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

Abstract

The new agricultural biotechnologies that are generating genetically modified organisms (GMOs) are seen as exciting and valuable developments by many people who recognise the improvements in production efficiency that they offer. Others, however, are objecting strongly to their use. Both environmental and food safety concerns have been raised by opponents of GM crops. In response to these concerns, and to the general scientific uncertainty associated with the use of these new techniques, national regulations specifically addressing GMOs are being introduced or at least considered in many countries around the world. A majority of people want at least to have labels on products that may contain GMOs, while the most extreme opponents (particularly in Western Europe) want to see GM crops totally excluded from production and consumption in their country.

The right for a country to set its own environmental and food safety regulations at the national level is provided for in article XX of the GATT. But members of the WTO have trade obligations under other GATT Articles (MFN, national treatment, customs transparency), and under other WTO agreements (most notably the SPS and TBT Agreements) that restrict the extent to which trade measures can be used against GMOs without risking a case coming before the WTO's Dispute Settlement Understanding (DSU).

This paper first examines the ways in which the emergence of GMOs could generate policy reactions, the most extreme of which may well lead to trade disputes in the WTO. It then uses an empirical model of the global economy (the GTAP model) to quantify the effects on national production and trade patterns and on national and global economic welfare of just North America, and then also some developing countries, adopting the new GMO technology. These estimates assume consumers are indifferent to whether crops contain GMOs. They are then compared with two other scenarios: one in which Western Europe bans the importation of products from countries adopting GMO technology, and another in which there is a partial switch by European consumers away from imports that 'may contain GMOs'. To be specific, the effects of an assumed degree of productivity growth in the maize and soybean sectors in selected countries are explored, and those results are then compared with what they would be if (a) Western Europe chose to ban imports of those products from countries adopting GM technology or (b) some of its consumers switched preferences away from imports.

Comparing the welfare effects of the latter alternative market-based approach with the regulatory approach of banning production and imports of GM products highlights the importance of developing countries gaining access to productivity-enhancing technologies and the impact of Western European consumers' response to GMO labelling. In the scenarios presented, those developing countries that are net-exporters of GM-potential products and fortunate enough to benefit from this new technology in their domestic production, are clearly better off when consumers in Europe are left to make up their own minds about whether to avoid GMOs than when the government adopts a blanket ban. The results also suggest, however, that developing countries that do not gain access to GM technology may lose in terms of economic welfare if they cannot guarantee that their exports entering the Western European markets are GMO-free.

The final section of the paper discusses areas where future analytical work of this sort might focus, including examining the effects of a segregation of agricultural markets into GMO-inclusive and GMO-free lines.

Keywords: GMOs, Trade Policy, SPS Agreement, TBT Agreement, Food Safety

JEL Classification: C68, D58, F13, O3, Q17, Q18