THE POLITICAL ECONOMY OF FOOD STANDARDS:GMOS REGULATION AND TRADE

After a wide proliferation in the last decades, nowadays standards are globally diffused and are having effects on world market. Adoption of public standards grew both in numbers and variety, including several areas like nutrition, health, quality, safety, environment and social concerns. Standards introduction is a controversy issue. Their adoption has been justified as a response to consumers concerns, but they are also having effects on trade. Several authors pointed out that public standards represents a new form of non tariff barriers (NTBs) and protection-in-disguise. Nevertheless, some empirical observations showed that standards may be anti-protectionist when foreign producers are more efficient in comply with standards than domestic ones. Parallel to public standards, food companies have increased the introduction of private standards. Private standards are adopted in the same domains as public standards (e.g. food safety and quality) to increase consumers’ trust and promote product differentiation. Private standards may also serve to preempt government regulations, in order to induce weaker public standards. In this context, we analyzed the role of public and private food standards on the global food market. We focus on GMO standards given the relevance and sensitivity of this issue, both politically and commercially, in developed and in developing countries. In the first chapter we present the problem of food standards, providing classification and definitions and discussing economic effects on trade and welfare and problem related to their measurement. In the second chapter, we developed a composite index for 60 countries distributed in all continents. The index is obtained by assigning a score to main components of the GMO regulation: approval process, risk assessment, labeling, traceability, coexistence and membership in international agreements. The overall index is obtained by score summation and normalization, so that it ranges between 0 and 1. Higher values correspond to more stringent regulations. Moreover, we studied the socio-economic determinants of GMOs regulation among country pairs. We calculated two different measures of the bilateral GMO index, namely GMOwij and GMOdij, for comparison purposes. Explanatory variables are classified in three groups: trade costs, institutional differences and economic controls. Our econometric strategy is to compare three different OLS regression specifications. The first is a pooled specification, in the second we include country fixed effects and in the third we include country fixed effects coupled with a dummy variable controlling for EU membership. Results showed that health expenditure and trade flows are significant determinants of similarity in GMO standards. Countries with different health systems and health protection investments may adopt dissimilar GMO standards. Moreover, highest bilateral trade of major GM crops induce countries to set similar regulations, creating regulatory harmonization that reduce the protectionist impact of GMO regulation. This result is confirmed also by the negative effect on harmonization of tariffs. In chapter three, we used the bilateral GMO index to analyze the effect of GMO regulation on bilateral trade flows of agricultural products. We investigate how bilateral similarity/dissimilarity in GMO regulation affects trade flows. We used a gravity model controlling for zero trade flows. Moreover, we instrumented the dependent variable to deal with endogeneity problems. Three main results are shown. First, countries with greater differences in GMO regulation trade significantly less. The level of harmonization of the GMO regulation is important to boost trade flows. Second, labeling, approval process and traceability are the most important components of the regulation. Third, the effect of endogeneity of GMO regulations to trade flows largely dominates in magnitude (about four times) the traditional selection bias problem. In chapter four, we investigated through a political economy model why private standards are often more stringent than public ones. The model combines both aspects of retailers’ market power and producers’ political power. The public standard is assumed to be determined in a political game: producers, retailers, and consumers have some political power to influence the standard-setting process. The resulting public standard is set at a lower level than the private one. Additionally, we provide an empirical application to show how our model’s predictions fit the real world. We conducted a survey collecting information on GMOs private standards among a sample of 45 retailers. The findings are consistent with the model’s prediction. First, in Europe, GMO private standards are stricter than public standards for a large number of supermarkets, while in the US retailers set standards according with public regulation. Furthermore, the level of restrictiveness varies accordingly to consumers’ preferences and to public regulation of the country where retailers are operating.