Trading With Conditions: The Effect Of Sanitary And Phytosanitary Measures On Lower Income Countries’ Agricultural Exports

Agriculture plays a fundamental role in the development prospects of many developing countries, especially those at the lower end of the development process for which export earnings are largely related to the export performance of their agricultural sector. Although the last few decades have seen a progressive trade liberalization, market access for agricultural products is increasingly determined by a wide array of regulatory measures. The increase in the use of such measures has been largely driven by non-trade policy objectives such as consumers’ demand for quality and safety of products and to the needs of agri-food businesses to streamline food production chains. Still, regulatory measures have a critical role in determining market access conditions as compliance with them is often a sine-qua-non condition for exporting to developed countries markets. From a trade perspective one of the most important aspects of such regulatory measures is their potential distortionary effect as their cost of compliance is often asymmetrical across countries. Using the UNCTAD's TRAINS database on non-tariff measures, this paper utilizes an econometric model to investigate the effect of the European Union’s sanitary and phytosanitary (SPS) measures across 21 broad categories of agricultural goods. The findings indicate that SPS measures result in relatively higher burdens for lower income countries but that membership in deep trade agreements seems to reduce the difficulties related to compliance with SPS measures. Overall, the additional trade distortionary effect of the European Union SPS measures is quantified in a reduction of lower income countries’ agricultural exports of about 3 billion $US (equivalent to about 14 percent of the agricultural trade from lower income countries to the European Union). These results are consistent with the hypothesis that while many middle and high income countries have the internal capacity to comply with SPS measures, lower income countries do not. In broader terms, these results may be interpreted as an indication that technical assistance is helpful for lower income countries to meet compliance costs related to SPS measures. Further progress with well-targeted technical assistance projects, both at the bilateral and multilateral levels, could generate considerable gains for lower income countries.