The EU’s pesticides MRLs harmonization: effect on trade, prices and quality

In September 2008, the European Commission harmonized Maximum Residue Levels (MRLs) in pesticides across EU Member States. We examine the effect of this policy change on trade, prices and quality via two alternative channels — the relative restrictiveness of a food standard imposed by an EU importer vis-a-vis trading partners from both within and outside the Common Market; and regulatory heterogeneity across EU Member States. We find strong evidence for adverse effects of both dyadic restrictiveness and within-EU regulatory heterogeneity on intra- and extra-EU trade at the extensive and intensive margins in the pre-harmonization period. Our findings further suggest that the EU’s MRL harmonization increased intra-EU trade; the probability and value of exports of its non-EU (both OECD and developing country) partners; and led to quality upgrading and lower prices of the traded products. The harmonization-induced rise in non-EU OECD exports to the EU also underlines the need for UK product standards to be closely aligned with those of EU27 post-Brexit.