Trade effects of food safety regulations. An empirical analysis of processed food exports

In this paper we deal with the controversial effects of NTMs on trade by analyzing the case of standards measures in processed food sector, one of the most affected by NTMs, in particular Sanitary and Phytosanitary measures and Technical Barriers to Trade. What is discussed is the traditional view that standards necessarily restrict trade, relating them to ordinary tariff. This paper claims that the analysis of the effects of standards on the economy cannot be exhaustive when limited to a negative cost effect typically associated with the higher compliance to tougher or different regulations. In other terms, standard measures cannot affect trade performance only through the supply side; the demand side plays a role as well. The presence of these measures, may increase consumers' demand which would instead positively affect trade performance. The "two faces of standards" - hypothesis, effectively summarizes these results. Probit and gravity equations are estimated for the period 1998-2006, for 145 countries which were WTO Member States in 2006, using almost 190,000 observations. The aggregate results show that in case of processed food, the demand effect is overwhelming and affects positively the two margins of trade: both standard measures (SPSs and TBTs) affect the extensive margin and TBTs affects significantly the intensive margin. Standards may entail product upgrades or reduce uncertainty on quality and safety of food products, giving rise to a positive relationship between food standards and trade. In this way, the usual perception of standards as barriers is gradually challenged by the "two faces of standard" where standards on processed food could be trade-enhancing.