1. Animal Disease Outbreaks and Trade Bans
WTO Impacts on U.S. Farm Policy
Southern Regional Trade Research Committee (S1016)
World Trade Center
New Orleans
June 1-3, 2005

2. School of Economic Sciences
Dr. Thomas Marsh
Associate Professor, School of Economic Sciences
Fellow, IMPACT Center
Washington State University
Dr. Thomas Wahl
Professor and Director, IMPACT Center
Tamizheniyan Suyambulingam
PhD Student
School of Economic Sciences
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Overview
Provide background information/motivation
Objectives
Examine selected historical outbreak data
Highlight selected WTO SPS policies
Discuss a game theory model focusing on
Disease outbreaks
Trade bans
Perceived risk
Draw some implications
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4. Background Information
Animal diseases are public goods that impose externalities on trade throughout the world.
Typically, trade bans are imposed on exports from counties infected with a disease by importing countries.
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5. Background Information
Even though the WTO agreements call for scientific basis of trade barriers, imposing trade bans are controversial, and costly
Moreover, re-establishing trade is relatively difficult to achieve
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6. Background Information
Key concerns
Importing countries impose trade sanctions based on perceived risks rather than real risks.
WTO regulations are not disease specific, but rather generically defined to accommodate a myriad of animal and plant diseases.
WTO regulations are centrally planned schemes that are rule-based and not market-based.
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Objectives
Review selected livestock outbreak data and policies governing major animal disease outbreaks across the world.
Conceptually assess the effectiveness of trade bans as a mechanism to control these outbreaks.
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Outbreak Information
Focus on selected diseases
Avian Influenza (AI)
Bovine Spongiform Encephalopathy (BSE)
Classical Swine Fever (CSF)
Foot and Mouth Disease (FMD)
World Organization for Animal Health (OIE)
Outbreak Data
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Outbreak Information
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Outbreak Information
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Summary: Outbreaks
The data exhibit that temporal trends and skewness are important characteristics of disease outbreaks.
Disease outbreaks can be spatially concentrated and clustered regionally around the world.
Economic impacts
Outbreak costs are estimated to exceed billions of $US
Export losses alone due to the single BSE case in 2003 for the US range from $US 3-4 billion (Coffey et al. 2005)
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WTO SPS Standards
The apparent role of the WTO is to maximize security against the international spread of disease with a minimum interference to world trade.
WTO regulations are rule-based schemes covering risks to humans from diseases carried by animals, plants and their products; the entry or spread of pests; and additives, contaminants, toxins, and disease-causing organisms in food and beverages.
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Trade Ban Game
Should a country impose a trade ban on imports from another country in the event of an animal disease outbreak?
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Trade Ban Game
Game theory model focusing on trade bans in the event of disease outbreaks with perceived risk (Bauch and Earn 2004)
Game theory is relevant in modeling interdependent behavior in the presence of risks, where risks faced by any one agent depend not only on its choices but also on those of all other.
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Trade Ban Game
Let P denote an individual country’s strategy to ban trade and p be the proportion of other countries instituting a trade ban (i.e., the ban coverage level)
Pure strategies are
P=1 impose a ban with probability 1
P=0 not impose a trade ban.
A mixed strategy arises if 0<P<1.
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Trade Ban Game
Expected payoff to country k facing perceived morbidity risks rb (with a trade ban in place) and ri (from infection with no trade ban) is
where is the probability that an unprotected country’s livestock will be infected.
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Trade Ban Game
Intuitive outcomes are driven by thresholds
Thresholds depend on
Perceived risks (both subjective and objective)
Disease specific attributes in
Likely also perceived
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Trade Ban Game
Some implications
Diseases have differing characteristics that influence individual country strategies
FMD and CSF predominately have morbidity risk for animals
AI and BSE have morbidity risk for animals and humans
FMD, CSF, and AI are highly contagious
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Trade Ban Game
Some implications
Temporal issues and patterns are important.
AI has immediate risks for animals and humans
BSE exhibits temporal patterns that are latent in nature, having longer-term effects for animal and human risks
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Trade Ban Game
Some implications
Spatial issues and patterns of diseases are important.
Assuming uninfected countries can be isolated from infected regions of other countries, then countries should implement a trade ban with some nonzero probability.
Trade bans are likely to be ineffective and remain sufficiently risky if there is unfettered black market trade or livestock smuggling across borders.
Effective border monitoring of adjacent countries, border buffer zones, or regionalizing the outbreak are essential for a trade ban to be successful.
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Summary
Specific model outcomes are that
Perceived information is critical to the likelihood of a trade ban
Generic trade bans are not necessarily effective nor efficient tools in the event of a trade ban
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Summary
General recommendations are that
Because risks are often based on public perception it is vital to have effective risk communication strategies
Public policies should be mixed with innovative market-based mechanisms and private incentives to effectively control disease outbreaks.
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Questions/Comments?
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