Lecture 37.
Food standards and international trade

What we want to learn about this topic

• why food standards may cause problems for international trade
• WTO rules governing food standards - the Agreement on Sanitary and Phytosanitary Standards (SPS Agreement)
• the pressures for change to these rules

Short introduction to the issues

The issue

While policy reform is contributing to a gradual deregulation of the agricultural sector, where food safety and quality is concerned increased regulation is the norm. Food standards may facilitate trade by alleviating consumer fears about imported products. But they can also act as trade barriers where different standards exist in different countries. This can occur for a number of reasons.

• Differing tastes, incomes and acceptable levels of risk lead to differing regulations. Developing countries cannot always afford the same quality standards as developed countries, so their firms may come up against regulations which constitute a de facto barrier to exports.
• Various options may exist to ensure a similar level of consumer protection. To ensure a product is safe, either a government may ban certain techniques (i.e. control the process of production) or lay down performance standards (such as maximum tolerance levels for residual pathogens). But if one country's standards are based on the first option and another country's are based on the second, firms cannot always produce for both markets, since their exports come up against technical barriers and additional control costs.
• Special interest groups may argue for health and safety barriers to imports, even if health risks are minimal.

The policy alternatives

From point of view of international trade rules, issue is to find the balance between disguised protectionism and legitimate objectives of food safety. Hard to find objective procedures because:

• scientific evidence on health impacts may be limited;
• consumer fears may derive from a mixture of health, environment and ethical concerns (e.g. GMOs) and not just food safety alone.

The degree of co-operation between countries in dealing with food standards is referred to as the level of regulatory rapprochement, and ranges from: (Hooker and Caswell 1999)

• harmonisation: standardisation of regulations in identical form
• mutual recognition: acceptance of regulatory diversity as meeting common goals (sometimes called reciprocity or equivalency)
• co-ordination: gradual narrowing of relevant differences between regulatory systems, often based on voluntary international codes of practice (sometimes called alignment)

These rapprochement levels range along a spectrum from weak (no rapprochement, simple co-ordination) to stronger (mutual recognition) to strongest (harmonisation).

In creating a single market for food products, the EU first attempted harmonisation but subsequently pushed ahead with mutual recognition. WTO SPS Agreement focuses on harmonisation in Article 3 where it encourages countries to adopt recognised standards, guidelines and recommendations. Article 4 on equivalence suggests a format for how nations should evaluate non-identical SPS regulatory regimes (Hooker and Caswell 1999). The rest of this lecture explores the SPS rules.

WTO rules on import restrictions

Article XX (b) of the original GATT agreement in 1947 covered sanitary and phytosanitary measures impinging on trade. This article allowed countries to employ trade barriers "necessary to protect human, animal, or plant life or health" which would otherwise be illegal so long as "such measures are not applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or as a disguised restriction on international trade". However, Article XX had no teeth. There was no definition of the criteria by which to judge "necessity," and there was no specific procedure for settling disputes on such matters. The attempt in the Tokyo Round to improve this situation through a technical barriers to trade agreement (1979) known as the Standards Code also failed. Though a dispute settlement mechanism was introduced and countries were encouraged to adopt international standards, relatively few countries signed the code, and a number of basic issues were still unresolved. Intensive negotiations in the Uruguay Round led eventually to the new SPS Agreement, which tried to repair the faults of the existing rules, and to the TBT Agreement, which modestly improved other aspects of the Standards Code.

SPS Agreement

Principles

The WTO Agreement on Sanitary and Phytosanitary Standards applies to standards and regulations relating to the health of animals, plants and humans. The key principle underlying the SPS Agreement is that countries have the right to decide on the measures they deem necessary to protect human, animal or plant life or health. However, to prevent abuse, certain disciplines are applied. Measures should be based on scientific principles, should not be maintained without scientific justification, and should not be applied in an arbitrary or unjustifiable way.

A two level process is embodied in the SPS Agreement (Hooker and Caswell 1999). First, is the SPS regime based on an international standard (and as such has it been implemented in a manner that maintains this standard?) Failing this, has the country supplied a valid risk analysis in the selection of the regulatory regime?

If it passes this test, then the question is whether the trade impacts are proportional to the objective of the regime (i.e. have alternatives been considered for implementation and their trade effects considered?)



Source: Hooker and Caswell 1999

Risk analysis - the role of science

The SPS Agreement can be analysed along the three dimensions of risk analysis discussed in Lecture 34: risk assessment, risk management and risk communication.

• Risk assessment. SPS Agreement explicitly requires Members to base their SPS measures on a risk assessment based on sound science. Often seen as purely technical analysis. However, there is no agreement on what constitutes justifiable risk or 'acceptable risk' as mentioned in the SPS Agreement. There is also the problem if science is ambivalent or if the likely dangers are perceived to lie in the future (see discussion of precautionary principle below). SPS Agreement also 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.
• Risk management. Here again, countries differ in their approaches to risk management. Some countries might espouse risk elimination (e.g. ban on cheese made from unpasteurised milk) while others emphasise the possibility of risk control. Where there are alternatives, SPS Agreement requires governments to select those which are the least trade restrictive required to meet their health objective. Furthermore, if another country can show that the measures it applies provide the same level of health protection, these should be accepted as equivalent.
• Risk communication.This is covered in the SPS Agreement by the transparency requirements (other countries must be notified about controls) and the more general need for Member countries to openly exchange research and communicate in international fora. These fora include

the Codex Alimenatarius Commission (Codex)
the International Plant Protection Convention (IPPC)
the International Office of Epizootics (OIE)

The role of international standards

SPS Agreement highlighted the importance of the work of international organisations, such as Codex. If a country bases its food standards on an international standard accepted by one of these three organisations, it is presumed to be beyond challenge. But some consumers and governments not satisfied with some Codex standards.

• standards accepted by scientists do not always have an indisputable scientific foundation; some are completely revised at various times and scientific unanimity is seldom achievable.
• international standards can be put to the vote at Codex and may be passed by a small majority, although consensus is the rule. Not all countries are willing to acknowledge the legitimacy of risk thresholds imposed on them in this way.
• concern about industry influence on the recommendations made, as many committees are staffed by industry scientists. See, for example, criticism by Consumers International that Monsanto was informed of confidential discussions on BST ruling and that ex-Monsanto scientists are involved in the decision process on BST, a product which the firm produces.

The precautionary principle

Consumer and environmental groups argue for the inclusion in SPS Agreement of a precautionary principle, which would allow exceptions to the regulations where scientific evidence is insufficient or there is scientific uncertainty. The principle is recognised in several international agreements, e.g. UNCED Rio Declaration, Framework Convention on Climate Change.

Article 5.7 of the SPS Agreement indicates that if relevant scientific evidence is insufficient, members may adopt SPS measures, on a provisional basis, while seeking additional information about the risks posed by a hazard. But controversies remain:

• The provision is more restrictive than what many activist groups would like, e.g. qualification by the word 'provisional'.
• Treatment of uncertainty.Many types of uncertainty are not capable of being captured in conventional risk assessment. Current risk assessments can only characterise some of the potential outcomes of the use of new products.
• Burden of proof issue. WTO regulations and other international trade rules increasingly assume that new products are safe until proven otherwise: the burden of proof falls heavily on those who are worried about unforeseen or untested safety and environmental issues. The debate about the safety of the bovine somatotropin (BST) growth hormone is a recent example. It has fallen to the European Union (EU) to provide evidence to support its doubts, rather than the producer of BST to demonstrate its safety. So the burden of proof falls on the regulator rather than the proponent of the technology. The recent decision of the WTO Appellate Body in the EU beef hormones case that the burden of proof fell on the US to prove that hormone treatment was safe was an important reversal of this principle.

Reading suggestions

Prevost, D. 2003, Module 3.9 SPS Measures, part of an online course on dispute settlement prepared by UNCTAD.
(teaching material prepared for an online course with useful summary review questions at the end of each section)

Roberts, D. and Unnevehr, L., 2003. Resolving Trade Disputes arising from Trends in Food Safety Regulation: The Role of the Multilateral Goverance Framework, Chapter 3 of Buzby, J. ed., International Trade and Food Safety: Economic Theory and Case Studies, Report No. 828, Economic Research Service, US Department of Agriculture.

O'Connor, B., 2002, Sanitary and Phytosanitary Measures and Non-Tariff Barriers to Trade under the WTO and Cotonou Agreements, Paper to CTA International Seminar, Brussels, November 2002
(Reviews the principal provisions of the SPS and TBT Agreements as they affect food trade, and asks whether there are barriers to trade based on EU SPS and TBT standards)

Supplementary references

Jensen, M. 2002 Reviewing the SPS Agreement: A developing country perspective, Centre for Development Research Working Paper No. 03/2002, Copenhagen (Note: Large file 0.9 MB).
(although the focus is on the effect of the Agreement on developing countries, the report provides a good overview of the Agreement itself and how it has worked).

OECD, 1999. Food Safety and Quality: Trade Considerations, OECD, Paris. (OPUB OECD FOOD 1C:12)
(useful short overview of the issues, with a chapter on the contributions of economic analysis. Annexes provide descriptions of the main agreements and international standards organisations relevant to food safety issues).

Roberts, D., 1998. Implementation of the WTO Agreement on the Application of Sanitary and Phytosanitary Measures: the First Two Years. Working Paper 98-4, International Agricultural Trade Research Consortium.
(Reviews the origins and principal provisions of the SPS Agreement, provides an extensive analysis of the EU Hormones case and the role of risk assessment, and evaluates whether the Agreement struck the right balance between allowing protection while discouraging regulatory protectionism)

Web resources

European Commission DG Health and Consumer Protection Food Safety website, including link to the European Food Safety Authority. DG Health and Consumer Protection have produced a Guidance Document related to import requirements and the new rules on food hygiene and on official food controls for exporters from third countries. US FAS GAIN Report on EU traceability requirements for exporters.

World Health Organisation food safety website.

Codex Alimentarius website.

WTO Sanitary and Phytosanitary Measures gateway