|
Standards are common in all forms of human activity and are designed to both simplify transactions and provide an element of certainty in exchange. Standards fulfil a number of diverse functions. In the technical realm, standards lower risk, increase credibility and trust, and facilitate predictability for buyers and sellers.
Standards are necessary, therefore, for the smooth functioning of exchange between anonymous economic agents, as parties to a transaction must be assured of the nature and quality of the product involved. By reducing search and transaction costs and lowering risk, standards help to facilitate exchange and trade. The efficacy of exchange is enhanced by two main functions of a standard – as a guarantee of a minimum quality and by defining the characteristics or specifications of the product or its production process and associated criteria of performance.
Although standardisation is necessary to facilitate market operations and implies some degree of homogeneity, it does not follow that variety per se is undesirable. Standards reflect the needs of the groups that express them and as long as groups differ, their optimal standards will reflect these differences.
Public and private standards do not only influence how safe the final goods are, but also affect the internal organisation of firms, their strategic behaviour and the organisation of the supply chain. Hence, they affect the market power of actors, the distribution of profits along the supply chain and the welfare of all stakeholders.
Imposing a minimum product standard through regulations affects the prices, the quantities and varieties supplied, and the welfare of stakeholders. Hence, standards affect competition, and the success of public policies depends on the firm's strategic response. Standards are also highly relevant in the trade context.
Mandatory vs voluntary :
Private standards are by definition voluntary, but public standards can be either voluntary or
mandatory. Voluntary consensus standards arise from a formal coordination process involving participants in a market and this may occur with or without the participation of government Voluntary public standards are often combined with certain government labels such as the EU?s labels of protected designation of origin (PDO), of protected geographical indication (PGI) and of traditional specialty guaranteed (TSG).The concept is schematically shown in Fig1. .
Figure 1: Forms of standards
Source: Henson and Humphrey, 2008
These are usually non-product related standards, although product related production standards also exist (e.g. standards on organic production). Voluntary standards whether public or private, and with compliance communicated by labels, provide a mechanism to overcome the information asymmetry problem.
Countries can choose from several different types of labelling schemes that allocate the information provision task to private and public sectors in different ways.
Standard-setting, adoption, implementation, conformity assessment and enforcement may be carried out by public or private entities according to the nature of the standard. This is highlighted in Table 1
Table.1 Functions associated with standards schemes:
| Function
|
LegalRegulations
|
Public
Voluntary
Standards
|
Mandated
Private
Standards
|
Private
Voluntary
Standards
|
| Standard-setting
|
Legislature
and/or public
regulator
|
Legislature
and/or public
regulator
|
Commercial or
non-commercial
private body
|
Commercial or
non-commercial
private body
|
| Adoption
|
Legislature
and/or public
regulator
|
Private firms or
organisations
|
Legislature
and/or public
regulator
|
Private firms or
organisations
|
| Implementation
|
Private firms and
public bodies
|
Private firms
|
Private firms
|
Private firms
|
Conformity
assessment
|
Official
inspectorate
|
Public/private
auditor
|
Public/Private
Auditor
|
Private auditor
|
| Enforcement
|
Criminal or
administrative
|
Public/private
certification
body
|
Criminal or
administrative
court
|
Private
certification
body
|
|
Participants