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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference 7 ACCOUNTING FOR CONSUMERS' PREFERENCES IN INTERNATIONAL TRADE RULES1 JEAN-CHRISTOPHE BUREAU Institut National Agronomique Paris—Grignon and Institut National de la Recherche Agronomique (INRA), Grignon, France STEPHAN MARETTE Institut National de la Recherche Agronomique, Grignon, and Thema Université Nanterre, France SANITARY AND TECHNICAL BARRIERS National Regulations As Trade Barriers The Uruguay Round has led to a substantial reduction in tariff protection. As traditional trade barriers tend to come down, nontariff trade barriers are becoming a more important issue in the agriculture and food sector. This includes sanitary regulations and, more generally, a larger set of technical rules embedded in national regulations. A few years ago, little was known on the trade effect of domestic regulations, but this issue is now becoming more and more documented. The listing of barriers to U.S. exports by the Economic Research Service of the U.S. Department of Agriculture (USDA) is one of the most detailed works in this area (Roberts and DeRemer, 1997; Thornsbury et al., 1 Although the scope and content differ a good deal, this paper uses sections of a report prepared for the Organization of Economic Cooperation and Development by J. C. Bureau, E. Gozlan and S. Marette. This document was, subsequently, revised by W. Jones and published as a consultant's report, Food Quality and Safety, Trade Considerations (1999), under the responsibility of the Secretary General.
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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference 1997). To our knowledge, it is so far the only large-scale attempt to quantify the effect of foreign sanitary and technical regulations on trade. Other agencies, such as the U.S. International Trade Commission and the Office of the U.S. Trade Representative, have also investigated the impact of many national regulations on exports. Both the European Union (EU) and the Canadian government publish an annual report on U.S. trade barriers. The European Commission has also set up a database on market access for a large number of countries. This database describes many foreign regulations that European exporters consider as unnecessary barriers to trade. These efforts show that domestic regulations impede imports in almost all countries. Regulatory barriers in the EU are often pointed out by U.S. agencies. The EU ban on hormone-treated meat is one of the most quoted examples. In the European Commission's market access database, the pages relative to Japan are particularly impressive. Many regulations, from the list of authorized additives to the technical requirements on meat products and the conditions of fumigation of flowers and vegetables at the Narita airport, are considered excessive. Even Australia, a country known for low tariffs, has technical standards that often preclude imports.2 The U.S. conditions of sanitary inspection, with long and somewhat random delays, open lists for insects which make import authorizations difficult and unpredictable, and complex quarantine rules are also accused of making it unnecessarily difficult to export food products to the United States.3 International rules have been strengthened to address these problems. The Uruguay Round provides a framework for solving disputes through the World Trade Organization's (WTO's) Dispute Settlement Body; it tackles the problem of nontariff trade barriers through the Sanitary and Phytosanitary (SPS) Agreement and a strengthened Technical Barriers to Trade (TBT) Agreement; and it gives greater importance to international bodies, especially Codex 2 According to the EU Commission, ''the fervor with which sanitary and phytosanitary rules are applied in Australia suggests that the system operates as a trade barrier." For example, canned tomatoes that have failed a case pressure test are banned; and it is nearly impossible for cereals to enter Australia even at times of severe drought (when domestic prices are very high) due to disease fears. Import permits are required for over 150 agricultural products, without which they are prohibited, and the significant financial costs of product control and testing, as well as the slowness of the monitoring process, serve to deter trade of chocolate, canned meat, olives, wine, herbs, poultry, or pork meat. Quarantine regulations de facto prohibit the importation of a whole range of meat, dairy, and other products. 3 The Organization for Economic Cooperation and Development (OECD) noticed that there are 11 U.S. agencies involved in import regulations, many of them with different methods of assessments, imposing an unnecessary administrative burden on would-be exporters to the United States (OECD, 1997a). For example, imported foods are treated differently depending on whether they are regulated by the Food and Drug Administration or the USDA (the USDA inspects meat and poultry products), and as a result, different processed products exported by the same firm are sometimes treated differently.
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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference Alimentarius, an international code of standards for human health protection under the auspices of the Food and Agriculture Organization (FAO) and the World Health Organization (WHO). The SPS Agreement (Appendix A) recognizes the right of governments to restrict trade in order to protect human, animal, or plant health, but such measures must be transparent, consistent, and based on international standards or scientific risk assessment. There must be equal treatment for all nations and between imports and domestic products. The SPS Agreement covers health risks (food safety) arising from additives, contaminants, toxins, and pathogens contained in food products. The TBT is much broader, covering all technical regulations, voluntary standards, conformity assessment procedures, and any other measures not covered by the SPS Agreement. It seeks to ensure that national measures are transparent, have a legitimate purpose, and minimize restrictions on trade. Compliance with relevant international standards is encouraged. Recently, at the Singapore conference, the WTO has raised the issue of simplifying the procedures for imports, which are often complex and act as trade barriers. Finally, in addition to the measures taken at the WTO level, the regulatory reform proposed by the Organization for Economic Cooperation and Development (OECD) also aims at limiting the negative trade effects of national regulations (OECD, 1997a). International Effects of National Regulations There is no doubt that many of the regulatory barriers mentioned above, in particular SPS barriers, have been erected to protect local producers. Anecdotal evidence shows that special interest groups have often persuaded public authorities to back their case and erect barriers to protect vested interests, and that governments have sometimes "compensated" for the decrease in tariffs by stricter SPS regulations to prevent a surge in imports. The shorter shelf life for food products in Korea was a famous example, but many other cases have been reported (see Hillman, 1997, and, more generally, the different papers in Orden and Roberts, 1997). However, governments have also often set up regulations to address consumers' concerns. Such regulations often have a negative impact on trade, although this was not their primary purpose. This is the case, for example, when various options exist for ensuring a given level of consumer protection. To ensure that a product is safe, a government may consider banning certain techniques or laying down maximum tolerance levels for residual pathogens. If one country's standards are based on the first option and another country's are based on the second, exports come up against technical barriers and additional control costs. Differing incomes and tastes may lead to differing regulations. Developing countries cannot allow themselves the same standards as developed countries, with the result that their firms come up against regulations that constitute a de facto barrier to exports. Even in developed countries, in economic terms, it is possible to determine an optimum standard for each country, reflecting in particular a trade-off between cost and demand for food safety (Antle, 1995;
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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference Viscusi et al., 1995). It depends on the distribution of consumers' willingness to pay, and there is no reason why such an optimum standard should be the same in all countries. But different standards, albeit entirely justified in economic terms, can hamper international trade. More generally, regulations that affect trade may come from genuine technical, geographical, cultural and sometimes religious differences. The concept of product quality is multidimensional and is not limited to product safety (Hooker and Caswell, 1996). The perception of which attributes are essential when defining quality differs greatly among countries. Differing tastes, incomes, and willingness to pay for a particular attribute are reflected in dissimilar regulations. In many countries, there is a public debate over regulation of the food industry. This includes safety of food, and how it is produced (i.e., social conditions, animal welfare, the use of genetically modified organisms, hormones and growth promoters, cultural preferences, resource sustainability, and protection of the environment). New production and processing methods driven by technology have added to consumer unease. The resulting national regulations can pose problems for exporters. The complexity of the issues make the right policy response difficult, especially in the absence of convincing evidence of health risks, but when consumer concerns look nevertheless genuine. In the following sections we present a few examples of such controversial issues. TECHNICAL AND CULTURAL DIFFERENCES AND DOMESTIC REGULATIONS Disagreement on Quality Attributes There is considerable disagreement on quality attributes, such as the nutritional content, taste, production methods, and authenticity of products, that are relevant and on the extent to which they may legitimately be the subject of regulation. Some countries consider that the soil, climate, and traditional know-how that exist in a region have a decisive influence on product quality, but others do not. There is considerable disagreement on the meaning of "authenticity," which has inspired the 1992 EU legislation on food quality labeling (the term authenticity is used to translate the concept of "typicité," which is the basis of all French and Italian quality labeling systems, meaning that a product must be "typical"—for example, representative of a particular area, in addition to being produced with premium raw materials and, often, traditional techniques). Definitions based on taste or traditional know-how receive little support at an international level. These notions of product quality are ill-matched to the more restrictive approach adopted internationally.4 The 4 Chen (1996) highlights the incompatibility of European quality marks, which emphasize authenticity, with U.S. legislation and the difficulty of achieving international recognition for this type of mark.
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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference stance of the SPS Agreement is to take into consideration only a single quality attribute, namely sanitary quality. Labels of the International Organization for Standardization, which could become de facto standards regulating international trade, do not include all the quality dimensions of European regulations, which are based to a considerable extent on a product's organoleptic qualities (taste) and authenticity. Different Conceptions of Risk It is seldom possible or economically feasible to achieve zero risk with respect to food safety. The SPS Agreement explicitly requires risk assessment to be carried out if a country adopts different standards from those of the Codex Alimentarius (Article 5.1). However, there is no agreement on what constitutes justifiable risk or "acceptable risk" as mentioned in the SPS Agreement (Annex A.5). Nor is there any agreement on the importance to be given to risk analysis, or on what is meant by the term "risk," or on methodology. Officially, risk analysis is a three-stage process. The first stage, risk assessment, consists in identifying hazards, in particular their forms, thresholds, and probabilities. The second phase is risk management, and the third phase is communication concerning the risk. Approaches may differ widely from one country to another, especially concerning the importance to be placed on risk management (Mazurek, 1996). Some countries prefer to emphasize risk elimination (e.g., sterilization of mineral waters, a ban on cheese made from unpasteurized milk, etc.). Others emphasize the possibility of risk control (in the above-mentioned examples by bottling at source, Hazard Analysis at Critical Control Points [HACCP] controls, etc.), which is sometimes less costly and alters the product less, and point to the inconsistency of seeking to achieve zero risk in one area while tolerating high risk in others.5 The diverging conceptions of risk management are particularly obvious in many debates within Codex committees, such as the one on food hygiene or the one on dairy products. The case of cheese made from unpasteurized milk provides an illustration of the fundamental differences that exist with regard to food safety thresholds between the EU and the United States (note that this is also the case within the EU itself). Cheese made from unpasteurized milk is more likely to contain pathogenic bacteria (Campylobacter, Salmonella, Listeria) than cheese made from pasteurized milk. Raw milk cheeses are, however, widespread in countries like France, Switzerland, and Italy. In France, consumers clearly find that the hazard is minimal compared to other types of risk, including the risk of infection of pasteurized cheese when improperly 5 The SPS Agreement states that countries should have the objective of "consistency." If, on the basis of a risk assessment, there is a one in a million chance of a certain product causing a certain level of damage, the product should not be subject to greater restrictions than other products presenting a similar level of risk. The level of risk may be acceptable or not, the objective is that the acceptable risk should not be different according to the product concerned (see Doussin, 1995).
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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference stored, and that there is basically no danger.6 Risk management (control of dairy processing plants) and risk communication (warning elderly people and those with a weak immune system, systematic warning of pregnant women by doctors about possible abortions) are seen as being preferable to mandatory pasteurization. That is, risks are given media coverage and people clearly accept them. Any attempt to restrict the sales of even the most potentially dangerous soft cheeses is considered as completely unacceptable, and this issue clearly becomes a quasi-religious one every time it is raised at the EU level. French, Italian, and Swiss consumers point out the inconsistency of banning raw milk cheese and not, say, raw oysters or hamburgers in other countries. However, it is clear that consumers in other countries are not willing to accept the level of risk associated with raw milk cheese, possibly because they are less sensitive to quality attributes such as "taste" and "authenticity." Technical Regulations and Local Conditions National regulations on authorized pesticide residues, for example, differ widely. However, the fact that it is difficult to measure the risks in this area makes any attempt to define standards highly controversial (Mazurek, 1996). Even national regulations applied evenhandedly to domestic and imported products can have an effect on trade, especially if the chemical substances are not used in the country concerned. This is the case with procymidone, for example, a fungicide that is the subject of controversy in the wine-making industry. As the fungus against which procymidone is effective does not pose a problem in California vineyards, mainly for climatic reasons, there is no reason to use procymidone there. But low tolerance levels for residues would indirectly limit imports of wine from other countries, which need to use the product because of their climate. This issue, and more generally the "Delaney clause" in the U.S. legislation, was a bone of contention between the EU and the United States. This highlights the possible trade effects of national regulations, even when they are applied to imported products in a nondiscriminatory way. Some techniques that are used to control bacteriological risk are more adapted to certain countries than others. Bottling mineral water at source, for example, may be more expensive than bulk transportation and sterilization in some cases. HACCP techniques require sophisticated technology and qualified labor at all stages of the production, transformation, and marketing chain, which may be difficult to find in all countries. Irradiation techniques require a lot of capital, and overall it is very costly to transport products with low unit value to the adequate plant, especially in countries where production is scattered over 6 According to the Ministère de la Santé (i.e., the health department), milk products were responsible for 5 percent of alimentary toxicoinfections, that is, 5 percent of 0.00016 percent of the meals served in 1995 (only a share of them being raw milk products); unpasteurized cheese was, however, clearly involved in the death of one person in 1997 (to our knowledge, none in 1996 and 1998).
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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference very large areas. In many cases, different techniques (e.g., controlling processes or sterilizing) can give equivalent results at the end product, but not all of them are adapted to the domestic conditions. Again, if one country picks an option and a second country picks another one, this will de facto result in technical barriers for exporters. The role that should be left to private operators in devising workable standards is a source of disagreements between countries. Producers want to be given greater freedom in the way they produce high-quality food and point to the costs that highly specific regulations impose on the production process. They find it hard to understand why consumers and public authorities interfere so much in the definition of standards which in other (nonfood) sectors is more commonly left up to industry. Consumers do not see things in the same light and criticize what they regard as industry's over-representation on the scientific committees of standards bodies, such as the Joint FAO/WHO Expert Committee on Food Additives, the Joint FAO/WHO Meeting on Pesticide Residues, and the Codex committees. The "technological justifications" that allow manufacturers to use nonclassified additives are another source of consumer concern. The same goes for the "codes of good practice" which manufacturers may invoke when introducing additives. This highlights the difficulties of finding the right mix between highly detailed and restrictive regulations and consumers' concern at the latitude accorded to manufacturers. It affects trade issues because the "right mix" is not seen as being the same in all countries, an issue raised in numerous disputes on the list of permitted food additives (Vogel, 1995). For example, European consumers argue that substances used by manufacturers to preserve the color of perishable foods (hydroxyquinone, polyphosphates) do not improve the products and may even be misleading as to their freshness. U.S. consumers seem less worried (although they seem to have more concerns on other issues, for example, on the use of aspartame). Legal Differences Domestic regulations are defined in relation to the legal system prevailing in each country. This framework differs a lot across countries. Punitive damages in product liability action are very different in the United States and in European countries. In the United States, ex post liability clearly plays an important role in deterring firms from marketing unsafe products. Because of the potential outcome of tort law, firms often set up standards that exceed those required for passing the government approval process. Antle (1995) shows that this reduces the need for "command and control" type of government intervention. In some EU countries, economic sanctions are very limited in the case of food safety problems. In France, liability is limited, and in nonlethal food poisoning problems, plaintiffs seldom take legal action. When an unsafe product is marketed, resulting in the deaths of consumers, this most of the time results in penal sanctions for the manager rather than large economic sanctions for the firm (for example, to our knowledge, the fatal poisoning of hundreds of people with tainted cooking oil in Spain has not resulted in any significant monetary
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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference compensation for the plaintiffs 16 years later). That is, the incentive for supplying safe products would be perhaps less than in the United States, in the absence of a command and control regulation. Fundamental differences in the legal system for protecting consumers from health hazards provide some justification for diverging conceptions on the role of government in setting standards. More generally, differences in the legal environment, such as ex ante regulation versus ex post litigation as a basis for law, may provide justifications for differences in governmental standards between countries. Cultural Differences Arguably, the fact that Islamic countries tend to erect barriers to pork meat imports is not seen as an unfair nontariff barrier. One may wonder whether a ban on genetically modified organisms (GMOs) should be considered as legitimate when it has some religious connotations (Egypt announced such a ban in 1996, even though it actually never enforced it). This raises the question of how far one should go in this area and whether the concerns of consumers in Luxembourg and Austria on GMOs (which look genuine) can also legitimate an import ban. A recent survey measured consumer acceptance of GMOs in 19 countries and showed that only 22 percent of Austrian consumers seem willing to buy genetically modified products, against 74 percent in the United States (Hoban, 1997). Even in Britain, one of the most permissive countries in the EU in this area, a poll showed that only 14 percent of consumers were happy with the introduction of genetically modified foodstuffs, and 96 percent wanted labels on food made of genetically modified seeds (The Economist, 1998). This reluctance cannot be explained completely by a lack of information because Hoban's survey reported that a higher proportion of consumers than in the United States said that they had read or heard information about biotechnology. Part of the explanation seems to lie in cultural factors. Most of the consumers' concerns actually seem to be linked to the possible spread of unwanted genes in the environment, rather than concerns about their own health. The case of GMOs is an illustration of the impact that consumers' cultural values can have on trade, regardless of scientific considerations. It is not the only one. Consumers in some countries remain opposed to irradiation, which is seldom used as a result (except for specific products such as spices, onions, and some poultry in certain countries), even though the International Atomic Energy Agency and the WHO have concluded since 1980 that irradiated food presents no toxicological risk. Dissimilar consumer preferences have an impact on trade, as for example if one country requires ground meats offered for sale on its territory to be irradiated and another refuses to use the technology. Here again, despite scientific considerations, even very subjective quality considerations can have an indirect effect on trade.
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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference Ethical Concerns Animal welfare regulations, introduced under pressure from animal rights activists, are becoming a very important topic in Europe. This may also have large consequences for international trade. In some cases, imports of products that do not comply with certain rules may be prohibited. The EU, for example, has banned imports of furs of 13 types of animals that can be caught using leghold traps, even though not all of them are listed by the International Convention on Trade in Endangered Species and some species are farmed commercially. National regulations may also distort competition. The EU has adopted directives banning the battery farming (i.e., rearing in individual boxes) of milk-fed veal calves and has imposed collective rearing, including cellulose feedstuffs, which considerably increases production costs. This measure, still in the transitional phase, has little impact on trade because there is little international trade in veal. Similar measures are being prepared for poultry, however, which could have a very considerable impact on the competitiveness of European poultry and egg producers, not only in export markets but also within the EU if third countries do not adopt similar measures. The planned increase in the size of cages (in egg production) and the possible animal density limitation (in poultry meat production) would cause a substantial rise in heating and feeding costs and hence in the cost of European poultry, in relation to countries not under the same obligations. Substantial trade flows could be affected.7 Farmers, especially in England and Sweden, where the regulations are already stricter than in the rest of the EU, claim that consumer concerns should lead to similar requirements for imported products. Growing numbers of consumers are also concerned about the possible adverse effects of their purchases, on the destruction of natural resources in other countries, for example, or on child labor (Mahé and Ortalo-Magné, 1998). There is growing pressure from public opinion for the imposition of more environment-friendly practices in third countries, especially to protect the "common resources of humanity" such as tropical rain forests. Some governments support a ban of timber products from countries where forests are threatened (Vogel, 1995). Consumers are also concerned about the importation of goods that they reject for cultural or religious reasons. But the fact that consumers' ethical values are not the same in all countries is bound to affect trade. 7 Simulations with the MISS model of INRA and Ecole Nationale Supérieure Agronomique de Rennes (ENSAR) in France suggest that EU poultry meat exports could fall by 70 percent if the limitation of density asked by animal rights activists (16–18 chickens per square meter instead of the present density of around 23–26) was adopted. The competition of cheap U.S. chicken on the EU market would also increase dramatically.
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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference Mistrust in Science In some countries, there has been a growing mistrust in science over the past decade. France is a typical example where the government has minimized the effect of major accidents, which have fueled suspicion and eroded public confidence in science. The importance of asbestos-related cancers has been largely hidden under the pressure of the industry, and, when disclosed, past responsibility of mandated doctors in spreading wrong information has had a very negative effect on public opinion. Involvement of scientists in hiding information from the public in the nuclear sector has had a similar effect (scientists from government agencies claimed that the Chernobyl radioactive cloud has stopped exactly at the French border, something that nobody has actually believed). So has the continuous denying of public agencies involvement in spreading HIV-contaminated blood, until journalists disclosed evidence. In France, as well as in most EU countries, the poor management of information about possible links between bovine spongiform encephalopaty (BSE) and Creuzfeld-Jacob disease (CJD), and assurances from government-appointed scientists made the mistrust of science a very sensitive issue in the food sector. Consumer concerns about GMOs and growth activators cannot be understood without taking this into account. Although educating consumers is one of the government's task in this area, the situation is such that any government information is considered as suspect. The poor management of information on past accidents by scientists and politicians is not the only reason for consumers' unease with science in some countries. One cannot blame only consumers' ignorance when they are not satisfied with the assurances given by biologists concerning the level of the Codex standards. Powell (1997) highlights the difficulties of obtaining reliable scientific assessments of the hazards present in food because of genetic mutations, for example, or combinations of pathogens with uncertain effects, or the influence of exogenous and unforeseeable factors on micro-organisms. The standards accepted by scientists do not always have an indisputable scientific foundation. Some have had to be completely revised at various times, and scientific "certainty" is sometimes fragile, especially with regard to the carcinogenic properties of products (Mazurek, 1996). In addition, consumers assert the right to entertain fears that scientists regard as "irrational," especially concerning GMOs and irradiated food. Controlling short-term risks does not mean that long-term risks or uncertainties do not exist. In Europe, environmental and consumer groups have recently campaigned for the inclusion in multilateral agreements of a "precautionary principle," which would allow exceptions to the regulations in cases where scientific proof does not go far enough (Godard, 1997). This does not seem to be as much of an issue in the United States and in the rest of the world, except perhaps on some environment-related issues (Rege, 1994).
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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference ACCOUNTING FOR CONSUMER CONCERNS Consumers' Values Matter Governments and international agencies should not dismiss consumer concerns about food safety, nor about ethical, environmental, or cultural values, and even perhaps about imagined health risks. This could significantly erode public support for the trade liberalization process. Mandatory compliance to ill-accepted standards may result in consumers' rejection of freer trade (Olson, 1998). The 1991 GATT panel on tuna, which basically ruled that a country could not ban imports for environmental reasons outside its territory, dragged into anti-GATT movements hundreds of thousands of people who would never have joined such organizations otherwise (The Economist, 1993). Threats from the European Commission to restrict the sale of unpasteurized cheese are said to be "responsible for 5 out of 6 French votes against Maastricht." The estimate quoted by Vogel (1995) may not be completely statistically exact, but it truly reflects how anti-EU populist groups exploited fears of being "condemned to eat standardized, aseptic, industrialized cheese." The 1997 panel on hormone treated beef also had a strong negative impact in European public opinion. Because of this panel, the WTO is now often perceived as an international agency whose goal is to overcome countries' rights to protect their consumers and more generally to undermine national sovereignty. Both issues contribute to fuel the isolationist propaganda of interest groups and extremist political parties (namely the far-right wing) in France and several other EU countries. Clearly, ignoring consumers' concerns could lead to a severe rejection of "globalization," which already has a poor record in public opinion in many countries. Food is a sensitive topic, and few things are likelier to give trade liberalization a bad name than to have it associated with foisting on consumers the eating of mediocre or even potentially unsafe food. This aspect should not be underestimated, especially when consumer groups can find in the Internet a powerful soundboard. The international coordination of the opponents to the OECD's proposal on Multilateral Agreement on Investment shows that decisions can no longer be taken without consumers' approval (and more generally without citizens' approval). The list of Internet web pages gathering protests against the WTO, and even the SPS agreement, is becoming very large. Even when they do not sign petitions, demonstrate, or protest in the polling booth, consumers can react by changing their consumption patterns. If consumers consider the way in which children are exploited, cosmetics tested, foxes killed, or cattle reared to be an integral component of the quality of a food product, lipstick, coat, or piece of meat, their demand for such products is altered by the presence or absence on the market of goods which do not comply with their ethical values. This is the case, for example, if it is difficult for consumers to identify goods produced under such conditions.
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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference should be taken into account. But if a decision has been taken at the Codex to defer and reconsider the BST case, it is not on account of these arguments.13 More generally, an agreement on the consideration that should be given to arguments other than "objective" medical risk when sanitary regulations are being defined seems difficult to reach. Discussions on the item on "the role of science and the extent to which other factors are taken into account" at the 13th Session of the Codex Committee on General Principles (September 1998, Paris) have been largely inconclusive. A similar problem exists within the dispute settlement procedure of the WTO. Decisions taken on the basis of purely scientific considerations simply seem unacceptable to consumer organizations who expect that international standards reflect what they want to eat, not only what is safe to eat. When WTO rules conflict with decisions of a democratically elected parliament (as in the EU and U.S. hormone-treated beef issue), things get even more difficult. Can Economics Help? When cultures differ, economic analysis may perhaps help in finding a common playing field. This approach progressively has been accepted in the area of environmental disputes, and it is progressing, albeit slowly, in the phytosanitary area, and, to a lesser extent, in the sanitary area. Here we consider the possibility of a broader use of economic assessment in food quality regulations as well as in dispute settlement on nontariff barriers. Cost—benefit analysis is already used to enable public authorities to make decisions concerning national regulations. It is an important stage in the framing of regulations in the United States. Arrow et al. (1996) recommend that the method should be used systematically because they observed considerable differences between the cost of public health measures and their real impact on health (they give estimates where, within the same agency, the cost per life saved varies between $200,000 and $10,000,000 [U.S] depending on the program, which means that more lives could be saved at the same cost to society; see also Magat et al., 1986). Even though society does not accept all risks in the same way, and even though social choices cannot be reduced to the 13 In 1990, the EU imposed a moratorium on the use of BST until the end of 1999 (although without banning imports of dairy products from countries where BST is allowed). The Codex Alimentarius approached the problem of BST and growth hormones from the standpoint not of farming practice but of measurable residues, which proved to be low in both cases. The consumer representative and several countries argued that consumers were opposed to the use of BST and that BST improved neither the quality nor the health characteristics of milk, and asked to be allowed to ban it. The EU asked for "legitimate factors other than scientific analysis" to be taken into consideration. But the vote to defer the decision was taken because some delegations had contributed scientific evidence which raised questions about the weakening of the immune systems of animals treated with BST and argued that this could increase the risk of infection, the need for treatment, and hence levels of antibiotic residues.
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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference equalization of a statistical cost between programs, cost–benefit analysis should take a more important place. Box 7-1 describes a few possible techniques that can introduce more economic assessment into the SPS regulations. There are clearly many technical difficulties. Measuring the benefits procured by regulations designed to guarantee certain ethical or cultural aspects of product quality is no easy matter, and the problem of the valuation of imagined risks is a difficult one (Pollak, 1995, 1998). Estimates of cancer risk from pesticide residues contain a substantial degree of uncertainty as to the risk, making any economic estimate particularly difficult. When cost–benefit analysis builds on the imprecise data of risk analysis, results are often subject to very large confidence intervals. In addition, it is not possible to calculate the probability of a risk that is too uncertain, making it difficult to carry out analysis with conventional tools. This is the case, for example, with the risk of GMOs propagating genes, or the risk of long-term epidemics such as BSE and CJD, or environmental risks. However, similar problems exist in traditional risk assessment procedures. With an economic approach, it is possible to use approaches based on the measurement of changes in the consumer utility function when consumers have access to a product with attributes to which they are attached (Kopp et al., 1997). When human health is at stake, the topic is more sensitive because giving a value to illness avoided or even a human life saved is not always well accepted, especially in some EU countries. However, it is worth noting that in the same countries, transportation and energy departments use such calculations on a daily basis when they decide priority investment in road safety or thresholds in building dams. Economic assessment would simply make choices more explicit, although concepts such as "the value of life" (actually, the value of life saved) can still be shocking for many people (Viscusi, 1993). Cost–benefit analysis can be of particular interest as far as ethical or cultural values are concerned. If, for example, consumers place particular value on the fact that a good is produced without the use of biotechnology or irradiation techniques, estimating their willingness to pay means that the variation in consumer satisfaction resulting from a regulation prohibiting the technique in question can be quantified in money terms (Viscusi et al., 1995; Magat and Viscusi, 1993). One application could be the animal welfare issue, an awkward case where public opinion is being represented by vociferous consumer lobbies in Europe, and where scientists have proved to be of little help. More economic assessment would make it possible to assess the real importance of this concern throughout the entire population.14 14 The French Institut National de la Recherche Agronomique (INRA) has recently started several academic studies involving either contingent valuation (the measurement of willingness to pay for guaranteed prion-free meat, for "animal-welfare-correct" food at INRA-Rennes) or experimental economics (organic food, GMO-free products, etc., at INRA-Ivry).
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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference BOX 7-1. Methods for Estimating the Benefits of Sanitary and Technical Regulations Where food safety and the spread of plant and animal diseases are concerned, cost-benefit analysis involves quantifying the level of risk and estimating its economic impact. This approach is widely used, although very unevenly from one country to another, not only in order to assess the interest of a regulation but also to compare the advantages and disadvantages of several possible means of government intervention. In particular, it can be used to rationalize the strengthening of SPS controls in relation to the dissemination of information and the raising of consumer awareness, or to inform decisions about the introduction of regulatory standards (Kopp et al., 1997). Although there are still some technical difficulties, there are few major obstacles (except the lack of an economics culture among the administrations in some countries such as France) to complementing classical risk analysis by cost-benefit analysis in the phytosanitary and animal health area. Things are more complex, however, when cultural values are at stake and when one deals with human health issues. Several methods exist for estimating the cost of mortality and morbidity and evaluating in money terms the benefits of government action resulting in a reduction of sanitary risk. With the human capital method, a value is placed on the reduced risk of premature death based on an evaluation of discounted labor flow. For an individual of a given age, the value of the life prolonged (statistically) by a regulation corresponds to the discounted sum of the mathematical expectation of the person's income (Freeman, 1993). Some extensions of this method have been proposed, in particular by integrating nonmonetary aspects and the value of the individual's descendants (Viscusi, 1993). With the cost of illness method, a value is placed on the reduced morbidity resulting from sanitary or regulatory methods, based on an estimate of medical costs and productivity losses due to illness (Buzby et al., 1996; Crutchfield et al., 1997). Opportunity costs from investing in activities that reduce the risk are included in the value of reduced illness (Landelfeld and Seskin, 1982). As with the human capital method, statistical methods have to be used to estimate the risk, especially dose-effect relationships Methods based on estimates of willingness to pay, although more difficult to apply, are wider reaching because they make it possible to include quality-related aspects that cannot be translated into identifiable short-term illness. The preventive expenditure method seeks to measure agents' willingness to pay by observing the efforts made to avoid illness. With this method, a money evaluation of the disutility of being ill is added to the estimated cost of illness, together with an estimate of the preventive expenditure that an individual is willing to commit according to a given pathogen level (Harrington and Portney, 1987). Contingent evaluation methods involve asking individuals directly about their willingness to pay in order to reduce the risk of an illness, or more generally to obtain higher quality in a good. By directly revealing willingness to pay, this method theoretically makes it possible to gain a money estimate of all the benefits arising from a given measure. However, answers have to be corrected for statistical bias due to respondents' incentives to over-or underestimate their willingness to pay (which depends in particular on whether they anticipate having to pay the disclosed sum or not). As these methods are widely applied to environmental issues, efforts have been made recently to harmonize survey methodologies (see, in the United States, National Oceanic and Atmospheric Administration [NOAA] Panel on Contingent Valuation [Arrow et al., 1993]). Another method being used increasingly widely at present is the experimental economics method, which involves getting a group of individuals in a situation where their real behavior is simulated to reveal their willingness to pay for particular qualities. Such methods are relatively onerous to put in place, but they make it possible to obtain a
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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference precise measurement of the value that a sample of individuals places on different sanitary thresholds, according to information received, for example (Hayes et al., 1995). The methods described above are used to evaluate the benefits of drawing up a regulation to protect consumers' health or to ensure that they acquire the quality they desire. Methods for evaluating the cost of regulations are generally based on estimates of the welfare loss of the agents concerned when they have to comply with a regulation. This includes, for example, the cost to firms of acquiring suitable equipment and many other direct and indirect costs. Kopp et al. (1997) provide illustrations of such estimates. One method involves valuing them as opportunities that had to be foregone. This includes the diversion of resources, the value of specific inputs that become useless, the excess cost of substitution technologies, and the price differentials with replacement products borne by the consumer. Source: Adapted from OECD, 1999. ECONOMIC ANALYSIS AND THE SETTLEMENT OF DISPUTES Scientific and Economic Criteria Present arrangements for the settlement of international disputes relating to technical and sanitary barriers have put economic analysis second to risk assessment. The SPS Agreement recognizes that governments may set higher sanitary standards than the ones used in other member countries. In practice, this means that one can restrict imports on sanitary grounds, when a hazard is scientifically proved to exist, and that one cannot implement such import restrictions in the absence of proof of significant hazard. Although Article 5.3 of the SPS Agreement (and Article 2.2 of the TBT Agreement) mentions economic assessment, such considerations have only a limited place in the settlement of sanitary and technical disputes, and cost–benefit analysis is far less central than risk analysis. International agreements on sanitary and technical measures do not oblige countries to adopt only those regulations whose benefits exceed their costs (Roberts, 1997). In practice, many countries introduce import restrictions on sanitary grounds, to avoid the spread of pests for example, without making any prior estimate of potential losses. These may sometimes be very small in comparison with the cost to consumers caused by the regulation in question. If economic methods of calculation were used more systematically, the welfare gains resulting from the import restrictions could be compared with the welfare gains resulting from freer trade (James and Anderson, 1998; OECD, 1997b). Assessing Consumers' Concerns In addition to helping decision makers when choosing between different risk management options and when reviewing quarantine policies, cost–benefit analysis can also provide a sounder basis for discussing the role of ''other legitimate factors" than health hazards, a problem that remains a live issue.
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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference It is often argued that Codex standards and texts express policy choices and that such policy choices could extend to national policies in such areas as the environment, consumer concerns, animal welfare, and societal values. If these values were considered from an economic standpoint, the debate might lead to more convergence in the different points of view. Because it is based on a revelation of individual preferences, cost–benefit analysis can be seen as a tool for organizing many different pieces of information and points of views in a consistent framework. Up to a certain extent, willingness to pay is a defendable measure of people's concerns. Genuine consumer aversion, for sanitary as well as for cultural reasons, is reflected in a willingness to pay in order to avoid the products. Although there are still some technical difficulties and conceptual obstacles, contingent valuation techniques or experimental economics may help people from different cultures to find a common "metric" for defining more objectively how genuine the concerns of their consumers are, and for finding solutions to complex issues which largely reflect cultural differences. In this respect, microeconomics can be seen as a useful negotiation language. More Economics in the Settlement of Disputes? The procedure for settling sanitary and technical disputes under the auspices of the WTO could draw on the experience of competition policy. One accepted principle, including in international disputes, in competition policy is that certain forms of coordination between producers, which may indeed restrict competition, are not necessarily undesirable from a social standpoint. In most developed countries, public regulators (competition councils, antitrust commissions, etc.) weigh up their advantages and disadvantages (Viscusi et al., 1995). Infringements of competition rules are permitted after an economic cost–benefit analysis, and noncompetitive arrangements are often accepted if it can be proved that they bring economic benefits and that the benefits are fairly distributed between agents. Regulators tend to make such decisions on a case-by-case basis, weighing the pros and cons and carrying out a mainly economic cost–benefit analysis rather than applying immutable general principles. Less consideration is given to such principles in the settlement of sanitary and technical disputes, especially in the international arena. All regulatory measures likely to hinder imports are sometimes classified as nontariff barriers. Some particular studies in the agro-food sector use a broad definition of the term nontariff trade barriers (Hillman, 1991; Roberts and DeRemer, 1997). However, Baldwin (1970) has suggested that nontariff barriers should be defined as policies that reduce potential world revenue. According to this definition, policies, which in practice restrict trade flows, would not be regarded as nontariff barriers if their effect was to correct market inefficiencies and increase world revenue. Mahé (1997) proposes extending the definition to include nonmonetary effects. He suggests that measures whose elimination would cause welfare losses in some countries that are greater than welfare gains in other countries should be classified as nontariff barriers. This definition is in
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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference line with both economic theory and the idea of using cost–benefit analysis to arbitrate disputes. When trade liberalization calls into question national regulations whose effect is also to reduce market inefficiencies, the welfare effects may be analytically ambiguous (Thilmany and Barrett, 1997; Bureau et al., 1998). If a WTO panel, for example, results in an obligation to import products that do not satisfy consumers' ethical, environmental, or cultural concerns, antiselection mechanisms could cause substantial welfare losses. In practice, this could involve consumer boycotts or rejections, which would affect demand for all the goods concerned, both imported and domestic. Estimating overall costs and benefits would involve quantifying the different variations in welfare, raising awkward technical problems. Nonetheless, it is possible for welfare losses to be greater than welfare gains at a global level. It would be paradoxical if trade liberalization, introduced by an international organization in the framework of the settlement of disputes, were to result in more trade but less welfare. In such cases, Baldwin's criterion could serve as a basis for settling disputes (Mahé, 1997). Practical implementation could be based on a cost–benefit analysis which would seem to be more in line with the maximization of collective welfare than are rigid principles derived from uniform scientific standards. CONCLUSIONS Many Americans may wonder why Europeans chose to ban hormone-treated beef and not tobacco, a far more hazardous substance. Yet French consumers find it difficult to understand why Americans support a ban on camembert cheese (made from fresh raw milk with the addition of a fungus, Penicillium camemberti), while they tolerate the risks linked to legal possession of handguns. Both American and French consumers will nevertheless look aghast at the Japanese who willingly pay an extraordinarily high price for eating the dangerous "fugu" fish, which regularly leads to death. Coping with such differences in the perception of risk within a uniform international code of standards and a "one size fits all" SPS Agreement is bound to raise a lot of difficulties and frustrations. The issue is even more complicated when attributes of food quality other than safety are involved (i.e., cultural, environmental, or ethical values). Since the 1994 SPS Agreement, the reference to "sound science", has helped make legislation more consistent across countries. However, it is unlikely to solve all the problems. Science is not always conclusive, scientists' recommendations are not always trusted nor well accepted by consumers, and scientific risk assessment does not make it possible to account for the genuine concerns of consumers on other aspects than health risk (i.e., cultural, environmental, and ethical concerns) which are becoming a major area of contention in international trade (Baghwati and Hudec, 1996). In any case, measuring the risk gives no indication of the loss of utility for consumers. When focusing on risk analysis as the SPS Agreement presently does, one may run
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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference into the problem that although there is a very slight risk that a product is dangerous, the mere fact of knowing this to be the case could result in a very high proportion of consumers refusing to buy the product, and therefore high welfare losses (Josling, 1998). Accounting for consumers' values, including factors other than health risks, could prove necessary in the future, if one wishes to avoid weakening support for trade. Food is a sensitive issue and free trade will be given a bad name if it is associated with the forcing on consumers of unwanted food. Genuine consumer aversion for certain imported products, for sanitary or cultural reasons, is normally reflected in a willingness to pay in order to buy other goods which satisfy their concerns. Giving this willingness to pay greater importance in the settlement of disputes, by comparing it with the costs to other economic agents, would help take account of consumer preferences. This could also help to prevent detractors of a more open trading environment from linking trade liberalization with an obligation to consume products that do not correspond to consumers' aspirations. Economic analysis raises a number of technical difficulties. There is also the question of which version of cost–benefit analysis is the right one for the problem at hand, since economists are hardly of one mind on this issue. However, the methodologies described in Box 7-1 have raised similar difficulties in the evaluation of environmental costs and benefits, although agreements on evaluation procedures have progressed. What was considered as not feasible 20 years ago (e.g., the use of contingent valuation for assessing environmental damages and calculating fines in a trial) is now widely accepted. One may think that economic analysis in the SPS area is at a stage comparable to that of economics in the environmental area two decades ago. In many cases, cost–benefit analysis can already be a useful negotiation tool.15 It will not solve everything, but given its potential contribution in the settlement of disputes, it deserves a more important role in the SPS area. REFERENCES Akerlof, G. 1970. The market for lemons: qualitative uncertainty and the market mechanism. Quarterly Journal of Economics 84(1):488–500. Antle, J.M. 1995. Choice and Efficiency in Food Safety Policy. Washington D.C.: AEI Press American Enterprise Institute. Arrow, K.J., R. Solow, P. Portney, E.E. Leamer, R. Radner, and H. Schuman. 1993. Report of the NOAA Panel on Contingent Valuation. Federal Register, 58(10):4602–4614. 15 The economist Claude Henry defended such a position some 15 years ago in environment-related issues. On the basis of examples in the United Kingdom, he showed how cost-benefit analysis could be a constructive language for expressing public concerns. His paper was an important step in convincing environmentalists that serious economic evaluation could be in their interest, and the public in general that economics was not the evil science that many believed it was (Henry, 1984; we do not know whether this seminal paper has ever been published in English).
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