Given the theme of last Wednesday’s post, questioning the validity of economic arguments supporting free trade, and previous discussions on food security, I though it wise to spend a moment considering the use of quarantine as a barrier to trade.
Queensland’s banana crop was destroyed by cyclone Yasi last summer and prices at the supermarket shelf hit $14/kilo and more. This wouldn’t have been the case if bananas could be freely imported.
It seems that leading economist Saul Eslake, and economist turned politician Andrew Leigh, have done the job of deciphering genuine concerns over importing disease, and rent-seeking by protected producers.
Let us start with what Andrew had to say –
In fact, just about every trade barrier can be rewritten as a quarantine rule or a consumer protection law. Suppose Californian wine producers are complaining about competition from French Bordeaux. Left unchecked, US authorities could simply raise health concerns about Phylloxera, and ban French wines on quarantine grounds. Or imagine that British carmakers are struggling to compete with Malaysian hatchbacks. Without any international guidelines, there would be nothing to stop the UK from banning Malaysian small cars for reasons of safety.
To prevent competition laws and environmental rules from being used as backdoor protectionism, the WTO has two new treaties that require health, consumer and environmental regulations to be scientifically based. National regulations cannot discriminate against particular countries, and must not impede trade any more than necessary.
If a WTO member thinks that another country is breaking the global trade rules, it can take a case to the dispute panel. Australia has complained to the WTO on seven occasions (against the European Union, Hungary, India, Korea, and the United States). We’ve won five of these cases, including decisions in favour of our beef exporters to Korea and our lamb exporters to the US.
On the flipside, we’ve had ten cases brought against us (by Canada, the EU, New Zealand, the Philippines, Switzerland, and the US). We’ve lost three of these cases, including the New Zealand apples decision (the other two losses related to imports of salmon and automotive leather).
Andrew makes the solid points that quarantine and consumer protection is ‘back-door’ protectionism, and gives a good overview of the international legal framework around trade. I would add, however, that the global framework is a political construct, and concessions are based on relative power of each country in these negotiations. I don’t think there are any countries without some form of ‘back-door’ trade protection (especially indirect subsidies).
Saul Eslake takes different approach by discussing the price impacts on domestic consumers from this type of protection. He also highlighted that in the wake of cyclone Yasi, high banana prices were only helping banana growers whose crops weren’t destroyed, not those who actually lost their crops from the cyclone.
On the matter of importing diseases, he makes a point I have argued to many people in the past. How would diseases go from boxed-up fruit and vegetables arriving in city ports out to farms? How high is that risk? In Eslake’s words:
If bananas and other fruit or vegetables are imported into southern ports, such as Melbourne, Adelaide or Sydney, and are subject upon arrival to appropriate inspections, they are no more likely to spread diseases damaging to Australia’s banana industry than the importation of cooked and packaged Canadian salmon has done to Tasmania’s salmon industry (another example of protectionism masquerading as ”biosecurity” where, unusually, commonsense and the interests of consumers ultimately prevailed).
To me the irony of the situation is that many of the crops now requiring protection from foreign pests are themselves introduced species, and could arguably be classified by an environmentalist as a foreign pest. (Also, countries that do have these diseases can produce the crop cheaper than us.)
Aside from political considerations, the logical person would ask whether the potential costs from the pest or disease are greater than the benefits derived by consumers from cheaper food? If yes, then we should keep the quarantine restrictions. If no, we should drop them.
Clearly not all quarantine rules will necessarily have greater benefits than costs. We have lost 3 out of ten cases brought against us by other WTO member, so if 30% of the quarantine rules can be dropped because their costs outweigh the benefits, this may be beneficial in the long run. We need to remember that when we open up export markets for our domestic goods (which we can produce for a cost below the global market price), we can end up paying a higher price that if export markets were shut off (as long as there is sufficiently competitive domestic production). The reverse is true for imported goods that we cannot produce for the global market price – protection means an increase in price.
In economic terms, the choice to protect some farmers is a political gift to a select industry at the expense of a diverse consumer base – the product of their historical rent seeking activities, and political decisions (which, to be honest, could have global political ramifications I have not considered).
In reality however, these cost may be very minor. I admit that my reduced utility from the 2011 banana shortage was approximately zero, due to the wide variety of substitutes for bananas, which I indulged in during the year. But to properly analyse trade, quarantine’s back-door protection needs to be considered.
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