Carter Seminar at INEA 19/6 07/04/20031 ISSUES FOR DISCUSSION â 1. How to fit complex (EU) regulation into the model â 2. The analytical model: regulations and scenarios â 3. What do we miss: non-pecuniary externalities on GM-free production â 4. International agreements: trade effects and harmonization

2 Carter Seminar at INEA 19/6 A GENERAL INTRODUCTORY COMMENT:  There is a well-established set of models on GMOs trade and labeling scheme/regulations  EU-Italian research is lagging behind in using these tools in analysing the GMOs debate in EU  However: is this modelling approach generally able to take into account most critical issues on the agenda?  Put in another way: are these models missing (ruling out) something which is, indeed, crucial for the EU position/policy and EU-USA controversy?

3 Carter Seminar at INEA 19/6 1 - Fitting the EU regulation:  The model depicts EU regulation as: mandatory labeling upon approval  It is also stated that welfare effects (labeling/harmonization) are not so relevant for (mainly) feed crops (soybean-corn) However:  EU regulation imposes labeling on both food and non-food products, on both GMOs and products containing GMOs  This regulation (dir 2001/18) is recent and still uncertain (e.g., tolerance threshold):  For wheat  For soybean and maize: meat and labeling+traceability  For the moment we know: there is a specific regime for soyabean and corn; but:  Not all varieties are approved  Some countries are still banning approved varieties (e.g Italy)  GM-free productions using soybean-corn (organic, typical products)

4 Carter Seminar at INEA 19/6 2 - Regulations and labeling scenarios (table 2):  A labeling scenario is a set of regulations and consumers/producers behaviour: trade and welfare effects derived  Who really knows which is the behaviour upon regulation? Should we need a model deriving behaviours from regulations? The No-labeling scenario:  Why no-labeling instead of No (approved) GM production?  Why USA (Country A) should not produce GM food under no- labeling while they do under current regulations (the internal regulations is the same)? EU producers and consumers:  Why EU farmers-food sector never produce GM food?  Why EU consumers do not use GM food under mandatory labeling?  Is the signal so strong also for (not so) tolerant consumers?

5 Carter Seminar at INEA 19/6 3 - Costs of labeling/segregation:  Marginal cost of labeling and segregation are fixed (independent on labeling scheme) but the former is greater (  <K)?  What happens if not? What happens if  =f(K) (e.g. the greater K, due to strong controls and segregation, the smaller is  )? GM-free productions (organic, typical-quality products):  Introduction of GM crops create a negative (non-pecuniary) extenality in any labeling scheme (segregation costs; 0 tolerance)  The costs are higher with voluntary labeling and no labeling (but with GMOs production):  +K.  Why the polluter pays principle does not apply?

6 Carter Seminar at INEA 19/6 4 – International agreement on harmonization:  Can be reached in a technical/scientific context (e.g. Codex Alimentarius). But:  It is not based on the scientific ground  It can not deal with trade effects of regulation  WTO has to be involved (no dispute):  Can this harmonization be admitted within SPS (or TBT)? Harmonization or compensation:  If we look for general welfare gains (Pareto enhancing solutions), why, within WTO, we do not accept different regulations (TBT) and compensate trade effects?  Bagwell-Staiger modelling  How much these modelling approaches differ?  Which is the “best” (most affordable) approach for reaching an international agreement?