Europe’s Trade Problem: Closed markets that stay closed result in a defective approach to science and the management of risk evaluation

Aug 8, 2018

The agreement between President Trump and Mr Jean Claude Juncker in Washington DC to set aside recent trade irritants and think about a more open trading relationship in the years ahead is welcome. It should remind us that the EU economy – as a result of EU policy and the common external tariff – is not as open as it should be for an advanced economy. It generally makes more use of tariffs for manufactured goods; particularly to protect textiles and motor vehicles, and for food and agricultural products, than other advanced economies. In the long-run these tariffs and trade distorting regulations reduce economic welfare. They provide opportunities for rent seeking behaviour that would not be present in more open, competitive markets where consumers and economic agents would obtain the benefits of greater challenge and choice. It is welcome that in the context of EU-US trade these matters will be looked at again. The problem is not just high tariff barriers, but also a distorted and defective approach to science and risk evaluation that is used to create complex barriers to both trade and technical innovation in the EU.

Using health regulation as a form of bogus trade protection

Policy Exchange has undertaken extensive work on trade policy and agriculture, particularly in relation to the operation of the Common Agricultural Policy. The two are closely linked because the EU’s unusual approach to farm policy has distorted its role within the international trading community. High tariffs are central to the EU’s farm policy, but over the last thirty years the EU has developed a new form of agricultural protection. This protection is based on regulations put in place ostensibly for reasons of health, but in practice which protect methods of production that are more expensive than other methods, yet are internationally recognised as safe, according to the presently available scientific evidence base.

A defective approach to science and technology that extends beyond agriculture

These regulations are most apparent in food and agriculture, where they have been a source of well reported contention between the US Government and the EU for many years. This approach to regulation is not confined to agricultural products, but rather reflects a more general approach to science and innovation which is characterised by an unwillingness to adjust to change and exploit the opportunities that evolving technologies offer. It is exemplified by the precautionary principle that the EU has developed since the mid-1990s. It is embedded in directives and policy regulating the environment, chemicals and biotechnology.

Expensively protecting incumbent producers

When technologies such as GM foods are not banned outright, the EU approach to scientific evaluation leads to awkward, clumsy and expensive regulation that is disproportionate. This regulation has three distinguishing features: it is costly; involves lengthy time consuming procedures; and it tends to protect incumbent producers who are provided by regulation with the protection of higher entry barriers that confer an element of monopoly power. This can be seen in the chemical, metallurgy and pharmaceutical sectors. The EU’s defective approach to science and risk management is not confined to agricultural regulation.

Ignoring international science

The use of health and safety regulation as a source of bogus trade protection appears to be most explicit in relation to agriculture and food products. The charge is set out in the 2018 National Trade Estimate Report on Foreign Trade Barriers published by the Office of the United States Trade Representative. U.S. Trade Representative Robert E. Lighthizer’s office draws up this annual assessment with contributions from the Departments of Agriculture, Commerce, Labour, Justice, State, Transportation, Treasury, the U.S. International Trade Commission and with the assistance of US embassies.

The report is direct in its criticism of the EU: “the United States remains concerned about a number of measures the EU maintains ostensibly for the purposes of food safety and protecting human, animal, or plant life or health. Specifically, the United States is concerned that these measures unnecessarily restrict trade without furthering their safety objectives because they are not based on scientific principles, maintained with sufficient scientific evidence, or applied only to the extent necessary. Moreover, the United States believes there are instances where the EU should recognise current U.S. food safety measures as equivalent to those maintained by the EU because they achieve the same level of protection. If the EU recognized the equivalence of U.S. measures, trade could be facilitated considerably.”

Ignoring the World Health Organisation and violating World Trade Organisation rules

Among the areas that the US Trade Office Report identifies as exhibiting regulation as trade barriers inconsistent with received scientific opinion are those relating to: hormones and beta agonists; agricultural biotechnology; pathogen reduction treatments; and the metric used in somatic cell counts. EU regulation does not conform to internationally established opinion following scientific studies by the Food and Agriculture Organisation of the United Nations, the World Health Organization and Joint Expert Committee on Food Additives. These organisations have found that the matters complained of by the EU do not have an adverse impact on human health. The EU’s ban on things such as growth hormones have been held by the WTO arbitration tribunals as inconsistent with its WTO obligations. Since 1999, the US has consequentially been permitted to levy an ad valorem tariff against the EU.

EU extends GM restrictions further to another important technology

The agreement between President Trump and Mr Juncker was welcome, but the difficulty of making any progress on these matters was unfortunately illustrated by an ECJ decision later in the week. In a long running case the ECJ decided to extend the regime that regulates GM technology to gene editing. The US Secretary of Agriculture Sonny Perdue criticised the decision on Friday, saying that “government policies should encourage scientific innovation without creating unnecessary barriers or unjustifiably stigmatizing new technologies. Unfortunately, this week’s ECJ ruling is a setback in this regard in that it narrowly considers newer genome editing methods to be within the scope of the European Union’s regressive and outdated regulations governing genetically modified organisms’’. This criticism is pertinent, because the technology offers consumers potential benefits that include healthier, higher-quality foods at affordable prices and offer farmers the opportunity to improve productivity and to make improvements in plant and animal health that are environmentally sustainable.

And what does all this mean for the UK post Brexit?

The decision illustrates several things. They include the gulf in trade standards between the EU and the US that has existed under the Clinton, Bush and Obama administrations and now continues under the Trump administration. This is typified by the EUs’ refusal to follow contemporary international scientific opinion, and the difficulties the EU has with employing evolving technology effectively and with adjusting to change.

….more of the same EU ‘ascientific’ approach to regulation?

The UK Government’s latest Brexit White paper position is that it will continue to abide by the present EU framework of agricultural and scientific regulation, and will continue to be a member of EU agencies such as the Chemicals agency that have helped to create these ‘ascientific’ barriers to trade.

A shorter version of this article appeared on Times Red Box.

Author

Warwick Lightfoot

Warwick Lightfoot
Director of Economics and Social Policy Read Full Bio

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