The Good, the Bad and the Ambiguous: Standards and Trade in Agricultural Products

Abstract

Do countries use standards to protect their agricultural sectors from imports? This question has taken center stage in the agricultural trade-policy debate for years. This paper empirically evaluates three commonly made claims: (1) country-specific agricultural standards uniformly hinder trade, (2) harmonization of standards uniformly promotes trade in agricultural goods and (3) within tradeblocks, both harmonized and country-specific standards have a different effect on insiders than on outsiders. We argue that these claims ignore important economic trade-offs: Country-specific standards hinder trade, since they enforce costly testing or adaptation of products, but they also provide essential information about markets. Harmonization of standards eliminates product adaptation costs, but also reduces variety, thus reducing trade. Trade blocks form coalitions that allow choosing optimally which standards to harmonize and which ones to leave as country-specific. Outsiders are therefore harder hit by country-specific standards than insiders. If outsiders of a tradeblock harmonize their standards with those of insiders, they benefit from increased trade with them. Not surprisingly, we only find partial evidence for the first two, but strong evidence for the third claim.

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