Weird Science

It’s our reaction to science that is weird. Modern societies seem to distrust science and prefer to rely on gut feelings, especially if the science disagrees with pre-conceived notions. And especially if the science conflicts with the trade protection that governments wish to provide favored industries.

Typical WTO meeting

The WTO’s Committee on Sanitary & Phytosanitary Measures (SPS) met last week in Geneva – with some disturbing results. The WTO press release I have linked to has to be non-prejudicial, but it is clear that there are a lot of countries that are putting on trade restrictions, using the excuse they are necessary for health and safety, but which have little or no scientific justification. An unusual joint complaint about non-science-based trade barriers came from Argentina, Australia, Brazil, Canada, Chile, Colombia, Costa Rica, New Zealand, Paraguay, Philippines and the United States – and it picked up additional support from Mexico, South Africa and the European Union.

“The increase in the number of SPS measures that are not based on international standards, guidelines and recommendations or that have inadequate scientific justification is a point of concern readily raised … These measures often unduly restrict trade and appear to be associated with objectives that are not deemed as legitimate under international trade rules.”

- joint paper submitted by Argentina, Australia, Brazil, Canada, Chile, Colombia, Costa Rica, New Zealand, Paraguay, Philippines and the United States

Let’s get into some of the specific complaints:

Indonesian port closures. The United States, backed by the EU, Australia, Chile, Canada, New Zealand and South Africa, questioned Jakarta’s plan to close four major ports to imported shipments of fruit and vegetables. The United States and New Zealand say this will close off 90% of Indonesia’s fruit and vegetable imports. Jakarta says it has to close the four main ports because it has insufficient laboratory facilities at those ports to look for “threats found in imported products”. The threats are not specified, no increase in health problems has been noted, nor has construction of new lab facilities been announced.

China’s food additive tests. India asked questions about China’s new testing methods to discover the ingredients of food additives. India says the new tests do not conform to any known international standard. The Chinese delegation said they’ll get back to us.

EU standards for aluminum in pasta. I knew that spaghetti wasn’t al dente. China complained that the European Union has set its standards too high for aluminum content in flour products, including noodles. Aluminum can apparently be naturally present in flour, so Brussels has set a content limit of 10mg/kg. Chinese noodles apparently have 50mg/kg, so Beijing says that the EU is discriminating against China. If your penne tastes metallic …

Taiwan’s ban on ractopamine. The United States, Canada and Brazil say that Taipei’s embargo on pork and beef containing ractopamine ignores findings by the Food & Agriculture Organization and the World Health Organization that the growth agent is safe for humans. That said, a proposed international standard for ractopamine content is still being debated in the FAO and the WHO.

EU regulation on novel foods. Brussels has for years had restrictions on importing so-called “novel foods”. These are foods that may have been consumed elsewhere for centuries, but that are new to Europe. Peru, backed by Cuba, Colombia, Brazil, Chile, Argentina and Paraguay, is leading the charge to loosen European limits on their food exports.

Chinese standard for methanol in alcoholic beverages. Beijing is considering a new maximum limit on methanol alcohol in distilled spirits not made from grain. Mexico, worried that the limit may be used to embargo Chinese imports of tequila, is raising questions about the scientific basis of the Chinese proposal.

U.S. and EU standards on pesticide in rice. India raised issues with numerous European limits on pesticide residues and with a specific U.S. limit on the amount of the pesticide tricyclazole that can remain in Basmati rice. The Indians argued that the residues in both big markets are not based on scientific findings.

Argentina’s restriction on book imports. Argentina, seemingly insanely, is stopping imports of books if they haven’t been tested for the lead content of their ink. Seems they are worried about people who lick their fingers while reading. This isn’t a formal WTO case yet, but a new restriction spotted by one of our readers, a fellow trade blogger. Check out Tread The Middle Path.

These are just the latest cases. The WTO says that 331 complaints have been brought to the SPS Committee since it was founded in 1995. The peak was in 2002 when there were 43 cases, so we are some better off today. There were only 16 new cases in 2011. Many of the 331 complaints have been resolved and most never hit the headlines, but – just from the newer complaints above – you can see that these can be contentious.

The language of the WTO, the GATT before it, and the WTO’s SPS Agreement all say that members have the right to protect the health and safety of their citizens. But they also say that this is not an excuse to install trade barriers without scientific basis. A fine line to walk.

Time To Cry, Argentina

Everybody's got a beef with Buenos Aires

The headlines Friday made it seem as if the United States and the European Union are ganging up on poor, little Argentina. U.S., EU blast Argentina’s trade restrictions at WTO. You had to read further to find out that this was a joint complaint filed by 14 members of the international trade organization: Australia, the European Union, Israel, Japan, Korea, Mexico, New Zealand, Norway, Panama, Switzerland, Taiwan, Thailand, Turkey and the United States. Though Mexico and Panama are the only Latin American states to sign on, you can believe the complaint is being cheered by Uruguay, Paraguay, Brazil, probably others.

The world has finally had enough – after protesting since 2008 when Buenos Aires hugely expanded its import licensing regime. About 600 non-agricultural products now require import licenses. These aren’t the automatic kind, but non-automatic licenses that are apparently subject to capricious, perhaps coercive implementation. Import licenses are OK if they comply with the WTO’s rules, but these don’t. The WTO’s Agreement on Import Licensing procedures, which Argentina helped negotiate in the 1970s, requires that decisions be made on granting non-automatic licenses within sixty days, but Argentina often takes six months or more. Lack of transparency means that Argentine importers and foreign exporters are left hanging during the months of waiting, not knowing if the shipment can be completed or not.

“The products affected include, but are not limited to, laptops, home appliances, air conditioners, tractors, machinery and tools, autos and auto parts, plastics, chemicals, tires, toys, footwear, textiles and apparel, luggage, bicycles, and paper products.”

- complaint by 14 WTO members

It gets worse. Argentina implemented new measures February 1 that require pre-registration, review and approval of each and every import transaction. This has virtually shut down trade, as Buenos Aires lacks the manpower to push all the paper. Neighboring Uruguay saw its shipments to Argentina slashed by 46.6% in February. Paraguay’s sales of manufactured goods to Argentina plummeted 38% when the new restrictions went into place. Exports of footwear went to zero, furniture and wood products dropped 72%, and textiles were off 65%. Ominously, Brazil has warned that “it is ready to respond” to Argentina’s provocative trade moves.

The joint complaint goes further, charging that Argentina has adopted an informal “trade balancing” policy, under which importing companies must agree to export Argentine products worth as much or more than the goods they bring in.

“Many companies have reported receiving telephone calls from Argentine government officials in which they are informed that they must agree to undertake such trade balancing commitments prior to receiving authorization to import goods.

“The Ministry of Industry’s website is replete with press releases announcing these trade balancing and domestic production arrangements. These arrangements include well known automakers agreeing to export products such as wine, olive oil, and soy meal …”

- complaint by 14 WTO members

Argentina’s response to all this?

“Argentina is alarmed with the insistence of countries that keep on creating artificial barriers to make it harder for developing countries’ agroindustrial products to enter, and as they politically pressure these countries to receive the products that their own domestic markets cannot absorb due to the economic crisis they are undergoing since 2008. These are the real obstacles in creating a more balanced economic system.”

“Argentina will keep on exercising the sovereign decision of its trade policies which have driven the most important economic growth in our history. We will comply with the WTO’s regulations but we will not accept no kind of external interference.”

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This is a distinct issue from the dispute that Washington has with Buenos Aires about paying off on arbitral awards to two American companies. International arbitrators decided back in 2005 and 2006 that Argentina has to compensate investors about $300 million. Argentina has ignored the findings, which means that the country has now lost its eligibility for products to enter the United States duty-free under the Generalized System of Preferences. If Argentina wants back in under GSP, they know what they have to do.

Plenny FTA News

No, this isn’t another article about finally implementing the U.S.-South Korea FTA. There is so much else happening out there on free trade agreements, many of them south/south agreements that don’t involve the United States or other developed countries. I posted about south/south FTAs a couple months ago, but a lot more is going on.

Leaping & bounding to India?

Turkey is excited about the prospect of an FTA with India. The two countries have jointly studied the possibility and the preliminary results look good for both sides. And trade is growing even without an FTA. Bilateral trade between India and Turkey leapt from US$4 billion in 2010 to $7 billion in 2011 – a 75% jump in a single year!

“… through the economic partnership of an FTA, the floodgates will open both the directions and the trade will go leaps and bounds.”
- Burak Akcapar, Turkish ambassador to India

Not so good news on free trade prospects between Mexico and Brazil. Seems the two Latin powers are in a tiff about motor vehicle trade and they are letting that get in the way of broader trade liberalization. They did an auto trade agreement about ten years ago and Brazil has decided it is too one-sided. The Brazilians have pressured Mexico into voluntary export restraints that will cut Mexican auto exports to the hot Brazilian market for the next three years. [Sounds like something Washington once did to Tokyo, doesn't it?]

After this, it would seem irresponsible to talk about a (free trade agreement) until confidence has returned to the market and also to manufacturers in both countries, who are very worried because deals need to be honored.
- Bruno Ferrari, Mexico’s Economics Minister

Pakistan and Morocco want into the FTA game, too. I don’t know how this one would work, because trade between the two is fairly small and is extraordinarily lopsided. Total bilateral trade last year was about US$345 million, of which $314 million moved from Morocco to Pakistan. The backstory is that Pakistan depends on Morocco for 90% of the rock phosphate the Pakistani fertilizer industry needs. Pakistan also buys some Moroccan textiles and pharmaceuticals. Morocco appears to buy soccer balls and surgical instruments from Pakistan. Not sure I see this as a full blown FTA, but you never know.

Hardly south-south, Japan and Canada announced Sunday that they are beginning negotiations for an FTA across the North Pacific.

Meanwhile, China’s premier Wen Jia-bao said last week that someday there would be a U.S.-China free trade agreement. No timetable. I think he was just making conversation.