Article: Monday, 4 September 2017
Trade agreements such as the Transatlantic Trade and Investment Partnership (TTIP) often aim to stimulate trade between countries. One of the benefits of such agreements is harmonising safety standards and regulations. Dr Henk de Vries and master graduate Stijn Veenstra of Rotterdam School of Management, Erasmus University (RSM), argue that industries in the USA would mostly benefit from this harmonisation, while EU industries could lose the benefits of the current system of standards.
The basis of the European system is simple and has many advantages to businesses, says De Vries: ‘one standard, one test, accepted everywhere in Europe’. This creates a single market, where most products are only required to meet performance standards before being certified.
In the EU, companies are trusted to declare on their own that their products comply with these standards. While some additional testing is needed for some product categories, more often only the end product is tested, not the individual components or materials. The relationship between firms and governing bodies can be described as collaborative and based on trust, De Vries says.
This high degree of freedom comes with many advantages to business, he continues. Products need relatively little time to proceed from drawing board to the market. Guaranteeing their products’ safety and getting a stamp of approval requires comparatively little effort. On top of that, the EU approach stimulates innovation, because companies are free to introduce new products and production methods as long as the performance criteria are met.
The American approach to standards is vastly different, De Vries continues. Technical regulations for manufacturers are very detailed. They often describe the end solution to achieve a certain level of safety: what materials and components to use and in what way. Individual components have to be tested and approved. Only then can the end product be tested as a whole and allowed to enter the USA
States – or parts thereof – can have different regulations and governing bodies for the same type of product or component. This system of tighter controls can be explained by the USA’s drive to avoid liability risks by both companies and governing bodies, De Vries says. Litigation is costly, and the financial claims are often much higher than in the EU.
TTIP and other trade agreements aim to facilitate international trade for companies by harmonising the standards and regulations. In practice, this can result in blending the two systems. The researchers wanted to find out if adoption of the US system, even partially, would lead to problems for companies in the EU. To this end, the researchers conducted interviews in six machine manufacturing companies that also export their products to the USA.
Interviewees at these companies indicated that currently it is indeed expensive and time-consuming to have their products tested and approved for the US market. American test methods also vary from those in Europe. One interviewed company even indicated that the use of a specific component triggered four factory audits per year by a US governing body, adding 20,000 to 30,000 euros to the cost of the machine. All of this creates significant barriers for EU companies that want to export their products to the US, the researchers found.
TTIP may have a bleak future at this point, but efforts to better align the two trading blocks are not likely to halt, says De Vries. This underlines that we should not stop with thinking through how this would work out for European and US business. And at this point, US business stand more to gain from the flexible European system, than the other way around, the researchers conclude. Introducing the US approach to standards creates the risk of eroding the advantages of our current system and in the end, could hurt European companies.
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