European agricultural biotechnology preferences and policy: trade creation or diversion?

Abstract

This paper addresses one of the European restrictive trade policies imposed on the agricultural biotechnology products imported from the rest of the World. EU's ban on these products to conform with consumer preferences is likely to have some impact on the trade flows between EU and its trading partners. The purpose of this paper is to determine whether EU restrictive trade policies against biotech products have led to a trade creation or diversion. Gravity model and augmented gravity model are used as methodology to assess trade impacts of EU's restrictive trade policies on the agricultural biotechnology goods. The results show that there is a trade creation in Food and live animals. However, trade diversion, and not creation, is found in Beverages and tobacco, and Animal and vegetable oils and fats. The results also show that it is costly for EU when it imposes restrictive trade policies on agricultural biotech goods and crops that are heavily influenced by consumer preferences and not by biotechnology.