international \"standards\" and international governance

$: International \"Standards\" and International Governance$
Electronic copy available at httpssrncomabstract=1550889

Journal of European Public Policy 83 Special Issue 345-370

International standards and international governance Kenneth W Abbott and Duncan Snidal

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ABSTRACT Standards are central mechanisms of international governance but have different roles in various circ1JIllStances These can be analyzea in terms of a simple typology One ke) distinction is analytic contrasting the Prisoners Dilemma structure of traditional Pigovian externalities with the Coordination structure of network externalities The second distinction is substantive contrasting physical or technolltgtgical externalities with externalities that arise in the creation of public policy The four resulting circumstances are typically addressed by alternative governance arrangements varying combinations of private and public governance - according to die respective mterests and competencies of the two spneres - and vyenYing levels of gQvernance - national r~onal or global - according to the scopeof ilieproblem and the capacity of institutions Our analysis of these choices is primarily po~itive but the comparative institutional framework we develop is equally useful for addressing the associated normative question - h()w should international standards be set KEYWORDS Externality governance institutional analysis international law private rule-making standards

INTRODUCTION STANDARDS EXTERNALITIES AND GOVERNANCE

Standards are pervasive mechanisms of international governance States and private actors create standards across a wide range of circumstances to promote their collective welfare by coordinating and constraining individual behavior However standards play different roles in different circumstances This paper examines how the diversity of standards problems leads through the intershyaction of private and state interests to variedmiddot governance arrangemen~s Our analysis is positive yet it leads to normative conclusions how actors should organize international standard-setting in different situations

We adopt a broad working definition appropriate to the breadth of the subject a standard is a guide for behavior and for judging behavior This definition incotporates no assumptions about provenance or governance very different processes are involved inmiddot creating and administering standards for

jOlltlla if European Pltbit Policy ISSN 1350-1763 printISSN 1466-4429 online copy 2001 Taylor amp Francis Ltd

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arenas as disparate as mobile phone interconnectivity common accounting practices allowable pollution levels and acceptable labor practices

We also adopt an expansive notion of international gavernance as the formal and informal bundles of rules roles and relationships that define and regulate the social practices ofstate and nonstate actors in international affairs 1 Standards and the institutions associated with them are subcategories of governance

As our definition makes clear governance need not mean government Many international standards emerge and operate through private market interactions2 Others are created within fonnal organizations but are still orchestrated by private actors Still others are privately created but ratified and enforced by governments And many are set and maintained by governments3

Above all we observe complex blends of private and public governance Why

The diversity of governance arrangements we argue stems from the dishyversity of problems that states firms and other actors are attempting to resolve We distinguish these issues analytically according to the characteristic exshyternality involved In externality situations standards enhance efficiency But different actors prefer different standards - and different standard-setting processes Moreover actors have different capacities for creating and managing standards in particular issue areas Together these factors provide actors with strong incentives to contest forms of governance as well as to cooperate

Our comparative institutional approach asks what governance arrangements are likely to emerge in particular circumstances It employs a positive analysis of strategic situations preferences and capabilities One nonnative concept shyefficiency - figures in our analysis since the possibility of welfare gains in externality situations provides the driving incentive for standardization

We begin (Section 1) by developing a simple but broad typology of four externality problems that create demand for international standards set out in Table 1 Next (Section 2) we examine these categories in detail emphasizing the difficulties andmiddot opportunities they present In Section 3 we analyze the governance arrangements actors adopt in the different situations The interplay of contestation and cooperation explains the blends of public and private governance that appear in most issue areas as well as different mixes across issues These sections are summarized in Table 2

Our analysis emphasizes international standard-setting although much of it applies equally to other contexts This is a useful focus international intershyactions include a broad range of standards problems and important governshyance issues are currently in play Furthennore because this arena holds the possibility of international as well as national public regulation it makes the tradeoffs between levels of governance and between public and private governshyance even more apparent

Ultimately international actors need to know which fonns of governance are most desirable in different circumstances In Section 4 then we move to nonnative analysis considering the forms and levels of governance best suited to particular standards problems

KW Abbott amp D Snidal International standards and governance 347

1 EXTERNALITIES AND STANDARDS PROBLEMS

Actors use standards to deal with externalities An externality occurs whenever one actors conduct affects the uxll-being of another Familiar examples include factory smoke that fouls residential air or one farmers use of common lands that diminishes their value to others The generality of the externality concept opens up important lines of analysis regarding the proper roles of government and the market But its breadth can also lead analysts to collapse fundamenshytally different problems together Table 1 introduces two distinctions among externalities - one substantive the other analytic - to generate a taxonomy of standards problems

o o The rows of Table 1 distinguish physical or technological externalities from N

those based in law or policy Technological externalities - like the smoke and commons examples above - occur when one actors behavior directly (and often physically) affects another Policy externalities occur when laws or policies in one jurisdiction affect actors in another regardless of physical

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impact National product safety rules for example affect foreign producers as well as local ones

Technological and policy externalities are often intertwined International policy externalities may result from national efforts to deal with domestic technological externalities4 For example some international regulatory stanshydards are designed to coordinate andor constrain national product safety standards International standards may also be designed to address technoshylogical and policy externalities simultaneously eg where states maintain disparate regulations with varying technical and economic effects

The columns of Table 1 distinguish externalities according to the strategic interdependencies among participants In the following section we distinguish

Table 1 The diversity of standards problems

Technological physical externalities

Regulatory externalities

Network externalities (Coordination)

I

Technological interconnectivity

It

Transactional interconnectivity

Traditional externalities (Prisoners Dilemma)

III

Physical externalities

IV

Policy externalities


between network and traditional externalities For now though the wellshyknown contrast between Coordination and Prisoners Dilemma (PD) games suggests the relevant distinction

In simple Coordination games (akin to network externalities) participants prefer to adopt the same standard In more complex Coordination settings shyrepresented by the Battle of the Sexes game - participants disagree as to which standard should be chosen while still preferring that all select the same one In PD games (akin to traditional or Pigovian externalities) in contrast each participant prefers to set its own standard and may do so in a way that harms others5 Yet PD actors also have incentives to cooperate on mutually beneficial standards rather than to set standards unilaterally The pure types of Coordinashytion and PD blend together as complications are introduced (eg bargaining over common standards introduces coordination problems into PD) but the distinction captures an essential difference among standards problems

We view externalities - and hence standards problems - expansively to avoid prejudging questions of governance Doing so requires special care in this context because the implications of externalities for governance are hotly contested Some see externalities as pervasive creating an equally pervasive potential for beneficial government intervention Others downplay the factual significance of externalities and are sanguine that markets can handle them For us these are endpoints on a continuum most problems lie in between We briefly explore this dispute here because of its crucial importance for positive and normative analysis

Proponents of market solutions insist that (perfect) markets can deal with externalities The simplest case is the pecuniary externality where the effects of an action on the welfare of others are mediated wholly through the market (eg producer Ns increased output lowers the price received by producer B) As Frank Knight (1924) showed in response to AC Pigou (1912) markets can efficiently handle such effects Indeed pecuniary externalities are so normal in markets that economists no longer consider them externalities (Mishan 19716 The case for market governance is substantially broadened by Coases (1960) demonstration that private actors can efficiently resolve PDshytype technological externalities the actors that value them most highly can simply purchase rights to impose or prevent externalities

These arguments however depend on perfect market assumptions includshying low transaction costs perfect information and the absence of collective action problems When these assumptions do not apply market solutions may fail and actors will demand other forms of governance One alternative is to internalize externalities by changing governance forms within the market as by merging conflicting interests into a single firm (Coase 1937 Williamson 1974)7 When merger is not possible - perhaps because an externality is too wide-ranging - affected actors will typically press for some form of non-market governance such as public regulation

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Even when market assumptions do apply the case for market governance entails an implicit nonnative judgment that market efficiency gains outweigh their distributive consequences Consider a pecuniary externality caused by increased competition The assumption is that the resulting efficiency gains could be redistributed making all better off than under alternative fonns of governance (eg protective regulation) Yet this argument is irrelevant (at least to the losers) if gains are not actually redistributed

h a minimum we should expect losers from pecuniary externalities to protest market outcomes and promote non-market alternatives In doing so they will use all available political strategies including nonnative arguments about the unfairness of markets - to mobilize support More generally rentshyseeking actors will work at capturing governance arrangements for their particularistic ends8 As a result even if the efficiency of markets is normatively attractive there is no strong positive reason to assume that actors will necesshysarily choose market solutions to address externalities9

Proponents of market governance also implicitly assume that efficiency perhaps with certlain distributional considerations are the only relevant values - if they are considered values at all In fact however in areas such as labor health safety and the environment many actors espouse quite different values Thesemiddotactors almost alWa)S argue that their favored valuesshould be weighed along with effieiency they may even argue that those values should trump efficiency incases of conflict Proponents of such views typically prefer political governance

To illustrate these positions consider how a polity might deal with workshyplace safety A pure market solution would leave safety issues to bargaining b~ producersmiddot andmiddot VIorkers The rationale would be that workers might accept more dangerous working conditions in return for higher Wages if the premium they demanded WaS unacceptably high producers would improve workitig conditions A modified market solution might add limited governshyment intervention to encourage the provision of irJonnation regarding the dangels of various occupations The aim would be to ensure that workers understood the risks before deciding at what premium to accept them Mandatory labor standards would be unnecessary since infonned workers could make individual decisions which need not be standardized

But states often establish mipimum safety standards especially when danshygers are grcentat Sometimes the relevant infonnation is too complicated to supply at reasonable cost Here public standards might try to anticipate the decisions workers Would reach on average if they could work the matter through Such regUlations could also be paternalistic if policy-makers believed they could impose better choices than individual workers would make Or public stanshydards could reflect concern that individuals might make inappropriate choices violating moral or other non-efficiency criteria Finally public standards might remedy collective action problems to strengthen workers bargaining posishytion tO In this view the case for safety standards is that workers might be

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350 Jburnal of European Public Policy

unable to refuse to undertake inappropriate risks if employers offered no alternatives tt

All these justifications for particular forms of governance are widely abused Economic actors press for market solutions ignoring market failures distribushytional problems and conflicting values Other groups seek public regulation under the banner of correcting market defects or addressing moral purposes when their true goal is to gain monopolistic rents Arguments for particular governance approaches in externality situations must be analyzed with great care giving attention to positive and normative factors

2 THE RANGE OF STANDARDS PROBLEMS

Cell I Technological interconnectivity

Many technologies includingthose underlying communications electronics and the Internet require common standards to ensure compatibility The problem is long-standing witness standards for railroad gauges and electricity Technological standards create network externalities since individual benefitsshyof expanding markets scale economies and reduced incompatibilities - inshycrease with the number of users12 Thus connection to an interoperative telephone network is more valuable as more people join the network Indeed benefits may be felt far beyond the network Computet standardization for example affects producers of computers peripherals and software as well as end-users

Some interconnectivity relationships create pure coordination games all participants want common standards and are indifferent over which are chosen More typically distributive differences create Battle of the Sexes problems complicated by divergent preferences For example states whose firms use different standards will each prefer coordination on its own standard to avoid conve~ion costs and loss of economic leadership t3

Competition may produce inefficient standards Distributive conflicts in the standoff over High Definition TV (HDTV) led to costly bargaining delay and the persistence pf multiple standards (Austin and Milner 2001) Alternatively firms with large market shares or first-mover advantages may impose standardsmiddot that are suboptimal for the industry or consumers Influential actors may use standards to bl~ckpotential competitors hampering innovation When techshynology is evolving moreover early lock-in on any standard can inhibit transitions to sUperior standards as conditions change

Once technological standards are established all parties have incentives to adhere to them Thus although establishing interconnectivity standards may require institutions able to create convergent expectations maintaining them should not require strong enforcement capacities The exception occurs when high stakes create predatory incentives for powerful actors to create self-serving standards


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Cell II Transactional interconnectivity

A special category of interconnectivity involves transaction standards for comshymercial interactions Firnls utilize standardized contracts documents and procedures to achieve economies of scale reduce search and transaction costs and simplify bargaining These advantages are reflected in numerous intershynational standards from the standardized weights and measures coinage and

time zones of earlier eras to standard contracts and rules for letters of credit and arbitration today Transnational actors also seek hannonization of national legal standards including commercial law and accounting rules Standardizashytion of reguhltions enhances the efficiency of transnational operations Firms and states whose domestic rules become international standards reap special advantages

Transaction standards are analytically similar to technological interconnecshytivity standards both require convergence on a coordination equilibrium As with technological standards moreover the process of standard-setting is rarely neutral Distributional conflicts impede agreement disproportionate influence can produce suboptimal or anti-competitive standards

Yet transaction standards differ markedly in that parties face incentives to deviate - ie to breach agreements - when contracts are incomplete and enforcement imperfect These problems can be ameliorated by institutions from reputationaI bonds to arbitration that depend on coercive enforcement under national taw Standard contracts for example rely on judicial intershypretation and enforcement standardized weights and measures may emerge spontaneously but are legally ratified and enforced (Spruyt 2001)

Some transaction standards also serve public purposes facilitating governshyment regulation Accounting standards for example are essential both for private transactions and public regulation including taxation and control of fraud and corruption Inevitably efforts to standardize such regulations have broad policy implications

Cell III Physical externalities

Traditional (Pigavian) externalities in which one actors conduct physically affects another occur relatively independently of the affected actors conduct For example when producers in one state pollute the harm caused to neighboring states does not depend centrally on the latters behavior14 Exshyternalities of this type are fruitfully analyzed as PD games where actors must jointly refrain from harmful behavior to improve collective outcomes Many environmental and commons problems - including transboundary pollution fisheries and the global climate - take this form

The collective goal is not to eliminate but rather to optimize the level of externality-generating activity States and private actors have divergent prefershyences over the optirrial amount of many externalities (eg wealthy states prefer a cleaner environment poor states prefer faster growth) though each prefers that others bear any associated costs Distributive conflict is intense et


traditional externality standards need not require all actors to behave exactly the same Rules can be differentiated and expressed as targets not precise mandates These features simplify bargaining and increase efficiency - diverse actors can each determine how best to reach agreed targets - but make verification problematic

Enforcement of PD standards is difficult because individual actors have incentives to defect Domestically states limit external harms through strong governance mechanisms - liability rules property rules regulatory agencies and taxes - backed by coercive power15 The internationctl setting however lacks equivalent mechanisms and decentralized alternatives - like reciprocity and reputation - are often inadequate The problem is complicated when private actors can frustmte regulation by transferring externality-creating ctctivities to non-particip ating states This mobility may also create undue influence over national standards leading to demands for international harmonization

Cell N Policy externalities

Even where no physical externality crosses national borders national regulashytions under conditions of interdependence can have serious consequences for foreign actors creating demand for international regulatory standards We address these policy externalities at greater length because observers disagree vigorously whether theyconstitute true externctlities or mere pecuniary- effects best left to the market

Policy externalities are most apparent when states use domestic regulations strategically to disadvantage foreign actors The classic example occursmiddot when national regulations differentially affect local andforeign producers creating protectionist barrierS (eg by equating safety with the characteristics of local production) States in these cases are sometimes sincerely pursuing valid regulatory purposes (such as product safety) and are unaware of the differential impact Often however domestic pressures lead governments to craft regulashytions in discriminatory ways In extreme cases states adopt regulations wholly insincerely as disguised protectionism

Similarly states have incentives to adopt inefficient standards when they are large enough to affect international prices Deardorff (1997) shows that net exporters 01 a good associated with pollution will raise domestic pollution taxes above the optimal level This increases national welfare (ie domestic tax revenue gctins exceed losses to domestic producers and consumers) at the expense of importing countries Net importers have mirror image incentives and will undertax pollution Theresu1t is regulatory divergence with colshylectively inef~ient standards States would be better off if they could adopt common (efficient) standards

The mce to the bottom scenario where states competitively lower stanshydards is a variant of the same pathology As interdependence grows policy externalities intensify high standards countries come under domestic pressure

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KW Abbott amp D Shidal International standards and governance 353

to relax their regulations Increased factor mobility creates a secondary impact if differential standards induce shifts in production Now jurisdictions compete for investment by lowering standards below socially optimal levels - the race to the bottom

Although scholars express strong doubts as to its empirical relevance 16 the race to the bottom retains strong political resonance Environmentalists and labor advocates raised it during the North American Free Trade Agreement (NAFTA) negotiations resulting in labor and environmental side-agreements As always however rent-seeking interests seek to manipulate such concerns Thus cynical observers felt that American labor unions new-found interest in Mexican pollution standards reflected sophisticated protectionism rather than sincere environmental concern

A subtler policy extemali ty arises when implicit regulatory competition prevents states fromaqopting socially beneficial standards Even if states lack economic power to affect markets an interdependent regulatory environshyment creates political incentives to move national policies away from the optimal 17

Consider a closed economy where the benefits of pollution regulations exceed the impact of increased product prices Because benefits are widely diffused while costs are concentrated on producers collective action theory suggests that efficient policy outcomes will be difficult to achieve Optimal regulation becomes more difficult in an open economy Because

stricter regulation raises domestic production costs imports will increase From a strictly economic perspective this is a good thing gains to consumers (who suffer less polluti on vmile remaining able to purchase products at world prices) outweigh costs to producers But producers facing potentially devastating import competition will strengthen their resistance making it harder for the state to adopt the regulation even thougjJ from an economic perspective (considershyingall gains and losses) it is more attractive than in a closed economy

To complete the example suppose all countries have open economies All prefer to limit domestic pollution but none can do so unilaterally because of the resulting effects Now states have a collective action problem they need international standards to facilitate domestic regulation 18

As with traditional externalities policy standards need not require states to adopt identical regulations they need merely establish criteria for national re~ation Nevertheless familiar political problems make collective action diff1cult Effective international standards must apply to all actors that (potenshytially) create or suffer significant external effects All relevant actors should also be represcentnted in the standard-setting process creating serious burdens on international institutions Disproportionate influence can also be a significant problem

The greatest barriers to coordination however are bargaining problems created by heterogeneous preferences These are intensified vmen standards affect not just domestic production but the transnational location of producshytion For both reasons standard-setting is generally more difficult between

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North and South than among more similar developed states Even when states agree on appropriate standards moreover they have incentives to misrepresent preferences for bargaining purposes reproducing the very strategic problem international standards are intended to resolve

Coordination on international standards is still more difficult when heteroshygeneitystems from differences in norms or values not mere economic calculashytion Here compromise side payments and bargaining tactics become less effective The choice of standards on cultural policy for example may go to the core of state identity outweighing efficiency arguments

The strongest normative differences arise when concerned actors view others behavior (eg forms of production) as intrinsically wrong Examples include objections to fishing methods that entrap dolphins and the use of leghold traps Normative differences relating to qualities of goods (eg hormone-treated beef orgenetically modified foods) appear more amenable to solution thro~gh scientific evidence or labeling As recent disputes demonshystrate however even these issues are rarely straightforward

Fundamentally value-based arguments center on whether markets should be allowed to regUlate specific activities When actors find an activity normatively offensive they assert that it should not be permitted Banning goods produced withppson or child labor for ~ple is not a matter of at what price prisoners or children will produce them it reflects a belief that such labor should not be allowed at all 19 Humanrights are defined in similar terms and often bull lead to efforts to narrow the scope of the market

Regulatory standards - domestic and international- delimit the appropriate boundaries of market transactions Sometimes debate over standards prompts an expansion of the market exposing contrary arguments as fallacious (eg in terms of scientific evidence) or middotself+serving (eg when special interests assert values) International environmental regulators for example increasingly accept tradableernission rights even with tighter pollution standards Elseshywhere regulatorystanda)Xis limit the reach of the market International labor standards for example have consistently restricted labor markets from the abolition of slavery to contemporary child labor policies

3 GOVERNANCE ARRANGEMENTS

We tum now to the governanCe arrangements arising in the four standardshysetting situations Our analysis remains positive what arrangements will

international actors seek in response to different standards problems The discussion is summarized in Table 2 on page 362


In network externality situations producers users and other (mainly private) beneficiaries from interconnectivitytypicaI1yproduce standards (Zacher 1996) Twomiddot private governance processes dominate In market processes individual

KW Abbott amp D Snldal International standards and governance 355

firms initiate standards - by embodying them in products or publishing specifications - and others adopt them modify them or put forth competing standards What Philipp Genschel (1997) calls sequential adaptation usually leads to coordination on one or a few competing standards Yet the process often remains dynamic the Windows standard for example faces strong new competition from the open standards unux operating system

In organizational processes concerned firms (and sometimes other interests) hammer out standards in formal organizations For example the International Organization for Standardization (whose acronym is standardized in all lanshyguages as ISO) promulgates thousands of voluntary product standards ISO unites the most representative standard-setting organizations from over 100

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member countries Most are public entities but private organizations are central to ISO operations The US representative is the American National i7

Standards Institute (ANSI) a private federation of (largely private) bodies I Similar organizations like the European Committee for Standardization Ul (CEN) operate regionally M

Market processes favor large influential producers - especially those that control cornerstone technologies like Windows They also favor rapidly inshy

novating firms by eliminating the needmiddot for institutional approval of new technologies Conversely institutional approaches benefit smaller players and laggards in innovation All firms however prefer that organizations deal with technologies that are incidental to competitive advantage- as Austin and Milner (2001) illustrate with respect to HDTV

The line between public and private standard-setting can be hazy As noted plivate producers often dominate public s~andards organizations A conshytroversial eXample is the Codex Alimentarius Commission an intergovernmenshytal body Codex was founded to advance producer and consumer interests in safe widely available food but its activities are managed largely by industry representatives Conversel~ private standards organizations often mimic public structures and procedures to increase institutional legitimacy ISO for examshyple requires replesentative national delegations and combines expert commitshytees with plenary approval processes

National governments reinforce private standard-setting As regulators they incorporate private standards into building codes and similar rules As conshysumers they incorporate private standards into procurement specifications20

As promoters of efficient international markets they support transnational private standards Since 1985 for example the European Union (EU) has utilized CEN standards to further internal market harmonization The EU also helped to create the producer-dominated European Telecommunications Standards InstitUte (ETSI) to promote digital mobile telecom standards21

Firms and governments prefer private standard-setting in network exshyternality situati$ns for several reasons First private actors have superior information regirding production processes Public bodies can normally duplishycate this experti$e only by involving industry representatives Second private actors are more flexible producers continuously monitor technological and

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market trends have incentives to modify standards rapidly in response to change and are less encumbered by political constraints Finall~ private producers can best ensure that standards are actua1ly implemented 2

Telecommunications standard-setting illustrates these points When nashytional monopolies dominated markets and technology was static coordination through the International Telecommunications Union (ITU) was satisfactory During the 1970s however the industry was swept by deregulation and privatization rapid innovation and expanded competition In this environshyment the ITU proved too slow and ill-informed because large innovative firms were not adequately represented Standardsetting migrated to the marketplace and tomiddot new organizations that embodied lean management and the direct participation of private firms (Genschel 1997middot609) Since network interactions clustered within regions many of these bodies including ETSI were regional

Still public and private actors sometimes find private governance inshyappropriateThey seek (limited) public intervention to redress institutional problems like those identified earlier

First market actors may fail to generate standards because of competing interests or bargaining problems Such coordination failure retarded innovation in European color television in the 1960s (Austin and Milner 2001) Subseshyquently private European prooucets (and their governments) became locked into ttljultiple proprietary techpolo$ies limiting network economies Properly designed intervention can brcik such logjams

Second if industri~sf~ture significant asymmetries private standarclshysetting may lead to suboptimal outcomes When standards are set through market actions or competing private organizations large players and first movers have significant advantag~s The greatest danger is the emergence of private monopolies based on propnetary standards

Third privately generated stahlt4rds may harm consumers and other actors outside the immediate network One illustration is the stranded consumer problem in rapidly changing industries cotlsumers are left with unusable libraries of LPs or 8-track tapes Another example is Codex while producers genetaUy have incentives n(jt to market unsjUe food on issues like genetically modified food producer andcon~mer interests are not so neatly aligned Public intervention may forCe producers to take such externalities into account


Private governance is also typical in setting standards for contracting such as standard contract terms When uniform legal rules are at issue public bodies are necessarily central Even here though harmonization - akin to coordinashytion - is more common than regulation and private parties often participate actively Overall private and public procedures interact in a complex mix of cooperation complementarity and competition

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Private transactional standard-setting again involves market and organizashytional processes In market processes firms and other entrepreneurs including private experts promulgate standards that others may use often for afee This frequently results in multiple standards but such multiplicity is rarely troubleshysome insofar as the standards apply only to specific transactions

Greater standardization is desirable when transactions involve a broader range of participants and trade associations are the leading transactional starldard-setting organizations The Grain and Feed Trade Association (GAFfA) for example promulgates contract forms insurance clauses and other standards for voluntary adoption by international grain merchants Broader commercial organizations promulgate transactional standards not tied to particular trades The best example is the International Chamber of Comshymerce (ICC) a federation of national organizations which promulgates standshyard contract provisions (Incoterms) rules for letters of credit and numerous other standards23 Both organizations also produce standard rules for arbitrashytion proceedings and administer private arbitrations 24

Organizations like these seek legitimacy by adopting quasi-legislative proshycedures Accordlng to ICC staff for example in revising Incoterms the organization long relied on an informal process involving a small group of experts This was satisfactory while Incoterms was one of many options As it became a de facto intemationru standard however firms demanded more formalized representative procedures

Because contractiJilg parties face opportunistic incentives private transacshytional standards must be enforced under national law Their effectiveness then depends on national approval for private solutions For example the willshyingness of courts in the US the UK and other commercial centers to enforce arbitration agreeJUents has encouraged an explosion of private arbitration 25

Other transactiqnal standards - such as accounting rules - involve both private coordination and public regulation The US Securities and Exchange Commission (SEC) delegates preparation of accounting standards to the Financial Accounting StandrclsBoard (FASB) a private professional organizashytion (Myers 1999) US securities law requires companies to use the generally accepted accounting principies(GAAP) FASB produces this burdens foreign firms issuing securities in the US The International Accounting Standards Committee (IASe) made up of national accounting organizations is developshying common standards to remove such disincentives26 IASC is cooperating with the International OrganiZation of Securities Commissions (IOSCO) which is simultal1eously attempting to coordinate national regulations27

Market and organizational mechanisms are also used to harmonize national law There exists a thriving global market for legal standards in which national bodies of commercial lawcompete for adoption in international business contracts Nations engaged in legal reform also choose among for~gn models as the UK and Japan adopted the US big bang model of finamcial deregushylation


Organizations are active in this field The World Trade Organization (WTO) hannonizes national laws on intellectual-property as well as trade the Organization for Economic Cooperation and Development (OECD) attempshyted to harmonize investment laws through the now-abandoned Multilateral Agreement on Investment and the EU has hannonized member state law in many areas These organizations also compete the WTO captured market share from the World Intellectual Property Organization by adopting manshydatory intellectual property rules On private law the United Nations (UN) created the UN Conference on International Trade Law (UNCITRAL) to harmonize nationalicommerciallaw One important result is the UNCITRAL arbitration rules popular where political neutrality is important that compete

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t Interstate negotiation is typically essential to harmonizing national law and m reinforcing private arrangements Beyond this private actors seek public ~ intervention to ensure uniformity whenever it is most valuable The failure of rl IASC to hanllonize accounting standards for example would be costly whilePI

multiple arbittation rules ate harmless indeed advantageous m rl

Industry asymmetries also pose problems for private standard-setting For example although most ICC standards are impartial (since participating merchants are sometimes sellers sometimes buyers) one is highlyasymmetshyrical The Unifonn Customs and Practice for Documentary Credits (UCP) is a de facto standard for international letters of credit Banks issuemiddot credits commercial 6nns draw on them ~t bankers dominate the drafting of the UCt Demand for public intervention has been sporadic because credits function efficiently ~t some firms question the legitimacy of the UCP

Fmally affected actors seek public intervention when private standardshysetting creates negative externalities Accounting standards are an obvious example investors and lenders are unwilling to leave them wholly to accountshyants or commercial firms Within the US the SEC oversees the production of GAAP for this reason Internationally although SEC insistence ori the use of GAAP emphasizes local regulation over interconnectivity wholly private standard-setting might have the opposite effect IOSCO-IASC cooperation attempts to balance these concerns

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Neither private coordination nor national regulation can effectively address externalities like transboundary pollution international public solutions are required Monitoring and enforcement are also necessary although legalization reinforces state commitments (Abbott and Snidal 2000) Without an intershynational legislature public standards must generally be created by agreement ~ including transmitting and receiving states - in the interest of superior mutual outcomes PO and collective action models suggest such agreements will be difficult to achieve

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Absent restrictive standards norms of sovereignty allow states to pollute across borders and utilize international commons freely In a Coasean world side payments and inter-state bargains should address externalities efficiently In general however states appear much less enarrtored of Coasean solutions than are economic theorists Even -with prototypical cross-border externalities and low transaction costs - acid rain in Europe and North America for example - states seem un-willing ogenly to offer side payments The reasons probably include sovereignty costs 8 (limiting independence of action)~ audishyence COsts (compromising domestic political support) moral hazard public goods issues and the sheer size of the required payments

Centralized approaches raise even more difficult issues The Pigovian solushytion - taxing behavior at a level sufficient todeter inefficient pollution - is rarely attempted internationally whatever its intrinsic merits because the available institutions have insufficient information and are too weak It is also difficult for pure regulatory solutions (eg maximum emissions) to optimize the amount of harm

Thus privatization is the dominant approach for commons that are easily partitioned State practice and treaties assign property rights and management responsibilities for the continental shelf and near-shore resources to littoral states attempting to create incentives for rational conservation whileeconoshymi$g on international institutionalization The Kyoto Protocol goes furthet enviSioning ttadable emission rights and other market-oriented approaches

Where privatization is difficult as in the atmosphere actors sometimes seek intemational standards to reverse default property rights allocations These include the polluter pays principle andthe norm sic utere use ones property so that others are not harmed thereby Outside the EU these principles are nontlatively soft weakly institutionaiized and infrequently applied In any event a right to be freC of pollution poses the same governance problems as a right to pollilte distributional effects are substantial side payments imshypractical and centralized regulation costly

Thus in spit~ of the collective action difficulties regulatory treaties are the predominant response to trans boundary externalities Agreements like the Convention on long-Range Transboundary Air Pollution (lRTAP) and the ViennalMontteal ozone regime reflect a form of cost-benefit analysis they permit somemiddot types or levels~f pollution while forbidding others provide differ~tial rules for countries With different capabilities and so on The scope of regUlation generally matches the scope of the problem regional problems arehaqdled regionally (lRTAP) global problems multilaterally (ozone) Probshylems tlat are difficult to localize (eg protecting migratory species) are handled by ad hoc groupings

Firms desire for uniform production conditions creates pressure for intershynational regulation Before the Montreal Protoco~ for example US CFC produders faced consumer pressure and likely national regulation Rather than cede markets to foreign producers (and to avoid inconsistent regulation) US firms pressed successfully for multilateral action Yet strong institutions in a

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region like the EU can encourage solutions that utilize those institutions whatever the scale of the problem

Monitoring and enforcement are central to transboundary externality regimes Some include innovative solutions borrowed from the world of product standards For example Ronald Mitchell describes how the regime regulating intentional oil pollution from ships facilitated enforcement by requiring shipowners to install devices that could be easily monitored (Mitchellmiddot 1994)

Governments still rely heavily on private advisors because of their superior information Since most physical extemalitiesare privately produced producshytion information is essential to successfu1cost-effective institutions In addishytion governments typically seek rules that favor domestic firms Firms and non-governmental organizations (NGOs) are also effective monitors and can activate fire alarm enforcement provisions

Cell IV Policy externalities

Since policy externalities are created by national law such as environmental regulations privatization is not generally an option Coasean side payments might provide efficient solutions but for reasons stated above - and because of the value-laden character of many national policies - they are often impractical Pigovian taxation is institutionally infeasible Mergers among nations could in theory eliminate externalities but are almost always politically unacceptable Thus as with traditional externalities governance arrangements aimed at policy externalities are almost necessarily regulatory in character and international (or regional) in scope

International standards differ depending on whether they address relatively lax national policies - as with regulatory competition - or relatively strict ones - as with protectionist product standards Standards addressing lax regulation tend to be absolute although they usually prescribe minimum acceptable behaviors Those addressing strict regulation are more flexible allowing states to exceed stated standards under specified conditions These differences result from the normative values involved andor the power positions of key actors In both cases however most international standards distinguish between countries in different circumstances - eg~different stages of development shyand between sincere and manipulative policies

Numerous international standards address lax national policies The Intershynational labor Organization (IW) for example sets minimum labor stanshydards Business and labor interests concerned with competitive effects first sponsored this regime and still participate directly in its governance In recent years however value-oriented arguments and NGOs have become more prominent TheNAFfA agreements on labor and environmental policy are recent regional examples Since all three participants adhere to relevant lID agreements or observe equivalent standardS and have similar environmental laws the major issue was enforcement Both agreements establish enforcement

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standards and single out manipulative policies such as weakening enforceshyment to attract investment

In contrast high standards countries - generally developed states - have been reluctant to accept even flexible ceilings on health and safety rules Under the General Agreement on Tariffs and Trade (GATT) for example national standards were generally insulated from challenge if they did not discriminate b~en domestic and imported products GATT never effectively addressed facially non-discriminatory rules with adverse de facto effects29 In addition even discriminatory standards could be justified as necessary to the protection of human animal or pllmt health

WTO Agreements on Technical Barriers to Trade (TBT Code) and Sanitary and Phytosanitary Measures (SPS Code) impose more stringent constraints The SPS Code imposes several characteristic disciplines National SPS measshyures must (1) be no more trade-restrictive than necessary (2) reflect scientific principles and evidence (3) be based on a risk assessment (4) not draw arbitrary or unjustifiable distinctions and (5) be based on international standards if they exist (eg through Codex) - although governments may exceed such standards subject to the other disciplines30

Concern that these rules - as applied in the Beef Hormones case - might erode domestic health standards helped to precipitate violent demonstrations at the 1999 WTO Ministerial Conference in Seattle Another contributing factltgtr was the proposed incorporation of minimum labor standards Nothing could better highlight the divisiveness of policy externality standards

Table 2 brings together the analysis of the last two sections It summarizes a mapping from each externality problem to the associated governance problem to the typical governance arrangements and provides illustrative examples

4 IMPLICATIONS FOR GOVERNANCE

What governance arrangements should actors choose to address standards problems Normative analysis is especially important for international politics where fundamental governance decisions are arising at an accelerating pace in public forums like the EU and the WTO and in private forums like the ICC and GAFTA Our analysis recognizes that many standards debates now involve important non-economic values

We advance four major conclusions First all standards issues are governshyanCe issues No single form of governance is uniformly best so selecting governance mechanisms requires comparative institutional analysis Second successful governance in standards situations typically involves blends of private and public ordering partaking of the virtues of both while minimizing their defects Third although no governance form is unifomllY optimal there are circumstances under which particular blends are more appropriate Finally the level of governance - national regional global - must be selected along

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shyTable 2 Schematic summary of externality problems and governance c

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m W 0 Technological Transactional Physical Policy

interconnectivity Interconnectivity extemalities externalities a 0

Type of Network (Coordination) Traditional (Prisoners Dilemma) (l) Dl

externality l

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Technological Regulatory Technological Regulatory omiddot 0 Q

Examples telecommunications standard contract terms international pollution regulatory competition Q

production standards accounting standards fisheries standards used as protection

Governance multiple standards third party effects collective action distinguishing sincere from problems third party effects asymmetries burden-sharing insincere regulations

monopoly enforcement enforcement

Governance private actors private public international regulation international standards for arrangement domestic regulation

Examples market ISO ICC UNCITRAL Montreal Protocol wro IASCIOseO

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with its form relevant considerations include the scope of the problem and the competencies of actors and institutions

(i) Standards issues as governance issues

All standards issues are governance issues they require comparative instItushytional analysis This contradicts the widespread tendency to treat standards questions especially network externality issues as technical problems best delegated to experts or as economic problems best left to markets Those too are governance mechanisms with characteristic benefits and disadvantages neither should bemiddot chosen by default Physical and policy externalities virtually demand public governance Even technological and transactional interconnecshytivity issues may have broader implications that require (some) public intershyvention and support or at least public attention to the character of private governance

No single governance form is uniformly best each has advantages and disadvantages for a given problem Public governance can incorporate the full range of affected interests it mobilizes state power for dispute resolution and enforcement and to counter private monopoly But public governance can be highly inefficient especially deleterious where technological change requires rapid response Public bodies may also lack expertise Most seriously public governance is subject to capture by parochial or rent-seeking interests impedshying the emergence of superior standards or promoting suboptimal standards

Yet private governance is no panacea Private actors possess technical expertshyise and private settings encourage alternative standards to emerge and comshypete Private actors are typically more flexible than government in adapting rapidly to technical and economic change But private governance may deadshylock or be dominated by brute market power overriding the interests of smaller market players while ignoring those of outsiders Above all market governance may reflect only economic interests rejecting environmental pro tection human rights and other important values

(ii) The advantages of governance blends

Since neither extreme is optimal public and private approaches are often blended to combine their advantages while minimizing their disadvantages For example private mechanisms often mimic public processes Formal proshycedures(as in the ICC) may promote efficiency as when coordination is better achieved through deliberation than through market competition Private standard-setting can also benefit from proactive public support - as in publicshyprivate organizations like the ISO - or depend on public authority for effectiveness as withmiddot arbitration But sometimes government should get out of the way - as by relaxing antitrust rules to allow joint standard-setting

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Public oversight becQmes cQmpelling where private procedures dO nQt prQvide representatiQn fQr smaller participants Qr affected third parties Private institutiQns after all are alsO subject to capture and abuse OnesQlutiQn is to require CQnsensus within an Qpen process inhibiting the Strategic use Qf standards fQr mQnQPoly purposes Such requirements may even benefit large players by increasing the legitimacy Qf standards and encQuraging broad participatiQn

Blended SQlutiQns are Qften best In many areas such as the harmonizatiQn Qf cQmmercial CQntracts private and public institutiQns have evQlved effective divisiQns of hlbQr Elsewhere such as the ISO these complementary apshyproaches are jQined in Qne QrganizatiQn In blended fQrms Qf gQvernance private andpublicinstitutiQns bQthsupPQrt and check each Qther - as when public scrutiny legitimates private standards Qr public standards face market tests

(iii) Choosing am~mg governance blends

Just as neither pure governance fQrm can handle all problems effectively nO single governance blend is always best Still certain principles Qf Qptimal gQvernance appear from our analysis

With network externalities private gQvernance is likely to be mQst effective Private actQrs are best positiQned to develQP and adapt intercQnnectivity standards provided standards are Qpen network incentives will advance the CQmmQn good DeviatiQns from pure network externalities hQwever may require public interventiQn For example powerful actQrs may contrQl standard-setting with undesirable distributiQnal effects The UN created UNCITRAL in part to SUPPQrt develQping countries bargaining with multishynatiQnal firms under private standards Public oversight may alsO be needed to enhance representativeness when standards have CQnsequences Qutside the immediate network as with accQunting standards

With physical externalities public standard-setting is required hut Qften it shQuld incotpQrate private actQrs who cQntrQI relevant expertise The Qptimal cQmbinatiQn is frequendy fQr public institutiQns to set broad regulatQry goals allowing private institutions to supply specific requirements and procedures subject to final public review Alan Sykes (1995 132) suggests this approach fQr consumer safety standards In effect the ISOfills the private rQle in such a divisiQn Qf labQr with respect to its promulgatiQn Qf detailed specificatiQns Qf SQund envirQnmental practices (ISO 14000) that it hopes gQvernments will

accept With policy externalities the key actQrs are public institutiQns - typically

natiQnal gQvernments - SO gQvernance necessarily entails public participatiQn But private actQrs including firms and NGOs may help to determine and implement appropriate PQlicies CQnsider environmental agreements NGOs advance nQn-business values while envirQnmental standards are fQrmulated then serve as watchdQgs Qf gQvernmental and private perfQrmance AlthQugh

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finns cannot be counted on to consider broader interests and values they are essential to efficient and flexible tradable permit regimes This mixed arrangeshyment mobilizes the competencies of public and private actors while isolating each from issues it cannot properly address

(iv) Choosing levels of governance

Should governance be located at the national regional or global level The EU principle of subsidiarity answers that standards should be handled at the lowest level of government able to address them effectively largely because of concerns for representativeness31 let subsidiarity recognizes that higher level action is sometimes appropriate depending on the scope or effect of the problem ormiddot proposed action We argue further that subsidiarity should be interpreted to focus on governance rather than government and to enshycompass the involvement of multiple levels

Private standard-setting may actually implement ideals of representativeness private actors are normally most concerned with the operation of standards Private finns have superior information and face market incentives to adopt efficient standards and adapt them to change International competition may assuage anti~rust concerns Nevertheless without countervailing pUblic authorshyity private standard-setting may allow finns to use standards for monopolistic and other socially undesirable purposes Public scrutiny at least seems essential

The appropriate level of public governance depends on several considerashytions One important factor is the geographic range of the externality But issues of representation are equally significant National standards for example are often defended in terms of the right of citizens to ignore the views of foreigners - yet that attitude underlies many physical and policy externalities When harm is reciprocal states may balance their desire for autonomy with their desire to limit the impact of the others autonomy Even here though international institutions can facilitate cooperation by providing focal points monitoring compliance and the like The case for international governance strengthens when harm is asymmetric weakening the incentives to consider foreign views and interests

International governance can discipline national governance without reshyplacing it ~hrough rules and procedures that hamper capture by parochial interests International forums provide an extra opportunity to scrutinize national policies in a setting insulated from national politicsWTO dispute panels attempt this in applying the SPS Code to national regulations eg by demanding scientific evidence to support restrictive safety standards middot(The WTO is of course under attack for failing to incorporate non-economic values and actors)

International governance can also improve overall representativeness because of the differential effectiveness of groups at different levels Multinational finns may be more effective in national politics because they can threaten exit

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whereas issue--oriented NGOs may find international institutions more reshyceptive While the impact of these considerations differs across issues and groups representation and levels of governance are deeply intertwined

International solutions may be preferable even when national governance is feasible International pooling of information and resources may produce superior responses to standards problems This is especially true for states that lack capacity to develop adequate standaros unilaterally a point behind the creation of Codex The cost of standard-setting is increasingly significant even for developed countries as technological advances swamp national bureaushycracies Here the informational advantages of international governance are augmented by the economies that common standards offer transnational actors

Jealous of their autonomy political leaders resist delegation to international forums However moving decisions to a higher level may help them to achieve cenam goals over resistance from domestic opponents International Monetary Fund (IMF) financial discipline is an example the institution helps (or forces) borrower governments to adopt solutions they cannot implement unilaterally Right or wrong paternalism here operates in a new direction when states cannot find domestic solutions to their problems they tum to international forums where a different balance of representation leads to superior policies

International governance can piggyback on private standard-setting but this requires great care With Codex -tor example private control worked well while the organization was setting common production standards But when trade negotiators sought to utilize Codex standards to address policy exshyternalities caused by strict national health standards critics likened the proshyposal to inviting the fox to guard the chicken coop Negotiators were forced to allow importing countries to apply stricter standards

This example makes clear that international governance is subject to capshyture Howevet it also suggests that the residual power of states provides a strqng bulwark against abuse If international standards go too far or if organizations stray beyond their mandates states can withdraw support Only the largest states could strike out wholly on their own - although any state can rej~ct proposed standards - but groups of states could clearly do so The grettest danger with international governance is that it will do too little not too much

Again blends of international and national governance are often best National institutions have better local knowledge and can better aggregate preferences International institutions combine expertise and interests transshynationally and can force states to address policy externalities Each can check the other ensuring that neither private nor national interests inappropriately frustrate common putposes

International governance - even as a supplement to national action - is not an easy choice for political actors But standards problems increasingly transhyscend national boundaries Some role for international governance is both


inevitable and desirable That role however is best filled by careful combinashytions of actors and institutions - public and private national regional and international - appropriate to the problem at hand There is no standard solution

Addresses for correspondence Duncan Snidal Department of Political Science University of Chicago 5828 S University Avenue Chicago Illinois 60637 USA Tel 773 702 0854 Fax 773 702 0926 email snidaluchicagoedulKenneth W Abbott Northwestern University School of Law 357 EChicago Ave Chicago lllinois 60611 USA email k-abbottnorthwesternedu

NOTES

We thank Jeffry Frieden Philipp Genschel David lazer Walter Mattli Hendrik Spruyt Alan Sykes and partiCIpants in the Conference on the Political Economy of Standards Setting Florence June 1998 and the American Political Science Association Annual Meeting Atlanta September 1999

1 Slaughter et ai 1998 371 (emphasis added) 2 The market is a form of governance presupposing a richer institutional structure

than proponents often acknowledge 3 See Spruyt 1994 for examples 4 International policy externalities can however arise without domestic

externalities 5 We focus on negative externalities although positive externalities can also create

a demand for international standards eg regarding burden-sharing 6 This result applies to both traditional and network externalities (Katz and Shapiro

1994) 7 Simifarly network externalities can be managed efficiently if the network has a

single owner (Liebowitz and Margolis 1994) althOUgh this poses risks of monopoly

8 This applies equally to those who advocate market governance While such actors presumably expect to prevail in market competition we would expect them to try to shape competition law and similar rules to their benefit

9 Efficiency simply means that the market offers greater aggregate incentives than other arrangements But these may be outweighed by rent-seeking and at most bound the level of inefficieng (Becker 1985)

10 The rule against selling oneself into slavery illustrates the last two points On the first the rule functions to prevent a morally objectionable practice on the second it binds the hands of workers in a surplus labor economy SO they are not forced to accept slavery to obtain employment

11 This example hinges on particular facts about the workplace In tight labor markets workers may be better positioned to fend for themselves (and the safety standard will not constrain) whereas in sutplus labor markets workers face a collective action problem that prevents them from limiting their competition for jobs Of course If workers are protected on safety they may compete the gains away on other dimensions such as wages unless a minimum wage standard is in place Finally depending on employer alternatives and cost structures such re~ation will eliminate some jobs creating distributional issues among workers

12 On network externalities see Tirole 1988 on legal implications see Lemley and McGowan 1998

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13 In some cases - eg national languages - conversion costs are so great that actors resist standardization

14 This point implicitly uses the status fJUO ante as a baseline since externalities are inherently two-sided no harm would be done if the pollutee were not in a position to be harmed (Coase 1960) We aim to contrast network externalities Which depend centrally on the number of actors joining the network

15 Traditional externalities can also involve joint contributlOns to positive goods such as research

16 E~ Levinson 1996 Revesz 1992 17 Tliis political anal~is differs from standard economic analysis where absent

international technological externalitiesmiddot or market power states will choose inshydividually and collectlvebr efficient policies States that are more averse to a (domestic) externality will tax it more heavily and production will shift to states that impose lower taxes The externality is simply another input tOlroduction and the market will adjUst to a Pareto-optimal outcome Indee trade in externalities makes states better off than common standards

18 Deardorff (1997) reaches a different conclusion because he focuses on economic considerations in an bVersimplified political model He summarizes domestic politics in a welfare function pernutting different weights for producers and consumers But a model in wfiich states can unilaterally optimtze a weighted welfare function does not capture the political imEact of rent-seeking with its associated deadweight losses or the problems of colleCtive action

19 Perverse effects are possible Banning manufactured goods produced by children fottces manyof them into agriculture where wages are even lower worK is harder and hours are longer From a utilitarian perspective but not necessarily a deontolOgical one this might argue for dropping the ban

20 When governments are dbmtnant purchasers they often set standards unilaterally

21 When governments act as producers (eg through state enterprises) the publicshyprivate boundary is even hazier

22 Once implemented however coordination standards typically require little enforcement

23 The ICCand many member organizations derive significant revenue from sales of standards and related materials

24 Matth 2001 25 This deVelopment is not fully in the public interest because secret arbitration

proceedings rarely contribute generally applicable precedents 26 IASC 1998 27 Trachtrnan 1997 28 Abbott and Snidal 2000 29 The EU polices de facto effects under the treaty principle prohibiting national

rules widi effects tquivalent to quotas 30 TherBT Code also calls on member countries to consider rec~zing other

countriesstandards On mutual recognition agreements see Nicolioos ana Egan 1999

31 Trachtman 1998

REFERENCES

Abbott Kenneth W and Snidal Duncan (2000) Hard and soft law in international governance International Organizatian 54(3) 421-56

Austin Marc and Milner Helen (2001) Strategies of European standardization Journal of European Public Policy 8(3) 411-31

KWAbbott amp D Snidal International standards and governance 369

Becker Gary (1985) Public policies pressure groups and dead weight costs Journal of Public Economies 28 329-47

Coase Ronald (1937) The nature of the fum Economica 4 386-405 Coase Ronald (1960) The problem of social cost Journal ofLaw and ampanomies 3

1-44 Deardorff Alan (1997) International conflict and coordination in environmental

policies in Jagdeep Bhandari and Alan Sykes (eds) ampanomic Dimensions in Int~tional Law Cambridge Cambridge University Press pp 248-74

Genschel Philipp (1997) How fragmentation can improve coordination setting standards in international telecommunications Organization Studies 18(4) 603-22

International Accounting Standards Committee Strategy Working Party (1998) Shap- ing lASe for the Future A Discussion Paper London UK lASe

Katz Michael and Shapiro Carl (1994) Systems competition and network effects Journal of ampanomic Perspecti7Xs 8(2) 93-116

Knight Frink (1924) Some fallacies in the interpretation of social cost Qtarterly Journal of ampanomies 38 582-606

Lemley Mark and McGovran David (1998) Levinson Arik (1996) Environmental regulations and industrys location intershy

national and domestic evidence in Jagdish Bhagwati and Robert Hudec (eds) Fair Trade and Harmonization Prerequisites for Free Trade Cambridge MA MIT Press pp 42957

Liebowitz SJ and Margolis Stephen E (1994) Network externality an uncommon ttagckiy Journal of Economic Perspecti7XS 8(2) 133-50

Mattli Walter (2001) Private justice in a global economy International Organization (forthcoming)

Mishan R] (1971) The Postwar Literature on Externalities An Interpretive Essay J~of Economies literature 9 1-28

Miiql1eU Ropald (1994) Intentional Oil Pollution at Sea Environmental Policy and Trryentty Compliance Cambridge MA MIT Press

Mye~Charles (1999) The development of international accounting standards the pUblicprivate nexus Manuscript presented at the American Political Science Association Annual Meeting Atlanta

Ncolaidis Kalypso and Egan Michelle (1999) Regional policy externality and market govern~ce European international and transatlantic regulatory cooperation Manuscript Harvard University

Pigou AC (1912) Wealth and Welfare London Macmillan Revesz Richard L (1992) Rehabilitating interstate competition rethinking the raceshy

to-the~bottom rationale for federal environmental regulation New York Uni7Xrsity Law J1eriew 67 1210-54

Slauglher Anne-Marie Tulumello Andrew and Wood Stepan (1998) International lawaqd international relations theory a new generation of interdisciplinary scholarshyshiP The American Journal of International Law 92 367-97

SplUj~ Hendrik (1994) The Sovereign State and its Competitors An AnaI)5is ofS)5temS Chtimge Princeton Princeton University Press

Spru~ Hendrik (2001) The suprlyand demand of governance in standard-setting inSights from the past Journa of European Public Policy 8(3) 371-91

Sykes Alan (1995) Product Standards for Internationally Integrated Goods Markets Washington DC The BfltX)kipgs Institution

Tirolebull Jean (1988) Industrial Ottanizatian Cambridge MA MIT Press Traclttman Joel (1997) AccoUt)iing standards and trade disciplines irreconcilable

differences Journal of World iTnide law 31 63-98


Trachtman Joel (1998) Trade and problems cost-benefit analysis and subshysidiarity European Journal of International Law 9 32-85

Williamson Oliver (1974) Markets and Hierarchy New York The Free Press Zacher Mark with Sutton Brent (1996) Gtwning Global Ne1JWarks International

Regjmes for Transportation and Cmnmunication Cambridge Cambridge University Press

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arenas as disparate as mobile phone interconnectivity common accounting practices allowable pollution levels and acceptable labor practices

We also adopt an expansive notion of international gavernance as the formal and informal bundles of rules roles and relationships that define and regulate the social practices ofstate and nonstate actors in international affairs 1 Standards and the institutions associated with them are subcategories of governance

As our definition makes clear governance need not mean government Many international standards emerge and operate through private market interactions2 Others are created within fonnal organizations but are still orchestrated by private actors Still others are privately created but ratified and enforced by governments And many are set and maintained by governments3

Above all we observe complex blends of private and public governance Why

The diversity of governance arrangements we argue stems from the dishyversity of problems that states firms and other actors are attempting to resolve We distinguish these issues analytically according to the characteristic exshyternality involved In externality situations standards enhance efficiency But different actors prefer different standards - and different standard-setting processes Moreover actors have different capacities for creating and managing standards in particular issue areas Together these factors provide actors with strong incentives to contest forms of governance as well as to cooperate

Our comparative institutional approach asks what governance arrangements are likely to emerge in particular circumstances It employs a positive analysis of strategic situations preferences and capabilities One nonnative concept shyefficiency - figures in our analysis since the possibility of welfare gains in externality situations provides the driving incentive for standardization

We begin (Section 1) by developing a simple but broad typology of four externality problems that create demand for international standards set out in Table 1 Next (Section 2) we examine these categories in detail emphasizing the difficulties andmiddot opportunities they present In Section 3 we analyze the governance arrangements actors adopt in the different situations The interplay of contestation and cooperation explains the blends of public and private governance that appear in most issue areas as well as different mixes across issues These sections are summarized in Table 2

Our analysis emphasizes international standard-setting although much of it applies equally to other contexts This is a useful focus international intershyactions include a broad range of standards problems and important governshyance issues are currently in play Furthennore because this arena holds the possibility of international as well as national public regulation it makes the tradeoffs between levels of governance and between public and private governshyance even more apparent

Ultimately international actors need to know which fonns of governance are most desirable in different circumstances In Section 4 then we move to nonnative analysis considering the forms and levels of governance best suited to particular standards problems






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o C) N

j ~

en rl

M rl

en








I ~



rl

M M

M








M

M M









o o N

en rl

I OJ











w (j) IV


o l Dl




externality l

0 C 2








o M o N









o o










o rl o N

rl rl rl









o rl o N

rl












NOTES













o rl o N

















31 Trachtman 1998

REFERENCES
































o C) N

j ~

en rl

M rl

en

rl

M M

M








M

M M









o o N

en rl

I OJ











w (j) IV


o l Dl




externality l

0 C 2








o M o N









o o










o rl o N

rl rl rl









o rl o N

rl












NOTES













o rl o N

















31 Trachtman 1998

REFERENCES
































o C) N

j ~

en rl

M rl

en

M

M M









o o N

en rl

I OJ











w (j) IV


o l Dl




externality l

0 C 2








o M o N









o o










o rl o N

rl rl rl









o rl o N

rl












NOTES













o rl o N

















31 Trachtman 1998

REFERENCES
































o C) N

j ~

en rl

M rl

en

o o N

en rl

I OJ











w (j) IV


o l Dl




externality l

0 C 2








o M o N









o o










o rl o N

rl rl rl









o rl o N

rl












NOTES













o rl o N

















31 Trachtman 1998

REFERENCES
































o C) N

j ~

en rl

M rl

en


w (j) IV


o l Dl




externality l

0 C 2








o M o N









o o










o rl o N

rl rl rl









o rl o N

rl












NOTES













o rl o N

















31 Trachtman 1998

REFERENCES
































o C) N

j ~

en rl

M rl

en

o M o N









o o










o rl o N

rl rl rl









o rl o N

rl












NOTES













o rl o N

















31 Trachtman 1998

REFERENCES
































o C) N

j ~

en rl

M rl

en

o o










o rl o N

rl rl rl









o rl o N

rl












NOTES













o rl o N

















31 Trachtman 1998

REFERENCES
































o C) N

j ~

en rl

M rl

en

o rl o N

rl rl rl









o rl o N

rl












NOTES













o rl o N

















31 Trachtman 1998

REFERENCES
































o C) N

j ~

en rl

M rl

en

o rl o N

rl












NOTES













o rl o N

















31 Trachtman 1998

REFERENCES
































o C) N

j ~

en rl

M rl

en




NOTES













o rl o N

















31 Trachtman 1998

REFERENCES
































o C) N

j ~

en rl

M rl

en

o rl o N

















31 Trachtman 1998

REFERENCES
































o C) N

j ~

en rl

M rl

en






























o C) N

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M rl

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international \"standards\" and international governance

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