A quick glance at the accelerating technological change over recent years, and the subsequent upheavals, could be enough to make us all fear for the future of the global economy. However, there are good reasons to be hopeful: the rapid changes in today’s interconnected world call for a renewed interest in international standards, making them more important than ever.
Change is nothing new. Nobel laureate Bob Dylan sang that “the times they are a-changin’…” back in 1964. The difference today is the pace of change. In his book, Thank You for Being Late: An Optimist’s Guide to Thriving in the Age of Accelerations, Thomas Friedman sees the world at a turning point. He believes that technology, globalization and climate change are reshaping our institutions – and rapidly. As his subtitle notes, this is an “age of accelerations” and we all need to keep up or risk getting left behind.
Given Friedman’s thinking on “accelerations” in technology and the disruptions it can cause, it is tempting to consider the impact on the “institution of standardization”. First, what is the rightful place of international standards in today’s global economy? Second, does cross-organization collaboration offer any clues about the nature and impact of world trade?
To answer those questions, consider the simple fact that globalization is connecting economies and cultures throughout the world like never before. Globalization is one of Friedman’s forces in the “age of accelerations”. But globalization is meaningless if you don’t have international standards. What does it mean to globalize if you can’t fall back on standards when trading globally?
I put this to Erik Wijkström, Counsellor, Trade and Environment Division of the World Trade Organization (WTO), and Paramita Dasgupta, Practice Manager for Trade & Competitiveness for the Asia Region at World Bank Group, and spoke to them about the impact these changes are having on international standards – and the role of international standards in our economic future.
“Made in the World”
Evidence of the radical changes Friedman describes in his book is all around us, in every part of our lives. Today, companies divide their operations across the world, from the design of the product and manufacturing of components to assembly and marketing, creating international production chains.
More and more products are “Made in the World” rather than “Made in the UK” or “Made in France”. Globalization is connecting economies and cultures worldwide. A car sold in Canada, for example, can be designed in France, with parts from Australia. A pair of pants sold in the United Kingdom can be made from South African cotton by factory workers in Thailand.
The nature of global trade is shifting once again. Wijkström says: “In a world with lower tariffs and lower transportation costs, trade patterns have changed, production has become more fragmented and dispersed; bits and pieces of products are produced in several countries, across several firms, before they come together as a final product for the consumer – a pattern of trade often referred to as global value chains.”
He argues that this trend makes the use of international standards even more important. Compliance with such standards, he says, “provides vital confidence to buyers and sellers along the value chain that inputs are compatible and safe”.
As successes or failures in one place affect people around the globe, this interdependency has profound consequences for international standards. However, the real breakthrough is coming about as their use is gaining traction in global trade.
Wijkström says that standards are so pervasive that explaining their usefulness is often best done by pointing at problems that arise from their absence. For example, plugs that don’t fit, paper jams in printers – or, imagine laptops with different types of ports for flash drives, or credit cards with different dimensions.
Changing patterns in global trade magnify the importance of these issues, he says. “A zero tariff does not help if the product traded does not ‘fit’ with another piece of equipment or component, or if there is a lack of confidence that the product is safe or of sufficient quality.”
Challenges and barriers
However, the picture is not all rosy. While trade liberalization has helped to lower tariffs to international trade, the importance of non-tariff measures in countries around the world has increased. Compared to tariffs, these measures are sometimes less transparent and often have ambiguous effects on trade. Nevertheless, government laws, regulations, policies or practices may be entirely justified – such as those limiting pesticide residues in food (food safety) or toxins in toys (child health). WTO rules strive to reduce as far as possible measures that unnecessarily impede market access while not undermining those that are effective in achieving their public policy objectives.
The recent focus in the WTO’s Committee on Technical Barriers to Trade (or TBT Committee) on how to demonstrate compliance with standards, says Wijkström, “underscores the difficulties with non-tariff barriers”. In practice, he adds, this might be about removing measures that involve too much red tape or time spent waiting at the border (Trade Facilitation Agreement), avoiding duplicative testing requirements (Technical Barriers to Trade Agreement), or ensuring that pesticide residue limits are not set arbitrarily but are based on sound science (Sanitary and Phytosanitary Agreement).
But here’s the thing, Wijkström cautions: an inability to show compliance with requirements in standards and regulations may become a significant hurdle for companies wanting to participate in international trade, effectively “disconnecting” participants from value chains. “The smaller players (developing country SMEs) are particularly vulnerable,” he says; “ for them the cost of compliance or demonstrating conformity – or even simply getting information about requirements in foreign markets – can become disproportionately high”.
To address this problem, the WTO, United Nations Department of Economic and Social Affairs (UN DESA) and International Trade Centre (ITC) have all joined forces and recently launched a new alert facility called ePing aimed at helping stakeholders (government, industry, SMEs, and civil society) keep track of product requirements in foreign markets.
This is also why the WTO advocates the use of international standards. “Indeed, the use of relevant international standards is strongly encouraged in WTO disciplines because they can provide a sound basis for aligning government regulation, and, moreover, they often represent a high degree of consensus on how to deal with specific technical issues in an efficient (and often less trade-restrictive) manner,” Wijkström says.
To understand the new phase of global trade that lies ahead, it’s important first to understand how international standards can help. Paramita Dasgupta says standards are integral to international trade, and trade is a critical component of achieving economic growth.
“Standards build confidence in the quality and safety of traded products (especially those from developing countries) by proving that they adhere to certain requirements, level the playing field on environmental issues, help protect consumers from harmful practices, and help small and medium enterprises compete internationally by spreading technology and best practices.”
The shifting tectonics of the modern economy make a clear case for the important role that international standards can play in driving sustainable and inclusive development, tackling inequality and helping to address some of the biggest social and environmental challenges targeted by the United Nations’ Sustainable Development Goals (SDGs).
Dasgupta says the international community has pledged to tackle market access barriers in a sustained and systematic fashion. For example, SDG 17 on strengthening the global partnership for sustainable development includes a commitment to increase the exports of developing countries and to enhance market access for exports from least-developed countries. As it happens, she adds, some of the SDG 17 targets related to trade entail or presuppose the completion of the WTO’s Doha Development Agenda, a round of trade negotiations that seek to improve market access for exports from developing countries as one of the main objectives.
Using international standards in shaping our response to the SDGs in our interconnected economy could prove to be the best decision the world has ever made. In particular, if the international collaboration on the SDGs bears fruit, the most marginal members of society will be rewarded. The success will be a win-win for all.
The importance of standards adoption across many dimensions is well known, says Dasgupta. “International standards have a big impact in that they support sustainable economic growth, help to provide good regulatory practice, and promote open international trade by reducing technical barriers – all of which are top priorities for the World Bank Group.”
She goes on to say that, in our fast-changing world, including that of standards, partnerships are essential for organizations like ISO to adapt to market access challenges. “The World Bank Group’s partnership with ISO is an excellent example: it gives our clients access to ISO’s technical expertise. Our joint priorities include analytical activities, technical assistance, joint training and events,” she says.
The World Bank Group also believes that private-sector collaboration is central to the standards agenda. There is a shift underway in how development partners design and implement activities to help developing country firms use standards to participate in trade. There is now a recognition that public-private partnership is no longer an option – it is essential.
Of course, a world with barriers-to-trade deals does not mean the end of trade. Instead, as Dasgupta points out, this calls for new alliances across institutions and international collaborations. Converting the promising world agenda into actual accomplishment will require the world to move forward. In other words, success will require partnerships.
We are all beneficiaries of open, fair trade. We are all beneficiaries of international standards, key to economic growth and sustainable development in a world bound ever closely together. We do not live in a perfect world; but we do live in a perfectible one. History shows that, over the long run, we have collectively made progress – and change – work.
Together, we can reduce trade barriers and create a more stable and transparent trading and investment environment, and so effect real change for our people and the world. International standards will be a growing factor in our economic future. So, let’s work together to keep up, or be left behind…