From Boom to Busted: Trade Concerns under the WTO’s

SPS Agreement.

Lee M. PearsonCentre for Environmental PolicyImperial College London

Link to Presentation

APS Annual Meeting8, August 2012Providence, RI

Overview

• Introduction• International context• The balancing act of interests• The SPS Agreement: obligations and its use

• Specific Trade Concerns in Plant Health• Methods and Data• Specific Trade Concern examples

• Results and Discussion• What is contentious as reflected by SPS Specific Trade Concerns?• Are developing countries represented?• Does the value of trade matter?• Does the system address concerns?

• Future Work• Conclusion

Clash of Interests at International Scale“Traditional trade protection measures such as tariffs and quotas are falling away. But to some extent they are being replaced by domestic technical regulations…”

Alien species cause damage and losses in excess of $120B/year in the USA alone(Pimental et al, 2005)

Economic and Health Tensions

“A mild type of [cattle-plague or pleuro-pneumonia], in certain sections of our country, is the occasion of great loss to our farmers, and of serious disturbance to our trade with Great Britain [...] The value of neat-cattle exported from the United States [was] nearly double the value for the same period [last year], an unexampled increase of export trade. Your early attention is solicited to this important matter.”

- US President Rutherford B. Hayes, 1880

More history see: The Food Safety Network, University of Guelph

Balance of Costs/Benefits Make SPS Controversial

•Price of purchases•Concerns for quality•Perception of risk

Domestic Consumers

•Biosecurity costs•Export quality perception•Domestic competitiveness

Domestic Producers

•Uncertainty in evidence•Knowledge generation

Scientists

•Costs of inputs•Market access for exportsOther Domestic

Industry

•Market access•Compliance costs•Certifications costs

Foreign Industry

Government

The SPS Agreement

• Since Jan 1, 1995 WTO members must notify new or changed SPS measures that are likely to have a trade impact.

• SPS measure is any government measure applied to protect animal or plant life or health

• from risks arising from pest/disease spread,• from additives, contaminants, toxins or disease-causing

organisms in food, beverage or feedstuffs. • Measures:

• must be based on risk assessment (for regular measures)• must not be more trade restrictive than necessary • should follow international standards (OIE, Codex, IPPC), but

member can set individual Appropriate Level of Protection.

Who uses the SPS agreement?

(Aisbett & Pearson, forthcoming)(data: SPS – IMS)

What do they use it on?

(Aisbett & Pearson, forthcoming)(data: SPS – IMS)

Literature on SPS

• WTO Trade Report 2012 focused exclusively on SPS and TBT measures.

• SPS has heavy trade impacts• Tran, Wilson, & Anders 2011; Henson & Loader 2001

• Political Economy of SPS• Kono, 2006; Disdier et. al. 2008; Vogel 1995

Economic Literature

• Building Resilience into Agriculture Biosecurity• Waage & Mumford, 2008

• Myriad pest, disease, viral studies

Science Literature

• Resolving trade conflicts over food safety is the biggest challenges facing the WTO• Roberts & Unnevehr, 2005

• EC and USA have cultural differences which impact their approach to risk• Echols, 1998

Legal & Political Science

Specific Trade Concerns

• SPS Committee is a forum for discussion between WTO Members meeting quarterly

• STCs advantages for research:• Low cost for country to raise• Reflect issues in implementation• Reflect member’s understanding of agreement’s

purpose• Less political than disputes• Warnings of future disputes

Trade Concerns Show Implementation Challenges

Data

• SPS – IMS• Specific Trade Concerns

from 1995 to 2011

• UN COMTRADE• 4-6 digit level Exports /

Imports by product, country pair, year

• World Bank• GDP (constant 2000 USD)• Development status

• 81 plant health STCs• Multiple countries (83 obs)• Multiple products (112 obs)

Example of HS-digits• HS-08: Edible Fruit• HS-0805: Citrus fruit • HS-080510: Oranges

Note: How to get Interception/Rejection Data?

Research Questions for Plant Health Concerns

1. What are the most common concerns raised in the WTO with regards to plant health issues?

2. How do concerns vary across product? Across regions?

3. Are we effectively resolving our trade concerns about plant health?

4. Are developing countries represented in the process?

5. How does trade value interact with concerns?

• First date raised• Dates subsequently raised• Members maintaining the

measure• Members raising the concern• Products covered• Subject keywords• Status• Date reported as resolved• Description of content• Relevant documents• Members supporting the concern• Document title• Solution

The main data in a STC

Most Concerns about Vegetables and Fruit

HS codes 06 LIVE TREES &

OTHER PLANTS 07 EDIBLE

VEGETABLES 08 ED. FRUITS &

NUTS, PEEL OF CITRUS/MELONS

10 CEREALS 11 MILLING INDUSTRY

PRODUCTS 12 OIL SEEDS/MISC.

GRAINS/MED. PLANTS/STRAW

44 WOOD & ARTICLES OF WOOD, WOOD CHARCOAL

US and EU are Primary DiscussantsCountry Raising Concern Country Maintaining Measure

1. United States (22)2. European Union (13)3. Argentina (8)4. China (7)5. Canada (4)

1. United States (16)2. European Union (9)3. Japan (9)4. Australia (7)5. Brazil (5)

05

1015

2025

Num

ber S

peci

fic T

rade

Con

cern

s

Austra

lasia

East A

sia

Europe

Latin

Ameri

ca

North A

merica

Northe

rn Afric

a

SE Asia

South

Asia

Sub-S

ahar

an A

frica

Wes

t Asia

05

1015

2025

Num

ber S

peci

fic T

rade

Con

cern

s

Austra

lasia

Caribb

ean

East A

sia

Europe

Latin

Ameri

ca

North

America

SE Asia

South

Asia

Wes

t Asia

US and EU are Primary DiscussantsCountry Raising Concern Country Maintaining Measure

1. United States (22)2. European Union (13)3. Argentina (8)4. China (7)5. Canada (4)

1. United States (16)2. European Union (9)3. Japan (9)4. Australia (7)5. Brazil (5)

05

1015

2025

Num

ber S

peci

fic T

rade

Con

cern

s

APPPCCAN

COSAVECPPC

EPPOIA

PSC

Indep

ende

nt

NAPPO

NEPPO

OIRSA

05

1015

2025

Num

ber S

peci

fic T

rade

Con

cern

s

APPPC

COSAVECPPC

EPPO

Indep

ende

nt

NAPPO

OIRSA

Developing Countries Participate in Process

• Developed nations more likely to resolve disputes• Power dynamic at play? Or lack of scientific capacity?

    MAINTAINING MEASURE        Developed Developing   TOTALRAISI

NG CON

CERN

Developed 27(48%)

19(53%)

= 46(50%)

 

Developing 23(26%)

14 (36%)

= 37(30%)

    = =   =  TOTAL 50

(38%)33

(45%) =83*

(41%)

Why Resolution Status Might Matter

+ 57%

? ?

Does the amount of trade matter?

• Mean value of trade covered by concern between countries is $52M in year of dispute.

• Export share varies greatly• .000165% for EU’s trade of foliage to

New Zealand’s market• 97.5% Nicaragua’s trade of oranges

to Costa Rica• Market share varies greatly

• 99.5% of Guatemala’s avocados come from Mexico

• .0039% of USA’s wood packaging/crates come from Argentina

Raising Member

Maintaining Member

World

% export share

% market share

Does the amount of trade matter?

• Mean value of trade:• Resolved: $17.0M• Not Resolved: $73.2M

• Mean Market Share:• Resolved: 40.0%• Not Resolved: 22.8%

• Mean export share from raising country:• Resolved: 6.8%• Not Resolved: 18.6%

Raising Member

Maintaining Member

World

% export share

% market share

Suggests focus on small value problems of importance for Maintaining Members

Resolution is Clearly Difficult and Time Consuming

• Before resolution, concerns are raised around 3 times (2.8) on average

• Concerns that are resolved take 4+ years (4.4 years) on average

• Less than half (43%) of cases are ever reported as resolved

• .

Obligations Relevant for Trade Concerns• Article 2.2 – Measure applied only to extent necessary and not maintained

without sufficient scientific evidence• Article 2.3 – Measures do not arbitrarily discriminate between Members

where identical conditions prevail• Article 4.1 – Equivalence. Members should accept measures different from

their own if it achieves the equivalent level of protection.• Article 5.1-5.6 – Measures must be based on risk assessment that considers

scientific evidence and avoids arbitrary distinctions in the levels of risk in different situations. Such measures are not more trade-restrictive than necessary, taking into account technical and economic feasibility.

• Article 5.7 – If a lack of scientific evidence, members may adopt provisional measures and gather evidence to review in a reasonable period of time.

• Article 6.1-6.3 – Members shall consider level of prevalence of disease or pest by region and recognize pest-free or low-pest areas as demonstrated by exporter.

• Article 13 – Members shall formulate and implement measures in observance of the agreement by other than central government bodies.

General Categories of Concerns

1. Pest-free Area Recognitiona) “In October 2006, the United States expressed concerns regarding

Indonesia's Decree 37 implemented in March 2006, which established new phytosanitary requirements on fruit imports that failed to recognize fruit fly free areas in the United States.” – STC243

2. Regulatory Time Delaya) “The undue delays and changes in the procedures undertaken by

Australia were a concern to Chile.” – STC1943. Disproportionately Trade Restrictive

a) “Canada urged India to use the least trade-restrictive measures as stipulated in the SPS Agreement.” – STC186

4. Disputed PRA or Scientific Evidencea) “asked Japan to explain the scientific rationale behind its measure, and

the risk assessment it was based on” – STC565. More Information Requested

a) “Australia was a major grain exporter and was especially interested in the documents which should accompany shipments.” – STC174

Multiple Concern Types often Raised

“In March 2011, Rica stated that Costa Rica was free from Chrysanthemum White Rust and had requested the United States to reduce post-entry quarantine to two months. However, the United States continued to request a post-entry quarantine of six months. On 27 April 2010, APHIS had provided a post-entry permit restricting chrysanthemums from Costa Rica to 2000 cuttings, this was a disproportionate measure...” – STC316

No Trend in Type of Concern by Product Type

HS codes 06 LIVE TREES &

OTHER PLANTS 07 EDIBLE

VEGETABLES 08 ED. FRUITS &

NUTS, PEEL OF CITRUS/MELONS

10 CEREALS 11 MILLING INDUSTRY

PRODUCTS 12 OIL SEEDS/MISC.

GRAINS/MED. PLANTS/STRAW

44 WOOD & ARTICLES OF WOOD, WOOD CHARCOAL

Raised by USA Raised against USA

By Member The Concern Type Matters – US example

• US predominately petitioning other countries on scientific evidence• Concerns raised against US predominately about regulatory delays

and trade restrictiveness.

Regionally Complaint Type Varies

• Many regions not actively participating

• Africa of particular concern

• North America raises most concerns about scientific evidence

Regionally Complaint Type Varies

• East Asia questioned about scientific evidence

• North America seen as too trade restrictive and introducing unnecessary delays.

Conclusions

• Most concerns (~60%) are not resolved• Resolving has a large trade impact (>50% increase in under decade),

but concerns raised multiple times (2.8) and a decision takes years (4.4)• Still need for capacity building of developing countries and further

analysis of their measures even though some promising signs of participation in process.

• Few attempts at recognizing or challenging on equivalence• Possibly due to challenge this poses to domestic regulations

• Concerns are raised mostly between geographically disparate members• 93% of concerns are raised between different regions and 84% different

NPPOs (with APPC and CPPC accounting for the difference)• Regional variation in perceptions of risk and goals of SPS agreement

• North America challenging a lack of scientific evidence for policies• North America challenged to make regulation decision quicker and consider

the alternative measures with less trade impact

Questions to Keep in Mind to Ease Concerns

• Does my planned biosecurity regulation treat domestic production and international imports equivalently?

• Have I looked at costs of alternative methods to reduce the risk?

• Can I apply regulations at a finer scale?• What ports would be affected?• What season is a risk for contamination?• What season is a risk for introduction?

• Can I get buy-in to the scientific process from countries that constitute our major import sources?

• How do we come to a common approach to risk management and dealing with uncertainty across commodities? Across countries?

• What moves a concern to a dispute?

• What are the barriers to developing countries successfully resolving concerns?

• How do we deal with public perception of risk?

• Relationship between loss of tariff protection and concerns raised over trade restrictiveness

• Logit model on likelihood of concern resolution given trade and economic factors

Immediate Open-ended Questions

Further Work

Websites Works Cited

Links to more information

• WTO SPS IMS website• http://spsims.wto.org/

• SPS Training Module• http://

www.wto.org/english/tratop_e/sps_e/sps_agreement_cbt_e/signin_e.htm

• Standards and Trade Development Facility• http://

www.standardsfacility.org/en/index.htm

• Official WTO Disputes citing the SPS Agreement• http://www.wto.org/english/tratop

_e/dispu_e/dispu_agreements_index_e.htm?id=A19#selected_agreement

• Qiqqa Library to all References:• http://bit.ly/MglOTb

Questions?

Acknowledgement:US EPA Marshall Scholarship

L.Pearson10@imperial.ac.uk

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