Linking transactions costs and trade: A case study of the impacts of ISO 9000 standards on the European Union food industry

This study investigates the implications of ISO 9000 standards for the European Union (EU) food sector. The importance of ISO certification for the EU arises from the high costs of divergent regulations and standards in the foodstuffs sector. ISO standards are expected to reduce asymmetric information regarding food safety, and promote trade among the EU member states. The finding of this study is that if ISO certification becomes common business practice and a de facto condition to do business in Europe, it could represent an effective barrier to third-country trade.; The study uses the conceptual framework of transactions costs to explain trade flows among the EU countries. Transactions costs are treated by industrial organization economists as an important determinant of market structure and firm conduct. Yet, this framework has not been used in evaluating the impacts on international trade flows and the possibility of foreign sourcing of inputs and products. This study applies transactions costs to ISO standards to explain the impacts on trade.; This research found a movement toward ISO certifications in the EU food sector. This, however, does not seem to be the case in other countries, such as the United States, which could reduce the volume of their exports to the EU. ISO standards are found as an important tool to sustain and improve competitiveness in the food sector; they resulted in considerable cost-savings due to improvement in management, production and transactions costs.; Export and intra-industry beef trade models were estimated using cross-section data on the 12 EU-member states. Results show that the volume of trade increase with the level of adoption of a common standard. This result was confirmed by tests of structural changes to see the effect of standards over time. Finally, a model of inter-linked markets was evaluated on the basis a cost reduction, due to the certification, estimated at 1 to 3%. Results indicate, as hypothesized, an increase in the level of output supply and agricultural input demand. There was also a decrease in the output and input prices generating gains for consumers and food processors, respectively.