Hidden Trade Costs? Maximum Residue Limits and US Exports to Trans-Atlantic and Trans-Pacific Trading Partners

Sanitary and phytosanitary (SPS) measures are not new, but their significance in international agri-food trade continues to grow. Despite recent data collection efforts, the current literature has not lead to a consensus about the impact of SPS measures on trade nor has it led to a prescribed framework for how to address SPS policy reforms in multilateral and bilateral trade negotiations. In this article we focus on a specific type of SPS measures that features prominently in the current mega-regional trade negotiations, namely food safety standards in the form of maximum residue limits. First, we construct a comprehensive database of country-and-product specific MRLs for global fresh fruit and vegetable trade and develop a novel bilateral stringency index to quantify the degree of MRL regulatory heterogeneity between trading nations for the years 2013 and 2014. Second, a formal econometric model is developed to investigate the trade restricting nature of these measures. The results suggest that for any given fresh fruit or vegetable product, importer MRL standards that are marginally stricter than exporter MRLs can impart significant reductions in bilateral trade. However, when MRL policies are roughly equivalent, as is the case between the US and some of its TPP trading partners, the actual restrictiveness of this SPS policy diminishes dramatically. The results have important implications for the current mega-regional negotiations.