Quantifying the trade effect of sanitary and phytosanitary regulations in OECD countries on South African food exports

Abstract

The integration of agriculture in multilateral trade negotiations was a crowning achievement in the reform of world agricultural trade. Restraining trade distortive agricultural policies, which were prevalent in all countries, was the major mandate of the Uruguay Round Agreement on Agriculture (URAA), where promoting market access, limiting trade distorting domestic support and curtailing export subsidies are among the key elements discussed at length and were committed for reduction by all members of the WTO. A comprehensive survey of the progress made on the implementation of the commitments by OECD countries was done in this dissertation to get insight on the major OECD agricultural policies where SADC countries are adversely affected. Though most of the commitments have been fulfilled, significant tariff protection still exists for major products exported by SADC countries. Moreover, tariff escalation is still being practiced for almost all agriculture commodity groups by most of the OECD countries. The in-quota and over-quota tariff rates of these countries are also excessively high and trade prohibitive. Export subsidies applied by most OECD countries, especially those of the EU, have adverse effect on the price of agricultural commodities and thus affect the welfare of many SADC countries. Moreover, domestic agricultural support of OECD countries is still significant and trade distorting. Many studies, thus, suggest that decoupling OECD domestic support would improve the welfare of all developing countries. In addition, other studies show that tariff reduction by OECD countries will have more impact in augmenting the welfare for developing countries in general, and SADC countries in particular, than a cut in the domestic support. Stringent sanitary and phytosanitary standards (SPS) have also proliferated in the aftermath of the URAA. These standards are currently becoming a major stumbling block in agricultural trade of developing countries. Estimating the trade impact of these stringent SPS standards, therefore, would assist to facilitate trade negotiations, promote active participation of developing countries in SPS related issues and discussions of issues related to compensation claims. Limited by inadequate resources and expertise, among other things, these countries also have poor participation rate in discussions related to SPS, which impedes the representation of their interests and concerns in the setting of international standards for agricultural products. Using a gravity model, this study estimated the trade effect of total aflatoxin level set by five OECD countries (Ireland, Italy, Sweden, Germany and USA), on South Africa’s food exports. The findings of the study support the hypotheses that stringent SPS standards are limiting trade markedly. The trade elasticity of aflatoxin standard is 0.41 and statistically significant. Moreover, the simulation result based on the assumption that these five OECD countries adopt the total aflatoxin level recommended by CODEX, shows that South Africa would have gained an estimated additional amount of US$ 69 million per year from food exports to these countries from 1995 to 1999. The results suggest that unless due attention is given to SPS standards set by developed countries and OECD countries, in particular, the expected potential gain from agricultural trade liberalization could be seriously undermined. Stated differently, developing countries market access to OECD countries’ could still be severely restricted, even though significant tariff cuts might be achieved in these developed countries. The study recommended that active participation in all SPS related issues must be encouraged to raise concerns when new standards are established. In addition, as significant tariff barriers and massive domestic support still exist in OECD countries, it is important for pushing a further cut in tariff barriers and advocate the decoupling of OECD domestic support for realizing a welfare gain by all developing countries. Lastly, the study indicated areas of further research to be undertaken. Among others, it suggested that the cost of compliance to standard regulations should be estimated. This is a challenging area of research that most empirical studies on the trade effects of SPS regulations have not addressed.