Implications of the Sanitary and Phytosanitary (SPS) regulations on the EU – U.S. Corn Trade Sector and the Case of the ‘Agenda 2000’ Reforms

Abstract

Corn trade between the European Union (EU) and the United States has undergone substantial changes over the past decade. EU Reforms of the Common Agricultural Policy (CAP), beginning with the Mac Sharry Reforms of 1992 and continuing with the Agenda 2000 Reforms, were directed at bringing EU agricultural policy into compliance with World Trade Organization (WTO) provisions. These reforms have brought about considerable changes in the market structure in corn trade. However, while trade has been facilitated by decoupling payments and removing levies and tariffs on imported corn, EU’s Sanitary and Phytosanitary (SPS) measures have negated some of the progress in trade between EU countries and the United States. Technical Barriers to Trade (TBT), in the form of SPS measures, have progressively replaced traditional tariff and non-tariff trade barriers while allowing the EU to remain in compliance with WTO regulations. The absence of recognizing equivalency in production procedures has created a further decline in corn trade accounting for over $300 million loss annually to U.S. corn exports since 1997 (Weyerbrock and Xia 2000). Using data obtained from the USDA and EUROSTAT, we develop a three stage simultaneous equation model to estimate the economic impact of TBTs on EU-U.S. bilateral corn trade for specific EU countries. Further, welfare effects for producers and consumers in EU countries are also estimated.