Cost-benefit analysis and the SPS Agreement

The WTO Agreement on the Application of Sanitary and Phytosanitary Measures requires member governments to base trade measures on scientific risk assessment. Relevant assessment factors include the costs of entry and establishment of pests, including costs of controlling such pests, but the benefits of importing risk goods appear to be excluded from consideration. This exclusion may be desirable in order to promote consistency and to reduce the chances of measures being used for protectionist purposes. However excluding benefits goes against economic logic, which suggests that both benefits and costs should be considered when choosing the appropriate level of protection from risk. The paper reviews recent economic literature on the use of cost-benefit analysis, the relevant clauses of the SPS Agreement, and recent rulings in disputes over SPS measures. Tensions between economics and the SPS Agreement are identified and a possible resolution is suggested