Genetically Modified Food Standards as Trade Barriers: Harmonization, Compromise, and Sub-Global Agreements

Abstract

GMOs have brought new concerns into an already challenged world trading system. This paper considers the jointly enodogenous formation of GMO-related standards and sub-global trading agreements. Standards are understood as tolerance levels for GMOs. Sub-global trading agreements may be either formal agreements between countries sanctioned by the WTO, or they may be implicit agreements, e.g. a developing country accepting the U.S. standards.We develop a theoretical model of standard formation and agreement formation. In autarky, national standards reflect the preferences of domestic consumers. The possibility of gains from trade encourages countries to modify their standards to facilitate trade with other countries having similar standards. Whether or not a country engages in trade depends on the magnitude and nature of the gains from trade--e.g. economies of scale, greater variety for consumers, etc.--and the degree of standard modification required for trade. If the gains from trade are sufficient, countries will compromise or harmonize standards to achieve these gains. In the case of countries of similar size (bargaining power), compromise may be feasible. In the case of countries of different size, harmonization of the smaller country's standard to that of the larger country may be more likely. The case of the European Union's de facto prohibition on trade in GMOs is represented as a case in which the gains from trade are insufficient to catalyze a compromise position. Analogously, the North American refusal to restrict or prohibit GMOs indicates that the gains from trade with Europe are insufficient to compensate for this change in standard. In the absence of a common global standard, countries with similar preferences cluster into smaller clubs to capture at least some gains from trade.

GMO standards, endogenous policy and the market for information

“…Some authors explained GMO standards formation mainly as a function of trade interests. For example, Tothova and Oehmke (2004) developed a Krugmanstyle trade model (Krugman, 1979) that showed that countries select standards taking into account enforcement costs, loss of productivity and loss of trade. Particularly relevant in our context is the two-country partial-equilibrium model developed by technology adoption.…”

International trade and endogenous standards: the case of GMO regulations

“…Particularly relevant for our analysis are the studies of Cadot et al (2001), Parcell and Kalaitzandonakes (2004), Disdier and Fontagné (2010), Tothova and Oehmke (2004), Veyssiere (2007), and Gruère et al (2009a). 3 Cadot et al (2001) find that the 'regulatory protectionism' aspect of the EU GMO regulation has no repercussions on US export of corn seeds, but has a negative effect on other forms of corn.…”

“…They show that the EU moratorium, as well as other European GMO standards, has negative trade effects on the exporting countries. Tothova and Oehmke (2004) develop a Krugman-style trade model to study the endogenous choice of different countries in setting GMO standards, showing the formation of 'clubs' of countries that share similar GMO regulations. These 'clubs' act as sub-global preferential trading agreements.…”

GMO Regulations, International Trade and the Imperialism of Standards

“…Several authors have pointed out that the stringency of the GMO regulations of big agri-food importers, like the European Union (EU) and Japan, in contraposition with the 'soft' regulations of GMO producers, like the US and Argentina, could represent a serious problem for the developing country' strategy concerning GMO production and regulations (see, e.g., Tothova and Oehmke, 2004;Anderson and Jackson, 2004).…”

“…3 Within this literature, particularly relevant for our analysis are studies by Cadot et al (2001), Parcell and Kalaitzandonakes (2004), Disdier and Fontagné (2008), Tothova and Oehmke (2004), Veyssiere (2007),…”