ISO Week in China - International Standards Supporting the Trade and Development Agenda

Statement by Mr. Joakim Reiter, Deputy Secretary General

 

Excellencies,
Ladies and gentlemen,


Good morning.
 
It is my great pleasure to be with you today and to initiate the discussion on the role of international standards in supporting the trade and development agenda.

I have spent the last 12-15 years of my career on various aspects of the relationship between standards and trade. So what I intend to do here is to paint, with a broad brush, how I see this relationship and how, in my view, the standards and trade communities can enhance cooperation.


Ladies and Gentlemen,

To understand the role of international standards for trade, one needs to first understand the evolution of trade.

Notwithstanding the financial crisis and the ongoing anti-trade rhetoric in some quarters, the unprecedented expansion of global trade, and its change in composition and geography, is one of the remarkable success stories of the last four-five decades.

First, the simple fact is that we have never traded as much as we do today.  In little more than four decades, from 1970 to 2014, trade as a percentage of world gross domestic product (GDP) went from less than 10% to almost 25%. Trade growth, simply put, far outpaced GDP growth, solidifying trade as a key engine for prosperity and development. And you can see the prevalence of global trade by thinking about what you have with you today- from your outfits to your electronic gadgets, most things have not been produced in the country where you live.

Second, we have never been as many as we are today in the global trading system. We have witnessed a phenomenal increased in the participation of developing countries. Five decades ago, developing and transition economies accounted for less than a quarter of global trade. Today, they account for nearly half of all trade. Developing Asia has been consolidated as a powerhouse of global trade, with a share of 36% of the world total. Moreover, since 2008, developing countries export more to each other than to developed countries. And, even the least developed countries have seen an almost fivefold increase in their exports of goods.

Third, we have never before had such a complex - indeed integrated - web of cross-border trade. Two centuries ago, to paraphrase David Ricardo - the father of modern trade theory - the English could afford drinking good wine because of their capacity to process wool, whereas the Portuguese could get good clothes thanks to their wine-making. Today, products are increasingly made in the world, in multiple locations, within a closely knitted web of production and value-chains. As much as up to 80% of world trade is today connected to regional and global value-chains. As a result, one of the fastest growing segments of world trade has been trade in intermediate goods, which has been estimated to be around 65% of all goods traded.

This change in the magnitude and patterns of global trade has also had a profound social impact. Trade has been a key enabler for the massive reduction of poverty globally. Nearly 1 billion people have been lifted out of poverty in the last 20 years.

There are many factors behind the remarkable story of trade in the last half a century. But a few have stood out in the economic debate: significant steps towards increased openness through tariff liberalization and vast improvements in technology and transport systems, such as through ICT revolution and containerisation.

These two factors are well-known. But they do not present the whole story. Despite hardly ever being mentioned, international standards are - in my view - the third key driver behind the immense success story of trade.

The growth in international standards has been key to enable firms to outsource, or even offshore, specific tasks in the production chain: first to local subcontractors, then by setting up subsidiaries abroad and thereafter through international subcontracting. International standardization implies a common language and a common basis of trust among producers, and between producers and consumers. This allows more arms-length relations between different operators.  And this has facilitated the delocalization of production to developing countries and the expansion of global or regional value chains. As a consequence, the growing importance of international standards has contributed to the industrialization and emergence of many developing countries, like the so-called Asian Tigers, China and Mexico, to mention a few. And, for this reason, I am equally convinced that international standards will remain critical catalyst for future trade and investments, and global economic recovery.

However, this fact begs the question: why has this essential role of international standards, generally, been underestimated? After all, to underestimate the impact of international standards can have important consequences on our ability to understand trade and to positively influence future improvements in trade and development. In the absence of proper assessments of the positive trade effects of international standards, we risk leaving policy makers underutilizing a powerful channel to foster more and better trade.  This is something we can, and must, change.

But where is the problem?

One key answer is, in my view, the persistent lack of data. We, simply put, have not been good enough in calculating the economic and trade impact of international standards. Whereas trade policy-makers are able to compute the benefits from reforms of customs, from tariff reductions or from attracting investments, they still are largely in the dark on how much benefits they can derive from adopting international standards. And, as is often said: if it cannot be counted, it does not count.

We need to be able attribute appropriate value to international standards in order for standardization to be given its rightful attention by national policy-makers. This, in my view, is an area where ISO and UNCTAD can and should work together, so as to void this data gap, so that proper cost-benefit analyses can be undertaken to better inform policy makers.

Better information on the value of international standards can also contribute to navigate the next frontier of trade policy: regulatory measures or Non-Tariff Measures - NTMs, as we call them.

As I mentioned yesterday already, we see a continuous rise in regulatory measures world wide. A rise that is only likely to accelerate with SDGs. Also, there is a growing political push for regional regulatory cooperation and demand for enhanced regulatory "space" (i.e. right to regulate) in some countries, as illustrated in recent TTIP debates.

Already today, regulatory measures are very prevalent in today's trade. For instance, currently, Sanitary and Phytosanitary measures cover more than 60% of trade in agriculture, and Technical Barriers to Trade cover almost 70% of world trade.

Of course, regulations can be a good thing and, by and large, it is unavoidable as our societies mature -- and get more heavily regulated.

But regulatory measures are not inherently trade neutral.

For example, we have found that eliminating the trade effects of regulatory measures in G20 countries on Least Developed Countries would boost their exports to G20 by 15%.  Similarly, according to our calculations, these measures applied by the G20 countries reduce LDC exports by $23 billion - more than twice the effect of current tariffs.

Ultimately, the implications of regulations on trade depend on the type of measures, how they were adopted and the extent to which they took into account potential effects on third countries. Regulations based on divergent national standards fragment trade. For instance, according to some estimates, the divergence from ISO standards in the EU leads to trade losses of 40-50% for African textile and clothing exporters.

In contrast, regulations based on international standards should, in principle, facilitate trade. Our continued interconnectedness requires international standards and their application in a national setting. The adoption of international standards will bring the additional costs of exporting to another country to zero or to a minimal level.

This holds true also on a regional basis. Regional integration and regional regulatory cooperation is another significant frontier of trade policy, where much of today's political and policy attention is focused. And the question of international standards is equally relevant here.

In fact, a recent UNCTAD study on regulatory convergence in MERCOSUR showed that welfare gains from regulatory cooperation based on international standards would almost bring twice as large gains as compared to regulatory convergence based a regional standards. Strikingly, the welfare gains would also be far higher for the MERCOSUR countries if its key trading partners, such as the EU, simultaneously converged to international standards.

So what conclusions do these findings imply for trade policy-makers?

First, to promote trade, we need to overcome divergences in standards and regulations. Second, while regulatory convergence is important, it makes much more sense to converge - at a regional level - on the basis of the international standards. And, third, in parallel with promoting regional convergence, it makes a lot of sense to invest in promoting the up-take of international standards by other key trading partners. 

While my example was on Mercosur, these findings also holds true for other developing countries and regions. By applying international standards, these regions and countries could vastly improve the chance of effectively integrating into global trade and attract foreign investment within value chains. This is key for development today and for making use of trade as engine for prosperity.

However, there is an additional conclusion that has to be drawn. Complying with international standards is neither cheap nor automatic: it requires human and financial resources. The poorest nations and their producers are not only the ones more negatively affected by regulatory divergence globally, they are also the ones who are less able to comply with international standards. They need support. And their voice must be heard in standardization. Clearly, this is a shared interest of both the standards and trade communities. Within the trade policy community, we have ample experience of dealing with such challenges in areas ranging from trade facilitation and customs to intellectual property. We also have significant trade-related technical assistance and capacity building available. Some of these experiences, and instruments, could be exploited to the mutual benefit of international standards and trade of developing countries.

Ladies and Gentlemen,

International standards are a cost-effective way for governments and the private sector to boost trade and development.

That we know.

But what is also clear is that more should be done in this area. Specifically, we need to do more to ensure that international standards play their rightful place in the trade and development agenda. And we, UNCTAD and ISO, can do something about it. 

From a trade-policy perspective, to summarize, I would like to identify three priority actions and allow me to concur, but also build upon, the very powerful point of the World Bank on Sunday on the fact that international standards are the passport for global trade:

1. We need to collect better data on the positive effects of international standards on trade and development. We need to be able to estimate the size of the benefits of this passport. This will enable policy makers to take the right choices when it comes down to supporting the adoption of global standards; 
   
2. We need to make better use of international standards to better navigate in the new frontiers of trade policy, such as the growing importance of non-tariff or regulatory measures for trade and the promotion of regional integration through regulatory convergence. In the end, the value of the international standards' passport can be undermined by a growing number of mandatory, and at times restrictive, national visa requirements; and
   
3. We need to better assist developing countries, particularly the poorest nations in the world, so they can more effectively participate in developing, and comply with, international standards - and, thereby, improve their integration in global trade and investment. It must be a key objective that all have affordable and effective access to the issuance of passports.

These are not minor tasks. The trade and the standards communities will have to come together to address these challenges. It is the right time to do so. And this is the right venue to start.

Thank you very much.