Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade Proceedings of a Conference (2000) / Chapter Skim
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2 Sanitary and Phytosanitary Risk Management in the Post-Uruguay Round Era: An Economic Perspective
2 Sanitary and Phytosanitary Risk Management in the Post-Uruguay Round Era: An Economic Perspective
Pages 33-50
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From page 33... ...
Moreover, recent regulatory reform initiatives, including Executive Order (EO) 12866 and other Executive Branch directives, revise previous guidelines for The author wishes to thank David Orden and Julie Caswell for their comments on this paper.
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From page 34... ...
This concept implicitly excludes consideration of benefits to other economic agents and generally fuses risk assessment with risk management by embedding value judgments about which risks are "acceptable" into scientific assessments. This approach stands in contrast to the economic paradigm of the Executive Branch directives in which normative rules for designing SPS measures rest on cost-benefit analysis tools to infer appropriate levels of protection from individual preferences.2 The simultaneous emergence of new multilateral and domestic rules for SPS regulatory decision making highlights the need for a comprehensive examination of this new regulatory environment.
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From page 35... ...
In the following section I provide a brief review of the use of cost-benefit analysis in regulatory decision making, which figures prominently in the Executive Branch initiatives. This review sets the stage for an assessment of the role of economic criteria in the multilateral rules for SPS measures.
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From page 36... ...
Articles 2 Trough 6, together with the definitions of SPS measure, risk assessment, and appropriate level of protection found in Annex A of the agreement, provide a basis for understanding what the principal multilateral rules for SPS measures are in the post-Uruguay-Round era. The disciplines apply to regulations defined as SPS measures by the agreement: those measures Mat protect human, animal, or plant life and health within the territory of the member from risks related to diseases, pests, and disease-carrying or disease-causing organisms, as well as additives, contaminants, toxins, or disease-causing organisms in food, beverages, or feedstuffs.
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From page 37... ...
. Article 5.1 contains the explicit requirement to base decisions about SPS measures on a risk assessment, which is defined as the evaluation of the likelihood and biological and economic consequences of identified hazards under different risk management protocols.5 Article 5.3 stipulates that countries are to consider direct risk-related costs (e.g., potential production or sales losses, administrative expenses, potential eradication costs)
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From page 38... ...
The phrase "appropriate level of protection" is threaded throughout the agreement, from the preamble to the annexes, clearly reinforcing the fact that the risk assessment paradigm was the point of reference for the SPS Agreement negotiators. For example, the agreement states that members may adopt measures that do not conform to international standards if these standards do not provide the level of SPS protection that a member determines to be appropriate (Article 3~; that members shall accept the SPS measures of other members as equivalent if the exporting country objectively demonstrates that its measures achieve the importing country's appropriate level of SPS protection (Article 4~; and that members shall avoid arbitrary or unjustifiable distinctions in appropriate levels of protection if such distinctions result in discrimination or a disguised restriction on international trade (Article 5~.
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From page 39... ...
lathe use of net social welfare to guide policy choices rests on the compensation principle—that a policy is preferred to the status quo if all those who benefit from the policy could in principle compensate those who lose, and still be better off than before the policy went into effect. Net social welfare, or net benefits, produced by alternative SPS measures can be described most easily in the context of a single-commodity, partial equilibrium model to evaluate a proposed change in a plant or animal health measure.
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associated with these same imports. Producer losses would stem from two sources in this open-economy framework: lower product prices and the expected value of losses resulting from exotic pests or diseases.
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In addition to the producer and consumer surplus changes that result from a decrease in price in the domestic market from PD to Pc, potential production losses from a disease must be evaluated as well. If pests raise production costs and lower yields with certainty, domestic supply will shift from 5~ to S2, leading to a decline in domestic production to Q4 in Figure 2-1.
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and the expected value of government disease eradication expenditures. Earlier research on the costs and benefits of SPS measures typically overlooked the social welfare losses caused by restricting imports.
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Raising the price of a tradable good bids resources away from other industries. Eliminating unnecessary SPS measures or improving the design of necessary measures to allow more imports allows trading nations to reallocate productive resources toward economic activities in which they have a comparative advantage.
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From page 44... ...
It is argued here that the language of the SPS Agreement, a product of the risk assessment paradigm, is clearest with respect to the risk-related costs associated with regulatory actions. How benefits of alternative regulatory options may factor into decisions is ambiguous, an ambiguity that slowed progress in fulfilling the mandate stipulated in the SPS Agreement to develop guidelines for measures to achieve the objective of providing a consistent "appropriate level of protection." Although distributional effects are not explicitly addressed in the agreement, it is not difficult to see how it does and does not circumscribe a regulator's ability to take distributional factors into account in risk management decisions.
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From page 45... ...
Thor example, Article 2.2 reads "Members shall ensure that any sanitary or phytosanitary measure is applied only to the extent necessary to protect human, animal or plant life or health, is based on principles and is not maintained sufficient scientific evidence..." '6Recall that from the point of view of a change in quarantine policy in response to an import request, benefits are the gains in consumer surplus that result from lower prices in the domestic market (resulting from the entry of lower-priced imports) plus the elimination of dead weight losses from the trade barrier.
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From page 46... ...
This view has stemmed from both philosophical objections as well as pragmatic concerns that CBA-based import protocols would complicate the effective decentralized policing of SPS measures by WTO Members. The Committee is scheduled to adopt a set of non-binding guidelines in June 2000, after struggling with its mandate over the past five years.
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From page 47... ...
agencies judge how best to incorporate CBA and other aspects of the Executive Branch directives into its regulatory decisionmaking process. One issue, the valuation of unowned resources, emerges within the risk assessment paradigm as well as the economic paradigm.
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From page 48... ...
To date, debate over SPS measures has generally focused on the roles of national sovereignty; consumer concerns; and risk assessment in policy formulation, primarily reflecting legal, political, and scientific perspectives on risk management. The economic perspective on SPS regulatory decision makingthat regulatory decisions should be informed by an analysis of the costs and benefits of the proposed regulatory options has not been prominent in these policy discussions.
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From page 49... ...
1994. Message from the President of the United States Transmitting the Uruguay Round Trade Agreements to the Second Session of the 1 03rd Congress, Texts of Agreements Implementing Bill, Statement of Administrative Action and Required Supporting Statements, House Document 103316,Vol.1:742-763.
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From page 50... ...
1996. Guidelines for preparing risk assessments and preparing cost-benefit analyses, Appendix C, Departmental Regulation on Regulatory Decisionmaking, DR-1512-1.
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