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Berkeley ENVECON 131 - Consumer Information, Consumer Rights and WTO Trade Law

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0Brian Loo EEP 131 Professor Larry Karp Consumer Information, Consumer Rights and WTO Trade Law Abstract The following paper is devoted to a case study of the Beef Hormone Trade Dispute, focusing on the viability of a labeling solution in response to European consumers’ demand for food-safety and United States interest groups’ demand for European compliance with World Trade Organization trade law. It concludes that WTO trade law poses a significant barrier to such a solution and to consumers’ right to information and food-safety. Key terms: Voluntary positive labeling: Labeling of products as having desirable qualities, in which compliance is voluntary for producers. Mandatory negative labeling: Labeling of products as having undesirable qualities, in which compliance is mandatory for producers. Risk-Aversion: The subjective value a person or persons place on avoiding some risk, in this paper often meaning health hazards related to food safety.1The ongoing Beef Hormone dispute between the European Union (EU) and other World Trade Organization (WTO) Members States, namely Canada and the United States (US)1, offers a unique case study of two interrelated issues: consumers’ right to differentiate/discriminate between otherwise like-products based on their subjective preferences, and the legality of eco-labeling as a means to do so under the WTO. Unlike most other trade disputes, which arise due to disguised producer protectionism, the Beef Hormone case has been brought about by European consumers’ unusually high risk-aversion in matters of food safety (Vogel, 2001). Thus one possible less trade restrictive solution is to label the beef differently and allow consumers to choose. Such a labeling solution would differ from the typical EU eco-label in important respects, and thus our study of said solution sidesteps some of the controversies surrounding eco-labeling, its practicality and legality, to focus directly on others. For instance EU eco-labeling uses non-product related Product and Production Methods (hereafter, simply PPMs) as product criteria, making their program highly contentious legality under WTO trade law, which does not recognize PPMs as a legitimate difference in otherwise like products. Moreover the development of eco-labeling criteria is typically biased towards domestic producers with more input and political sway than foreign producers, creating a potentially discriminatory trade barrier. There is also controversy surrounding the actual environmental significance of eco-labeling criteria irrespective of their fairness to trade. Our examination of potential labeling solutions to the Beef Hormone dispute circumvents these issues because the sole criteria for the label would likely be fixed as the six hormones currently under EU moratorium, which of course constitute product related PPMs. 1 Australia, Mexico, China and Chinese Taipei also reserved their rights to have input into the settlement as third parties with invested interests.2Nevertheless a host of issues, legal, political, and economic, remains. After discussing the benefits of a labeling solution in the Beef Hormone dispute, this paper examines the significant factors that may have swayed EU policymakers not to undertake such a solution, and concludes that despite the efficiency of a labeling solution, strong political pressure from EU consumers would demand a mandatory labeling scheme, which is both irreconcilable with US political interests and likely to be struck down by WTO trade law. It is fairly clear that the Beef Hormone dispute was neither propelled by strong EU producer protectionism nor by heavy US trade losses. This is not to say, however, that there were never incentives for disguised protectionist measures. Lane (2002) notes that the consolidation of the Common Agricultural Policy (CAP) in the 1980’s led to “large and costly beef surpluses, perhaps making any measure to limit beef imports likely to compete with domestic production quite tempting”. And in more recent years EU beef producers have had to struggle with Bovine Spongiform Encephalopathy (BSE), or mad cow disease, losing significantly in its EU market share, which might be easily taken up by foreign competitors (US Meat Export Federation, 2005). However, clearly at the time of the dispute filing the value and extent of disputed trade distortions were relatively small compared to total EU production and imports of beef, as well as US exports of beef. The US and Canada each claimed a mere US$202 and CDN$75 million respectively; the arbitration panel determined the levels to be closer to US$116.8 and CDN$11.3 million respectively (WTO Panel Reports – EC Measures Concerning Meat and Meat Products, 1997). The amount of damages claimed by the US amounted to one-tenth of one percent of its total exports to the EU in 1999 (Lane, 2002). By means of further comparison the total value of US beef exports in 1997 was approximately $2.5 billion dollars US3(FAOSTAT2). While I could not get 1997 numbers for the value of EU’s net beef production in currency, to give an idea of the size of European beef producing sector, 7.4 billion metric tons of slaughtered beef were produced in the original EU 15 in 2004, which nets approximately 19 billion Euros at average 2004 EU market prices (FAOSTAT and EU Agriculture Database3). Clearly the financial losses EU producers might face from US competition were relatively small, as were the US producers’ potential immediate gains if the EU moratorium had been dropped. Thus the EU moratorium seems to have been created primarily to address the genuine fears of European consumers about the health risks of hormone-fed beef. A 1998 Eurobarometer poll found that 54% of those surveyed felt a product’s being “hormone-free” determined its safety; the criterion of being hormone-free was the second highest response after “pesticide-free”. In general, EU consumers are much more risk-averse than other consumers in developed countries, a fact that has direct implications for any potential labeling solution, and which will be returned to later. In recent history situations caused by similar consumer pressure have been resolved with labeling schemes. Melser (2005) points out that policymakers met demands for illegal trade embargoes from environmentally minded consumers by creating eco-labeling programs; this happened to the forestry industry in the


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Berkeley ENVECON 131 - Consumer Information, Consumer Rights and WTO Trade Law

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