Transcript Standards as Challenges to the World Trading System

Standards as
Challenges to the World
Trading System
Monika Tothova
James Oehmke
Michigan State University
AAEA, Denver 2004
Funding support from the Elton R. Smith Endowment is gratefully
acknowledged
What are Standards?

Standards
• ISO
• CODEX
• Private standards (e.g. grocery chains)
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Technical Regulations
• Tetracycline levels in beef
• GMO content of foodstuffs
Vertical and Horizontal
Differentiation

Horizontal Differentiation—difficult to
come up with a common standard.
• Products have different end uses.
• Products have same end use but different
compatibilities (Networks): VHS and Betamax;
Different electrical currents, sockets.
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Vertical differentiation—differing standards
cause supply chain inefficiencies
• Strict food safety standards at grocery level,
not at producer level.
Aren’t Standards Supposed to
Encourage Free Trade?

Trade with mutually agreeable
standards
• NAFTA
• EU
• WTO?
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Trade with unilateral standards
• EU and GMOs
• Dolphin free tuna
• US labor, environmental standards
Process Standards as Trade
Barriers

Different cheese processing methods
• All traded cheeses use pasteurized milk
(but some cheese better when made
with un-pasteurized milk)
• Other parts of cheese production can
increase/decrease likelihood of food
borne illness
Food Safety: Small Country
Perspective
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To obtain gains from trade, small country
usually adopts importing country’s food
safety standards
Can lead to loss of diversity/variety in
product
No economies of scale if local varieties
produced only for domestic market
Costs of meeting international standards
may cause restructuring of domestic
supply chain
Food Safety: Large Country
Perspective

Lower cost usually one dominant concern
• Affordable fresh fruits, vegetables in winter

Food safety also a dominant concern
• Food is “safe” if it meets large country’s idea of
safety.
• May rely on history of food illness in country

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Implies standardization of product, few
imports of country-specific varieties.
International food safety guidelines largely
reflect large-country positions
Can the Trading System Deal With
Different Perceptions of Food
Safety?

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For food borne illnesses such as
salmonella, E. coli, food commonly defined
as safe if no one gets sick
Methods of achieving salmonella, E. coli
safety may differ: e.g. irradiation
acceptable in some cases but not in others
For some issues (tetracycline in beef) can
produce at the strictest standard or target
a particular importer
Food Safety: Large Country
Perspective

Exception is GMOs
• EU relies on precautionary principle
• US relies on substantial equivalence

GMO standards as barriers to trade
• Are genetically modified foods the same
foods produced by a different process,
or are they different foods?
• Emergence of two ‘clubs’ of countries
with different levels of standards: EU+
very tight, US+ very lax
Consumers, Labels and Standards
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Labels can be a form of standards
For the most part allowed under WTO
rules if for consumer information and
applied evenly to domestic, foreign
producers
EC has approved guidelines for labeled
coexistence of GM, GM-free foods (and
organic)
Implementation of coexistence guidelines
unlikely to be supported by consumers,
consumer/taxpayers or grocery industry
Conclusions
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Food safety standards become barriers to
trade when countries have differing food
safety perceptions, definitions, or
standards
Global food safety standards may not be
attainable in all cases
Cannot write a complete contract
regarding food safety
What is the acceptable level of risk?
Consumer preferences may override
technical regulations