Case Study
Effects of Product Certification on Importer Trade across Borders: The Case Study of the Philippines
Summary
Product certification has been important, especially in developing countries to protect their consumers by providing quality and safe products and to protect the country from an import surge of products that may cause serious injury to local producers (Esteban, 2020).
The study showed that time and cost during importation of electrical and electronics products have an effect on importations and number of firms or importers. However, the number of documents for import compliance does not show a significant correlation to the importations nor firms.
The study also showed that a flexible technical regulation for importers could be beneficial because of the varied effects on imported electrical products and their importers, due to the dynamic characteristics of different industries, and complexity of the certification system.
This study is limited to the effects of certification on importers by analysing around 44,081 data entries of the import commodity clearance (ICC) applications in the Bureau of Philippine Standards (BPS), which are then reduced to 3,598 data entries of firms (one data entry is one firm per year) over a period of almost ten years (2009 to 2018). An estimated 497 individual firms importing within the period were analysed, and the results of this study on the correlation of number of firms per year and selected trade across borders (TAB) factors will add to the pool of studies.
Background
In this research (Esteban, 2020), product certification is vital in ensuring the quality and safety of a product, which is recognised by most countries during trade (Fentisov 2007). Researchers have identified a wide range of benefits of certification such as enhanced production efficiency, product quality and reliability, minimised wastage, innovative efficiency, innovation diffusion, reduction of imperfect information, enhanced safety and health, increased market share, increased export, and enhanced global competitiveness of a country and decreased environmental impact (Blind et al. 2015; Guasch et al. 2007; Jang et al. 2014; Latouche and Chevassus-Lozza 2015; McLaughlin 1993; Stevens et. al. 1998; Sun and Ouyang 2014; and Ding 2019). The effects of certification have varying degrees of complexity.
Regardless of the benefits of certification, some studies have shown the constraints brought about by certification affecting innovation, competition and slowing down of creating standards due to the rapid development of technology (Guasch et al. 2007; Loll 1994; and McLaughlin 1993). It can be concurred that sometimes the variations in technical regulations and standards among countries may create technical barriers to trade. There are about 130 countries preparing different national standards which have spawned challenges in international trade (UNIDO n.d.). The varied and complex regulations causing technical trade barriers might lead to market failure or trade disputes among nations (World Trade Organization [WTO] 2019a).
In the past few decades, the manufacturers’ share in the global market has been increasing along with the growth of global trade (Guasch et al. 2007) which makes product quality and safety a critical determinant of success in the import or export of products in other countries. The competitiveness of a product entering a new country can be enhanced through certification. However, in some markets, below quality products are competing at a lower price where consumer safety is being compromised. In a developing country, which is vulnerable to entry of goods below quality standards, regular enforcement activity is very important. In the Philippines, for example, a volume of uncertified products has been confiscated in the market.
The deliberate presence of the uncertified products in the market may indicate weak regulatory practices in the trade borders of the country wherein many factors have to be taken into consideration. In most cases, it is necessary that the quality of the product is evaluated to avoid intrusion of substandard products in the market, which could pose risks to health and safety. Aside from trade and consumer protection, technical regulations safeguard the domestic industry from import surges in developing countries, where competitors may take advantage of less aware consumers and cause serious injury to the domestic industry.
The free trade of quality goods can be assured through the standardisation system and harmonisation of trade laws and technical regulations. The importance of harmonisation of regulations among countries has been evident in some studies (Christen 1991). In the Association of Southeast Asian Nations (ASEAN), harmonisation of technical regulations is one of the many contributors to the economic integration of ASEAN.
The study focuses on the importation of electrical and electronics products, under HS code 84 and 85, requiring product certification, relative to the growing imports of this commodity in ASEAN. Its contribution to the limited literature is linked to product certification, ASEAN, and the electrical and electronic products manufacturing industry.
The Philippines campaign against uncertified products. “DTI Cracks Down 3M Worth of Uncertified Products in CAR” and “DTI Cracks Down 17M Worth of Uncertified Products in NCR and Luzon.” DTI published reports on online media (www.bps.dti.gov.ph) on May 8, 2019 and Oct 1, 2019 respectively (DTI 2019) regarding the intensive efforts to eradicate the presence of uncertified products in the market.
The ASEAN Economic Community (AEC) was established in 2015 and considered as one of the milestones of ASEAN in the regional economic integration agenda. The AEC Blueprint 2025 aims to achieve its ASEAN Community Vision 2025 through strategic measures which can be referred to on www.asean.org (ASEAN 2019).
Previous studies support that for developing countries, where there are protectionist regulations involving product certification, it is not easy to do business with an easy application system in terms of time, cost and number of document requirements (Berliner and Prakash 2014; Rodriguez-Arnaldo and Martinez-Lorente 2014; World Bank 2019).
Strategy
The research analysed the effects of product certification on the performance of importers of electrical and electronics products of group E (HS codes 84 and 85) in the Philippines, and related it to trade across borders, using the Ease of Doing Business Index (EODB) of the World Bank (Esteban, 2020).
The primary and secondary data of importations sourced from the Department of Trade and Industry, Philippine Statistics Authority, World Bank, and ASEAN are analysed. Using time series, correlation and regression analyses, the significance and relationship of importing firms who went through product certification have been examined. The relationship of related factors of the trading across borders of EODB to the percentage share of the import commodity clearance (ICC), and the percentage share of importers (with the ICC) are the focus of the study.
About 44,081 data entries of the import commodity clearance (ICC) applications of 497 group E firms applying for Import Commodity Clearance (ICC) in the Philippines for the period 2009 to 2018 have been evaluated and analysed using a mixed approach.
The secondary data was further analysed due to a limited response from the primary data source.
Results and impact
This paper (Esteban, 2020) has explored the varied effects of product certification on the performance of the electrical and electronics products. Also (group E) importers in the Philippines show varied results with relation to time, cost and number of documents to import in the trade across borders of the Ease of Doing Business Index (EODB) of the World Bank. The primary and secondary data of importations sourced from the Department of Trade and Industry, Philippine Statistics Authority, World Bank, and ASEAN were schematically linked to support the aim of this paper.
This study was able to provide evidence that for group E products applying for import commodity clearance, the cost of importation positively affects the percentage of imported products (Ni ) and the percentage of firms (Nf ) or importers in the short term period (6 years), while insignificant in the longer term. Also affecting the percent Nf is the time to import as can be seen in the 10-year period. However, as the TAB score is reduced, the percent Ni is increased. But the number of documents for compliance to import does not show significance to importers. Other observations were found insignificant.
Previous studies have shown that for developing countries, where there are protectionist regulations involving product certification, it is not easy to do business with an easy application system in terms of time, cost and number of document requirements (Berliner and Prakash 2014; Rodriguez-Arnaldo and Martinez-Lorente 2014; World Bank 2019). A flexible technical regulation for importers could be beneficial due to varied effects to products and imports.
This research led to multiple recommendations, consolidated to further conduct or expand studies on the following:
- The effects of increases in number of certification bodies versus the import or export performance and compared with other developing countries;
- The impact of the promotion of product certification on business performance;
- Although automotive and construction products follow some similar trend in imports with ICC, further study is recommended for the effects of certification relative to importers from different
product groups using EODB variables; - The effects of having a system and product audit (type 5) certification versus batch certification (type 1b) and comparison among developing countries if having other certification system types;
- A comparative analysis of the product certification and development of standards in each country, wherein the national quality infrastructure of each country could differ and can affect
product certification; and - Other underlying factors such as technological advancement in electrical and electronics products and other products requiring product certification in a developing country. It can also be considered that the level of technical training in the system of certification can have an impact on the quality of service the certification bodies provide. These factors can possibly affect certification.
If such increasing trends in trade are observed, the readiness of the national quality infrastructure in catering the need for certification during import or export is important. As certification is not a vocational course available and known to many, rather it could imply that it is a career promoting voluntary skill which requires more experience than knowledge.
The human resources required should also be given importance, and these resources could be considered as vulnerable to volatile competition. The technical workforce in the country could be at risk of brain drain of the country in the future. The product certification industry could also promote employment and open business opportunities. The continuous development of the system through the advancement of technology could also take time for importers to absorb the complexity of the certification system.
However, having a variety of options for importers seeking certification has shown promising observations that certification can promote indirect incentives to importers. For them, it is essential that they are kept updated and well informed of the changes in certification system.
This study has shown its contribution to literature by analysing the effects of certification to importers performance using some of the trading across borders variables of the Ease of Doing
Business Index.
Contact
Michelle P. Esteban
Philippine Accreditation Bureau
Department of Trade and Industry
pab@dti.gov.ph
Original thesis is published by Kyung Hee University, in partial fulfillment of the requirements for the Degree of Master of Arts in Industry and Trade Policy of the author.
Journal citations also available:
https://www.kci.go.kr/kciportal/ci/sereArticleSearch/ciSereArtiView.kci?sereArticleSearchBean.artiId=ART002704183
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