Agricultural Exports: Technical Barriers to Trade

Geoffrey S. Becker
Specialist in Agricultural Policy
Environment and Natural Resources Policy Division

October 21, 1997

97-952 ENR

Contents

Summary
What Are Technical Barriers ?
Impacts on U.S. Agricultural Exports and Trade Policy
Provisions of Recent Trade Agreements

SPS Provisions
TBT Provisions
Dispute Settlement

U.S. Procedures for Identifying and Addressing TBTs

Summary

Technical barriers to trade (TBTs) are widely divergent measures that countries use to regulate rnarkets, protect their consumers, and preserve natural resources, but which can also discriminate against imports in favor of domestic products. Most TBTs in agriculture are sanitary and phytosanitary (SPS) measures designed to protect humans, animals, and plants from contaminants, diseases, and pests. In the wake of new trade agreements aimed at reducing tariffs, import quotas, and other trade barriers, TBTs have become more prominent concerns for agricultural exporters and policymakers.

What Are Technical Barriers?

Recent trade agreements - notably the 1993 North American Free Trade Agreement (NAFTA) with Canada and Mexico, and the 1994 World Trade Organization-Uruguay Round (WTO-UR) multilateral agreements - include commitments by member countries to eliminate or reduce their barriers to trade in agricultural and other goods. Trade barriers include tariffs (taxes on imported products), as well as many non-tariff measures that can restrict trade, including import quotas, restrictive licensing systems, export and domestic production subsidies. Prior to the NAFTA and WTO-UR agreements, these types of tariff and nontariff barriers (NTBs) were at the center of major disputes between countries regarding access to each other's markets.

The new agreements subject these barriers to new rules and disciplines aimed at reducing their trade-distorting impacts. In addition, the agreements attempt to establish stronger disciplines for yet another type of NTB that countries now use with growing frequency: so-called technical barriers to trade (TBTs). These are widely divergent measures that countries use to regulate markets, protect their consumers, and preserve natural resources (among other objectives), but which can also be used to discriminate against imports in order to protect domestic industries, including agriculture.

TBTs with the greatest impact on agriculture are the various sanitary and phytosanitary (SPS) measures designed to protect humans, animals, and plants from diseases, pests, and other contaminants. Examples are residue limits for pesticides in foods, processing standards for meat products to reduce pathogens, and fumigation requirements on grain or produce imports to kill unwanted pests. Besides SPS measures, TBTs include rules for product weight, size, or packaging; ingredient or identity standards; mandatory nutrition labeling; and shelf-life restrictions.

The broad term "technical barriers to trade" is frequently applied to all of these measures, even where they may be consistent with NAFTA and WTO rules (i.e., legitimate efforts by a country to protect its consumers and agricultural resources). "Still, it is widely recognized that there is enormous potential for, and perhaps widespread misuse of, technical measures as nontransparent [disguised or unclear] obstacles to trade, even when the broad desirability of lowering risks to health and safety is acknowledged, and despite international rules." ¹

Impacts on U.S. Agricultural Exports and Trade Policy

Simply identifying and keeping track of the many technical measures countries are using has become a major challenge for trade officials. Negotiating the removal of those designed primarily to protect a country's domestic products from foreign competition can be even more difficult-but it is a high priority for U.S. agricultural interests.

"With the removal of tariff barriers we have experienced growing market disruptions based on health and safety claims that cannot be justified on scientific principles," the Nebraska Farm Bureau President said at a September 23, 1997, Rouse Agriculture subcommittee hearing, on pending legislation to authorize expedited procedures for negotiating and implementing new accords (i.e., "fast track"). The Administration agrees, but (like many farm groups) it also believes that further trade negotiations offer the best vehicle for resolving these issues. Following are among recent examples of technical barriers that U.S. interests believe are unjustified - but that the implementing countries contend are both consistent with international trade obligations and necessary to protect their consumers and/or agricultural resources:

• A European Union (EU) ban, in place since 1989, on imports of meat products from animals treated with growth-promoting hormones, which has effectively blocked U.S. meat (mainly beef) exports valued at about $100 million annually. A WTO panel recently ruled in favor of the United States, but the EU is appealing;

• An EU prohibition this year against poultry meat imports from the United States (valued at $50 million annually), because the EU will not recognize as safe the U.S. processors' system for washing carcasses in chlorinated water. In retaliation, the United States banned some $1 million in EU poultry product imports;

• Korean border clearance procedures that can delay imported perishable products for several weeks, compared with several days elsewhere in Asia. These include a rule that 100% of imported agricultural products be inspected and tested rather than sampled randomly, and a requirement that every shipment of imported fresh produce be unpacked, sorted, and repacked to remove any spoiled product;

• An EU decision, effective November 1, 1997, that human foods must be labeled to indicate whether they were produced from genetically modified corn and soybeans.

USDA's Economic Research Service (ERS) and Foreign Agricultural Service (FAS) attempted to inventory, summarize, and quantify the overall cost impacts of foreign TBTs on U.S. agricultural exports for 1996, using information gathered from, among other sources, USDA's foreign agricultural attaches and industry groups. ² Working from that database, FAS found in 1997 more than 350 measures negatively affecting an estimated $5.8 billion in potential U.S. agricultural exports. East Asia had the most technical barriers, with an estimated impact on U.S. exports of nearly $2.9 billion. The Americas accounted for nearly $1.3 billion, and Europe for more than $900 million. Processed products accounted for about $1.3 billion of the $5.8 billion total. Others were grains and oilseeds, about $1.3 billion; animal products, nearly $900 million; fruits and vegetables, over $600 million; and "other products" including cotton, seeds, nuts, fish and forestry products, about $1 billion in all.

Other nations argue that the United States maintains its own SPS measures and other TBTs, many of which they view as unjustifiable. Examples include a prohibition against shrimp imports from Southeast Asian countries because their trawlers do not use the type of nets used by U.S. shrimpers to protect sea turtles; a ban on French apples because of U.S. concerns about Medfly infestation; the U.S. ban on EU poultry (noted above) and import restrictions against some 150 products because foreign pest risk analyses have not been completed. Because free trade is a two-way street, and if the U.S. challenges are to have credibility, U.S. interests must be prepared to acknowledge these barriers and to negotiate their removal, it is argued.

Provisions of Recent Trade Agreements

Negotiators had anticipated that the inclusion of stronger agricultural disciplines in the WTO and NAFTA agreements might provide more incentive for countries to replace expiring NTBs with new technical barriers in order to continue to protect their domestic producers. To address this potential problem, the WTO and NAFTA agreements include extensive language governing the circumstances under which countries may impose both TBTs in general, and SPS measures in particular. This language is intended to commit each country to imposing only SPS and other technical measures that are legitimate (e.g., to protect human, animal or plant health), not merely disguised barriers to trade.

SPS Provisions

In NAFTA, SPS measures are in the chapter on agriculture. The UR-WTO is written as a series of agreements. One is devoted to agriculture, including commitments to reduce subsidies and increase market access. Another is devoted to SPS - the Agreement on the Application of Sanitary and Phytosanitary Measures. Despite these differences in format, the SPS provisions in both the UR accords and NAFTA are generally similar.

Basic Rights and Obligations. Each country may decide its own "appropriate level of protection" of human, animal, or plant life or health. Such measures - which can be more stringent than other countries' and differ from international benchmarks - are acceptable as long as they are based on scientific principles and risk assessment, applied consistently to all countries, and not used as disguised trade barriers.

Harmonization and Equivalence. To facilitate trade, countries are encouraged to use relevant international standards and work toward harmonization - that is, the adoption of common SPS measures. To promote harmonization, the agreements cite, as sources of scientific expertise and globally recognized standards, international bodies such as the Codex Alimentarius Commission, which deals with food safety issues; the International Office of Epizootics (IOE), for animal health and diseases; and the International Plant Protection Convention (IPPC), for plant health. Equivalence means that each importing country must accept the SPS measures of another country as equivalent to its own (even if they are not exactly the same), as long as the exporting country objectively demonstrates to the importing country that its measures achieve the same level of protection.

Transparency. Out of recognition that SPS regulations can be unclear or even capricious, countries must have a mechanism for notifying others in advance about any measures that could affect trade, and providing a means for asking questions about and commenting on them.

Regionalization. Countries generally have prohibited imports of a foreign agricultural product if it has been associated with an unwanted pest or disease in the exporting country. Until recently, importing countries would not permit any of that product from the exporting country, even if it came from a region that did not have the disease or pest. Regionalization provides for the acceptance of such imports if the exporting country can prove that they came from a disease-free or pest-free area.

TBT Provisions

The WTO's Agreement on Technical Barriers to Trade "protects the right of Members to adopt measures which ensure the quality of exports; protect human, animal, or plant life; protect the environment; or prevent deceptive practices, as long as these measures do not breach the disciplines set forth in the Agreement. Many of the disciplines in the TBT Agreement are essentially identical to those in the SPS agreement [including the obligation to notify' and allow for comments on proposed standards affecting trade], but the TBT Agreement explicitly states that SPS measures are bound only by the terms of the SPS agreement." ³ NAFTA's TBT provisions, which are part of the chapter on Standards-Related Measures, take a generally similar approach.

SPS and TBT measures sometimes can be identical, making it difficult to determine whether they should be challenged or defended under the SPS or the TBT disciplines. USDA analysts note that they usually can be distinguished by their objective. For example, a product shelf life restriction might have been adopted either to ensure food safety (making it an SPS measure), or to regulate freshness (TBT).

Dispute Settlement

The UR accords also include a new "Understanding on Rules and Procedures Governing the Settlement of Disputes" to provide a mechanism for resolving, in a timely and objective manner, trade disputes between countries, including those involving SPS measures and other TBTs. Under pre-UR dispute settlement procedures, a country involved in the dispute effectively could block a decision against it, which cannot occur under the new system. If a WTO dispute settlement panel ultimately determines that a country's SPS or TBT measure is inconsistent with WTO obligations, and WTO members adopt the panel report, the "guilty" country (which can appeal the decision on matters of law and legal interpretation) could still maintain the measure, but only if it also provides compensation to the complaining country. If compensation is not provided and the two countries still fail to reach a mutually acceptable solution, the WTO panel can authorize trade retaliation against the country. NAFTA also contains a new dispute resolution mechanism that can be used to challenge SPS measures and other TBTs. Both the WTO and NAFTA procedures allow for scientific advice to the panels.

U.S. Procedures for Identifying and Addressing TBTs

With the new SPS and TBT disciplines now in place, the U.S. government's process for identif~ing and dealing with them has taken on new importance. For agriculture, most of this effort is coordinated, at least in the initial stages, by USDA/FAS's Food Safety and Technical Service Division (FSTSD). The division maintains and regularly updates the database on foreign TBT measures with a potential impact on trade, which are listed even though they may comply with WTO or other international trade agreement provisions.

FSTSD continually collects information on these measures from the WTO, which countries are obligated to notify whenever they propose a new TBT measure; industry groups attempting to export products; the USTR; FAS's overseas posts; and various regulatory agencies such as USDA's Animal and Plant Health Inspection Service (APHIS) and Food Safety and Inspection Service (FSIS), and the HHS Department's Food and Drug Administration (FDA). In 1996, for example, 52 new TBT issues were identified.

Technical staff of the various USDA and non-USDA agencies meet weekly to discuss the status of emerging and ongoing TBT issues. Discussion may center on whether a measure complies with international trade obligations, and options for resolving a potential dispute. Using economic, scientific, and other analyses, the agencies may eventually develop a formal U.S. position on an issue. Meanwhile, technical and other government officials are likely to have initiated at least informal dialog with countries concerning the measure in question, and they also are communicating with affected industries in the private sector, both to keep them informed and to gather additional information. Eventually, bilateral consultations with the foreign country over an outstanding SPS or TBT issue might be pursued by USTR, with USDA's assistance. USTR also can decide at any point to elevate the issue via a formal complaint with the WTO or NAFTA, triggering formal dispute resolution procedures. ⁴

Critics maintain that the U.S. structure for coordinating agricultural SPS and other TBT issues is ambiguous and lacks a clear mechanism for prioritizing problems and reaching policy positions.5 In response, USDA created a formal TBT policy group headed by the Secretary's special trade advisor and composed of senior officials of relevant agencies, who will meet at least monthly. The first meeting was held on October 7, 1997.

Related Issues

Despite the steps to date to address problems related to TBTs, numerous issues remain. For example, food safety and environmental advocates have long expressed concerns that the ongoing efforts to harmonize international standards (such as under Codex, IOE, and IPPC) might encourage the United States to weaken its own food safety and environmental protections. Relatedly, U.S. health and safety standards could be undermined if WTO dispute settlement panels question their scientific basis and/or attempt to compare them to weaker international standards, some advocates argue.

Others counter that the current trade agreements explicitly recognize the right of individual nations, (as well as states and localities) to enact stronger protections if they believe they are appropriate. If a WTO or NAFTA dispute panel is convened to determine whether an SPS measure has a scientific basis, it is only tasked with determining whether the SPS measure at issue is based on scientific principles, (and is being applied consistently - not whether the measure necessarily uses the "best science."

Because the SPS and TBT provisions (and the important dispute settlement procedures) are relatively new, analysts have not yet settled on the most appropriate methods for measuring their economic and other impacts; even their definition and relative importance are still being debated. These are among the questions that policymakers are likely to encounter as they consider ways to expand agricultural trade.

ENDNOTES:

1 Orden, David, and Donna Roberts. Foreword to Understanding Technical Barriers to Agricultural Trade, proceedings of a conference of the International Agricultural Trade Research Consortium, January 1997. Other sources for this report include: Roberts, Donna, and Kate DeRemer, Overview of Technical Barriers to US. Agricultural Exports (Staff Paper AGES- 9705), ERS, USDA, March 1997; "Intentional Trade Agreement Provides New Framework for Food-Safety Regulation, in USDA's September-December 1994 Food Review; and Vogt, Donna, Sanitary and Phytosanitary Safety Standards for Foods in the GATT Uruguay Round Accords (CRS Report. 94-512 SPR), June 21, 1994.

2 Overview of Technical Barriers to U.S. Agricultural Exports. Although the FSA database itself is not made public, another source of information is the Office of the U.S. Trade Representative (USTR), which is required by law to file an annual report on significant foreign trade barriers faced by all U.S. exporters, including agriculture. The report categorizes, describes, and in some cases, quantifies, these barriers on a country-by-country basis. The 1997 National Trade Estimates Report on Foreign Trade Barriers can be accessed through USTR's home page (at www.ustr.gov) on the Internet.

3 Overview of Foreign Technical Barriers to U.S. Agricultural Exports.

4 Sections 301 et seq. of the Trade Act of 1974 delineate the domestic legal authority and procedures for U.S. officials in investigating and challenging unfair trade practices, and enforcing U.S. rights under international trade agreements. Interested parties, including agricultural groups, can - and do - petition USTR to initiate such procedures under Section 301 if they believe that a challenge is warranted and that the Administration is not addressing the issue. For an explanation of Section 301, see House Committee on Ways and Means, Overview and Compilation of U.S. Trade Statutes (WMCP 105-4), June 25, 1997