Rent seeking in U.S.-Mexican avocado trade.

• Author: Lamb, Russell L.

This article examines the use of sanitary and phytosanitary (SPS) standards as a method for protectionism through the lens of political economy. Technical measures, especially SPS, remain a potential barrier to free trade, in spite of substantial progress on trade liberalization under the Uruguay round of trade negotiations. In fact, in the 1986-93 Uruguay Bound negotiations, separate disciplines were negotiated for the management of SPS standards, which are highly technical and relatively nontransparent compared with other international standards. This study examines the political economy of one contentious trade dispute that has arisen under the SPS Agreement, the import of Mexican Haas avocados into the United States. The history of the dispute is traced and new evidence is provided on the rent-seeking activity of U.S. producers.

The SPS Agreement and Developing Countries

By the 1980s technical standards were recognized as one of the last remaining opportunities for countries to protect domestic producers (Goldstein 1996: 4). The Punta del Este Declaration, which launched the Uruguay Bound, specifically addressed the issue of SPS measures in liberalizing agricultural trade (Zarilli 1999: 3). The final document launching the new World Trade Organization included both a revamped Agreement on Technical Barriers to Trade (TBT) (WTO 1995a) and an Agreement on the Application of Sanitary and Phytosanitary Measures (WTO 1995b), along with a new dispute settlements procedure designed to strengthen the dispute body rulings.

At the outset it is important to distinguish SPS measures as defined in the SPS Agreement from the technical measures governed by the TBT Agreement. Technical trade barriers are "regulations and standards governing the sale of products into national markets that have as their prima facie objective the correction of market inefficiencies stemming from externalities associated with the production, distribution, and consumption of those products." (1) SPS standards, although a type of technical battier to trade, are treated separately from the technical barriers controlled under the TBT Agreement (Zarilli 1999: 6).

SPS measures are defined as any measures that

* protect animal or plant life or health within the territory of the Member from risks arising from the entry, establishment, or spread of pests, diseases, disease-carrying organism, or disease-causing organism;

* protect human or animal life within the territory of the Member from risks arising from additives, contaminants, toxins, or disease-carrying organisms in food, beverages, or feedstuffs;

* protect human life or health within the territory of the Member from risks arising from diseases carried by animals, plants, or products thereof, or from the entry, establishment, or spread of pests;

* prevent or limit other damage within the territory of the Member from the entry establishment or spread of pests [GATT 1994: 78].

Sanitary or phytosanitary measures include all relevant laws, decrees, regulations, requirements, and procedures, including end-product criteria; processes and production methods; testing, inspection, certification, and approval procedures; quarantine treatments including relevant requirements associated with the transport of animals or plants, or with the materials necessary for their survival during transport; provisions on relevant statistical methods, sampling procedures, and methods of risk assessment; and packaging and labeling requirements directly related to food safety. For the purpose of these definitions, "animals" includes fish and wild fauna; "plant" includes forests and wild flora; "pests" includes weeds; and "contaminants" include pesticide and veterinary drug residues and extraneous matter (GATT 1994: 78).

Whether a measure is subject to the disciplines of the SPS or TBT Agreement depends upon the stated purpose for which it was adopted according to the laws of the domestic country. (2) For example, shelf-life regulations may be adopted as a food safety issue, which is an SPS measure, or they may be adopted to regulate food freshness, which is a TBT measure. The scope of the SPS Agreement is more narrowly defined than the TBT, which covers a broad range of measures. In addition, the SPS Agreement is more firmly grounded in scientific principles. The SPS agreement establishes the principles by which countries may legitimately assert that measures are necessary to protect human, animal, or plant health or life from specified risks. The TBT agreement enumerates the particulars of the national treatment obligations that members are under when they impose technical regulations or standards (Thorn and Carlson 2000: 841).

The main goal of the SPS Agreement is to prevent domestic SPS measures from being misused for protectionist purposes. While the Agreement recognizes that countries have legitimate interests in establishing rules for protecting food safety and animal and plant health (Zarilli 1999: 4), the goal is to accommodate such interests while stripping away any disguised protectionism (Victor 2000: 865). The principles and provisions of the SPS Agreement are summarized in Unnevehr (9000).

It has long been recognized that developing countries in particular are likely to be at a substantial disadvantage in the highly technical world of SPS development and implementation (Elliott 1999) and they are given special treatment in the agreement itself. (3) a Developing countries are at a disadvantage in trade disputes surrounding SPS issues on a number of grounds. Many LDCs do not have the capacity to participate in the key regulatory bodies set up in the SPS agreement: The Codex Alimentarius (Codex), the Office International des Epizootics (OIE), and the International Plant Protection Convention (IPPC) (Unnevehr 2000: 238). (4) The institutional framework within LDCs may create hurdles for successful interaction within the framework of the SPS agreement. They lag other countries in complying with transparency requirements designed to facilitate information flow between countries. By June 1999, only 65 percent of low- and lower-middle income countries had specified an enquiry point and only 59 percent had specified a national notification agency responsible for notifications of new or amended SPS measures, and participation is even lower among low-income countries (Henson and Loader 2001).

LDCs also fail to take advantage of the "equivalency principle," which requires a country to treat another country's regulations as "equivalent" if they generate the same level of food-safety protection. Bilateral trade agreements eliminating SPS barriers may divert trade away from LDCs. In some cases competitiveness and market access is hampered due to the lack of public grades and standards, and production controls such as HACCP that are required by importers. (5) The marginal costs of implementing HACCP may be higher in developing countries where fewer basic sanitation services are available and technical assistance may be required due to few trained HACCP specialists (Cato and Lima dos Santos 1998: 1).

LDCs may not benefit from the dispute settlement mechanism of the SPS Agreement, reflecting in part the high cost of pursuing a formal dispute under the Agreement. Of cross-notifications to the SPS Committee (to air grievances between members when bilateral efforts have failed to resolve these issues), only 23 of the 90 notifications (28 percent) placed by September 1999 were filed by low- or middle-income member countries (Hensen and Loader 2001: 97).

Rent-Seeking Behavior and the Avocado Case

We turn now to consideration of Mexican exports of avocados to the United States, a trade dispute in which SPS measures have figured prominently. The case provides a compelling story of how special interests can capture the regulatory process and use SPS standards for purposes of protecting monopoly rents that arise from protectionist trade policies, for example, rent-seeking activity. In particular, it illustrates how several factors come together to facilitate rent seeking in agricultural trade. First, the protectionist lobby is well-organized, and is facilitated by producer groups allegedly engaged in "market promotion." Second, the complexity of SPS regulations puts the developing country at a disadvantage in resolving SPS trade disputes. Finally, the benefits from protectionism are concentrated in the hands of relatively few producers, compared with costs spread thinly across the entire population.

Mexico and the United States are the world's largest producers of avocados, accounting for 67 and 15 percent of global production, respectively, and both countries export only a small amount of out-put. (6) Production of export-quality avocados has been increasing in Mexico over the past few decades and Mexico would like to enter the restricted U.S. market, which is large, typically generating sales around $250 to $300 million annually. While sales of Mexican avocados in the United States have increased recently, they remain less than 7 percent of total consumption, and less than 20 percent of imports (Table 1). The dispute between the United States and Mexico over phytosanitary regulations on avocados has been long-standing.

While the standard economic model of market failure focuses on government action as a benign attempt to improve public health and safety in the case of food regulations, an alternative approach to understanding the rise of SPS harriers to open trade is the political economy model of rent-seeking behavior. This is especially so for those SPS measures for which a scientific basis is dubious and which tend to...