Using a trade model where firms are heterogeneous in both productivity and product quality and with the assumption of information asymmetry (where firms know their product quality but consumers only observe the average quality in the market), Disdier et al. (2023) demonstrated that enforcing a quality standard results in the exit of low-quality firms unable to meet the requirements, regardless of productivity. Conversely, high-productivity firms offering high-quality products can profitably reveal their quality, leading to a higher likelihood of exporting and larger export sales. Thus, the effect of NTMs on export margins also hinges on the initial quality of the firm’s products.

Finally, standards may also affect trade through their effects on industry structure. For instance, within the trade models with heterogeneous firms framework, standards can decrease social welfare by reducing competition and product variety in the destination market imposing the standard (Abel-Koch, 2013). Due to the increased production costs, standards will induce market exit for firms that produce lower-quality products, and deter potential new exporters from exporting to the destination imposing the standard (trade cost effect). Conversely, standards serve as a signal of product quality, potentially bolstering consumer trust and thus increasing demand for these products. As demonstrated by Schmidt and Steingress (2022), the anticipated higher profits resulting from this heightened demand could incentivize market entry ( quality effect). Consequently, the impact of quality standards on competition hinges on the relative magnitude of its trade cost and quality effects. If the trade cost effect outweighs the quality effect, the number of exporting firms dwindles, consequently diminishing competition. Surviving exporters may exploit the reduced competition in this new market environment and charge higher product prices. Yet, by excluding low-quality exports, standards may limit the scope for product quality differentiation and instead induce an increase in price competition (Ronnen, 1991).<sup>8</sup> In summary, the conceptual discussions outlined above illustrate that the impact of standards on trade margins is theoretically ambiguous, and thus an empirical question. Furthermore, this impact is likely influenced by firm-specific characteristics such as productivity and initial product quality. Imposing standards may also induce product upgrading by firms to maintain exports to the affected destination, an effect which is also likely to be contingent upon the characteristics of the firm.

# **3 Data**

## **3.1** **_Non-tariff measures_**

We create a bilateral NTM variable using information from the Vienna Institute for International Economic Studies NTM database (Ghodsi et al., 2017).<sup>9</sup> The majority of the measures we observe are imposed by destinations in a non-discriminatory manner to all WTO member

> 8This will occur if mandatory compliance with the public standard leads firms that before the introduction of the standard were producing “low-quality” to improve their quality. In this case, the difference in quality between surviving firms reduces after the introduction of the standard. This will cause an increase in price competition and, as a consequence, a reduction in quality-adjusted prices.

> 9The data is publicly available at `https://wiiw.ac.at/wiiw-ntm-data-ds-2.html`

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