Food Safety Standards, Regulations and Their
Impact on International Trade
Processed
food exports to developed country markets from many developing countries have
emerged as a potentially major new source of dynamic export growth in recent
years, where this potential has been exploited by many countries which has
created many challenges. In particular, the capacity of developing country
exporters to penetrate these markets depends critically on their ability to
meet increasingly more stringent food safety standards imposed in developed
countries. Not only are these standards typically much higher than those
prevailing in developing countries, and often difficult and costly to meet, but
they are also subject to frequent changes. Such changes are to be expected,
given advances in scientific knowledge about health hazards, improvements in
food processing technology, and the highly income-elastic consumer preferences
for higher safety standards. However, some of the changes have provoked strong
suspicions that food safety standards are being used as a non-transparent,
trade impeding protectionist tool, rather than as a legitimate instrument for
the protection of human, plant and animal health.
Sanitary and
Phytosanitary Standards
Primarily,
food safety is a ‘luxury’ good whose demand rises as income levels rise, and
greater prosperity tends to be accompanied by increased demand for more
stringent Sanitary and Phytosanitary Standards(SPS)in developed countries. Many
in developed countries see the much laxer SPS standards that often prevail in
developing countries as a threat precipitating ‘a race to bottom’. Secondly, and perhaps more importantly, as
traditional trade barriers such as tariff and quantitative restrictions
continue to decline, protectionist interests are likely to make increasing use
of food safety regulations and other technical barriers to block trade. Thus, Food-safety
standards are measures of compliance regulations enacted by governments to
protect the health and safety of their citizens and the environment in which
they live. Following the promulgation
of the Sanitary and Phytosanitary Agreement in 1994 as part of the outcome of
the Uruguay Round of world trade negotiations, these standards are now popularly
known as ‘SPS measures/ standards’.
In
principle, the Sanitary and Phytosanitary Agreement and the associated WTO
dispute settlement mechanism can ensure that food safety standards are not
abused or misused for such protectionist aims. But in practice, developing
countries are usually placed at a disadvantage when it comes to making use of
these procedures, being hampered by their limited capacity to access and absorb
best practice, technology, information and constrained by inadequate resources
from challenging perceived inequities. As a result, SPS related issues have
become a source of tension and friction in international trade negotiations.
SPS Trade
Regulations
According
to the Agreement, SPS measures include, all relevant laws, decrees,
regulations, requirements and procedures including, inter alia, end product
criteria; processes and product methods; testing, inspection, certification and
approval procedures; quarantine treatments including relevant requirements
associated with the transportation of animals and plants, or with the materials
necessary for their survival during transport; provisions on relevant
statistical methods, sampling procedures and methods of risk assessment;
packaging and labelling requirements directly related to food safety. There are
notable differences between classical trade barriers (tariffs and quantitative
restrictions), product standards and regulations in terms the economic
implications of their implementation/abolition. The latter are discriminatory
border taxes, which generally result in inefficiency in resource allocation and
reduce consumer welfare. There is a general consensus among economists now
that, except under very special circumstances, countries generally benefit from
their removal or reduction, unilaterally or through collective effort. By contrast, at least in principle, SPS
standards are introduced by government in the interest of the society, to
achieve the important social objective of protecting public, animal and plant
health and to protect the environment.
In other words, food-safety is a ‘public good’ that would go largely
unserved in a private market. Social
losses arising from their elimination could well exceed the associated economic
efficiency gains.
In
theory, establishment of SPS standards (or other technical standards) could
facilitate trade through reducing transaction cost, by assuring consumers that
the food they consume is of an acceptable standard and reducing the cost of
uncertainty that they face in assessing product quality. Universally accepted
standards should also guide exporters as to the expectations of importers
concerning food quality and safety, leading to reduction in trade frictions.
Standards can serve to signal quality in foreign markets and thus contribute to
increasing elasticity of substitution between similar goods produced in
different countries, thereby permitting relatively more efficient producers to
thrive through export expansion. Efficacy of production would be increased through
standardization as it reduces information asymmetries between buyers and
sellers, and promotes product commutability, thereby allowing for increased
economies of scale and scope.In practice, SPS standards can, however, become an
impediment to trade for two reasons.
First, importing countries may deliberately craft SPS measures that
impose a cost or other disadvantage on foreign competitors to provide
protection for domestic producers.
Second even when comparable SPS measures are applied in developed
countries to both domestic and imported products, they can act to impede
imports from developing countries because of asymmetry in compliance cost. 
As
tariff barriers and other forms of border protection (e.g. quantitative import
restrictions (QRs) and voluntary export restraints (VERs)) are progressively
dismantled as part of the multilateral and unilateral trade liberalization
initiatives, the temptation to use SPS standards (and other non-border
measures) as protectionist barriers become greater. Given that SPS standards
are less transparent than tariff or quotas, there is ample room for tweaking
them to make them stronger than necessary for achieving optimal levels of
social protection and to twist the related testing and certification (conformity
assessment) procedures to make competing imports less competitive.
SPS
standards can impede trade even when they are imposed on genuine health and
safety considerations because of additional compliance costs imposed on the
foreign competitor. The existing food-safety standards have been designed by
industrial countries to reflect their technology mix and consumer preferences,
which may or may not be appropriate for developing countries. Upgrading
existing standards or developing new ones and performing risk assessments is a
costly and difficult procedure, which is neither technically feasible nor
economically affordable for most developing countries. Resource, manpower and
institutional constraints are naturally more binding for developing-country
exporters compared to their developed-country counterparts. In addition, SPS
standards sometimes diverge considerably across importing countries, making
meeting standards costly and cumbersome for exporters. i.e. 1998 EC regulation
that raised the maximum permissible level of a certain type of aflatoxin in
foodstuffs and animal feed to a higher level than international standards
specified by the Codex Alimentarius. The results suggest that the EU standards,
which would reduce health risk by approximately 1.4 death per billion a year
would reduce exports by more than 60% or USD 670 billion from the 9 countries,
as compared with regulation based on the international (Codex) standard. There are numerous costs associated with
attempting to deal with the variability of standards across export markets and
over time. Nonetheless, one of the Australian quarantine regulation requires
that chicken meat imported from Thailand must be heated at 70ยบ Celsius for 143
minutes to avoid the possibility of carrying a certain disease, which has
effectively closed the Australian market for Thai chicken exporters.
The WTO Mechanism
The
SPS Agreement, which forms a part of the WTO Agreement signed in 1994, aims to
lay a firm foundation for strengthening multilateral discipline in the implementation
of food safety standards (SPS standards) in agricultural trade, with a view to
achieving the objective of protecting consumers while regulating the use of
these standards as a means of non-border trade protection. It superseded the original Article XX of the
GATT, which remained virtually inactive in achieving this objective owing to
unclear/restrictive provisions and the lack of an effective institutional
framework for implementations. The text of the SPS Agreement (unlike the
original GATT Article XX) is part of the mandatory portion of the WTO Agreement
and therefore all WTO members are bound by it.
Legal and
Institutional Provisions
The
promulgation of the Agreement was prompted by legitimate concerns that removing
conventional trade restrictions on imports of agricultural products may tempt
countries to use SPS standards as a form of protection. The agreement was
aiming to keep government actions to a minimum on trade effects which are aimed
at protecting human, animal and plant health by requiring importing countries
to demonstrate that their SPS measures are based on scientific grounds and are
applied equally to domestic and foreign producers. In order to harmonize
sanitary and phytosanitary measures on a wider basis as much as possible, the agreement
encourages members to base their measures on international standards,
guidelines and recommendations where they exist, such as the Codex
Alimentarius, the International Office of Epizootics (OIE) and the
International Plant Protection Convention (IPPC).
However,
the Agreement affirms the rights of members to adopt their own SPS measures
(Article 2). But members are responsible for ensuring that a measure is applied
‘only to the extent necessary’ to protect human, animal or plant life or health
and is based on scientific principles and evidence. Nonetheless, members are allowed to adopt SPS
measures ‘on the basis of available pertinent information’ when ‘relevant
scientific evidence is insufficient’, pending a more objective evaluation based
on fuller evidence within a reasonable time (Article 5.7). Moreover, it is expected that members would
accept the sanitary and phytosanitary measures of others as equivalent if the
exporting country demonstrates to the importing country that its measures achieve
the importing country’s desired level of health protection. The agreement recognizes that SPS risks do not correspond to
national boundaries, and that there may be areas within a particular country
that has lower risks than others, determined by factors such as geography,
ecosystems, epidemiological surveillance, and the effectiveness of SPS
controls, including pest or disease-free areas and areas of low pest or disease
prevalence. In order to achieve transparency in SPS standards adopted by
different countries, members are required to publish and notify the SPS
Secretariat of all proposed and implemented SPS measures. This information is
relayed via the ‘Notification Authority’ within each member government.
Moreover, members are required to establish an ‘Enquiry Point’, which is the
direct point of contact for any other member regarding any questions about SPS
measures or relevant documents. 
