GMOs, Trade Policy, and Welfare in Rich and Poor Countries

1. GMOs, Trade Policy, and Welfare in Rich and Poor Countries Chantal Nielsen Kym Anderson University of Copenhagen, and Danish Institute of Agricultural and Fisheries Economics CEPR, and School of Economics, and Centre for International Economic Studies University of Adelaide

2. Genetically modified organisms (GMOs) in agriculture Proponents argue that GMOs can offer: • Increased ag productivity & higher farm profits • Less use of chemicals • Better use of natural resources • More nutritious foods

3. Genetically modified organisms (GMOs) in agriculture Opponents are concerned about: • The environment • Food safety • Market power • Ethics

4. Rich countries can afford to be critical Developing countries face a different trade-off between potential risks and the need for productivity increases in food production and lower food prices Developing countries also need to consider how GMO policy actions may affect: - market access - world market prices - global food demand

5. Three types of technical barrier to trade: • Import bans • Technical standards • Information remedies Standards concerning GMOs have not yet been established … but there is a possibility of import bans and a demand for labels, which is leading to: • National GMO regulations • International trade agreements

6. National GMO regulations: European Union: • De facto moratorium since June 1999 • Labelling required on all GMO-inclusive foods United States: • Flexible permit procedure • Labelling of GMOs is generally not required Othersare also beginning to regulate GMOs, with some (e.g. Sri Lanka) already banning their importation

7. International trade agreements: (i)The Cartagena Protocol on Biosafety Objective: Ensure safe transboundary movement of GMOs • Allows govt’s to decide whether or not to accept GMO imports and under what conditions • Lack of scientific evidence shall not prevent a country in taking action • “May contain GMOs” label on primary products

8. International trade agreements: (ii) The WTO The WTO also acknowledges the rights of a country to protect its environment and to ensure food safety and information for consumers. But there are rules on how such trade-related measures may be used to achieve these goals.

9. International trade agreements: Potential conflict between Protocol and WTO rules, particularly concerning: • WTO’s SPS agreement requires scientific evidence • The product/process distinction: ‘like products’

10. Empirical analysis Quantify the effects of GMO adoption by some producers, and regulations on production, trade and welfare in other countries Two regulatory response scenarios 1. Western Europe imposes a ban on GM imports as permitted in the Biosafety Protocol 2. The WTO rules against the import ban, but allows the labels as defined in the Protocol

11. Modelling framework • Standard global economy-wide CGE model • Vertical and horizontal linkages, bilateral trade • GTAP database: 17 sectors and 16 regions Representation of GMO technology: +5 % TFP shock for maize and soybean in North America, Mexico, Southern Cone of LA, India, China, Rest of East Asia and South Africa All other regions do not adopt GM crops

12. 1. WEU import ban scenario • Imports of maize and soybeans banned from GM-regions • Protocol label enables identification of GMOs • Labelling costs are assumed to be negligible 2. Protocol label scenario • “May contain GMOs” label is perceived as uninformative • Partial shift in WEU preferences away from imports and in favour of domestic products • WEU producers signal non-GMO status through “country of origin” labels

13. Selected results of WEU ban and Protocol label scenarios Percentage change from base with no GMO regulations

14. Selected results of WEU ban and Protocol label scenarios Percentage change from base with no GMO regulations

15. Selected results of WEU ban and Protocol label scenarios Welfare changes and their decomposition (per year)

16. Selected results of WEU ban and Protocol label scenarios Welfare changes and their decomposition (per year)

17. Selected results of WEU ban and Protocol label scenarios Welfare changes and their decomposition (per year)

18. Selected results of WEU ban and Protocol label scenarios Welfare changes and their decomposition (per year) Global welfare changes: Base with no GMO regulations: 9.9 billion USD WEU import ban scenario: 3.4 billion USD Protocol label scenario: 8.5 billion USD

19. What do these results indicate about the effect of GMO regulations on production, trade & welfare • Almost all countries gain from selected countries adopting GMO technology if there are no GMO trade regulations But this is so for different reasons, depending on - whether or not GMO crops are produced nationally - nation’s net-exporter status in the particular crop - initial price distortionary policies

20. 2. WEUimport ban is very costly for WEU itself - and production in adopting countries might fall in spite of positive TFP shock, depending on importance to them of WEU and other export markets - non-adopters gain market shares in WEU 3. A market-based solution is far better for both adopters and WEU - but other non-adopting regions lose in terms of a relative productivity decline and increased competition on international markets

21. Future analytical work on the economics of GMOs • Need to fine-tune empirical evidence of productivity impact of GM technology 2. Consumer reactions to regulations, or lack thereof, depend on how well the regulations meet national policy objectives 3. Split the model’s national production and marketing systems into GMO and non-GMO products