An Economic Analysis of Food Safety Issues Following the Sps Agreement: Lessons from the Hormones Dispute
CIES Working Paper No. 5
42 Pages Posted: 3 Aug 2000
Date Written: February 2000
The signing of the Uruguay Round Agreements of the World Trade Organization (WTO) and the ever-increasing products and people movements between countries will put governments under increasing pressure to maintain effective and scientifically justified quarantine and food safety policies to protect their citizens, animals, plants and natural environments from the importation of pests and disease. But those policies can be abused, with governments at times adopting excessive restrictions so as also to offer domestic industries economic protection from import competition.
The WTO Agreement on the Application of Sanitary and hytosanitary Measures (the SPS Agreement) was designed to prevent human, animal and plant health policies from becoming disguised restrictions on international agricultural trade. The Agreement provides clear guidelines as to acceptable bases for SPS restrictions. In general, it is admissible under the terms of the SPS Agreement for a Member to restrict imports to protect human, animal and/or plant life or health, so long as those restrictions are transparent, consistent and based on international standards (where they exist) or a scientific assessment of risks. Through legal and economic analysis of specific cases we can, to some extent, measure the Agreement?s success.
The long-running feud between the US and the EU about the use of hormonal growth-promotants in beef (the Hormones dispute) was the first to be disputed formally at the WTO. It provides a classic example of how cultural differences with respect to food attributes have the potential to hamper trade and to challenge WTO agreements designed to limit the disruptions, especially when scientific evidence is limited or spurious.
The paper begins by outlining the legal arguments used by the parties to the Hormones dispute, and a simple analysis of the outcome. The Panel and the Appellate Body, which heard the dispute, found that the EC violated its obligations under the SPS Agreement. Beneath the surface of broad agreement, however, lie some differences in interpretation of WTO rules that could potentially weaken the ability of the SPS Agreement to achieve the objectives for which it was designed. A simple economic model is used in section 3 to represent the EU beef market and effects of the hormone-treated beef ban and its removal under certain conditions. The model demonstrates that lifting the current prohibition of hormone-treated beef cannot reduce the net economic welfare of the EU. Qualifications, such as how the analysis would change if the market for beef were to segment after the ban was lifted, are discussed in section 4. The implications for the practical implementation of the SPS Agreement, with particular reference to how it might be improved in light of the outcome of the Hormones case and the analysis of its economic effects, are then explored in sections 6 and 7.
The paper concludes by suggesting that, legal issues notwithstanding, using economic analysis can shed light on the efficiency of SPS policies, and promote the balance between achieving gains from trade reform and protecting human, animal and plant health and the environment.
Keywords: Agriculture, WTO, Multilateral Trade Negotiations, Agricultural Policy Reform, New Trade Issues
JEL Classification: F13, F14
Suggested Citation: Suggested Citation