Restrictive agreements on product standards

Nature

It is generally recognized that standards applied in one country may have the effect of hampering, making more costly, or even excluding exports from other countries. Such standards may be intended to protect plant, animal and human life as well as the environment (health and safety standards); to provide information to buyers on the characteristics of the product (quality standards, labelling and packaging requirements, marks of origin); or to rationalize production and product use (norms). In many cases, especially as regards health standards, such standards are 'obligatory' that is compliance is required by law or governmental regulation even though in some cases the standards have been developed by private organizations. There are, however, also 'voluntary' standards either set up by independent private institutions, sometimes of a quasi-public character (for example, the International Organization for Standardization), sometimes by trade associations of the manufacturers concerned or by direct agreement among suppliers or buyers. The last two cases (trade association activities and agreements between competitors) come within the scope of private restrictive business practices.

In principle, agreements among competitors (within or outside a trade association) to apply uniform standards or to refuse to buy products which do not meet such standards are regarded as cartel practices and as such come within the scope of the controls applying to cartels in the respective developed market-economy-countries. In practice, such agreements are generally exempted. In the USA there is no statutory exemption from the general prohibition of cartels in section 1 of the Sherman Act, but it appears that agreements which apply objective, non-discriminatory standards are considered as 'reasonable' and thus lawful. As regards those countries where laws prohibit cartels in principle (Canada, France, Germany, Japan, Norway), and the EEC/EU and ECSC, some make provision for special exemptions for agreements on standards (Germany and Japan) while it would seem that in the others such agreements would normally come under the general exemptions. A number of laws requiring notification and registration of cartels have exempted standardization agreements from this procedure (for example, Australia, UK). Moreover it would be highly unlikely that action under relevant abuse laws would be taken in the case of an objective, non-discriminatory standards agreement.

Background

The global significance of restrictive agreements on product standards emerged in the late 20th century, as international trade expanded and divergent national standards increasingly acted as covert barriers to market entry. Recognition grew during multilateral trade negotiations, notably within the GATT and later the WTO, where such agreements were scrutinized for their potential to distort competition. Subsequent investigations by organizations like the OECD highlighted how these practices could fragment markets and impede technological innovation.

Incidence

It is often difficult in these cases to draw a clear distinction between public and private standards. Even where standards are set by private organizations not directly linked with business or even by trade associations of the manufacturers of the product concerned, they may nevertheless in fact be 'compulsory' either because they are gradually written into public safety regulations or specifications for public contracts, or receive some less mandatory public approval (for example, where the government actively participates in or finances standardization institutions), or else because consumer acceptance of products becomes dominated by the need for the customary 'seal of approval'. The problem of standards as a barrier to imports must therefore be seen as a whole, often incorporating both public and private trade barrier aspects.

Claim

Restrictive agreements on product standards are a serious threat to fair competition and consumer choice. By allowing a few powerful companies to dictate standards, innovation is stifled and smaller businesses are unfairly excluded from the market. This manipulation not only limits options for consumers but also drives up prices and undermines trust in the marketplace. Addressing restrictive agreements on product standards is crucial for ensuring a healthy, dynamic, and equitable economy.

Counter-claim

Restrictive agreements on product standards are vastly overblown as a concern. In reality, such agreements often streamline production, ensure quality, and protect consumers. The supposed “problem” is negligible compared to genuine market issues like fraud or unsafe products. Focusing on restrictive agreements distracts from real priorities and wastes regulatory resources. Frankly, this is not an important problem at all and does not deserve the attention it receives in policy debates.