not mandatory.

Expanded to explicitly include standards for processes as well as products. A standard is defined as 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 in not mandatory. It may also include or deal exclusively with terminology, symbols, packaging, marking, or labeling requirements as they apply to a product, process, or production method.

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
×

KEY PROVISIONS

TOKYO ROUND [completed 1979]

URUGUAY ROUND [completed 1994]

Standards-related activities: definition and coverage

 

 

Conformity assessment

Only covered certification and testing. Parties were not to discriminate against imports in cases where positive assurance was required that products would conform with technical regulations or standards. Parties agreed, whenever possible, to accept test results and certifications issued by relevant bodies in the territories of other parties.

The requirement of transparent and nondiscriminatory procedures for issuing product approval was expanded beyond testing and certification to cover the range of conformity assessment procedures, including laboratory accreditation and quality system registration. Conformity assessment is defined as any procedure used, directly or indirectly, to determine that relevant requirements in technical regulations or standards are fulfilled.

Authority and dispute resolution

Procedures were specific to the Technical Barriers to Trade Agreement. These were not identical to procedures under other GATT agreements. There was no legal obligation to carry out dispute resolution panel findings. Ample opportunities existed to delay the resolution process.

A single panel addresses all issues under any of the GATT/WTO agreements. The procedure was consolidated in the Understanding on Rules and Procedures Governing the Settlement of Disputes, and applies to the entire GATT and its subagreements, including those related to standards. It improves the existing system by providing strict time limits for each step in the dispute settlement process. The automatic nature of the new procedures improves enforcement of the substantive provisions . In certain cases, cross-retaliation measures are authorized.

 

SOURCES: U.S. Department of Commerce, International Trade Administration fact sheets available on the Uruguay Round Hotline.

Jackson, John H. and Davey J. William. Legal Problems of International Economic Relations. Second edition. St. Paul, Minnesota: West Publishing Company, 1986.

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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TABLE 4-3 —GATT Members Subject to Standards Provisions

Tokyo Round: Standards Code Signatories (as of November 1993)

Argentina

France

Luxembourg

Singapore

Australia

Germany

Malaysia

Slovak Republic

Austria

Greece

Mexico

Spain

Belgium

Hong Kong

Morocco

Sweden

Brazil

Hungary

Netherlands

Switzerland

Canada

India

New Zealand

Thailand

Chile

Indonesia

Norway

Tunisia

Czech Republic

Ireland

Pakistan

United Kingdom

Denmark

Israel

Philippines

United States

Egypt

Italy

Portugal

Yugoslavia

European Union

Japan

Romania

 

Finland

Korea, Republic of

Rwanda

 

Uruguay Round Signatories

(as of April 1994)

All of the above,a plus the following:

 

 

 

Angola

Costa Rica

Liechtenstein

Qatar

Algeria

Cote d'Ivoire

Macau

Saint Lucia

Antigua and Barbuda

Cuba

Madagascar

Senegal

Bahrain

Cyprus

Malawi

South Africa

Bangladesh

Dominican Rep.

Mali

Sri Lanka

Barbados

El Salvador

Malta

Suriname

Belize

Fiji

Mauritania

Tanzania

Benin

Gabon

Mauritius

Trinidad and Tobago

Bolivia

Ghana

Mozambique

Turkey

Botswana

Guatemala

Myanmar

Uganda

Brunei Darussalam

Guinea-Bissau

Namibia

United Arab Emirates

Burundi

Guyana

Nicaragua

Uruguay

Cameroon

Honduras

Niger

Venezuela

Central African Republic

Iceland

Nigeria

Zaire

China

Jamaica

Paraguay

Zambia

Colombia

Kenya

Peru

 

Congo

Kuwait

Poland

 

a Except Rwanda and Yugoslavia

It furthers the process of binding the developing nations with their industrialized trading partners in an area of increasing importance to the trade system. This is perhaps particularly important in the APEC region since the economies of East Asia, excluding Japan, are expected to grow 6.2 percent per year from 1993 to 2000 and to constitute 27.9 percent of global GDP by the year 2003.28

In addition, the new TBT agreement subjects processes and production methods to the same rules as those applied under the Tokyo Round code to manufactured goods. This expansion of multilateral rules will serve to reduce the likelihood that unjustified measures to block imports through technical regulations will continue unchallenged. There have been several high-profile trade disputes

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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in this area over the past five years. Most notably, these have involved U.S.-EU trade in agricultural products and the EU's Third Country Meat Directive and Beef Hormones Directive, outlined above. At a minimum, a transparent, multilateral framework through the TBT agreement now exists to address these procedures.

Coverage of Conformity Assessment

Technical regulations for oversight of testing and certification represent one of the fastest-growing segments of the industrialized nations' standards systems. Although most of the attention in trade policy discussions has addressed harmonization of differing national standards, expansion of national regulations on conformity to standards is where costs to manufacturers and exporters are likely to grow in the future. In the United States, as discussed in Chapter 3, the independent testing industry represented approximately $10 billion in revenue in 1993, with average annual growth rates of 13.5 percent from 1985 to 1992.29 The growth in third-party testing, moreover, stimulates the growth of added layers of complexity, reflected in public and private programs to accredit testing laboratories and government mechanisms for oversight of both laboratories and accreditors.

In the developing nations, continued industrialization and competition for access to global export markets will likely contribute to expansion in testing and accreditation systems over the next decade. Manufacturers in developed and industrializing nations will be subject to the full range of conformity assessment steps in export markets. Third-party firms that perform these tasks are already displacing the use of manufacturers' self-declarations of conformity in a number of sectors, most notably capital goods.30 Protocols at the international level to bring clarity and foster acceptance of these systems across national borders will be increasingly important to trade.

The Tokyo Round Standards Code applied the principles of national treatment and nondiscrimination only to product testing and certification programs. These principles require that the treatment of imports by a GATT member country be no less favorable than the treatment of domestic products or imports from other GATT members. Articles 5 through 9 of the Uruguay Round TBT agreement extend the basic obligation of national treatment and nondiscrimination to laboratory accreditation, recognition, and quality system registration programs, such as ISO 9000 registration requirements. Extension of the coverage in the Uruguay Round to all forms of conformity assessment, therefore, sets in place a framework that can serve to protect against their future use as barriers to trade.

Although progress was made in extending national treatment and nondiscrimination to a wider range of conformity assessment, the TBT agreement provides only a limited basis to encourage acceptance of the results of tests or laboratory accreditation across national borders. Article 6 of the TBT code

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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exhorts signatories to move toward harmonization of conformity assessment through mutual recognition of one another's procedures. Mutual recognition agreements have the potential to offer real benefits in reducing costs, inefficiencies, and barriers in international trade. Recent developments at the regional level of MRAs in conformity assessment, including early dialogue within the APEC forum, are outlined later in this chapter.

Extension of Coverage to Nongovernmental Organizations

Another important way in which the TBT agreement represents progress involves the extension of rules to private standards organizations, such as the American National Standards Institute (ANSI) and European regional standards developers. Article 3 of the agreement calls for ''reasonable measures" by members of the WTO to ensure compliance by these bodies with principles of national treatment, nondiscrimination, and notification of standards preparation in advance of promulgation. The article further states that "members shall formulate and implement positive measures and mechanisms in support of observance of the provisions of Article 2 by other than central government bodies." Central government will now be responsible for good-faith implementation of the agreement and application of its principles at any level of government or within any private-sector body involved in the standards system. The TBT code of the Tokyo Round bound only central governments and, less rigidly, subnational (state and provincial) governments to these obligations.

The new "Code of Good Practice for the Preparation, Adoption and Application of Standards" contained in Annex 3 of the TBT agreement provides a foundation for extending rules to private standards bodies. The code outlines general principles for development and applications of standards by nongovernmental organizations. These include national treatment of products from a foreign country no less favorable than that accorded to domestic products or imports from any other country (national treatment and nondiscrimination); publication and dissemination of work in progress; institution of a 60-day open comment period prior to adoption of standards; and refraining from applying standards that could serve as barriers to international trade.

Adoption of the Code of Good Practice is voluntary and lacks an enforcement mechanism. It does, however, outline for the first time in a multilateral agreement a common mode of operation for private standards bodies consistent with open trade. Wide acceptance of the code among WTO members also has the potential to foster communication between national standards organizations. This could open new channels for early dialogue and informal dispute resolution, helping to support the more formal, multilateral mechanisms available through the WTO. Finally, nongovernmental standards bodies will have no standing at the WTO or access to dispute settlement on their own authority. These groups will for the first time, however, be able to publicly hold other organizations

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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accountable to standards of conduct and fair access, as a function of the new WTO Standards Agreement.

Dispute Settlement

A crucial point of progress in the Uruguay Round Agreement, lacking in the disciplines of the Tokyo Round Standards Code, is a binding framework for the adjudication of disputes. Trade actions involving technical barriers will be considered as part of an integrated dispute resolution system under the WTO. Violations or noncompliance with TBT provisions found by dispute settlement panels of the WTO will require action to curtail trade-distorting behavior. If not resolved, members will have the right to impose retaliatory tariffs against nations found in violation of the TBT agreement. These provisions should transform the manner in which TBT principles are viewed by governments. It is reasonable to assume that, in the future, some consideration will be undertaken of how national policy changes in standards and conformity assessment rules will affect trade. Possible violations in these areas will involve internationally public consequences.31

The 1994 GATT agreement made clear progress in reducing the potential for use of standards as non-tariff barriers to trade. There remain, however, areas of uncertainty in the agreement that may limit its utility. It is unclear, for example, how capable the new TBT agreement will be in affecting developments in environmental standards. There is great interest at both the national and the international levels in developing new standards and certification systems that link industrial production, trade, and the environment.32 Whether the WTO and the TBT agreement provide a suitable framework to foster the creation of least trade-distorting environmental standards remains questionable. This is an area that the U.S. government and private sector should certainly monitor carefully.

The TBT agreement also employs vague, nonbinding language committing national governments to harmonization of national standards with international ones, a goal with promise in eliminating barriers to trade in selected product markets.33 Another area of uncertainty with the new TBT agreement centers on movement toward reciprocity in conformity assessment procedures. Only experience will resolve serious questions as to whether the new agreement can provide a basis to challenge conformity procedures that constitute trade barriers. It is likely, moreover, that problems of interpretation will arise in areas such as laboratory accreditation and quality systems registration in environmental management. It is uncertain, for example, how national governments will interpret Article 6 of the agreement, which requires "whenever possible, that the results of conformity assessment procedures in other Members are accepted, even when those procedures differ from their own, provided they are satisfied that those procedures offer an assurance of conformity."

Efforts by governments to negotiate mutual recognition of conformity assessment

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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procedures provide, therefore, a higher likelihood of reduced barriers than reliance only on the TBT and the new WTO. This raises the importance of quick progress in regional trade forums. Experience gained in the U.S.-EU negotiation on MRAs in conformity assessment, outlined in this chapter, will provide at least some momentum for progress at the multilateral level. Negotiations in a regional framework, such as the early work in APEC, may also prove helpful in building a foundation to mitigate against the development of new conformity assessment barriers in the future.

The next section outlines the institutional processes through which the U.S. government formulates trade policy and sets priorities for removal of barriers to U.S. exports. Unilateral actions authorized under U.S. law designed to retaliate against unreasonable and discriminatory trade practices are discussed. The section concludes with an overview of the history of use of Section 301 by the United States in standards and conformity assessment disputes. This assessment will focus on cases after 1985 and the granting of authority to the USTR to self-initiate 301 investigations.

U.S. Trade Policy And Section 301

As noted, the Uruguay Round and the new World Trade Organization represent significant advances in international coverage of issues related to standards and conformity assessment. There remain, however, important work in removing remaining barriers to trade in these areas and a role for unilateral action by the United States. The U.S. trade policy agenda, as it relates to standards and conformity assessment, should seek to aggressively remove barriers and open markets; anticipate future areas where U.S. interests will be affected by emerging standards, testing, and certification systems abroad; and move to take advantage of technical assistance as a tool of export promotion.

This section first provides a brief overview of the U.S. trade policy formation process. In particular, the advisory mechanisms for obtaining private-sector advice on standards-related issues are described. Recent work of the Office of the U.S. Trade Representative in managing trade issues in standards and conformity assessment is outlined. As the primary mechanism through which the United States can address discriminatory foreign trade practices, including removal of non-tariff barriers to U.S. goods embedded in standards or conformity assessment policies, Section 301 of the Trade Act of 1974 is then described.

Overview of U.S. Trade Policy Formation and Implementation

Standards-related trade issues are addressed as part of the broad context in which the U.S. government's international economic policy is formed. To a great extent, this process centers on the duties and mandate of the Office of the United States Trade Representative. In 1934, Congress enacted the Reciprocal Trade

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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Agreements Act, which delegated to the President authority to negotiate international trade agreements for the reduction of tariffs. The USTR was created by Congress in the Trade Expansion Act of 1962 and given its present name in 1980.34 In the Trade Act of 1974, presidential negotiating authority was substantially revised and extended, and the USTR was elevated to cabinet-level status.

The USTR has primary responsibility for developing and coordinating the implementation of U.S. international trade policy.35 The office serves as the principal adviser to the president on trade policy and on the impact of other government policies on international trade. The USTR also has lead responsibility for the conduct of international trade negotiations. This includes negotiations that may relate to standards or conformity assessment systems and international trade. As such, the USTR is the chief representative at multilateral institutions, such as the GATT. USTR also is the lead representative of the U.S. government in dialogue on trade issues at regional forums, such as the APEC forum.36

In this role, the USTR conducts bilateral and multilateral negotiations through authority under sections 704 and 734 of the Tariff Act of 1930 and Title I negotiations under the 1974 Trade Act.37 The office also conducts investigations under Section 301 cases.38 USTR administers the trade agreements program, including advising on non-tariff barriers, international commodity agreements, and other matters relating to the trade agreements program.

A key function of the USTR is to coordinate trade policy formation with other federal agencies. The USTR is a member of the National Economic Council (NEC) established by President Clinton. The functions of the NEC include coordination of domestic and international economic policy, including foreign trade issues. The NEC has assumed most of the functions and duties of the cabinet-level Trade Policy Committee, the statutory interagency group charged with managing economic policy within the executive branch.

Two subcabinet interagency groups directly support the work of the NEC and USTR on trade policy. It is through these groups that most standards and conformity assessment issues are addressed. The first is the Trade Policy Staff Committee (TPSC). The TPSC is an interagency working group that includes senior-level civil servant representation from U.S. government agencies. The TPSC is supported by more than 60 subcommittees. This includes a Subcommittee on Standards, chaired by USTR, which manages policy coordination and forms U.S. government positions in standards. The second interagency group supporting the USTR is the Trade Policy Review Group (TPRG) at the Deputy USTR or Under Secretary level. When there is a lack of consensus at the TPSC level or in the case of particularly significant policy matters, issues are referred to the TPRG. Matters of especially high priority or controversy at this level are often referred to the Deputies Committee of the NEC for decision and action.39

Several agencies, in addition to participating in the work of the NEC and USTR, support standards-related trade policy formation in specific areas of agency mandate or expertise.40 The Department of Agriculture (USDA) is involved

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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in U.S. trade policy formulation, for example, in areas related to obligations of the United States under the Sanitary and Phytosanitary Standards Code of the GATT. The USDA's Foreign Agricultural Service coordinates work on international issues. The Department of Commerce's (DoC) International Trade Administration (ITA) administers the department's trade responsibilities. This includes representation and assistance on U.S.-EU negotiations on MRAs through the Office of Multilateral Affairs, for example. The U.S. and Foreign Commercial Service (US&FCS) at DoC is also involved in standards-related trade matters through trade promotion functions to assist U.S. exporters, which may include monitoring of foreign standards developments from posts overseas. In addition, the National Trade Data Bank was established and designed to provide a central repository of U.S. government data on international trade and export promotion.

DoC's National Institute of Standards and Technology (NIST) is also involved in assisting the work of the USTR in areas related to international standards. Since NIST's mandate includes primary technical expertise on standards and contact point to the voluntary standards community, staff of the institute are expert on a wide range of matters that impact U.S. commercial relations. NIST represents the Commerce Department, therefore, on the TPSC and serves as the U.S. "inquiry" point for information on proposed regulations that might affect trade for the GATT, as part U.S. obligations under the GATT Technical Barriers to Trade Code.

The Department of State's Bureau of Economic and Business Affairs has responsibility for formulating and implementing policy regarding foreign economic matters, including standards. The Department of the Treasury's international responsibilities are executed by the Assistant Secretary for International Affairs. The Treasury Department's U.S. Customs Service collects import duties and enforces many laws or regulations relating to international trade. It maintains ties with private business associations, international organizations, and foreign customs services.

Interviews with U.S. government officials and others reveal only limited communication and information transfer between the TPSC subcommittee on standards and primary working groups on domestic standards of the Interagency Committee on Standards Policy chaired by NIST. Aside from overlapping agency representation on these committees, there is no formal link or channel for leveraging the expertise and mandate of both groups. There is clearly the need for enhanced communication and coordination between interagency committees with trade and domestic standards policy functions, as well as communication between these groups and the private sector. In particular, the work of the USTR in standards and conformity assessment requires the full and active cooperation of other executive branch agencies to support U.S. trade objectives. This is especially true as the USTR leads government efforts in new areas of policy formation and negotiation, such as emerging environmental management systems standards. This applies to the USTR's work in fulfilling not only multilateral objectives,

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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but also standards issues addressed in regional and bilateral negotiations outlined in this report.

Private-Sector Advisory Mechanisms

In 1974, Congress established a private-sector advisory committee system to ensure that U.S. trade policy and trade negotiation objectives adequately reflect U.S. commercial and economic interests.41 The USTR manages the advisory committees in cooperation with executive branch departments.42 There are 38 advisory committees in the system. The Advisory Committee for Trade Policy and Negotiations (ACTPN) is the senior level of the three-tiered advisory system. It is a 45-member presidentially appointed body (two-year terms) that provides guidance on trade policy matters, including trade agreements and negotiations.

The seven policy advisory committees make up the second tier. Members are appointed by the USTR in conjunction with one or several secretaries.43 They are the Services, Investment, Intergovernmental, Industry, Agriculture, Labor, and Defense Policy Advisory Committees. Their role it is to advise the government of the impact of various trade measures on specific sectors (e.g., industry and agriculture) of the economy.

Most standards-related trade issues are informed through a third tier in the private advisory system, composed of 30 sector, functional, and technical advisory committees. Members of these groups are appointed by the USTR and the secretaries of Commerce and Agriculture. Sectoral or technical committees provide technical information and advice on trade issues affecting specific sectors. The functional advisory committees provide advice on customs, standards, and intellectual property issues.44 The Industry Functional Advisory Committee (IFAC) on Standards for Trade Policy Matters serves as the formal mechanism for industry advice on standards and trade. It meets only at irregular intervals or at the call of USTR or the Secretary of Commerce.

Removing Standards-Related Trade Barriers: Section 301

Future U.S. trade interests, as they relate to developments in international standards, will be served not only through multilateral institutions and agreement, but also through unilateral action by our government. Section 301 of the Trade Act of 1974, as amended, provides a useful tool to address barriers to trade in standards and conformity assessment systems.45

Section 301 supports petitions by individuals or commercial interests to enforce U.S. rights under international trade agreements, as well. The USTR may also self-initiate a 301 action under its own authority. Under the law, USTR must determine within 45 days whether or not a petition for action under Section 301 is justifiable and should be pursued.46 The USTR contacts foreign trade partners and requests discussions for dispute settlement. If trading partners refuse

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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to participate in negotiations, the USTR may make recommendations to the president to proceed with unilateral retaliatory measures.47

In addition to enforcing U.S. rights in international law, Section 301 is targeted at responding to unreasonable, unjustifiable, or discriminatory trade practices that serve to restrict U.S. trade.48 It is the primary means of unilateral action to open overseas markets for U.S. goods through the removal of unfair foreign trade practices.49 This includes barriers to trade reflected in standards or conformity assessment systems, although it has not been employed in any systematic manner to address these disputes.

The use of trade policy tools, such as Section 301, has clearly not always been uniformly effective in meeting U.S. objectives. Recent analyses of the use of Section 301 provide evidence, however, that it can in many cases serve to support trade liberalization and reduce standards-related barriers to U.S. exports.50 Overall, the law is a relatively forceful tool of unilateral action. In one study of 72 cases initiated under Section 301 from January 1975 to June 1994, U.S. negotiating objectives were met in 35 of 72 cases. This contrasts favorably with a more limited, 33 percent success rate found in an analysis of the outcomes of 120 foreign policy sanction cases involving the United States.51 There are a number of general characteristics of standards and conformity assessment cases that are consistent with the broad outlines of successful action under Section 301. For example, there appears to be a higher rate of success in 301 actions involving relatively more transparent border measures against imports. This might reasonably extend to at least some of the more visible actions by foreign governments to (1) forbid acceptance of certifications of laboratory accreditations, (2) deny documented test results transmitted at customs, and (3) raise other serious barriers in conformity assessment regulations.

What are other characteristics of the successful use of 301 that should be considered in addressing future barriers to trade in foreign standards and conformity assessment policies? In general, the United States has been successful when the target country is more highly dependent on the U.S. market for exports (77 percent of the total cases). The use of Section 301 has also been relatively more effective when a case is self-initiated by USTR. This has been particularly true in negotiations with the European Union. The success rate for cases launched against Europe reached 75 percent, when initiated by the USTR.

The case of wood products imports to Japan serves as a concrete example of the utility of Section 301 in standards-related cases. USTR began Super 301 investigation in 1989, in part at the urging of the National Forest Products Association.52 Negotiations led to several changes in Japanese policy including the acceptance of foreign testing and certification and the use of less restrictive and more performance-oriented standards. These processes are overseen by standing U.S.-Japanese technical committees. The standards-related part of the complaint has been addressed and resolved without trade retaliation.

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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Mutual Recognition Agreements

The preceding sections of this chapter discussed mechanisms for removing trade barriers through multilateral action in the GATT's World Trade Organization and through unilateral retaliation against unfair foreign trade practices, as authorized by U.S. trade law. As awareness spreads among U.S. industry of these mechanisms, particularly the new dispute resolution processes in the GATT, they have the potential to contribute significantly to the reduction of standards and conformity assessment systems that discriminate against U.S. exports.

These approaches, however, involve costs and can be highly confrontational. The threat of U.S. trade retaliation, whether unilateral or sanctioned by the GATT, should not be the only means of persuasion available to open foreign markets to international goods. Cooperative negotiations with U.S. trading partners aimed at gaining mutual benefit also hold great potential for facilitating trade and leveraging economic benefits. In particular, negotiations to achieve mutual acceptance of conformity assessment procedures—testing, certification, accreditation, and quality system registration—can reduce existing barriers to trade. There must, obviously be clear oversight and assurance of competence in any agreement on mutual recognition. Under these conditions, however, an MRA can preempt the development of new barriers that may arise as nations develop increasingly complex infrastructures for testing and certifying tradable goods and services.

There are other indications that MRAs and progress toward cooperation across national boundaries can be beneficial to U.S. and international interests. A detailed analysis of the progress made through the North American Free Trade Agreement (NAFTA) among the United States, Canada, and Mexico in standards harmonization and conformity assessment is beyond the scope of this report. Continued research and analysis, however, of standards issues related to the NAFTA are important. In general, the NAFTA provisions on standards, testing, and certification indicate that regional trade agreements can be reached that both ensure continued high levels of health, safety, and environmental standards and move toward harmonization and mutual recognition between nations with differing levels of economic development.53

Background: Product Approval in the European Union

In its request for this study, Congress asked for an appraisal of changes in the standards and conformity assessment systems of the European Union and ways for U.S. exporters to respond to the challenges they present. The European Union is one of the largest export markets for U.S. firms, accounting for 20.9 percent of U.S. exports in 1993.54 Many changes have occurred in European trade policies and systems as part of the drive to establish a common internal economic market. To the extent that these changes succeed in removing trade barriers among European

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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nations, they have the potential also to facilitate U.S. exports to Europe as a whole. Consolidation of multiple European markets with formerly separate regulations and product certification requirements reduces the burden on U.S. exporters of gaining information about, and meeting, multiple sets of criteria.

New European product approval regulations, however, have erected a potentially significant trade barrier around the European market as a whole.55 There are two components to these new regulations: product standards and systems for assessing conformity to those standards. In 1985, the European Commission addressed the former issue with its "New Approach to Technical Harmonization." The New Approach abandoned the pursuit of lengthy, detailed negotiations to harmonize (rewrite as equivalent) the national technical regulations of different member states—a process that had proved extremely slow and cumbersome. Instead, the Commission would issue directives listing less detailed, "essential requirements" for safety that regulated products would have to meet.56 These directives would set a required level of safety without dictating means for achieving it. Detailed standards for meeting the essential requirements would be allowed to vary among European states until new, pan-European standards could be written. A product meeting one country's standards, however, could not be denied access to any other European market, even if it did not meet the detailed standards of the destination market's national regulations.

The Commission delegated to the private sector the writing of new technical standards linked to EU-wide essential product requirements. This system in which the private sector leads in standards development now mirrors, to a great extent, the U.S. model of standards development. Pan-European technical standards are now being developed, under contract with the Commission, by three private standards-developing organizations (see Box 4-1). These are the European Commission for Standardization (CEN), the European Commission for Electrotechnical Standardization (CENELEC), and the European Telecommunications Standards Institute (ETSI). The members of CEN and CENELEC are the national standards bodies of Europe, while ETSI includes national telecommunication agencies, manufacturers, and industry associations.

Standards developed by these organizations play a central role in determining what products may be marketed in Europe. CEN, CENELEC, and ETSI standards are not the only standards the EU will accept as meeting the essential product directives. Products complying with other standards are acceptable, as long as the alternative standards also meet the EU essential requirements. The burden of proof in such cases, however, is on manufacturers. For this reason, product approval is easier to obtain through compliance with the CEN/CENELEC/ETSI standards. Participation in their standards-writing work is therefore of clear benefit to firms that market regulated products in Europe. Unlike most U.S. standards-developing organizations, CEN, CENELEC, and ETSI are not open to foreign participants. As outlined in Box 4-1 , however, there are several avenues for U.S. firms to influence these organizations' standards work.

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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BOX 4-1 EUROPEAN REGIONAL STANDARDS-DEVELOPING ORGANIZATIONS

CEN: Comite European de Normalisation (European Committee for Standardization). Based in Brussels, CEN has a membership consisting of the national standards-writing organizations of 18 European countries—the members of the European Union and European Free Trade Area (EFTA). CEN develops voluntary European Standards in all product sectors excluding electrical standards covered by CENELEC. With funding from the European Commission, CEN also writes standards to meet the "essential requirements" for product safety mandated in EU product directives. The standards work program is directed by seven technical sector boards covering building and civil engineering; mechanical engineering; health care; workplace safety; heating and cooling; transport and packaging; and information technology. CEN maintained 1,134 active standards and 265 technical committees as of October 1993.

CENELEC: Comite European de Normalisation Electrotechnique (European Committee for Electrotechnical Standardization). Like CEN, CENELEC is based in Brussels and has 18 European standards bodies (national electrotechnical committees) as members. CENELEC develops European Standards for electrotechnology, which includes areas such as consumer electronics, electric power generation, electromagnetic compatibility, and information technology. International standards developed by the International Electrotechnical Commission are the basis for 89 percent of CENELEC standards. CENELEC also develops standards meeting EU product directives, with funding from the European Commission. Approximately 35,000 technical experts participate in CENELEC standards-writing committees.

ETSI: European Telecommunications Standards Institute. Based in Sophia Antipolis, France, ETSI is not part of the CEN/CENELEC structure, but has a cooperation agreement with those organizations. Membership is composed of the public telecommunications administrations of EU and EFTA nations, as well as manufacturers and trade associations. ETSI develops European Telecommunications Standards, which may be adopted as mandatory by European national telecommunications systems. ETSI has adopted due process procedures that require less consensus than CEN and CENELEC, in an effort to hasten the standards development process. In 1992, ETSI published 184 standards and technical reports.

As of April 1992, European standards organizations were at work on approximately 2,000 standards. This work was concentrated in the construction, aerospace, information technology, and machinery sectors, as well as public procurement. To the extent that European standards vary without justification from international standards in equivalent sectors, they represent barriers to imports from outside Europe. This danger is reduced, however, by CEN's and CENELEC's pledge to defer writing standards when International Organization for Standardization (ISO) and IEC standards exist or are under development in the same product sectors. This pledge underscores the importance of U.S. industry's participation in ISO/IEC technical committee work as a way to influence standards-setting in the European market. This strategy has been pursued successfully, for example, by the U.S. medical devices and construction equipment industries.

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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In addition to influencing European standards through international (ISO/IEC) technical work, U.S. manufacturers have several other routes of access to CEN, CENELEC, and ETSI. These include ongoing consultations and information exchange between ANSI and European standards organizations, which include ANSI-coordinated bilateral discussions held in Europe each year between industry and government officials; comments on official notices of new European standards work programs; and direct participation in European standards work by European subsidiaries of U.S. corporations. Direct participation in CEN, CENELEC, and ETSI standards development is prohibited, however, for U.S. firms without a substantial European presence. The converse is not the case; foreign firms have open access to participate in the U.S. voluntary consensus standards system.

SOURCES:

U.S. International Trade Commission (USITC), The Effects of Greater Economic Integration Within the European Community on the United States: Fifth Followup Report. Washington, D.C.: USITC, April 1993.

CEN, ''What is CEN?", brochure, 1993.

CENELEC, "CENELEC: Electrotechnical Standards for Europe", brochure, n.d.

ETSI, Annual Report 1992. Sophia Antipolis: ETSI, 1992.

Michael Miller, President, Association for the Advancement of Medical Instrumentation, presentation to the Conference on New Developments in International Standards and Global Trade, Washington, D.C., March 30, 1994.

American National Standards Institute (ANSI), The U.S. Voluntary Standardization System: Meeting the Global Challenge, 2nd ed. New York: ANSI, 1993.

Maureen Breitenberg, ed., Directory of European Regional Standards-Related Organizations, NIST Special Publication 795. Gaithersburg, Md.: National Institute of Standards and Technology, 1990.

On the whole, limits on U.S. input to European standards organizations do not appear to be a serious restriction to trade.57 Continued monitoring, however, is necessary to forestall problems in this area.

To a greater extent than standards development, the most serious potential barrier to EU imports from the United States and other non-European countries is in the area of conformity assessment. In 1990, the EU's New Approach to harmonization of standards was followed by a set of changes in mechanisms for proving product conformity to standards. The European Commission instituted these changes as the "Global Approach to Testing and Certification." This is a framework for showing compliance to the EU New Approach product directives that relies on mutual recognition of conformity assessment systems within Europe. The framework consists of technical rules for conformity assessment procedures outlined by the European Commission. To prove compliance with product directives, manufacturers must use one or more specified conformity

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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assessment procedures, including self-certification (manufacturer's declaration of conformity), third party testing and certification, and quality system registration.58

In the product sectors in which third-party product testing, certification, or quality system registration is required by law, this approval may be granted only by organizations designated, or "notified," to the Commission by the member states as technically competent. These "notified bodies"—and no others—may grant final approval of products for the European market. Certified products are identified with the newly introduced, European ''CE Mark." Products bearing this mark are certified as meeting the EU's essential product directives and may circulate freely throughout Europe. Products without the CE Mark may not be marketed in Europe at all.

Although the new European testing and certification system will facilitate the flow of trade within Europe, it has raised potentially significant barriers to U.S. products at the conformity assessment level. The requirement that final assessments be performed by European "notified bodies" raises the costs of testing and certification to U.S. manufacturers in many sectors. As outlined in the next section, this issue is now the subject of ongoing talks between the United States and the EU.

U.S.-European Union MRA Negotiations

In early 1994, the United States entered into negotiations with the EU on mutual recognition of conformity assessment systems. The goal of the negotiations is a framework under which European and U.S. exports are facilitated through mutual recognition by both the U.S. and Europe of third-party product test results, inspections, and certifications. The U.S. goal is to increase U.S. exporters' access to European markets and overcome barriers imposed by the new EU product conformity requirements. EU negotiators seek improved access for European products to the U.S. market. The EU expectations in the negotiations are that through an MRA with the United States, it will gain formal U.S. government assurance that U.S. entities within an MRA are competent to perform "essential" services in inspection and certification, as required by EU mandates. The EU, therefore, through an MRA with the United States could receive formal assurance that is lacking under current conditions. The EU also expects that in an MRA, the United States will accept European entities as competent to test to U.S. government requirements. They will gain this without the need for multiple accreditation by the U.S. government when already accredited by the EU.

The negotiations are intended to produce a series of bilateral, U.S.-EU mutual recognition agreements, each covering a specific product sector regulated by the EU. Mutual recognition by national governments of testing data, laboratory accreditation, and product certifications against specific standards represents significant potential for increased trade. The talks illustrate the potential economic

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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benefit of MRAs and offer insight into the possibilities for agreements with other nations and regional associations.

U.S. negotiators—led by the Office of the USTR and the Department of Commerce, with participation and advice from private industry—are seeking to outline rules under which U.S. manufacturers could obtain certification to EU requirements through U.S. owned laboratories and certifiers. Under mutual recognition, European manufacturers would also gain greater access to U.S. certification, including increased opportunities for conducting laboratory tests within Europe for products regulated in the United States.59 This would obviously involve acceptance by the United States of work performed in Europe by European entities. MRAs are under discussion in 11 sectors: information technology; telecommunications products attached to public networks; medical devices; electrical safety; electromagnetic interference; pharmaceuticals; pressure equipment; road safety equipment; lawn mowers; recreational boats; and personal protective equipment such as helmets.60

There are a number of benefits for U.S. producers associated with MRAs in these sectors. At present, U.S. firms have three avenues for obtaining required third-party certifications for the EU market. They can ship product samples to Europe for testing and certification by a European notified body and pay expenses for European inspectors to inspect their plants in the United States. They can have testing and certification performed by one of a growing number of U.S. subsidiaries of European laboratories. Or in some product sectors, they can have testing performed by a U.S. laboratory that subcontracts to a European certifier. In the latter case, the U.S. laboratory performs required tests, then forwards the test data to a European laboratory for evaluation and final approval for the CE Mark.

All three of these avenues exclude U.S. testing laboratories from the final stage of product certification—the judgment of test results and approval of the product. The seriousness of this burden varies for different product sectors. In some sectors, such as the gas appliances industry, subcontracting to European laboratories has proved sufficient to meet U.S. firms' market access needs.61 In others, subcontracting is less satisfactory. A key example is testing of electronic products for compliance with EU directives on electromagnetic interference. Under subcontracting arrangements, U.S. laboratories are not allowed by EU regulators to exercise "engineering judgment" and must therefore perform redundant, additional tests that European laboratories are not required to perform. As a result, U.S. laboratories must charge higher testing fees to U.S. manufacturers.62

In summary, the present avenues for U.S. firms to obtain EU product approval represent a barrier to U.S. exports. They frequently entail such unnecessary costs as redundant testing of products already tested against U.S. standards; shipping product designs and prototypes overseas for testing; and transportation of foreign engineers to the United States for factory inspections. Mutual recognition

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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of conformity assessment between the United States and the European Union would permit U.S. manufacturers to obtain required European certification at the U.S. location of production. It would open the market for third-party certification services to U.S. laboratories, resulting in greater competition and lower costs to U.S. manufacturers. It would also directly benefit the U.S. independent testing industry. As discussed in Chapter 3, this is a rapidly growing, $10.5 billion industry.

There are several obstacles to successful completion of the U.S.-EU talks.63 As a result of the significant differences in the two sides' conformity assessment systems, negotiations have involved time-intensive exchange of background information and sector-specific data. Differences in the structure and operation of the systems create difficulty in developing means for full, reciprocal access to conformity assessment procedures. Apart from a few exceptions, such as drug certification and automobile emissions testing, the United States relies much more than the EU on manufacturer's declaration for regulatory approval.64 The EU system centers primarily on third-party conformity assessment in regulated sectors. These third-party procedures include testing and certification by independent laboratories, as well as quality system audit and approval by third-party registrars. As noted previously, only "notified bodies"—those designated as technically competent by their national government—may perform these third-party services.

At present, there is no mechanism for any non-European organization to become accepted by the EU as a notified body. Under an MRA, U.S. organizations could become notified bodies and perform testing and certification of exports to the EU. The EU has indicated that any mutual recognition will require some form of U.S. government involvement in guaranteeing the competence of private U.S. conformity assessment organizations before they will be accepted by EU regulatory authorities. As a first step toward creating such a mechanism, in 1994, the National Institute of Standards and Technology created the National Voluntary Conformity Assessment Systems Evaluation (NVCASE) program. Under NVCASE, NIST will recognize U.S. accreditation programs in the United States that are competent to evaluate U.S. conformity assessment organizations.

To minimize government involvement in the private U.S. conformity assessment system, NIST intends to restrict NVCASE primarily to the recognition level of activity.65 (See Figure 3-1 for the levels of conformity assessment in the U.S. system.) NVCASE is designed to evaluate and officially recognize the competence of accreditation bodies (accreditors) who, in turn, accredit testing laboratories, certifiers, and quality system registrars. NVCASE will not directly accredit testing laboratories or certifiers, unless there exists no private-sector accreditation program in a particular industry sector and firms in that sector ask NIST to set up a program. Recognition by NVCASE confers U.S. government approval on all testing, certification, and quality system registration procedures performed by parties who are, in turn, accredited by NVCASE-recognized accreditors. The

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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NVCASE evaluation criteria are to be designed on a case-by-case basis, but NIST has confirmed that accreditors will be required to follow internationally recognized procedures, such as those developed by the International Organization for Standardization (ISO).

In meetings in Washington, D.C., in June 1994, EU negotiators gave preliminary indication that the NVCASE program would prove sufficient, under a broader MRA, for the EU to accept competence of U.S. organizations as notified bodies.66 This government contact point, at the recognition level, is important as a way to overcome the many differences between Europe and the United States at the accreditation and assessment levels. With government oversight and assurance at the top, private entities will perform the specific tests necessary for product approval. In fact, some European states—notably, the Netherlands—already rely on a similar system for designating notified bodies. The Dutch government recognizes a private organization, the Raad vor Certificatie (Certification Council), to accredit laboratories, certifiers, and quality system registrars for regulatory conformity assessment activities.67

The European goal for mutual recognition is to gain greater access to the U.S. market for European exports. European negotiators have expressed concern about the complexity of the U.S. conformity assessment system, with public components at the national, state, and local levels and a variety of private certification systems. They note, for example, the lack of a U.S. national or North American mark for entry into the United States, Canada, and Mexico analogous to the European CE Mark.68 A U.S. national mark would, theoretically, guarantee free movement of products throughout 50 states and hundreds of localities, many with unique regulations and certification schemes. U.S. product liability law and its consequences for laboratories accustomed to operating in other legal environments represent another concern cited by European negotiators.69

As discussed in detail in Chapter 3, the U.S. conformity assessment system is complex. Its complexity imposes many obstacles to commerce within the United States, and this is true for both domestic U.S. firms and those based in Europe and Asia wishing to serve the U.S. market. It does not, however, in a legal, government-mandated manner, pose a discriminatory international trade barrier, as noted in several recent reports of the EU on trade and investment with the United States.70 The U.S. conformity assessment system, as well as associated product liability practices, is as complex for U.S. firms to grapple with as it is for those in Europe. In addition, unlike the European system, there is no U.S. policy excluding foreign laboratories from participation. Foreign laboratories can and do obtain accreditation within the U.S. system, through both public accreditors (such as NIST's National Voluntary Laboratory Accreditation Program) and private ones (such as American Association for Laboratory Accreditation).71 Necessary measures to improve the U.S. system, which are proposed to help streamline and promote U.S. economic efficiency in the national interest, such as those discussed in Chapter 3 and recommended in Chapter 5, will also serve to mitigate

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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against claims by European and other foreign manufacturers that they confront unnecessary burdens in the U.S. market.

Although there is clearly duplication among state, local, and federal government rules and regulations regarding conformity assessment procedures in the U.S. system, the European Union's approach to product approval is a discriminatory trade barrier. EU policies mandate product certification by European notified bodies—selected testing laboratories, certifiers, and public agencies that can only be designated by national governments in the European Union. The system imposes duplicate testing costs on U.S. manufacturers as they seek to compete in the European market. It also prevents U.S. testing laboratories, except those acting as subcontractors to European laboratories, from carrying out all of the functions needed to grant use of the CE Mark on regulated products sold in Europe.

To overcome this barrier to U.S. products and promote mutual expansion of international trade, continued negotiations by the USTR and the Department of Commerce on MRAs with Europe are highly desirable. U.S.-EU mutual recognition has the potential to create strong expansion in international trade opportunities for U.S. and European firms alike. It will also set a strong, favorable precedent for MRAs with other U.S. trading partners. If European negotiators, however, refuse to accept the competence of the U.S. conformity assessment system and provide fair access to European markets by signing MRAs within a reasonable period of time, it will be necessary for the USTR to proceed to the next step in removing European barriers to U.S. exports—initiating trade reprisals under the authority of Section 301.

Mutual Recognition Agreements: APEC

The MRA talks between Europe and the United States offer one model of how to structure dialogue on conformity assessment. Success in opening market access through these talks will set a valuable precedent for similar agreements with other U.S. trading partners. As the text of the Uruguay Round Technical Barriers to Trade Agreement acknowledges, mutual recognition of conformity assessment is important to future global trade expansion. MRAs are an important avenue, not only for overcoming existing barriers to trade, but also for averting the emergence of new barriers as nations develop increasingly complex conformity assessment systems.

Beyond the European Union, there are other priority regions where streamlined conformity assessment through MRAs would benefit U.S. trade and global export expansion. This is particularly true in Asia and Latin America. In 1994, President Clinton identified expanding U.S. exports in emerging Asian and Latin American markets as a top economic policy priority.72 As Table 4-4 illustrates, the most rapid growth of regional markets for U.S. exports over the next 10 years will be in Asia and Latin America. The president's 1994 report to the Congress

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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TABLE 4-4 —Projected Growth of Regional Trading Partners

REGIONAL MARKET

GDP,a 1993

(billions of U.S. dollars)

Share of World Total, 1993

(%)

Estimated Growth Rate,b 1993-2000

(%)

Projected GDP,a 2003

(billions of U.S. dollars)

Share of World Total, 2003

(%)

Latin America, i.e., Mexico

1,757

7.7

5.2

2,917

8.9

Mexico

661

2.9

4.7

1,046

3.2

East Asia, i.e., Japan

5,027

22.2

6.2

9,174

27.9

Japan

2,548

11.2

2.4

3,230

9.8

Pacific

370

1.6

2.4

469

1.4

Canada

617

2.7

3.1

837

2.5

Western Europe

6,538

28.8

2.5

8,369

25.4

Middle East

1,174

5.2

3.9

1,721

5.2

Other Asia

1,598

7.0

2.5

2,046

6.2

Africa

654

2.9

2.5

837

2.5

Eastern Europe

1,751

7.7

2.5

2,241

6.8

Total

22,695

 

 

32,888

 

a Purchasing Power Parity estimates

b Data Resources, Inc.

SOURCE: Clinton, William J. Report to the Congress on Recommendations on Future Free Trade Area Negotiations, July 1, 1994. Adapted from Table #2.

on future free trade area negotiations projected East Asian markets, excluding Japan, to grow at an annual rate of 6.2 percent through 2003. Latin American markets, apart from Mexico, will grow at a 5.2 percent annual rate.73 With Japan and Mexico included, East Asia and Latin America will represent almost 50 percent of the world's combined GDP by 2003.

Table 4-5 further underscores the importance of Asian and Latin American markets to U.S. export success. Since 1985, the rate of growth in U.S. exports to Asia, excluding Japan, has been almost double that of exports to Europe or Canada. Growth of U.S. merchandise exports to selected Asian and Latin American countries is presented in Tables 4-6 and 4-7. China, Taiwan, Singapore, Hong Kong, South Korea, and Mexico have all grown rapidly as substantial markets for U.S. goods. Indonesia, Argentina, Chile, and the Dominican Republic, meanwhile, are fast emerging as significant future U.S. trading partners. The emerging markets of Asia and Latin America clearly represent a vast potential for future U.S. export expansion. To the extent that standards and conformity assessment

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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TABLE 4-5 —U.S. Exports to Regional Partners—Changes since 1985 (billions of U.S. dollars)

REGIONAL PARTNER

1985

1993

CHANGE (%)

Latin America

31.0

72.9

135.2

East Asia-Pacific, i.e., Japan

31.4

87.5

178.7

Japan

22.6

47.9

111.9

Canada

53.3

100.2

88.0

European Union

49.1

97.1

97.8

Rest of the world

31.4

58.9

87.6

Total

218.8

464.5

112.3

 

SOURCE: Clinton, William J. Report to the Congress on Recommendations on Future Free Trade Area Negotiations, July 1, 1994. Adapted from Table #1.

TABLE 4-6 —Growth of U.S. Merchandise Exports to Selected APEC Members (millions of U.S. dollars)

COUNTRY

1986

1993

CHANGE (%)

Australia

5,551

8,272

49.0

China

3,106

8,767

182.3

Hong Kong

3,030

9,873

225.8

Indonesia

946

2,770

192.8

Japan

26,882

47,949

78.4

Malaysia

1,730

6,064

250.5

Singapore

3,380

11,676

245.4

South Korea

6,355

14,776

132.5

Taiwan

5,524

16,250

194.2

Total

56,504

114,721

103.0

 

SOURCE: Clinton, William J. Report to the Congress on Recommendations on Future Free Trade Area Negotiations, July 1, 1994. Adapted from Table #4.

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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TABLE 4-7 —Growth of U.S. Merchandise Exports to Selected Latin American and Caribbean Countries (millions of U.S. dollars)

COUNTRY

1986

1993

CHANGE (%)

Argentina

944

3,771

299.5

Brazil

3,885

6,045

55.6

Chile

823

2,605

216.5

Colombia

1,319

3,229

144.8

Costa Rica

483

1,547

220.3

Dominican Republic

921

2,350

155.2

Guatemala

400

1,310

227.5

Mexico

12,392

41,635

236.0

Paraguay

171

521

204.7

Venezuela

3,141

4,599

46.4

Total

24,479

67,612

176.2

 

SOURCE: Clinton, William J. Report to the Congress on Recommendations on Future Free Trade Area Negotiations, July 1, 1994. Adapted from Table #3.

agreements can be tailored to promote trade expansion in this area, significant U.S. economic benefit will result.

Progress toward this goal has already begun in the Asian region. In 1994, preliminary discussions on mutual recognition of conformity assessment began within the APEC forum.74 APEC consists of most of the principal economies bordering the Pacific Ocean: the United States, Canada, Japan, South Korea, Taiwan, Hong Kong, Singapore, China, Australia, New Zealand, and the members of the Association of Southeast Asian Nations (Malaysia, Indonesia, the Philippines, Thailand, Brunei, and Myanmar). Chile joined APEC in 1994. Together, these countries account for approximately 40 percent of global economic activity. That share is increasing rapidly.

U.S. trade relations within the Asia Pacific region, as in Europe, are influenced to a significant degree by standards and conformity assessment concerns. As noted earlier in this chapter, the USTR has identified significant technical trade barriers in Asian markets. U.S. trade retaliation has achieved some success in removing these barriers. Mutual recognition of conformity assessment mechanisms, however, has the potential to further the goals of free and open trade in a

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
×

constructive and less confrontational manner in regional discussions, such as those supported through APEC.

Early preparatory work for possible mutual recognition discussions began in an informal APEC working group on standards and conformity assessment. This process was further advanced through the endorsement of the principle of an APEC MRA by the Eminent Persons Group created to advise the APEC member nations and leaders on achieving more open trade in APEC.75 The APEC Leaders Meeting in Jakarta, Indonesia in November 1994 endorsed the broad concept of MRAs among APEC members, as part of its declaration to begin the process of region-wide open trade by the year 2020.76

The declaration on an APEC standards and conformity assessment framework agreed to in Jakarta outlines several key principles for such mutual recognition. The objectives of the framework include both reducing barriers to trade within the region and promoting "the further development of open regionalism and market-driven economic interdependence in the Asia Pacific region."77 Noting the benefits to be gained from reducing "unnecessary costs and time-consuming delays associated with duplicate testing of products," the draft states that, "the development of broader networks of mutual recognition arrangements through the region will be a key objective of APEC's work program."

The key elements of an MRA, identified in the draft submission to the APEC Leaders Meeting in Jakarta are presented in Box 4-2. These include the need for a clear definition of the scope of testing and certification procedures mutually accepted by the parties to the MRA; criteria for identifying competent, acceptable laboratories and certifiers in each country; provisions for information exchange, joint monitoring, and dispute resolution; and a commitment by government authorities in each country to oversee the performance of conformity assessment organizations and, if necessary, terminate their accreditation if they fail to maintain technical competence.

Achieving MRAs in APEC will involve a detailed and complex set of policy planning exercises over the next several years. Further analysis will be necessary to support these negotiations. There are significant differences among APEC nations by level of industrialization, nature of government oversight of standards and certification systems, and state of technical infrastructure capacities. As the experience of U.S.-EU negotiations demonstrates, differences in conformity assessment systems complicate the prospects of reaching full mutual recognition, at least in the short term. Within APEC, a more modest approach is likely needed than in the U.S.-EU dialogues. This approach should start with the development of specific proposals and a framework for information exchanges to build confidence in testing data throughout the region, for example, as a step toward acceptance of product certifications.

In addition, technical assistance from the industrialized nations of APEC will be necessary to enable the developing member nations to create transparent, competent systems for establishing product regulations and assessing conformity

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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BOX 4-2 ELEMENTS OF A MODEL MUTUAL RECOGNITION AGREEMENT

It is suggested that the following are likely to be desirable key elements in a government-to-government mutual recognition agreement, whether it be a broad overarching agreement or an agreement that is sector specific:

  • An undertaking on the behalf of each party to grant mutual acceptance of reports and/or certificates and, where applicable, marks of conformity issued by approved bodies of the other; these reports and certificates would have the same validity as the equivalent documents issued by bodies in the recognizing country.
  • A clear definition of the coverage of the agreement, whether it be in terms of regulatory regime or types of products and/or services, the relevant mandatory third-party assessment requirements and procedures need to be listed.
  • An agreed and clearly specified process or criteria for determining what would be regarded as acceptable conformity assessment bodies. Those criteria would desirably include a requirement that testing and inspection bodies meet the rules in relevant ISO/IEC guides such as 25 (currently under revision), 39 (a revision of which is expected shortly), and 43. It is also desirable that the criteria include a requirement that to be eligible, a conformity assessment body must be accredited by an accreditation body that is regarded as acceptable by both parties and must be able to demonstrate to the accreditation body that it can assess conformity to the requirements of the other party. The agreement, or an annex thereto, will need to list the bodies that are jointly agreed as being competent to undertake conformity assessment.
  • An undertaking by each party that the government authorities who have the responsibility for determining and listing the agreed conformity assessment bodies will have the power and competence to address any problems that arise and to remove, if necessary, unacceptable bodies from the list.
  • Established mechanisms for ensuring that the conformity assessment bodies listed by each party meet, and continue to meet, the criteria required by the other party; these would desirably include some form of intercomparison procedures and regular audits.
  • An undertaking by each party to permit, at the request of the other party, checks to be carried out to ensure that the listed conformity assessment bodies comply with the criteria that have been set.
  • An undertaking to supply all relevant information to the other party including notice of any changes to legislative, regulatory, and administrative provisions.
  • Provisions for joint monitoring and administration of the agreement and for dispute resolution.
  • It may also be appropriate to include provisions for subsequent broadening of the scope of the agreement with the consent of both parties.

SOURCE: "Development of a Model Mutual Recognition Agreement on Conformity Assessment," Document III.6.3.3.1, submitted by Australia to the Committee on Trade and Investment, Asia-Pacific Economic Cooperation Sixth Ministerial Meeting, Indonesia, 1994.

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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to those regulations. As discussed in the following section of this chapter, technical assistance related to standards and to conformity assessment benefits both recipient countries, by modernizing their economic infrastructure, and donor countries, by expanding their potential export markets.

U.S. Export Promotion

The following material moves beyond current trade developments to identify links between standards and opportunities for U.S. export expansion. The greatest potential for trade expansion in future years is represented by the dynamic economic growth in key emerging markets. As Tables 4-4 through 4-7 illustrate, emerging Asian and Latin American markets represent especially promising opportunities for U.S. firms in new global markets.

U.S. Export Promotion Policy

Export promotion activities are, along with trade barrier reduction, a central component of U.S. trade policy. As discussed earlier in this chapter, expansion of U.S. export opportunities in emerging markets contributes in critically important ways to the long-term potential for U.S. economic advance. A variety of U.S. agencies conduct programs to promote exports. These programs incorporate mechanisms such as the following: (1) direct funding to U.S. firms and nongovernment organizations for technical assistance projects within developing countries; (2) low-interest loans to developing countries to support importation of goods and services, particularly from the United States; (3) information dissemination to U.S. firms about export opportunities, through a variety of publications and the computerized National Trade Data Bank; and (4) trade fairs promoting U.S. products in key export markets.

Eight U.S. government agencies and quasi-governmental organizations are principally engaged in export promotion activities.78 These are the Department of Agriculture; the Department of Commerce, including the U.S. and Foreign Commercial Service and the International Trade Administration; the Department of Energy; the Agency for International Development; Eximbank; the Overseas Private Investment Corporation; the Small Business Administration; and the Trade and Development Agency, which provides grants for project feasibility studies. These and other executive branch agencies coordinate U.S. export promotion policies through the interagency Trade Promotion Coordinating Committee, founded in May 1990.

Although U.S. export promotion accounted for about $2.7 billion in spending as recently as fiscal year (FY) 1991, these activities have not been linked effectively to the nation's comparative advantages in advanced-technology exports. For example, agriculture export promotion programs accounted for $2.0 billion of the $2.7 billion in spending, although agriculture accounts for only

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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about 10 percent of total U.S. exports.79 Enhancement of long-term opportunities for U.S. exports calls for innovative, new programs aimed at strengthening the technological infrastructure of developing countries that represent emerging export markets. These programs will create increased demand for goods and services, which U.S. exporters are well prepared to meet.

Technical assistance related to standards and to the technical infrastructure necessary to test and certify products represents a vital opportunity for promotion of U.S. exports. Product standards, systems for developing them, and national frameworks for assessing conformity are all being put rapidly into place in newly emerging market economies worldwide. This is particularly the case in Asia. Technical standards assistance and growing export opportunities are linked in two key ways. First, active promotion of U.S. standards and U.S.-developed international standards has the potential to facilitate U.S. industry's access to key markets, to the extent that these standards are adopted as requirements for product acceptance. In addition to promoting specific U.S. industrial products or technologies, technical assistance should foster the use of international standards. International standards provide a developing country with the greatest possible range of choice of goods and services, and they create a level playing field for exports from the United States, Europe, Japan, and other industrialized regions.

Second, as discussed previously in this chapter, there is a strong link between continued liberalization in global trade and rising wealth and standards of living in all nations, including the United States. The Uruguay Round of GATT negotiations made great strides in extending obligations for fair trade practices to countries worldwide. Many developing countries, however, require technical assistance from industrialized nations in establishing standards systems that comply with their new, often challenging obligations under the Technical Barriers to Trade Agreement of the GATT Uruguay Round. U.S. assistance in this respect will help make the potential gains to U.S. and world trade from the GATT a reality.

Case Example: Emerging Standards and Conformity Assessment Systems in Indonesia

Recent economic reform and institutional change in Indonesia serve as a case example of how evolving national standards systems are important to international trade expansion.80 New structures, institutions, and policies on standards now being established in emerging economies such as Indonesia will have a significant impact on future U.S. export success. This is particularly true in regard to servicing the dynamic and rapidly growing new markets in the Asia-Pacific region. Assistance by U.S. industry and government in standards and conformity assessment services to countries such as Indonesia can play an important role in enhancing U.S. export success.

Indonesia, along with other East Asian nations, has experienced rapid economic

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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growth over the past decade. GDP in Indonesia grew 5.7 percent over the period 1980-1992. The growth rate of imports in 1992 was 7.1 percent. This economic expansion has been driven by a series of domestic and foreign economic policy reforms launched in 1985. As part of these initiatives, the government liberalized Indonesian trade policies. Reform has included not only a sharp reduction in average tariff rates, but also the elimination of myriad licensing and other quantitative restrictions on imports.81 There has been substantial progress in deregulation of domestic markets, as well as opening of the Indonesian economy to foreign investment. In part due to these market-opening reforms, U.S. trade with Indonesia has expanded rapidly. In 1993, U.S. exports to Indonesia totaled $2.8 billion. The U.S. stock of foreign investment in 1992 was $4.3 billion.

Economic opening and modernization of the Indonesian manufacturing sector have involved many important policy changes, including a set of changes associated with product standards. Although much of the economy is comprised of government-owned ''strategic" corporations, the private economy and nongovernment sector continue to expand. The government, through the National Standardization Council of Indonesia (Dewan Standardisasi Nasional, DSN) has moved to develop a new, modern framework for the development, adoption, and dissemination of product and process standards.82 There is an opportunity and a need for industrialized countries, such as the United States, to provide important assistance to Indonesia as this work continues. Assistance could be provided both unilaterally, and through regional mechanisms such as the APEC forum.

The DSN and government ministries are currently working to construct new procedures and institutions for (1) product testing and certification, (2) oversight rules for laboratory and certifier accreditation, and (3) rules to accredit the competence of ISO 9000 quality system auditors in Indonesia. The Indonesian government is revising standards and conformity assessment systems to meet the increasing demand for efficiency in the domestic market. These reforms are also motivated by increased competition in foreign markets and the demand for higher quality in Indonesian exports. The type of model Indonesia adopts for an evolving standards system—particularly, the extent to which it centers on either government or private-sector activities—will, therefore, have important implications for future economic growth.

The committees supporting standards activities of the DSN are currently comprised of only 50 percent private-sector representatives. The technical work and drafting of standards are completed by government ministries. There is the expectation that private-sector representation in this work will increase. Expert advice and technical assistance on how to achieve this goal and the evolution of a private standards system are critical. The growth of efficient, private-sector-driven standards development would also serve to benefit foreign firms with manufacturing facilities in Indonesia, as well as exporters wishing to penetrate

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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Indonesian markets. Through the provision of assistance by in-country experts, training seminars for government officials, and other mechanisms, the U.S. and other governments could play an important role in helping to establish modern and effective standards systems.

There are other ways in which developments in Indonesian standards policies will affect economic development and trade. In order to support global trade expansion and facilitation, it will be necessary to understand and monitor these developments, as they affect U.S. trade and commercial interests. There are currently 3,550 Indonesian standards in force under DSN authority. Only about 20 percent of these are based on international standards. As an outgrowth of trade policy reforms and market liberalization, Indonesia signed the Tokyo Round Standards Code of the GATT in September 1993. Prior to developing a new Indonesian national standard, therefore, the DSN is now obligated to consult ISO and International Electrotechnical Commission (IEC) standards. The DSN has stated a goal of increasing the number of national standards based on international ones, including those developed in the United States. New cement standards in Indonesia, for example, are based on American Society for Testing and Materials standards.

It is important that Indonesia and other new signatories of the Uruguay Round Technical Barriers to Trade Agreement be provided with expert assistance in the implementation of policies to fulfill new obligations under the GATT agreement. This includes aid in creating systems that serve to support multilateral obligations in the agreement, such as increased use of international standards. To the extent that nations such as Indonesia are aided by the United States and other industrialized nations in rapidly meeting new international obligations in standards and conformity assessment, U.S. economic interests are fostered. Countries such as Indonesia will require assistance in meeting the provisions of the new Uruguay Round SPS agreement, for example. This will both support the expansion of Indonesian agricultural exports to industrialized nations, and raise incomes in Indonesia, which serve to expand imports.

In addition to changing policies on the development of national standards, Indonesia is building a new infrastructure to support quality systems management. The manner in which this system develops and the extent to which it is modeled on principles of nondiscrimination, transparency, economic efficiency, and trade facilitation will have a direct impact on both long-term growth in Indonesia, and relations with the United States and other nations. Indonesia adopted the ISO 9000 series as national standards in 1992. As of August 1994, there were 25 private manufacturing firms and one construction company in the service sector with ISO 9000 certification. Another important development centers on the creation of a national accreditation body in 1994 as part of the DSN. In 1994, one quality systems certification body was granted official accreditation, and there were three applications pending as of August 1994. Most of the large testing laboratories in Indonesia are government owned and operated, with

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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smaller, in-house facilities dedicated to servicing private firms. To promote Indonesian export success, the government has emphasized work necessary to gain international recognition of the technical competence of these laboratories. The establishment of advanced systems to support internationally recognized testing facilities is therefore another area in which the expertise and assistance of industrialized nations, including the United States, could be significant, not only to Indonesia but also to the long-term interests of global economic welfare and the facilitation of global trade.

In sum, an active effort by the United States to link standards, trade, and technical assistance is extremely important at this point in history. As developments in nations such as Indonesia indicate, U.S. trading partners in East Asia and Latin America have begun to modernize their standards and conformity assessment infrastructures. U.S. involvement and active participation in assisting these nations to construct policies and programs to meet development needs can serve not only to advance growth prospects overseas, but also help to help bind the United States with these nations as they continue to embrace market-based economic principles and systems.

A Model for Standards Assistance Activities

Since 1990, the U.S. Department of Commerce's National Institute of Standards and Technology has conducted a pilot program to provide technical assistance on standards and conformity assessment to Saudi Arabia. U.S. exports to Saudi Arabia totaled $6.7 billion in 1993. This represents a slight decline from 1992 levels but is significantly higher than U.S. exports of $4.0 billion in 1990. The U.S.-Saudi Arabia Standards Cooperation Program was established to channel technical input from U.S. industry and government experts to the Saudi Arabian Standards Organization (SASO). This program presents a clear model of how an effective standards assistance effort could operate in other U.S. export markets.

The U.S.-Saudi Arabia program centers on the placement of a single, full-time U.S. standards adviser in the capital, Riyadh.83 The advisers who have filled this position were recruited from private industry. The standards adviser has NIST credentials as a U.S. government representative, raising the position's visibility and authority in the host country. Substantial experience in the private sector with standardization issues is a critical requirement for this position. The standards adviser interacts on a daily basis with SASO officials, providing advice on standards and conformity assessment issues as appropriate. More important, however, is the adviser's role as a communications contact point, channeling requests from SASO for technical information on particular issues back to NIST. These frequently take the form of draft, technical standards prepared by SASO, which U.S. experts are able to review and comment on before they become official Saudi standards.

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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NIST coordinates referral of questions referred from SASO, including draft standards and certification criteria, to a network of U.S. experts for comment. These experts are not paid. They include standardization officials in private U.S. firms, standards-developing organizations, and government agencies. This referral process is critical to enable a high quality of technical comment on questions and issues raised by SASO. No single expert or group of experts, placed in a host country, could match the breadth and depth of technical expertise accessible through referral of questions back to a network of U.S. firms and agencies. In the model provided by the U.S.-SASO pilot program, the most important role of the standards adviser is to develop communications with host country standards officials and to facilitate their use of the technical assistance mechanism.

The results of the pilot program have been highly promising.84 From 1990 to 1993, 516 draft SASO standards were sent through this mechanism to the United States for comment.85 These encompassed standards related to agriculture and food products; construction and building materials; electrical equipment; machinery; chemicals; textiles; and measuring instruments and procedures. U.S. firms with material interests in Saudi standards, primarily U.S. exporters to Saudi Arabia and government agencies, commented on 340 of these drafts. In every case but one, U.S. comments were incorporated directly into formal SASO standards.

Many U.S. comments, for example, have been in the area of automotive industry standards. This sector is the largest single component of U.S. exports to Saudi Arabia, accounting for more than $1 billion in exports in 1993. U.S. automobile manufacturers have been among the most active participants in the U.S.-Saudi pilot program. One key achievement of the program has been to ensure that where SASO standards reference international automotive electronics standards developed by the IEC, they also recognize as equivalent any non-IEC standards used by the U.S. automotive industry. In this way, unnecessary barriers to U.S. exports have been avoided, enhancing the competitive opportunities that the market presents for U.S. manufacturers and preserving the broadest range of choice and competition in the Saudi import market. These benefits were achieved as a result of the rapid, focused access by directly interested U.S. parties made possible by the pilot program.

The most important factors in the success of the U.S.-Saudi Arabia Standards Cooperation Program included the full-time commitment within the host country of a qualified standards adviser; access, through the NIST-coordinated communication channel, to a broad range of U.S. technology and expertise for comment on draft standards; and a high level of participation by U.S. private-sector experts in the draft review and comment process.86 U.S. industry initially provided matching funds for program expenses. These funds declined over time, and at present, NIST provides full financial support for the program. The most import contribution of U.S. industry to program success, however, continues to be the time and expertise required to prepare written comments and responses to queries referred

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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from the host country standards authorities. In the case of the U.S.-Saudi pilot program, the level of U.S. private participation in this respect has not declined.

As of October 1994, the program was preparing to provide a second type of assistance to Saudi Arabia that also has strong potential applicability in emerging U.S. export markets. In the fall of 1994, a delegation from the American Automobile Manufacturers Association was scheduled to conduct a technical seminar for SASO's engineering staff to update them on a range of state-of-the-art automobile safety technologies. The seminar was to present information on items such as air bags; conversion of automobiles to unleaded gasoline; antilock brakes; electronic suspension; passive seat restraints; and design for distribution of impact energy in a collision. Conveying technical information on these topics to the Saudi officials responsible for writing product certification requirements has at least two crucial benefits: (1) it improves SASO's capacity to write effective safety standards for Saudi Arabia; and (2) it promotes the use of U.S. industrial technologies in an important market for U.S. manufacturers.

Duplication of the U.S.-Saudi Arabia export promotion program in other foreign markets will depend on strong linkages and communication between the U.S. government and private industry. It is particularly important that programs of the Department of Commerce, NIST, and other agencies involved in the promotion of U.S. exports are coordinated. In the Department of Commerce Appropriations Act for 1995, the Congress appropriated approximately $5 million for an expanded program within NIST on International Trade Standardization and Measurement Services.87 A review of NIST plans for expansion of assistance in this program, which builds on the SASO model, reveals the following conclusions:

  1. An expanded program in standards assistance overseas should involve U.S. private sector firms closely both in providing advice to host country officials, and in organizing special government–industry training missions to developing and newly industrializing nations, especially those in East Asia and Latin America. These special missions should be funded by industry.
  2. This program should target a wide number of developing countries in East Asia and Latin America, where U.S. standards assistance will have the most significant impact on the evolution of standards and conformity assessment systems. Current plans call for the placement of experts in Russia, the Czech Republic, Mexico, India, China, Japan, Korea, Argentina (for all South America), Geneva (for the United Nations Economic Commission for Europe), and Paris (for the OECD nations). Although it is anticipated that these missions will serve multiple markets, a more rapid expansion of personnel in individual countries is necessary to take full advantage of rapidly developing systems overseas.
  3. An overseas assistance program should provide regular, ongoing written and other reports on standards and conformity assessment developments to the Department of Commerce's trade promotion programs, Office of the U.S. Trade
Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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  • Representative, Export-Import Bank, and other relevant U.S. government agencies.

Summary And Conclusions

This chapter has outlined both the challenges and the opportunities offered by standards and conformity assessment systems overseas. They represent both the potentially complex and difficult barriers to international trade and unique opportunities through innovative export promotion programs to increase U.S. competitiveness in global markets. Future U.S. policy in these areas, therefore, will play an important role in positioning U.S. industry for success into the next century.

Several key developments in the international economy will serve to heighten the importance of standards and conformity assessment as barriers to future global trade. These include (1) the decline of tariff barriers in world markets, especially as the Uruguay Round of tariff cuts is implemented; (2) the growing complexity of conformity assessment mechanisms in both the industrializing and the developed nations; and (3) new demands for third-party assurance, not only of product safety, but also of producers' quality management systems and environmental management systems, among other factors.

There are several necessary conditions for the United States to take advantage of the growing interrelationships among standards, conformity assessment, and global trade. First, a high level of attention to emerging standards developments by both government and private industry is necessary. In particular, there is the need for a new analytical capacity in government to monitor and report on the economics of standards and conformity assessment, including domestic systems, as well as developments in overseas markets. The specific functions of such a unit are outlined in greater detail in the following chapter.

Second, strong support for mechanisms and programs by the United States to rapidly implement the provisions that support trade liberalization in the Uruguay Round Agreement is necessary. This should include the type of organized and detailed support for implementation that is being conducted by the United States through the APEC standards and conformity, for example. Moreover, the U.S. government, in consultation with industry, must continue to provide leadership on the conclusion of MRAs with the European Union and other major trading partners, particularly in the APEC region. This will help ensure continued progress in the world economy in reducing barriers to trade in standards, especially under the likely circumstances that a major trade negotiating round will not be under way for a long period of time.

In addition to U.S. leadership in negotiations on bilateral or regional MRAs and the provision of technical assistance, a post-Uruguay Round U.S. trade policy should involve aggressive use of the new dispute resolution procedures available in the WTO to address barriers related to standards and conformity assessment.

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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U.S. policy must also leverage our ability to move in a unilateral fashion to open overseas markets. This should come through a more proactive use of Section 301 to remove foreign barriers to U.S. exports. Finally, U.S. trade policy should work toward rapid development of mutual recognition agreements with major trading partners in order to facilitate trade expansion and forestall the development of new barriers in the post-Uruguay Round system. These policy prescriptions are developed more fully in Chapter 5, along with detailed recommendations for government and industry, as requested by Congress in the solicitation of this report.

Notes

1.  

David Walters, Comparison of Export Sector Wages to Overall Sector Wages. Additional data supplied by the Office of the Assistant U.S. Trade Representative for Economic Affairs, Office of the U.S. Trade Representative, Washington, D.C.

2.  

Data supplied by the Office of the Assistant U.S. Trade Representative for Economic Affairs, Office of the U.S. Trade Representative.

3.  

John Wilson, The U.S. Performance in Advanced Technology Trade: 1982-93 (est.).

4.  

Office of the Chief Economist, Office of the U.S. Trade Representative, U.S. Exports Create High-Wage Employment.

5.  

Kindleberger, Standards as Public, Collective and Private Goods, 384-385.

6.  

As noted in previous chapters, there is a growing body of economics research on compatibility standards. See, for example, Besen, Stanley M., and Leland L. Johnson. 1986. Compatibility Standards, Competition, and Innovation in the Broadcasting Industry.

7.  

There are numerous studies which detail trade protection in the post-war period. Among the recent analyses of the types of protection employed by the industrialized and developing nations in the post-war period, especially those under discussion in the Uruguay Round of multilateral trade negotiations see, for example; Analytical and Negotiating Issues in the Global Trading System, A. V. Deardorff and R. M. Stern. The Uruguay Round: An Assessment, Jeffrey J. Schott. American Trade Politics, 2nd edition, I. M. Destler, among many others.

8.  

Estimates of the cost of tariff and non-tariff trade barriers have been conducted by numerous organizations. See, for example, recent work of multilateral institutions such as the Organization for Economic Cooperation and Development (OECD), Paris, and World Bank, as well as the Center for the Study of American Business, University of Washington, St. Louis, and U.S. government agencies, such as the United States International Trade Commission (USITC).

9.  

See, for example, Jaime de Melo and David Tarr, A General Equilibrium Analysis of U.S. Foreign Trade Policy.

10.  

White House, Trade Agreements Resulting from the Uruguay Round of Multilateral Trade Negotiations, Federal Register 58, no. 242: pp. 67269-67270.

11.  

See, for example; Sam Laird and Alexander Yeats, Quantitative Methods for Trade Barrier Analysis. United Nations Council on Trade and Development (UNCTD), Problems of Protectionism and Structural Adjustment: Restrictions on Trade. World Bank, World Development Report 1987, among other reports.

12.  

Joseph Grieco, Cooperation Among Nations: Europe, America, and Non-Tariff Barriers to Trade.

13.  

For a discussion, see the studies summarized in Trading Free, The GATT and U.S. Trade Policy, Patrick Low, 73-74.

14.  

World Development Report 1987, The World Bank.

15.  

As part of this study, extensive interviews were conducted with senior U.S. government

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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officials responsible for trade policy formation and implementation. These included briefings by officials from USTR and Department of Commerce concerning barriers to U.S. exports related to standards and conformity assessment policies overseas. Information was also gathered in Tokyo, Japan and Jakarta, Indonesia in August 1994 from (1) U.S. government officials in the U.S. and Foreign Commercial Service, economic and commercial affairs, and science and environment offices, and (2) U.S. business executives located in Japan and Indonesia through the American Chamber of Commerce.

16.  

Office of the United States Trade Representative, 1994 National Trade Estimates Report on Foreign Trade Barriers.

17.  

1994 National Trade Estimate Report of Foreign Trade Barriers, 93-94.

18.  

U.S. Government Trade Policy Coordinating Committee, Product Standard Working Group, estimates applied to U.S. Census Bureau export data, Washington, 1994.

19.  

1994 National Trade Estimate Report of Foreign Trade Barriers, 81.

20.  

Data provided by Charles Ludolph, Director, Office of EC Affairs, U.S. Department of Commerce, October 27, 1993.

21.  

Data supplied by Charles Ludolph, Director, Office of European Affairs, International Trade Administration, U.S. Department of Commerce, 1994.

22.  

This section draws, in part, on Victoria Curzon Price, The Post Uruguay Round Trade Outlook: Standards and Technical Barriers to Trade, and John Sullivan Wilson, Standards, Conformity Assessment, and Trade: New Developments and the Asia Pacific Economic Cooperation (APEC) Forum.

23.  

Office of the United States Trade Representative, Final Texts of the GATT Uruguay Round Agreements, including the agreement establishing The World Trade Organization, and Agreement on Technical Barriers to Trade, 117-137.

24.  

Office of the United States Trade Representative, Final Texts of the GATT Uruguay Round Agreements, Agreement of the Application of Sanitary and Phytosanitary Measures, p. 69-83. For an overview of the Agreement and implications for the U.S. see: Donna U. Vogt, Sanitary and Phyto-sanitary Safety Standards for Foods in the GATT Uruguay Round Accords.

25.  

For a comprehensive assessment of the implications of the Uruguay Round Agreements in full see: Schott, The Uruguay Round: An Assessment.

26.  

For an analysis of the 1994 Agreement see Richard H. Steinberg, The Uruguay Round: A Legal Analysis of the Final Act, 1-97.

27.  

Calculated using World Bank, IMF data on imports for 1991, totals for signatories to the Tokyo Round Standards Code and new signatories to the Uruguay Round Agreement.

28.  

Data included in William J. Clinton, Report to Congress on Recommendations on Future Free Trade Area Negotiation, Table 2.

29.  

Based on estimates by NRC Project on International Standards, Conformity Assessment, and U.S. Trade Policy. Calculated from data supplied by the U.S. Bureau of the Census, 1993-1994.

30.  

Locke, John W. 1993. Conformity Assessment—At What Level?

31.  

Curzon-Price, The Post-Uruguay Round Trade Outlook: Standards and Technical Barriers to Trade.

32.  

For an overview of efforts to develop environmental management system standards at the international level see: Marilyn R. Block, ISO/TC 207: Developing an International Environmental Management Standard.

33.  

Harmonization of technical regulations as well as certification mechanisms have been particularly significant in health-related industries, such as medical devices. See, for example, Health Industry Manufacturers Association, EU-U.S. Mutual Recognition Agreements (MRAs): Key Issues for the Medical Device Industry.

34.  

Office of Public Affairs, Office of the United States Trade Representative. Facsimile describing the USTR and its functions.

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
×

35.  

U.S. Congress, House, Committee on Ways and Means, Overview and Compilation of U.S. Trade Statutes, 1993 Edition, p. 185-196.

36.  

Office of Public Affairs, Office of the United States Trade Representative. Facsimile describing the USTR and its functions.

37.  

Subtitle A of Title VII, Section 704 of the Tariff Act of 1930 deals with termination or suspension of investigations involving countervailing duties. Subtitle B of Title VII Section 734 deals with the termination or suspension of investigations involving antidumping duties.

38.  

Title III, Chapter 1, Section 301 of the Trade Act of 1974 (amended) outlines the actions that may be taken by the USTR to enforce U.S. rights under the trade agreement and as a response to certain foreign trade practices.

39.  

U.S. Congress, House. Committee on Ways and Means, Overview and Compilation of U.S. Trade Statutes, 1993 Edition, p. 185-196.

40.  

Ibid.

41.  

In 1993 Annual Report, Office of the United States Trade Representative.

42.  

Office of Intergovernmental Affairs, Office of the United States Trade Representative. Facsimile describing the advisory committee system and its functions.

43.  

Office of United States Trade Representative, 1993 Annual Report . Facsimile transmission of pp. 114-117.

44.  

Ibid.

45.  

For an overview of Section 301, including USTR self-initiation of cases under the statute see: John S. Wilson, The U.S. Government Trade Policy Response to Japanese Competition in Semiconductors: 1982-87.

46.  

John H. Jackson and William J. Davey, Legal Problems of International Economic Relations, p. 804.

47.  

Patrick Low, Trading Free: The GATT and US Trade Policy, p. 94.

48.  

John H. Jackson and William J. Davey, Legal Problems of International Economic Relations, p. 147.

49.  

Patrick Low, Trading Free: The GATT and US Trade Policy, p. 95.

50.  

Data in this section is drawn from Patrick Low, Trading Free: The GATT and US Trade Policy, and from Thomas O. Bayard and Kimberly Ann Elliott, Reciprocity and Retaliation in U.S. Trade Policy.

51.  

The results of this work are cited in a recent analysis of the use of Section 301; Reciprocity and Retaliation in U.S. Trade Policy , Thomas O. Bayard and Kimberly Ann Elliott. For further detail see also, Gary Clyde Hufbauer, Jeffery J. Schott, and Kimberly Ann Elliott, Economic Sanctions Reconsidered.

52.  

Industry and government assessment of the negotiations and outcome are outlined in Reciprocity and Retaliation in U.S. Trade Policy, Thomas O. Bayard and Kimberly Ann Elliott, p. 134-138.

53.  

For an overview of the NAFTA agreement, including reference to standards and conformity assessment issues in NAFTA see; U.S. International Trade Commission, Potential Impact on the U.S. Economy and Selected Industries of the North American Free Trade Agreement. Gary Clyde Hufbauer and Jeffrey J. Schott, NAFTA: An Assessment, among others.

54.  

Clinton, Report to the Congress on Recommendations on Future Free Trade Area Negotiations.

55.  

New European systems also exist for facilitating trade in non-regulated products. The European Organization for Testing and Certification (EOTC) was established in Brussels in 1992. EOTC functions as a focal point for promoting mutual confidence among private-sector conformity assessment systems. It recognizes voluntary "agreement groups" consisting of testing, certification, and accreditation organizations in a range of industry sectors. EOTC has approved participation of non-European organizations in the agreement groups, indicating that the new system is unlikely to present a barrier to U.S. exports. The organization is new, however, and continued monitoring of its

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
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impact on international trade is necessary before conclusions can be drawn. See EOTC, EOTC: Focal Point for Testing & Certification in Europe.

56.  

For a detailed description of European Union harmonized standards and certification procedures for regulated products, see U.S. Department of Commerce, EC Product Standards Under the Internal Market Program and U.S. Department of Commerce, EC Testing and Certification Procedures Under the Internal Market Program.

57.  

For example, U.S. information technology firms were highly concerned in 1994 about a proposed ETSI intellectual property policy. This would have required firms to license their proprietary technology for inclusion in ETSI standards at unfavorable and inflexible terms. Opposition from U.S. firms and government officials persuaded ETSI to revise the policy. Examples of successfully resolved disagreements with CEN are presented in an internal memorandum from ANSI's Brussels office to Manuel Peralta, then ANSI president. The memorandum states in part, "…the CEN responses to the U.S. concerns have been positive and are almost complete. The system is working well in the standardization area. The only pending case studies requiring a response from CEN concern power lawn mowers and toy safety." D. W. Smith, Vice President, ANSI Brussels Office, memorandum, January 8, 1993.

58.  

For a thorough discussion of product regulation and conformity in the EU (formerly, the European Community, or EC), see U.S. Department of Commerce, International Trade Administration, EC Testing and Certification Procedures Under the Internal Market Program.

59.  

For a discussion of the early results of these talks see: Charles M. Ludolph, Mutual Recognition Agreements—Access to the European Union.

60.  

Charles M. Ludolph, Mutual Recognition Agreements, Part III: Summary of Negotiations at Midpoint.

61.  

Richard Schulte, Vice President, AGA Laboratories, personal communication, June 30, 1994.

62.  

See Ludolph, Mutual Recognition Agreements, Part II. For a discussion of specific issues in electromagnetic interference testing, see Bert G. Simson, Conformity Assessment Workshop on Electromagnetic Compatibility , and Retlif Testing Laboratories, U.S./EU Trade Negotiations: EMC Issues.

63.  

For discussion of specific issues arising in the U.S.-EU negotiations, see Ludolph, Mutual Recognition Agreements—Access to the European Union and Ludolph, Mutual Recognition Agreements Part II.

64.  

See, for example, Donald S. C, Deputy U.S. Trade Representative, quoted in Grieco, Cooperation Among Nations: Europe, America, and Non-Tariff Barriers to Trade, p. 194.

65.  

National Institute of Standards and Technology, Establishment of the National Voluntary Conformity Assessment System Evaluation Program, p. 19129-19133.

66.  

Ludolph, Mutual Recognition Agreements—Access to the European Union.

67.  

ANSI, letter to Charles F. Meissner, Assistant Secretary for International Economic Policy, U.S. Department of Commerce, and Richard G. Meier, Deputy Assistant U.S. Trade Representative, April 20, 1994.

68.  

It is important to note that even with the CE Mark, the free flow of goods throughout the European Union has not yet been fully realized. The acceptance of testing and certification performed in the less-developed member states by national authorities elsewhere in Europe is mandated by the European Commission, but does not always, in practice, occur. See Ludolph, Mutual Recognition Agreements; and David Stanger, EOTC.

69.  

For discussion of product liability in the U.S., including sector-specific case studies, see National Academy of Engineering, Product Liability and Innovation. See also Eads and Reuter, Designing Safer Products.

70.  

See, for example, Report on United States Barriers to Trade and Investment, 1994, Services of the European Commission, Section G, "Standards, Testing, Labeling, and Certification, p. 55-60.

Suggested Citation:"4 International Trade." National Research Council. 1995. Standards, Conformity Assessment, and Trade: Into the 21st Century. Washington, DC: The National Academies Press. doi: 10.17226/4921.
×

71.  

NVLAP, National Voluntary Laboratory Accreditation Program, 1994 Directory, U.S. Department of Commerce, Technology Administration, National Institute of Standards and Technology, and American Association for Laboratory Accreditation, A2LA 1994 Directory of Accredited Laboratories.

72.  

Clinton, Report to the Congress on Recommendations on Future Free Trade Area Negotiations.

73.  

Ibid.

74.  

For an overview of possible directions for the APEC forum, including issues of trade facilitation, see Gary Clyde Hufbauer, Whither APEC?

75.  

Achieving the APEC Vision; Free and Open Trade in the Asia Pacific, Asia-Pacific Economic Cooperation.

76.  

APEC Economic Leader's Declaration of Common Resolve, Bogor, Indonesia, November 15, 1994.

77.  

Proposed Declaration on an APEC Standards and Conformance Framework: Submitted by Australia, APEC Committee on Trade and Investment.

78.  

U.S. International Trade Commission, Development Assistance in East Asia, p. 98-99.

79.  

Ibid.

80.  

This section draws, in part, on information presented in interviews conducted with U.S. government officials, affiliates of the U.S. Chamber of Commerce in Jakarta, Indonesia, and representatives of the Indonesian government, including the Dewan Standardisasi Nasional (DSN), Standardization Council of Indonesia, in Jakarta, Indonesia, in August 1994. Personal communications with John Wilson, project director.

81.  

For an overview of recent trade reforms in East Asia, including Indonesia, see: Development in Practice, East Asia's Trade and Investment, Regional and Global Gains from Liberalization, The International Bank for Reconstruction and Development.

82.  

DSN operates under authority of a Presidential Decree of 1984, revised in 1989 to establish Indonesian national standards (Standard Nasional Indonesia, SNI). DSN is the coordinating body through which all standards and metrology organizations establish standards in Indonesia. It works with 2,000 experts from industry and government.

The DSN represents Indonesia as the government members body of the International Organization for Standardization (ISO), the International Electrotechnical Commission (IEC) and represents Indonesia in Codex Alimentarius Commission (CAC). Pusat Standardisasi LIPI operates as the Secretariat of the DSN. It manages Indonesian participation in the activities of ISO and IEC. Technical committees employ experts from government, private institutions, industry, and professional associations.

83.  

Information on the U.S.-Saudi Standards Cooperation Program provided by Gilbert Dwyer, American-Saudi Roundtable, and Edward Wunder, NIST representative to SASO, fact sheets and personal communication, May 16, 1994.

84.  

For example, an independent advisory panel of industry and academic experts reviewed this program in 1993 and recommended that NIST's proposal to expand it be fully funded. See Visiting Committee on Advanced Technology of the National Institute of Standards and Technology, International Standards Issues: A Statement to the Secretary of Commerce, p. 4-6.

85.  

American-Saudi Roundtable, U.S.-Saudi Arabia Standards Cooperation Program, progress report dated December 31, 1993.

86.  

Memorandum by Gilbert Dwyer, American-Saudi Roundtable, U.S.-Saudi Arabia Standards Cooperation Program: Critical Success Factors, March 21, 1994. For an additional example of private standards setting firms assisting in other countries see: Letter of Intent between NSF and The Instituto Mexicano de Tecnologia del Agua, in which the NSF agreed to share through training its expertise and experience in product certification with the ultimate goal of mutual recognition.

87.  

U.S. Congress. House. Department of Commerce Appropriations Act, 1995.

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Mandated standards used for vehicle airbags, International Organization for Standards (ISO) standards adopted for photographic film, de facto standards for computer software--however they arise, standards play a fundamental role in the global marketplace.

Standards, Conformity Assessment, and Trade provides a comprehensive, up-to-date analysis of the link between standards, product testing and certification, and U.S. economic performance. The book includes recommendations for streamlining standards development, increasing the efficiency of product testing and certification, and promoting the success of U.S. exports in world markets.

The volume offers a critical examination of organizations involved in standards and identifies the urgent improvements needed in the U.S. system for conformity assessment, in which adherence to standards is assessed and certified. Among other key issues, the book explores the role of government regulation, laboratory accreditation, and the overlapping of multiple quality standards in product development and manufacturing.

In one of the first treatments of this subject, Standards, Conformity Assessment, and Trade offers a unique and highly valuable analysis of the impact of standards and conformity assessment on global trade.

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