11:05 AM May 27, 1997

GLOBALIZATION AND GLOBAL STANDARDS

by Matthias Finger*

Geneva, 27 May (TWN) -- There has been an overall shift of power in the international system, particularly the international economic system - a shift from the United Nations to the Bretton Woods Institution (BWIs), the IMF and the World Bank, and the World Trade Organization (WTO).

In light of this overall shift of power, standards - especially process or production standards - emerge as an alternative to regulation.

As such, they are part of so-called market-based mechanisms, such as business ethics, corporate codes of conduct, labels, and others more. The characteristics of these new instruments are that consumers and the 'market' replace policy orientations.

However, at present the definition of standards, the certification (of the production processes) of corporations, as well as the accreditation of certifying bodies (corporations) remain most obscure, and is entirely removed from any political and democratic process.

How are standards linked to the WTO?

The first agreement on Technical Barriers to Trade (TBT) goes back to the Tokyo Round agreements (1980) of the (old) GATT's Multilateral Trade Negotiations (MTNs).

It is called the "Standards Code" and defines, among others, a so-called "least restrictive means principle" and applies to national standards as well as to regulations.

During the Uruguay Round of MTNs (which resulted in the WTO agreement and a number of annexed agreements) a new agreement on Technical Barriers to Trade (TBT) was negotiated.

This TBT supersedes the standards code. It includes "process and production methods" (PPMs), a stronger obligation to adopt international standards, and a Code of Good Practice for standardization organizations.

This new TBT Agreement already applies to environmental product (and thus production) standards. The applicability of the TBT to environment is thus simply a forerunner of what is to come.

These include 'Process' standards that open the door for linking environmental and labour (and more largely social) social standards to trade.

But Process (or production) standards do not have the same relationship to trade as product standards.

If one seeks to minimize product standards in order to maximize trade, one does not necessarily seek to minimize process or production standards to achieve the same goal.

As has been pointed out by Nicolaidis (in Sykes, A 'Product standards for internationally integrated goods markets', Brookings Institute), "to some extent many of the differences in production regulation have been the fuel of international trade, and eliminating them is likely to decrease rather increase international trade".

Process standards also mean a shift in power from the exporter to the importer: process standards shift the burden of proof to the exporter, i.e., in most cases the TNCs.

Says Nicolaidis: "... importing countries seek to make access to their markets conditional on the adoption of international standards or in extraterritorial adoption of their own standards".

This means that (a) TNCs now have a vital interest to define these international standards and (b) these standards need not necessarily be the lowest possible ones.

The opposite might be the case: a TNC might have an interest to define the toughest standards possible, get them approved by the WTO, and by doing this enjoy a trade monopoly.

In short, with process standards, TNCs shift their interest from free trade to regulated trade.

From now on, they are particularly interested in the organization that sets the process or production standards, as well as in the company that will certify them.

From an instrument seeking to prevent technical barriers to trade, the TBT Agreement (and the WTO for that matter) now turns, with process standards, into a vehicle that has the potential to regulate (or manage) world trade. This means, that the WTO turns from a free trade organization into a global regulator.

However, this regulator does not operate through international law, but through standards.

Moreover, these standards are not set democratically.

In the absence of, or by means of, new multilateral (or plurilateral) agreements (on environment, on social issues, etc.) such standards can be used to control trade and development.

But the WTO should not be allowed to evolve into a global regulator.

Global regulation should emanate from an international, not a multilateral body.

The WTO is looking to the ISO for these standards.

As pointed out by P. Hauselmann ('ISO inside out', WWF International discussion paper): "The WTO and the European Commission recognize the ISO as a competent body for setting international standards that may later be used as a basis for legislation".

The ISO is closely associated with the TBT committee work, since it has the observer status in the meetings. Annex 3 of the TBT Agreement explicitly defers to ISO the task of identification of standards.

Recently, the director of the Trade and Environment Division of the WTO wrote that for the WTO "the use of international standards, and most particularly ISO standards, can ... be regarded confidently as the best way of insuring that technical regulation and standards do not cause technical barriers to trade."

ISO was created in 1947, the same year as GATT.

Among its original missions we find "the facilitation of international exchange of goods and services".

The ISO is a worldwide federation of national standardization bodies, comprising 119 members in as many countries.

As Hauselmann points out, "It is neither an inter-governmental organization nor is it part of the United Nations and its system, nor is it composed of government delegations".

According to Sykes, "the 'jurisdiction' of ISO is unlimited, and in principle the ISO may undertake standardization initiatives relating to any product or service market". Decisions are supposed to be unanimous, but many of them are in fact taken by majority vote.

While the ISO technical committees and working groups (which elaborate the standards) are composed of "experts", many of these experts are strongly affiliated with corporations, especially TNCs.

A preliminary analysis conducted by Hauselmann of one of the forestry working groups shows affiliations of the delegates with TNCs such as Procter & Gamble (Canada delegation); Canon, Toshiba, NEC (Japan delegation); Tetra Pack and Sony (Singapore delegation); and again Procter & Gamble, 3M, Georgia Pacific, General Electric (US delegation).

In addition, manufacturer's associations are also represented.

An in-depth study of the affiliations of delegates defining standards would most probably highlight that the ISO's technical committees and working groups are heavily captured by TNCs.

Moreover, the ISO is not transparent. Mo media have access to the process of elaborating standards. There is also a weak participation of developing countries and NGOs in drafting the standards.

The ISO traditionally set technical product standards.

However, since 1980 it has moved into process and management standards.

This was first the case of so-called quality standards -- the ISO 9000 series (1980); and since 1993 the ISO has gone into environmental management standards (the so-called 14000 series). There is now talk of an 18000 series of social standards.

The ISO has also a problem of enforcement and control: in the case of process standards, it does not define the quality of the product, but only the quality of the process.

Yet, many corporations tend to use the process quality label in their publicity for their products.

But the ISO standards are such that the quality of the process is unrelated to the quality of the product.

ISO is not an international organization and should therefore not be allowed to define standards used for regulating trade. ISO should either be transformed into an international (intergovernmental) organization with appropriate NGO participation or this mandate should be given to another international organization, such as for example UNCTAD.

Certificates give written assurance that the organizing framework of a given company follows the corresponding (process, production, or management) standard.

Such certificates are granted by certification bodies which are independent of the ISO and, of course, also independent of the companies they certify.

While certifying companies apply the ISO standards, ISO does not accredit such companies, nor has it any mechanism to control the quality of the certifying corporation.

However, these certifying bodies are profit making entities.

They have an interest to certify the maximum amount of companies, yet upholding the standards and certification as being most desirable for a company. Moreover, they have an interest in making the standard(s) that they certify to become the international norm, and their right to certify a monopoly.

Like for the ISO, these certifying bodies have an interest in promoting standards, and moreover in making these standards compulsory for a company to be able to trade.

There are currently very few of such international certifying companies. They are all very secretive.

One of them is SGS (Socit Gnrale de Surveillance), a Swiss transnational enterprise.

Like the WTO and the ISO, SGS is based in Geneva. It does have access to the WTO and the ISO.

More research will be needed to make the links between the SGS, the ISO, and the WTO visible, as well as to uncover similar links with other certifying companies.

It would also be interesting to study cross-linkages between certifying corporations and the TNCs they certify.

If certification of production and processes is related (1) to the right to trade, and moreover (2) to non-technical issues such as environmental or social issues, the right to certify should be taken away from self-selecting TNCs, such as the SGS.

In this context, certifying corporations perform functions of a regulator and thus should be public. At the least, they should be accredited by a public entity.

The WTO, the ISO, and certifying corporations are about to set up a new system by which global policy not only goes far beyond trade, but moreover is practically privatized, i.e., entirely non-accountable, and favouring a few TNCs.

If the movement towards the WTO and the Bretton Woods institutions cannot be halted, civil society must press for participation in and control over the standard setting, the certifying, and the accrediting processes.

(* Mathias Finger is Professor of Management of Public Enterprises, Graduate Institute of Public Administration, Lausanne, Switzerland. The article is based on his paper at the Agora, 'WTO, Globalization and Development', held during the World Conference of the Society for International Development, at Santiago de Compostella, on 23 May)