A Review of theoretical approaches and mathematical models for non-tariff barriers to trade: Sanitary and Technical Barriers for agricultural products Sponsored by the Hewlett/IATRC Program – Capacity Building Washington – DC Jan 9, 2008 Sílvia Helena G. de Miranda – University of São Paulo Prof. G. Edward Schuh – University of Minesotta

Outline 1- Introduction 2 – Objectives 3 - Identifying Sanitary and Technical Barriers to Trade 4 - Mathematical Approaches to Measure Effects of Sanitary and Technical Barriers to Trade 5 - Public Policy Choices – Models to Support Government Decisions on Sanitary and Technical Issues 6 - Final Comments: Challenges for the Developing Countries

1 - Introduction - Sanitary (SPS) and technical barriers: most of problems are related to voluntary standards - Cause losses in competitiveness, raise costs, can exclude suppliers from the markets - Concerns with food safety, territory and environmental protection, consumer security are spreading all around the world: - consequently stricter regulation will prevail - consumers will benefit - difficulties for developing countries - lags between richer and poorer increase - What technical or sanitary measure consists on a barrier? - How to disentangle legitimate from illegitimate requirements?

2 – Objectives To present an updated review of literature on: * - the conceptual background for sanitary and technical barriers to trade; - the methodologies available to quantify the effects of such barriers: advantages and limitations *Highlighting: - the new features of this subject - the developing countries challenges; - the support to public policy

3. Identifying Sanitary and Technical Barriers to Trade: Divergences and Convergences of Concepts and Definitions Regulation x Standard What are the motivations to raise regulation/standards? Trade effects and welfare effects Even if voluntary (private) standards are affecting trade flows, for the governments they are not considered barriers, in the sense of being subjected to public policy intervention; –Nor are they for the international organizations; Measures that restrict trade by chance while correcting market inefficiencies and addressing legitimate concerns should not be qualified as an NTB (Beghin and Bureau, 2001) However, the government is expected to provide infrastructure to support the compliance of countries to standards.

3. Identifying Sanitary and Technical Barriers to Trade: The Classification of NTB and the Legitimacy Issue Checklist: –TPSC (1998) – for SPS –Popper et al. (2004)/NIST – for TBT Classification 1) For Technical barriers –Roberts et al. (1999): by police and by scope; by regulatory goal – verify if it is welfare-reducing or welfare-enhancing –Josling et al. (2004): identify the regulatory agents; dimensions of the measure; the tools employed by regulatory measures 2) For SPS and TBT measures - Miranda and Barros (2005): trade and welfare effects; legallity; scientific consistency – in order to evaluate and rank the measures by their legitimacy and relevance

3. Identifying Sanitary and Technical Barriers to Trade: Collecting Data for Sanitary and Technical Barriers to Trade Inventory approach and surveys 1 - Inventory Approach: Notifications, Specific Trade Concerns –Difficult to have a proper database for sanitary and technical barriers to trade –SPS and TBT’s notifications: may highlight trends in terms of sanitary and technical regulation –Closer to identifying barriers STC and data on refusals in commerce: only the US has the registers –Source of data for modelling – but with limitations

Table 1 – Data used for inventory approaches regarding SPS and TBT issues Source: elaborated by the authors. * Apud Beghin and Bureau (2001)

3. Identifying Sanitary and Technical Barriers to Trade: Collecting Data for Sanitary and Technical Barriers to Trade 2 – Surveys -Also a method for collecting data, quantitative or qualitative information; -There are restrictions on using this approach for quantitative studies: quantification approach is appropriate, otherwise if it deals with measuring the compliance costs faced by firms and industries; -Literature: OECD (1999), USDA (1996), Roberts and De Remer, 1997; Thornsbury et al., 1999; Henson et al. (2000) Wilson and Otsuki (2004), Burnquist et al. (2006), Faria and Burnquist (2006), Baller (2007)

4 - Mathematical Approaches to Measure Effects of Sanitary and Technical Barriers to Trade Previous works on this topic: Deardorff and Stern (1998) Laird (1996) Maskus and Wilson (2001) and Beghin and Bureau (2001)

List of commonly used methods applied to san/tech barriers quantification The Price Wedge Method: trade-effects Gravity models: trade-effects Stylized microeconomic approaches: what is the effect of standards on the structure of competition among firms? Multi-market models and sectoral approaches: partial equilibrium models – trade effects and also welfare-effects

Public Policy Choices – Models to Support Government Decisions on Sanitary and Technical Issues For Public policy: it is important to work with an ex-ante approach –Cost-Benefit Analysis- Risk assessment –CGE –Relevance Index For developing countries: concerns on providing tools to have a better resource allocation

Final comments Sanitary and technical requirements imposed by governments and companies are increasing and becoming more restrictive Challenge for developing countries: higher production and marketing costs to comply with the requirements and tecnological lags Enlarge the conceptual framework for analyzing non-tariff barriers to account for voluntary standards and other trends being faced by companies in the day-to-day experience of international trade! The developing countries will probably increase their demand on public agents to provide conditions to help achieve those requirements It is important to evaluate how to deal with voluntary standards in the international organizations involved with trade issues

Final comments It is important to have tools to help in the cases in which the protectionist component is unclear but where the regulations have a genuine concern about consumer protection: the legitimacy issue A more active participation of developing countries in international fora to discuss sanitary and technical regulation and normalization For dealing with impacts of sanitary and technical barriers – it is still better to use a case-by-case approach Improve ex-ante analytical tools – public policy A technical barrier to trade that may become increasingly important in the future involves measures that may be out in play to attenuate global warming – new trends for technical barriers Next steps: a graphic analysis, further developments in CGE models