Standardization union effects: the case of EU enlargement

The analysis of trade policy shows growing interest in various types of “standards”. While technical regulations and standards are introduced to protect the interest of consumers, they can also act as technical barriers to trade (TBT), as foreign suppliers complying with national regulations might be required to bear certain costs of adjustment to the new regime. Recent literature focused on the concept of standards and concluded that shared standards promote trade. We instead set our attention to technical regulations of the European Union and concentrate on their effects on trade costs. The analysis is inspired by Gandal and Shy’s (2001) cost reducing standardization union theory. This paper summarizes results of research undertaken within a larger product assessing importance of technical barriers to trade for new EU members. The recent empirical study by Hagemejer (2005), based on detailed trade data of the EU. He has shown that in sectors where the EU technical regulations are most complicated and require costly adaptation, the trade within EU is booming. He argues that the trade between EU members is more concentrated within the high-TBT products, while the imports from outside are focused on the low-TBT or no-TBT products. Thus, EU technical regulations might in fact be trade diverting if the difference in productivity between intra and extra-EU partners is large. In this context we analyze the pattern of new members’ exports to the “old” EU. We calculate the trade coverage of various standardisation approaches and analyze the comparative advantage structure of the new EU members. We demonstrate that the structure of TBT’s affecting exports from new EU members is slowly converging with the one that characterizes intra-EU trade. Therefore, we expect that CEEC’s countries will benefit from applying common technical regulations of the EU after accession. In the last section of our paper we report the results of questionnaire-based research made among Polish companies in December of 2004, i.e. after the Eastern enlargement. It seems that the adjustment costs were moderate and the adaptation process to new technical regulations is already completed. Therefore, one can expected welfare gains for new members of the EU. We perform a CGE simulation using a GTAP model to assess these gains.