What's behind GM food trade disputes?

Over the past decade, the United States (US) and the European Union (EU) have implemented widely divergent regulatory systems to govern the production and consumption of genetically modified (GM) agricultural crops. In the US, many GM varieties have been commercially produced and marketed, while in the EU few varieties have been approved: a de facto moratorium limited EU production, import and domestic sale of most GM crops from late 1998 to April 2004, and since then strict labelling regulations and a slow approval process are having a similar effect. The EU policies have substantially altered trade flows and led in September 2003 to the WTO establishing a WTO Dispute Settlement panel to test the legality of European policy towards imports of GM foods. This paper seeks to better understand the economic forces behind the different regulatory approaches of the US and the EU. It uses a model of the global economy (GTAP) to examine empirically how GM biotechnology adoption would affect the economic welfare of both adopting and non-adopting countries in the absence of alternative policy responses to this technology, and in their presence. These results go beyond earlier empirical studies to indicate effects on real incomes of farm households, and suggest the EU moratorium on GM imports helps EU farmers even though it requires them to forego the productivity boost they could receive from the new GM biotechnology.We acknowledge with thanks funding support from Australia’s Rural Industries Research and Development Corporation and the Australian Research Council