Standards as Standards as Challenges to the World Challenges to the World

Trading SystemTrading SystemMonika TothovaMonika Tothova

James OehmkeJames Oehmke

Michigan State UniversityMichigan State University

AAEA, Denver 2004AAEA, Denver 2004

Funding support from the Elton R. Smith Endowment is gratefully Funding support from the Elton R. Smith Endowment is gratefully acknowledgedacknowledged

What are Standards?What are Standards?

StandardsStandards• ISOISO• CODEXCODEX• Private standards (e.g. grocery chains)Private standards (e.g. grocery chains)

Technical RegulationsTechnical Regulations• Tetracycline levels in beefTetracycline levels in beef• GMO content of foodstuffsGMO content of foodstuffs

Vertical and Horizontal Vertical and Horizontal DifferentiationDifferentiation

Horizontal Differentiation—difficult to Horizontal Differentiation—difficult to come up with a common standard. come up with a common standard. • Products have different end uses.Products have different end uses.• Products have same end use but different Products have same end use but different

compatibilities (Networks): VHS and Betamax; compatibilities (Networks): VHS and Betamax; Different electrical currents, sockets.Different electrical currents, sockets.

Vertical differentiation—differing standards Vertical differentiation—differing standards cause supply chain inefficienciescause supply chain inefficiencies• Strict food safety standards at grocery level, Strict food safety standards at grocery level,

not at producer level.not at producer level.

Aren’t Standards Supposed to Aren’t Standards Supposed to Encourage Free Trade?Encourage Free Trade?

Trade with mutually agreeable Trade with mutually agreeable standardsstandards• NAFTANAFTA• EUEU• WTO?WTO?

Trade with unilateral standardsTrade with unilateral standards• EU and GMOsEU and GMOs• Dolphin free tunaDolphin free tuna• US labor, environmental standardsUS labor, environmental standards

Process Standards as Trade Process Standards as Trade BarriersBarriers

Different cheese processing methodsDifferent cheese processing methods• All traded cheeses use pasteurized milk All traded cheeses use pasteurized milk

(but some cheese better when made (but some cheese better when made with un-pasteurized milk)with un-pasteurized milk)

• Other parts of cheese production can Other parts of cheese production can increase/decrease likelihood of food increase/decrease likelihood of food borne illness borne illness

Food Safety: Small Country Food Safety: Small Country PerspectivePerspective

To obtain gains from trade, small country To obtain gains from trade, small country usually adopts importing country’s food usually adopts importing country’s food safety standardssafety standards

Can lead to loss of diversity/variety in Can lead to loss of diversity/variety in productproduct

No economies of scale if local varieties No economies of scale if local varieties produced only for domestic marketproduced only for domestic market

Costs of meeting international standards Costs of meeting international standards may cause restructuring of domestic may cause restructuring of domestic supply chainsupply chain

Food Safety: Large Country Food Safety: Large Country PerspectivePerspective

Lower cost usually one dominant concernLower cost usually one dominant concern• Affordable fresh fruits, vegetables in winterAffordable fresh fruits, vegetables in winter

Food safety also a dominant concernFood safety also a dominant concern• Food is “safe” if it meets large country’s idea Food is “safe” if it meets large country’s idea

of safety.of safety.• May rely on history of food illness in countryMay rely on history of food illness in country

Implies standardization of product, few Implies standardization of product, few imports of country-specific varieties.imports of country-specific varieties.

International food safety guidelines largely International food safety guidelines largely reflect large-country positionsreflect large-country positions

Can the Trading System Deal With Can the Trading System Deal With Different Perceptions of Food Different Perceptions of Food

Safety?Safety? For food borne illnesses such as For food borne illnesses such as

salmonella, E. coli, food commonly defined salmonella, E. coli, food commonly defined as safe if no one gets sickas safe if no one gets sick

Methods of achieving salmonella, E. coli Methods of achieving salmonella, E. coli safety may differ: e.g. irradiation safety may differ: e.g. irradiation acceptable in some cases but not in othersacceptable in some cases but not in others

For some issues (tetracycline in beef) can For some issues (tetracycline in beef) can produce at the strictest standard or target produce at the strictest standard or target a particular importera particular importer

Food Safety: Large Country Food Safety: Large Country PerspectivePerspective

Exception is GMOsException is GMOs• EU relies on precautionary principleEU relies on precautionary principle• US relies on substantial equivalenceUS relies on substantial equivalence

GMO standards as barriers to tradeGMO standards as barriers to trade• Are genetically modified foods the same Are genetically modified foods the same

foods produced by a different process, foods produced by a different process, or are they different foods?or are they different foods?

• Emergence of two ‘clubs’ of countries Emergence of two ‘clubs’ of countries with different levels of standards: EU+ with different levels of standards: EU+ very tight, US+ very laxvery tight, US+ very lax

Consumers, Labels and StandardsConsumers, Labels and Standards

Labels can be a form of standardsLabels can be a form of standards For the most part allowed under WTO rules For the most part allowed under WTO rules

if for consumer information and applied if for consumer information and applied evenly to domestic, foreign producersevenly to domestic, foreign producers

EC has approved guidelines for labeled EC has approved guidelines for labeled coexistence of GM, GM-free foods (and coexistence of GM, GM-free foods (and organic)organic)

Implementation of coexistence guidelines Implementation of coexistence guidelines unlikely to be supported by consumers, unlikely to be supported by consumers, consumer/taxpayers or grocery industryconsumer/taxpayers or grocery industry

ConclusionsConclusions Food safety standards become barriers to Food safety standards become barriers to

trade when countries have differing food trade when countries have differing food safety perceptions, definitions, or safety perceptions, definitions, or standards standards

Global food safety standards may not be Global food safety standards may not be attainable in all casesattainable in all cases

Cannot write a complete contract Cannot write a complete contract regarding food safetyregarding food safety

What is the acceptable level of risk?What is the acceptable level of risk? Consumer preferences may override Consumer preferences may override

technical regulationstechnical regulations