Technical Standards and Trade: A Greater Role for the SDO

Abstract

In 2000, I was asked to prepare a report on The Economics of Standardization for the British government, summarising what was known about the field at that time (Swann, 2000). Ten years later, I was asked to update this (Swann, 2010). This short think piece follows on from those earlier reports. It considers this, purely hypothetical question: if I were to produce another update, what new topics might it cover? A full update would need to consider a long list, but here I focus on just four issues.1) You cannot understand all aspects of the economics of standards if you are too specialised in a limited area of economics. For those working on the economics of innovation, which is my field, standards mostly appear to encourage trade. But for those working on the economics of agriculture or the economics of development, the picture is rather different. We examine two contrasting examples which illustrate why these differences arise.2) Many empirical studies of the effects of standards on trade treat the relationship as something of a black box, and to understand what is going on, we need to open up that box. We give a brief summary of some of the connections to be found in the box. It appears that the number and complexity of linkages has evolved over time, and will probably continue to evolve in future.3) If the standards development organisation (hereafter, SDO) is to develop a full understanding of the economics of standardization, and all the ways in which standards can enhance economic performance, it must involve a wide variety of players. These should include representatives from some the developing countries who can be losers from the process of standardization, and also representatives from various sectors of the economy that have, to date, been absent from the standards table. There is, of course, a substantial gap between the capabilities of some of these new players and the established players in the standards community. Nevertheless, we shall argue that involvement of these new players is good for the standards community as a whole.4) As the variety of players increases, however, the SDO will have to face a problem that is perhaps, at present, just below the surface. Some of the challenges facing the SDOs can be seen as questions of social choice. Given the different preferences of different participants, how can the SDO reach a compromise that is acceptable to all? Arrow's celebrated impossibility theorem tells us that this is not a trivial question. Roughly speaking, the problems of social choice become more significant as the diversity of participant preferences increases.. It seems likely, in particular, that these problems may be more common in the context of mega-regions (TPP and TTIP) and the WTO, than in (say) CEN and CENELEC.