Planning Report 04-3

Measuring Economic

Effects of Technical

Barriers to Trade on 

U.S. Exporters

Prepared by:

RAND Science and Technology

for

National Institute of

Standards & Technology

Program Office

August 2004

U.S Department of Commerce

Technology Administration

RAND is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. 

RAND’s publications do not necessarily reflect the opinions or policies of its research sponsors. 

Measuring Economic Effects 

of Technical Barriers to 

Trade on U.S. Exporters 

Steven W. Popper, Victoria Greenfield, 

 Keith Crane, and Rehan Malik 

DRR-3083-5-NIST 

August 2004 

Prepared for: National Institute of Standards and Technology 

RAND Science and Technology 
 ii
 iii

PREFACE 

As international agreements have brought down traditional barriers 

to trade, such as tariffs, concern has grown about the possible economic 

effects of technical barriers to trade (TBTs). While there exists an 

international Agreement on Technical Barriers to Trade, definitions of 

what constitute TBTs tend to be amorphous and can be difficult to apply 

in practice. In addition, there is no established methodology for 

evaluating the economic effects of TBTs. 

RAND undertook a study for the National Institute of Standards and 

Technology on the economic effects of TBTs. This document provides a 

definitional foundation for the analysis, presents results from 

preliminary assessments of the pharmaceutical and automotive industries, 

reviews the current state of measurement methodologies, and develops and 

applies a framework for estimating the costs of TBTs to U.S. exporters. 

The document should be of interest to individuals engaged in 

collecting information on TBTs for government or industry purposes, 

economists interested in issues of international trade, current and 

potential U.S. exporters, and to anyone interested in evaluating the 

economic costs of TBTs. 

This study is being performed under the auspices of RAND Science 

and Technology (S&T). RAND S&T conducts research and analysis that 

helps government and corporate decisionmakers address opportunities and 

challenges created by scientific innovation and rapid technological 

change. Our work stretches from emerging energy technologies to global 

environmental change to still other endeavors seeking a better 

understanding of the nation’s scientific enterprise and how best to 

nurture it. Focal points of RAND S&T work include energy, the 

environment, information technology, aerospace issues, technology and 

economic development, bioethics, advanced materials, and “critical” 

technologies for industries and occupations. 

RAND S&T serves a variety of clients, including federal, state, and 

local government agencies, foreign governments, foundations, and private 

organizations. Our team has a wide range of expertise and includes 
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physicists and geophysicists; chemists and geochemists; electrical, 

chemical, mechanical, and information technology engineers; biological 

and environmental scientists; and economists and other social 

scientists. 

Inquiries regarding RAND Science and Technology may be directed to: 

Stephen Rattien 

Director 

RAND Science and Technology 

1200 South Hayes Street 

Arlington, VA 22202-5050 

Phone: (703) 413-1100 x5219 

Email: stinfo@rand.org

RAND Science and Technology Web site: http://www.rand.org/scitech 

 
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CONTENTS 

Preface..............................................................iii

Figures..............................................................vii

Tables................................................................ix

Summary...............................................................xi

Abbreviations and Acronyms..........................................xxii

I. The Nature and Problems of Technical Barriers to Trade.............1

Purpose of the Study.............................................1

The Rise of the Technical Barriers to Trade Issue................2

Outline of this Report...........................................5

II. What Do We Know About TBTs and What Must be Learned?..............9

The WTO Agreement on Technical Barriers to Trade.................9

What are TBTs?..................................................11

If it Looks Like a Duck...........................................17

III. TBTs and the U.S. Pharmaceuticals Industry......................21

Introduction....................................................21

The U.S. Pharmaceutical Industry and Pharmaceutical Exports.....22

Pharmaceutical Industry Regulations and Standards and 

Potential TBTs .............................................25

Regional Perspective on TBTs in Pharmaceuticals.................40

Conclusions.....................................................52

IV. TBTs and the U.S. Automotive Industry.............................59

Introduction....................................................59

The U.S. and Global Automotive Industries.......................60

Regulations in the Automotive Industry..........................63

Standards in the Automotive Industry............................71

Conformity Assessment Procedures................................73

Does the North American-UNECE Divide create TBTs?...............75

Technical Measures with TBT-like Characteristics in the 

Automotive Sector ..........................................78

Conclusions.....................................................88

V. The Current State of Metrics and Measures.........................91

Potential Economic Effects......................................92

Approaches to Modeling and Measurement..........................97

Summary and Conclusions........................................107

VI. A Methodology for Measuring the Economic Effects of TBTs........111

Key Determinants of Losses.....................................114

Estimating the Upper Bound.....................................120

Applying the Methodology to an Automotive Components Example...131

Summary and Conclusion.........................................139

VII. Conclusions and Recommendations.................................141

Findings from the Reconaissance study..........................141

Recommendations for Further Research...........................144
 vi

Appendix A. Definitions in the TBT Agreement........................149

Appendix B. Annotated Bibliography on TBTs..........................153

1. Measurement and Modeling....................................153

2. Case Studies................................................155

Appendix C. Running Inventory of Existing Databases on TBTs.........157

1. UNCTAD-Trains...............................................157

2. EU Market Access Database...................................158

3. PERINORM....................................................158

4. United States Trade Representative (USTR)...................159

5. Foreign Agricultural Service (FAS), United States 

Department of Agriculture .................................159

Appendix D. Interviewees and Contacts...............................161

Bibliography.........................................................165
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FIGURES 

Figure 4.1-NAFTA’s Share in U.S. Exports of Automotive Products...... 76

Figure 6.1-Hypothetical Time Path for One-Time and Recurring Costs.. 117

Figures 6.2a and 6.2b-Deriving Export Supply........................ 124

Figure 6.3-Illustrating Variable Cost Effects....................... 126

Figure 6.4-Over-Estimating Recurring Losses......................... 129

Figure 6.5-Measuring the Effects of Exiting the Market.............. 130

Figure 6.6-Measuring Recurring Costs in the Example................. 136

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TABLES 

Table 3.1: Patterns of TBT-like Measures in Pharmaceuticals......... 56

Table 4.1: Value of U.S. Automotive Industry Shipments in 2001...... 60

Table 4.2: U.S. Automotive Industry Exports in 2002................. 63

Table 4.3: Instances of TBT-like Measures in the Automotive Sector.. 88

Table 5.1: Approaches to Modeling and Measuring TBTs................ 109

Table 6.1: Results of One-Third-Market Share Analysis for Potential 

Effects of a TBT on Aftermarket Wheels Exports to Mexico ........ 138

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SUMMARY 

The research documented in this report explores means for 

determining the economic costs to U.S. exporters of technical barriers 

to trade (TBTs). Though TBTs – and allegations of TBTs – have grown 

more common as other tariff and non-tariff barriers to trade have 

decreased, the issues surrounding them are complex enough to make 

analysis a difficult task. The project we conducted was intended to 

provide a foundation for further development and exploitation. 

TBTs arise from the intersection of two interests. Governments 

pass laws, issue regulations, and enforce measures for assuring 

compliance with these laws and regulations in order to pursue a variety 

of goals related to public welfare. Industries agree to sets of 

standards that facilitate the integration of products into networks and 

production processes, thereby increasing economic efficiency. These 

standards may also serve to help consumers to compare products and to 

assure them concerning product quality. 

Yet, technical regulations, standards, and conformity assessment 

procedures (we refer to these collectively as “technical measures”) may 

also affect international trade. The existence of technical measures 

could enhance the flow of goods by providing reassurance to potential 

foreign purchasers. More frequently, technical measures create 

additional hurdles for current and potential exporters to overcome by 

raising the costs of producing export-oriented goods. To the extent 

that such a measure or its application discriminates against foreign 

producers or is more trade restrictive than needed to fulfill a 

legitimate policy objective, it may constitute a TBT. 

All members of the World Trade Organization (WTO) are bound by an 

Agreement on Technical Barriers to Trade. That agreement tries to 

ensure that technical measures do not create unnecessary obstacles to 

trade. However, it can be difficult to show conclusively that such 

technical measures are indeed discriminatory or not legitimately 

founded. The difficulty of assessing whether a technical measure is a 
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TBT underscores the need for more information and data on the role of 

technical measures in international trade, and for analytical tools to 

interpret those data. 

This report presents results from a project intended to determine 

where such information lies, how it might be acquired, and how this 

information might be used to evaluate and estimate the economic effects 

of TBTs. It provides a definitional context and proposes criteria for 

identifying TBT-like practices. It also presents preliminary 

assessments of technical measures that may act as TBTs in two important 

U.S. export industries: pharmaceuticals and automotive products. These 

industry assessments seek evidence of TBT-like practices by relating the 

proposed criteria to allegations of questionable technical measures. 

The report then reviews the current state of practice in measuring the 

potential effects of TBT-like practices. We conclude by developing and 

applying a framework designed to calculate the upper bound costs to U.S. 

exporters resulting from an alleged TBT while also seeking to isolate 

the TBT effect from the wider assortment of effects usually included in 

other measuring systems. 

DEFINITIONS 

The WTO Agreement on Technical Barriers to Trade (the “Agreement”) 

does not define “TBTs” per se. Rather, it defines acceptable behavior 

and specifies that technical measures must be applied in a nondiscriminatory fashion. It recognizes the legitimacy of trade-affecting 

technical measures in some instances and sets ground rules for 

establishing and maintaining them. The TBT Agreement allows for 

diversity: members are encouraged, but not required to adopt 

international standards. The emphasis of the Agreement is on 

appropriate preparation, adoption, and application of regulations and 

standards and avoidance of unnecessary obstacles to trade. Unlike its 

companion WTO Agreement on the Application of Sanitary and Phytosanitary 

Measures, the TBT Agreement treats so-called “sound science” as an 

element for consideration, but not a fundamental basis for establishing 

policy. The absence of more rigorous requirements for risk assessment 
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under the TBT Agreement leaves considerable room for maneuver in 

determining the acceptability of regulations, standards, and conformity 

assessment procedures, including necessity. 

To develop a practical definition of TBTs, we first limit the 

analysis to policy measures that fall under the purview of the TBT 

Agreement. Second, a TBT only exists or arises when a country’s 

behavior is or becomes inconsistent with the terms of the TBT Agreement, 

e.g., if a technical regulation is discriminatory, if it is prepared, 

adopted or applied with a view to or with the effect of creating an 

unnecessary obstacle to international trade, or if it is more traderestrictive than necessary. 

In practice, it is often difficult to discern WTO-inconsistency. 

We can work toward developing a “checklist” to aid in TBT 

identification. The literature on TBTs suggests a set of questions: 

• Is the measure or its enforcement purely cost-raising? 

• Is the measure set at a level that is stronger than required 

to achieve a policy objective? 

• Does the measure increase the profitability of domestic 

producers at the expense of foreign producers? 

• Is a measure discriminatory in application or effect between 

domestic and foreign firms with respect to market access? 

• Is the measure more disruptive to trade than other 

potentially available policy options? 

• Does the measure mandate excessive caution in relation to 

reliable scientific measures of risk? 

Alternatively, we may pose a series of outcome- and context-based 

questions: 

• Is there a legitimate and defensible rationale for preparing, 

adopting and applying standards, conformity assessment 

procedures or technical regulations that are not based on 

international standards, recommendations and guides? 
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• Does the technical regulation, standard, or conformity 

assessment procedure apply equally to all suppliers 

regardless of national origin? 

• Was the measure introduced after imports began to take an 

appreciable share of the local market? 

• Were there domestic pressures or sources of influence leading 

to adoption of the regulation? 

• Are the standards, conformity assessment procedures, or 

technical regulations unduly onerous with no opportunity for 

graduated application (e.g., take effect only above a 

reasonable number of units sold)? 

• Is the net effect of the technical regulation, conformity 

assessment procedure or standard to prevent foreign entrants 

into a national market? 

If the answers to several of these questions are affirmative, there 

is likely to be reason to engage in a more detailed investigation of 

whether the measure is having a deleterious effect on trade. 

TWO INDUSTRIES: PHARMACEUTICALS AND AUTOMOTIVE PRODUCTS 

Pharmaceutical Industry 

The pharmaceutical industry by nature of its structure and output 

presents many preconditions for the emergence of TBTs. It is truly a 

global industry but one where governments also have a stake in having a 

large measure of local control. It is among the most highly regulated 

industries in all countries and the variety of its product offerings is 

great, making regulations truly complex. It produces high value added 

goods in much demand, hence a desire by others to obtain some portion of 

the resulting value stream for themselves. And because its products are 

all directed toward health, with attendant concerns about safety, the 

issue of defining regulatory legitimacy is far from easy. 

A number of regulations and conformity assessment procedures in 

this industry have TBT-like characteristics. In particular, a number of 
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countries write regulations in such a manner that they appear to 

discriminate against innovative pharmaceuticals, an area in which the 

United States has a comparative advantage. In a number of instances, 

domestic manufacturers of pharmaceuticals, especially of generics, faced 

much less onerous regulatory approval procedures than importers of 

innovative drugs manufactured in the United States. In some countries, 

the speed of approval varies greatly between imported and domestically 

produced drugs. As many imported drugs are patented and patents have a 

limited life, speed of approval has a substantial impact on total export 

revenues over the life of the patent. In a number of countries, 

inspection procedures, requirements to test each lot imported, 

discriminatory requirements in terms of certification documentation and 

other conformity assessment procedures show characteristics of TBTs. 

Automotive Industry 

Although imports of automotive products usually get more media 

attention, in 2002 total automotive exports ran $76.5 billion or 11.2 

percent or total U.S. exports. 

There do appear to be a number of regulations in actual and 

potential U.S. automotive export markets that display TBT-like 

characteristics. Instances of possible product-related TBTs tend to be 

confined to medium-income developing countries with domestic automotive 

industries. By adopting their own regulations in whole or in part they 

make it more difficult for exports to penetrate domestic markets. 

Regulations with TBT-like characteristics affecting processes were 

most common in the repair and service sector. Both Japan and Turkey 

have had regulations concerning repair services that seem unduly onerous 

for the public policy goals that they desire to achieve. A new 

potential source of TBTs may emerge from regulations on recycling in the 

EU. These regulations seem overly prescriptive. 

Conformity assessment procedures seem to be the most numerous and 

tend to be the most widespread of potential TBTs to U.S. automotive 

exports. In some countries, an unholy alliance of customs officials and 

“private” certification and testing bodies has succeeded in creating 

conformity assessment procedures that are arbitrary and costly. 
 xvi

Trade in automotive products is an area where the U.S. Government 

will continue to find it useful to examine and monitor foreign 

regulations, standards, and conformity assessment procedures to ensure 

that they do not violate the TBT agreement. 

METRICS AND MEASURES 

To the extent that the pharmaceutical, automotive products, or any 

other industry presents evidence of TBT-like practices, the findings 

lead naturally to concern about effects. Quantifying the effects of 

TBTs poses significant challenges owing to both theoretical complexity 

and data scarcity. In the absence of a definitive approach to 

measurement, the choice of analytical framework may be driven in part by 

the underlying policy question. 

A full reckoning would require a careful inspection of the positive 

and negative sides of the ledger to arrive at an overall assessment of 

the net effect of the measure on the economic well being or “welfare” of 

all market participants. A trade-affecting rule may impart effects 

through a simple shift of an exporter’s cost curve, but it may also have 

broader market implications by altering the structure of domestic supply 

or demand. 

A TBT may also convey some of the benefits associated with 

regulations and standards in general. For example, it may provide 

information or remove a safety hazard. But a strictly trade-oriented 

analysis would evaluate the effects of TBTs on costs, prices, and 

quantities, without consideration of the broader welfare implications; 

it might also evaluate the effects on a discrete subset of market 

participants, such as exporters. 

However, even a narrow analysis entails complexities. The effects 

of TBTs can vary over time. For example, manufacturers incur a “onetime” cost when they retool production lines to meet the requirements of 

a new foreign regulation. They incur “recurring” costs when they 

certify each shipment’s conformance with the regulation. 
 xvii

The literature describes four classes of empirical methodologies to 

help assess the effects of TBTs. We discuss these to better explain our 

eventual choice of approach: 

Econometric analyses. Econometric models typically seek to explain 

trade flows in terms of available data on variables identified as 

important. Econometric approaches can provide insight into the broad 

relationships between technical measures and trade flows. The results 

of an econometric model can provide inputs to other types of analyses. 

However, the variables used in econometric analyses may be very crude. 

For example, some studies use the number of standards or regulations in 

a country as explanatory variables in econometric equations with no 

regard to the purpose or importance of the measure. 

Partial equilibrium approaches. Partial equilibrium (PE) 

approaches can incorporate various effects, both positive and negative, 

to assess the net effects of particular technical measures on trade or 

welfare more generally. They rely on microeconomic representations of 

supply and demand in a specific industry or sector. They are “partial” 

in the sense that they do not capture spillover effects between sectors. 

But again, the requisite data may be hard to come by. 

Computable general equilibrium (CGE) approaches. CGE approaches 

also hold the potential for incorporating positive and negative effects. 

Additionally, they can capture interactions across all sectors of an 

economy. However, they typically lack the capacity to accommodate the 

necessary details for industry-based, case study analyses. 

Surveys. Descriptive statistics compiled via surveys can help fill 

information gaps, identify “diffuse” barriers, and provide insight into 

real-world issues. As in the case of an econometric analysis, they can 

provide data to inform other methodologies. They suffer from potential 

bias if firms think they may be able to influence government actions 

through the information they provide. 

A FRAMEWORK FOR ASSESSING COSTS TO U.S. EXPORTERS 

Drawing on the foregoing reviews of definitions, industry findings, 

and measurement methods, we develop and implement a trade-oriented PE 
 xviii

framework for assessing the costs of TBTs to U.S. exporters. As a 

foundation effort designed to be refined in later work, we sought first 

to provide an upper bound to the potential economic cost to U.S 

exporters while making certain we were measuring solely the effects from 

TBTs. The approach can be applied to any one of a number of industries, 

but it is intended for evaluating the effects of individual TBTs rather 

than aggregate effects. 

The approach focuses on the additional cost to U.S. exporters, 

defining “additional” as the differential element or the part of the 

cost that applies only to producers residing outside the TBT-affected 

country. The approach does not account for the broader welfare 

implications of the TBT nor do we consider any of the potential benefits 

that a TBT could generate. 

The approach is deliberately designed to emphasize accuracy and 

ease of practical application. As such, it requires relatively simple 

calculations using information on prices, quantities, and direct 

compliance costs along with some insight into manufacturers’ 

responsiveness to changes in market prices. It carefully distinguishes 

between “one-time” and “recurring” costs and their different effects on 

firms’ production and export decisions. 

We use the approach to identify the upper bound on the costs to 

U.S. exporters, who may, in a limited set of circumstances, face a 

“worst-case” choice between the less costly of two options: (1) 

absorbing the full cost of a TBT, such as the costs of developing and 

implementing a new conformity assessment procedure or (2) pulling out of 

or never entering a TBT-affected market, absent a viable alternative. 

We estimate the costs – or losses – associated with both options. In 

this case, the upper bound is the lesser of the two. We conclude with a 

quantitative illustration by applying the methodology to an example from 

the automotive components industry. 

CONCLUSIONS AND RECOMMENDATIONS 

We found that federal agencies already gather a substantial amount 

of data on TBTs, some of which is readily available in extant databases. 
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Further, we did not find any especially helpful formal databases outside 

the governmental domain. In the two industries we examined we found no 

evidence of formal data gathering or collation on a comprehensive basis. 

Rather than attempt to collect new information -- likely to be of the 

same character as the government already collects -- it would be better 

for the appropriate federal agencies to use existing federal databases 

coupled with interviews with industry and government representatives to 

monitor foreign technical measures that may serve as TBTs. 

Based on the availability of existing data and discussions with 

industry representatives, we have concluded that at this time 

independent surveys of industry and attempts to collate the responses 

into a new data facility are unlikely to be sufficiently fruitful to 

justify the requisite expenditures. The value of data collection 

efforts already underway in federal agencies could potentially be 

increased by providing technical guidance on the types of information 

necessary to identify and gauge the magnitude of alleged TBTs and 

providing a mechanism for assessing what this information means. 

The project team was asked to provide recommendations resulting 

from the initial excursion represented by this project. Based on the 

results of the research conducted to date, we believe that implementing 

the following recommendations for continuing the research in any future 

project would provide the most additional value for NIST. 

Recommendation 1: Consider the Experience of Other Industries 

We recommend broadening the scope of the sectoral studies of 

specific U.S. industries to provide a more comprehensive overview of the 

prevalence and types of TBTs that cause the most concern and potential 

costs. This will provide better support for any results being viewed as 

representative. It is also an important step for attempting to provide 

an informed and authoritative estimate of aggregate costs. We suggest 

the following industries as worthy of attention: 

• Electronics 

• Electrical engineering 

• Mechanical engineering 
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Recommendation 2: Build Upon Foundation Methodology 

We recommend refining the methodology developed in this research to 

enhance its applicability to a wide range of sectors and ensure its 

fidelity for illuminating TBT effects within individual markets. This 

would involve a targeted search for the data necessary for generating 

approximations of TBT-related costs to U.S. exporters. 

Recommendation 3: Explore Aggregation -- Cautiously 

We recommend exploring the possibilities for aggregation in 

determining overall costs to U.S. exporters of TBTs – with a 

qualification. The goal would be to gain a better approximation of the 

costs faced by U.S. exporters across industrial sectors. Yet, attempts 

to do so must not reintroduce the fundamental theoretical and practical 

confusions this study has sought to surmount. The methodology we 

developed to calculate upper bounds costs of individual TBTs could not 

simply be “grossed up”. A well-reasoned redrafting would be required. 

In our two cases, automotive and pharmaceuticals, for the former 

there do appear to be grounds for claiming the existence of some TBTlike practices. The tasks of assessing where they lie and what they may 

cost U.S. exporters appear relatively straightforward. The 

pharmaceuticals industry, however, presents a richer variety of 

instances of alleged TBTs posing different kinds of analytical 

challenges. This provides two opposing guesses about what would be 

involved in an aggregation strategy for approximating TBT costs to U.S. 

exporters across sectors. 

Recommendation 4: Embody TBT Knowledge in a User-Friendly Software Tool 

We recommend encapsulating the knowledge gained in this research in 

a form that will provide an infratechnology for use by NIST and other 

federal agencies to provide an overarching framework within which to 

place such information, inform its collection, and suggest avenues for 

utilization. We propose creating an Excel-based software tool based 

upon the methodology to be further developed for calculating the bounds 

of possible costs stemming from any particular suspected or alleged TBT. 
 xxi

The goal is to provide for enhanced automaticity in assessment based on 

question-driven user protocols. 
 xxii

ABBREVIATIONS AND ACRONYMS 

Symbol 

CA 

CGE 

DSB 

DSU 

ELV 

EP 

EPA 

EU 

FDA 

GATT 

ICH 

IPR 

IT 

ISO 

MRA 

NAFTA 

NHTSA 

NIST 

NGO 

NTAA 

NTB 

OEM 

PE 

PhRMA 

SPS 

TBT 

TRIPS 

UNECE 

USCAR 

USTR 

WTO 

Definition 

Conformity Assessment 

Computable general equilibrium 

Dispute Settlement Body 

Dispute Settlement Understanding 

End-of-Life [motor] Vehicle 

European Pharmacopoeia 

United States Environmental Protection Agency 

European Union 

United States Food and Drug Administration 

General Agreement on Tariffs and Trade 

International Conference on Harmonization of Technical 

 Requirements for Registration of Pharmaceuticals for Human Use

Intellectual property rights 

Information technology 

International Organization for Standardization 

Mutual recognition agreement 

North America Free Trade Agreement 

National Highway Traffic Safety Agency 

National Institute of Standards and Technology 

Non-governmental organization 

National Technology Transfer and Advancement Act 

Non-tariff barrier 

Original Equipment Manufacturer 

Partial equilibrium 

Pharmaceutical Research and Manufacturers of America 

Sanitary and phytosanitary 

Technical barrier to trade 

Trade Related Intellectual Property Agreement 

United Nations Economic Commission for Europe 

United States Council for Automotive Research 

United States Trade Representative 

World Trade Organization 
 1

I. THE NATURE AND PROBLEMS OF TECHNICAL BARRIERS TO TRADE 

“The requirement announced [by Taiwan] in May 2001 to supply 

significant quantities of proprietary manufacturing 

(‘validation’) data as part of approval does not follow 

internationally accepted practice in this area....The 

requirements also treat local manufacturing in a different, 

more favorable, less onerous manner than foreign producers. 

...Implementation of this requirement...[will] require every 

company to submit a minimum 50,000 pages of data per 

manufacturing facility per product. . . . Furthermore, and of 

particular concern, the ... sensitive, proprietary information 

will be reviewed by a third party . . . and as such protection 

of intellectual property becomes a concern for the industry. 

Failure to comply with this requirement will result in a 

product be[ing] removed from the market. . .”1

PURPOSE OF THE STUDY 

In a world where much is changing, one of the most visible arenas 

of change is trade among nations. The interest in trade policy has 

spread beyond the ranks of government officials and industry. Issues 

related to trade and its subsequent effects on economies, societies and 

cultures can literally bring people into the streets and create 

confrontations both political and, at times, physical. 

This report is the result of a study undertaken for the National 

Institute of Standards and Technology (NIST) to examine one aspect of 

contemporary international trade, namely the role of so-called technical 

barriers to trade (TBTs). The research project was designed to assist 

NIST in its role of developing and disseminating infrastructural 

knowledge and technologies intended to support the activities of U.S. 

industries and of other agencies of the U.S. federal government. 

Applying this general charge to the area of trade, this research 

examines the issue of TBTs and develops through standards-related 

economic analyses the technical and methodological means for determining 

how they operate and to what effect. In this sense, the output from 

____________ 1 Excerpt from submission of the Pharmaceutical Research and 

Manufacturers of America (PhRMA) for the "Special 301" Report on 

Intellectual Property Barriers — September 15, 2002 

(http://www.phrma.org/international/special301/index.cfm) 
 2

this study is designed to inform not only NIST for purposes of planning 

and conducting its activities but also other interested parties and 

agencies that are confronting the issues surrounding TBTs.2

Further, under Article 10 of the World Trade Organization’s (WTO) 

Agreement on TBTs, member states are obligated to establish national 

inquiry points to answer questions on regulations, standards, and 

conformity assessment raised by other members and their domestic 

interest communities. The inquiry point must also provide notification 

of any proposed technical regulations and conformity assessment 

procedures that may significantly affect trade. NIST is the central 

repository for standards-related information in the United States and 

under the TBT Agreement also serves as the U.S. Inquiry Point for 

technical measures concerning non-agricultural products. As such, it 

works with the private and public sectors to provide timely information 

and expertise on regulations, standards and conformity assessment. 

A thorough understanding of the issues surrounding TBTs will help 

NIST in the performance of the crucial roles we have just discussed. 

The balance of this chapter will next provide a brief survey of the 

issues surrounding TBTs. It will conclude with an outline of the 

remaining chapters of this report. 

THE RISE OF THE TECHNICAL BARRIERS TO TRADE ISSUE 

The TBT issue has many facets and arises from the successes of 

efforts both to increase the volume of trade and to codify the rules for 

its conduct. On the one hand, there exist today powerful forces leading 

to the widening reach of global trade. Companies of even medium-scale 

may now be found carrying out operations in other countries. Where 

competition was once to be found locally or nationally today serious 

competitors for markets and contracts may often come from abroad. 

Perhaps most strongly, the idea of trade as mutually beneficial and 

____________ 

2 This is a theme consonant with several of the recommendations made in 

the National Research Council’s 1995 report, Standards, Conformity 

Assessment, and Trade into the 21st Century (Washington: National 

Academy of Sciences). 
 3

enriching has gained a wider currency marking a pronounced change from 

the common perception that existed only a few decades before. The 

pressures, both autonomous and policy-driven, for increasing levels of 

international trade are great. 

At the same time, there is domestic pressure for governments to 

take measures that address issues of health, workplace and home safety, 

environmental preservation, and labor protection beyond levels that had 

been seen previously. Government agencies routinely issue regulations, 

establish guidelines and adopt voluntary standards3, and enforce 

measures for assuring compliance to pursue a variety of goals related to 

sustaining or improving public welfare. 

Such technical measures4 have the potential for affecting trade 

although the direction of the net effect may not be obvious. Unlike 

other non-tariff measures that create impediments to trade such as 

formal quotas or voluntary export restraints, formal economic theory 

recognizes that this class of potential impediments to trade does have 

the potential to enhance public welfare by providing public goods that 

might not otherwise be available. Technical measures, then, are 

justified as correctives to perceived market failures. 

Technical measures may even be trade creating. The existence of 

technical measures may enhance the flow of goods by providing 

reassurance to potential foreign purchasers and by making imported goods 

closer substitutes for domestic analogues. The imposition of technical 

measures may not even necessarily affect exporters more adversely than 

importers. The imposition of measures concerning corporate average fuel 

economy in the United States, for example, was generally seen as 

____________ 3 Strictly speaking, a regulation is a rule established by a 

government agency that has the force of law. Standards, on the other 

hand, are considered voluntary and often emanate from non-governmental 

bodies or market-driven forces. For the present, it is useful to speak 

of them together although the important policy and practical 

distinctions between the two will be highlighted in the course of this 

study. 

4 For convenience, in the following discussion we frequently use 

the term “technical measures” to encompass both regulations and 

standards as well as concomitant compliance assurance measures. 
 4

enhancing the position of Japanese exporters relative to domestic U.S. 

auto manufacturers. 

On the other hand, governmental rule-making is often seen as 

creating an additional hurdle for potential exporters to overcome by 

forcing the potential exporter to make changes in products or processes 

to comply with regulations or by stipulating compliance testing before 

the exporters goods may be offered on the market. Whether enacted as 

discriminatory measures or merely having the effect of raising 

exporters’ costs they are likely to affect trade. 

The potential conflict between the increasing role of trade and the 

enhanced role for government measures is exacerbated because of the lack 

of a common view on what the specifics of these measures of regulatory 

governance should be. Technical measures and protections may have their 

origin in the findings of research. However, any regulatory body is 

ultimately operated through (and responds to) political processes so the 

technical measures may owe as much to cultural or social precepts as to 

science. Local conditions and needs, the playing out of the political 

process in each country, and differing levels of interpretation of 

scientific and other technical findings are all factors that could lead 

governments to adopt differing regulations, standards, and procedures 

for compliance. While some differences in regulations, standards, and 

conformity assessment procedures among countries are inevitable, to the 

extent that they discriminate against foreign producers or are more 

trade restrictive than needed to fulfill a legitimate policy objective, 

they may constitute a TBT. 

If all market participants have to comply with a technical measure 

that appears to be designed to improve the common welfare, there is no a 

priori reason to consider it a TBT. However, there are many claims 

suggesting that technical rules couched as welfare measures but intended 

as instruments of policy to achieve other ends are becoming an 

increasingly important impediment to trade. That is, in addition to or 

under the cover of the internationally recognized legitimate purposes 

for enacting technical regulations, standards, and compliance 

procedures, there may be ulterior strategic purposes behind certain 
 5

measures – e.g., protecting domestic industries by imposing onerous 

costs on potential competitors from abroad or even effectively excluding 

them entirely by making the barriers to entry sufficiently high. This 

may be viewed in part as a natural concomitant of the reduced importance 

and legal standing of other means to protect trade or domestic markets. 

The allegation is that protection-seeking governments are replacing 

declining tariffs and quotas with technical measures to impede the sale 

of imported goods in domestic markets. 

Unfortunately, while a technical measure may have a greater effect 

on exports to a given market than on domestic manufactures, it can be 

very difficult to show conclusively that the technical measure in 

question is not a legitimate means to protect consumers in the target 

market or is inherently discriminatory. Despite the existence of an 

international agreement, considerable uncertainty prevails. Even 

something as basic as defining precisely what constitutes a technical 

measure with no legitimate standing, therefore requiring modification or 

removal because it acts as a TBT, is left not fully resolved.5 The 

difficulty in making an assessment of whether a technical measure serves 

as a TBT points up the need for more information and data on the role of 

technical measures in international trade and for analytical tools to 

interpret those data. 

The lack of clarity surrounding TBTs and the multi-dimensional 

character of the issue leaves policy makers in a bind. The amount of 

technical detail attached to each potential instance of a TBT and the 

level of resources required to engage in and resolve any given problem 

are quite large. Yet, the question remains open: how much do TBTs 

enacted by U.S. trading partners cost U.S. exporters? The main agenda 

for this study is to develop the analytic means for addressing this 

issue. 

OUTLINE OF THIS REPORT 

The research in this report centers on reviewing and developing 

data sources, key concepts, and analytical tools for coming to a better 

____________ 5 This issue will be discussed at considerable length below. 
 6

understanding of the issues raised by TBTs. The discussion first 

provides a basic foundation on what is currently known about TBTs on the 

basis of policy statements, white papers and legal documents. This is 

laid out in the following chapter; it addresses the questions, “what is 

a technical barrier to trade?” and “how do we recognize a TBT when we 

see one?” The chapter proposes criteria for identifying TBT-like 

practices in foreign markets. 

Next, the empirical dimensions of the TBT issue are explored 

through interviews with interlocutors from industry, trade associations, 

non-governmental bodies, U.S. government agency staff, and officials of 

foreign organizations. These interviews focused on TBT-related issues 

in two major U.S. exporting industries, pharmaceuticals and automotive 

products, to ensure the practical grounding of findings and 

recommendations. Using the operational definitions developed in the 

second chapter, chapters three and four provide initial assessments of 

conditions in these two industries. They use the proposed criteria to 

determine whether U.S. exporters actually encounter TBT-like trade 

impediments. To the extent that evidence of TBTs exists in these or any 

other industries, it calls naturally for an evaluation of economic 

effects. 

Finally, the analytic dimension is explored in chapters five and 

six. Chapter five provides a discussion and analysis of the current 

state of metrics and measures derived from recent theoretical and 

empirical research on TBTs. It reviews the basic model types, including 

their benefits and limitations. Chapter six then develops a detailed 

framework for measuring the costs of TBTs to U.S. exporters. It 

presents an example of practical implementation, using the description 

of a proposed technical measure and data from the automotive components 

industry. 

The final chapter, seven, provides a set of general findings and, 

based upon these findings, recommendations for further examination of 

the issues raised by TBTs. 
 7

We also attach four appendices providing definitions from the TBT 

Agreement, an annotated bibliography, a running inventory of existing 

databases on TBTs, and a list of interviewees and contacts. 

 9

II. WHAT DO WE KNOW ABOUT TBTs AND WHAT MUST BE LEARNED? 

This chapter addresses issues of vocabulary, including TBT 

identification. It is a necessary precursor to later discussion of 

methodology and measures of economic cost. These themes are all closely 

related. Attention to vocabulary is not an academic exercise but a 

practical necessity. Definitions of “TBTs,” technical regulations, 

standards, etc., matter for obvious reasons, such as legal consistency, 

but also for methodological development. How we define—or 

conceptualize—TBTs will have serious implications for how we identify 

them and assess their costs (Beghin and Bureau 2001). 

THE WTO AGREEMENT ON TECHNICAL BARRIERS TO TRADE 

The issue of TBTs has grown as a focus for international attention 

over the past two decades. The 1986-1994 Uruguay Round of General 

Agreement on Tariffs and Trade (GATT) negotiations led to the formation 

of the World Trade Organization (WTO). It also resulted in a specific 

multilateral Agreement on Technical Barriers to Trade (hereafter 

referred to as the “TBT Agreement” or “Agreement”). 

WTO members recognized the important contributions of technical 

measures to the efficient functioning of national economies and 

encouraged their development but were also cognizant that technical 

regulations, standards and conformity assessment procedures for 

products, processes and production methods (including terminology, 

symbols, packaging, marking and labeling requirements) may present 

obstacles to international trade. The TBT Agreement does not define 

“TBTs” per se. Rather, it defines acceptable behavior with respect to 

technical measures. The Agreement specifies that technical measures 

must be applied in a non-discriminatory fashion. However, it does not 

disallow trade-affecting regulations, standards, or assessment 

procedures. Instead, it recognizes their legitimacy in some instances 

and sets ground rules for establishing and maintaining them to avoid 

“unnecessary” obstacles to trade and discrimination against imported 
 10

products. In this way, the TBT Agreement implicitly defines TBTs 

indirectly as the failure to behave acceptably within the context of the 

Agreement. 

The TBT Agreement builds on a long-standing plurilateral agreement 

under GATT.6 Above all, it “tries to ensure that regulations, 

standards, testing and certification procedures do not create 

unnecessary obstacles” to trade. Unlike its GATT predecessor, it 

applies to all members and extends coverage to processing and production 

methods. Moreover, the TBT Agreement requires that all member 

governments establish national enquiry points for timely information 

dissemination. 

The WTO provides a general description of the TBT Agreement: 

The agreement recognizes countries’ rights to adopt the 

standards7 they consider appropriate—for example, for human, 

animal or plant life or health, for the protection of the 

environment or to meet other consumer interests. Moreover, 

members are not prevented from taking measures necessary to 

ensure their standards are met. In order to prevent too 

much diversity, the agreement encourages countries to use 

international standards where these are appropriate, but it 

does not require them to change their levels of protection 

as a result. 

The Agreement sets out a code of good practice for the preparation, 

adoption and application of standards by central government bodies. It 

also includes provisions describing how local government and nongovernmental bodies should apply their own regulations; normally they 

should use the same principles as apply to central governments. 

____________ 6 The prior “plurilateral” agreement was negotiated under the 1973-

79 Tokyo Round of the GATT. Plurilateral agreements do not apply to all 

WTO members, only signatories. 

7 In this description, the WTO does not delineate between mandatory

“technical regulations” and voluntary “standards,” as it does in the 

text and Annexes of the TBT agreement. Here, it uses “standards” more 

broadly, as a non-technical term, according to common English usage. 
 11

The agreement says the procedures used to decide whether a 

product conforms to national standards have to be fair and 

equitable. It discourages any methods that would give 

domestically produced goods an unfair advantage. The 

agreement also encourages countries to recognize each 

other’s testing procedures...8

Trade-affecting technical regulations, voluntary standards, and 

conformity assessment procedures stand apart from many other tradedistorting policy measures in that they hold the potential for enhancing 

efficiency and improving social welfare, for example by correcting 

market failures. For these reasons among others, WTO recognizes the 

legitimacy of such trade-affecting technical measures under certain 

circumstances. The WTO also recognizes that unique national 

circumstances may necessitate differences in policies across members. 

The TBT Agreement allows for diversity; WTO members are encouraged, but 

not required to adopt international standards. The emphasis of the 

Agreement is on appropriate preparation, adoption, and application of 

regulations and standards and avoidance of unnecessary obstacles to 

trade. 

The TBT Agreement provides a highly relevant and useful frame of 

reference for identification and measurement, but still leaves ample 

room for interpretation. Moreover, owing to the possibility of 

efficiency enhancement, estimating the costs of these trade-affecting 

measures is more complex than in the case of tariffs and many other 

types of non-tariff barriers to trade. 

WHAT ARE TBTS? 

A TBT, like other non-tariff trade barriers (NTBs,) is defined 

partly in terms of what it is not (Deardorff and Stern, p. 4., 1997). 

The TBT Agreement defines mandatory “technical regulations,” voluntary 

“standards,” “conformity assessment procedures” and other key TBTrelated terms in its Annex 1; it does not, however, explicitly define 

____________ 8 http://www.wto.org/english/thewto_e/whatis_e/tif_e/

agrm8_e.htm#technical
 12

“TBT” (see Appendix A for Annex 1 definitions). Instead, the Agreement 

defines acceptable behavior with respect to those regulations, 

standards, and assessment procedures, including provisions for 

nondiscrimination, minimum trade restrictiveness, and transparency. For 

example, regarding technical regulations—essentially, mandatory 

standards—and central governments, the TBT Agreement specifies: 

2.1. Members shall ensure that in respect of technical 

regulations, products imported from the territory of any 

Member shall be accorded treatment no less favorable than 

that accorded to like products of national origin and to 

like products originating in any other country. 

2.2. Members shall ensure that technical regulations are 

not prepared, adopted or applied with a view to or with the 

effect of creating unnecessary obstacles to international 

trade. For this purpose, technical regulations shall not be 

more trade-restrictive than necessary to fulfill a 

legitimate objective, taking account of the risks nonfulfillment would create. Such legitimate objectives are, 

inter alia: national security requirements; the prevention 

of deceptive practices; protection of human health or 

safety, animal or plant life or health, or the environment. 

In assessing such risks, relevant elements of consideration 

are, inter alia: available scientific and technical 

information, related processing technology or intended enduses of products. 

2.3. Technical regulations shall not be maintained if the 

circumstances or objectives giving rise to their adoption no 

longer exist or if the changed circumstances or objectives 

can be addressed in a less trade-restrictive manner. 

2.4. Where technical regulations are required and relevant 

international standards exist or their completion is 

imminent, Members shall use them, or the relevant parts of 

them, as a basis for their technical regulations except when 

such international standards or relevant parts would be an 
 13

ineffective or inappropriate means for the fulfillment of 

the legitimate objectives pursued, for instance because of 

fundamental climatic or geographical factors or fundamental 

technological problems. 

As implied in paragraph 2.2, the TBT Agreement recognizes the 

legitimacy of technical regulations, standards, and conformity 

assessment procedures as domestic policy instruments for correcting 

market failures, internalizing externalities, protecting national 

security, etc. Thus, WTO members are permitted to establish and 

maintain some trade-affecting measures if they meet the agreed criteria 

of the TBT Agreement. 

In paragraphs 2.4 and 2.5, WTO members are encouraged, but not 

required to adopt international standards. A country’s regulations and 

standards may differ from internationally derived mechanisms if domestic 

conditions necessitate; unique national circumstances may require unique 

policy responses. However, 

Whenever a technical regulation is prepared, adopted or 

applied for one of the legitimate objectives explicitly 

mentioned in paragraph [2.2], and is in accordance with 

relevant international standards it shall be rebuttably 

presumed not to create an unnecessary obstacle to 

international trade.9 

The explicit presumption of acceptability may create an additional 

incentive to adopt international standards. 

Examining the TBT Agreement in the light of the WTO Agreement on 

the Application of Sanitary and Phytosanitary (SPS) Measures (the “SPS 

Agreement”) demonstrates another way in which TBTs are defined partly by 

what they are not. The TBT Agreement applies to all industrial and 

agricultural products, but, as noted in Article 1, Paragraph 5 of the 

____________ 9 TBT Agreement, paragraph 2.5. 
 14

Agreement, it does not apply to SPS measures. In particular, the SPS 

Agreement covers any measures applied:10

• To protect human or animal life from risks arising from 

additives, contaminants, toxins or disease-causing organisms 

in their food; 

• To protect human life from plant- or animal-carried diseases; 

• To protect animal or plant life from pests, diseases, or 

disease-causing organisms; 

• To prevent or limit other damage to a country from the entry, 

establishment or spread of pests. 

Clearly, these two areas of WTO doctrine cover related terrain. 

Not surprisingly, disputes involving one set of issues often involve the 

other. Of the 26 cases brought to the Dispute Settlement Body (DSB) for 

consultations between 1995 and 2000 that referenced provisions of either 

the TBT or SPS Agreements, 12 referenced provisions of both Agreements 

(Maskus and Wilson, 2001, Table 1.1, p. 8).11

How then do we define TBTs? First, TBT and SPS cross-referencing 

not withstanding, we limit our analysis to the elements of a policy 

measure that fall under the purview of the TBT Agreement. Second, 

recognizing that a trade-affecting regulation, standard, or assessment 

procedure, as defined in the TBT Agreement may be entirely permissible 

under the WTO, albeit potentially costly for U.S. firms, we identify two 

mutually exclusive, if elusive, subcategories of trade-affecting 

technical measures: WTO-consistent and WTO-inconsistent. For the 

purposes of this report, consistency with the WTO Agreement is the 

decisive factor: a TBT only exists or arises when a country’s behavior 

is or becomes inconsistent with the terms of the TBT Agreement, e.g., if 

____________ 10 These points appear in the WTO on-line questions and answers 

about the SPS Agreement, available at, 

http://www.wto.org/english/tratop_e/sps_e/spsund_e.htm. The Agreement 

also covers sanitary and phytosanitary measures taken to protect the 

health of fish and wild fauna, as well as of forests and wild flora. 

11 See Maskus and Wilson (2001), “Quantifying the Impact of 

Technical Barriers to Trade: Can It Be Done?” 
 15

a technical measure is discriminatory, if it is prepared, adopted or 

applied with a view to or with the effect of creating an unnecessary 

obstacle to international trade, or if it is more trade-restrictive than 

necessary. 

We define TBTs as WTO-inconsistent technical regulations, 

standards, or conformity assessment procedures, as covered under the TBT 

Agreement and, to the extent possible, we also confine our analysis to 

the particular aspect of the policy measure that makes it WTOinconsistent. For example, a country may have a fully acceptable, 

albeit trade-affecting technical regulation, but a partially 

unacceptable conformity assessment procedure. Ideally, we would assess 

the cost of the unacceptable aspect of the conformity assessment 

procedure, not the entire regulatory package, unless the entire package 

would require modification to eliminate the objectionable aspect of the 

procedure. At the very least, we would try to separate the effects of 

the assessment procedure from the technical regulation. 

In practice, however, it may be difficult to discern WTOinconsistency. For example, what is an “unnecessary” obstacle to 

international trade? Necessity may be in the eye of the beholder. 

Comparing the provisions of the TBT and SPS Agreements reveals another 

potential source of difficulty in establishing “necessity,” i.e., the 

lack of rigor in the TBT Agreement’s requirements for risk assessment. 

In the TBT Agreement, the “relevant elements of consideration” for 

assessing risks associated with the protection of human health or safety 

are, “inter alia: available scientific and technical information, 

related to processing technology or intended end-uses of products.” In 

this setting, so-called “sound science” is merely an element for 

consideration and not a fundamental basis for establishing policy. 

By contrast, the SPS Agreement requires that: 

5.1. Members shall ensure that their sanitary or 

phytosanitary measures are based on an assessment, as 

appropriate to the circumstances, of the risks to human, 

animal or plant life or health, taking into account risk 
 16

assessment techniques developed by the relevant 

international organizations. 

5.2. In the assessment of risks, Members shall take into 

account available scientific evidence; relevant processes 

and production methods; relevant inspection, sampling and 

testing methods; prevalence of specific diseases or pests; 

existence of pest- or disease-free areas; relevant 

ecological and environmental conditions; and quarantine or 

other treatment. 

Admittedly, so-called “sound science” is not a cure all, but the 

provisions of the SPS Agreement establish ground rules for a debate, at 

the very least.12 The absence of more rigorous requirements for risk 

assessment under the TBT Agreement leaves considerable latitude in the 

determination of necessity, hence consistency. Further complicating the 

determination of consistency, Annex 1 of the TBT Agreement defines the 

term “international body”, but not “international standards”. Thus, the 

presumption of acceptability established in paragraph 2.5 is also 

undefined. Ultimately, a combination of WTO precedent, case law, and 

common sense regarding the context surrounding particular instances may 

be the answer. 

From the perspective of U.S. industry, the consistency distinction 

may not be overly helpful in facilitating market entry. Even WTOconsistent technical measures may entail significant costs to U.S. 

____________ 12 More generally, sound science is a regulatory prerequisite in 

the SPS Agreement, in Article 2, paragraph 2, “Members shall ensure that 

any sanitary or phytosanitary measure is applied only to the extent 

necessary to protect human, animal or plant life or health, is based on 

scientific principles and is not maintained without sufficient 

scientific evidence, except as provided for in paragraph 7 of 

Article 5.” Then in Article 5, paragraph 7, “In cases where relevant 

scientific evidence is insufficient, a Member may provisionally adopt 

sanitary or phytosanitary measures on the basis of available pertinent 

information, including that from the relevant international 

organizations as well as from sanitary or phytosanitary measures applied 

by other Members. In such circumstances, Members shall seek to obtain 

the additional information necessary for a more objective assessment of 

risk and review the sanitary or phytosanitary measure accordingly within 

a reasonable period of time.” 
 17

exporters. However, such policy measures reside outside the scope of 

the TBT Agreement. Strictly speaking, they are not legally “actionable” 

and as a practical matter may be even less open to change than those 

under the purview of the TBT Agreement. The TBT Agreement applies to 

all WTO members and provides recourse through the DSB under the Dispute 

Settlement Understanding (DSU). As such, inconsistency becomes a “hook” 

for negotiations and may sometimes suggest an opportunity for gain on 

both sides—e.g., when externalities are at issue, the importer might be 

able to meet a legitimate policy objective at lower cost. 

IF IT LOOKS LIKE A DUCK... 

Practical difficulties notwithstanding, we can work toward 

developing a “checklist” for TBT identification. The first approach 

would be predicated on the language of the TBT Agreement itself. The 

second would be to take a more outcomes-oriented view to identifying 

TBTs as the origin of observable phenomena in the marketplace. 

Several recent studies have addressed themselves to the TBT issue 

in detail. In doing so, their approach suggests, if only by inference, 

evaluation criteria based on an assessment of the provisions of the TBT 

Agreement. For example, Maskus and Wilson (2001, pp. 20-21) present 

guidelines for remedying protectionist technical measures: 

• If the measure or its enforcement is purely cost-raising, it 

is inefficient and should be removed. 

• If a measure is set at a level that is stronger than required 

to achieve a policy objective, and it increases domestic 

profits at the expense of foreign profits, it may have 

protectionist intent. 

• If a measure is discriminatory in application or effect 

between domestic and foreign firms, the margin of 

discrimination could be viewed as unnecessary protection and 

removed. 
 18

• If a measure is not the one least disruptive to trade among 

available policies it may require modification.13

• If a measure mandates excessive caution in relation to 

reliable scientific measures of risk it may be considered 

protectionist.14

These guidelines suggest a framework for the evaluating the existence of 

TBTs as well. 

In a similar vein, Baldwin (2001, p. 79) summarizes the content of 

the TBT Agreement in terms of five main principles: 

• Most favored nation (MFN) treatment: treating all trading 

partners equally; 

• National treatment: treating imported and locally-produced 

goods equally after they enter the market; 

• The sham principle: the technical measure should not be “a 

disguised restriction” on international trade; 

• The least-restrictive-means principle: the technical measure 

should accomplish its regulatory goal by means that are the 

least restrictive to trade; and 

• The transparency principle, implemented through notice-andcomment periods on proposals for new trade-affecting measures 

and national points of inquiry. 

Again, this offers a framework for constructing a process-oriented TBT 

“checklist” that compares actual practice to the ideal propounded in the 

TBT Agreement. 

In discussing these principles, Baldwin also refers to the 

requirement for using international standards, but argues that it is 

____________ 13 Maskus and Wilson do not specifically recommend modification or 

any other course of action; we have inferred the possibility from the 

text. 

14 Although the provisions for risk assessment in the TBT Agreement 

are not as rigorous as in the SPS Agreement, the TBT Agreement still 

calls for some consideration of risk. 
 19

largely nullified because it does not apply when an international 

standard would be “ineffective or inappropriate” in fulfilling a 

legitimate regulatory objective. As previously noted, attempts to 

enforce this requirement may be further complicated by the absence of a 

clear definition of an “international standard.” 

Checklists based upon the formal statements found in the TBT 

Agreement might be supplemented by additions based more on outcomes. 

This second direction also is based upon the statements in the TBT 

Agreement that while there are legitimate reasons for enacting technical 

measures that might have the effect of restricting trade, such measures 

should be non-discriminatory and their trade-restricting effects kept to 

a minimum. This approach would then suggest a series of questions that 

might be asked based on actual market effects to determine whether a TBT 

may exist: 

• Is there a legitimate and defensible rationale for preparing, 

adopting and applying technical regulations, standards, and 

conformity assessment procedures that are not based on 

international standards, recommendations and guides? 

• Does the technical regulation, standard, or conformity 

assessment procedure apply equally to all suppliers 

regardless of national origin? 

• Was the measure introduced after imports began to take an 

appreciable share of the local market? 

• Were there domestic pressures or sources of influence leading 

to adoption of the regulation? 

• Are the standards, conformity assessment procedures, or 

technical regulations unduly onerous with no opportunity for 

graduated application (e.g., take effect only above a 

reasonable number of units sold?) 

• Is the net effect of the technical regulation, conformity 

assessment procedure or standard to prevent foreign entrants 

into a national market? 
 20

If there are sufficient reasons based on the criteria above to 

find correspondence between technical measures and some of the effects 

noted, then this provides a reason for engaging in more detailed follow 

up. One might apply the more narrow tests to see if indeed a TBT exists 

according to the terms of the Agreement and take appropriate actions in 

response. 

What becomes clear from this discussion is that the determination 

of whether a standard, conformity assessment procedure, or technical 

regulation serves as a TBT must generally be made on a case-by-case 

basis. Even if it is concluded that a TBT has occurred, there remains 

the question as to what its economic effect will be. Therefore, the 

question of how serious the problem of TBTs for U.S. exporters and the 

U.S. economy may be remains open. We need to explore both empirical and 

theoretical avenues to gain fuller insight into the core question of 

economic cost. 
 21

III. TBTS AND THE U.S. PHARMACEUTICALS INDUSTRY 

INTRODUCTION 

This chapter and the one that follows review TBT issues arising in 

two major U.S. export sectors, pharmaceuticals and automotive products. 

Following this introduction, the second section of this chapter gives a 

brief description of the organization of the industry and principal U.S. 

export markets. The next section takes a thematic approach to the major 

areas of TBT concern for U.S. firms. In both of the case study 

chapters, an economic rather than legal perspective informs the 

discussion. We do not seek to rule on whether a particular allegation 

of trade restriction, discrimination, or non-transparency constitutes a 

TBT. Rather, we draw attention to trade-affecting practices that 

display TBT-like characteristics. Following the thematic treatment, the 

fourth section presents an overview of selected noteworthy concerns 

about technical measures with TBT characteristics by geographic region. 

The final section then draws some conclusions and provides thoughts for 

how to build on this initial sectoral overview. 

The discussion in this chapter derives largely from interviews with 

individuals in industry associations, government agencies and nongovernmental organizations, and also draws on the available literature 

and data on TBTs in pharmaceuticals.15 To the extent possible these 

sources were cross-checked against each other. However, there was no 

opportunity to speak with representatives of governments alleged to have 

engaged in practices that potentially constitute TBTs. Therefore, the 

results should be treated as indicative rather than conclusive, 

suggesting areas where there is sufficient evidence of serious barriers 

to warrant a more intensive investigation of the technical measure. 

____________ 15 In particular, the leading industry association of the U.S. 

pharmaceuticals sector, the Pharmaceutical Manufacturing Association of 

America (PhRMA,), which, despite its name, includes the world’s major 

manufacturers of innovative drug products among its members, provided 

considerable assistance. Staff at the Biotechnology Industry 

organization (BIO) also provided insights. 
 22

THE U.S. PHARMACEUTICAL INDUSTRY AND PHARMACEUTICAL EXPORTS 

The “pharmaceutical” manufacturing sector may be divided several 

ways, leading to different conclusions about its size and industrial 

organization. For example, there is a distinction between drugs 

prepared in the fundamentally chemical engineering tradition that has 

prevailed since the last third of the 19th century and the emerging 

biotechnology sector where pharmaceutical preparations are derived from 

or produced by living organisms. The U.S. Census Bureau, for example, 

excludes the latter from its Current Industrial Report on the 

industry.16 Yet, the share of biologics in the output of the drug 

industry is growing and is clearly on a sharp upward trajectory. In 

1989, such products accounted for less than 1% of the total. In 2002 

they were over 7% of total sales. More telling, today over a third of 

medicines in development are biotechnology products.17 For some 

purposes, the industry may also include the manufacture of dietary 

supplements such as vitamins and veterinary preparations (see, e.g., 

Census Bureau, 2001). This chapter focuses solely on the production of 

prescription and over-the-counter medicines for human consumption, 

including biological preparations. 

Even so defined, there are important distinctions within this 

sector. One of the most important is the relationship between the part 

of the industry that produces innovative pharmaceutical products and 

that which produces products based on generic formulations when drugs go 

off patent. This structural difference is rooted in the economics and 

regulation of pharmaceutical manufacturing. 

Although the fixed costs for establishing a physical plant are not 

incommensurate with those in other industries, the marginal cost for 

____________ 16 See, Census Bureau, 2001. 

17 Personal communication with Biotechnology Industry Organization 

staff. BIO is an industry association of approximately 1100 members. 

Its coverage extends to all fields of biotechnology, not pharmaceuticals 

alone. Among the pharmaceuticals manufacturing members, all but two are 

also members of PhRMA. Genentech, clearly an industry leader, is one of 

these two. The overlap in membership is clearly a manifestation of the 

tremendous investment costs involved in the application of biotechnology 

to pharmaceuticals. 
 23

producing an individual drug dose is generally small and sometimes 

negligible. At the same time, the costs for researching and developing 

products are quite substantial compared to most other industries. R&D 

programs can be expensive and each success must cover the costs of many 

research efforts that fail to produce immediately usable results. 

Beyond this, the pharmaceuticals market is one of the most highly 

regulated in both the United States and the world. While 

understandable, this means that even the preparations that emerge 

successfully from corporate R&D efforts must still pass into several 

clinical trial phases that routinely last several years. Few of the 

candidate drugs successfully emerge from trial to home market.18 If 

they are to be exported they entail further delay during the process of 

being registered for legal sale by the appropriate regulatory body in 

the importing country. During the entire course of the trial period the 

clock is ticking on the drug manufacturer’s patent protection. 

When the patent protection on a drug lapses, the original innovator 

then faces competition – often beginning on the day after the protection 

rolls off -- from manufacturers of generic formulations of the drug 

product. The generic drug has the same active ingredients as the 

innovator and may or may not have the same formulation of inactive 

ingredients, depending in part on patents that may have been registered 

for the latter, that are also part of the drug product. There is 

overlap between manufacturers of innovative and generic pharmaceuticals, 

but generally speaking, most companies specialize in the production of 

one or the other. In 2003, it is estimated that patented drugs 

representing some $6.7 billion in worldwide sales will go off patent due 

to expiring patent terms. Possibly, two-thirds of all prescriptions 

around the world will have been filled by generics that year.19

____________ 18 Taking into account the expense involved in all the research, 

development and trials that fail to deliver an approved drug, the 

average cost for each successful drug brought to market is currently 

over $800 million. (PhRMA, private communication.) 

19 Cho, Man K. (2003). “Beyond the Borders: International 

Challenges and Opportunities”, International Trade Administration, 

Department of Commerce, Presentation to the Annual Meeting of the 

Generics Pharmaceutical Association, 28 January. 
 24

The United States accounts for a disproportionately large share of 

all research-based producers of medicines and of global exports of these 

products. As the importance of the biotechnology sector grows, this 

preponderance is likely to become even more exaggerated.20 Therefore, 

the trade in pharmaceuticals, while not necessarily typical of all 

innovation-based businesses, does have the potential for teaching 

lessons on how TBTs may affect U.S. manufacturing sectors that rely 

heavily on innovation and are looked to as likely export leaders. In 

the international division of labor, the advantage to U.S. exporters is 

likely to be in the realm of quality and innovation rather than cost of 

production. In this sense, the pharmaceutical industry presents an 

illustrative case of U.S. dominance of an innovation-led industry. 

For 2002, the total value of shipments, a measure of total industry 

output, from the broadly defined U.S. manufacturing pharmaceuticals and 

medicines sector was $120.7 billion.21 This figure also includes 

biological products, botanical preparations, and veterinary products. 

The more narrowly defined pharmaceutical preparation sub-sector 

accounted for $90.7 billion of this figure.22

U.S. exports of pharmaceutical preparations in 2002 were $17.3 

billion.23 For 2003, the estimate for total annual global sales of 

pharmaceuticals will most likely turn out to have been on the order of 

____________ 20 Hurt and Morrione (2002) report based on industry figures that 

by 2005 the U.S. share of the global pharmaceuticals market could grow 

to well over half of the total due to the pace of innovation. 

21 Census Bureau (2002.) Note that this figure is an estimate 

derived from surveys. There are serious problems of comparability 

between the statistics available describing the structure of the U.S. 

industry, its size, and the volume and direction of outputs. The 

figures need to treated accordingly. 

22 This is the figure reported in Current Industrial Report, Census 

Bureau (2001). 

23 Bureau of Census data, Foreign Trade Statistics 

(http://www.census.gov/foreigntrade/statistics/product/enduse/exports/c0000.html). Note that this 

data series is reported using the 5-digit end-use classification, which 

are not fully consonant with data using either SIC or NAICS 

classifications. “Pharmaceutical preparations” in the end-use 

classification may not equate with the same nomenclature in the latter 

systems. Therefore it is difficult to determine precisely the 

percentage of total output represented by exports. 
 25

$435 billion. The combined markets of the United States, Canada, and 

Mexico, together account for 40 percent of these sales. Europe accounts 

for 25 percent. Western Europe remains the largest market for U.S. 

pharmaceutical exports followed by Japan and developing Asia.24

PHARMACEUTICAL INDUSTRY REGULATIONS AND STANDARDS AND POTENTIAL TBTS 

Discussions with industry representatives and U.S. government 

representatives who track pharmaceutical industry issues yielded five 

principal areas potentially pertaining to TBTs for U.S. exporters of 

pharmaceutical products. Three fall clearly within the definition of 

TBT used in this study. These are: issues related to (1) conformity 

assessment and testing regulations; (2) transparency; and (3) 

regulations and standards. Two other issue areas were found to have 

ramifications that might be classified as posing technical barriers to 

trade. These are (4) intellectual property rights protection, 

particularly data exclusivity; and (5) market access, including drug 

registration and reimbursements in countries with single-payer health 

care. However, most intellectual property rights (IPR) issues fall 

under the Trade-Related Aspects of Intellectual Property Rights (TRIPS) 

Agreement of the WTO. Market access problems, the core of the 

registration and reimbursement concerns, are also generally not covered 

by the TBT agreement. To the extent that these two issue areas may bear 

on or overlap with concerns about TBTs, we discuss them below. The 

initial section of this chapter concludes with a discussion of the 

efforts toward international harmonization of regulation in 

pharmaceuticals. 

Conformity assessment and testing 

The TBT Agreement specifically states that testing to ensure 

conformity with existing health and safety regulations in the importing 

country is an acceptable reason for regulation. Despite the continued 

progress of scientific investigation in this sector and considerable 

efforts to achieve harmonization of regulation and practice, this area 

is most often cited as being rich with examples of TBTs. Participants 

____________ 24 Cho (2003). 
 26

in harmonization processes typically agree that the safety, quality, and 

efficacy of pharmaceutical products are relevant to international 

regulation. What proves problematic is the practice of interpreting the 

science and applying it to regulatory concerns. The following 

discussion addresses several general areas of concern; the later section 

on regional differences includes specific country examples. 

Demands for production data. A recent and growing practice has 

been for importing countries to require that potential exporters provide 

vast quantities of production quality and process data to regulatory 

agencies to receive permission to sell their products. Both Korea and 

Taiwan began this practice in early 2002 and other countries are 

beginning to follow suit. These data are generally generated around the 

time of Phase III clinical trials. The usual practice in the United 

States, owing to both the mass and extreme proprietary sensitivity of 

such data, is for FDA regulators to visit the manufacturer, review the 

data, and certify that the proposed production methods will consistently 

yield the chemical species desired at the appropriate level of quality. 

The Taiwanese now insist that such data be physically produced and 

placed at the disposal of the government for the exporter to receive 

certificates of compliance to sell the drug in the country. This places 

foreign firms at a distinct disadvantage since the domestic firms need 

only submit to on-site visits. 

In Korea, there are similar new requirements for additional 

information that have been deemed onerous by U.S. manufacturers. In 

this case, the discriminatory effect is apparently greater in that only 

innovative “new chemical entities” (almost entirely imports) are 

covered, not the local manufacture of generics. 

There have already been purported instances of leaks of sensitive 

data to domestic generic manufacturers who are alleged to have now begun 

producing substitutes. Thus, IPR protection enters in and potentially 

raises trade concerns. More fundamentally, there appears to be little 

good reason to request such data in the first place. It would be a 

difficult enough task for the U.S. authorities to apply the expertise 

and resources necessary to make use of the amount of data being asked 

for. It is doubtful whether this task could be done more efficiently 
 27

elsewhere. IPR concerns notwithstanding, potential market entrants 

claim that the sole purpose served by such regulations is to erect a de 

facto discriminatory barrier to imports by raising the effective costs 

and reducing the benefits of attempting to enter the domestic market. 

Testing procedures. Output from pharmaceutical production runs 

must be routinely tested for conformity with quality and safety 

regulations. This may be done either through self-certification by the 

manufacturer, if acceptable to the regulatory authorities, or by an 

independent testing process. U.S. pharmaceutical exporters claim that 

this process is sometimes fraught with devices such as long drawn out, 

costly, and redundant testing procedures to raise effective barriers to 

imports. 

As an example, the European Union and the United States have a 

mutual recognition agreement on the certification of process quality 

information. However, several member states of the EU now require 

quality assurance testing at the border on a by-lot basis for non-EU 

pharmaceutical imports. This not only imposes greater costs but also 

entails at least two weeks time lost in testing by local government 

officials while each individual lot is held in storage. Selfcertification is not permitted. This, coupled with the time required to 

gain official registration of a pharmaceutical product in the first 

place, is a concern. The industry association PhRMA claims that the 

single greatest source of loss to potential exporters is the time spent 

after the initial launch of a drug, before it may be offered for sale. 

In addition, even if the testing is done in a timely manner, the net 

effect is to raise the marginal cost of each lot of pharmaceutical 

imports. Testing may also increase exporters’ fixed costs to the extent 

that compliance requires them to maintain a minimum additional level of 

staff in the importing country. 

Testing requirements exist in other markets as well. In some, the 

procedures seem designed for inefficiency. Officially designated labs – 

sometimes only a single one – are permitted to conduct such testing. 

The labs may be in interior locales geographically removed from the main 

ports of entry. It is even suggested that in some countries testing for 

quality assurance on imports serves solely as an income generator. That 
 28

is, the agencies collect substantial fees for performing the testing. 

This business may be steered by less-than-scrupulous agency bureaucrats 

toward political or financial allies. 

Again, the complaint is that this intrusive type of testing really 

has little scientific basis, especially when some countries require 

testing for every single lot imported. The trade limiting effects 

become even more accentuated by the seeming caprice that sometimes 

attends these procedures. The regulators in importing countries may 

change their testing specifications without any prior notification, a 

direct contravention of the TBT Agreement. This is in many ways the 

most onerous burden faced by potential exporters. Further, in some 

countries there do not even exist facilities for doing the type of 

testing required for advanced and innovative pharmaceuticals. The 

potential foreign supplier will itself be required to provide the 

testing equipment – which parenthetically also raises some serious IPR 

considerations. 

Biological preparations. Before leaving the general discussion of 

conformity assessment and testing, we touch on an area that could prove 

problematic as a possible source of future difficulties. Differences in 

the regulations of biologic products and the biotechnology industry may 

pose challenges. For example, the EU has banned for inclusion in drug 

products any material from producers who have not been certified (by the 

country of origin) as being free of transmissible spongiform 

encephalopathy (TSE)25

 contaminations.26 This includes the gelatin used 

to manufacture drug capsules. Because there is no such certification 

system in the United States, the ban prevents the inclusion of this 

material in pharmaceuticals offered for sale in Europe. Hence, the 

region suffering most from the outbreak and consequences of TSE and 

therefore most in need of imports is largely prevented from drawing upon 

a developed manufacturing region that has been completely clean of any 

____________ 25 TSE is the general category of disease caused by infectious 

agents of which the prion causing “Mad Cow Disease” (bovine spongiform 

encephalopathy) is one member. 

26 Commission Decision 97/534/EC 
 29

infection.27 Such material cannot form a supply source because it is 

officially classed as a specified risk material. 

International differences in the regulatory treatment of 

pharmaceuticals derived from biotechnology are also beginning to appear. 

New Zealand took a smallpox vaccine off the market because it is 

manufactured from a genetically modified organism. This vaccine is 

administered orally so it was considered a risk because it might be 

excreted into the environment. New Zealand’s neighbor, Australia, has 

taken the opposite position. 

There are special issues in the regulation of biologics that do not 

exist in the case of more traditional medicines. Among these, there is 

a need to demonstrate that the “cold chain” of adequate refrigeration 

between manufacture, transport, distribution, and end-point use has 

remained unbroken; shelf life issues are more of a concern; 

counterfeiting issues are a serious concern in some places because these 

are high value-added, high unit cost products.28 The large number of 

regulatory issues may leave more room for TBT-like practices. 

U.S. regulatory structures may pose additional challenges. In the 

United States, “traditional” drugs are regulated under the Food, Drug 

and Cosmetic Act. The key is that regulation is done on the basis of 

“end-specification”. Thus, the focus is on the product; the major 

issues are quality and efficacy. The governing law for biotechnology 

medicines is the Public Health Service Act. This is not keyed on endstate specifications. Regulation is on the basis of process, purity, 

and identity. So if a biologic medicinal product, “B”, is produced by 

process “P” using input “A”, no part of this process may be changed and 

still maintain FDA approval. If the manufacturer wanted to use improved 

input “A′” or process “P′” to yield “B”, the entire modified process 

would be required to pass through certification once more. This means 

that if some new requirements arise to qualify for recertification in a 

____________ 27 This information is current as of November, 2003. One case of 

Creutzfeldt-Jakob disease, the human form of TSE, was noted in Florida 

but the victim in this case was a tourist visiting from the U.K. 

28 Counterfeiting usually takes the form of diluting doses. This 

is a large argument against re-importation because of compromises to the 

accountability chain. 
 30

region such as Europe, even if relatively minor, these could affect the 

ability to manufacture across the entire production line. This is why, 

for example, one can observe manufacturers who still use 1960s-era 

fermentation vessels so that they would not be required to recertify. 

Even a change in supplier could result in the U.S. Food and Drug 

Administration (FDA) deciding that this represents a significant enough 

modification to require recertification. Because the processes used to 

produce biologic products in essence define them, a generic biologic is 

currently an oxymoron from a U.S. regulatory point of view. 

This aspect of the U.S. regulatory process may become more of an 

issue as the industry matures and patents begin to expire. In other 

words, a country seeking to boost – or protect – a nascent biotechnology 

industry would need only to introduce marginally different technical 

requirements to provide an entrée for other (presumably domestic) 

follow-on producers to enjoy a distinct advantage over the U.S. 

innovator. This makes the issue of sharing technical information and 

data exclusivity even more sensitive for the industry. Because the 

United States is the locus of the biotechnology industry and is likely 

to remain so, regulations stipulating the sharing of technical 

information would most likely impose the largest financial losses in 

terms of lost intellectual property rights on U.S. companies. If an 

importer changes its technical requirements, the U.S. innovator can 

become the next-generation supplier of its own product only by going 

through the whole approval process once again.29 However, to the extent 

that a country changes a requirement for legitimate policy reasons and 

applies the change to all suppliers, it seems doubtful that the action 

would constitute a TBT. 

Even as prosaic-seeming an issue as regulations determining what, 

in fact, is a biological medicine may have TBT-like characteristics. 

____________ 29 In the United States, it currently takes 3-5 years for an 

innovator to get additional facilities up and running. To do so 

requires a Biologics License Application (BLA) for each facility. As a 

result there is no real trade in intermediate products for biologics 

manufacture as there is for other sectors of pharmaceutical 

manufacturing because of the regulatory focus on process. Firms 

producing biologics are “soup-to-nuts” manufacturers with closed value 

chains. 
 31

The matter is not straightforward. Aspirin, clearly, is a simple 

molecule and subject to specification control while a smallpox vaccine 

is a living product subject to process control. But finding the cutoff 

point for the vast array of prospective drug products that fall in 

between is not easy to do. Hence, the practice to date has been that 

whatever was done to make the first batch is considered to govern as 

long as successive batches are produced in the same way. But even this 

simple rule may come to be hard to administer in the future. 

Transparency of Regulations 

The high degree of regulation of the pharmaceutical trade, combined 

with the number of technical measures required to achieve this 

regulation, means that the issue of the transparency with which 

regulations are written and implemented is a major issue for potential 

U.S. exporters of pharmaceutical products. This is exacerbated by the 

multiplicity of different regulatory regimes around the globe and the 

great variation from country to country in the state of development of 

the institutional apparatus available for implementing the technical 

measures. 

The TBT Agreement speaks at length about the need for transparency 

and communication to interested parties in establishing the rules 

regarding technical measures. Obligations for states to notify the 

other signatories of the TBT Agreement include, among others: 

• Statement of means to be used for implementation and 

administration of the measures required by the Agreement as 

well as any subsequent changes (Article 15.2.) 

• Notification of the technical measures for regulation and 

conformity assessment to be used by central and local 

authorities. This also includes the requirements to make 

advanced copies of such procedures available on request and to 

allow sufficient time for written comment (usually on the order 

of 45-60 days) as well as to publish the measures when formally 

adopted. (Articles 2.9; 2.10; 3.2; 5.6; 5.7; and 7.2). 

• Notification of any bilateral or multilateral arrangements 

related to technical measures. (Article 10.7). 
 32

• Notification of acceptance or withdrawal from the Code of Good 

Practice. This lays down the structure for how governmental or 

NGO standardizing bodies should approach this process. Central 

government bodies are required to accept the Code and its 

provisions. Acceptance also means publication of the annual 

work program of any such body. (Annex 3). 

In addition, WTO members are required to designate the government 

authority responsible for implementation of these notification 

obligations as well as to designate a formal enquiry point charged with 

responding to enquiries and providing documentation on proposed or 

adopted technical measures, location of notices published pursuant to 

the TBT Agreement, and information on membership in international or 

regional standardizing bodies and conformity assessment systems or in 

bilateral and multilateral arrangements. (Articles 10.1, 10.2, 10.3, 

10.10 and 10.11.) 

As might be expected, there is considerable variation in how well 

WTO members adhere to the various transparency obligations in practice. 

In the pharmaceuticals sector there are allegations of failure to 

establish functionally meaningful enquiry points, failure to publish 

regulations, failure to provide occasion and means for commenting before 

adoption, and certainly failure to adhere to published regulations in 

practice. 

The failure to provide for transparency in the formulation and 

application of technical measures may have several effects on potential 

U.S. exporters. An unannounced change in technical measures may render 

previously successful exports unmarketable. There may be a period of 

adjustment that could have been eased with more notice as the products 

are reestablished for sale. Less dramatically, changes could add to 

costs as new testing and conformity assessment processes are suddenly 

brought into play. Again, the additional cost would come from whatever 

expedients were required in a short time frame to render products 

already in the export pipeline eligible for sale. Finally, the 

cumulative weight of a pervasive lack of transparency may raise doubts 

for potential exporters who then choose not to manufacture for sale into 

that market or to limit their exposure to this form of uncertainty. It 
 33

becomes difficult to develop a product and plan for its sales in an 

environment where there is fundamental doubt about the rules of the 

game. 

Pharmacopoeias, standards, and regulatory enforcement 

As discussed above, regulations are binding legal requirements set 

by governments. Standards are voluntary protocols, often established in 

the private sector by industry. Even though the pharmaceuticals sector 

is one of the most heavily regulated industries in the world, there is 

still a role for standards, but they are not divorced from regulatory 

enforcement. In the United States, some “standards” that make up 

pharmacopoeias have voluntary dimensions, but ultimately convey legal 

authority. 

A pharmacopoeia consists of a set of standards for testing the 

quality of the components of drug products or of the drug products 

themselves. These standards are encapsulated in the form of individual 

monographs, each a complete protocol (including specification of testing 

procedures, materials, equipment, etc.) for establishing actual content 

and purity. The monographs may cover four basic formulations: active 

ingredients; the inactive ingredient components (“excipients”) of a drug 

product such as the capsule, flavorings, inert material and so forth; 

the complete drug product (the active ingredients and excipients taken 

as a whole); or general procedures and protocols that may then be 

referred to in multiple individual monographs. 

The purpose of a monograph is to set out standards for testing 

quality. They do not test for safety or efficacy. Neither do they test 

for bio-equivalence30, per se. Nevertheless, dissolution or other 

performance tests may also be present in a monograph in the 

____________ 30 Bioequivalence refers to the need for generic formulations to 

demonstrate that the rate and extent to which active ingredient is 

delivered to the bloodstream is the equivalent of those for the 

innovator’s formulation of a drug product. Assuming the active 

ingredient is the same, the concept of bioequivalence enters in with 

regards to the excipient aspects of the capsule, pill, or other product 

dose. These too may be patented and so the generic may be using a 

different formulation than the innovator’s formulation. 
 34

pharmacopoeia but are rarely administered as such. Instead, these may 

be aspects of the testing for quality and purity. 

The U.S. Pharmacopoeia (USP) is a private NGO established in 1820 

by a group of physicians. It is the only pharmacopoeia in the world 

that is not part of the government. In the United States, drug 

innovators provide information on a voluntary basis. Then volunteer 

experts from industry, government, or academia check the information for 

technical details. After being checked the information is entered into 

the pharmacopoeia as a monograph that then becomes the reference 

standard for the subject of that monograph. 

The biggest problem faced by USP is for the innovators to be 

forthcoming with this information. The manufacturers’ reluctance to do 

so stems from concerns that this will provide eventual competitors 

producing generic products with useful information. On the other hand, 

this is balanced by the advantage that comes from the fact that the 

first one to register a monograph with USP then defines the test 

standard that all others must follow. If a monograph exists, then all 

who produce the entity that is the subject of the monograph must use the 

exact protocols contained in the monograph. The USP is specifically 

mentioned as the sole appropriate reference in the Food, Drug and 

Cosmetics Act. That is, the USP monograph becomes the legal basis for 

establishing non-conformity with standards for quality.31 If no public 

USP monograph exists because the proprietary concerns outweigh this 

potential benefit, then in the United States the FDA will set out the 

specifications for purity and quality on a private basis. Thus, the FDA 

is responsible for private standards for quality assurance. 

There are about 30 or more pharmacopoeias in existence throughout 

the world, but several are no longer active, e.g., the French, Spanish, 

Italian, etc. pharmacopoeias have been superseded by the European 

Pharmacopoeia (officially the European Pharmacopoeia Commission residing 

in Strasbourg, France.) But there are active pharmacopoeias in China, 

____________ 31 That is, when it becomes a legal matter of prosecuting nonconformity the USP reference monograph is definitive. However, a 

manufacturer may choose to claim compliance based upon another set of 

monograph procedures and market a drug on that basis. 
 35

India, Russia, Brazil and many other large export market countries. 

Pharmacopoeias are still coming into existence in places such as Vietnam 

and the Philippines. Such countries develop them largely to provide 

assistance to local industry. Canada is an example of a country without 

its own pharmacopoeia that recognizes USP, EP and several others as 

being equally valid for testing within Canada. 

USP is often asked to develop a monograph for foreign drug 

manufacturers because USP is regarded in many areas as the “gold 

standard”. It may be referred to even before local pharmacopoeias are 

consulted because it often is the key to being able to export 

successfully. 

In the United States, pharmaceutical manufacturers self certify 

their compliance with USP standards. This is supplemented by spot 

checks and visits to facilities by FDA. FDA also has in place a policy 

that provides for national treatment in that foreign “drug sponsors” 

(manufacturers) may also self-certify conformity. It is the 

responsibility of the drug sponsor to produce data to satisfy FDA’s 

criteria. This limited national treatment is only for the drug sponsor, 

not any foreign conformity assessment body. 

Self-certification is rarely the rule abroad. The fact that in 

addition to the USP there also exist the European Pharmacopoeia (EP), 

the Japanese, and so forth, means that there is considerable 

complication in the case of exports. The principal difficulty is that 

in addition to meeting own-country standards for quality, the exporter 

must also meet the standards set in the country of importation. In the 

case of Europe and Japan, not only must the standards be met but the 

local testing protocols must be used as well. This type of testing must 

always be performed on a per lot basis. Since 1989, there has been a 

Pharmacopoeia Discussion Group between the United States, EU and Japan, 

operating in parallel to the other efforts at harmonization, discussed 

below. This body attempts to find areas where harmonization between 

pharmacopoeias may be accomplished. The efforts have focused on 

monographs for excipients and general procedures. The effort has not 

succeeded to date in addressing active ingredients or drug products. 

Even so, the effort, in common with other harmonization efforts in the 
 36

pharmaceuticals sector, is routinely described as being very slow and 

laborious. 

Standards related to quality appear to inflict costs and 

complications on potential U.S. exporters who must expend resources to 

meet distinct criteria in at least three separate markets, but they do 

not obviously constitute TBTs. The standards are intended to apply to 

domestic and foreign producers alike. That having been said, there is 

at least one specific instance where these standards may have presented 

TBT-like attributes. In the case of the excipient sucrose, the EP 

effectively eliminates U.S. manufacturers from the European market. 

While U.S. sugar producers use both cane and beets as a raw material, 

Europeans use the latter exclusively. The EP reference standard is 

beet-derived sucrose. This means that sucrose as produced by industrial 

processes in U.S. firms has a different refractive index than that 

specified in the EP standard and so is precluded from sale for 

pharmacological purposes in Europe (and other regions applying the EP 

standard). This issue has been subject of long standing conversations 

between U.S. and European trade representatives but apparently still 

remains in effect. 

There certainly exists a possibility that standards embodied in 

other pharmacopoeias could disadvantage U.S. exporters and protect 

domestic industries. It is not unknown even in the U.S. domestic market 

to have an innovator provide data for a USP monograph that has an 

intent, in part, to establish “lock out” criteria that will frustrate 

attempts by generics manufacturers to compete. However, no specific 

instance of a similar intent being enacted overseas to lock out a 

potential U.S. exporter came to the attention of this report’s authors 

during the course of this overview. 

Intellectual Property Rights Protection and TBTs 

IPR protection concerns and TBT considerations may overlap. 

However, to the extent that proprietary data delivery requirements 

mandated by importing country regulations lead to loss of control over 

intellectual property, they would be governed by the TRIPS Agreement. 

The TRIPS Agreement requires governments requesting such data delivery 
 37

to make sure that information gained from importers is shared only with 

the appropriate parties within the government. TRIPS 39(3) states that 

regulatory bodies may not disclose commercially sensitive information 

unfairly. 

Nevertheless, in some countries there appears to be leakage from 

the system. Exporters claim that their proprietary data routinely 

receives insufficient protection. They also face discriminatory 

requests to disclose information, owing to technical requirements that 

local firms can satisfy by other means. In many instances this appears 

to be a function of underdeveloped regulatory institutions. In some 

countries, however, it is alleged that the regulatory process in general 

and the requirement for proprietary data in particular is used to 

promote domestic industrial development and keep out imports. 

Discriminatory demands for proprietary data coupled with leakage 

potentially impose a different set of costs on exporters than is usually 

focused on in the TBT literature. Attempts to estimate the cost of 

TBTs, like our own, usually focus on the loss of markets or the 

additional costs to the exporter of complying with the TBT. In this 

instance, the cost stems from the potential loss of intellectual 

property not the loss of the export market. Because facing these 

regulatory strictures may have a chilling effect on incentives to 

export, the potential reduction in exports is not due to an increase in 

production costs but rather the potential loss of an asset. Some U.S. 

firms have reportedly made decisions on a case-by-case basis not to 

export specific pharmaceutical products to markets where there are 

issues with data exclusivity. They fear that a launch in some countries 

will mean that they will soon find themselves competing with the local 

manufacturers of generics. This constitutes an opportunity cost in lost 

sales that is not governed by TRIPS. The regulations that lead to lost 

sales in some instances do have TBT characteristics. 

Registration and reimbursement 

The U.S. pharmaceutical industry is very concerned about 

reimbursement practices and price controls in export markets. Many 

countries have some sort of national health insurance that provides 
 38

partial or complete reimbursement for drugs. Under these systems, 

pharmaceuticals must be registered for approval for them to be dispensed 

and their costs then reimbursed by the appropriate public authority, 

which, in turn, is funded from the state treasury or a national health 

insurance fund. 

Given the prevailing institutional arrangements, national health 

insurance authorities are monopsonistic buyers in most countries for 

most purposes.32 The principal industry trade group, PhRMA, argues that 

this power is used both to restrict entry to certain classes of drugs 

and to introduce systems of effective price control.33 In a number of 

countries, although framed in terms of general application, registration 

appears to discriminate against innovative drug products, which are 

principally imports and often from the United States, while not 

affecting locally produced generics. In some cases, registration is 

withheld because regulatory bodies are faced with political, 

institutional or social choice issues. To the extent that imported 

drugs are discriminated against in the registration process, 

registration processes may act as TBTs. 

One of the complicating factors in registration is the issue of 

price. All health care systems are facing cost pressures. Cost 

pressures may lead to purposeful foot-dragging in registering drugs out 

of a desire to keep potentially expensive treatments off the approved 

list. In some instances, price differentials between innovative drugs 

and other, probably less effective substitutes make it difficult to 

determine whether registration procedures are discriminatory and hence 

have TBT characteristics. 

Harmonization of Regulations 

The process of achieving harmonization is conducted as part of the 

activities and meetings of the WHO-sponsored International Conference of 

____________ 32 It should be noted, however, that even in nations with allencompassing single-payer systems there is still often a market for 

imported pharmaceuticals in private transactions. However, the 

requirement for patients to pay the full retail price for these drugs 

make them practically inaccessible to much of the population. 

33 Interveiws with PhRMA staff. 
 39

Drug Regulatory Authorities and also of the body generally known as the 

International Conference on Harmonisation of Technical Requirements for 

Registration of Pharmaceuticals for Human Use (ICH). The latter began 

in 1991 as an ongoing process for scientific and technical discussions 

of testing procedures required to ensure and assess safety, quality and 

efficacy. The participants are the three major regulatory authorities 

in the United States, Japan, and the EU as well as the major industry 

association from each region. 

The ICH process is an exercise in harmonization by aggregation. 

That is, the process occurs incrementally. The body gathers attendees 

who compare the regulatory procedures each applies in one narrow area. 

If there is no institutional memory of how a particular practice 

originated, the participants look at the results from different 

approaches to see if there is any difference in the way alternative 

practices might lead to regulatory outcomes and scientific conclusions. 

The result in this one area then becomes a set of tests acceptable to 

all regulators. The process is then repeated in the next area for 

consideration. The process is by its nature a slow and rather expensive 

one. Only a limited number of areas can be addressed. And from the 

perspective of TBT-generating activities, even though there is now 

pretty wide consensus on areas of regulatory relevance the real concerns 

often arise from the realm of interpretation. 

Mutual recognition agreements (MRAs) have been pursued as a means 

for addressing the differences in interpretation. Despite initial 

optimism, the generally held view is that they have proven of dubious 

value in practice. They are long and difficult to negotiate in part 

because the sides come from such very different perspectives. In the 

case of the development of the drug annex to the U.S.-EU MRA, it became 

clear that mutual recognition could imply almost anything. Apparently, 

the EU sought total equivalence in approach, focusing on procedures. In 

contrast, the United States sought agreement on policy goals and 

qualifying systems, focusing on results. The two views are hard to 

reconcile and made more difficult by such practical matters as the lack 

of copies of relevant standards and the differing regulatory and 

institutional traditions. 
 40

REGIONAL PERSPECTIVE ON TBTS IN PHARMACEUTICALS 

What follows should be viewed as a presentation of regulations, 

standards, or conformity assessment procedures that display TBT-like 

characteristics. The discussion is based largely on interviews with 

representatives of U.S. industry and with U.S. government personnel. 

Special 301 filings by PhRMA with the Office of the U.S. Trade 

Representative also provided inputs.34 The treatment highlights 

“episodes” and concerns from the standpoint of TBTs. It is not a 

definitive catalogue of documented instances of TBTs. Neither should 

presentation of allegations of potential TBTs be construed as conclusive 

demonstration of TBTs in fact. 

Countries fall into three groups when viewed from the perspective 

of standards and regulations that may give rise to TBTs. The first tier 

consists principally of developed industrial countries that produce 

their own regulations. The United States, the countries of the European 

Union, and Japan are the most important members of this group. Each 

produces a complete system of regulatory measures. These institutions 

are often adopted as the model for another group of countries, the Tier 

III countries. These, in turn, tend to be developing market countries 

lacking the means or the need for developing regulatory systems 

distinctly their own. Tier II countries tend to be large developing 

countries or dynamic emerging economies. These are countries where 

elements of one or more Tier I regulatory systems may provide a basis 

for deriving a separate national policy of regulations, standards, and 

conformity assessments with the addition of a considerable number of 

local elements. These tend to be the most troubling for exporters 

because of their unique combination of regulatory elements. 

Tier I Countries 

Japan. Japan is a highly industrialized country with an aging 

population. It has several domestic pharmaceutical firms, but only six 

that could be classed as global companies and all are of relatively 

____________ 34 The Special 301 provisions are principally addressed to IPR 

issues. However, the PhRMA submissions also contain documented 

allegations of market barriers and restrictive practices alleged to be 

in place in specific countries. 
 41

small scale compared with the largest firms in the United States or in 

Europe. The rest of the firms in Japan concentrate solely on the 

manufacture of generic drugs. 

As in many other countries, the government in Japan tries to reduce 

prices on the most expensive drugs. To achieve this policy goal, 

reimbursement for new drugs is linked to the price of an older, preexisting drug to which it is officially paired. The reimbursable price 

for the new drug therefore fails to capture or reward the value of 

innovation. Further, the price remains linked not only to that of the 

specific older drug but also to the life cycle of that drug as well. If 

the old drug goes off patent and its price subsequently drops, the price 

of the new drug is also forced down. So the only reimbursement possible 

is at the old rate even if there is a radically new or vastly more 

effective drug. Given the industrial organization of the domestic 

pharmaceuticals industry, the result is to place the greatest burden – 

either in the form of lower prices or foregone sales because of the 

differential between what the buyer would pay and how much the 

reimbursement would cover -- on the producers of innovative drugs who 

most often come from abroad. 

Local social objectives may also give rise to technical measures 

with TBT-like attributes. In Japan, as in Europe, the precautionary 

principle often holds more sway in informing policy than does the costbenefit approach to safety regulations. The Japanese are now reportedly 

constructing a system that applies only to drug manufacturing 

innovators. It will require considerably greater information disclosure 

than is required at present and then at least a portion of this 

information will be disclosed externally. They are also considering 

changing the way in which they intend to assess safety. The presumption 

will be that new pharmaceuticals are unsafe and that the burden of 

proving a negative – that is, that any given drug is not unsafe – will 

fall on the manufacturer before a drug may be offered for sale. The 

argument, albeit speculative, is that this regulatory posture, if 

adopted, lacks scientific merit and may create a situation in which 
 42

innovative foreign manufacturers face greater regulatory hurdles than 

domestic manufacturers of generic drugs.35

European Union. Within the EU there is no formal Single Market for 

pharmaceuticals. As a result, exporters experience a patchwork of 

policies, processes, and measures. Safety and efficacy is within the 

competence of the European Commission, but healthcare provision and drug 

reimbursements remain within the competence of individual countries. 

However, once a drug is on the market in one country the product may 

move freely across borders. This means that price is arbitraged to some 

extent with the market price set by the national regulatory regime that 

yields the lowest price. 

The issue of whether any particular practice regarding 

pharmaceutical regulations, standards, or conformity assessment is 

discriminatory is not an easy one in the EU setting. In most cases, 

European innovators face the same conditions, as would a potential U.S. 

exporter. Thus, discrimination is a subtle matter in that it is 

presented as an issue of innovative versus generic products rather than 

foreign versus domestic. 

Some U.S. firms argue that members of the EU prefer to discuss and 

clarify particular regulatory issues in the context of the WTO and other 

multilateral forums. It is sometimes difficult to obtain engagement on 

a bilateral basis, despite the bilateral nature of some practices, such 

as conformity assessment testing. This inherently slows down a process 

that is felt by some to be in itself a serious trade restricting force. 

Again, the claim is that the innovative pharmaceuticals bear the brunt 

and are hit first. 

One further cause for concern with regulation is that the United 

Kingdom has recently pioneered an additional approval step that is 

beginning to diffuse elsewhere on the continent. In addition to testing 

a new drug for safety, effectiveness, and quality, there is now a need 

to evaluate cost-effectiveness at the time of proposed country launch. 

This has introduced an effect known colloquially as “NICE Blight” after 

the National Institute for Clinical Excellence, the authoritative entity 

____________ 35 Interview with PhRMA staff. 
 43

in the United Kingdom. While a drug is being evaluated in this regard 

it effectively halts most doctor prescriptions. Physicians will wait 

for the results to come in. Then, after there is approval on the basis 

of cost effectiveness there is a further step – receiving approval for 

reimbursement. This introduces an additional sometimes quite lengthy 

delay in market entry. This delay entails direct costs and foregone 

sales but, it is also feared, prepares the path for more accelerated 

follow-on by generics. Further study would be required to ascertain 

whether this should be viewed as a regulatory issue per se or just an 

extension of the processes for reimbursement approval. 

Other Europe. The nations of Central and Eastern Europe are all 

working toward eventual full membership in the EU, which would place 

them in the ranks of the Tier I category. However, they are still all 

in a state of transit to establishing the full range of EU regulations. 

At present, these countries are to varying degrees alleged to pursue 

delaying tactics in approvals for reimbursements. It is not the usual 

practice to routinely update reimbursement lists – officially. Yet, 

allegations have been made that nevertheless local copies and generics 

manage to get on the lists. In the instance of Poland, according to the 

2003 Special 301 filing submitted to the Office of the U.S. Trade 

Representative (USTR) by PhRMA, no innovative products have been 

included in the reimbursement system for four years while the government 

appears willing to register patent-violating domestic direct copies of 

U.S. products in only a matter of months. 

In Poland, even if an innovative drug makes it to the reimbursement 

list, there exists a formulary that has the effect of providing a 

further restriction on what can be prescribed directly and by whom. 

These are alleged to be non-transparent and discriminatory. The 

practice continues even though the formularies were declared illegal by 

the regulatory Office for Health Insurance Supervision. 

Croatia provides another example. In this country every batch of 

drugs shipped is subject to analysis by a single government testing 

authority. This adds one month to the time of each shipment. 
 44

Tier II 

The Tier II countries are in many respects the most problematic for 

U.S. exporters. These countries have chosen to produce their own sets 

of regulations, standards, and conformity assessment procedures for 

pharmaceuticals. In many cases, these technical measures amalgamate and 

draw heavily from those in force in Tier I countries. But there are a 

considerable number of local elements present as well. Generally 

speaking, it is in this region that there are the most allegations of 

regulations, standards, and conformity assessment procedures being used 

to serve other policy purposes. By the nature of the choice made by 

these nations to craft their own regulations, there are also allegations 

of considerable difficulty with transparency. Some specific instances 

are cited below. 

Developing Asia. The governments in the Asia-Pacific region have 

originated several practices that display TBT-like characteristics and 

are said to be increasingly resistant to U.S. government overtures. 

Korea, along with Taiwan, is most often cited as operating in a manner 

that is discriminatory. There is an onerous process of quality 

assurance and testing that applies only to innovative (imported) 

pharmaceuticals and not to (domestic) generics. 

PhRMA’s Special 301 submissions charge Taiwan as presenting a 

sweeping array of TBT-like practices: regulations and conformity 

assessment procedures are reportedly discriminatory, non-transparent, 

and not scientifically grounded. Taiwan, too, has demanded that 

extensive production process data be made available before registration 

of imported innovative drug products. There is serious question of 

whether the expertise even exists within Taiwanese regulatory agencies 

to examine such information. 

China has been working to improve its system of regulation and 

appears to be willing to introduce changes in accord with WTO practice. 

Yet, concerns have arisen among potential exporters. Generally, it has 

been charged that China will institute across-the-board changes in its 

testing specifications without prior notification. Such notification is 

required under the TBT Agreement. This is in many ways the most onerous 

potential TBT in the eyes of many U.S. manufacturers. 
 45

Following the lead of Japan, China now also requires what amounts 

to entire repetition of Stage III testing procedures of innovative 

pharmaceuticals entering into the country. The origin of the practice 

is the claimed necessity to ascertain the safety and efficacy of 

pharmaceutical products for the metabolisms of Asian populations. 

(There is no known scientific basis for such a broad requirement. ICH 

has concluded that there are few if any major differences between 

populations and what population differences exist can be quite 

adequately treated by constructing single studies to explore all such 

issues.) This requirement means that new drugs are required to be 

subjected to an entire new critical trials process. The net effect is 

an additional three year delay in time-to-market and perhaps as much as 

$100 million in extra costs. This practice is now proliferating in the 

region. 

Other economies of Southeast Asia present a similar roster of 

problems arising from regulatory institutions and processes. The 

Association of Southeast Asian Nations (ASEAN) has engaged in a 

harmonization process to produce common guidelines, e.g. for drug 

stability requirements. Yet, they have harmonized on regulatory 

protocols that are not consistent with ICH accords or WTO requirements. 

In effect, this harmonization has resulted in the setting of two 

regulatory protocols; this in itself confuses and countervails the move 

toward harmonization. Again, the claim is that there is not much 

ambiguity or controversy on the science involved in this area. The 

market in drug products in many respects presents less room for 

interpretation than, for example, does trade in food because one is 

dealing with known and very well defined chemical entities. So when 

deviations appear, it is possible to make an inference that in the 

absence of a scientific basis for such measures other purposes may be 

being served. 

Middle East. In this region, IPR issues are paramount among trade 

concerns, but concerns about alleged TBT-like practices have also come 

to the fore in Special 301 filings with USTR. 
 46

Turkey36 is frequently the target of allegations running the full 

range of pharmaceutical export problems. Every box of imported drugs is 

inspected and tested; there is a bio-equivalency requirement applied 

only to innovative drugs and not to generics, quite the opposite of what 

one might expect; there is no practice of data exclusivity stemming from 

a regulatory agency stance that accepts no obligation to protect the 

large amounts of data authorities insist be provided, etc. 

Israel is another country in the region that does not provide data 

exclusivity. This is alleged to benefit, if only indirectly, the local 

generics manufacturers some of whom are also quite successful exporters. 

An Israeli firm, TEVA Pharmaceuticals, is the fastest growing 

manufacturer in the world and makes only generics. 

It is worth noting that two countries in the region, Saudi Arabia 

and Lebanon, are not WTO signatories. The latter has traditionally 

served as an entrepôt for the region, a port of entry where considerable 

transshipment occurs. It may be regaining this role in recent years, 

hence possessing a possible importance beyond the size of its domestic 

market. 

Latin America. Because of the proximity to the United States and 

the existence of the North American Free Trade Agreement (NAFTA) it is 

useful to discuss the case of Mexico in a bit more detail. Mexico also 

represents the largest single market in Latin America for 

pharmaceuticals sales (on the order of $6 billion in 2003). In many ways 

it is emblematic of the type of issue that arises in Latin America with 

U.S. pharmaceutical exports. 

The fundamental issues revolve around the drug registration 

process. All drugs must be registered, however, the way they are 

treated differs considerably. In Mexico there are three main types of 

drugs. The first category represents the innovative drugs that are new 

to the market. The second category is that of the generic drugs. The 

third is a category peculiar to Latin America called similares, 

____________ 36 Turkey is usually categorized with European countries rather 

than those in the Middle East. However, from the perspective of TBTs 

the industry finds it convenient to place it in the latter category as 

many of its practices are common elsewhere in the Middle East, but are 

not common in Europe. 
 47

described below. Whereas tests of bio-equivalency are required for the 

innovative drugs in order to be registered, many of the generics do not 

require such testing if the innovative drug that is being copied has 

already been registered. This is an instance of differential treatment. 

There are intellectual property issues that also arise because the 

registration process does not ask for patent information on the part of 

the firm asking for registration. Also, registrations have been made on 

the basis of stolen data obtained during the registration of innovative 

drugs. 

Unlike generics, similares are not necessarily the same chemical 

entities as the innovative drugs that are usually copied by generics or 

if the same they are present in concentrations other than the 

concentrations that appear either in the generic composition or the 

original pharmaceutical that is being copied. These latter represent a 

potential danger because of lack of adequate regulation, lack of 

scientific understanding of the basis for their claims of efficacy, and 

the growing concern over developing resistance of many disease-causing 

bacteria to antibiotics. For this reason, they are viewed as having the 

potential not only to compete in the market for either innovative or 

generic drug products but to also destroy the market for future sales of 

the originals to which they are intended to be similar. In fact, the 

Mexican government is seeking, over a period of five years or so, to 

phase them out. On the other hand, the similares represent a very large 

market in Mexico; Mexican manufacturers have been actively lobbying the 

Mexican government to preserve their markets. 

There is also a lack of homologation between the U.S. and Mexican 

registration processes. In many respects the Mexican process is more 

rigorous in the sense that there are requirements for registration of 

products that would not require registration in the United States. Not 

only medicines and allopathic drugs are required to be registered with 

the Health Ministry, but in common with most of the world outside the 

United States, vitamins and herbal medicines also require registration 

by the Health Ministry before receiving an import permit. All of these 

are considered to be medical products. Herbal remedies, including 
 48

supplements, go through a different registration process, the so-called 

Alpha Code process that then also yields the required import permit. 

The Ministry of Health has a monopoly on the laboratories qualified 

to do bio-equivalency and other conformity assessment testing. The 

testing is a combination of providing written data to the government and 

having physical tests done in laboratories in Mexico. These 

laboratories are not necessarily only in Mexico City. They are all over 

the country but all are under the exclusive control of the Ministry of 

Health. 

The only entities allowed to register medicines, drugs, and health 

products in Mexico are those that actually have manufacturing facilities 

in the country. Therefore, it is not simply a matter of registering 

these types of potential imports; the exporter must find a local partner 

who is willing to provide the auspices for the registration under 

Mexican law. The Mexican Ministry of Health has refused to allow 

importation of output from facilities that are outside of Mexico. NAFTA 

has changed things in that it is now possible for U.S. firms to receive 

national treatment in the sense of being able to submit bids for local 

tenders offered by the government. But they still need to be registered 

to submit tenders and that registration process requires a physical 

presence in Mexico. Mexican authorities claim that there is a need to 

have a facility in Mexico because otherwise they would have no recourse 

for liability issues if the facility were outside the country. The 

official U.S. response to this is that there needs to be national 

treatment for U.S. firms under NAFTA. 

As an illustration, the manufacturer who produces a generic form of 

a popular, over-the-counter treatment for upset stomach for sale by 

several mass-market U.S. retail chains wanted to sell into the Mexican 

market. Even though several of these U.S. chains have a presence in 

Mexico, they are not permitted to buy a product that they routinely 

stock in the United States. This product must be registered and in 

order to be registered the manufacturer must have connection with a 

local Mexican pharmaceutical firm. 

In spite of this apparent strictness, the Mexican system is riddled 

with anomalies. For example, registration made today is currently valid 
 49

for life. Some registrations go back 50 or more years. The 

registration could even be resold legitimately on the secondary market. 

There may be change of manufacturers or changes in the plants being used 

to produce registered drugs but there is no need to retest bioequivalency under Mexican law. 

Interestingly, in the realm of pharmaceuticals the Mexican 

authorities rarely refer to the health and safety exceptions provisions 

of the TBT Agreement or even recognize its relevance to the regulatory 

issues with which they deal. This may be due, in part, to a larger 

problem of communication between Mexican agencies. For example, the 

Ministry of Health, which has jurisdiction over imports of 

pharmaceuticals, and the Ministry of Economía (industry) appear to have 

little coordination on regulatory issues. In compliance with the TBT 

Agreement there is an official enquiry point, the Director General for 

Standards. But it has been charged that it is not very active, has not 

really been a powerful force in collecting information, and is not in 

tune with the actual rulings by regulatory agencies. 

The transparency issue is raised by how new proposed technical 

regulations are often treated in Mexico. Most such new regulations in 

the health sector, for example, are not reported according to the 

reporting requirements of the TBT Agreement because they are not 

formally considered to be regulations by Mexico. Rather, they are 

issued as presidential orders. So notification procedures are not 

followed and no comment period is offered. This is said to create a 

climate unfriendly to foreign suppliers. A regulation will be announced 

and will be effective almost immediately. This situation of overnight 

adoption arises because the Mexican government wants to avoid strategic 

non-compliance during any latent period. They do not want, for example, 

a firm to dump a drug on the market in anticipation of a regulation 

going into effect at a later time that would ban it. This is true 

across all sectors, not just pharmaceuticals. For example, currently 

the Ministry of Health is working on a best manufacturing norm for 

nutritional substances. When this is completed, it will take effect the 

next day. 
 50

Other countries in Latin America present conditions similar to 

those found in Mexico. Examples of other actions that have the 

characteristics of potential TBTs include: 

• In Ecuador, local manufacturers are given special treatment and 

procurement of domestic generics, by law, must constitute no less 

than 20 percent of total sales with government institutions being 

required to purchase only domestic generics. 

• Venezuela requires individual packaging and dosing by the 

manufacturer for each and every patient prescribed. That is, the 

manufacturer must provide packages in the dimensions required by the 

physicians in their prescriptions. This serves to impose additional 

costs without a clear health or safety reason. 

• Brazil represents a market with $4-5 billion in annual pharmaceutical 

sales. It has recently proposed a procedure for potential drug 

importers to first submit data and analyses on cost effectiveness. 

The authorities will not engage in quality and conformity assurance 

testing if the product does not first pass this hurdle. The 

procedures and criteria for passage are alleged not to be based on 

recognized scientific data.37

Also in Brazil, generics are alleged to pass the bioequivalency testing too easily and often inappropriately. The claim 

is that the testing of generics is not sufficiently rigorous because 

they have better access to and a different process from that applied 

to the innovative pharmaceuticals. 

Finally, in Brazil there is a tremendous backlog of process 

patents. This appears to many to be purposeful. There is no wait 

for any other form of chemical entity. All are processed in a timely 

manner. The exception is for pharmaceuticals. In 2002, Brazil 

approved 2 out of 18,000 drug patent applications. Meanwhile, while 

the innovative pharmaceutical remains patent pending, the generics 

and copies do manage to get registered for reimbursement. 

• The countries of Central America have embarked on an effort to 

harmonize their regulations with respect to pharmaceuticals. Critics 

____________ 37 The problem of cost effectiveness testing is one of long 

standing in pharmaceuticals. See Luce, 1993. 
 51

charge they have deliberately chosen to harmonize on an older, lower 

quality set of standards. This will favor local manufacturers who 

cannot meet higher standards set elsewhere. Several of the Central 

American states also formally require procedures applied only to 

imports. 

Tier III 

By definition, the countries falling into this group are those who 

have chosen not to establish their own codes for regulation and 

conformity assessment testing but have instead adopted one of the major 

bodies of technical measures as their own. Typically, these are the 

regulations of the United States, Japan, or, most commonly, the EU. 

This does not, however, mean that difficulties with TBT-like 

characteristics do not arise in implementation. 

To pick one example, Canada will accept either the U.S. or EU 

standards as being sufficient for meeting the regulations administered 

by Health Canada, the relevant regulatory body. Yet, PhRMA has cited 

some potentially TBT-like practices in its 2003 Special 301 submission 

to the USTR. 

The allegations include purposefully slow registration processes 

for new products and unduly favorable treatment for domestically 

produced generics. In 2001 the average time for drug approval was 

nearly two years, seven months longer than the U.S. FDA’s average 

approval time and well over the one year that Health Canada has set as 

its own goal. In addition, there is considerable variation across 

Canada’s provinces on when and which pharmaceuticals appear in the 

official formularies. Among other charges, it is alleged that despite 

formal written regulations generics receive more favorable treatment 

than the innovative pharmaceuticals of which they are copies to the 

point that some generics have been approved even while the original drug 

product was still on patent. If true, this illustrates that being a 

Tier III country does not necessarily mean that there is an absence of 

issues that bear the characteristics of TBTs. 
 52

CONCLUSIONS 

The pharmaceuticals industry by nature of its structure and output 

presents many preconditions for the emergence of TBTs. It is truly a 

global industry but one where governments also have a stake in having a 

large measure of local control. It is among the most highly regulated 

industries in any country and the variety of its product offerings is 

great, making the regulations truly complex. It produces high value 

added goods in much demand, hence an incentive for others to either 

control costs or to obtain some portion of the resulting value stream 

for themselves. And because its products are all directed toward 

improvements in health, with attendant concerns about safety, the issue 

of defining regulatory legitimacy is far from easy. Almost unique among 

internationally traded products, measures that might have the character 

of TBTs may be regarded as stands on principle by the officials and 

agencies that promulgate them. 

Clearly, not all alleged TBTs are TBTs in fact and law. A 

significant number of alleged TBTs result from perceptions by U.S. 

exporter firms of being picked on – even if the regulatory agency in 

question is using the same standards and procedures used by FDA. The 

perception can also arise because the regulations may be dissimilar to 

those in the United States even though they are fully proper under the 

TBT Agreement.38 Potential U.S. exporters discover they are dealing 

with a regulatory environment that is unfamiliar and where they are 

required to comply with more stringent requirements than they are used 

to on the U.S. domestic market. Consequently, complaints are brought 

alleging TBTs. 

____________ 38 As an example, this issue often arises in the case of 

nutritional supplements. These are often placed in the drug category by 

the regulatory agencies of many countries. The U.S. position is that 

there should be a scientifically sound reason to do so; otherwise they 

should be treated as a food. This last, however, is not an obligation 

under the WTO rules. The U.S. does regulate nutritional supplements on 

the same basis as food, but this is in contrast with other countries 

where they are regulated on the same legal basis as drugs. This is not, 

therefore, necessarily a case of a TBT as much as problem of misaligned 

expectation and lack of experience. 
 53

The evidence, however, does suggest that some countries may emplace 

measures, both systematic and episodic, that appear prompted by health, 

fiscal, industrial, or foreign policy concerns -- or stem even from 

personal considerations -- that differentially and unnecessarily affect 

either the ability of U.S. firms to export or the cost of doing so. 

Although regulations are written to cover general cases, the 

argument made in particular by the industry association of innovative 

pharmaceuticals manufacturers, PhRMA, is that de facto discrimination 

exists because regulations are written in such a manner that they only 

affect innovative pharmaceuticals. This is of particular concern from 

the perspective of the U.S. industry because the bulk of on-patent 

products have been developed in the United States. By the nature of the 

industry, technical measures that discriminate against new products 

would necessarily have most effect on this major U.S. product group.39 

Such regulations are couched in terms of protection for domestic 

populations but these goals are often conflated with an interest in 

promoting generics (because they are cheaper and the national health 

systems usually are the purchasers) as well as promoting local industry 

to keep the expended funds within the country.40

The welfare losses from this practice may be extensive but are hard 

to quantify. To the extent that such TBT-like results ensue, they might 

be viewed as providing a free ride for local generics manufacturers at 

the potential cost of reducing the local benefits to innovation and the 

incentives to develop the capacity to do domestic R&D. There is a 

further welfare cost to the extent that the local population is denied 

____________ 39 Even when a drug is brought out by a non-U.S. manufacturer, in a 

great number of cases it is the product of research and development 

carried forward in the U.S. 

40 To make the issue even more complex, it may well be that the 

actual pills being regulated come from U.S. factories operating in 

China, Taiwan, Korea, etc. So these are not really exports in the 

fullest sense of the word. But in these cases it is the effort embodied 

in the drug product that has been exported. The trade restricting or 

discrimination argument becomes harder to make because pharmaceuticals 

are an intellectual property-intensive, high fixed cost, minimal 

marginal cost product. The idea embodied in the form of these products 

is being affected by regulations and practices that bar its full 

realization in the form of exports. 
 54

access to potentially helpful drug products either because they have 

been denied entry to the market through one or several technical 

measures or because knowing the indirect efforts of the local 

authorities to see generic versions of blockbuster drugs be developed 

locally, potential exporters choose not to go into this market and 

engender the creation of serious competitors. Finally, there is the 

more global potential welfare loss of lost innovation. Industry 

representatives argue that in spite of the apparently healthy returns to 

innovation presently enjoyed by pharmaceutical innovators, if it were 

not for the U.S. market the incentives for innovation would be most 

problematic. If external markets are restricted and the returns to be 

gained rendered lower through policy measures, the industry questions 

whether the U.S. market would remain large enough to compensate for the 

rising costs of drug discovery and marketing. But the issue may be more 

complex. It could be argued that it is not the size of the market 

necessarily as much as the number of innovating competitors that is 

crucial. Addressing this question in detail is beyond the scope of this 

study. 

The principal effects of TBTs may take the form of increased 

recurring costs associated with regulatory compliance; one-time costs, 

perhaps resulting from the need to change manufacturing processes; and 

the opportunity costs associated with lost or reduced sales, perhaps as 

a result of a country’s regulations or de facto processes raising 

unacceptable risks to potential exporters. The data on these costs and 

economic burdens exist but only at the level of the individual firm. 

The leading industry association, PhRMA, does not do systematic 

collection of data on TBTs. They do focus attention on priority markets 

such as China, Korea, Taiwan, Brazil, and Mexico. There is active 

monitoring of regulations and new regulatory issues in these most 

sensitive markets, but only passive monitoring of other markets. 

Further, member firms develop their own direct information systems. So 

there does exist a well-established network for making inquiries, just 

no formal database. There is a great interest on the part of the 

industry to see more active and intensive monitoring and data collection 

on a case-by-case basis, but this is not something that is possible at 
 55

the industry association level. By their nature, steps to comprehend 

and accord with technical measures and undertake the requisite 

associated costs are experienced on a firm-by-firm basis. Such 

information is considered proprietary. Having an industry association 

collect such information could expose it to potential anti-trust 

concerns. Hence, obtaining these data from industry organizations is 

not feasible because many avoid collecting them as a matter of prudent 

practice. 

At the U.S. government level, FDA maintains no files or databases 

on foreign regulations, standards, or conformity assessment procedures 

with TBT-like characteristics. Further, there is no information 

available from FDA that would allow for a calculation of economic 

effects of TBTs. The agency is specifically enjoined from collecting 

any information whatsoever on profits, costs, and revenues from firms in 

the industry. 

The U.S. Department of Commerce recently began to maintain a case 

database of TBTs. However, it is not used to do aggregate analysis on 

the basis of systematic searches. Rather, it is intended as a resource 

for Special 301 investigations. The trade officials that are located in 

country, at the various U.S. trade missions, can be of assistance in 

gauging the general accuracy of these estimates, but there, too, there 

is no independent calculation of costs. Firms that make use of these 

services provide their own estimates of costs and loss. It is these 

that the Department of Commerce relies upon. 

For these reasons, one conclusion of this chapter is that data for 

assessing the economic effects from TBTs on U.S. pharmaceuticals 

exporters would need to come from those exporters directly. 

The issue of TBTs in pharmaceuticals also appears to differ from 

the situation in the automotive industry, the subject of the next 

chapter, in several respects. Whereas the latter industry produces a 

great variety of motor vehicles, the vehicles and their constituent 

components are utilized by and large to provide transport services for 

goods, people, or both over the common road grid. Pharmaceuticals, on 

the other hand, are more heterogeneous products. They may, for example, 

be used to treat symptoms, provide prophylactic protection, or ensure 
 56

the efficacy of other treatments. And they do not travel the same 

“road” within the body. Rather, they are targeted toward different body 

systems and operate in widely different ways. Further, there are not 

strict analogues in the automotive sector to the problems such as 

regulatory non-transparency and discriminatory registration practices, 

ostensibly on technical grounds, that are the principal sources of 

complaint in pharmaceuticals. 

These factors make it difficult to provide an authoritative check 

list of alleged TBTs in the pharmaceuticals sector. Yet, even so, a 

cursory check of the specific instances discussed in this chapter does 

provide some insights. Based on these examples, Table 3.1 provides some 

suggestion as to where TBTs might occur. 

Table 3.1: Patterns of TBT-like Measures in Pharmaceuticals 

Measure Europe East Asia Latin 

America 

Rest of 

World 

Total 

Product 3 2 1 1 7

Process 0 2 0 0 2

Conformity 

Assessment 

Procedures 

2 1 3 1 7

Total 

5 5 4 2 

16

The Table is a simple mapping of the instances of TBTs derived from 

the source material used in this chapter’s discussion onto the three 

broad categories of technical measures. Clearly, it cannot be claimed 

to be definitive, merely suggestive. It indicates that issues of TBTs 

related to regulation of process is not a preponderant problem with the 

exception of the onerous data requirements on processes that are part of 

some registration protocols. On the other hand, issues of conformity 

assessment are prevalent. This represents an inversion of the concerns 

that exist in the automotive industry as discussed in the next chapter. 

TBTs arising from technical measures with respect to products are also a 

cause for concern in this sector. It is also worth noting that the 
 57

weight of alleged TBTs falls in the developed market regions of Europe 

and East Asia. 

 59

IV. TBTS AND THE U.S. AUTOMOTIVE INDUSTRY 

INTRODUCTION 

Like the pharmaceutical industry, the automotive industry provides 

a fruitful field of study for assessing the effect of technical barriers 

to trade on U.S. exports. Almost every country imposes regulations on 

motor vehicles that affect safety, emissions, and other items of public 

interest. Although the automotive industry is a global one, product 

standards vary by country or region. Further, the industry is 

politically and economically important so governments frequently seek to 

protect it from competition from imports. The combination of numerous, 

complex regulations, differing standards, and protectionistic pressures 

makes the automotive industry an especially inviting target for the 

application of TBTs. 

The automotive industry is also worthy of study because of its 

importance to the U.S. economy. In 2001, total industry shipments ran 

$427.2 billion (Table 4.1); the automotive industry directly accounted 

for 1.1 percent of GDP.41 The industry is also an important exporter. 

In 2001 and 2002, respectively, total automotive exports ran $73.5 and 

$76.5 billion, 10.2 and 11.2 percent of total U.S. exports. The 2001 

figure was equal to 17.2 percent of total industry shipments.42

To evaluate the effects of TBTs on the U.S. automotive industry, we 

first briefly describe the structure of the U.S. and global automotive 

industry. The purpose of this discussion is to identify industry 

characteristics that make the application of TBTs more or less 

difficult. This is followed by a discussion of differences in 

international approaches to regulations, standards, and conformity 

____________ 41 Census Bureau, Annual Survey of Manufactures, Table 2: 

Statistics for Industry Groups and Industries, December 20, 2002, p. 43. 

42 For the purposes of this study, automotive exports are defined 

as passenger cars, trucks, buses, and special purpose vehicles, and 

automotive components (end use trade code numbers 30000, 30100, 30200, 

30210, 30230). We have chosen not to include automotive tires and tubes 

(30220) in this discussion. 
 60

assessment procedures that might affect U.S. exports. Then, using the 

checklist developed in Chapter II, we examine regulations, standards, 

and conformity assessment procedures throughout the world so as to 

identify measures that have characteristics of TBTs. We then explain 

how these measures may affect U.S. automotive exports. We conclude with 

an analysis of the most frequent types of measures adopted that have 

TBT-like characteristics. 

Table 4.1: Value of U.S. Automotive Industry Shipments in 2001 

(billion $’s) 

Category Shipments Percent of Total 

Shipments 

Cars and light duty 

vehicles 

203.5 47.6

Heavy duty trucks 12.6 3.0

Parts, including bodies 

and trailers 

211.0 49.4

Total 427.2 100.0

Source: Annual Survey of Manufacturers, U.S. Census Bureau, Dec. 20, 

2002 

THE U.S. AND GLOBAL AUTOMOTIVE INDUSTRIES 

The structure of an industry may have an appreciable effect on 

firms’ responses to differing regulations and standards in export 

markets and hence the effects of TBTs. For example, because sales 

volumes tend to be larger, big multinational corporations are more apt 

than smaller national companies to have the resources for responding to 

the introduction of a TBT by developing products according to different 

standards or to invest in production facilities in the country that has 

created a TBT. Smaller companies lack these resources and are usually 

faced with either adapting existing products to comply with foreign 

regulations and standards or abandoning the export market. The U.S. 

automotive industry consists of companies at both ends of this spectrum. 
 61

The automotive industry may be divided into three main groups of 

companies: 

1. Original equipment manufacturers (OEMs) of light duty 

vehicles (cars and light trucks); 

2. OEMs of commercial motor vehicles and trailers; and 

3. Automotive component manufacturers. 

The U.S. and global markets for light duty vehicles are dominated 

by a relatively few OEMs.43 Eighteen companies account for over 90 

percent of worldwide production, of which the top five account for well 

over one half.44 As a result of corporate alliances and equity stakes 

among the leading manufacturers, the industry is even more concentrated 

than these numbers indicate: the top 18 manufactures fall into only nine 

truly independent groups. The top five companies include two 

manufacturers headquartered in the United States: General Motors and 

Ford, the two largest companies in terms of global sales. They are 

followed by Toyota, Volkswagen, and DaimlerChrysler. All five of these 

companies have production facilities in all major global markets. 

Markets for commercial vehicles (excluding light duty vehicles) are 

much smaller and more fragmented than that for passenger cars. For 

example, in 2001, U.S. manufacturers’ shipments of heavy trucks were 

only about 6 percent of the value of shipments of light duty vehicles.45 

Even though the market for commercial vehicles is much smaller than for 

light duty vehicles, the number of significant manufacturers, both in 

the United States and abroad, is larger. Globally, the industry is 

split into a small group of multinational manufacturers of medium and 

heavy trucks, which include DaimlerChrysler, Scania, Volvo, and Paccar, 

____________ 43 For a various useful overview of the U.S. industry see: The Road 

Ahead for the U.S. Auto Industry, Office of Automotive Affairs, 

International Trade Administration, U.S. Department of Commerce, April 

2003, http://www.ita.doc.gov/td/auto/2003roadahead.pdf. 

44 Ward’s World Motor Vehicle Data 2001, Ward’s Communications, 

Southfield, Michigan, 2001, p. 230-231. 

45 Census Bureau, Annual Survey of Manufactures, Table 2: 

Statistics for Industry Groups and Industries, December 20, 2002, p. 43. 
 62

a U.S. manufacturer. However, a number of other large manufacturers in 

Europe, Japan, and North America do not have a global manufacturing 

presence, for example, the U.S. manufacturer, Navistar. Smaller, 

independent domestic manufacturers are common, especially in developing 

countries. Bus manufacturers, in particular, tend to be focused on 

local markets. 

In the United States and throughout the world, automotive 

components manufacturers form a much larger, more diverse group than 

OEMs of light duty or commercial vehicles. In the United States, there 

are about 5,000 components manufacturers, of which more than 500 are 

controlled by foreign firms.46 Globally, the industry consists of tens 

of thousands of manufacturers. Both the domestic and global industry 

consists of several large multinational companies known as Tier 1 

suppliers, followed by dozens of smaller, but still sizeable Tier 2 

suppliers, and thousands of smaller companies that provide subcomponents 

and parts. In the United States, the largest 100 components 

manufacturers (the tier one and two suppliers) account for the vast 

majority of sales. 

 The composition of the industry has changed over time. 

Historically, OEMs produced a very large share of components in-house. 

Over the past two decades, OEMs, especially in North America, have 

divested components divisions and now rely much more on outside Tier I 

component suppliers than in the past. For example, General Motors has 

divested itself of Delphi while Ford has shed Visteon, both now Tier I 

suppliers. This same process has also taken place in Europe and Japan, 

although the degree of dependence on outside suppliers varies from 

company to company in all three regions. 

Component manufacturers sell into two separate markets: sales to 

OEMs for installation on new vehicles and aftermarket sales to dealers, 

garages, and vehicle owners that are sold through a large variety of 

wholesale and retail outlets. Sales to OEMs dominate although 

____________ 46 U.S. Department of Commerce, U.S. Industry and Trade Outlook 

2000, Chapter 37 Automotive Parts, 2000; p. 37-1, 

http://www.outlook.gov/. 
 63

aftermarket sales are also sizeable. Total shipments by U.S. components 

manufacturers to both OEMs and the aftermarket ran $211 billion in 2001. 

Exports of automotive components and parts are significantly more 

important than exports of finished vehicles. As shown in Table 4.2, in 

2002, exports of parts and components, excluding tires, accounted for 62 

percent of total automotive exports while components accounted for a 

little less than half of total industry output. Viewed another way, in 

2001, exports of parts were equivalent to 22.8 percent of total U.S. 

output of automotive parts while exports of finished vehicles (cars and 

trucks) were equivalent to 11.7 percent of total output of finished 

vehicles. 

Table 4.2: U.S. Automotive Industry Exports in 2002 

(billion $’s) 

Category Total Non-NAFTA 

Cars 20.5 7.3

Trucks, Buses, and 

Special Purpose Vehicles 

8.3 1.1

Parts 47.6 10.4

Total 76.5 18.7

Source: Annual Survey of Manufacturers, U.S. Census Bureau, Dec. 20, 

2002 

REGULATIONS IN THE AUTOMOTIVE INDUSTRY 

TBTs stem from differences in regulations, standards, or conformity 

assessment procedures that serve to discriminate against exporters or 

are more trade restrictive than needed to fulfill a legitimate policy 

objective. In order to identify and assess potential TBTs in the 

automotive industry, it is useful to first describe the types of 

regulations, standards, and conformity assessment procedures facing U.S. 
 64

exporters of automotive products in major markets and explain how they 

differ from U.S. practices. 

The UNECE and North American Regulatory Divide 

U.S. exporters of automotive products face a world market that is 

roughly divided into two, previously three, major geographic regions in 

terms of technical regulations and standards affecting motor vehicles. 

In North America, the United States and Canada have adopted very similar 

technical regulations on safety and emissions. The U.S., Canadian and 

Mexican motor vehicle industries are extremely integrated; with some 

minor exceptions, standards are virtually identical.47 Europe has 

adopted a core set of common technical regulations for motor vehicles 

under the auspices of the United Nations Economic Commission for Europe 

(UNECE). Like the North American industry, the European automotive 

industry also has a common set of standards, but one that differs from 

those in North America. Finally, Japan has had different technical 

regulations and somewhat different standards than either North America 

or Europe. However, in 1998 Japan became a signatory to the UNECE 

agreement: Japanese technical regulations are now being modified to 

correspond with UNECE regulations. 

U.S. Regulations 

In the United States, regulations affecting the design and 

construction of motor vehicles and automotive components are primarily 

set by the federal government although some state governments, most 

notably California’s, have adopted their own regulations concerning 

emissions, fuel economy, and recycling tires among other issues. 

1. Safety 

____________ 47 The North American market is less unified than the European 

market in terms of technical regulations. Although the Mexican 

automotive industry generally uses the same standards as in the United 

States and Canada, the United States imposes far more safety regulations 

on motor vehicles than does Mexico. The United States and Mexico also 

use different conformity assessment procedures to ensure compliance with 

regulations. 
 65

Regulations concerning motor vehicle safety are issued by the 

National Highway Traffic Safety Administration (NHTSA), part of the U.S. 

Department of Transportation under Title 49 of the United States Code, 

Chapter 301, Motor Vehicle Safety. Manufacturers of motor vehicles and 

components ensure that their products conform to these requirements and 

certify to NHTSA that they are in compliance. NHTSA regulations are 

written in terms of minimum safety performance requirements for motor 

vehicles or items of motor vehicle equipment. As long as manufacturers 

achieve the goals set by these requirements they are not constrained in 

terms of the designs or production processes they choose to employ. 

NHTSA safety regulations generally fall into the following 

categories: 

• Crash avoidance (controls and displays, braking systems, 

lighting systems, windshield wipers and defrosters, tires, 

etc.) 

• Crashworthiness (restraints, air bags, windows glass, locks, 

seats, vehicle structure, etc.) 

• Post-crash protection (fuel system integrity, flammability, 

etc.)48

2. Fuel Economy 

NHTSA is also responsible for collecting information and enforcing 

U.S. regulations on corporate average fuel economy (CAFE). In the 

United States, the government establishes separate minimum average fuel 

consumption levels per distance traveled for the passenger car and light 

truck fleets. If average fuel economy of a manufacturer’s fleet falls 

below specified levels, the manufacturer is liable for a tax per vehicle 

that increases to the extent the manufacturer misses the minimum. NHTSA 

establishes measures of fuel economy and enforces this legislation.49

____________ 48 National Highway Traffic Safety Administration, Federal Motor 

Vehicle Safety Standards and Regulations, August 2001, 

http://www.nhtsa.dot.gov/cars/rules/standards/safstan2.htm. 

49 National Highway Traffic Safety Administration, Federal Motor 

Vehicle Safety Standards and Regulations, August 2001, 

http://www.nhtsa.dot.gov/cars/rules/standards/safstan2.htm. 
 66

3. Emissions 

A third major area of regulations affecting motor vehicles in the 

United States concerns emissions. The Environmental Protection Agency 

(EPA) is responsible for regulating tailpipe emissions of pollutants 

from motor vehicles. The EPA sets regulatory limits in terms of how 

much pollution motor vehicles may emit. Theoretically, manufacturers 

then decide how to ensure that emissions fall under these limits. In 

practice, manufacturers usually converge on the technology that most 

efficiently meets the regulatory limits. The limits, in turn, are 

determined on the basis of available technologies. The manufacturers, 

not EPA, test their vehicles under EPA guidelines and inform EPA of the 

test results. EPA ensures compliance by periodically conducting its own 

tests of vehicles.50

UNECE Regulations 

1. The UNECE Agreement 

As the result of international efforts to harmonize regulations and 

provide mutual recognition of conformity assessment procedures, Europe 

has developed a regulatory system that is generally applicable across 

that continent and is becoming increasingly accepted in other regions of 

the world as well. In 1949, the Convention on Road Traffic was adopted 

in Geneva. In 1952, the Working Party on Construction of Vehicles was 

set up by the Inland Transport Committee under this convention.51 

Initiatives by the Working Party to harmonize regulations on vehicle 

construction affecting safety led to negotiations on a treaty to 

harmonize regulations on motor vehicles. In 1958, a treaty was signed 

under the auspices of the UNECE entitled “Agreement Concerning the 

Adoption of Uniform Technical Prescriptions for Wheeled Vehicles, 

Equipment and Parts, which Can be Fitted and/or be Used on Wheeled 

Vehicles and the Conditions for Reciprocal Recognition of Approvals 

Granted on the Basis of These Prescriptions.” This treaty has become 

____________ 50 Environmental Protection Agency, Automobile Emissions: An 

Overview, Fact Sheet OMS-5, EPA 400-F-92-007, August 1994, 

http://www.epa.gov/otaq/05-autos.htm 

51 The United States was a founding member of the Working Party on 

Construction of Vehicles. 
 67

the basis for creating common motor vehicle and component regulations in 

Europe and now beyond and for mutual recognition of certification. The 

agreement has been revised twice, most recently in 1995. Currently, 36 

countries and the EU are signatories to Revision 2 of the UNECE treaty. 

Until 1998, only European states had adopted common regulations 

under the agreement. However, in 1998, Japan not only became a 

signatory, but became the first non-European member to decide to make 

its regulations conform to those accepted by UNECE. Australia, New 

Zealand, and South Africa have signed since 2000. Because of these 

moves, regulations agreed to under the UNECE treaty are becoming the 

most commonly adopted both in and outside of Europe. 

The national governments of the UNECE signatories can and do adopt 

additional regulations that must be met by motor vehicles and automotive 

components before they may be sold within their borders. However, 

signatories to UNECE agree that they will abide by all commonly agreed 

regulations. As of May 2003, UNECE had agreed to 114 regulations 

concerning motor vehicles and components. These fall within the 

following groups: 

• Lights, directional signals, and reflectors; 

• Electrical systems, including electromagnetic compatibility; 

• Noise; 

• Safety protection equipment, including door latches, seat 

belts, seats, airbags, and motorcycle helmets; 

• Brakes; 

• Safety glass and mirrors; 

• Horns and other warning devices; 

• Tires; 

• Flammability; 

• Crashworthiness and general construction, including specific 

components such as steering columns and interiors; 
 68

• Vehicle design in terms of exterior protrusions and 

clearance; 

• Coupling devices, e.g., trailer hitches; 

• Emissions of pollutants; 

• Measurement of fuel consumption and engine power; 

• Theft protection measures; 

• Instrumentation and location of controls. 

2. The EU and the UNECE Agreement 

Although the UNECE sponsors the agreement, it is not a regulatory 

agency. Proposed regulations are first developed and in many instances 

adopted by agencies and ministries responsible for vehicle safety and 

emissions in the member states. In most member states, these agencies 

are located under the ministries of transportation. For EU member 

states, the largest and most important group of countries that are 

signatory to UNECE, the European Commission has become a major 

participant in this process. The European Commission has now become the 

primary source of regulations on motor vehicles in Europe. 

As in the United States, the European Commission divides authority 

for regulations affecting safety and those affecting the environment 

between different agencies or, in the European Commission’s case, 

directorates. Within the European Commission, the Directorate-General 

Enterprise is responsible for regulations concerning motor vehicle 

safety. 

To some extent the European Commission takes a back seat to the 

UNECE in matters of safety regulation. The EU only became a signatory 

to the UNECE agreement in 1998. Because the UNECE agreement preceded EU 

involvement in vehicle safety issues, many EU regulations affecting 

safety have been developed under the auspices of the UNECE and adopted 

by the EU rather than vice versa.52 This reflects the major roles 

____________ 52 Automotive Industry: Regulatory Framework, Enterprise 

Directorate, European Commission, 
 69

played by the ministries of transport in the member country states in 

the development of these regulations and the broader membership of the 

UNECE than of the EU. 

In contrast, the European Commission has spearheaded the 

introduction of regulations to reduce the emission of pollutants from 

motor vehicles. Directorate-General Environment is in charge of 

regulating motor vehicle emissions. Emissions are regulated under 

Directive 70/220/EEC (for light vehicles) and 88/77/EC (for heavy 

vehicles) and by amendments to those directives.53

The EU has also adopted regulations concerning the disposal and 

recycling of motor vehicles. Japan has adopted regulations to this 

effect as well, but most other countries, including the United States, 

do not have regulations concerning recycling vehicles, although 

regulations on disposing of or recycling tires are common. 

Other Countries’ Regulations 

Writing regulations on motor vehicle safety or emissions levels can 

be an expensive process if conducted on the basis of extensive research 

on crashworthiness and emissions technologies. Countries with large 

automotive manufacturing industries such as the major West European 

countries, Japan, and the United States have had the resources, private 

and public, to engage in this type of research. Poorer countries or 

countries without a large automotive industry have had fewer resources 

or less motivation to engage in the research needed to develop 

scientifically-based regulations. These countries tend to adopt or 

adapt UNECE, U.S., or in some cases Japanese regulations or accept 

vehicles produced by major motor vehicle manufacturers from countries 

that use these regulations. 

Some medium-income industrializing countries that have domestic 

automotive industries have created their own systems of regulations, 

 

http://europa.eu.int/comm/enterprise/automotive/pagesbackground/regulato

ryframework.htm 

53 Environment and Transport: Road Vehicles, Directorate for the 

Environment, European Commission, 

http://europa.eu.int/comm/environment/air/transport.htm 
 70

often by stipulating that manufacturers comply with additional 

regulations than those issued by the United States or the UNECE. For 

example, Russia imposes regulations concerning vehicle construction in 

addition to UNECE regulations. Some countries have adopted regulations 

from both the United States and the UNECE. For example, China, where 

the regulatory system is in flux, sometimes uses elements of both. 

These mixed cases tend to be difficult markets for U.S. OEMs as none of 

their standard models, even if designed to be produced for both North 

American and UNECE markets, meet the regulatory requirements of these 

countries. The small potential volumes of exports to these various 

markets make the costs of adapting products to conform to their 

regulatory requirements an inhibiting consideration. These mixed 

systems often effectively function as technical barriers to trade. 

Harmonization of Regulations 

As noted above, the Working Party on Construction of Vehicles (WP. 

29), set up in 1952, was the original forum in which signatories agreed 

to work to harmonize automotive regulations. In addition to UNECE 

member states, the United States and Canada have also participated in 

WP.29 from its inception. Building on the work of WP.29, in 1998, the 

Global Agreement on Harmonization of Vehicle Regulations was signed. 

The agreement was deemed necessary because of the importance of ensuring 

that vehicles are safe, limiting environmental degradation caused by 

motor vehicles, and combating vehicle theft through technological 

innovation. In addition to the European Community, initial signatories 

included Canada, the United States, Japan, Russia, China, the Republic 

of Korea, and South Africa, among other major automobile producing 

nations. 

Discussions concerning harmonization of regulations now take place 

within the World Forum for Harmonization of Vehicle Regulations (WP.29), 

the new title given the Working Party on Construction of Vehicles (WP. 

29). Discussions on harmonization are conducted within six working 

groups: the Working Party on Pollution and Energy (GRPE), the Working 

Party on General Safety Provisions (GRSG), the Working Party on Brakes 

and Running Gear (GRRF), the Working Party on Lighting and Light-
 71

Signaling (GRE), the Working Party on Passive Safety (GRSP), and the 

Working Party on Noise (GRB). Discussions not only focus on the 

harmonization of regulations affecting vehicle components, but also on 

the harmonization and mutual recognition of conformity assessment 

procedures.54 Although progress has been made on harmonization of 

regulations, differences in regulatory goals and systems are such that 

complete international harmonization is highly unlikely in the near 

future. 

STANDARDS IN THE AUTOMOTIVE INDUSTRY 

As set out in Chapter II, standards are rules, guidelines, or 

characteristics for products or manufacturing processes approved by a 

recognized body. Compliance with standards, in contrast to regulations, 

is not legally mandatory. Standards are adopted to improve economic 

efficiency by facilitating the integration of products and processes and 

by providing market participants with information about products. In 

the case of the automotive industry, however, regulations are more 

typically directed at the achievement of public policy goals such as 

improving safety or reducing emissions of pollutants. Because of their 

voluntary nature, standards tend to be drafted by committees of 

stakeholders under the umbrella of non-governmental institutions, like 

the American National Standards Institute (ANSI) in the United States, 

the Deutsches Institut fur Normung e.V. (DIN) in Germany, the British 

Standards Institute in the United Kingdom and the Association francaise 

de nomalisation (AFNOR) in France, not by government agencies. However, 

in some instances government bodies, like the Japanese Industrial 

Standards Committee, part of the Japanese Ministry of Economy, Trade and 

Industry, are responsible for issuing standards. 

These institutions, public and private, either set up standard 

drafting committees themselves or rely on specialized industry 

associations to conduct these activities. For example, the German 

____________ 54 Economic Commission for Europe, World Forum for Harmonization of 

Vehicle Regulations (WP.29): How it Works, How to Join It, United 

Nations, New York and Geneva, 2002, 

http://www.unece.org/trans/main/wp29/wp29wgs/wp29gen/wp29pub/wp29pub2002

e.pdf. 
 72

Association of the Automotive Industry (VDA) is integrally involved in 

staffing and setting the agenda of the German Automotive Standards 

Committee (FAKRA) of DIN, the German standards body. Standards drafted 

by standard-setting committees such as FAKRA are subjected to public 

review and then adopted, often by consensus, by the presiding bodies of 

the national standards setting institutions. 

In the automotive industry, the national standard setting bodies of 

the countries with the largest automotive manufacturing industries are 

the most important. In the United States, this organization is the 

Society of Automotive Engineers International(SAE International). SAE 

International organizes and runs technical standards committees that set 

automotive industry standards in the United States and elsewhere in the 

world. It publishes a number of publications to inform the industry and 

the public about standards; it also conducts some standards-related 

research. It has affiliates in Brazil and India and cooperative 

arrangements with other organizations involved in setting automotive 

industry standards, such as FISITA (Fédération Internationale des 

Sociétés d'Ingénieurs des Techniques de l'Automobile), a European 

organization. FISITA is another international organization of 

automotive engineers, with 32 member societies active in 32 countries. 

As noted above, FAKRA, a committee under DIN, is the forum in which 

automotive standards are drawn up in Germany. Because of the importance 

of the German industry, FAKRA has a substantial influence on European, 

and therefore global, standards. FAKRA draws up standards for the 

automotive industry pertaining to terminology, testing, component and 

vehicle dimensions, interfaces, body structures and complete equipment. 

FAKRA represents DIN in the Road Vehicle Committee (ISO/TC 22) of the 

International Organization for Standardization (ISO) and also on 5 other 

ISO or CEN committees dealing with transport issues. In Japan, the 

Society of Automotive Engineers of Japan (JSAE) performs a similar role 

in setting standards under the Japanese Automotive Standards 

Organization (JASO). 
 73

Harmonization of Standards 

In many respects, harmonization of standards in the automotive 

industry has moved more quickly than harmonization of regulations. All 

the major motor vehicle manufacturing countries are members of ISO 

committee TC 22 Road Vehicles. The automotive industry standards 

setting bodies participate in this committee through their nation’s 

official representative, a national standards body. For example, ANSI 

is the U.S. representative to ISO. TC 22 and related committees have 

agreed on 536 ISO standards that pertain to the automotive industry. In 

addition, through the ISO 9000 certification of manufacturing processes 

programs, OEMs have benefited from an internationally accepted standard 

of manufacturing processes pertaining to automotive components, 

permitting them to shop for components from a wide-range of suppliers, 

confident that manufacturing processes are of a requisite quality. ISO 

9000 has contributed to forestalling technical barriers to trade based 

on differing standards concerning manufacturing processes by 

establishing widely accepted international standards for automotive 

industry production processes. 

Contributing to the harmonization of automotive industry standards, 

most OEMs now design “world” vehicles based on common components and 

hence standards. Through this process, the industry has pushed the 

development of common international standards for components. 

CONFORMITY ASSESSMENT PROCEDURES 

Within the global automotive industry, there are two general 

approaches to conformity assessment of products and processes with 

regulations: self-certification and type approval. The United States, 

Canada and some other countries use self-certification. Under selfcertification, the manufacturer attests to the regulatory authority that 

the vehicle or component is designed to meet regulatory requirements. 

Regulatory agencies may spot check vehicles and components upon or after 

introduction to the market. Manufacturers are also responsible for 

collecting and providing to regulatory agencies information on aftersale performance to ensure the part or vehicle performs as specified. 

If the product fails to meet regulatory requirements, the manufacturer 
 74

has to issue a recall and modify the vehicle or part to ensure that it 

does so. In addition, self-certification creates legal liabilities for 

the manufacturer, making it vulnerable to civil law suits on the part of 

aggrieved customers. 

The EU uses the other primary approach to conformity assessment: 

type approval. Under type approval, manufacturers have to procure a 

certificate of type approval before the product may be sold within the 

EU. They must first submit the product to be tested to an accredited 

testing organization to ensure that it meets government regulatory 

requirements. In recent years, the EU, under the “New Approach,” has 

been moving towards more performance-based testing. However, in some 

instances, regulations determine design specifications that must be met. 

After the testing agency completes its tests, the manufacturer submits 

the test results to the appropriate government agency, which then 

decides whether to issue a certificate that the product conforms to 

regulations.55 A certificate of type approval extended by any national 

authority of one EU member state must be recognized by all other EU 

member states. 

Type approval tends to be more widespread than self-certification. 

In addition to Europe, Japan, and Mexico, most other Asian and Latin 

American countries practice type approval. Under the UNECE agreement, 

signatories agree to recognize type approvals provided by certified 

bodies in all other signatory states as well. This agreement provides 

very substantial cost savings to manufacturers. Not only do they only 

need to obtain one type approval for a particular product in a UNECE 

member state, they can also shop around for the lowest cost testing 

organizations. Historically, because obtaining type approval was 

mandatory and in many countries only one organization was certified to 

conduct tests, testing organizations were not very cost sensitive. 

Mutual recognition introduced competition into this activity. In some 

instances, testing organizations created TBTs by discriminating against 

____________ 55 Council Directive 70/220/EEC of 20 March 1970 on the 

approximation of the laws of the Member States relating to measures to 

be taken against air pollution by gases from positive-ignition engines 

of motor vehicles, Official Journal L 076 , 06/04/1970 P. 0001 – 0022. 
 75

imported goods through differential testing procedures or differential 

pricing structures. Mutual recognition serves to diminish this avenue 

for the application of TBTs. 

In contrast to UNECE signatories, countries that are not 

signatories to UNECE may insist that manufacturers of finished vehicles 

or parts obtain type approvals from a domestic agency, replicating 

procedures that the manufacturer had already undertaken for UNECE 

markets. 

DOES THE NORTH AMERICAN-UNECE DIVIDE CREATE TBTS? 

Even though differences in regulations and standards between UNECE 

and North American markets impede trade by forcing manufacturers to make 

design changes to meet the demands of the two different regimes, in 

general these differences do not have the characteristics of TBTs as 

defined under the TBT agreement. The U.S., Canadian, and UNECE 

regulations are generally accepted as having been adopted to protect 

human life and health or for reasons of environmental protection. These 

regulations do not discriminate between imported and domestically 

produced vehicles and components, key provisos of the TBT agreement. 

Standards in the EU, North America, and Japan tend to be internationally 

recognized. Consequently, the “Great Divide” in the automotive industry 

may be cumbersome and costly for U.S. exporters, but in most respects 

the measures creating the divide fall outside the bounds of the TBT 

agreement. 

The divide does impose costs. U.S. OEMs and component suppliers 

(as well as their European and Asian counterparts) have structured their 

businesses in accordance with this divide. U.S. OEMs have set up 

subsidiaries or alliances in Europe and Japan to manufacture vehicles 

that are in compliance with the UNECE and Japanese regulatory systems. 

Historically, the European and Japanese manufacturers have adjusted 

production lines to manufacture vehicles for export that are consistent 

with North American regulations. More recently, most major European and 

Japanese manufacturers have adopted the model of their U.S. competitors 

and acquired subsidiaries in North America to manufacture products for 

the North American market. 
 76

Component suppliers have followed a somewhat different strategy to 

cope with differing regulations and standards in these regions. Tier 1 

suppliers have often followed the OEMs and set up plants close to major 

assembly operations. However, they also remain major exporters in as 

much as production of certain components may be more efficiently 

consolidated in a few plants. Tier 2 and Tier 3 suppliers have tended 

to export rather than site plants abroad. They adapt their products to 

the requirements of the various markets. 

Although these differences in technical regulations and standards 

do not appear to meet the definition of TBTs, export data do raise the 

question of whether they have had a significant effect on U.S. exports 

of automotive products. Over three-quarters of total U.S. automotive 

exports and 65 percent of U.S. vehicle exports are exported to the NAFTA 

market (Figure 4.1). By way of comparison, 37.9 percent of all U.S. 

exports, including automotive, go to NAFTA countries. 

NAFTA's Share in U.S. Exports of Automotive 

Products in 2002

0

10

20

30

40

50

60

70

80

90

100

Total Passenger Cars Parts

Percent

Figure 4.1-NAFTA’s Share in U.S. Exports of Automotive Products 

Differences in regulations and standards have not stopped U.S. 

automotive exports to non-NAFTA countries, however. Despite the design, 

tooling, and production costs of manufacturing vehicles and parts to 

meet regulations and standards other than those used in North America, 
 77

exports of automotive products outside of North America are substantial 

(Table 4.2). U.S. exports of passenger cars to non-NAFTA markets ran 

$7.25 billion in 2002, a third of the total; parts exports ran $10.4 

billion. 

Similar regulations and standards are not the only determinant of 

exports, however. Industrial structure and ownership also have an 

important influence on the destination of exports. The largest non-NAFTA 

U.S. automotive export markets are Germany and Japan, the two largest 

car-manufacturing nations outside the United States. Although 

traditional U.S. manufacturers also export finished vehicles to these 

markets, in recent years, most U.S. passenger car exports to Germany and 

Japan have come from plants that are located in the United States but 

owned by German and Japanese manufacturers. These foreign-owned 

manufacturers design vehicles and production processes so that vehicles 

can be manufactured to conform to European or Japanese regulations as 

well as U.S. regulations. 

Design decisions that make it possible to manufacture the same 

model for UNECE and NAFTA markets are implemented by U.S. manufacturers 

as well as their European and Japanese competitors. For example, when 

Chrysler was still an independent company, it designed the Neon so that 

it could be manufactured for right-hand drive markets like Japan and the 

United Kingdom, as well as left-hand drive markets. The modifications in 

design these decisions entail can be quite substantial. 

The substantial volumes of automotive exports to non-NAFTA markets 

suggest that the dominance of NAFTA automotive export markets is not 

just due to similar automotive regulations and standards. Rather, a key 

reason why NAFTA export markets are so important is the organization of 

the North American automotive industry, which in turn has been heavily 

influenced by North American trade policies, including NAFTA. The 

Canadian and U.S. automotive industries became closely integrated 

through the U.S.-Canada Automotive Pact, which lasted nearly three 

decades. NAFTA, which came into force on January 1, 1994, has 

superseded the pact. Initially, even under NAFTA trade in automotive 

products with Mexico continued to be subject to Mexican tariffs. 
 78

However, Mexico reduced tariffs on motor vehicles and automotive 

components very sharply in 1994 and subsequent years and finally 

eliminated all remaining tariffs on January 1, 2003. Trade in 

automotive products among NAFTA signatories is now duty-free. 

Through the reduction of tariffs and other barriers to trade, NAFTA 

has encouraged automotive manufacturers to choose manufacturing sites in 

NAFTA countries on the basis of comparative advantage. As a 

consequence, labor-intensive processes have migrated to Mexico, while 

manufacturing of other components has been concentrated in the United 

States and Canada. Decisions on the location of automotive industry 

plants have in turn contributed to large increases in trade in 

automotive components within the region. In light of the growth of 

intra-NAFTA trade in automotive products since the signing of the 

agreement and the existence of substantial exports to non-NAFTA 

countries, the predominance of NAFTA markets for U.S. automotive 

exporters has to be ascribed to reductions in traditional barriers to 

trade and the organization of the North American automotive industry, 

not just common technical regulations or standards. 

TECHNICAL MEASURES WITH TBT-LIKE CHARACTERISTICS IN THE AUTOMOTIVE 

SECTOR 

In this section, we identify regulations, standards, and conformity 

assessment procedures imposed by various countries that may affect U.S. 

automotive exports. We then use the checklist developed in Chapter II 

to identify those measures that have TBT-like characteristics. 

Data 

In contrast to the use of tariffs and quotas, where the WTO is 

frequently called upon to adjudicate disputes, countries have very 

rarely made formal complaints under the TBT agreement. Countries do 

inform each other of pending regulations that might be considered TBTs. 

This provides an avenue through which trading partners can register 

objections and potentially forestall regulations that would act as TBTs. 

However, the TBT agreement has not generally triggered dispute 

settlement procedures through the WTO. 
 79

Because of the paucity of formal WTO disputes concerning TBTs, the 

list of specific measures that have been designated as such by the WTO 

is very short. Therefore, we have used a broader net to create a list 

of potential TBTs facing U.S. exporters of automotive products. This 

list has been compiled from information drawn from interviews with civil 

servants of the U.S. government, the Russian government, and the 

European Commission, representatives of U.S. automotive manufacturers, 

representatives of automotive industry associations, and documents such 

as Compilation of World Motor Vehicle Import Requirements, the 2003 

National Trade Estimate Report on Foreign Trade Barriers, “Market Access 

for Non-Agricultural Products: Indicative List of Key Non-Tariff 

Barriers”, Minutes of Regular Meetings of the TBT Committee, and various 

reports from the WTO concerning implementation of the TBT agreement.56

The list is indicative, not definitive. We do not intend to make a 

judgment that these technical measures are, in fact, WTO inconsistent; 

rather, in our view these measures have some TBT-like attributes that 

may warrant further consideration. 

The measures are grouped into three categories: technical measures 

pertaining to products; technical measures pertaining to production 

processes, and conformity assessment procedures. For each, we first 

describe the measure and then explain how it might serve to act as a TBT 

to U.S. exporters of automotive products. We then aggregate these 

measures to identify the most common forms and countries in which they 

occur. In the following chapter, we take one such measure and use it to 

demonstrate a method for estimating the potential economic costs to U.S. 

exporters that it could engender. 

Automotive Products 

Some examples of regulations on automotive products that have 

characteristics of TBTs include the following: 

• Australia 

____________ 56 At http://www.ita.doc.gov/auto and 

http://www.ustr.gov/reports/nte/2003/index.htm, and 

http://www.wto.org/english/tratop_e/tbt_e/tbt_e.htm, respectively. 
 80

Although Australia joined UNECE in 2000, it has its own set of 

Australian Design Rules (ADRs). Australia does seek to reduce the 

impact of most ADRs on international trade. The ADRs use UNECE vehicle 

categories and are harmonized to a considerable extent with 

international standards.57 Moreover, some rules, such as the 

stipulation that all imported vehicles be configured or reconfigured for 

right hand drive have obvious safety implications. However, others such 

ADR 45 (“Lighting & Light-signaling Devices not covered by ECE 

Regulations”) impose additional requirements on manufacturers, that 

could have characteristics of TBTs, to the extent that they are more 

trade restrictive than necessary to improve vehicle safety. This 

regulation might be perceived as imposing requirements on manufacturers 

while not significantly affecting assurance of safe lighting. 

• Brazil 

Brazil bans imports of automobiles with diesel engines.58 The 

ostensible rationale appears to be to reduce harmful emissions from 

diesel exhaust. However, sales of automobiles with diesel engines are 

permitted in all other sizeable automobile markets. Governments in 

these countries have found satisfactory means of controlling emissions 

from diesel engines other than sales bans. Thus, Brazil’s ban has TBTlike attributes. 

• China 

China has been said to follow a mix and match approach by combining 

regulations from the UNECE and the United States as it creates its own 

system of regulations of motor vehicles. For example, the Chinese 

authorities have explored the adoption of North American regulations 

concerning emissions controls but UNECE regulations concerning safety 

equipment. This approach imposes significant burdens on foreign, 

including U.S., manufacturers because the costs of altering vehicles to 

meet these different specifications can be very high. In short, the mix 

____________ 57 “Transport Regulation, Vehicle Transport, The Australian Design 

Rules,” Department of Transport and Regional Services, 

http://www.dotars.gov.au/transreg/str_adrindx.htm. 

58 International Trade Administration, Compilation of World Motor 

Vehicle Import Requirements, U.S. Department of Commerce, August 2001, 

http://www.ita.doc.gov/auto, p. 13. 
 81

of regulations that have been adopted by China to regulate motor 

vehicles has had some characteristics of TBTs. 

• Pakistan and the Philippines 

A large number of countries, including Pakistan and the 

Philippines, levy disproportionate excise taxes or tariffs on vehicles 

with higher engine displacements. In Pakistan, for example, tariffs on 

passenger cars equipped with engines smaller than 1,000 ccs run 100 

percent of the vehicle’s value whereas cars equipped with engines more 

than 1,800 ccs in capacity incur a tariff of 265 percent.59 In the 

Philippines, excise taxes are also levied on the basis of engine 

capacity. Vehicles with gasoline engines below 1,600 ccs incur a 15 

percent tax; those above 2,700 cc incur a 100 percent rate.60 The U.S. 

government argues that these tariff and excise tax rates create market 

distortions and serve to discriminate against exporters of vehicles with 

larger engine capacities.61 

Countries that levy disproportionate taxes and tariffs on vehicles 

in terms of engine capacity reject the argument that these taxes serve 

as TBTs. They argue that differential taxes serve other public policy 

objectives such as restraining consumption of imported fuels or 

contributing to lower levels of emissions of carbon dioxide or 

conventional pollutants. 

• Russia 

Russia is a signatory to the UNECE agreement. In addition to UNECE 

regulations, Russia imposes five additional requirements that motor 

vehicles must meet to be sold in the country. These pertain to interior 

noise levels, interior air quality, ventilation and heating, and 

stability and handling. The fifth requirement pertains to front 

visibility, but is not always enforced. These requirements do not 

____________ 59 International Trade Administration, Compilation of World Motor 

Vehicle Import Requirements, U.S. Department of Commerce, August 2001, 

http://www.ita.doc.gov/auto, p. 55. 

60 International Trade Administration, Compilation of World Motor 

Vehicle Import Requirements, U.S. Department of Commerce, August 2001, 

http://www.ita.doc.gov/auto, p. 70. 

61 Ibid, p. 70. 
 82

violate international agreements since UNECE does not preclude 

additional requirements. Moreover, Russia is not yet bound by the TBT 

agreement as it is not yet member of the WTO, although it is negotiating 

entry. These requirements do, however, have characteristics of TBTs. 

First, it is not clear that the additional regulatory requirements are 

necessary from the point of view of safety, environmental protection, or 

other rationales listed for regulations in the TBT agreement. In 

addition, potential exporters have charged that the regulations are 

applied in a discriminatory fashion: imported vehicles are held to 

higher standards than domestically produced vehicles. 

• South Korea 

South Korea has adopted its own regulations for headlamps and other 

components that differ from UNECE and North American regulations. Prior 

to 1998, South Korea did not accept headlamps that met UNECE or North 

American regulations, but did not meet South Korean regulations. Since 

1998, South Korea has been adapting its regulations on lighting to 

better conform with UNECE regulations, but South Korean regulations 

concerning safety and other equipment still differ from UNECE and North 

American regulations, creating an impediment to trade.62 

• Taiwan 

Like Brazil, Taiwan bans imports of automobiles with diesel 

engines, with the exception of sport utility vehicles.63 It also bans 

imports of cars with two-stroke engines. As in the case of Brazil, the 

ban on cars with diesel engines has TBT-like characteristics as 

alternative, less trade distorting measures for controlling emissions 

from vehicles are available and employed by others. Moreover, as Taiwan 

allows imports of diesel-powered trucks, the ban on diesel-powered cars 

seems inconsistent from the point of view of environmental policy. 

____________ 62 International Trade Administration, Compilation of World Motor 

Vehicle Import Requirements, U.S. Department of Commerce, August 2001, 

http://www.ita.doc.gov/auto, p. 46-47. 

63 International Trade Administration, Compilation of World Motor 

Vehicle Import Requirements, U.S. Department of Commerce, August 2001, 

http://www.ita.doc.gov/auto, p. 45. 
 83

Automotive Manufacturing and Repair Processes 

In general, governments do not regulate the processes by which 

motor vehicles and automotive components are manufactured. Automotive 

production processes do not pose the same potential threats to human 

health that processes in the pharmaceutical or food industries 

potentially do. Of course, automotive plants are subject to the same 

worker safety and plant emissions regulations that are imposed on other 

manufacturing plants within a country. In addition, some countries 

regulate the disposal and repair of motor vehicles. In some instances, 

regulations affecting these processes may have characteristics of TBTs. 

• European Union 

EU directives on recycling end-of-life vehicles (ELVs) may have 

TBT-like characteristics. As noted above, the EU has adopted a 

directive (EC Directive 2000/53/EC) on the disposal of ELVs that came 

into force on October 21, 2000. The Directive stipulates that by 

January 1, 2006, on average a minimum of 85 percent of ELVs by weight 

must be recycled and recovered, and a minimum of 80 percent by weight on 

average must be reused or recycled. The difference between the two 

concepts is that recovery may involve burning materials for the latent 

heat energy while recycling involves using the material again. Reuse 

involves reusing or renovating the part. By January 1, 2015, 95 percent 

of vehicles by weight must be recycled or recovered and 85 percent 

reused or recycled. The Directive makes manufacturers responsible for 

achieving these goals, potentially posing problems for exporters to the 

EU. 

The regulations have been criticized for being unduly prescriptive: 

alternative, less prescriptive regulatory approaches could potentially 

achieve the same policy goal. To the extent that other, less 

prescriptive regulatory approaches are available, the regulations have 

TBT-like attributes. Adding to the concern, the average costs to 

exporters of adhering to the regulations, to the extent exporters to the 

EU market are affected, are likely to be substantially greater than for 

domestic producers because of economies of scale. 

• Japan 
 84

In 1995, the United States and Japan signed the U.S.-Japan 

Automotive Framework Agreement. Among other goals, the agreement was 

designed to reduce technical barriers to trade to U.S. exports of 

aftermarket products to Japan. Japan has had a complex system of 

regulations and standards that affect aftermarket sales. The Japanese 

Ministry of Transport has created seven classifications of parts that 

are deemed “critical.” Parts on the “critical parts list” may only be 

repaired at garages that are certified or if repaired elsewhere, have to 

be inspected at a certified garage. Because of the costs of training 

mechanics and certification, a large share of certified garages consist 

of dealer service centers or repair facilities directly tied to original 

parts manufacturers. These facilities generally only use original 

equipment parts, i.e., parts manufactured by the manufacturer or its 

direct suppliers. 

Before the 1995 agreement, garages had to be certified for the 

repair of “critical parts” in all seven groups, if they were to be 

certified for the repair of any parts listed as “critical”. Since the 

1995 agreement, Japan has made it possible for garages to be certified 

for individual groups of components, reducing the costs of training and 

certification for smaller, independent garages. It has also removed a 

number of products from the “critical list,” including shock absorbers 

and struts.64

Despite these changes, the Japanese system of certification of 

garages presents some TBT-like characteristics. The regulations 

discriminate in favor of domestic manufacturers because certified 

garages tend to be affiliated with Japanese OEMs or original parts 

manufacturers. As Japanese parts manufacturers supply domestic 

producers, the regulations serve to discriminate against foreign 

exporters of aftermarket parts that are not original equipment as these 

companies are not providers to the Japanese OEMs. Although the system 

is defended on the basis of its contribution to automotive safety, it 

____________ 64 “APAC Calls for New Treaty in Japan,” AAIA 2000. Aftermarket 

Insider, vol. 3 at 

http://www.apaa.org/International/Trade_Agreements/Trade_Agreements.asp#

Japan. 
 85

seems plausible that the same safety levels could be achieved with a 

less onerous system as they are elsewhere in the world. U.S. 

manufacturers argue that a number of components included on the critical 

parts list do not need to be classified as such. 

• Turkey 

Turkey imposes a regulation stipulating that companies planning to 

export to Turkey more than 75 units must obtain a Maintenance, Repair 

and Service Certificate from the Turkish Ministry of Industry and 

Commerce prior to importation. To obtain the certificate, the exporter 

is obliged to establish at least 20 service stations in seven designated 

geographic regions, of which at least one is to be operated by the 

exporter itself, and to maintain a sufficient supply of spare parts. 

Each of these service stations must obtain quality certificates from the 

Turkish Institute of Standards. 

This regulation displays some TBT-like attributes. It does not 

seem necessary on the basis of reasons of safety or the environment. It 

also seems to discriminate among exporters and between exporters and 

domestic producers: Exporters of smaller quantities of vehicles to 

Turkey would have more difficulty in defraying the costs of developing a 

service network than exporters or domestic manufacturers who sell larger 

quantities of vehicles. 

Conformity Assessment Procedures 

• Mexico 

In contrast to Canada and the United States, which use selfcertification, Mexico uses type approval for conformity assessment. 

U.S. exporters of automobile components have reported some difficulties 

with obtaining type approvals from Mexico. 

In addition, exporters to Mexico of some automotive parts have to 

apply to the Secretariat of Finance and Public Credit (SHCP) and be 

listed on a special industry register, otherwise they are not permitted 

to import the part. From a regulatory point of view, the registry 

requirement does not seem necessary. U.S. exporters have complained 

that when products are added to the list, the registration requirement 
 86

becomes immediately applicable, which can lead to costly delays while 

the exporter registers with the SHCP.65 

• Russia 

Russian conformity assessment procedures for finished motor 

vehicles and components have characteristics of TBTs. Although the UNECE 

agreement stipulates mutual recognition of certification procedures, in 

the event that a country like Russia imposes additional regulatory 

requirements, the UNECE agreement on mutual recognition applies only to 

those components like brakes or window glass that are covered in the 

agreement, not to the whole vehicle. Consequently, Russia requires 

additional testing and certification before Gosstandart, the regulatory 

authority, will issue a domestic certificate for the entire vehicle. 

Testing and certification of the entire vehicle is expensive and 

time-consuming, costing between $3,000 - $20,000, depending on the 

period for which the certificate is to apply, the number of vehicles the 

manufacturer plans to export to Russia, and the extent to which the 

vehicle has been certified by other UNECE signatories. For example, the 

Russian certification agency, in accordance with the UNECE agreement, 

will accept certificates issued by an accredited agency from an EU 

member state concerning brakes and crashworthiness, but will still 

require certification of the whole vehicle by a Russian laboratory.66 

Potential exporters to Russia complain that the process can entail 

demands for bribes and that employees of the certification agency will 

deliberately slow the process in an attempt to receive bribes or 

additional payments. Component manufacturers also find this procedure a 

barrier to trade as even small shipments of low-cost products will 

engender a demand for certification. Because initial orders are often 

in small volumes, the cost, delay, and expense of certification has 

dissuaded some exporters from selling into this market. In addition, 

Russian regulatory and customs authorities reportedly exercise a great 

deal of discretion concerning the applicability of type approval. At 

____________ 65 United States Trade Representative, 2003 National Trade Estimate 

Report on Foreign Trade Barriers, p. 274. 

66 Communication from Alexander Kansky, Russian automotive expert, 

U.S. Department of Commerce. 
 87

times, Russian authorities have demanded that each individual model or 

product variant receive separate certification. In the mid-1990s, one 

U.S. truck manufacturer was reportedly requested to obtain separate type 

approvals for vehicle differences as minor as different colors.67 

Domestic Russian manufacturers faced no such demands.

• South Korea 

Vehicle homologation procedures are one of the major impediments to 

access to the Korean market. Imports of vehicles are held up for customs 

inspections and there is little transparency or consistency in customs 

procedures.68 Safety compliance tests have to be performed in South 

Korea for all vehicles sold in quantities of 2,500 or more. Prior to 

2001, virtually all imported vehicles had to go through this conformity 

assessment procedure. South Korea also imposes documentation 

requirements on imported vehicles to certify that they meet Korean 

standards for which there are U.S. or UNECE equivalents. Although South 

Korea has streamlined a number of these procedures and shifted from type 

approval to self-certification in 2002, the remaining procedures still 

present TBT-like characteristics. 

• Venezuela 

The Venezuelan government operates a standards office with the 

acronym COVENIN that establishes obligatory standards for some products 

sold in Venezuela. Venezuelan customs has demanded that exporters 

provide an official certificate to the effect that the product to be 

imported complies with these standards. In some instances the standards 

imposed by COVENIN were not the same as in the exporting country or, as 

in the case of the United States, no official institution could certify 

adherence to standards as the creation and observance of standards is a 

private-sector activity in the United States. 

At one time, these Venezuelan conformity assessment procedures 

constituted a significant barrier to trade, but COVENIN now appears to 

accept a form of self-certification in which the manufacturer states 

____________ 67 Communication with the author from U.S. Russian truck 

manufacturer representative. 

68 2003 National Trade Estimate Report on Foreign Trade Barriers, 

http://www.ustr.gov/reports/nte/2003/index.htm, p. 258. 
 88

that the product meets established standards. However, if the potential 

exporter is unable to provide any type of certification, COVENIN demands 

that quality tests be performed by a Venezuelan laboratory, an 

expensive, time-consuming process. In the case of automotive 

components, COVENIN has set obligatory standards for batteries, safety 

belts and anchors, McPherson struts, brake parts, spark plugs and a 

number of other items, some of which do not appear related to safety or 

environmental concerns.69 

CONCLUSIONS 

Drawing on survey and interview data that were extensive, albeit 

not exhaustive, we have identified fifteen regulations, standards, and 

conformity assessment procedures in U.S. automotive export markets that 

display TBT-like characteristics. We have found the largest number of 

instances of potential product-related TBTs in medium-income developing 

countries with domestic automotive industries. Latin American and East 

Asian countries figured most prominently within this group (Table 4.3). 

 

Table 4.3: Instances of TBT-like Measures in the Automotive Sector 

Measure Europe East Asia Latin 

America 

Rest of 

World 

Total 

Product 1 4 1 2 8

Process 1 1 0 1 3

Conformity 

Assessment 

Procedures 

1 1 2 0 4

Total 

3 6 3 3 

15

____________ 69 International Trade Administration, Compilation of World Motor 

Vehicle Import Requirements, U.S. Department of Commerce, August 2001, 

http://www.ita.doc.gov/auto, p. 30. 
 89

Regulations with TBT-like characteristics affecting processes were 

most common in the repair and service sector. Both Japan and Turkey 

have had regulations concerning repair services that seem unduly onerous 

for the public policy goals that they desire to achieve. New 

regulations on the disposal of End-of-Life vehicles like those that have 

been recently adopted by the EU have some TBT-like characteristics as 

some of these regulations seem very prescriptive. 

In some countries, an unholy alliance of customs officials and 

“private” certification and testing bodies has succeeded in creating 

conformity assessment procedures that are arbitrary, costly and appear 

to discriminate against imports of automotive products. However, in our 

sample we have more instances of regulations affecting automotive 

products than conformity assessment procedures with TBT-like 

characteristics. 

Based on the findings in this section we offer several 

recommendations consistent with those offered more generally in Chapter 

VII. 

NIST does not need to set up its own, separate collection effort to 

identify TBTs. The U.S. government compiles a number of reports on 

market access problems confronting U.S. industry in general and the U.S. 

automotive industry in particular.70 In addition, the TBT committee of 

the WTO publishes its minutes. These efforts have successfully netted a 

number of technical measures that have TBT-like characteristics. In our 

view, reviewing these reports and interviewing major exporters and 

industry associations are adequate steps for identifying most potential 

TBTs facing U.S. automotive exporters. 

NIST should continue to monitor automotive export markets for 

instances of TBTs. As shown above, a number of countries have adopted 

technical measures and conformity assessment procedures concerning 

____________ 70 Compilation of World Motor Vehicle Import Requirements, the 2003 

National Trade Estimate Report on Foreign Trade Barriers, “Market Access 

for Non-Agricultural Products: Indicative List of Key Non-Tariff 

Barriers”, Minutes of Regular Meetings of the TBT Committee, and various 

reports from the WTO concerning implementation of the TBT agreement 
 90

automotive imports that have TBT-like characteristics. Automotive 

products are an important export, accounting for over one-tenth of total 

U.S. exports. Because of the prevalence of technical measures with TBTlike characteristics and the importance of this industry, NIST will 

continue to find it useful to examine and monitor foreign regulations, 

standards, and conformity assessment procedures affecting U.S. 

automotive exports to ensure that they do not violate the TBT agreement. 
 91

V. THE CURRENT STATE OF METRICS AND MEASURES 

To the extent that the foregoing chapters present evidence of TBTlike practices, the question of effects arises naturally. If the U.S. 

pharmaceutical or automotive products industry, or any other U.S. 

industry, faces TBTs in a foreign market, how do we measure the economic 

effects? Who wins and who loses? 

Two quotations suggest the difficulty of modeling the effects of 

TBTs on trade and welfare and the limits of the “state of the art” in 

this arena. Following a lengthy discussion of the difficulties of 

quantifying non-tariff barriers to trade (NTBs) generally, Deardorff and 

Stern (1997, p. 73) assert, “they [TBTs] are one of the most difficult 

NTBs imaginable to quantify.” Maskus and Wilson (2001, p. vii) offer an 

even more sobering assessment: 

It is remarkable how little is known about the trade 

impact of technical barriers based on empirical data and 

analysis. Economists cannot say with confidence whether 

such restrictions tend to reduce trade by virtue of 

raising compliance costs or expand trade by increasing 

consumer confidence in the safety and quality of imported 

goods. Claims abound on both sides, about which little 

illumination is available from existing studies. 

The combination of theoretical complexity and data scarcity makes 

efforts to model and measure TBTs that much more difficult. Unlike a 

tariff or quota, even a “bad” technical measure may have some redeeming 

features; for example, it may be overly trade restrictive, but it may 

also eliminate a safety hazard.71 Several recent studies present, 

____________ 71 By and large, the literature on economic modeling and 

measurement does not distinguish consistently between technical 

regulations and standards as the TBT Agreement defines them. In this 

discussion, we adopt the definitions of the TBT Agreement; however, we 

also use the term “technical measures,” to encompass any form of 
 92

assess, or apply methodologies for modeling and measuring the effects of 

NTBs, including TBTs, but no approach is or can be definitive. Each 

methodology offers its own pluses and minuses, depending on a number of 

factors, including the nature of the technical measure, the availability 

of data, and the goal of measurement. Among other major differences, 

some approaches look only at trade effects, without regard to any 

underlying market failures or externalities; others consider economic 

welfare more generally. Therefore, in the absence of any conclusive or 

definitive approach to measuring the economic effects of TBTs, care must 

be given on the one hand to prevent providing a distorted picture while 

at the same time crafting a method to illuminate the factors of most 

relevance for the policy issue of particular concern. 

Maskus and Wilson (2001), Maskus, Otsuki, and Wilson (2001), and 

Beghin and Bureau (2001) provide comprehensive overviews of key economic 

issues relating to TBT modeling and measurement. We draw heavily from 

their findings and supplement them with insights from several other 

technical papers, including Roberts, Josling, and Orden’s (1999) 

framework for analyzing technical barriers in agricultural markets and 

Deardorff and Stern’s (1997) report on the measurement of a wide-range 

of NTBs, including TBTs. 

Following Maskus and Wilson, we begin with a general discussion of 

the potential economic effects of technical measures, including TBTs. 

Next, we assess specific approaches to modeling and measuring those 

effects, addressing a variety of methodological challenges most 

typically relating to data availability and interpretation. We conclude 

in the following section with a discussion of how we intend to address 

modeling and measuring the effects of particular TBTs. 

POTENTIAL ECONOMIC EFFECTS 

Limiting the discussion of modeling and measurement to “TBTs,” 

defined as “WTO-inconsistent technical regulations, standards, or 

conformity assessment procedures,” narrows the range of analysis, but 

 

technical regulation, standard, or conformity assessment procedure that 

is covered under the TBT Agreement. 
 93

does not eliminate its complexities. Even a relatively simple 

exploration of added costs to U.S. exporters would likely pose 

substantial methodological challenges; a fuller — and arguably 

preferable — assessment would look beyond “compliance costs,” to a 

broader range of economic considerations, involving supply, demand, and 

overall economic well-being. 

A full reckoning of the potential economic effects of TBTs, 

requires a careful inspection of the positive and negative sides of the 

ledger; even a WTO-inconsistent technical measure may have some 

offsetting benefits. In cases involving a legitimate policy objective, 

a measure may work to discriminate against an imported good or raise 

costs more than necessary, but the measure may still remedy an actual 

problem, be it a safety hazard or other market failure. Moreover, a 

trade-affecting technical regulation, standard, or conformity assessment 

procedure, whether it is WTO consistent or inconsistent, may have 

broader market implications than a simple shift in an exporter’s cost 

curve. Trade-affecting technical measures can affect the structure of 

the market and the basic configuration of domestic supply and demand 

curves. Their effects can also vary over time. Some effects are 

transient; others are long-lived. For example, a manufacturer incurs a 

“one-time” cost when it re-tools a production line to meet a new 

technical regulation; it incurs a “recurring” cost when it must certify 

each shipment’s conformance to that regulation. 

Setting WTO consistency aside, Maskus and Wilson (2001, pp. 17-18) 

explore the positive side of the ledger, that is, the legitimate need 

for technical measures and their ability to “facilitate production and 

exchange, reduce transactions costs, guarantee quality, and achieve the 

provision of public goods.” Technical measures increase economic 

efficiency by: 

• Improving the flow of information between suppliers and 

consumers about inherent product attributes;72

____________ 72 The authors provide specific examples of the ways in which 

better information—through standardization—can improve how markets 

function, e.g., by reducing information asymmetries thereby helping to 
 94

• Increasing demand for complementary goods; 

• Increasing the elasticity of substitution in demand between 

different versions of similar products; 

• Promoting economies of scale; 

• Acting as benchmarks for compatibility and performance; 

• Promoting integration with global markets and technology 

diffusion; 

• Overcoming market failures associated with public goods, such as 

human health and environmental protection. 

Maskus and Wilson sum up as follows, “the essential point of 

standards is to support market development and facilitate 

transactions.”73 They note that the effects of technical measures may 

be both static and dynamic, especially with respect to technology 

diffusion and network industries. 

On the negative side of the ledger, Maskus and Wilson (pp. 19-20) 

review some of the trade-related problems that can arise from technical 

measures, including those intended to address a legitimate policy 

objective: “The most straightforward problem is that costs of complying 

with standards may be higher for foreign firms than for domestic firms, 

implicitly erecting a trade barrier.” The authors distinguish between 

“one-time” and “recurring” compliance costs.74 They illustrate the 

 

overcome the “lemons problem” (Akerlof, 1970). They also cite the moregeneral benefits of reducing the costs of uncertainty that consumers 

face in assessing product attributes. Standardization may facilitate 

cross-product comparisons, thereby reducing search costs and other 

transactions costs. 

73 However, while addressing the legitimate uses of technical 

measures, the authors do not argue that they are necessarily the most 

efficient policy option. 

74 The authors present a possible trade-off between one-time and 

recurring costs. A firm may have the option to incur a large up-front 

cost, by investing in a flexible product platform, i.e., one that can be 

cheaply modified to meet export requirements in particular markets. Or, 

it may be able to spend less up-front for a more rigid, domesticoriented product platform, but then face costly modifications for 

shipments out of country. They suggest that larger firms are better 

positioned to adopt the former strategy. 
 95

difference with a comparison of the one-time costs of product redesign 

and the recurring costs of continuous quality control and testing 

certification. Clearly, another source of recurring cost may be found 

in the efficiency loss of changing production technologies to meet a 

technical requirement, particularly if the change is market specific in 

a way that reduces economies of scale.75 They also cite the possibility 

of “indirect” costs, e.g., the costs of making a change in product 

formulation in response to a labeling requirement on the part of a 

foreign government. Maskus and Wilson also describe costs arising from 

non-transparency, time delays, and uncertainty stemming from conformity 

assessment procedures. 

Finally, measures that differ across countries can result in market 

segmentation. Maskus and Wilson (p. 20) cite requirements that product 

labels only be written in the language of the importing country, 

limiting opportunities for arbitrage. Roberts, et al. (p. 11) describe 

market-segmenting technical measures as holding the potential for 

“fundamentally altering the nature of competition.” For example, they 

may transform a “small” country — that is, one that has no real ability 

to independently affect the world market, referred to as “market power” 

— into a “large” country. Technical measures may act to restrain 

competition — in the extreme, they may shut out foreign firms entirely, 

possibly allowing a local monopoly to flourish. However, market 

segmentation need not work to the disadvantage of all foreign suppliers. 

Those able to meet requirements and effectively discriminate may be able 

to glean greater returns through segmentation. 

Who gains and loses from these arrangements? Absent a legitimate 

policy purpose, a “purely protective” measure would likely result in 

gains to the domestic industry at the expense of domestic consumers and, 

possibly, foreign suppliers.76 Whether or how much foreign suppliers 

____________ 75 Producers serving a series of smaller national markets, each 

with different technical requirements, may be less efficient than those 

serving a homogeneous global market. 

76 Domestic firms acting as agents and distributors for foreign 

suppliers constitute another category of potential losers. For example 

European firms that import and distribute U.S. products stand to lose 

when technical measures impede imports. Shipping and insurance firms 
 96

would “lose” from the arrangement would depend partly on the 

availability of alternative outlets for their products. In an otherwise 

competitive global market, their losses might consist of the additional 

transaction costs involved in shifting to a new a market, such as the 

initial start-up costs of establishing a new client base or the 

additional transportation costs of serving a market in a more remote 

location. If the now-protected market were still their best — or only — 

option, their losses would derive from the new compliance costs and any 

commensurate loss of sales. 

Roberts, et al. (p. 11) help structure the discussion of losses 

from TBTs.77 They frame the incidence of costs in terms of the “scope” 

of the technical measure — that is, who applies it to whom — and then 

illustrate the approach with four stylized cases. For the first three 

cases, they assume that all countries are “small” countries, implying 

that the actions of any one country have little or no effect on the 

world market. In the first case, when one importer imposes a barrier 

against one exporter, either can avoid the cost of the measure by 

finding a new trading partner. Perhaps more realistically, each would 

likely bear the burden of additional transactions costs, as outlined 

above. In the second case, when one importer imposes the barrier on all 

exporters, the importer alone bears the cost because the exporters can 

sell to other markets, unless the importer covers the cost of complying 

with the new measure. In the third case, if all importers (i.e., the 

whole world) target a specific exporter for compliance with a technical 

measure, the cost of the regulation is borne by the exporter alone, 

because other exporters can serve the market at the prevailing worldmarket price. In the final case, when all importers impose a regulation 

on all exporters, the small country assumption no longer applies. In 

this case, the importers and exporters share the cost burden in the form 

of reduced producer and consumer surplus. 

 

may also suffer losses from these impediments. The differential impacts 

on firms acting at different levels of the industry may create 

interesting dynamics in terms of lobbying activities. 

77 Roberts, et al., pp. 11 and 27-37, provide a thorough treatment 

of possible outcomes for a variety of scenarios. We address their 

findings in more detail in the following section. 
 97

At the beginning of this section, we broached the question of 

whether a technical measure that is inconsistent with the TBT Agreement 

might convey some non-protectionist benefit. If the answer is “no,” 

then when calculating the net economic costs of a technical measure, we 

need only consider the economic effects deriving from the negative side 

of the ledger, e.g., compliance costs and supply shifts, the scope of 

the measure, and market segmentation if it occurs. This is not a simple 

feat, but it is still far simpler than if the answer were “yes.” In the 

latter case, to gain the fullest perspective one would need to calculate 

the benefit derived from the measure net the economic costs of 

compliance and associated shifts in supply stemming from the measure. 

But again as a practical consideration, in the absence of any widely 

accepted method for calculating such costs empirically, the choice of 

approach and framework for analysis will be driven in part by the policy 

question ultimately to be addressed. 

APPROACHES TO MODELING AND MEASUREMENT 

Maskus, Otsuki, and Wilson (2001) and Beghin and Bureau (2001) 

provide overviews of the “state-of-the-art” in modeling and measuring 

the economic effects of technical measures, including TBTs.78 Their 

overviews are structured differently, but cover much of the same 

terrain. Though not limiting their coverage to studies of TBTs per se, 

much of what they find applies to TBTs. 

Maskus, et al. differentiate approaches by methodology or model 

type alone, whereas, Beghin and Bureau differentiate by measurement 

objective and methodology. Beghin and Bureau (pp. 3-4) distinguish 

between trade-oriented approaches and welfare-oriented approaches; the 

former concern themselves with trade impacts only and the latter address 

overall economic well-being through a larger range of effects. For 

example, among the trade-oriented approaches, the “price wedge” method 

allows estimation of the tariff equivalent of the TBT. 

The trade-welfare distinction holds conceptual appeal, but is not 

entirely satisfying. Although some methodologies may seem to fall 

____________ 78 The authors also address SPS measures. 
 98

neatly into one category or another, the lines quickly blur. As Beghin 

and Bureau note, a tariff equivalent can be used as an input to a model 

that captures welfare effects. However, it can be argued that 

delineating approaches strictly on the basis of model type is equally 

unsatisfying, partly for the same reasons. For example, an 

econometrically derived parameter estimate can feed into a partial or 

general equilibrium model. While recognizing the merits of each of the 

taxonomies, we find that a methodologically based taxonomy is slightly 

more tractable. As such, we examine broad classes of model types, as 

per Maskus, et al., while paying special consideration to their 

potential applications, as per Beghin and Bureau. 

Maskus, et al. (p.29) delineate four empirical approaches: 

• “Surveys” 

• “Macro-level econometric analysis” 

• “Partial equilibrium (PE) models” 

• “Computable general equilibrium (CGE) models” 

Surveys. Surveys may vary considerably in their formality and 

coverage, but the basic premise of the approach is relatively clear. In 

general, a researcher, agency, or other entity asks questions of 

business executives, industry representatives, government officials, and 

other experts, to gather information about the effects of technical 

measures. Whether a particular survey is trade-oriented or welfareoriented might depend on the list of recipients, the nature of the 

questions, and the use of the answers; however, most, if not all, tend 

to be trade oriented. Nevertheless, even a trade-oriented survey can 

provide inputs to a broader, welfare-oriented analysis. 

OECD (2000), “An Assessment of the Costs for International Trade in 

Meeting Regulatory Requirements,” presents findings from one of the most 

commonly referenced surveys. The survey covered 55 firms, associated 

with three industries (terminal telecommunications equipment, dairy 

products, and automotive components) in four countries (the United 

States, the United Kingdom, Germany, and Japan). The study describes 

its aim as investigating “the extent to which technical standards and 
 99

conformity assessment procedures impede trade,” involving “an effort to 

collect quantitative data on the costs of compliance with technical 

requirements in export markets and on the extent to which these actually 

impede trade (p.5).” Key findings include: 

• Different mandatory technical requirements existed among all 

study countries and within each industry, but, in general, 

were not perceived as large.79

• Companies generally found that harmonization of standards was 

very helpful in reducing product redesign and testing costs. 

• Mutual recognition agreements of conformity assessment 

procedures have had a distinct and beneficial effect on costs 

of compliance. 

• Firms have often adopted compliance strategies when 

considering export of their products.80

• Conformity assessment costs varied significantly among 

companies and across countries; time delays were an important 

indirect cost of conformity assessment. 

• For many firms, meeting non-mandatory product standards was 

seen as at least as important as meeting mandatory technical 

requirements. 

• Many firms have had difficulty assessing ex ante the costs of 

complying with foreign product requirements and assessments. 

• Small firms relied more on external information sources than 

large firms and were less able to spread compliance costs 

over large output volumes, making exports less economic. 

We note in passing that the last two points in particular highlight the 

importance of the role that NIST might play in providing support to 

potential U.S. exporters. 

____________ 79 The telecommunications sector reported the greatest differences. 

80 For example, firms may incorporate features demanded by target 

countries into the initial product design or, initially design for the 

domestic market only and re-design for export as needed. 
 100

Notably, the OECD’s findings on firm size, compliance strategies, 

and conformity assessment costs, all suggest the probable difficulty of 

establishing a one-size-fits-all approach to modeling and measuring the 

economic effects of TBTs. This conclusion increases the potential value 

of including survey-type elements in any attempt to determine the 

economic costs of TBTs. To do so would provide practical grounding and 

cross-checking for the validity of measures derived from other 

methodological approaches. 

Other oft-cited surveys concerning relevant policy measures include 

an informal U.S. International Trade Commission survey of corporate 

executives, trade association officers, and government officials, 

located in the United States, EU, Asia, and Latin America, on the 

effects of technical measures in the information technology (IT) sector 

(USITC, 1998). Henson, et al. (2000) conducted a survey on sanitary and 

phytosanitary measures. The U.S. Department of Agriculture (USDA) 

conducted a survey of technical barriers to U.S. agricultural exports.81

Beghin and Bureau (pp. 13-14) find that surveys can help fill 

information gaps, identify “diffuse” barriers, and provide insight into 

real-world issues, e.g., by drawing attention to the regulations that 

firms really care about, as compared to those that economic modelers 

might otherwise latch onto. But, they question the ability of surveys 

to quantify barriers, “the firms consulted are likely to be biased if 

there is a perception that the agency conducting the survey will use the 

information for policy purposes,” (p. 14). Although this may be the 

case, the OECD survey responses do not support the hypothesis. Many 

exporters reported relatively modest compliance costs in the course of 

the survey. Hence, at least for this survey, there was little evidence 

of an upward bias in cost estimates or complaints concerning the 

detrimental effects of foreign technical measures. 

Econometric analyses. Econometric models typically seek to explain 

trade flows in terms of a set of “exogenous” variables, explicitly or 

____________ 81 Demonstrating how one approach can naturally contribute to the 

development of another, Roberts, et al. draw from the USDA survey to 

produce a typology for their analytical framework. 
 101

implicitly including policies and practices, such as technical measures. 

Maskus, et al. offer a single “econometric” category, whereas Beghin and 

Bureau identify two distinct empirical categories, inventory- and 

gravity-based, noting that inventory-based approaches, e.g., simple 

tallies of technical measures, need not be analyzed using “econometric” 

methods, but can provide proxy variables for econometric approaches. 

Gravity-based models, which are actually a distinct type of econometric 

approach, derive from the formula for Newton’s “Law of Universal 

Gravitation,” substituting the trade flows between two locations for the 

attractive force between two objects; the economic size of each location 

for the masses of the two objects; the distance between locations for 

the distance between objects.82

Maskus, et al. provide detailed descriptions of two econometric 

studies that are, in fact, inventory–based: Swann, et al. (1996) and 

Moenius (1999). The latter is also gravity-based. Both studies relate 

trade flows to a country’s stock, or inventory, of “standards,” as 

internally delimited. Per Maskus, et al. (pp. 32-33), Swann, et al. 

regress U.K. trade flow data on counts of national “idiosyncratic” and 

international standards recognized by the United Kingdom and Germany. 

They find that U.K. national standards tend to raise both U.K. imports 

and exports. According to Maskus, et al. (pp. 33-35), Moenius uses 

count data from 12 countries and 471 industries to estimate the effects 

of country-specific and shared standards, finding that shared standards 

affect trade volumes positively and that country-specific standards have 

much more complex effects. 

Econometric approaches can provide insight into the broad 

relationships between technical measures and trade flows. However, 

among other shortcomings, the use of simple “count data” or tallies of 

standards is questionable; in particular, it is impossible to 

distinguish between important and unimportant standards. Beghin and 

Bureau (p. 11) note, “...the number of standards or the number of pages of 

domestic regulations is a poor proxy for the trade restrictiveness of 

____________ 82 For a more thorough description of this technique, see Beghin 

and Bureau, pp. 14-15. 
 102

the whole regulatory regime.”83 These problems are not necessarily 

inherent to the econometric approach, but to the execution of the 

approach. At least theoretically, various weightings and other 

refinements are possible.84

Partial equilibrium approaches. Partial equilibrium (PE) 

approaches incorporate various effects from both sides of the 

aforementioned “ledger,” to assess the net effects of particular 

technical measures on trade and welfare more generally. Maskus, et al. 

address PE approaches in a single category. They include studies that 

draw from other micro-economic approaches discussed separately in Beghin 

and Bureau, such as the “price-wedge” method. Paralleling the 

relationship between inventory-based assessments and econometric 

approaches, price-wedge and other micro-economic methods may stand alone 

or could be used as building blocks for PE models.85 In particular, the 

price-wedge method attempts to quantify a technical measure as a tariff 

equivalent, which can then be used in a PE model along with other market 

parameters, to help capture the broader effects of the TBT. Although we 

also treat PE approaches under a single heading, we examine price and 

other related measurement considerations separately. 

PE approaches “rely on microeconomic representations of supply and 

demand and are used most often to assess the effects of a particular 

policy on equilibrium, i.e., on the changes in price, quantity, and 

welfare” (Beghin and Bureau, p. 20). In this arena, the policy — the 

____________ 83 Beghin and Bureau, p. 16, evaluate gravity-based approaches 

separately, among the caveats, “they attribute departures of trade from 

what the model can explain to a mix of national effects, including NTBs, 

while the model is unlikely to be able to explain correctly all trade 

flows even in the absence of domestic regulations...” Sensitivity to 

model assumptions may be especially problematic in detailed product 

studies. Nevertheless, Beghin and Bureau describe gravity-based 

modeling, coupled with proxy variables from survey- or inventory-based 

methods, as a “promising area of research.” Deardorff and Stern discuss 

other “important drawbacks,” p. 19. 

84 Beghin and Bureau, p. 16, cite, Otsuki, Wilson, and Sewadeh 

(2000), as making use of the “level” of European aflatoxin standards to 

estimate the effects on African exports. 

85 Similarly, these methods may also inform computable general 

equilibrium (CGE) approaches. 
 103

technical regulation, standard, or conformity assessment procedure — is 

often modeled as either a tariff equivalent, estimated by calculating 

the “wedge” between the price of the imported good and a comparable 

domestic product, or a direct compliance cost. PE approaches are 

“partial” in the sense that they look comprehensively at the effects of 

technical measures on a specific sector or sectors, but not on an 

economy in its totality. In so doing, they permit a considerable amount 

of operational and institutional detail, but do not capture the full 

range of interactions across the economy. 

Although lacking quantification, Roberts, et al. (pp. 26-27) offer 

a particularly accessible framework for drawing together many if not all 

of the concepts from both the positive and negative sides of the 

analytical ledger. Their framework includes three “different but 

combinable components”: 

• The regulatory protection component, which accounts for gains 

accruing to the domestic sector;86

• The supply-shift component, which accounts for the effects of 

imports on domestic supply, e.g., the benefits of mitigating 

supply-based externalities, and the costs of enforcing border 

compliance;87

• The demand-shift component, which accounts for the effects on 

domestic demand, e.g., the benefits of improving the flow of 

information from suppliers to consumers. 

The authors apply the framework to several scenarios derived from 

the stylized cases introduced previously. In these scenarios, countries 

are deemed “small” or “large,” and said to be with or without 

alternative sources and outlets for their products. Having already 

addressed the conceptual aspects of this framework in the foregoing 

____________ 86 A “purely protective” measure is a special case, lacking any 

technical justification. This component is most closely akin to an 

ordinary tariff or quota, for which the only clear policy purpose is to 

shelter and support a domestic industry. 

87 This component could also include the costs of monopolization in 

the case of market restructuring. 
 104

section, here we focus here on computational aspects, especially with 

regard to the protective element. 

Modeling the protective element requires some estimate of either 

the tariff equivalent or the compliance cost. Beghin and Bureau, 

Deardorff and Stern, and others, address complications in calculating 

price wedges and interpreting them as tariff equivalents. For example, 

Krissoff, Calvin, and Gray (1997) calculate the differences between 

import and domestic prices for selected varieties of apples in U.S. 

export markets; these differences may, in fact, arise from technical 

measures, but they may also arise from differences in quality. The 

authors try to account for this possibility, by choosing like varieties, 

but identical matches are not always possible. This problem may be 

greater in more highly differentiated product markets. 

Choosing the “right” prices for comparative purposes entails many 

other complications. Deardorff and Stern devote considerable attention 

to selecting price data and offer practical guidance, in a “cook book” 

of formulas for calculating NTBs, some of which they tailor specifically 

to measuring TBTs. Indeed, in the case of a TBT, which the authors deem 

among the most difficult NTBs to quantify, they suggest “trying to 

extract credible assessments of their costs from experts in the affected 

industries,” as the first line of assault, only failing that, they 

provide suggestions on applying price-based approaches to measuring 

barriers (p. 73). The authors argue that the most appropriate prices to 

use in measuring NTBs generally are the domestic and invoice prices of 

the imported good (pp. 13-14):88

• The price on the domestic market of the imported good itself; 

____________ 88 Actually the authors argue that the absolutely purest pricebased measures of an NTB would compare the price that would prevail 

without the NTB and the price that would prevail domestically with the 

NTB if the price paid to suppliers were to remain unchanged, p. 13. 
 105

• The invoice price of the imported good as paid by the domestic 

importer to the foreign exporter, inclusive of transportation 

costs but excluding tariffs.89

However, TBTs may require special consideration.90 For example, 

the invoice price may already include cost increases incurred by 

exporting manufacturers in meeting the importing country’s technical 

requirements so that the price wedge might understate the true effect. 

Prices may also embody other TBT-related effects, beyond the simple 

protective element, e.g., the supply or demand shift, as relevant to the 

particular case at hand (Deardorff and Stern, pp. 7-8). Moreover, 

prices may be different for many other reasons, some of which may bear 

opposite implications for exporters’ well-being. For example, if 

markets are segmented and exporters can price discriminate, the wedge 

between an international price and a domestic market price may reflect 

rents accruing to exporters (Beghin and Bureau, p. 9). 

Framing a policy in terms of compliance costs presents other 

challenges. Again, as a practical matter, the data may be hard to come 

by. Firms may be reluctant to share proprietary information and when 

they do, their reports may be susceptible to bias.91 Additionally, 

costs must be carefully articulated to distinguish between “one-time” 

and “recurring” phenomena, with particular attention to their functional 

effects. Other temporal aspects cannot be incorporated in a static 

model, but may be essential to understanding the effects of a technical 

measure on a market. Baldwin (2001, p. 63) reproduces a graphic that 

shows the relationship between cost and time, where cost initially rises 

dramatically and then settles to a much lower steady state that is still 

somewhat higher than the pre-policy level. 

In addition to the complexities of addressing the protective 

element of the framework, further complications arise in addressing the 

____________ 89 This is commonly referred to as the “c.i.f.” price, standing for 

cost, insurance, and freight. 

90 Deardorff and Stern provide more precise guidance on prices and 

applications, including various adjustments for transportation and other 

costs, in an appendix devoted to formulas. 

91 See the earlier discussion of survey-based approaches. 
 106

supply and demand shift elements, not least of which are establishing 

credible bases for estimating the functions themselves and predicting 

their structural responses.92 Absent significant effects in either of 

these dimensions, authors have tended to apply existing, off-the-shelf 

elasticity estimates, to arrive at quantity responses to the protective 

element and derive welfare implications. 

Challenges notwithstanding, a number of authors have productively 

applied PE approaches to gain insight into the workings of NTBs 

generally and sometimes TBTs specifically. Maskus, et al. (pp. 35-36) 

cite two examples in addition to the Krissoff, et al. apple study: 

Thilmany and Barret (1997) on the implications of technical regulations 

for U.S. exports of dairy products to other NAFTA countries; and 

Paarlberg and Lee (1998) on the case of U.S. tariff protection against 

beef imports that may transmit foot-to-mouth disease. Beghin and Bureau 

and Roberts, et al. cite several others. 

Computable general equilibrium approaches. CGE approaches also 

hold the potential for drawing together protective, supply, and demand 

effects from both sides of the ledger and, additionally, capturing 

interactions across all sectors of an economy. However, they typically 

lack the capacity to handle the details that may be crucial to 

understanding the effects of TBTs on specific industries. Maskus, et 

al. (p. 37) offer the following comments on CGE’s: 

...their measures of standards are necessarily heavily 

aggregated and cannot capture the complexities of codes 

as they exist at the detailed sectoral level. In that 

sense CGE studies incorporate crude specifications of 

standards into complex theoretical specifications, 

generating interesting predictions about how 

liberalization of technical barriers to trade could alter 

competitive prospects and rationalize industry. As 

policy guides, they are only suggestive. 

____________ 92 Maskus, et al. provide more insight to these issues in a 

discussion of the problems of measurement, pp. 38-44. 
 107

Maskus, et al. (pp. 37-38) describe two examples: Gasiorek, et al. 

(1992) and Harrison et al. (1996). Per Maskus, et al., Gasiorek, et al. 

model two scenarios assuming that harmonizing “standards” in the EU will 

reduce trade costs by 2.5%. They show large impacts on EU production 

and trade, especially and not surprisingly in the increasing-returns-toscale sectors. Harrison, et al. extend the approach, in part, by adding 

an information-induced demand shift element. 

While CGE models hold conceptual appeal, particularly in so much as 

they can be used to shed light on broader economy-wide policy 

implications, they lack sufficient capacity to accommodate detail for an 

industry-based, case study analysis. 

SUMMARY AND CONCLUSIONS 

Having reviewed the literature on modeling and measuring the 

effects of technical measures, we turn next to the development of a 

methodological framework for NIST to use in assessing the costs of 

particular TBTs to U.S. exporters. Although few of the cited economic 

studies define TBTs strictly in terms of a measure’s consistency with 

WTO commitments, or define technical regulations, standards, or 

conformity assessment procedures precisely in terms of the vocabulary of 

TBT Agreement, they nevertheless provide insight to the task at hand. 

For example, the OECD report cites many potential trade impediments that 

are not apparently discriminatory, but its findings on firm size, 

compliance strategies, and conformity assessment bear directly on the 

analysis of TBTs. The findings strongly suggest the necessity of 

developing a flexible approach that can support a considerable amount of 

institutional and operational detail. 

Based on our reading of the literature, we have chosen to develop a 

PE-based methodology, as we believe it, coupled with information gleaned 

from our assessments of the pharmaceutical and automotive products 

sectors, can provide the most insight into the effects of particular 

TBTs on U.S. exporters in the selected industries. Although a PE model 

cannot speak directly to the broader economy-wide effects of TBTs, as 

might a CGE or macro-level econometric model, together with our 
 108

industry-level assessments, it can provide a credible starting point 

without the loss of operational and institutional detail that the other 

approaches necessarily entail. More to the point, they –a PE-based 

methodology teamed with case studies – can yield considerable practical 

guidance of direct value to NIST in performing its assigned role in the 

realm of TBTs. 

Table 5.1 provides a capsule summary of the discussion of the 

literature in this section. 
 109

Table 5.1: Approaches to Modeling and Measuring TBTs 

Categories 

from Maskus 

et at (2001) 

Examples Comments Related categories 

from Beghin and 

Bureau (2001) 

Survey OECD (2000); USITC 

(1998); USDA (1996) 

Trade-oriented; may fill information 

gaps, but quantification is 

susceptible to respondent bias 

Survey-based 

approaches 

Econometric Swann, et al. (1996); 

Moenius (1999); Otsuki 

et al (2000) 

Trade-oriented; may provide insight to 

broad relationships between technical 

measures and trade, but count data are 

problematic 

Inventory-based 

approaches; gravitybased approaches 

Partial 

equilibrium 

(PE) 

Thilmany and Barret 

(1997); Paarlberg and 

Lee (1998); Krissoff, 

Calvin, and Gray 

(1997); Roberts, et 

al. (1999); Deardorff 

and Stern (1997) 

May be welfare oriented, depending on 

use; draws together various effects of 

TBTs and assesses trade and welfare 

implication in detail, but data 

availability and interpretation pose 

practical difficulties 

Price-wedge, riskbased, and stylized 

micro-economic 

approaches; sectoral 

or multi-market 

models 

Computable 

general 

equilibrium 

(CGE) 

Gasiorek, et al. 

(1992); Harrison, et 

al. (1996) 

May be welfare oriented, depending on 

use; provides insight to aggregatelevel economy-wide effects, but lacks 

ability to capture policy-specific 

details; data also pose practical 

difficulties 

Price-wedge and other 

micro-based 

approaches may 

generate inputs to 

CGE models 

Sources: Maskus, et al. (2001); Beghin and Bureau (2001). 

Notes: OECD (2000) is cited elsewhere as OECD (1999). The 

correspondence between the Maskus, et al. and Beghin and Bureau 

categories is uneasy. For example, inventory-based approaches need not 

be econometric approaches, but can provide inputs to econometric 

approaches. Similarly, price-wedge and other micro-economic methods are 

not PE approaches per se, but can provide inputs and insight to PE 

models; they can also contribute to CGE models. 

 111

VI. A METHODOLOGY FOR MEASURING THE ECONOMIC EFFECTS OF TBTS 

The discussions of definitions, industry conditions, and economic 

models in the preceding chapters provide the necessary foundation for 

constructing a practical method – or “framework” – for assessing some of 

the economic costs arising from particular TBTs. In this chapter, we 

develop and implement an initial framework, one that involves some 

compromise in pursuit of tractability and broad applicability. It 

requires relatively little data and can be applied across wide-ranging 

industries and TBTs, be they rooted in conformity assessment (CA) 

procedures, process rules, or product restrictions. However, while 

offering flexibility, it is intended for evaluating the effects of 

specific instances of TBTs on U.S. exporters, not TBTs in aggregate or 

economy wide. Moreover, the framework bounds the exporters’ costs, by 

estimating the losses associated with a “worst case scenario,” but it 

does not provide point estimates. 

Framed in terms of the methodologies presented in Chapter V, we 

develop and implement a partial equilibrium (PE) model. PE models can 

be used to evaluate the effects of technical measures on economic 

activities in one industry or in relation to one market, such as 

specific automotive components or pharmaceutical products, without 

explicitly linking the effects to activities in other industries. In 

reality, an impediment to exports in one industry may have second order 

effects on other industries, e.g., barriers to pharmaceutical exports 

may reduce the demand for certain chemicals. But estimating such 

general equilibrium effects requires a much less tractable methodology, 

in most cases provides little additional understanding of the industry 

of primary interest, and conceivably runs the risk of obscuring 

operational and institutional detail. By contrast, our framework 

requires only relatively simple calculations, using information on 

prices, quantities, and compliance costs, and some insight into how 

manufacturers respond to changes in market prices.93

____________ 93 This type of responsiveness is commonly referred to as the 

“price elasticity” of supply. 
 112

Further, as discussed in Chapter V, there are two approaches to 

modeling and measuring TBTs, one is welfare-oriented and the other is 

trade-oriented. Welfare-oriented approaches seek to quantify the 

effects of technical measures on overall economic well being, by 

accounting for their impact on all market participants, i.e., all 

producers and consumers. Such an approach would calculate the measure’s 

net effect across all participants. The corresponding economic metric 

would be “net welfare loss.” A welfare-oriented approach might also 

consider the distribution of gains and losses among participants, known 

as the “incidence” of the measure. 

Here, in this framework, we take a trade-oriented view, focusing 

on the economic effects of TBTs on U.S exporters in particular 

industries in terms of the “additional” costs they face. In this sense, 

“additional” is defined as the differential element or the part of the 

TBT’s cost that applies only to producers residing outside the TBTimposing market.94 As such, our metric is the “loss to U.S. exporters,” 

evaluated at the industry level.95 We do not address the effects of the 

TBT on producers and consumers in importing markets or on other non-U.S. 

market participants. We also limit the analysis to the “negative side 

of the ledger,” that is, we do not calculate any of the potential market 

benefits that a TBT could generate.96

Indeed, more than just focusing on the negative, our approach 

provides an upper bound estimate of the losses to U.S. exporters. It 

does so by evaluating the economic effects of a worst-case scenario in 

which those exporters have no market power or alternative outlets for 

____________ 94 In some cases, producers within the TBT-imposing market may also 

incur compliance or other TBT-related costs. 

95 We measure losses in present discounted value terms. Were the 

associated costs of eliminating or preventing the TBT known, e.g. the 

resources used by federal agencies, trade association, etc., this figure 

could be used to calculate a cost-benefit ratio. 

96 In the literature on TBTs, as noted in Chapter V, some authors 

point out that regulations and standards that serve as TBTs may provide 

some of the benefits associated with regulations and standards in 

general. Absent any attempt at quantification, our initial qualitative 

assessments of the pharmaceutical and automotive sectors offer little or 

no evidence that TBTs provide benefits that less trade-distorting 

technical measures could not otherwise provide. 
 113

their products. Our approach corresponds most closely to the scenario 

that Roberts et al. describe, in which all importers target a particular 

“small” exporter. In this scenario, U.S. firms bear the full burden of 

the TBT, facing a choice between the less costly of two options: (1) 

complying with the TBT and absorbing all the direct costs associated 

with compliance, such as the costs of developing and implementing a new 

CA procedure or (2) pulling out of or declining to enter the TBTimposing market. Exporters will only choose the first option if the 

“intrinsic” value of the export market – the value prior to the 

imposition of the TBT – exceeds the costs of complying with the TBT. 

Otherwise, they will “opt out.”97 

The value the approach developed in this chapter provides is a 

higher degree of specificity in ascribing costs arising from TBTs than 

one normally sees in most calculations of such costs. We value the 

export market net of production, marketing, and distribution costs. A 

gross calculation of export revenue or shipments, as commonly reported 

in the press, would tend to overstate the value of the market and, in 

some instances, might falsely indicate “compliance” as the preferred 

option.98

This chapter proceeds in three parts. We begin with an overview 

of the key determinants of additional cost to U.S. exporters by 

considering the types of costs that a TBT might impose, the scope of the 

measure, and the market position or “size” of importers and exporters. 

Next, we develop a framework for evaluating the worst-case scenario. 

The framework requires a two-part evaluation: (1) an assessment of the 

total cost of complying with the requirements of the TBT, which we refer 

____________ 97 In effect, the intrinsic value of the market is the absolute

upper bound on the exporters’ losses, as they will not choose to incur 

compliance costs that exceed the intrinsic value. 

98 The press often reports gross figures, e.g., “U.S. exporters 

lost $200 million in sales when Country A blocked imports of Product B.” 

A more appropriate measure, “producer surplus,” would account for and 

net out the costs of generating those sales. However, a gross market 

estimate can serve as a useful indicator of the relative size of 

potential losses. If the export market is large, the potential losses 

are likely to be greater than if the market is small. Consequently, 

aggregate export statistics can provide a relevant gauge of priorities 

for responding to existing or proposed technical measures. 
 114

to as the “cost-absorption estimate” and (2) an assessment of the loss 

associated with exiting or never entering the market, which we refer to 

as the “value-of-market estimate.” Recalling that exporters can either 

comply or opt out, the lesser of (1) and (2) is the upper bound. We 

provide detailed instructions for treating one-time and recurring costs 

in the compliance cost calculation and for evaluating the intrinsic 

market value, net of production, marketing, and distribution costs. The 

chapter concludes with a quantitative illustration, drawn from a 

proposed Mexican regulation in the automotive components industry. The 

following, final chapter of this study suggests directions for usefully 

extending this initial basic framework. 

KEY DETERMINANTS OF LOSSES 

The economic effect of a TBT on U.S. exporters depends on at least 

three factors. The first is the types of costs it imposes: one-time or 

recurring; fixed or variable. Second is the scope of the measure, 

whether one or all importing nations apply it specifically or 

universally. The third is the extent to which traders—importers in 

addition to exporters—have “market power.” We will begin our discussion 

with the last of these factors. 

Market Power 

The concept of market power is independent of any consideration of 

TBT effects. It does not necessarily denote any willful intent. 

Rather, it just reflects the reality that some countries and some 

suppliers by virtue of their size or position will affect world-market 

prices -- possess market power -- because of changes in the quantities 

they demand or supply. We make use of the conventional economic 

delineation of “large” and “small” traders: a large importer or exporter 

has market power and a small importer or exporter does not. For 

example, if a “large” importer demands more or less of something, the 

world-market price will rise or fall accordingly; its actions, absent 

any other trader’s actions, can affect the world-market price. 

Similarly, if a large exporter supplies more or less of something, its 

actions can also affect the world-market price. 
 115

Conversely, the actions of an economically “small” trader have no 

such effects on the world market. For example, when a “small” importer, 

acting alone, implements a TBT it has no effect on the world market 

price because its share of the world market is so small – the worldmarket price remains the world-market price, regardless.99 Similarly, 

when a “small” exporter responds to a TBT, its actions have no global 

effect. Small traders are “price takers.” 

The designation of “large” or “small” need not correlate to 

physical size, but market share may be a reasonable indicator of market 

power. A trader that accounts for a large share of a market, broadly or 

narrowly defined, may be economically “large” in that market; a trader 

with a small market share may be economically “small.” 

Cost types 

The costs arising from a TBT may either be “one time” or 

“recurring.” A single TBT affecting a product, process, or CA 

requirement can entail either or both types of cost. Each type of cost 

can affect exporters’ behavior, hence losses, differently. 

One-time costs are the initial costs of establishing new processes 

and procedures to meet technical requirements. Examples include: 

redesigning and retooling assembly lines for export-oriented products or 

developing infrastructure to support new CA procedures. These types of 

costs are “fixed” in the sense that they are invariant to the number of 

lots or size of a production run, typically up to some threshold. 

Recurring costs persist over time, arising in each and every 

operating period. Because they recur period-by-period, we also refer to 

them as “periodic” costs. Some of these costs are “fixed” in each 

period, i.e., a lump sum for any level of output; others are “variable,” 

i.e., repeating per lot or unit of production.100 Indeed, a single TBT 

can involve a variety of recurring or periodic costs. Examples include 

____________ 99 By implication, other traders can continue to buy and sell the 

item in question at the world-market price, both before and after the 

small trader implements the TBT. Thus, the measure has no noticeable 

effect on world production or consumption. 

100 The literature typically addresses the variable dimension, 

implicitly characterizing “recurrence” with respect to units of 

production, rather than time. 
 116

using more expensive materials for export-oriented production, possibly 

because of quality differences or foregone bulk order discounts; 

operating separate assembly lines for export-oriented production, 

entailing the loss of economies of scale; staffing and implementing new 

CA procedures; and holding or storing product shipments for reinspection by the importing country. 

Our methodology distinguishes between one-time and recurring 

costs, as they can affect behavior differently. One-time costs pose a 

hurdle for exporters that are seeking to enter or remain in a market.101 

Indeed, one of the most difficult aspects of measuring the economic 

effects of TBTs is the initial fixed-cost element. If the initial cost 

of complying with the TBT is so high that it blocks new entrants, we 

cannot observe the cost of the TBT empirically. Although we may suspect 

that some firms have chosen not to enter the market, we cannot be sure 

how many are missing or to what ultimate effect. At least in the case 

of a newly imposed measure we can observe firms’ responses. 

Although one-time costs accrue in a single period, time can be a 

critical determinant of their effect. A longer horizon affords greater 

opportunity for spreading the cost across several periods, thereby 

reducing the effective “height” of the hurdle. In the context of our 

worst-case scenario, exporters compare the costs of compliance with the 

intrinsic value of the market to choose a course of action, i.e., 

complying with the TBT or opting out. Whereas the one-time cost is 

invariant to the length of the horizon – it accrues up front – the 

market valuation will depend crucially on the number of years under 

consideration and the rate at which costs are discounted. If exporters 

assess the value of the market over a three-year horizon, the market 

will appear to be worth “less” than if they assess the value over a 

five-year horizon. In effect, they will have fewer years over which to 

recover the one-time cost. 

____________ 101 In the case of an existing technical measure, they pose a 

hurdle for new entrants; in the case of a new measure, they pose a 

hurdle vis-à-vis the decision to stay in—or effectively “re-enter”—the 

market. 
 117

A recurring or periodic cost, whether fixed or variable, can also 

affect a firm’s market entry or exit decision. However, once a firm has 

decided to enter or remain in a market in a particular period, only a 

variable cost will affect its marginal production and export decisions. 

Figure 6.1 shows a hypothetical time-path for total costs 

resulting from a TBT that entails both one-time and periodic costs for a 

fixed level of output.102 In the figure, exporters incur large one-time 

adjustment costs in the first period. By the second period, only the 

newly imposed recurring costs remain. The new post-TBT “steady state” 

total cost is higher than the pre-TBT cost, but not as high as during 

the initial adjustment period. To the extent that exporters face a 

smaller post-TBT market, any resulting loss of economies of scale might 

push upward their unit costs and therefore the total cost. 

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

0 1 2 3 4 5 6 7 8 9 10

Time period

Cost index

Base path

New path

Figure 6.1-Hypothetical Time Path for One-Time and Recurring Costs 

Source: Based on Baldwin (2001, p. 63) 

Scope and Size 

Recalling that “large” and “small” indicate market power, the case 

where all relevant importers apply a TBT to a single “small” exporter 

provides the basis for the upper bound estimation. It is our worst-case 

____________ 102 For a constant flow of production, recurring costs are 

constant. Baldwin (2001, p. 63) provides a similar depiction. 
 118

scenario. Roberts, Josling, and Orden (1999, pp. 11 and 25-34) describe 

the ways in which the scope of a technical measure and the economic size 

of the importer and exporter determine the magnitude and incidence of a 

TBT’s costs.103 Following Roberts et al.104, an exporter only bears the 

full compliance cost burden of a TBT if the measure is applied 

selectively to the exporter alone by all importing countries — or the 

only relevant importers — and the exporter is small and has no other 

marketing options.105 In practice, the exporter is unable to pass along 

the increased costs associated with the TBT to the importers who have 

the option of buying from other exporters. The targeted exporter either 

absorbs the increased cost or loses the sales — a serious decision not 

only for the short term but for the long as well based on the exporter’s 

“value-of-market” estimates. 

In the worst case, lacking viable alternatives, the targeted 

exporter can either (1) continue exporting to the TBT-imposing market, 

absorbing the full cost of complying with the standard, technical 

requirement, or CA procedure through a reduction in producer surplus 

(“cost absorption”) or (2) pull out of the market entirely – or never 

enter it – and forgo sales with no prospect of replacing them elsewhere. 

The exporter’s loss will be limited to whichever of these options 

imposes the lower cost. If the cost of complying with the TBT exceeds 

the cost of the lost exports, measured in terms of the intrinsic, preTBT, value of the market to the exporter, the exporter will withdraw 

from the market. If the costs are less, it will adapt to the TBT and 

continue to market some exports. Simply stated, the market must be 

worth more to the exporter than the cost of complying with the technical 

measure; if it is not, the exporter will choose to exit the market or 

never enter at all. The upper bound is the lesser of the two options. 

____________ 103 Scope refers to the extent of coverage; size refers to traders’ 

ability to affect world markets, typically through quantity and prices; 

and incidence refers to the allocation of costs among importers and 

exporters in the form of foregone consumer or producer surplus. 

104 In particular, p. 30. 

105 Alternatively, importers and exporters would share some of the 

costs if all importers target all exporters. 
 119

Conditions of full cost absorption lend themselves to an 

estimation procedure based on direct observation or reporting of actual 

or potential cost increases. However, if firms simply extract 

themselves from the market, or never choose to enter, a crude 

calculation of the foregone value of the market may be necessary. We 

discuss these two measurements separately, below. 

By comparison, in framing what amounts to the best-case scenario 

for U.S. exporters, Roberts et al., suggest that “exporters in general 

should not notice the effect of the technical measure if the technical 

measure is imposed by only one importer, and if the world market price 

is not affected by the importer policy. In this case, the world market 

shrinks, but by an amount too small to be noticeable, as other importers 

will be willing to buy the displaced goods.”106 If the importer applies 

the TBT universally to all exporters from all countries, then its 

consumers bear the full cost of the measure. If the importer applies 

the measure selectively to only one nation’s exporters, then both it and 

the exporters can avoid the cost by finding other trading partners. 

However, it seems unlikely that many exporters, even the 

“smallest,” will bear the full burden of a TBT, as most operate in 

sufficiently diffuse markets that some alternate outlets exist for their 

merchandise. But, as Roberts et al. suggest, shifting sales to the next 

best market can entail real costs for individual firms. Exporters reorienting their marketing strategies may incur the initial costs of 

identifying and establishing a new client base and the higher costs of 

transporting merchandise to more distant locales, also suggesting a 

combination of one-time and recurring costs. Moreover, some exporters 

may appear to be “small” in relation to broadly defined markets but may 

be “large” in the narrower markets in which they actually operate. Even 

if they cannot sell their products elsewhere, they may be able to shift 

some of the burden of compliance to importing consumers. 

On balance, it seems more likely that exporters would share part 

of the burden of the TBT with the importer, by absorbing some of the 

one-time and recurring costs or shifting some sales to the next best 

____________ 106 Roberts et al., 1999, p. 29. 
 120

market.107 In either case, they would face something less than the full 

cost of the TBT. Thus, a simple cost-based or value-of-market-based 

estimate provides an upper bound on the economic effects of the TBT from 

the perspective of the exporter and should not be treated as a point 

estimate. That is, it is not an estimate of the costs of the TBT; 

rather it is an estimate of the high end of a range. 

At the other extreme, it seems almost as improbable that exporters 

would bear none of the costs. Many firms have established ties in 

particular markets – linked through elaborate networks – and would 

rather share some of the cost than exit entirely. Even if they do exit, 

they would still face the aforementioned costs of shifting market 

venues. Moreover, some importers, like their exporting counterparts, 

may seem “small” in the context of broadly defined markets, but 

functionally “large” in more narrowly defined niche markets. As such, 

their actions may affect world market prices for specific items. When 

they impose a TBT, thereby reducing the demand for imports, prices may 

fall to the detriment of all niche-serving exporters. 

ESTIMATING THE UPPER BOUND 

While the reality most likely lies somewhere beneath it, we offer 

a methodology for estimating the upper bound of the costs of TBTs to 

U.S. exporters.108 Here, we introduce a two-part evaluation process: 

first, we consider the direct cost of complying with technical 

regulations, standards, and CA procedures; second, we assess the net 

loss if exporters choose to exit or never enter a market absent a viable 

alternative. The upper bound is the lesser of the cost-absorption and 

value-of-market estimates. 

In the next section, we illustrate different aspects of the 

methodology, drawing an example from the automotive components industry. 

____________ 107 If the exporters still choose to service the TBT-imposing 

market it is because their share of the TBT burden, i.e., the cost of 

compliance, is less than or equal to the cost of shifting markets. 

108 Estimating the absolute lower bound is trivial, it is zero or 

negligible. 
 121

Cost-Absorption Estimation109

Developing the cost-absorption estimate requires information on 

the types of costs that each TBT imposes. Any TBT stemming from a CA 

procedure, process rule, or product restriction may entail a variety of 

one-time and recurring costs. Indeed, our qualitative assessments of 

the automotive and pharmaceutical sectors suggest that no one form of 

TBT is more likely than another to impose a particular type of cost. In 

some cases, relevant cost data can be acquired directly from interviews 

with firms or trade organizations. It can also be derived less directly 

from intermediate input prices, labor rates, prevailing values for real 

property and other fixed assets, and exemplary values, inferred from 

other appropriately analogous industries.110 Export price or invoice 

data can provide further insight to the distribution of gains and 

losses. 

Regardless of the source, the data should address questions in two 

basic categories, deriving from the distinction between one-time and 

recurring costs: 

• What costs are involved in setting up new processes or 

procedures? 

 Research and development 

 New facilities and equipment 

 New distribution networks 

 New training 

 Others 

• What costs are involved in implementing requirements? 

 Increased production costs 

 Additional personnel 

____________ 109 The development of this framework benefited greatly from the 

work of Roberts et al. (1999) and Krissof et al. (1997) and from a 

lengthy discussion with Roberts, Krissof, and Calvin in April 2003. Any 

errors in designing and implementing the framework are entirely those of 

the authors. 

110 Absent either a direct or indirect route, it may still be 

possible to derive an estimate of total costs from observations of 

changes in export quantities and estimates of supply elasticity, where 

“elasticity” is a measure of the responsiveness of exports to changes in 

prices or, in this simple case, costs. 
 122

 Shipping delays and inventory costs 

 Others 

Within the second category, costs must be delineated further as 

fixed or variable with respect to output: 

• Which of the implementing costs are fixed in each production 

period? 

 Minimum staff size 

 Facility overhead 

 Others 

• Which of the implementing costs accrue per lot or other 

production unit? 

 Costlier production materials 

 Physical inspection 

 Holding or storage costs 

 Filing and other regulatory compliance fees 

 Diseconomies of smaller production runs111

 Others 

Ideally, we would want to know which costs are specific to the 

element of the technical measure that is being differentially applied to 

the exporter; i.e., those costs which are different or more than the 

costs faced by other producers. If all producers, both foreign and 

domestic, face the same constraints and compliance costs, implying the 

absence of a differential element, the measure probably is not a TBT as 

defined in this report.112 The measure may be costly for U.S. 

exporters, but it may still be WTO consistent. 

Our assessments of the variable cost effects of TBTs are founded 

on a simple PE export supply model in which a differential between the 

world-market and “autarky” prices (the market-clearing price in the 

absence of the opportunity to trade) of a particular item induces 

competitive firms to produce more of the item than they would if they 

____________ 111 Diseconomies decline with increased output. 

112 If all importers apply a measure to all exporters, but do not 

apply the measure domestically, the measure would qualify as a “TBT,” 

but the exporters would likely share the costs with domestic consumers. 
 123

were serving only the domestic market.113 The difference in prices 

arises from an inherent difference in market conditions – e.g., the 

firms in the home market may be relatively more efficient in the 

production of the item than other firms. 

Figures 6.2a and 6.2b illustrate the basic export supply 

mechanism, absent a TBT. The autarky price (Pa) is the price that would 

prevail in the would-be exporters’ home market (Figure 6.2a) if the 

market were shut off from trade. When the market is open for trade, 

both the firms that produce the item and the consumers that buy it face 

the prevailing—higher—world price (Pw) for this particular good. When 

the world price exceeds what would be the autarky price, domestic 

consumers typically purchase less of the item, but firms produce more. 

The difference between the quantity that consumers purchase, at the 

world-market price, and the amount that firms produce is the industry’s 

“excess” supply. The excess forms the basis of the export supply (ES) 

curve in Figure 6.2b. 

In Figure 6.2a, the market-clearing autarky price, Pa, is $4 and 

the corresponding quantity purchased by domestic consumers and produced 

by domestic suppliers is 3 units. When the home market opens up to 

trade, producers and consumers face a world-market price of $6. The 

autarky price is less than the world-market price because of the 

aforementioned differences in market conditions. At that $6 price, 

consumers purchase 1 unit and firms produce 5 units, exporting the 4-

unit “excess.” Were Pw only $4, firms in the home market would produce 

just enough to satisfy domestic demand; were Pw less than $4, they would 

produce too little to satisfy domestic demand, resulting in imports. In 

any case, they would be operating competitively and incurring zero 

economic profits. 

____________ 113 We can assess the fixed and variable cost implications 

separately because we assume that the fixed costs apply only to exportoriented production, that is, they do not affect the underlying domestic 

supply function. 
 124

0

1

2

3

4

5

6

7

8

0123456

Quantity

Price

ES

Pw

Pa

b. Export Supply

0

1

2

3

4

5

6

7

8

01234567

Quantity

Price

Supply

Pw

Pa

Demand

a. Home Market

Figures 6.2a and 6.2b-Deriving Export Supply 

Figure 6.2b shows the relationship between Pw and export supply. As 

noted, if Pw were equal to Pa, none of the good would be supplied by the 

domestic producers for export. When Pw is $6, the export supply 

response by domestic producers yields four units of the good for trade. 

To incorporate a TBT into the basic export supply model, 

illustrated in Figures 6.2a and 6.2b, and assess the variable cost 

component of the “cost-absorption estimate,” we need information on the 

unit costs occasioned by the TBT and one of two additional inputs: (1) 

the actual or expected change in export quantity due to the TBT or (2) 

an estimate of the elasticity—or responsiveness—of export supply with 

respect to price or cost. The latter might, for example, be an estimate 

derived from a prior study of the industry. In a simple model, with a 

linear export supply curve, horizontal export demand, and full cost 

absorption, the imposition of an additional unit cost will have the same 

effect on exporters as an equal reduction in unit price. The two are 

functionally equivalent. Given the equivalence, the treatment below 

will represent such effects solely in terms of unit price, again as a 

means to broaden tractability and applicability of the measurement tool. 

In our worst-case scenario, the U.S. exporting industry, as a 

collective “price taker,” would face a horizontal export demand curve. 

(Figure 6.3 depicts the effect of the variable cost component arising 

from a TBT in each production period.) Although the TBT would not 

effect a literal change in the world-market price, U.S. exporters would 
 125

be forced to absorb the additional unit cost to remain in the market, 

because the TBT-imposing importers could purchase the regulated item at 

no additional cost from other suppliers (recall that the TBT, in our 

worst-case scenario, discriminates against U.S. exporters vis-à-vis all 

other relevant suppliers). However, in a linear model, the economic 

effects of a unit cost increase, resulting in an inward shift in the 

supply curve, and a unit price decrease, resulting in a downward shift 

in the demand curve, are mathematically equivalent.114

For simplicity we assume: 

• Linear upward sloping export supply115

• Horizontal export demand, such that Pw’ = Pw – c where Pw’ is 

the new effective world price facing U.S. exporters, Pw is the 

initial world price facing U.S. exporters, and c is the 

recurring variable cost of complying with the TBT. 

Given these assumption, the effective price drops from Pw to Pw’ = 

Pw – c; exports therefore decline from Q to Q’. If all firms in the 

home market were identical, each would reduce its output by the same 

amount to effect the move down the industry’s export supply curve in 

response to the cost increase. In reality, however, some firms are 

likely to be less efficient than others, in which case some might reduce 

their production more than others or even exit the market. By whatever 

adjustment mechanism, the competitive industry would continue to operate 

along its export supply curve at zero economic profit. For comparative 

purposes, the figure also shows the equivalent inward shift in the 

export supply curve, as the dashed line ES’. 

____________ 114 In geometric terms, as illustrated in figure 6.3, the former 

requires estimation of the area of a parallelogram (D) and triangle (B); 

the latter requires estimation of a rectangle (A) and triangle (B). The 

areas of the parallelogram and rectangle are equal. 

115 The linearity assumption may lead us to misstate the potential 

costs of the TBT. If, for example, the supply curve were highly 

inelastic at the market equilibrium – that is, were it much steeper in 

the region of the equilibrium – the potential costs to U.S. exporters 

would be greater. 
 126

Quantity

Price

ES

Pw

Pw'=

Pw-c

A B

Q' Q

c

ES'

D

Figure 6.3-Illustrating Variable Cost Effects 

Source: Based on Roberts et al. (1999).

The net effect of the additional cost, c, is the area A+B. (For a 

linear export supply function, the area B is a triangle of length Q-Q’ 

and height c.) This area, A+B, is a measure of lost producer surplus. 

Were we to depict the variable cost effect of the TBT as a supply shift, 

the relevant area would be D+B. 

Recalling that A+B – or equivalently, D+B – only depicts the 

variable cost effect of the measure, limited to a single period, the 

total cost of the TBT would consist of the sum of (1) any one-time 

costs, such as re-tooling costs, and (2) the present value of any costs 

that recur in future periods, both “fixed” with respect to output, such 

as minimum staffing and other overhead costs, and “variable,” as figure 

6.3 depicts, summed to time, T. Stated mathematically: 

TC = FCI

 + SUMt=0,T {[FCP

t + ct(Qt-Qt’)/2 + ctQt’]/(1 + r)t

} (1) 

where TC is the total cost of the TBT, valued at the time of 

implementation (t=1), FCI

 is the one-time or initial fixed cost, FCP

t is 
 127

the recurring or periodic fixed cost, ct is the recurring or periodic

variable cost as described above and shown in figure 6.3, and r is the 

rate at which future costs are discounted to the present period when 

summed over the entire period from the first period, t=1, to time t=T. 

If export price data and data concerning the cost of complying 

with the TBT are available, they can be used to assess the distribution 

or incidence of costs, i.e., the extent to which exporters share cost 

increases with consumers in importing countries through higher prices. 

If exporters are able to raise their invoice prices, contrary to the 

foregoing example, they cannot claim to absorb the full cost of the 

technical measure. However, in that case, the exporters’ costs must 

also be assessed in terms of the effect of the price increase on the 

quantity of import demand. Typically, as prices rise, consumers reduce 

their purchases.116 So, the exporter may be able to pass some costs on 

to consumers in importing countries but will likely sell less of its 

products because of it. By combining quantity, price, and cost data we 

can estimate the effects of the measure on the firm’s bottom line. 

Value-of-Market Estimation 

The value-of-market assessment considers the losses to U.S. 

exporters when they choose to exit a market – or never enter it – rather 

than absorb the compliance costs. For a new TBT resulting in market 

exit, the approach requires information on the quantity of U.S. exports 

and the price of exports pre-TBT. It is important to note, however, 

that an estimate of the gross value of the market, measured as total 

foregone export revenue, or Pw*Q, would likely overstate the cost of 

opting out. Rather, as discussed above, we are interested in the 

exporters’ losses net of production, distribution, and marketing costs. 

Thus, the assessment also requires information on the shape and position 

of the industry’s export supply curve. 

The exercise is more difficult when it involves existing measures 

that have already led to a decision to forego market entry. As a 

____________ 116 The degree of consumers’ price response is generally measured 

in terms of the price elasticity of demand: the percentage change in 

quantity demanded for a given percentage change in price. 
 128

practical matter, we can try to estimate the cost by looking at the size 

of the TBT-affected market, positing a plausible U.S. share -- were 

there no TBT -- based on U.S. exports to other analogous markets, and 

then evaluating the associated producer surplus. 

Here, as illustrated in Figure 6.4, we also assume that the export 

supply curve is linear and upward sloping. In addition, for purposes of 

tractability and given the frequent lack of otherwise requisite data, we 

now consider not the “true” export supply curve (ES) but rather base our 

calculation on an export supply curve intercepting the y-axis at zero 

(the dotted line). In a simple excess supply framework this assumption 

lacks internal consistency, as the excess supply curve should start from 

the exporting country’s autarky price, Pa. However, in this case, by 

assuming the supply curve intercepts the y-axis at 0, we in essence 

assume that the marginal cost of the first export unit is negligible. 

While not ideal, how does the approach perform as a measurement 

device? For the market depicted in Figure 6.4, the “true” periodic 

loss, were exporters to opt out of the TBT-imposing market, would be the 

area A+B+D, where D is the triangle formed by ES, Pw’, and the vertical 

axis. The estimated loss would include the addition of the triangular 

wedge between the supply curve, ES, and the dashed line lying beneath 

the ES curve. For any particular market the overstatement would depend 

on the actual location of the y-intercept. Thus, even though a zerointercept would tend to overstate the actual loss, it still offers an 

improvement over total revenue as a measure of market loss. For 

purposes of this analysis, we describe the estimate as the largest 

possible loss-of-market cost that may be inflicted by the TBT on U.S. 

exporters.117

____________ 117 More accurately, it is the largest possible cost assuming a 

linear export supply function. As previously noted, were the supply 

curve highly inelastic at the market equilibrium, the cost could be 

substantially higher. 
 129

Quantity

Price

ES

Pw

Pw'=

Pw-c

A B

Q' Q

D

Figure 6.4-Over-Estimating Recurring Losses 

With all of the aforementioned simplifying assumptions in place, 

the “value-of-market estimate” for each production period is Pw*Q/2. In 

present discount value terms, the value of the market over a finite 

horizon, T, is: 

VM = SUMt=0,T [(Pwt*Qt/2)/(1 + r)t

] (2) 

where Qt is the export quantity and Pwt is the world price in the absence 

of the imposition of the TBT. 
 130

Quantity

Price

ES

Pw

Q

E

F

 

Figure 6.5-Measuring the Effects of Exiting the Market 

Figure 6.5 depicts the approach graphically, for a given period, t. 

It shows the largest possible loss, assuming a linear supply curve, for 

a particular production period, as the area, E, under Pw and above the 

export supply curve, ES. This loss, accumulated over time and 

discounted to the present, measures the overall cost of the market loss 

in a limited set of circumstances: if (1) exiting firms have not 

previously dedicated any fixed resources to producing exports for the 

TBT-imposing market which could now be put to use elsewhere; or (2) nonentering firms would not have dedicated any fixed resources to export 

production for the TBT-imposing market; and (3) as above, there are no 

periodic lump-sum costs. 

In Figure 6.5, we assume either type of firm (exiting or nonentering) would be using excess capacity to produce for the export 

market without any modification, i.e., the strict form of the excess 

supply model of export. However, if exiting firms can redirect any of 

their fixed export-oriented resources to other uses in other markets or 

can sell them, the estimate should be made net of the redirection or 

market substitution value. If non-entering firms avoid incurring fixed 
 131

start-up costs that would have been necessary had they begun to export, 

the avoided costs should be deducted. 

To illustrate, suppose a firm foregoes $100,000 in present and 

future profits when it exits a TBT-impeded market but can sell its 

production line for $10,000. Its overall loss, net of the re-sale 

value, would be $90,000. Similarly, if a firm could have entered the 

market, prior to the imposition of the TBT, but would have needed to 

spend $10,000 on an additional production line, the overall loss must 

reflect the market entry cost, again yielding a net $90,000 as a result. 

Summary 

We have provided instructions for calculating both a “costabsorption estimate” and a “value-of-market estimate” for any type of 

TBT in any given industry. Calculating the upper bound on the potential 

losses to U.S. exporters then requires a comparison of the two 

estimates. The lesser of the two estimates is the upper bound. The role 

of time features prominently in this comparison, particularly in the 

presence of a one-time cost. Were all costs recurring, neither the 

length of the horizon nor discount rate would affect the relative 

attractiveness of participating in or opting out of the market, though 

both would affect the final tally; however, given the existence of a 

one-time cost, both parameters can affect the participation decision. 

For example, as noted previously, a longer horizon allows more time for 

amortization and recovery of the initial fixed cost. Our application of 

the methodology, below, illustrates this point. 

APPLYING THE METHODOLOGY TO AN AUTOMOTIVE COMPONENTS EXAMPLE 

In 2002, the Government of Mexico considered introducing a 

regulation that would have set a different standard for wheels sold in 

Mexico’s aftermarket than in other NAFTA markets.118 The proposed 

____________ 118 The regulation would not have applied to wheels on new 

vehicles. Mexico, unlike its NAFTA partners, uses type approval. If a 

vehicle receives type approval, the vehicle may be sold in Mexico even 

if type approval for the specific component has not been granted. Under 

this system, countries do not separately certify individual components 

so imports of vehicles with wheels that did not conform to this 

regulation would not have been barred from the Mexican market. 
 132

regulation appears to have been supported by Mexican commercial 

interests. At the time only the three major Mexican producers of wheels 

manufactured models that conformed to the proposed regulation. 

Arguably, the measure would have functioned as a TBT as it appeared 

to discriminate against foreign manufacturers. U.S. exporters to Mexico 

would have had to make considerable design changes to manufacturer 

wheels in conformity with the new regulation. Moreover, one draft 

version of the proposed regulation reportedly included a clause stating 

saying that “it (the regulation) does not apply to local manufacturers...” 

so as to forestall problems for smaller Mexican custom wheel 

manufacturers. U.S. manufacturers also argued that the proposed 

regulation had no legitimate basis in terms of safety or environmental 

considerations. Furthermore, the costs of changes in designs and 

manufacturing processes that would have been necessary to make wheels 

conform to the new regulation would have been high, potentially so high 

that U.S. exporters might have had to withdraw from the Mexican 

aftermarket had the regulation been adopted and implemented. Exporters’ 

potential abandonment reflects both the small size of the Mexican 

aftermarket and the relatively high fixed costs involved in producing 

wheels, specifically in adjusting production methods. 

Because the proposed regulation had so many aspects that indicated 

that it would serve as a TBT, the U.S. government took issue with the 

proposed regulation. The Mexican government decided not to adopt it. 

Consequently, U.S. exporters never incurred the costs of the proposed 

measure. Nevertheless, the example provides an opportunity to use the 

methodology to compute the upper bound of the potential costs of this 

regulation to U.S. exporters of aftermarket wheels. 

Car owners rarely replace wheels; most vehicles are scrapped with 

their original wheels. Thus, the market for aftermarket steel wheels in 

Mexico is small. We estimate the maximum size of the market for steel 

replacement wheels in Mexico would be on the order of 125,000 wheels per 

 

Furthermore, as the Mexican automotive industry is integrated into the 

North American industry, assembly operations in Mexico would have 

continued to use the same wheels as they had in the past, wheels that 

would no longer be accepted for aftermarket sales under the proposed 

regulation. 
 133

year, assuming that on one car in eight in Mexico one wheel is replaced 

over a ten-year period of car ownership. (In 2000, the total number of 

cars registered in Mexico was 9,842,006.) According to manufacturers 

and retailers, the cost of a steel wheel is about $50.119 Under this 

assumption, the total Mexican replacement wheel market might be as large 

as $6.25 million annually. 

Value-of-market estimate 

In value-of-market terms, Pw*Q/2, the loss for exiting U.S. 

exporters would have totaled about $3.13 million annually had U.S. 

exporters previously supplied the entire market of 125,000 wheels at $50 

per unit.120 Over a 3-year horizon, starting at t = 0, the loss in 

present discount value terms, assuming a 5 percent discount rate, would 

be slightly less than $9 million. 

From Equation (2): 

VM = SUMt=0,2 [($50*125,000/2)/(1.05)t

] 

VM = [($3,125,000)/(1.05)0

] + [($3,125,000)/(1.05)1] + 

[($3,125,000)/(1.05)2

] 

VM = $3,125,000 + $2,976,190 + $2,834,467 

VM = $8,935,658 

However, given the circumstances of the proposed regulation, 

including Mexican manufacturers’ support, this would likely be a 

substantial overstatement; Mexican manufacturers serve the aftermarket. 

As such, the loss to U.S. exporters would have been a fraction of the 

total, depending on their share of the market, e.g., for a one-third 

share, the 3-year loss would have amounted to just under $3 million. 

While apparently modest for the U.S. wheel industry in aggregate, these 

____________ 119 Based on communications with Hayes Lemmerz and Hubcap Heaven. 

120 Given the relatively small share of production dedicated to 

aftermarket sales, it seems plausible that U.S. wheel manufacturers are 

producing for export on existing lines, requiring little or no 

additional ‘fixed’ costs in each period. In this regard, a simple 

periodic measure, Pw*Q/2, might not be unreasonable. However, the 

assumption of negligible marginal costs for the first unit of exports, 

i.e., the zero intercept, is less satisfying. 
 134

losses could be substantial if the burden fell on only a few producers 

which would likely be the case for the steel wheel industry where only a 

handful of companies are major market participants. 

Cost-absorption estimate 

We can also calculate the potential effects of the proposed measure 

had it been adopted and implemented and had U.S. producers stayed in the 

market, absorbing its costs. 

Wheel production is a high volume, capital-intensive business. 

With the exception of manufacturers of customized aluminum wheels, 

manufacturers are primarily focused on sales to OEMs. The world’s 

largest manufacturer of wheels, Hayes Lemmerz, manufactures tens of 

millions of wheels every year and has a total turnover of over $2 

billion. Production lines are costly. For example, tooling costs for a 

single wheel type are quite expensive, on the order of $750,000 to 

$1,000,000 per line.121

At the very least, U.S. exporters would have needed to invest in 

tooling to produce wheels conforming to the proposed regulation. If 

each exporter invested $1 million in tooling, the total one-time fixed 

cost for four exporters, would have amounted to $4 million, quite 

possibly a prohibitive hurdle for a potential annual market ”worth” only 

about $3.13 million in net terms—and a market in which local producers 

already had a strong presence and no need to modify their lines. 

Moreover, U.S. manufacturers would have had to stop and start their 

assembly lines to switch between the tooling needed for U.S. production 

and that needed specifically for the Mexican aftermarket, resulting in 

additional recurring operating costs. These would have been on the 

order of $5,000 per switch.122

If U.S. manufacturers had chosen to remain in the Mexican 

aftermarket, the cost of the TBT would have amounted to the one-time 

tooling costs, roughly $1 million per firm or $4 million total, assuming 

four U.S. firms made the investment, plus the present discounted value 

____________ 121 Based on communications with Hayes Lemmerz and Hess 

Engineering, Inc. 

122 Based on Communications with Hayes Lemmerz. 
 135

of any extra recurring costs, as in Equation 1. For example, if four 

firms switched the tooling on one line, once per year, at a cost of 

$5,000 per switch, the total annual switching cost—a recurring “fixed” 

cost—would have amounted to about $20,000 to manufacture wheels for the 

Mexican aftermarket. 

In addition, aftermarket wheels are sold through various 

distribution channels, including through the service departments of the 

OEMs. In general, the wheel manufacturers do not maintain their own 

aftermarket steel wheel distribution networks. Currently, aftermarket 

service networks do not need to separately stock wheels for the Mexican 

and U.S. markets. If the regulation had been adopted, they may have had 

to provide separate storage, labeling, and logistics systems for 

delivering wheels to Mexico which would have entailed additional 

handling costs for each wheel exported. We assume such costs would have 

been on the order of one dollar per wheel. 

The increase in the handling and shipping costs of exporting wheels 

to Mexico would result in a reduction in exports, depending on 

producers’ responsiveness to the higher unit cost. If U.S. exporters 

reduced shipments by 10 percent, amounting to 12,500 unit supply 

reduction assuming they were previously serving the entire aftermarket, 

the total additional variable recurring cost would have amounted to 

$118,750 annually. This would consist of the $1 “surcharge” on the 

remaining exports and the foregone producer surplus on the lost 

shipments, corresponding to the rectangle, A, and the triangle, B, in 

figure 6.6. 
 136

Quantity

Price

ES

$50

$49

A = $112,500

B = $6,250

112,500 125,000

$1

12,500

Figure 6.6-Measuring Recurring Costs in the Example 

Over a 3-year horizon, the total cost, in present discount value 

terms, assuming a 5-percent discount rate, would have amounted to about 

$4.4 million, if four U.S. firms had invested in new tooling for the 

Mexican aftermarket and changed their lines to manufacture wheels for 

the Mexican aftermarket once per year. 

From Equation (1); 

TC = $4mil + SUMt=0,2 {[$20,000 + $1*12,500/2 + $1*112,500]/(1.05)t

} 

TC = $4mil + SUMt=0,2 {[$20,000 + $118,750]/(1.05)t

} 

TC = $4mil + {[$138,750]/(1.05)0

} + {[$138,750]/(1.05)1} + 

{[$138,750]/(1.05)2

} 

TC = $4mil + $138,750 + $132,143 + $125,850 

TC = $4,396,743 

Noting, however, that U.S. exporters share the Mexican aftermarket 

with Mexican wheel manufacturers, the additional variable recurring cost 

would have been only a portion of the $118,750 figure and the overall 

cost would have been less. For example, if U.S. firms served a third of 
 137

the Mexican aftermarket, the additional recurring variable cost would 

have amounted to less than $40,000. 

Evaluating the upper-bound 

Using this approach, the upper-bound cost estimate would be the 

lesser of the value of the market and the total compliance cost. 

Exporters would choose either to exit the market or absorb the 

compliance costs. In this example, over three years, with U.S. 

exporters serving the entire Mexican aftermarket, the upper bound would 

have been $4.4 million, the compliance cost. By implication, U.S. 

exporters would have chosen to stay in the market and absorb the cost of 

the Mexican regulation. 

Recalling that the true cost of any TBT most likely lies somewhere 

below the upper bound, where would we expect to see the cost of the TBT 

in this example? Based on export data and discussions with a trade 

association and manufacturers, the Mexican and Canadian aftermarkets are 

the most important for U.S. exporters. As such, Mexico could be 

considered a primary destination for U.S. aftermarket wheel exports. 

Moreover, if four U.S. manufacturers served the Mexican aftermarket, 

accounting for a modest share of total sales, they might have little or 

no market power. Thus, we might expect to be close to the upper bound, 

with the possibility of some cost sharing, depending partly on the 

availability and technologies of non-U.S. exporters. 

However, the determination of U.S. wheel manufactures’ share of the 

Mexican aftermarket bears importantly on the calculation of the upper 

bound. If their share of the market were modest, then the market’s 

value, from their perspective, would be much less than $3.13 million 

annually; also, in the compliance cost calculation, the variable 

recurring component would be much less than $118,750. For example, if 

the U.S. market share were a third, then the 3-year value-of-market 

estimate would be about $2.98 million and the total compliance cost 

would be about $4.17 million. On this basis, the total compliance cost 

would have exceeded the value of the market, suggesting that U.S. firms 

would have pulled out of the Mexican aftermarket rather than absorb the 

cost of the measure. With a one-third share of the market, the upper 
 138

bound cost of the TBT over three years would have amounted to $2.98 

million. 

In this application, we can also see that the choice of horizon, T 

= 3 years, is an important determinant of the outcome, not just in the 

obvious sense that the tally rises given more time for losses to 

accumulate, but also in the sense that the choice of the horizon may 

affect the apparent desirability of complying with the TBT as compared 

to opting out of the market.123 Building on the one-third-market share 

example, a 5-year horizon would have generated a value-of–market 

estimate of $4.74 million as compared to the 3-year estimate of $2.98 

million; however, the cost-absorption estimate would have risen to only 

$4.27 million. Given the additional 2-years to “amortize” or recover 

the initial costs of investing in new equipment, U.S. firms would have 

chosen to stay in the market and incur the compliance costs. Calculated 

over a 5-year horizon, the total loss to the exporting industry would 

have amounted to $4.27 million, the new upper bound. As a practical 

matter, the choice of horizon for any given analysis or application may 

depend on conditions in the market and standard industry practices, 

e.g., are investment decisions typically made on the basis of a 3-year, 

5-year, or other horizon? Table 6.1 summarizes the results of the onethird-market share analysis. 

Table 6.1: Results of One-Third-Market Share Analysis for Potential 

Effects of a TBT on Aftermarket Wheels Exports to Mexico 

 Value of Market 

estimate 

Cost Absorption 

Estimate 

3-year horizon 2.98 4.17

5-year horizon 4.74 4.27

Notes: Results provided in million of dollars in present discounted 

value terms, using a 5 percent discount rate. 

____________ 123 As noted previously, the choice of discount rate could also 

affect both the total figure and the relative desirability of 

participating in or opting out of the export market. 
 139

SUMMARY AND CONCLUSION 

In this chapter we present an initial framework for drawing 

together information on prices, quantities, and direct compliance costs, 

to assess the potential costs of TBTs to U.S. exporters. The framework 

is flexible in that it can be applied to almost any type of industry or 

TBT, but it is intended for evaluations of specific instances of TBTs, 

not TBTs in aggregate or economy wide. As such, it is well suited to 

industry-based case study analyses. 

However, it is important to recognize that the framework provides 

an estimate of the upper bound of the potential costs to U.S. exporters, 

not an estimate of the potential costs per se. As such, it would be 

inappropriate to assert that the costs of a particular TBT would be “X” 

dollars, based on a framework calculation; rather, they could be no more 

than “X” dollars. Moreover, prudent use would require an assessment as 

to how far beneath the upper bound the true costs would likely lie. If 

the case in question approximates the circumstances of the worst-case 

scenario, then the true costs might be close to the upper bound. But, 

if they do not, e.g., if U.S. exporters possess some market power or can 

sell their products elsewhere, as they often can, then the true costs 

probably lie somewhere well beneath the upper bound. 

We have tried to keep the calculations as simple as possible and 

the data requirements to a minimum. Nevertheless, the analysis entails 

some complexity, with costs accumulating differently over time and 

producers responding differently to them. It also requires cost and 

other data that may be difficult to find in some market environments. 

Whether this information is available will likely vary on a case-by-case 

basis. However, as we demonstrate in the Mexican wheel example, even 

when some important data are not readily available, rough approximation 

and sensitivity analysis can provide insights. 

 141

VII. CONCLUSIONS AND RECOMMENDATIONS 

The problem of how best to craft policy with respect to the TBTs 

that affect U.S. exporters is clearly one whose solution rests on 

gaining a clearer understanding of the dimensions of the issue. The 

complexities of the legal, economic, and regulatory factors that arise 

often make it difficult to determine the appropriate occasions and 

courses for government actions. This begins with the very problem of 

identifying TBTs for what they are and coming to some reasonable 

estimate of the burdens they impose. The purpose of this study has been 

primarily to provide a clear line of reasoning as a foundation to the 

development and application of government actions in a variety of 

venues. Our course of inquiry has been to determine how best to measure 

the economic effects of TBTs on U.S. industries. In doing so, we have 

felt it necessary to answer several practical questions: 

1. What data are required to determine whether a technical measure in 

question acts as a TBT and where are these data found? 

2. How may these data be collected? 

3. How can these data be used to calculate the costs to U.S. 

exporters of the TBT? 

The information developed during the course of addressing these 

questions is summarized below as findings intended to assist NIST in 

coming to a better understanding of how to address the needs of its 

private sector and government agency interlocutors. 

FINDINGS FROM THE RECONAISSANCE STUDY 

The principal findings from this work have led to conclusions in 

each of the areas posed by the questions listed above. These 

conclusions are not intended as definitive but provide a basis for more 

detailed efforts. 

Data: In Chapter II we developed a simple checklist to ascertain 

whether a measure has TBT-like characteristics. We used this checklist 

to structure our discussions with industry representatives in the 

pharmaceutical and automotive industries as well as a search through 
 142

existing records of TBT allegations (Chapters III and IV.) We also held 

discussions widely across agencies of the U.S. federal government. 

We found that federal agencies, such as the U.S. Department of 

Commerce, International Trade Administration and the Office of the U.S. 

Trade Representative already gather a substantial amount of data, some 

of which is readily available in extant databases. Further, we did not 

find any especially helpful formal databases outside the governmental 

domain. This is not to say that relevant data do not exist in industry. 

Clearly, they do. But for the two industries we examined in the 

representative case studies we found no evidence of formal data 

gathering or collation on a comprehensive basis. That is, there were no 

ready-to-cull non-governmental sources. Gathering data from these 

industries would require either surveys of firms or direct discussions 

with those individuals in firms or trade associations who track TBTs on 

a geographic or issue area basis (See Appendix B for a listing of 

relevant data bases.) 

These findings and others discussed below have led the project team 

to conclude that rather than attempt to collect new information, likely 

to be of the same character as the government already collects, it would 

be better to use existing federal databases coupled with interviews with 

industry and government representatives to monitor foreign technical 

measures that may serve as TBTs. 

Collection: The project team explored in each of the two test 

industries studied the possibilities for collecting existing information 

about TBTs and their effects. This would provide one approach to making 

an estimate of the costs of particular TBTs in aggregate. We have 

concluded, based on the availability of existing data and discussions 

with industry representatives, that at this time independent surveys of 

industry and attempts to collate the responses into a new data facility 

are unlikely to be sufficiently fruitful to justify the requisite 

expenditures of government resources. 

This finding stems from several considerations. The first is based 

on our preliminary contacts with industry. The data required to be 

collected are often based on, or related to, proprietary information and 

therefore are not likely to be forthcoming in sufficient quantity as a 
 143

result of administering objective survey instruments. This is 

especially likely to be true given the tendency by industry to view 

TBTs, their costs, and the necessary accommodations by firms on a casespecific basis rather than as a generalized phenomenon. Finally, to be 

useful any such survey would require a sufficient level of detail and 

careful definition. The resulting survey instrument would likely be 

viewed as a burdensome intrusion by potential respondents. Experience 

suggests that this would lead to low return rates. 

A second consideration is that such an effort carried out by any 

one federal agency could potentially also lead to misunderstandings with 

other federal agencies. It would run the risk of being viewed as a 

duplication of effort or based on a confusion of roles. 

Both of these considerations suggest that NIST could increase the 

potential value of already existing data collection efforts conducted in 

other agencies by providing technical guidance on the types of 

information necessary to identify and gauge the magnitude of alleged 

TBTs and providing a mechanism for assessing what this information 

means. Once such an ability was established and the results 

demonstrated the question of more general surveys of industry could be 

revisited. It may be that the existence of an exemplar system could 

demonstrate utility to individual firms as well as to industry as a 

whole and change the assessment of likely private sector response rates. 

Calculation: This study has developed a draft methodology for 

quantifying costs faced by U.S. exporters when confronting alleged TBTs. 

The methodology is rooted in current theory and designed to be broadly 

applicable, minimally data intensive, and easily used and understood so 

that it may be widely utilized. The result is an approach geared to 

estimate as accurately as possible the upper bounds of the costs that 

could be incurred by U.S. exporters from alleged TBTs erected by 

importing countries. The methodology as it currently stands is designed 

to be applicable to the full range of potential costs stemming from 

specific instances of alleged TBTs, whether arising from technical 

regulations, standards, or conformity assessment procedures. In this 

report we have applied this methodology to one instance in the 

automotive industry. But while useful as it stands, at this stage it 
 144

represents more of a promising beginning than a final word. In 

particular, it would be useful to refine the methodology as well as to 

apply it to a number of other instances of TBT-like technical measures 

so as to create a range of estimates. This would be important not only 

for purposes of calibration and refinement but also for achieving the 

ultimate goal of elucidating the true costs of TBTs. 

RECOMMENDATIONS FOR FURTHER RESEARCH 

This project was intended as an initial exploration. Based on the 

results of the research conducted to date, we believe that should NIST 

at some later date care to build upon the foundation framed by this 

study, the areas we outline below would provide the greatest additional 

value in better understanding TBTs, the costs they entail, and the 

nature of effective government measures to alleviate their effects. 

Recommendation 1: Consider the Experience of Other Industries 

Theoretical excursions can be most helpful in illuminating the 

issues related to TBTs, but more data are required as well and the 

survey approach is unlikely to be sufficiently successful for the 

reasons given above. Therefore we recommend considering wider and more 

detailed sectoral studies of specific U.S. industries to provide a more 

comprehensive overview of the prevalence and types of TBTs that cause 

the most concern and potential costs. 

The two examples included in this study form an interesting 

counterpoint. The automotive study does not disclose many areas where 

further inquiry at a more detailed level would be likely to yield more 

insight into this sector’s TBT issues. The pharmaceutical study, on the 

other hand, does suggest the value of continuing a deeper probe of the 

question of TBTs in that sector. In addition, the project team has 

concluded there would be value in looking into other important U.S. 

export sectors to better understand the nature of TBT costs as they play 

across several major export groups. Such inquiry would enable more 

conclusive generalizations regarding TBT costs to U.S. industry and 

would provide better support for any findings being viewed as 

representative and hence more useful to USG activities and 

considerations. It would also be an important step for attempting to 
 145

provide an informed and authoritative estimate of aggregate costs 

stemming from alleged TBTs across industry. 

We suggest the following industries as worthy of attention by 

virtue of the scale of U.S. exports, the representative character of the 

sectors, and the likelihood of being able to gather relevant 

information: 

• Electronics products 

• Electrical engineering products 

• Mechanical engineering products 

The computer sector might also be substituted for one of the 

suggested sectors, depending on what might be of most direct value to 

the relevant federal agencies. 

Recommendation 2: Build Upon Foundation Methodology 

We recommend refining the first draft of the methodology developed 

in this study to enhance its applicability to a wide range of sectors 

and ensure its fidelity for illuminating TBT effects within individual 

markets. 

Part of the reason to continue with and broaden sectoral studies 

would be to test how well the methodology derived in this exploratory 

study serves its intended function of providing a guide for determining 

what data are necessary to answer the fundamental question of cost. 

This task would involve a targeted search for the data necessary to 

generate approximations of TBT-related costs to U.S. exporters. It 

would then seek to apply the basic methodology for calculating the costs 

of TBTs to potential TBTs in the pharmaceutical industry, automotive 

industry and in industries chosen for additional case studies. 

In light of more application, refinements to the basic method can 

be sought. In particular, it would be useful to assess the value of 

relaxing several of the stronger assumptions that were incorporated in 

favor of simplicity and tractability. Further, it might be possible to 

incorporate more strategic aspects of the decision calculus undertaken 

by any selected exporter in determining how to respond to the presence 

of a TBT. For example, the decision to exit or decline to enter a 

market based on size-of-market calculations might also incorporate 
 146

considerations of future market size or the value of market presence in 

potentially important locales such as China. 

Recommendation 3: Explore Aggregation -- Cautiously 

The third recommendation is offered with a qualification. We 

recognize the value of exploring the possibilities for aggregation in 

determining overall costs to U.S. exporters of TBTs. At the same time, 

any attempts to do so must not come at the cost of reintroducing some of 

the fundamental theoretical and practical confusions this study has 

sought to surmount. 

Exploring methods for meaningful aggregation would be integral to 

the activities suggested in the previous two recommendations because how 

to do so is as much an empirical as a theoretical issue. The value in 

doing so would be to gain a better approximation of the costs faced by 

U.S. exporters across industrial sectors. However, the methodology we 

presented for calculating upper bounds in the case of individual TBTs 

could not simply be “grossed up” to address the aggregation question. 

Several of the underlying assumptions of this model would become 

questionable to the point where the values obtained through aggregation 

would be less likely to yield measures of the narrowly defined effects 

of TBTs than does the simple, case-by-case form of the method. A wellreasoned redrafting would be required. 

On the empirical side, the initial two cases, automotive and 

pharmaceuticals, led to two different conclusions. In the case of the 

former, there do appear to be grounds for claiming the existence of some 

TBT-like practices. The tasks of assessing where they lie and what they 

may cost U.S. exporters appear relatively straightforward. The 

pharmaceuticals industry, however, presents a richer variety of 

instances of alleged TBTs posing different kinds of analytical 

challenges. This provides two opposing guesses about what would be 

involved in an aggregation strategy for approximating TBT costs to U.S. 

exporters across sectors. Looking into other sectors would assist in 

refining any estimations of aggregate costs. 

In addition to the quantitative dimension of aggregation, it would 

be useful to examine the qualitative one as well. This may be done by 
 147

follow-on research activity geared to expanding and refining the simple 

tables presented as Tables 3.1 and 4.3 in the body of this draft. That 

is, it would be useful not only to apply this framework to other sectors 

but to add in such dimensions as whether an alleged TBT arises from a 

standard or a regulation and to provide a secondary layer of definition 

under such broad headings as product, process, or conformity assessment 

TBTs. 

Recommendation 4: Embody TBT Knowledge in User-friendly Software Tools 

We recommend encapsulating the knowledge gained in this research in 

a form that will provide an infratechnology for use by NIST and other 

federal agencies. 

An important part of this project has been to consider how better 

to maintain knowledge across the government of potential TBTs and their 

costs. We have concluded that the current situation is less one calling 

for extraordinary additional effort in crafting a unified data base or 

gathering information of a different character than is already 

collected, but to provide an overarching framework within which to place 

such information, inform its collection, and suggest avenues for 

utilization. In this vein, we propose creating a computer spreadsheetbased software tool based upon the existing methodology or elaborations 

to be further developed for calculating the bounds of possible costs 

stemming from any particular suspected or alleged TBT. This tool should 

be designed to have a user-friendly graphic user interface that will 

take users through a menu-driven set of steps mapping into a protocol 

for assessing such costs. The goal would be to provide for enhanced 

automaticity in assessment based on question-driven user protocols. It 

is entirely possible that this advance in instrumentation could in 

itself provide an impetus for closer coordination across the agencies of 

the federal government as well as more purposeful contact between 

government and industry on the subject of TBTs. 

 149

APPENDIX A. DEFINITIONS IN THE TBT AGREEMENT 

Annex 1 of the TBT Agreement, defines technical regulation, 

standards, conformity assessment procedures, international body or 

system, and other important terms for the purposes of the TBT Agreement. 

The Annex does not, however, define either “TBT” or “international 

standard” explicitly. The Annex also provides explanatory notes for 

some definitions, especially those that differ from ISO definitions. 

From the Annex: 

The terms presented in the sixth edition of the ISO/IEC Guide 2: 

1991, General Terms and Their Definitions Concerning 

Standardization and Related Activities, shall, when used in this 

Agreement, have the same meaning as given in the definitions in 

the said Guide taking into account that services are excluded from 

the coverage of this Agreement. 

For the purpose of this Agreement, however, the following 

definitions shall apply: 

1. Technical regulation

Document which lays down product characteristics or their related 

processes and production methods, including the applicable 

administrative provisions, with which compliance is 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. 

Explanatory note 

The definition in ISO/IEC Guide 2 is not self-contained, but based 

on the so-called "building block" system 

2. Standard

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 is not mandatory. It may also include or deal 
 150

exclusively with terminology, symbols, packaging, marking or 

labeling requirements as they apply to a product, process or 

production method. 

Explanatory note 

The terms as defined in ISO/IEC Guide 2 cover products, processes 

and services. This Agreement deals only with technical 

regulations, standards and conformity assessment procedures 

related to products or processes and production methods. 

Standards as defined by ISO/IEC Guide 2 may be mandatory or 

voluntary. For the purpose of this Agreement standards are 

defined as voluntary and technical regulations as mandatory 

documents. Standards prepared by the international 

standardization community are based on consensus. This Agreement 

covers also documents that are not based on consensus. 

3. Conformity assessment procedures

Any procedure used, directly or indirectly, to determine that 

relevant requirements in technical regulations or standards are 

fulfilled. 

Explanatory note 

Conformity assessment procedures include, inter alia, procedures 

for sampling, testing and inspection; evaluation, verification and 

assurance of conformity; registration, accreditation and approval 

as well as their combinations. 

4. International body or system

Body or system whose membership is open to the relevant bodies of 

at least all Members. 

5. Regional body or system

Body or system whose membership is open to the relevant bodies of 

only some of the Members. 

6. Central government body

Central government, its ministries and departments or any body 

subject to the control of the central government in respect of the 

activity in question. 
 151

Explanatory note: 

In the case of the European Communities the provisions governing 

central government bodies apply. However, regional bodies or 

conformity assessment systems may be established within the 

European Communities, and in such cases would be subject to the 

provisions of this Agreement on regional bodies or conformity 

assessment systems. 

7. Local government body

Government other than a central government (e.g. states, 

provinces, Länder, cantons, municipalities, etc.), its ministries 

or departments or any body subject to the control of such a 

government in respect of the activity in question. 

8. Non-governmental body

Body other than a central government body or a local government 

body, including a non-governmental body which has legal power to 

enforce a technical regulation. 

 153

APPENDIX B. ANNOTATED BIBLIOGRAPHY ON TBTS 

1. MEASUREMENT AND MODELING 

1. Baldwin, Richard E.. “Regulatory Protectionism, Developing Nations 

and a Two-Tier World Trade System.” In Quantifying the Impact of 

Technical Barriers to Trade: Can it be Done?, Keith E. Maskus and John 

S. Wilson, Eds. Ann Arbor: the University of Michigan Press, 2001. 

The author covers the economics of technical barriers to trade (TBTs) 

and presents evidence on their importance and the various initiatives 

made to liberalize them. He concludes that a two-tier system of market 

access is likely to emerge, with developing countries occupying the 

second tier. 

2. Beghin, John C., Bureau, Jean-Christophe, (2001), “Quantification of 

Sanitary, Phytosanitary, and Technical Barriers to Trade for Trade 

Policy Analysis”, Working Paper 01-WP 291, Centre for Agricultural and 

Rural Development, Iowa State University. 

The paper presents methodologies to model and quantify the economic 

effects of trade affecting sanitary, phytosanitary, and technical 

regulations in the agricultural and food sectors. The paper describes 

and evaluates various methods that have been used in the empirical 

estimation of the effects of NTBs. The paper explores methods that 

yield quantitative estimates of the impact of such barriers on 

equilibrium prices, trade flows, economic efficiency, and economic 

welfare. 

3. Deardoff, Alan V., and Stern, Robert M.. “Measurement of Non-tariff 

Barriers”, Economics Department Working Papers No. 179, OECD 1997. 

The paper addresses currently available methods for quantifying nontariff barriers (NTBs), including explicit formulas and recommendations 

concerning best practices. It finds that (1) the calculation of the 

tariff equivalent of a given NTB for a given economic indicator is 

complex and requires a great deal of information; (2) measures that are 

equivalent for one indicator will not be so for others; and (3) there is 

no substitute for NTB-specific expertise. 

4. Gandal, Neil (2000). ‘Quantifying the Trade Impact of Compatibility 

Standards and Barriers – An Industrial Organization Perspective”. Paper 

prepared for the World Bank Workshop on Trade and Standards in April 

2000. 

The paper aims to set a research agenda for examining the effect of 

compatibility-based barriers to trade. The author argues that 

compatibility and standardization create network effects. A network 

effect exists when the value that consumers place on a product increases 

as the number of consumers who purchased identical or compatible goods 

increases. 

5. Ganslandt, Mattias and Markusen, James R., (2000) “Standards and 

Related Regulations in International Trade: A Modeling Approach”. 

The paper describes approaches to formally modeling standards and 

technical regulations affecting trade. The authors only explore those 

models that could be used within the context of applied general 
 154

equilibrium models with real data. Simple numeric models are used to 

generate solutions. The authors note, however, that a practical 

obstacle to using these models is the lack of real data that could be 

used to estimate the costs and benefits of standards in terms of 

international trade. 

6. Hilton, Francis G., and Levinson, Arik. (2000) “Measuring 

Environmental Compliance Costs and Economic Consequences: A Perspective 

from the United States”. Prepared for the World Bank Conference: 

Quantifying the trade Effect of Standards and Regulatory Barriers: Is it 

Possible? 

The paper explores the possibility of measuring international 

differences in environmental compliance costs to assess their impact on 

international trade and investment, based on lessons learned from 

compliance cost comparisons in the United States. 

7. Krissoff, Barry, Linda Calvin, and Denice Gray. “Barriers to Trade 

in Global Apple Markets.” Fruit and Tree Nuts Situation and outlook, 

Economic Research Service, USDA, FTS-280, August 1997: 42-51. 

The authors estimate tariff rate equivalents for phytosanitary 

requirements facing U.S. apple exports in Japanese, South Korean, and 

Mexican markets. The authors find that the tariff rate equivalents of 

technical barriers are as large or larger than many tariff rates. The 

results indicate that technical barriers may have significant effects on 

trade. 

8. Maskus, Keith E., Otsuki, Tsunehiro, and Wilson, John S., (2001). “An 

Empirical Framework for Analyzing Technical Regulations and Trade”, 

Chapter 2 of the book, Quantifying the Impact of Technical Barriers to 

Trade: can It Be Done? The University of Michigan Press, 2001 

The paper presents empirical approaches to analyzing the economic 

effects of technical regulations. The authors review the available 

empirical literature in four categories, i.e., surveys, econometric 

models, partial equilibrium models, and computable general equilibrium 

models; address measurement problems; discuss data collection; and set 

out a framework for econometric estimation. They also discuss potential 

models for performing partial- and general- equilibrium simulation 

analyses. 

9. Maskus, Keith E., and Wilson, John S., (2001). “A Review of Past 

Attempts and the New Policy Context”, Chapter 1 of the book, Quantifying 

the Impact of Technical Barriers to Trade: Can It Be Done? The 

University of Michigan Press, 2001. 

The paper presents an analytical overview of the policy debate and 

methodological issues surrounding product standards and technical 

barriers to trade. The authors discuss motivations for performing 

research in this area; examine the policy context driving the need for 

new data and empirical evidence; and review the role of standards in 

international trade, discussing policy justifications for reaching 

voluntary standards and imposing mandatory technical regulations. 

10. Mayer, Wolfgang, (1982), “The Tariff Equivalence of Import 

Standards”, International Economic Review, Volume 23, Issue 3, pp. 723-

734 

The paper presents a model that generates a tariff equivalent measure of 

the economic effects of import standards. The author argues that there 

exist different combinations of tariffs and import standards, which may 
 155

be employed to grant an equivalent level of protection to the domestic 

industry. The model is developed under a general equilibrium framework 

to simulate a small open economy in which consumers buy differentiated 

products from both domestic and foreign producers. 

11. Roberts, Donna, Timothy E. Josling, and David Orden, (1999). “A 

Framework for Analyzing Technical Trade Barriers in Agricultural 

Markets.” Market and Trade Economics Division, Economic Research 

Services, U.S. Department of Agriculture. Technical Bulletin No. 1876. 

The paper begins by looking at the rise in importance of technical trade 

barriers in public policy debates in general and in the agricultural 

sector in particular. The authors propose a definition and 

classification scheme to frame the discussion and evaluation of 

technical measures. They graphically develop an open-economy model that 

complements the classification scheme, to highlight the basic elements 

that affect the economic impacts of changes in technical trade barriers. 

They focus on three elements: the regulatory protection element, the 

supply shift element, and the demand shift element. 

2. CASE STUDIES 

1. International Trade Commission, November 1998 “Global Assessment of 

Standards Barriers to Trade in the Information Technology Industry”, 

Working Party of the Trade Committee. 

This study draws on interviews with industry representatives and 

government officials and literature reviews to identify technical 

barriers to trade in the computer hardware, software, and 

telecommunications equipment sectors of the information technology 

industry. The study identifies conformity assessment procedures as 

imposing the most onerous costs for exporters. It evaluates the 

potential effectiveness of mutual recognition agreements for reducing 

the costs to exporters of complying with technical regulations and also 

examines other potential regulatory approaches for reducing these costs. 

2. OECD 2000, “An Assessment of the Costs for International Trade in 

Meeting Regulatory Requirements”, Working Party of the Trade Committee, 

TD/TC/WP(99)8/FINAL. 

This OECD study was conducted with the aim to investigate the 

extent to which technical standards and conformity assessment procedures 

impede trade. Quantitative data were collected on costs of compliance 

with differing standards and technical requirements in export markets. 

The study explores three sectors (telecommunications equipment, dairy 

products, and automotive components), in four countries (the United 

States, Japan, United Kingdom, and Germany). The study focused on the 

problems and costs imposed on firms that export to these four countries. 

3. OECD 2000, “Standardization and Regulatory Reform: Selected Cases”, 

TD/TC/WP (99) 47/Final. 

Sectoral case studies can provide evidence of the strengths and 

weaknesses of standards, of the process through which they are 

developed, and the ways they are used as regulatory tools. 

This report contains case studies on electrical products and 

electromagnetic compatibility, pressure equipment, construction 
 156

machinery, and machinery safety. The case studies focus on how 

standards are created, how standards are harmonized across countries, 

how conflicts concerning standards are resolved, and deficiencies of 

standard setting from an international perspective.

4. Thornsbury, Suzanne D. “Political Economy Determinants of Technical 

Barriers to U.S. Agricultural Exports”, Paper presented at the 1999 

American Agricultural Economics Association. 

This paper presents econometric evidence about the economic and 

political determinants of questionable technical barriers. The 

hypothesis is that technical barriers to agricultural trade arise from 

combinations of scientific, economic, and political variables. The data 

for this econometric analysis originate from a 1996 USDA survey on the 

incidence of questionable technical barriers to U.S. agricultural 

exports across 132 countries and two regional trade blocks 
 157

APPENDIX C. RUNNING INVENTORY OF EXISTING DATABASES ON TBTS 

One of the tasks for the first phase project effort is to survey 

and assess existing databases and information available that has been 

collected about instances of technical barriers to trade. This is 

intended as a running catalogue, designed to be updated as more 

information is gathered during the course of the effort. 

The first iteration of this effort is presented in this appendix. 

It focuses on databases available on line. It should not be regarded as 

an exhaustive list, but an indication of some of the organized pools of 

data that are available over the internet. It should be noted that most 

of the existing databases available online do not focus individually on 

technical barriers to trade but on a wide range of tariff and non-tariff 

barriers to trade. 

1. UNCTAD-TRAINS 

United Nations Conference on Trade and Development has a database 

of tariff and non-tariff measures and of import flows on products 

catalogued using Harmonized Standards. This database is titled the 

Trade Analysis and Information System (TRAINS). 

TRAINS on Internet provides an on-line access to indicators of 

Trade Control Measures (Tariff and Non-tariff measures) as well as 

imports by supplier at each Harmonized System 6-digit level for over 130 

countries. 

The home page of TRAINS: http://r0.unctad.org/trains/ 

The following is the link for initiating a search using TRAINS: 

http://cs.usm.my/untrains/trains.html 

The UNCTAD Coding System for TRADE Control Measures has the 

following categories of technical measures that may be use to control 

trade: 

8000 TECHNICAL MEASURES 
 158

 8100 TECHNICAL REGULATIONS 

 8110 Product characteristics requirements 

 8120 Marking requirements 

 8130 Labeling requirements 

 8140 Packaging requirements 

 8150 Testing, inspection and quarantine requirements 

 8190 Technical regulations n.e.s. 

 8200 PRE-SHIPMENT INSPECTION 

 8300 SPECIAL CUSTOMS FORMALITIES 

 8900 TECHNICAL MEASURES N.E.S. 

2. EU MARKET ACCESS DATABASE 

This online database provides a wide range of information on market 

access issues such as trade flows, information on and computations of 

applied tariffs, tariff and non-tariff measures by country, by measure, 

and by product/sector. Access to the Sectoral and Trade Barriers 

Database is free. However, information under the Exporters Guide, 

Applied Tariffs, and WTO Bound Tariffs is restricted to users in the 15 

Member States of the European Union. 

The database is managed by Director General, Trade, European 

Commission. 

The database on market access can be found online at the following 

address: http://mkaccdb.eu.int 

The database on tariff and non-tariff measures can be found at the 

following address: http://mkaccdb.eu.int/mkdb/stb/mkstb.pl?action=search 

3. PERINORM 

PERINORM is the world's leading bibliographic database of standards 

and technical regulations from dozens of countries worldwide. Launched 

on CD-ROM in 1989, the content and functionality of PERINORM is 

constantly being improved by its original creators, AFNOR, DIN, and BSI. 
 159

Standards from different countries are added and revised documents are 

updated with a new CD each month. T his multilingual software (German, 

French, and English) is available in two versions, PERINORM Europe, or 

PERINORM International, depending on your data requirements. 

The database is commercially available, and not for free access 

online. 

4. UNITED STATES TRADE REPRESENTATIVE (USTR) 

The National Trade Estimate 

The USTR’ s offices collect and compile information on tariff and 

non-tariff barriers to trade from their representatives and analysts 

covering various countries. This information is complied as the 

National Trade Estimate Report on Foreign Trade Barriers. The latest 

report was published in March 2002. 

The National Trade Estimate Report on Foreign Trade Barriers for 

various years can be downloaded free from the following link: 

http://www.ustr.gov/reports/index.shtml 

The “2002 National Trade Estimate Report on Foreign Trade Barriers” 

can be downloaded free from the following 

link:http://www.ustr.gov/reports/nte/2002/index.htm 

5. FOREIGN AGRICULTURAL SERVICE (FAS), UNITED STATES DEPARTMENT OF 

AGRICULTURE 

The FAS provides information on technical issues affecting US 

agricultural trade. This resource is available online at: 

http://www.fas.usda.gov/itp/ofsts/technical.HTM 

The areas covered and services provided are: 

a) International Standards: 

http://www.fas.usda.gov/itp/ofsts/intstandards.HTM

b) SPS/TBT related information: 

http://www.fas.usda.gov/itp/ofsts/enquirypt.HTM

c) Technical imports requirements by country: Food and Agricultural 

Import Regulations and Standards (FAIRS). The FAIRS Country Report is 
 160

a market access report which aims to consolidate general information 

on the technical requirements (i.e. food laws, labeling, import 

procedures, etc.) for food and agricultural imports imposed by a 

foreign country. 

http://www.fas.usda.gov/itp/ofsts/fairs_by_country.asp
 161

APPENDIX D. INTERVIEWEES AND CONTACTS 

This appendix provides a listing of individuals interviewed or 

contacted by team members during the course of the project to date. 

1. Abraham, Julie: Director Office of International Policy and 

Harmonization, U.S. Department of Transportation/NHTSA. 

2. Alley, Kristal: Permanent Representative, European Office, U.S. 

Chamber of Commerce, Brussels.

3. Bende, Steve: Vice President; Scientific, Professional and 

Regulatory Affairs, Generic Pharmaceutical Association.

4. Cecil, Todd: Director of General Policy and Requirements, U.S. 

Pharmacopoeia.

5. Cho, Man K.: International Trade Specialist International Trade 

Administration, U.S. Department of Commerce.

6. Claridge, Jonathan: DG Trade, European Union. 

7. Cran, James: Wheels Task Force, Iron and Steel Institute 

8. Damond, Joseph M.: Assoc. Vice President, Japan & Asia-Pacific, 

Pharmaceutical Research and Manufacturers of America. 

9. Dresser,Bobbi: Associate Director for International Standards and 

Trade, Office of International Programs, U.S. Food and Drug 

Administration. 

10.Feisee, Lila: Director, Government Relations for Intellectual 

Property, Biotechnology Industry Organization. 

11.Finston, Susan Kling: Assoc. Vice President, Intellectual 

Property and South Asian Affairs, Pharmaceutical Research and 

Manufacturers of America. 

12.Fitzwater, Kristie L.: International Trade Specialist, 

International Trade Administration, U.S. Department of Commerce. 

13.Ford, Charles: Minister Counselor for Commercial Affairs, U.S. 

Mission to the European Union. 

14.Gillerman, Gordon: Manager Governmental Services, Underwriters 

Laboratories

15. Gonzalez, Jesus: Commercial Specialist, U.S. Commercial Service, 

U.S. Embassy, Mexico City.
 162

16. Guhl, Jennifer H.: Director, International Trade Policy, 

American Electronics Association. 

17. Heck, Thomas: Hayes Lemmerz. 

18. Hurt, William E.: International Trade Specialist 

Pharmaceuticals, International Trade Administration, U.S. 

Department of Commerce. 

19. Jenkinson, Brian: Deputy Head of Unit, Regulatory Coordination 

and Simplification; Mutual Recognition; DG General, European 

Union. 

20. Kennedy, Scott: International Trade Specialist, Office of 

Automotive Affairs, International Trade Administration, Department 

of Commerce. 

21. Kyriatzis, Christos: Administrator, DG Enterprise, European 

Union. 

22. Lamerigts, Dolf: Director Technical Affairs, ACEA (European 

Automobile Manufacturers Association). 

23. Litman, Gary: Vice President, Europe and Eurasia, U.S. Chamber 

of Commerce. 

24. Loew, Caroline: Assistant Vice President for International 

Regulation, Pharmaceutical Research and Manufacturers of America. 

25. Mohr, Sylvia: Standards Specialist, U.S. Mission to the European 

Union. 

26. Morrione, Marnie S.: International Trade Specialist (Chemicals, 

Pharmaceuticals and Biotechnology,) International Trade 

Administration, U.S. Department of Commerce. 

27. Ngo, Anne: Office for European Regional Affairs, International 

Trade Administration, U.S. Department of Commerce. 

28. Parris, Andrew: International Trade Specialist, Office of 

Automotive Affairs, International Trade Administration, Department 

of Commerce. 

29. Radcliffe, Anjali A. Assistant Vice President, European Affairs, 

Pharmaceutical Research and Manufacturers of America. 

30. Rios, Ivan: Commercial Attaché, U.S. Embassy, Mexico City. 

31. Ruggieri, Caroline: Biotechnology Industry Organization. 

32. Sene, Suzanne: Standards Attaché, U.S. Mission to the European 

Union. 
 163

33. Shaal, Gabriele: ACEA (European Automobile Manufacturers 

Association). 

34. Sheinin, Eric: Vice President, Information and Standards 

Development, U.S. Pharmacopoeia. 

35. Simmon, Christine: Generic Pharmaceuticals Association (GphA). 

36. Slutsky, Bernice: Assistant Vice President, International 

Regulatory Affairs, Pharmaceutical Research and Manufacturers of 

America. 

37. Spell, Sabine: Communications Manager, Japan Automobile 

Manufacturers Association 

38. Stradtman, Jennifer: International Trade Specialist, 

International Trade Administration, U.S. Department of Commerce. 

39. Troje, Suzanne: Director, Technical Trade Barriers, U.S. Trade 

Representative Office. 

40. Uthus, Charles D.: Vice President, Automotive Trade Policy 

Council. 

41. Walters, David: Chief Economist, U.S. Trade Representative 

Office. 

42. Waelthy, Eric: Hess Engineering. 

43. Willingham, Peg: Assistant Vice President, Latin America & 

Canada, Pharmaceutical Research and Manufacturers of America. 

44. Woollett, Gillian R.: Vice President, Science and Regulatory 

Affairs, Biotechnology Industry Organization. 

45. Zebroski, Shirley: Senior Washington Representative, General 

Motors. 

 165

BIBLIOGRAPHY 

Akerlof, George A.. “The Market for ‘Lemons’: Quality Uncertainty and 

the Market Mechanism.” The Quarterly Journal of Economics, 84, August 

1970, 488-500. 

Baldwin, Richard E.. “Regulatory Protectionism, Developing Nations and 

a Two-Tier World Trade System.” In Quantifying the Impact of 

Technical Barriers to Trade: Can it be Done?, Keith E. Maskus and 

John S. Wilson, Eds. Ann Arbor: the University of Michigan Press, 

2001. 

Beghin, John C. and Jean-Christophe Bureau. “Quantification for 

Sanitary, Phytosanitary, and Technical Barriers to Trade for Trade 

Policy Analysis.” Ames, Iowa: Center for Agricultural and Rural 

Development, Iowa State University, December 2001. 

Cho, Man K. (2003). “Beyond the Borders: International Challenges and 

Opportunities”, International Trade Administration, Department of 

Commerce, Presentation to the Annual Meeting of the Generics 

Pharmaceutical Association, 28 January. 

Census Bureau, U.S. Department of Commerce (2001). “Current Industrial 

Report: Pharmaceutical Preparations, Except Biologicals, 2001”. 

MA325G(01)-1. September. 

Census Bureau, U.S. Department of Commerce (2002). “Statistics for 

Industry Groups and Industries: 2000”, Annual Survey of Manufactures. 

MOO(AS)-1. February. 

Deardorff, Alan V. and Robert M. Stern. “Economics Department Working 

Papers No. 179: Measurement of Non-tariff Barriers.” Paris, France: 

Organisation for Economic Co-operation and Development, 1997. 

Gasiorek, M., A. Smith, and A. J. Venables. “Trade and Welfare—A 

General Equilibrium Model.” In Trade Flows and Trade Policy after 

1992, L. A. Winters, Ed. Cambridge: Cambridge University Press, 

1992. 

Harrison, G. W., T. F. Rutherford, and D. G. Tarr. “Increased 

Competition and Completion of the Market in the European Union: 

Static and Steady State Effects.” Journal of Economic Integration, 

11:3; 332-365. 

Henson, S., R. Loader, A. Swinbank, M. Bredahl, and N. Lux. “Impact of 

Sanitary and Phytosanitary Measures on Developing Countries.” 

Reading, UK: Center for Food Economics Research, University of 

Reading, 2000. 
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Hurt, William and Marnie Morrione (2002). “Pharmaceuticals”. Export 

America, July, pp. 22-24. 

Krissoff, Barry, Linda Calvin, and Denice Gray. “Barriers to Trade in 

Global Apple Markets.” Fruit and Tree Nuts Situation and outlook, 

Economic Research Service, USDA, FTS-280, August 1997: 42-51. 

Linkins, Linda A. and Hugh M. Arce. “Estimating Tariff Equivalents of 

Nontariff Barriers.” Washington, DC: Office of Economics, U.S. 

International Trade Commission, June 1994 (Revised August 2002). 

Luce, Bryan R. (1993). “Cost-Effectiveness Analysis: Obstacles to 

Standardisation and its Use in Regulating Pharmaceuticals,” 

PharmacoEconomics, 3(1), pp. 1-9. 

Maskus, Keith E., Tsunehiro Otsuki, and John S. Wilson. “An Empirical 

Framework for Analyzing Technical Regulations and Trade.” In 

Quantifying the Impact of Technical Barriers to Trade: Can it be 

Done?, Keith E. Maskus and John S. Wilson, Eds. Ann Arbor: the 

University of Michigan Press, 2001. 

Maskus, Keith E. and John S. Wilson. “A Review of Past Attempts and the 

New Policy Context.” In Quantifying the Impact of Technical Barriers 

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