Protecting Consumers or Trade? - The US, EU and the Regulation of GMOs

It’s popularly held that the E.U. has resisted imports of GMO products from the U.S. because of public and governmental safety concerns. But it may not be so simple, say Professors Olivier Cadot, Akiko Suwa-Eisenmann and Daniel Traça. In this working paper they consider the trade-related issues of E.U. regulations concerning biotech agriculture.

by Akiko Suwa-Eisenmann,Olivier Cadot,Daniel Traça
Last Updated: 23 Jul 2013

From hormone-treated beef to genetically modified seeds, biotech agriculture provokes a strong reaction on both sides of the Atlantic. In recent years, the European Union has responded to GMOs by establishing new product standards, ones that leave American firms (accustomed to less stringent regulations in the States) lamenting lost business opportunities.

But the protests haven’t just come from U.S. businesses. In 1999, Agricultural Secretary Dank Glickman warned that GMOs are “looming larger over US-EU trade relations … We cannot let others hide behind unfounded, unwarranted scientific claims [in order] to block commerce.” Other U.S. officials and scientists have since suggested that the U.S.-E.U. biotech dispute was, and still is, essentially about market access.

It’s often difficult, suggest Olivier Cadot (Professor of Economics, HEC Lausanne), Akiko Suwa-Eisenmann (Researcher, Institut National de Recherches Agronomique, and Associate at the Laboratoire d’Economie Theorique et Appliquée), and Daniel Traça (Assistant Professor of Economics, INSEAD), to determine whether European GMO regulations are based on legitimate safety concerns or are in fact a covert form of trade protection. In this recent working paper, they examine the rationale behind product standards and consider their effect on trade, intended or not.

The authors first outline the background of the conflict, beginning with the origins of agricultural biotechnology in the mid-1990s. In the U.S., they explain, areas planted with GM crops increased sixteenfold between 1996 and 1999. However, this rate of expansion has not held. Instead, there has been a slowdown in the growth of GM-planted areas and, at the same time, a sharp decline in U.S. exports of soybeans and corn to the E.U.—both partly in response to E.U. market and regulatory developments.

Next, they consider the difficulties of defining “regulatory protectionism.” What, they ask, makes a standard “protectionist?” Several definitions have been proposed—that a protectionist standard restricts trade more than necessary; that a protectionist standard impedes or discriminates against imports; that a protectionist standard reallocates resources in traded sectors in a way that reduces world welfare—but the authors find none of these fully satisfactory.

They suggest that in identifying product standards as hidden barriers to trade, it is useful to consider their strategic manipulation by governments. For example, countries may choose to set certain standards in order to promote local firms over foreign ones or to shut foreign firms out of a market. They may also to choose to disregard the spillover effects of standards in situations of partial jurisdiction.

Finally, the authors attempt to pinpoint econometric evidence of a “GMO effect” on U.S.-E.U. bilateral trade in corn and soybeans, two crops potentially affected by the dispute. They consider both import figures for four product categories (corn seeds, other corn, corn gluten feeds, soy products) and the regulatory approaches to GMOs already implemented in the U.S. and the E.U.

They find that evidence of a strong market-access effect attributable to E.U. regulations is less than convincing. The authors then argue that the “agricultural protectionism” aspect of the dispute is mostly irrelevant, and that while it is possible E.U. biotech standards have been designed to protect E.U. industry players, it is difficult to pin this down. They then conclude that what matters is “strategic trade policy,” that is, the impact of regulations (whether intended as trade barriers or not) on future U.S. trade opportunities.

INSEAD 2002

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