Trade, standards, and the political economy of genetically modified food

A common-agency lobbying model is developed to help understand why North America and the European Union have adopted such different policies toward genetically modified (GM) food. Results show that when firms (in this case farmers) lobby policy makers to influence standards and consumers and environmentalists care about the choice of standard, it is possible that increased competition from abroad can lead to strategic incentives to raise standards, not just lower them as shown in earlier models. We show that differences in comparative advantage in the adoption of GM crops may be sufficient to explain the trans-Atlantic difference in GM policies. On the one hand, farmers in a country with a comparative advantage in GM technology can gain a strategic cost advantage by lobbying for lax controls on GM production and usage at home and abroad. On the other hand, when faced with greater competition, the optimal response of farmers in countries with a comparative disadvantage in GM adoption may be to lobby for more-stringent GM standards. Thus it is rational for producers in the EU (whose relatively small farms would enjoy less gains from the new biotechnology than broad-acre American farms) to reject GM technologies if that enables them and/or consumer and environmental lobbyists to argue for restraints on imports from GM-adopting countries. This theoretical proposition is supported by numerical results from a global general equilibrium model of GM adoption in America without and with an EU moratorium.