Evidence from the Food, Beverage and Tobacco Industry - .... cuss out results in the fourth section and conclude with policy recommendations in the last sec- ...... Armenia. Czech Re- public. Italy. Netherlands. Sri Lanka. Australia. Denmark.
Mutual Recognition of Accreditation: Does it Matter to Trade? Mutual Recognition of Accreditation: Does it Matter to Trade? - Evidence from the Food, Beverage and Tobacco Industry Knut Blind1,2 Axel Mangelsdorf1,3 and John S. Wilson4 1 Berlin Institute of Technology, Chair of Innovation Economics 2 Fraunhofer Institute for Open Communication Systems (FOKUS) 3 BAM Federal Institute for Materials Research and Testing, Germany 4 The World Bank Running head: Mutual Recognition of Accreditation: Does it Matter to Trade? Abstract We examine how third party certification with quality management standards and mutual recognition of certification through international agreements of accreditation bodies creates trust between trading partners and increases bilateral trade. We focus on the food, beverage and tobacco industry and use augmented gravity models for the 2000-2008 period. Our results show that quality management certifications are positively correlated with bilateral trade. Certifications help to reduce information asymmetries and signal commitment to quality production processes. Moreover, our results show that mutual recognition of certification has a positive and significant effect on trade. Members of the mutual recognition agreement for quality management standards have higher bilateral trade flows than nonmembers. Mutual recognition is in particular beneficial for markets access in high-income countries. We conclude that technical cooperation programs for developing countries’ conformity assessment services might be effective means to increase trade performance of developing countries. Keywords: Standardization, Certification, Accreditation, International Trade, Gravity Model, Mutual Recognition JEL Classification: F14, F15, L15, Q17,Q18
1
Mutual Recognition of Accreditation: Does it Matter to Trade? 1. Introduction The global market for food products is undergoing rapid changes. Markets are characterized by quality competition, internationalization, longer supply chains and a shift of responsibility for food safety and quality regulation from governments to private actors (Hatanaka & Busch, 2008; Henson & Jaffee, 2008). Private actors develop standards in formal standards setting organization or industry consortia which are applied by firms in the food sector. Independent third party certification bodies verify the correct application of standards. National accreditation bodies -often part of the public sector infrastructure -- secure the competence of certification bodies (Henson & Humphrey, 2010). Firms in the food processing industry have an incentive to apply private standards and certifications. The possession of an internationally recognized certificate increases the reputation of the firm, helps to reduce information asymmetries, and increases the performance in international markets (Hudson & Jones, 2003). A number of authors provide empirical evidence on the trade creating effect of international standards (Knut Blind & Jungmittag, 2005; Clougherty & Grajek, 2011; Mangelsdorf, 2011; Swann, 2010). However, even if not intended to discriminate against foreign producers, standards, certification requirements, and technical measures can represent Non-Tariff Measures (NTMs), especially for firms from developing countries in agricultural and food industries (Chen & Mattoo, 2008; Li & Beghin, 2012; Mattoo, 2001; Otsuki, Wilson, & Sewadeh, 2001; Stephenson, 1997)). In fact, a recent survey on trade barriers in developing countries shows that technical measures to trade - including certification requirements are a major concerns for the surveyed exporters, regardless of the export destination (Mimouni, Averbeck, & Skorobogatova, 2009).
2
Mutual Recognition of Accreditation: Does it Matter to Trade? In this chapter, we analyze the trade effects of the most widely used international standard for certification -- the ISO 9000 standard for quality management systems -- in the food, beverage and tobacco industry. In this study, we chose to focus on the food, beverage and tobacco industry for a variety of reasons. Namely, this industry is particularly subject to quality standards. Countries are generally highly sensitive to the quality and standards of inspection for agricultural imports and other goods for direct consumption. Further, because goods from this industry are comparatively more important to the economies of low income developing countries (and generally occupying a larger portion of their overall export composition), by focusing on the food, beverage and tobacco industry, we will better understand the broader development implications of establishing and accrediting trusted certification bodies. Accreditation of certification bodies plays an important role in creating trust in international trade relationships. A lack of trust in foreign accreditation competencies and the non-acceptance of certification, however, together represent a trade barrier.1 Recent efforts to mutually recognize accreditation and certification schemes via international agreements aim to avoid such trade barriers. Are these agreements successful? We hypothesize that international agreements will increase the trust in the competencies of foreign certification bodies. More trust in the certification competencies will increase the reputation of the certified firm and reduce information asymmetries. Using broad trade data from the manufacturing sector, Blind and Mangelsdorf (2012) provide empirical evidence that cooperation in accreditation reduces information asymmetries and increases bilateral trade. Our chapter is organized in five sections. The next section explains the institutional system of standardization, certification and accreditation in general and the role of quality management certifications in the food, beverage and tobacco industry in specific. In the third section we 1
In terms of the MAST classification of Non-Tariff Barriers, we deal with classifications B 321 “Lack of acceptance of internationally recognized accredited conformity assessment bodies” and B 322 “Lack of acceptance of certificates of conformity assessment bodies issued in the country of origin.”
3
Mutual Recognition of Accreditation: Does it Matter to Trade? use a gravity model to analyze the impact of quality management standards and mutual recognition of accreditation services on bilateral trade in the food, beverage and tobacco sector. We discuss out results in the fourth section and conclude with policy recommendations in the last section.
2. Standardization, certification and accreditation in the food processing industry Standardization, certification and accreditation Standards for quality management -- such as the ISO 9000 standard -- are developed in formal standards development organizations (SDOs) -- such as the International Standardization Organization (ISO) -- or by private consortia. Third party certification bodies are responsible for evaluating whether an organization meets the quality claims of standards. Certification bodies are can be private for-profit, private non-profit organizations or in some cases public organizations. They can small companies operating at the domestic market or large multinational companies. (Hatanaka & Busch, 2008). For instance, the Swiss based SGS Group is the world’s leading inspection, verification, testing and certification company with more than 70,000 employees.2 Certification bodies certify private and public standards ranging from private labor standards (e.g. Fair-trade) to public food safety standards (e.g. Codex) to quality management standards (Hatanaka, Bain, & Busch, 2005). Whether or not certifications represent an advantage in international markets depends on the stringency of audits and the reputation of the certification body (Hudson & Jones, 2003). In other words, the quality signaling effect of certifications is questioned when there is doubt in the auditing competencies of the certification body. In fact, reputation and image of the certification body is the most important factor in how firms choose the certification body (Magd, 2006). The de2
http://www.iioc.org/
4
Mutual Recognition of Accreditation: Does it Matter to Trade? mand for trustful certification processes led to the creation of national accreditation bodies. An accreditation body is an organization that confirms the auditing competency of conformity assessment bodies (Busch, 2010). The international network of accreditation bodies ensures that national accreditation bodies can be trusted. Today, two international accreditation organizations are responsible to support the global system of certification and accreditation. The International Accreditation Forum (IAF) organizes the competence assessment for certification bodies with the aim to create worldwide acceptance of certifications. The International Laboratory Accreditation Cooperation (ILAC) has national laboratory accreditation bodies as members and aims to harmonize laboratory and inspection accreditation services (Busch, 2011). Both organizations seek to create multilateral recognition agreements among its members. IAF established a ‘multilateral recognition arrangement’ (MLA) for the ISO 9000 quality management system standard (henceforth the ‘IAFMLA’). Accreditation bodies can become signatories of the MLA when their operations are successfully evaluated by peer multinational evaluation teams (Sarin, 2001). The teams visit domestic accreditation bodies and write evaluation reports that document the organizations’ compliance with relevant international standards and IAF rules. The reports provide formal acknowledgement that the international network of accreditation bodies have confidence in the service of the domestic accreditation body (Brough-Kerrebyn, 2004). Once an accreditation body is successfully evaluated and becomes a signatory of the IAF-MLA, ISO certificates issued by accredited certification body of the signatory country will gain international acceptance. Mutual recognition of accreditation services creates trust between trading partners and lowers export costs (WTO, 2012). Certification bodies which are accredited by IAF-MLA signatory accreditation bodies improve their ability to conduct high quality auditing services and certifi-
5
Mutual Recognition of Accreditation: Does it Matter to Trade? cates issued from such certification bodies should enjoy a better reputation and trade-enhancing effect compared to certificates from non-accredited certification bodies. Therefore, we assume in our chapter that firms from less developed countries stand to capture greater gains from quality certifications (as shown later in this paper) and it follows that these countries should especially benefit from the MLA. ISO 9000 certifications in the food processing industry ISO management standards are developed with international consensus on good management practices and aim to ensure that the delivery of goods or services meet customer requirements. ISO management standards are generic, i.e. they can be applied in any type of public or private organization (Aggelogiannopoulos, Drosinos, & Athanasopoulos, 2007). ISO 9000 is the most successful international management standard issued by the International Organization for Standardization (ISO). By the end of 2008, almost one million certificates have been issued in 176 countries (ISO, 2008). The standard can be the foundation for third party certification. In order to obtain certification, firms require an audit by a certification body (King, Lenox, & Terlaak, 2005). Despite the success of ISO certificates, surprisingly little research focuses on trade effects. Clougherty and Grajek (2008) examine the effect of ISO 9000 diffusion on trade for the period 1995-2002. They find that ISO 9000 has a ‘push’ effect for exports from developing countries to developed countries. However, the same authors come to contrary results using a long times series from 1995 to 2005 (Clougherty & Grajek, 2011). The authors find that ISO standards reduce exports from developing or transition countries to developed countries which suggests that ISO 9000 can have a trade hindering effect when costs related to certification outweigh trade promoting effects.
6
Mutual Recognition of Accreditation: Does it Matter to Trade? A number of firm level studies focus on performance effects of ISO 9000 application in the food processing industry. Turner et al. (2000) analyze the adoption of ISO quality management standards in South African agribusiness firms. More than two thirds of the firms in the sample were certified and certification is more likely for large firms aiming to access markets in developed countries. Grigg and McAlinden (2001) analyze the food and beverage industry in the Europe in relation to quality management standards. About forty percent of the surveyed firms were certified. The firms report advantages of ISO 9000 certification including improved international competitiveness and the ability to improve customer requirements. More recently, Fotopoulos et al. (2010) examine the motivation to adopt the ISO 9000 standard in the Greek food industry. Main motivations for certification are related to external benefits such as improved company image and increased exports and market share. Only few authors deal with ISO 9000 certification in developing countries. Masakure, Henson, and Cranfield (2009) use firm level data from Pakistan to assess the impact of certification on export sales. About half of the surveyed firms are ISO certified and ISO 9000 is the most common quality management standard in the domestic food processing industry. They authors find that firms’ decision to certify has positive impacts on export sales. ISO 9000 certification and the commitment to comply with international standards increases firms’ reputation especially for firms without prior export experience and established market position. In sum, the firm level studies provide evidence that ISO certification is widely applied in the food processing industry. Benefits for companies include increased export sales and market share. Macro level evidence by Clougherty and Grajek (2008, 2011), however, shows that certification can also act as a non-tariff barrier. Surprisingly, no study empirically examines the role accreditation and international cooperation in accreditation, even though the WTO (2012) re-
7
Mutual Recognition of Accreditation: Does it Matter to Trade? gards mutual recognition of accreditation systems as trade fostering, and Magd (2006) shows that reputation is the most important factor in how firms choose certification bodies. In the next section we examine the effects of ISO certifications and mutual recognition of accreditation systems in a gravity model.
2. Econometric model Summary statistics We base our empirical analysis on bilateral exports in the food, beverage and tobacco sectors over the years 2000 to 2008. We use information from 96 exporters and 64 importers in our model.3 Descriptive statistics for export volumes are shown in Figure 1. Exports in the time period between 2000 to 2008 rose from about 1 billion US Dollar to more than 500 billion. Figure 1: Exports of Food, Beverage and Tobacco Products 2000-2008 Exports in Billion US Dollar 600 500 400 300 200 100 0 2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: COMTRADE Database
3
The full list of countries included can be found in Table A 1 in the Appendix.
8
Mutual Recognition of Accreditation: Does it Matter to Trade? We follow Clougherty and Grajek (2008, 2011) and Potoski and Prakesh (2009) and build stock variables for the number of ISO certifications. Data on ISO 9000 certifications per country and sector are compiled from the 2000 to 2008 issues of ‘The ISO Survey of Certifications’. The survey is published by the ISO secretariat on an annual basis and compiles data from ISO national member institutes, accreditation and certification bodies (ISO, 2008). The survey uses the European co-operation for Accreditation (EA) code system for industry classification. We build a concordance table between EA code and the trade data which is provided in two-digit International Standard Industrial Classification (ISIC) in order to link certification to trade data (see Table A2 in the Appendix). Figure 2 shows the evolution of certifications in the sector from 2000 to 2008.
Figure 2: Number of ISO 9001:2000 Certifications 2000-2008 No. of ISO 9001:2000 Certificates 35000 30000 25000 20000 15000 10000 5000 0 2000
2001
2002
2003
2004
2005
2006
2007
2008
9
Mutual Recognition of Accreditation: Does it Matter to Trade? Source: Authors calculation based on ISO Survey of Certifications
Besides the effects of ISO certification, we are interested in the effect of global cooperation in accreditation. As explained in the second section, after successful evaluation by multinational peer-evaluation teams, accreditation bodies become members of the IAF-MLA for Quality Management Systems and, eventually, ISO certificates issued in signatory countries are globally accepted. The IAF-MLA was initially signed in January 1998 by 14 accreditation bodies and increases to 40 signatories in 2008 (Figure 3).
Figure 3: Number of IAF-MLA Signatories 2000-2008 No. of Signatories 45 40 35 30 25 20 15 10 5 0 2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: www.iaf.nu
10
Mutual Recognition of Accreditation: Does it Matter to Trade?
Econometric Strategy Our empirical approach consists of three steps. First, trade effects of certifications and accreditation are analyzed in a baseline model for developed and developing countries. In the second step we provide evidence of our results in robustness tests. In the third step we differentiate the data in developed and less developed countries exporters and importers. We use an extended gravity model (Anderson & van Wincoop, 2003) and apply it to the food, beverage and tobacco sector. In analogy to Newton’s Law of Gravitation, bilateral trade in gravity models depends positively on countries’ economics “masses” and negatively on the distance between countries (van Bergeijk & Brakman, 2010). Against this background, we estimate equation (1) in logarithm form:
ln xijt β 0 β1 ln consit β 2 ln cons jt β3tariff ijt β 4 ln disij β5 ln conij β 6 ln lag ij β 7colij β8 smcij β9 rtaijt β10iafmla ijt β11iso9000it β12iso9000 jt
(1)
it jt t ijt Variables xijt are the exports in the food, beverage and tobacco sector from country i to country j at time t in US Dollars; consit and consjt represent the consumption of food, beverage and tobacco products in country i or j, respectively, in year t in US dollars. Variable tariff ijt is the tariff imposed by country i on country j’s exports in year t. Variable disij is the geographical distance between country i and country j. conij is a dummy variable indicating whether country i and country j are contiguous. is a dummy variable indicating whether country i and country j share a common language. colij is a dummy variable indicating whether country i was a colony of country j. smcij indicates whether country i and j were once part of the same country. rtaijt is a dummy
11
Mutual Recognition of Accreditation: Does it Matter to Trade? variable indicating whether country i and country j are in the same regional trade agreement in year t. iafmlaijt is a dummy variable indicating whether country i and country j are signatories of the IAF-MLA in year t. iso9000it and iso9000jt are the number of ISO 9000 certifications in country i and j, respectively, in year t. δit, δjt and δt are importer-year dummies, exporter-year dummies and time dummies and εijt is the error term. We use domestic consumption of food production in the importing and exporting country as proxies for sectoral output to capture the demand and supply effects for food, beverage and tobacco products (see Anderson and Yotov (2011)).4 Data to compute domestic consumption is taken from the Food and Agriculture Organization of the United Nations’ statistical database FAOSTAT (http://faostat.fao.org/). Data on tariffs are sourced from the World Integrated Trade Solution data base (WITS-TRAINS). Data for common gravity variables (geographical distance, contiguity, common language, colony, and same country) are taken from the CPPII Dataset provided by the Centre d’Etudes Prospectives et d’Information Internationales (CEPII). Finally, the World Trade Organization’s Regional Trade Agreements Information System (RTA-IS) makes information on regional trade agreements available. Table 1 presents the descriptive statistics of the variables.
Variable Log of exports Log of cons importer Log of cons exporter Tariff Log of Distance
4
Table 1: Descriptive Statistics Standard Observations Mean Deviation 35000 6.21 3.65 35000 8.66 1.67 35000 8.53 1.56 35000 -6.69 1.05 35000 8.55 0.95
Min
Max
-7.33 4.65 3.95 -25.64 4.39
15.86 13 13 -2.67 9.89
We calculated the domestic consumption of product food products in country i and year t as: Cit Sit Mit Xit ,
where Sit the domestic production value of food production in country i in year t in U.S. Dollars; M it [ X it ] stands for import [exports] of product food products in country i and year t in U.S. Dollars.
12
Mutual Recognition of Accreditation: Does it Matter to Trade? Contiguity Common language Colony Same country RTA MLA for ISO 9000 ISO 9000 Imp ISO 9000 Exp
35000 35000 35000 35000 35000 35000 35000 35000
0.04 0.15 0.02 0.01 0.17 0.18 3.65 4.05
0.2 0.36 0.15 0.12 0.38 0.38 2.01 2.05
0 0 0 0 0 0 0 0
1 1 1 1 1 1 9.32 9.32
We estimate the gravity model using ordinary least square (OLS) with standard errors robust to heteroskedasticity. To control for characteristics specific to importers and exporters in a given year, such export subsidies, we include importer and exporter dummies and interact them with time dummies. Finally, time dummies control for common macroeconomic shocks.
3. Results Table 2 reports the results of the baseline specification defined in equation (1). In the baseline model we use simple ordinary least square (OLS) regression analysis. As data on consumption and tariffs is missing for some years and countries we exclude both variables in columns 2 and 4. Besides importer-time, exporter-time and time dummies, we include in columns 3 and 4 dummy variables for sectors (i.e. food and beverage sector or tobacco processing industry) interacted with importer and exporter dummies to control for characteristics at the sector and importer/exporter level.
Log of cons importer Log of cons exporter
Table 2: Baseline Model 1 2 Baseline Baseline 0.048 (1.06) 0.336 (7.29)***
3 Baseline 0.172 (4.28)*** 0.379 (9.37)***
4 Baseline
13
Mutual Recognition of Accreditation: Does it Matter to Trade?
Tariff Log of Distance Contiguity Common language Colony Same country RTA MLA for ISO 9000 ISO 9000 Imp ISO 9000 Exp Constant
-0.145 (7.47)*** -1.203 (51.34)*** 0.562 (6.54)*** 0.709 (14.29)*** 0.691 (6.69)*** 0.222 (1.68)* 0.451 (9.94)*** 0.347 (6.02)*** 0.495 (12.03)*** 0.288 (8.09)*** 9.844 (18.94)*** 35000 0.57
-1.132 (68.47)*** 0.543 (8.92)*** 0.648 (17.26)*** 0.942 (15.29)*** 0.466 (4.47)*** 0.563 (18.21)*** 0.197 (4.81)*** 0.426 (22.87)*** 0.389 (20.85)*** 13.042 (77.09)*** 66082 0.57
-0.155 (8.78)*** -1.262 (60.08)*** 0.525 (6.83)*** 0.84 (19.13)*** 0.783 (9.04)*** 0.16 (1.34) 0.389 (9.37)*** 0.683 (14.38)*** 0.621 (17.81)*** 0.41 (13.56)*** 8.895 (19.46)*** 35000 0.66
-1.203 (80.98)*** 0.512 (9.42)*** 0.726 (21.57)*** 0.903 (16.79)*** 0.35 (3.74)*** 0.599 (21.20)*** 0.626 (18.43)*** 0.63 (40.77)*** 0.559 (36.57)*** 13.298 (88.31)*** 66082 0.65
Observations R-squared Exporter-year, Importeryear, Product-year and YES YES YES YES Year dummies Product-importer and Product-exporter dumNO NO YES YES mies Notes: The dependent variables are bilateral exports. The asterisks represent the level of significance: * significant at 10%; ** significant at 5%; *** significant at 1%. Robust t statistics in parentheses.
All coefficients have the expected sign and are statistically significant. Consumption in the importing and exporting country is positively related to exports and tariffs and distance are negatively correlated. Countries that share a common border and language trade significantly more with each other. The same is true for countries with a past colonial relationship or that used
14
Mutual Recognition of Accreditation: Does it Matter to Trade? to be one country or are both members of the same regional trade agreements Regarding the variable that captures the effect of membership in the IAF-MLA we observe in all four columns a positive and highly significant effect. Including sector-importer and sector-exporter dummies in columns 3 and 4 increases the trade impact of the IAF-MLA. Becoming a signatory of the IAFMLA increases bilateral trade in manufacturing products between 0.20 and 0.62 percent. The impact of ISO certificates on bilateral trade is positive in all models. A one percent increase of the number of certificates in the exporting country increases exports between 0.30 and 0.60 percent. ISO certificates in the importing country are also positively related to bilateral exports. The variable is positive in all models and a one percent increase of the number of certificates in the importing country is associated with an increase of exports between 0.40 and 0.60 percent. Thus, we can confirm that the ISO 9000 certificates in the importing and exporting country reduce information asymmetries between buyers and sellers and have a trade enhancing effect. ISO certificates can help firms to reduce search costs and signal quality investments to potential customers. In order to test the robustness of our results we conduct additional estimates (Table 3). Recent literature of gravity models has pointed to the importance of including zero-trade flows in the analysis. Gravity models are usually estimated in logarithm form but dropping zero observation may lead to biased estimates (Baldwin & Taglioni, 2006). One way to solve the zero-trade problem is to apply Poisson pseudo-maximum-likelihood (PPML) technique developed by Santos-Silva and Tenreyro (2006). The authors show that the PPML estimator produces consistent estimates when zero-trade values are present. When using PPML the dependent variable is in levels and not in logarithmic form as in OLS estimates. The results for the PPML estimations are shown in column 1 and 2 in Table 3. The PPML estimates for our variables of interest are similar
15
Mutual Recognition of Accreditation: Does it Matter to Trade? to the OLS estimations in Table 2. Mutual recognition of accreditation (IAF-MLA) is positively correlated with exports and increases bilateral trade by around 0.60 percent. ISO certificates in the importing and exporting country are also positively correlated with exports and are highly significant. The marginal effects of the PPML estimations are slightly smaller than the OLS estimation in Table 2.
16
Mutual Recognition of Accreditation: Does it Matter to Trade? Table 3: Robustness Tests
Log of cons importer Log of cons exporter Tariff Log of Distance Contiguity Common language Colony Same country RTA MLA for ISO 9000 ISO 9000 Imp ISO 9000 Exp
1 PPML 0.16 (2.05)** 0.544 (8.03)*** -0.098 (3.96)*** -0.849 (26.47)*** 0.194 (2.39)** 0.264 (4.94)*** 0.747 (12.85)*** -0.075 (0.71) 0.231 (4.42)*** 0.599 (7.03)*** 0.361 (5.77)*** 0.214 (6.11)***
2 PPML
-0.657 (37.92)*** 0.355 (9.67)*** 0.402 (10.11)*** 0.659 (15.55)*** 0.003 (0.05) 0.583 (15.22)*** 0.673 (11.61)*** 0.337 (12.78)*** 0.434 (22.42)***
3 OLS lagged -0.077 (0.55) -1.471 (2.42)** -0.135 (6.89)*** -1.445 (62.66)*** 0.338 (4.12)*** 0.945 (19.55)*** 0.742 (8.07)*** 0.063 (0.47) 0.393 (8.61)*** 0.388 (7.71)***
4 OLS lagged
-1.36 (82.11)*** 0.316 (5.42)*** 0.789 (21.40)*** 0.88 (15.45)*** 0.376 (3.70)*** 0.521 (16.88)*** 0.293 (7.85)***
0.78 0.322 (7.77)*** (2.65)*** -0.287 0.342 ISO 9000 Exp (2 year lag) (-0.90) (4.82)*** 7.707 11.916 25.868 13.349 Constant (9.51)*** (62.25)*** (5.75)*** (27.61)*** Observations 40386 79505 25704 49133 R-squared 0.68 0.67 Notes: The dependent variables are bilateral exports. The asterisks represent the level of significance: * significant at 10%; ** significant at 5%; *** significant at 1%. Robust t statistics in parentheses. ISO 9000 Imp (2 year lag)
17
Mutual Recognition of Accreditation: Does it Matter to Trade? As an additional robustness test we include lagged variables for ISO certificates. In theory, the direction of causality between ISO certificates and exports may be reversed. Large volumes of bilateral trade might lead domestic firms to demand ISO certification for foreign suppliers. To avoid the possible reverse causality we use two year lagged ISO certification variables in columns 3 and 4 of Table 3. The impact of lagged ISO certificates in the importing country remains positive and significant, and the impact of exporting country certificates is positive and significant when we drop missing observations for consumption and tariffs (column 4). Using two year lags and accounting for reverse causality confirms the results of the baseline models. Finally, we want to know if cooperation on accreditation services has different impacts for developed countries and developing countries. Therefore, we segment our data in four subsamples. In the first subsample both exporters and importers of food, beverage and tobacco products are from developed countries and in the second subsample bother exporters and importers are from less developing countries. In the other two subsamples we focus on the trade between developed and developing countries. In the third subsample exporters are from developed countries and importers from developing countries and in the fourth subsample vice versa. We use the Gross Nation Income per capital to determine whether or not a country is considered as developed or developing country. High-income countries with a per capita income of more than 12,476 US Dollar per year are for our purposes regarded as developed countries and countries the remaining middle income and low income countries as developing countries. Table 4 reports the results of the country models. We drop consumption and tariffs since we do not have enough observations for those variables. The coefficients of the gravity variables have the expected sign and reasonable magnitude. Distance between countries has a negative impact on bilateral trade and contiguity, common language, former colonial links and same
18
Mutual Recognition of Accreditation: Does it Matter to Trade? country increase trade. Members of regional trade agreement significantly trade more with each other. Interestingly, the magnitude of regional trade agreements is similar in all four models regardless of whether the exporter or importer is a developed or developing country. Trade between two countries increases by about 0.70 percent when importer and exporter are in the same regional trade agreement. In contrast, the coefficient for the IAF-MLA variable varies considerably in the four models. The impact is largest when developing countries want to access market in developed countries (column 3) and smallest when developed countries export to developing countries (column 2). The coefficient is between the two extremes when both the exporter and the importers are from developed countries or developing countries, respectively (column 1 and 4). Obviously, organizations in developed countries are more concerned about the auditing competencies of certification bodies in developing countries whereas developing countries have a higher level of trust in certification bodies from developed countries. Becoming a signatory of the IAF-MLA signals an improvement of the auditing practices which is mostly acknowledged by importers from developed countries. Further, the demand for high quality food products seems to be larger in developed countries than in developing countries which explains the larger impact of the IAF-MLA when the importer is a developed country. Our results regarding the impact of the IAF-MLA are different from those in Blind and Mangelsdorf (2012). Using a larger dataset on trade in the manufacturing sector, the authors find no impact of the MLA when the exporter comes from a developed country and smaller impacts when exporters are from developing countries. Obviously, delivering confidence in quality management certification through mutual acceptance is more important in the food, beverage and tobacco sector compared to the broad manufacturing sector.
19
Mutual Recognition of Accreditation: Does it Matter to Trade? Finally, ISO certificates in the importing and exporting country have a positive trade effect in all four models. The magnitude of the impact is comparable with the baseline model: a one percent increase of the number of certificates in the importing country increases bilateral exports between 0.50 and 0.90 percent and a one percent increase of certificates in the exporting country increases trade between 0.40 and 0.60 percent. Table 4: Country Models
Log of Distance Contiguity Common language Colony Same country RTA MLA for ISO 9000 ISO 9000 Imp ISO 9000 Exp
1 2 3 Developed Developed Developing Countries Countries Countries Developed Developing Developed Countries Countries Countries -1.123 -1.227 -1.556 (34.84)*** (29.76)*** (41.22)*** 0.589 0.456 0.325
4 Developing Countries Developing Countries -1.423 (46.68)*** 0.175
(8.12)*** 0.613
(2.19)** 0.627
(2.01)** 0.703
(1.73)* 1.022
(8.80)***
(8.33)***
(10.77)***
(15.56)***
0.891 (10.55)***
0.688 (5.69)***
0.671 (7.70)***
1.26 (6.54)***
-0.312 (0.82)
1.829 (6.74)***
0.275 (1.95)*
0.762 (11.53)***
0.738 (6.89)***
0.718 (7.29)***
0.719 (11.79)***
0.856 (11.86)*** 0.561
0.221 (3.14)*** 0.921
1.262 (13.14)*** 0.547
0.782 (8.73)*** 0.900
(18.70)***
(22.95)***
(17.32)***
(22.07)***
0.356 (2.62)***
0.374
0.619
0.577
0.614
(13.93)*** (20.82)*** (14.98)*** (14.25)*** 13.19 13.147 16.403 14.235 Constant (42.25)*** (34.61)*** (46.89)*** (45.72)*** Observations 15821 15575 17986 16700 R-squared 0.75 0.72 0.63 0.60 Notes: The dependent variables are bilateral exports. All estimates include exporter-year
20
Mutual Recognition of Accreditation: Does it Matter to Trade? dummies, importer-year dummies and year dummies. The asterisks represent the level of significance: * significant at 10%; ** significant at 5%; *** significant at 1%. Robust t statistics in parentheses.
4. Conclusion Overall, our results show the importance of voluntary certification and accreditation for export success in the food, beverage and tobacco industry. The analysis shows that ISO 9000 certifications in the importing and exporting country have a positive effect on bilateral trade. We interpret these findings as indication that ISO certificates reduce information asymmetries between potential buyers and sellers. The positive trade effect of ISO certificates is independent from per capita income of the importing or exporting country which suggests that developed and developing countries benefit from the ISO 9000 standard. Regarding the impact of mutual recognition of accreditation results via the IAF-MLA for quality certification, we find that signatories of the agreement significantly trade more with each other. Becoming a signatory of the MLA means that other accreditation bodies must recognize the accreditation schemes of the signatory as equivalent to their own accreditations. Consequently, ISO certified firms from signatory countries gain access to international markets because certifications are recognized by foreign partners. Mutual recognition of accreditation services promotes the trust between trading partners. Further, our findings reveal interesting differences regarding the magnitude of the IAF-MLA. Dividing our data in four subsamples shows that mutual recognition of accreditation services is beneficial for all countries -- i.e. the IAF-MLA variable is positive and significant in all models -- but the impact is largest for developing countries that want to access markets in developed countries. Signatories of the IAF-MLA enjoy increased levels of trust in the auditing competencies of certification bodies which increases the trust in ISO 9000 certifications. This result is particularly poignant given the relative importance of the food, 21
Mutual Recognition of Accreditation: Does it Matter to Trade? beverage, and tobacco industry in the economies (and export competitiveness) of developing countries. In fact, food, beverage, and tobacco exports in our sample represent 13.7% of total trade in goods in developing countries, whereas the contribution of the sector to total trade in goods amounts to 9.1% in developed countries. From a development policy perspective, our results support the importance of investing in the ‘quality infrastructure’ of developing countries. The quality infrastructure of a country is the system of institutions responsible for ensuring that products meet predefined requirements. The institutions include metrology, standardization, and accreditation organizations and the system of conformity assessment (Gonçalves & Peuckert, 2011). A number of case studies in the Aid-ForTrade framework show that technical capacity building projects supported developing countries’ institutions to become part of the international accreditation system, allowing domestic firms improved access to international markets (WTO/OECD, 2011). For instance, in a three year project, the Swedish International Development Cooperation Agency (Sida) provided assistance to the Sri Lanka Accreditation Board for Conformity Assessment (SLAB). Through courses and consultancies supported by the staff of the Swedish accreditation organization the project helped to develop the necessary infrastructure for technical regulations in Sri Lanka. The cooperation allowed SLAB to gain international recognition for its accreditation schemes which should help Sri Lank firms to market their products in worldwide markets (SIDA, 2011). The results of our model show that, international recognition of accreditation schemes will likely help Sri Lanka boost exports, especially into developed markets.
22
Mutual Recognition of Accreditation: Does it Matter to Trade?
References Aggelogiannopoulos, D., Drosinos, E. H., & Athanasopoulos, P. (2007). Implementation of a quality management system (QMS) according to the ISO 9000 family in a Greek small-sized winery: A case study. Food Control, 18, 1077–1085. Anderson, J. E., & van Wincoop, E. (2003). Gravity with Gravitas: A Solution to the Border Puzzle. The American Economic Review, 93(1), 170-192. Anderson, J. E., & Yotov, Y. V. (2011). Terms of Trade and Global Efficiency Effects of Free Trade Agreements, 1990-2002 National Bureau of Economic Research Working Paper No. 17003. Baldwin, R., & Taglioni, D. (2006). Gravity for dummies and dummies for gravity equations: NBER Working Papers 12516. Blind, K., & Jungmittag, A. (2005). Trade and the impact of innovations and standards: The case of Germany and the UK. Applied Economics, 37 (12), 1385-1398. Blind, K., & Mangelsdorf, A. (2012). The Trade Impact of ISO 9000 Certifications and International Cooperation in Accreditation. Paper presented at the EURAS Proceedings 2012, 17th EURAS Annual Standardisation Conference. Brough-Kerrebyn, J. (2004). The life of a peer assessor. ISO Focus, February 2004, 15-16. Busch, L. (2010). Standards, law, and governance. Journal of Rural Social Sciences, 25(3), 56– 78. Busch, L. (2011). Standards: recipes for reality.: MIT Press. Chen, M. X., & Mattoo, A. (2008). Regionalism in standards: good or bad for trade? Canadian Journal of Economics, 41(3), 838–863.
23
Mutual Recognition of Accreditation: Does it Matter to Trade? Clougherty, J. A., & Grajek, M. (2008). The impact of ISO 9000 diffusion on trade and FDI: A new institutional analysis. Journal of International Business Studies, 39(4), 613-633. Clougherty, J. A., & Grajek, M. (2011). International Standards and International Trade: Empirical Evidence from ISO 9000 Diffusion: NBER Working Paper. Fotopoulos, C. V., Psomas, E. L., & Vouzas, F. K. (2010). ISO 9001:2000 implementation in the Greek food sector. The TQM Journal, 22(2), 129-142. Gonçalves, J., & Peuckert, J. (2011). Measuring the Impacts of Quality Infrastructure. Impact Theory, Empirics and Study Design Braunschweig, Germany: Physikalisch-Technische Bundesanstalt. Grigg, N. P., & McAlinden, C. (2001). A new role for ISO 9000 in the food industry? Indicative data from the UK and mainland Europe. British Food Journal, 103(9), 644 - 656. Hatanaka, M., Bain, L., & Busch, L. (2005). Third-party certiWcation in the global agrifood system. Food Policy, 30, 354–369. Hatanaka, M., & Busch, L. (2008). Third-Party Certification in the Global Agrifood System: An Objective or Socially Mediated Governance Mechanism? Sociologia Ruralis, 48(1), 73-91. Henson, S., & Humphrey, J. (2010). Understanding the Complexities of Private Standards in Global Agri-Food Chains as They Impact Developing Countries. Journal of Development Studies, 46(9), 1628 -1646. Henson, S., & Jaffee, S. (2008). Understanding developing country strategic responses to the enhancement of food safety standards. World Economy, 31(4), 548-568. Hudson, J., & Jones, P. (2003). International trade in "Quality Goods?: Signalling Problems for Developing Countries. Journal of International Development, 15(8), 999-1013. ISO. (2008). The ISO Survey – 2008: International Organization for Standardization, Geneva.
24
Mutual Recognition of Accreditation: Does it Matter to Trade? King, A. A., Lenox, M. J., & Terlaak, A. (2005). The strategic use of decentralized institutions: Exploring certification with the ISO 14001 management standard. Academy of Management Journal, 48(6), 1091-1106. Li, Y., & Beghin, J. C. (2012). A meta-analysis of estimates of the impact of technical barriers to trade. Journal of Policy Modeling, 34, 497–511. Magd, H. A. E. (2006). An investigation of ISO 9000 adoption in Saudi Arabia. Managerial Auditing Journal, 21(2), 132-147. Mangelsdorf, A. (2011). The role of technical standards for trade between China and the European Union. Technology Analysis & Strategic Management, 23(7), 725-743. Masakure, O., Henson, S., & Cranfield, J. (2009). Standards and export performance in developing countries: Evidence from Pakistan. The Journal of International Trade & Economic Development: An International and Comparative Review, 18(3), 395-419. Mattoo, A. (2001). Discriminatory Consequences of Non-Discriminatory Standards. Journal of Economic Integration, 16(1), 78-105. Mimouni, M., Averbeck, C., & Skorobogatova, O. (2009). Obstacles to Trade from the Perspective of the Business Sector: A Cross-Country Comparison. Global Enabling Trade Report 2009, World Economic Forum. http://www.weforum.org/pdf/getr09_dev/GETR09_Fullreport.pdf. Otsuki, T., Wilson, J. S., & Sewadeh, M. (2001). Saving two in a billion: quantifying the trade effect of European food safety standards on African exports. Food Policy, 26(5), 495-514. Potoski, M., & Prakash, A. (2009). Information asymmetries as trade barriers: ISO 9000 increases international commerce. Journal of Policy Analysis and Management, 28, 221-238.
25
Mutual Recognition of Accreditation: Does it Matter to Trade? Santos Silva, J., & Tenreyro, S. (2006). The Log of Gravity. Review of Economics and Statistics, 88, 361-365. Sarin, S. (2001). International Accreditation Based on Global Quality Assurance Process International Conference on Engineering Education, in Oslo, Norway during August 6-10. SIDA. (2011). Swedish International Development Cooperation Agency (Sida): Quality Infrastructure Development in Sri Lanka Aid-For-Trade Case Story: Sweden. http://www.oecd.org/aidfortrade/47377771.pdf. Stephenson, S. M. (1997). Standards and Conformity Assessment as Non-tariff Barriers to Trade. Washington, DC.: World Bank. Swann, G. P. (2010). International Standards and Trade: A Review of the Empirical Literature OECD Trade Policy Working Papers , No. 97, OECD Publishing. Turner, C. R., Ortmann, G. F., & Lyne, M. C. (2000). Adoption of ISO 9000 Quality Assurance Standards by South African Agribusiness Firms. Agribusiness, 16(3), 295–307. van Bergeijk, P. A. G., & Brakman, S. (2010). The Gravity Model in International Trade. Advances and Applications. Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo, Delhi, Dubai, Tokyo: Cambridge University Press 2010. WTO. (2012). World Trade Report 2012. Looking beyond International Co-operation on Tariffs: NTMs and Services Regulation in the XXIst Century. Geneva, Switzerland World Trade Organization. WTO/OECD. (2011). Compendium of Aid For Trade Case Stories: World Trade Organization Committee on Trade and Development Aid for Trade. WT/COMTD/AFT/W/26.
26
Mutual Recognition of Accreditation: Does it Matter to Trade?
Appendix Table A1: Countries includes in the gravity model Albania Algeria Argentina
Indonesia Ireland Israel
Morocco Mozambique Namibia
Slovenia South Africa Spain
Italy
Netherlands
Sri Lanka
Jamaica
New Zealand
Sudan
Japan
Nicaragua
Sweden
Azerbaijan Bangladesh Barbados
Costa Rica Croatia Cyprus Czech Republic Denmark Dominican Republic Ecuador El Salvador Estonia
Jordan Kazakhstan Kenya
Niger Nigeria Norway
Belarus
Ethiopia
Latvia
Pakistan
Belgium Belize Bosnia and Herzegovina Brazil Bulgaria Cameroon Canada Chile China Colombia
Finland France
Lebanon Lithuania
Panama Peru
Switzerland Thailand Togo Trinidad and Tobago Tunisia Turkey
Georgia
Luxembourg
Philippines
Ukraine
Germany Greece Guinea Honduras Hungary Iceland India
Madagascar Malaysia Maldives Mali Malta Mauritius Mexico
Poland Portugal Qatar Romania Russian Federation Saudi Arabia Singapore
United Kingdom United States Uruguay
Armenia Australia Austria
Table A2: Concordance between EA Code and International Standard Industrial Classification (ISIC) EA Code 3 Food products, beverage and tobacco
ISIC 15 Manufacture of Food Products and Beverages 16 Manufacture of Tobacco Products
27
