1. Standards as Challenges to the World Trading System Monika Tothova James Oehmke Michigan State University AAEA, Denver 2004 Funding support from the Elton R. Smith Endowment is gratefully acknowledged

2. What are Standards? Standards Standards ISOISO CODEXCODEX Private standards (e.g. grocery chains)Private standards (e.g. grocery chains) Technical Regulations Technical Regulations Tetracycline levels in beefTetracycline levels in beef GMO content of foodstuffsGMO content of foodstuffs

3. Vertical and Horizontal Differentiation Horizontal Differentiation—difficult to come up with a common standard. Horizontal Differentiation—difficult to come up with a common standard. Products have different end uses.Products have different end uses. Products have same end use but different compatibilities (Networks): VHS and Betamax; Different electrical currents, sockets.Products have same end use but different compatibilities (Networks): VHS and Betamax; Different electrical currents, sockets. Vertical differentiation—differing standards cause supply chain inefficiencies Vertical differentiation—differing standards cause supply chain inefficiencies Strict food safety standards at grocery level, not at producer level.Strict food safety standards at grocery level, not at producer level.

4. Aren’t Standards Supposed to Encourage Free Trade? Trade with mutually agreeable standards Trade with mutually agreeable standards NAFTANAFTA EUEU WTO?WTO? Trade with unilateral standards Trade with unilateral standards EU and GMOsEU and GMOs Dolphin free tunaDolphin free tuna US labor, environmental standardsUS labor, environmental standards

5. Process Standards as Trade Barriers Different cheese processing methods Different cheese processing methods All traded cheeses use pasteurized milk (but some cheese better when made with un-pasteurized milk)All traded cheeses use pasteurized milk (but some cheese better when made with un-pasteurized milk) Other parts of cheese production can increase/decrease likelihood of food borne illnessOther parts of cheese production can increase/decrease likelihood of food borne illness

6. Food Safety: Small Country Perspective To obtain gains from trade, small country usually adopts importing country’s food safety standards To obtain gains from trade, small country usually adopts importing country’s food safety standards Can lead to loss of diversity/variety in product Can lead to loss of diversity/variety in product No economies of scale if local varieties produced only for domestic market No economies of scale if local varieties produced only for domestic market Costs of meeting international standards may cause restructuring of domestic supply chain Costs of meeting international standards may cause restructuring of domestic supply chain

7. Food Safety: Large Country Perspective Lower cost usually one dominant concern Lower cost usually one dominant concern Affordable fresh fruits, vegetables in winterAffordable fresh fruits, vegetables in winter Food safety also a dominant concern Food safety also a dominant concern Food is “safe” if it meets large country’s idea of safety.Food is “safe” if it meets large country’s idea of safety. May rely on history of food illness in countryMay rely on history of food illness in country Implies standardization of product, few imports of country-specific varieties. Implies standardization of product, few imports of country-specific varieties. International food safety guidelines largely reflect large-country positions International food safety guidelines largely reflect large-country positions

8. Can the Trading System Deal With Different Perceptions of Food Safety? For food borne illnesses such as salmonella, E. coli, food commonly defined as safe if no one gets sick For food borne illnesses such as salmonella, E. coli, food commonly defined as safe if no one gets sick Methods of achieving salmonella, E. coli safety may differ: e.g. irradiation acceptable in some cases but not in others Methods of achieving salmonella, E. coli safety may differ: e.g. irradiation acceptable in some cases but not in others For some issues (tetracycline in beef) can produce at the strictest standard or target a particular importer For some issues (tetracycline in beef) can produce at the strictest standard or target a particular importer

9. Food Safety: Large Country Perspective Exception is GMOs Exception 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 trade GMO standards as barriers to trade Are genetically modified foods the same foods produced by a different process, or are they different foods?Are genetically modified foods the same foods produced by a different process, or are they different foods? Emergence of two ‘clubs’ of countries with different levels of standards: EU+ very tight, US+ very laxEmergence of two ‘clubs’ of countries with different levels of standards: EU+ very tight, US+ very lax

10. Consumers, Labels and Standards Labels can be a form of standards Labels can be a form of standards For the most part allowed under WTO rules if for consumer information and applied evenly to domestic, foreign producers For the most part allowed under WTO rules if for consumer information and applied evenly to domestic, foreign producers EC has approved guidelines for labeled coexistence of GM, GM-free foods (and organic) EC has approved guidelines for labeled coexistence of GM, GM-free foods (and organic) Implementation of coexistence guidelines unlikely to be supported by consumers, consumer/taxpayers or grocery industry Implementation of coexistence guidelines unlikely to be supported by consumers, consumer/taxpayers or grocery industry

11. Conclusions Food safety standards become barriers to trade when countries have differing food safety perceptions, definitions, or standards Food safety standards become barriers to trade when countries have differing food safety perceptions, definitions, or standards Global food safety standards may not be attainable in all cases Global food safety standards may not be attainable in all cases Cannot write a complete contract regarding food safety Cannot write a complete contract regarding food safety What is the acceptable level of risk? What is the acceptable level of risk? Consumer preferences may override technical regulations Consumer preferences may override technical regulations