Global standards that are developed by technology companies with products and services in the relevant technology arenas, together with government/regulatory or public participation, can be pro competitive and innovation enhancing. Such global standards hold the promise that interoperable and compatible technologies across continents can be realized.
While these benefits are alluring, they can turn elusive and indeed detrimental to global competition and free trade very quickly unless some pitfalls are recognized and astutely avoided.
Governments are often not sufficiently knowledgeable about the technologies that may be at issue in the development of a standard. Consequently, they tend to rely on private technology companies to provide them with advice and guidance. Typically, these companies are domestic companies working behind the scenes. These companies have a strong interest in positioning themselves favorably by tilting the agenda and the SSO’s rules to their advantage by ensuring that their own technologies are definitely part of any standard that emerges. This problem is most likely in countries where there are one or two dominant domestic technology companies without a vigorous, domestic, competitive marketplace where one company can serve as an effective check on another company.
Such tactics do benefit the domestic companies that are favored and their shareholders. But it does little for the public in these countries because some of the technologies that end up in the standard and the ultimate product implementations themselves are not designed for a global market. Therefore, the public in these countries are deprived of the benefits of vigorous price competition across global markets and the concomitant benefits that accrue—such as cheaper products and services.
How can we avoid these negative outcomes?
Governments need to be vigilant and ensure that the standards process is truly global and international. They need to develop baseline rules and operational guidelines in any SSO that they create which ensure that there is an even playing field for all private sector participants, both domestic and foreign. These rules must include strong technology and intellectual property disclosure rules and default penalties for non-disclosure or non-compliance that are even-handedly enforced.
Governments must openly and publicly clarify that they embrace a policy against permitting the standards-setting process to be subverted into a protectionist mechanism for legally promoting domestic companies and facilitating domestic favoritism that may otherwise run afoul of other international trade obligations.
In the long run, domestic companies that are favored by a tilted standards setting process will not be competitive in a world with 7 billion people. Preparing goods and services only
for a domestic market cannot grow economies nearly as well as manufacturing goods for the global marketplace. This is one of the enduring lessons of the latter half of the 20th century. Consider, for example, the GDPs of South Korea and India in the early 1960s. During that period their GDPs were comparable, but South Korea pursued an approach that involved manufacturing products for the global market and as a result South Korea grew far more rapidly than India, until India finally started opening up in the early 1990s.
Eventually, if the standards-setting process is sufficiently politicized and national governments get involved, we may even see national and international challenges in the World Trade Organization (WTO) employing its Dispute Settlement Mechanism (DSM) perhaps on the grounds that standards development is generating the same economic outcomes and negative consequences as illegal tariffs on foreign products. Such an eventuality would be most unfortunate. It is imperative that standards setting not become a forum for global politics.
Standards setting ought to be left in the hands of companies developing relevant technologies with limited public sector or regulatory involvement to ensure that these companies are competing on an even playing field and minimizing any strategic anti-competitive conduct by both domestic and foreign companies.
