The Role of SPS Barriers in Fruit Juice and Fresh Fruit Markets

The Role of SPS Barriers in FruitJuice and Fresh Fruit MarketsSuzanne D. ThornsburyPresented to the 7 th InternationalEconomic Outlook Conference for Citrusand Non-Citrus JuicesOctober 26-27, 2000Orlando, Florida

Sanitary and Phytosanitary Barriers•Non-tariff restrictions on international trade to protectplant, animal or human health in the importing country•Widely used, most recognized as justified regulatoryintervention•Can be a nontransparent means to limit free-tradeopportunities•Impacts on the economics, the international discipline,and the access to fruit juice and fresh fruit markets

The Economics of Intervention•Any market intervention will have distributionaleffects within society•SPS barriers may raise net benefits to society includingbenefits to producers and consumers•Once established a SPS barrier will (at least partially)insulate the domestic economy from conditions inworld markets and may provide protection againstexotic pest or disease of concern

Implications for Risk•SPS barriers provide a tool to offset risk for theimporting country•Probabilities of pest infestation, establishment, andimpacts estimated by physical scientists•Economic evaluations often fail to take these risksinto account and merely consider trade flows

Implications for Risk•SPS barriers introduce additional risks for exportingcountries•Uncertainty over gaining and maintaining marketaccess and trade volume can reduce shipments•Risk is magnified for highly perishable productssuch as fresh fruit

Who pays the cost of enforcement?•Depends on policy instrument used to implementthe regulation•Depends on the number of trading partnersaffected

The SPS Agreement•Primary instrument for multilateral regulation ofSPS barriers•Negotiated during the GATT Uruguay Round amongconcerns over the ability of countries to circumventdisciplines of the Agreement on Agriculture•Provides guidelines for government behavior•Both substantive and procedural disciplines

The SPS Agreement•Recognition of legitimate rights of importing countriesto protect national health and safety•Encouragement of harmonization based on standardsset by recognized international organizations•Scientifically based assessment of risk

The SPS Agreement•Applied only to the extent necessary•Do not unjustifiably discriminate between Members•Equivalence•Regionalization•Notification

SPS Notifications Circulated, 1999WTO MembersMembersMeasures Notified Notifying--- number --- -- percentage---High Income 32 42Upper-Middle Income 25 54Lower-Middle34 38IncomeLow Income 4 10Total 95

SPS Barriers as Disguised Protection•Political incentives remain to intervene in fruitjuice and fresh fruit markets•Interests of producers and consumers often overlapwith concerns such as food safety or resourceconservation•Cost of formal action by competing nations can bevery high

Questionable SPS Barriers to U.S. Exports,1996 Survey ResultsGeographic RegionProductAfricaAmericasEastAsiaEuropeMiddleEastOceanaTotalNumber of Barriers and Estimated Trade Impact in $ MillionCitrus 511.6787.523.014102.0Non-citrusfruits14.02165.023301.4717.052388.3All fruit 34.813.129.0616.9ProcessedFoods10.129.03978.0313.114.7110.0111015.5Total 24.13191.3341370.6313.114.71239.0831522.8

SPS Barriers in Fruit Juice and FreshFruit Markets- some examples•Grapefruit juice and German maximum residue limits•Control of fruit fly transmission between Mexicoand the U.S.•Varietal testing requirements in Japan

Preliminary Positions for the SPSAgreement in the Next Round•Currently no emerging consensus (or strongpositions) to reopen the SPS Agreement

Issues for the Next Round•How to enforce discipline of the agreements?• What is the role of economic cost-benefit analysisin setting standards?•Where are biotechnology issues governed?•Is a multifunctional definition of agricultureacceptable?•What, if any, concessions will be offered todeveloping or least-developed countries?