Supranational agreements and
regulation
Stéphan Marette
INRA, Paris
Barriers to Trade



TARIFF BARRIERS
NON-TARIFF BARRIERS
What kind of quality regulation in a context of
trade liberalization?
Tariff Barriers and Trade
Liberalization

Does trade liberalization (namely less taxes, subsidies
or quotas…) increase the average quality and the
consumer surplus?

More competition or more concentration?

More risks (less supply security or new risk such as
invasive species) and more price volatility?
Benefits of Trade liberalization



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The possibility of consuming a higher quality of products
(vertical differentiation).
Countries can take advantage of growing economies of scale
when markets are opened up; this in turn reduces production
costs at constant quality.
The increased competition resulting from trade liberalisation
encourages firms to offer a better quality/price mix.
It increases product variety and freedom to choose for
consumers.
Quality and risk of insolvency



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If no problem of insolvency, a decrease of price support
leads farmers to choose more high-quality products.
When the cost of investment for high-quality is large,
there is a risk of insolvency for producers in a context
of uncertainty for quality (Marette Zago (2004)).
A decrease of price support may lead to farmers’
bankruptcy with low-quality products and it has an
ambiguous effect for the choice of quality by farmers
The reply: develop quality insurance
Second pillar of the CAP

Second pillar of the new Common Agricultural Policy
will subsidize sustainable development or high-quality
products

How to measure the product quality or the
« environmental » quality?

Will a subsidy really finance the quality improvement?
Industry and famers

Concentration in the agribusiness (industry,
supermarkets…)
–

“Low” sensitivity to trade liberalization
Farmers are scattered with no market power
–
–
–
“Large” variability in quantity and quality
Risk of insolvency
New organization under trade liberalization
Farmers’ reaction in a context of
trade liberalization



French Potatoes producers organized the development
of new varieties in a context of intense competition with
Spain, UK…
Bintje: low quality
Higher price for new varieties
–
–

Autres varietes : other varieties
Chairs fermes: Firm-fleshed potatoes
The market share of the new varieties increased
between 1990 and 2000
Market shares in volume of potato
varieties in France
87
/8
8
89
/9
0
91
/9
2
93
/9
4
95
/9
6
97
/9
8
99
/0
0
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
autres variétés
bintje
chairs fermes
Models to measure quality and
trade

Applied General Equilibrium models (GTAP):
–
–
–


Homogeneous goods
Diversity according the origin (with Armington)
More diversity linked to the trade liberalization
Drogué, Marette, Ramos (2004)
Comparison between the welfare under an
“aggregated” model when product differentiation is
overlooked and the welfare when product
differentiation is considered is ambiguous
–
Mussa Rosen specification (vertical differentation)
Non tariff barriers


Sanitary and Phytosanitary (SPS) Agreement
Technical Barriers to Trade (TBT) Agreement

Standard, labeling and liability are necessary to
protect consumers and insure safety

Heterogeneous policies that may limit trade
How to measure non tariff barriers?


Price gap method
Gravity
–

Are data reliable?
Cost benefit
–
One example: Analysis for avocadoes in California
(Orden and Romano, 1996)
Standards as Non tariff barriers


Otsuki, Wilson and Sewadeh (2001 ERAE and
FP) show that “the European Union regulation
on aflatoxin will result in a trade flow that is
63% lower than when the Codex Alimentarius
standards are followed”
Maskus, Otsuki and Wilson (2004) show that
“standards increase short-run production costs
by requiring additional labor and capital”.
Standards as Non tariff barriers

The limit of the previous approaches is the
unpredictable reaction of consumers in Western
countries if the regulation is dropped or “reduced”
–

The supermarkets’ “private” standards are more
important than public regulation
–

Market context, media
Berdegué, Balsevich, Flores and Reardon (Food Policy, 2004).
More capital in developing countries for developing
HACCP procedures and famous brands is necessary
for entering a market….
Labeling


Brand and/or labeling
Great diversity
–
–
–
–


Quality (Red label)
Eco-labels, organic, «sustainable agriculture»
GMO
Labels of origins
Too many labels in a context of trade
liberalization?
Regulation is necessary for avoiding
consumers’ confusion!
Voluntary or mandatory labelling?

The revelation/certification is depending on
–
–
–

cost structure (marginal or fixed)
competition among producers
competition among certification agencies
Only mandatory labeling can be studied as
potential barrier to entry
Mandatory Labeling

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GMO Labeling: SPS or TBT?
Crespi and Marette (2003) show that
consumers with different perceptions and
preferences may lead to different
policies/choices of label among countries
Trade liberalization may lead to changes in the
label policy (Bureau, Marette, Schiavina, 1998)
Difficulty to inform consumers regarding the
origin…
Voluntary Labels

Collective labels suffer from competition with registered
brand name (appellation of origins)
Wine sector

Are brands more efficient on the international markets?

Labels of origins matter for consumers in France!
–
–
It is a preference and not only a regulation
Trust in national regulation
Most important conditions of
production for French
consumers (Credoc, 2001)
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1. No child labor
2. Products from France (ORIGIN)
3. Good conditions for workers in
factories
4. Absence of pollution during the
production process
…
9. Animal welfare
Conclusion

Complexity of the mechanisms
–
–

Trade liberalization should lead to new policies
Standard, labeling and liability are necessary
Better measures/quantification of the effects
between trade and quality are essential to
improve regulation