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Working Paper No. 04-12

Regionalism in Standards: Good or Bad for Trade?
Maggie Xiaoyang Chen and Aaditya Mattoo
October 2004


Regional agreements on standards have been largely ignored by economists and unconditionally blessed by multilateral trade rules. We find, theoretically and empirically, that such agreements do increase trade between participating countries but not necessarily with the rest of the world. Adopting a common standard in a region, i.e. harmonization, boosts exports of excluded developed countries to the region but reduces exports of excluded developing countries - possibly because developing country firms are hurt more by an increase in the stringency of standards and benefit less from economies of scale in integrated markets. Mutual Recognition Agreements (MRAs) are more uniformly trade promoting unless they contain restrictive rules of origin, in which case intra-regional trade increases at the expense of trade with other, especially developing, countries. We propose a modification of international trade rules to strike a better balance between the interests of integrating and excluded countries.

JEL classification: F12; F13; F15
Keywords: standard, harmonization, MRA, rules of origin, scale economy