9.1 Harmonization
9.2 Mutual Recognition
9.3 Coordination
9.4 Direct Foreign
Investment
The movement worldwide in recent years has been toward more free trade. This means that barriers to trade created by tariffs have been reduced. An example is the recent Uruguay Round of the General Agreement on Tariffs and World Trade/World Trade Organization (GATT/WHO) which reduced tariff levels on agri-food products and initiated tariffication of some non-tariff barriers to trade (Caswell and Hooker 1996). This agreement and the Agreement on Sanitary and Phytosanitary Measures form the overall legal basis for any further legally-binding and international agreements in this area and the instruments to be adopted on a voluntary basis, such as the Code of conduct for Responsible Fisheries14 (Karnicki 1997). The prediction is that trading blocs will create other types of non-tariff barriers to trade. An example is safety and quality regulations with respect to food. Country level regulations are under formal scrutiny as potential non-tariff barriers to international trade. This means that the economics of reducing health risk for food (and thus seafood) will be more complicated and the benefit-cost calculations more difficult in order to judge the worthiness of food safety regulations (Hooker and Caswell 1995). One reason that food safety standards can be an issue is that it is very easy to make them different, ambivalent or difficult to understand or meet. To prohibit these types of barriers from being created, agreements are being made to ensure that national regulations and trading agreements must be based on science and be applied evenly to both domestic and imported products. An example is the recent seafood HACCP programme in the United States which stipulates that importers of seafood to the United States must meet the same HACCP standards as United States processors of seafood (United States Food and Drug Administration 1995). The intent is to achieve equivalent standards regarding the effect of regulations, not to make the regulations themselves identical. However, there is still tremendous room for mischief among trading blocs to create ways to affect trade among them to achieve self-interest goals.
Major developments within the last two decades have created a set of complex trading situations regarding seafood (Wessels and Wallström 1994). Expansion to a 200-mile exclusive economic zone by coastal nations changed the structure of fish harvesting. Broader and independent control of access to fish stocks made seafood importers of some nations that no longer had access to fish stocks for harvest. Nations with control of access in some cases became fish exporters. Second, growth in aquaculture worldwide also changed trading patterns between nations. Conflicts involving tariff and non-tariff barriers have thus increased in scope and intensity. Wessels and Wallström categorize these into four categories: (1) directed policies that relate directly to seafood markets, (2) concern over seafood product quality and safety, (3) market challenges such as dumping which give rise to tariffs, and (4) fisheries management policies which conflict with international free trade agreements. Another document that has a focus on international quality control and assurance and provides an overview of some issues is also available (Sylvia, Shriver and Morrissey 1994).
The success level of achieving equivalency and reducing non-tariff barriers to seafood trade will depend on how interested trading blocs or countries are in co-operating with each other to reduce barriers. This cooperation is called regulatory rapprochement with most grouping activity into three categories: (1) harmonization, (2) mutual recognition, and (3) coordination (Caswell and Hooker 1996; Jacobs 1994). Further discussion of the Uruguay Round of GATT as it relates to the technical aspects of seafood is available (Lupien, Randall and Field 1997).
Harmonization refers to the standardization of regulations in identical form. HACCP activities with the European Union closely mimic harmonization, since HACCP regulatory regimes have been harmonized across counties. In theory, this should result in a reasonably homogenous level of food safety within the European Union countries (Caswell and Hooker 1996). This should make within-European Union country trade easier, and could make trade between European Commission member countries and third party countries easier as long as the third party countries can meet and be recognized as meeting European Commission standards. However, early on there have been trade impacts between developed countries (Wessells and Wallström 1994). At the time of passage of EEC Commission Decisions 91/492 (EEC 1991a) and 91/493 (EEC 1991b), there was no federal comprehensive inspection programme for seafood in the United States, and determination of the "competent authority" was difficult. Eventually the National Marine Fisheries Service (NMFS) was identified. In addition, all seafood exporting plants in the United States needed to be certified by NMFS. With the late 1997 implementation of the federal HACCP programme in the United States, this problem has been alleviated, but it is indicative of the kinds of problems countries will initially experience in coming to terms with seafood safety and quality regulations. Short term loss results from uncertainty, risks and costs. In practice however, the result may be more restrictive trade between third parties if the European Commission decides to challenge the safety and microbiological standards of third party counties.
Developing countries are clearly anticipating problems in being able to harmonize their standards in a way that will not affect trade in a negative way. Developing countries are responsible for more that 50 percent of the fish in international trade (Lima dos Santos, Josupeit and Chimisso dos Santos 1993) and harmonization is anticipated to have an impact on fish exports from developing countries. Positive impacts are anticipated to be a strengthening of ties between government and industry regarding fish quality, a stronger commitment to improve fish quality, adoption of safety and quality improvement programmes such as HACCP, and more training and education in quality and fish inspection processes. Negative aspects are lack of trained personnel, lack of financial resources, lack of communication between inspection authorities and lack of clear instructions from the importing country on conditions that must be met (Lima dos Santos, Josupeit, and Chimisso dos Santos 1993). Importers also have stated concerns about the ability to effectively function within the harmonization rules of, for example, the European Union. Concerns include such practical items as having the health certificate with the imported goods at all times, correspondence between the goods and the certificate including language problems, physical concerns ranging from sampling delays to shipping delays due to infrastructure problems within and among European Union members, and a number of other examples derived from practical experience (Hottlet 1993). A seafood supplier has also pointed out a number of practical questions. These include the definition of safety and quality, who will pay for the improved standards (consumers or producers), how will the standards be implemented (with tolerance to start or strict compliance), will the new rules allow for diversification or unification and who will be in control along the transporting chain (Nusalim 1993) Strong arguments have also been made that consumers in the European Union will benefit from improvements in fish hygiene, particularly in fish from developing countries (Roessink 1993). Detailed points of view and issues faced by developing countries within the fish capture, processing and exporting countries are available (Ababouch 1993; Mansur 1993; Masette 1993). These include, among others, the need for major training programmes, lack of investment capital for infrastructure to enable compliance with sanitary regulations and the difficult task of changing fishing practices of artisinal fishermen.
Court cases in the European Union have defined the European Union's position on food standards. All member states must accept products lawfully and fairly manufactured and sold in any other member state, even if such products are manufactured on the basis of technical specifications different from those laid down by national laws in force (Sheldon and von Witzke 1992). Given this mutual recognition, these authors point out that there are two generally accepted outcomes. First, the barriers to intra-community trade in food products will be lower. Second, third country exporters to the community will have to meet the food quality standards of all member countries. The overall effect will be intra-country trade creation at the expense of third-country export sales. A number of other effects might also be expected. If consumers are willing to pay for higher quality foods, firms may have an incentive to demand high quality in order to drive out low quality and capture market share, and over time, food quality within the community will increase.
Community members will also have the incentive to demand higher food standards in order to create non-tariff barriers to trade. Growing emphasis on food quality standards will also redefine trade relations between the European Union and developing countries (Sheldon and von Witzke 1992). Food exporting countries will face more barriers to trade, as European Commission countries introduce additional and strengthen existing food safety and health standards. Developing countries may have problems meeting standards set by European Union countries because newer technologies and production techniques require intensive human capital that is scarce in developing countries. On the other hand, European Union member countries may be able to produce to two levels of standards, one to meet within community standards and another for export outside the community where regulations are less strict.
In practice, three examples demonstrate the real-time use and economic impact of non-tariff barriers to trade. On 13 February 1998 the European Commission modified the list of countries authorized to export harmonized fishery products to the European Union. After 1 July 1998 countries not on the list will not be authorized to export products to the European Union. Thirty countries are approved to export products to the European Union with 25 additional countries having certain establishments authorized to export, but not the country as a whole. Together, these counties and establishments, including Norway and Iceland which are authorized to export to the European Union as part of the European Free Trade Agreement, account for 90 percent of the 1996 value of seafood imports into the European Union. If the list of approved countries is not expanded, the European Union will be short approximately eight percent in volume and ten percent in value after 1 July 1998. Over 100 countries are not on the approved list although many are currently in the application process (FAO April 1998).
Second, European Union inspectors in May-June 1997 found that shrimp processing plants in Bangladesh did not meet European Commission standards for importing seafood into the European Union. A 1 August 1997 European Commission directive banned the importing of shrimp from Bangladesh (EEC 1997a). Bangladesh annually exports an average (1993-1995) of US$190 million in frozen shrimp and prawns worldwide. The ban was lifted on 13 February 1998 (EEC 1998). The estimated cost to the Bangladesh frozen shrimp processing industry was US$14.7 million (Cato and Lima dos Santos 1998). The Bangladesh Department of Fisheries, Fish Inspection and Quality Control of the Ministry of Fisheries and Livestock was named by the European Commission to verify and certify compliance of fishery and aquaculture products with European Commission requirements. As of July 1998, only 11 seafood-processing companies (of approximately 50) were named as approved establishments to ship to the European Union.
The third example is the recent decision of the European Commission to ban imports into the European Union of fresh fish products from Kenya, Tanzania, Uganda and Mozambique (EEC 1997b). The World Health Organization (WHO) issued an official statement indicating that the decision had limited scientific justification, and that no cases of cholera have ever known to occur through the consumption of imported food products. The FAO also issued a press release saying the ban was "not the most appropriate response", and indicating that the risk of transmission of cholera from contaminated imported fish is negligible (FAO March 1998). The effect of the Decision represents an average monthly loss of US$60 000 in trade from Mozambique, for example, which means about 30 tons of fish per month are not exported to the European Union market. One processing plant with 20 employees and 30 fishing vessels with 450 employees were affected (Ben Embarek 1998).
Mutual recognition is defined as the acceptance of regulatory diversity in meeting common goals, which is also referred to as reciprocity or equivalency. For equivalency to be successful, it is required that countries or trading blocs agree to a large number of bilateral or multilateral agreements. This means that scientific principles must be agreed upon or the processes of each partner must be endorsed by the other as equal. For seafood HACCP in the United States, the programme allows for the establishment of a Memorandum of Understanding (MOU) with countries importing into the United States. When in place, processors in exporting countries will only need to comply with the HACCP equivalent programmes of the importing country. However, to date no MOUs have been agreed to by the United States FDA. In the meantime, seafood exporters to the United States must have and implement verification procedures through product specifications or other defined steps that the involved products are safe or meet the requirements of the United States seafood HACCP programme. Thus, at the moment the "equivalency" test burden is placed on the exporter and the importing agent. The definitions of equivalency and the attitudes of trading partners will determine whether or not equivalency will assist or hinder free trade. As an example, the Canadian approach goes further toward promoting free trade, since it adopts the Codex hygiene code as its source of prerequisite requirements while the United States HACCP programme does not directly adopt Codex, making coordination of prerequisites more difficult (Caswell and Hooker 1996). The European Union version of equivalence is different from that of Codex and the United States FDA. To achieve equivalent status with the European Union, the exporting country must demonstrate that its "National Competent Authority" has the capability to enforce European Commission legislative regulations to ensure that safe and wholesome products are being produced and placed in commerce. The European Commission regulations contain no process to develop a MOU type arrangement, thus equivalence occurs as defined by specific decisions made by the European Commission approving individual countries and companies within them to export to the European Union. This sets up a convenient opportunity for the use of equivalency as a non-tariff trade barrier (Sophonphong and Lima dos Santos 1998). The cited source contains an extensive discussion of equivalence perspectives from the points of view of the United States, European Union, Japan, Canada, and bilateral and multilateral agreements of developing countries.
Coordination implies the occurrence of a gradual narrowing of relevant differences between regulatory systems, usually based on voluntary international codes of practice or alignment. The North American approach resembles more a form of weak coordination, with the United States and Canada pursuing HACCP plans in parallel. In theory, this could ease regulatory differences between the United States and Canada, but neither mutual recognition nor harmonization are expected soon (Caswell and Hooker 1996). The Codex/WTO approach is even weaker in terms of coordination, and simply urges countries to ratify the Codex standards and follow them. This approach requires extreme mutual trust and cooperation, with the only way to resolve disputes being one country's challenge of another that its food safety programme is unscientific and an unjustified barrier to trade.
The North American Free Trade Agreement (NAFTA) between the United States, Canada and Mexico, which came into effect in 1994, is another form of rapprochement. NAFTA calls for the progressive removal of virtually all tariffs on agri-food products among the three countries with 15 years (Hooker and Caswell 1995). NAFTA is not designed to create an economic community like the European Union. NAFTA does have as a major goal to prevent discrimination and creation of non-tariff barriers to trade based on unjustified safety regulation. NAFTA does advocate the use where possible of Codex international standards. Under NAFTAs weak form of coordination, the United States, Canada, and Mexico have pursued almost independent updates of their information requirements. Another important difference between NAFTA and European Union is that NAFTA is a free trade agreement while the European Union is a formal customs union (Hooker and Caswell 1995).
Clearly, harmonization is the strongest level of rapprochement and coordination (or lack of) the weakest. The usefulness of HACCP as an international regulatory trade standard will depend on the ability of trading countries or blocks to move toward harmonization. This in turn depends on how various governments implement HACCP. If governments require companies to develop a HACCP plan but do not specify its detail, it is a performance standard, and companies can use various methods to reach a defined performance goal. If government defines each specific standard of the HACCP plan for companies, then it becomes a process standard. For freer trade, it is preferred that governments define HACCP as a performance standard, which has been the goal in some agreements such as Codex, where countries may follow Codex, but have different regulatory programmes to satisfy the Codex goals (Caswell and Hooker 1996; Codex 1995).
National or country level food regulation strategies can also have an effect on the strategies of companies to operate in international markets. For example, foreign direct investment in a country may allow the investing company to avoid rules intended to disadvantage imported products (Hooker and Caswell 1996). There could also be other economies gained by locating closer to the source of raw materials or closer to the consumers of products. These authors argue that for processed products the level of regulatory rapprochement on quality regulation will have significant impacts on patterns of international trade, and thus foreign direct investment, in the next decade. As evidence, data quoted in the article define an increase in the number of unfair trade practices made under GATT in the 1950s in contrast to the 1980s when quality regulations were on the rise. They predict more trade disputes in the coming years for several reasons: (1) the WTOs introduction of an agreement on sanitary and phytosanitary (SPS) regulations defines a position and will thus give countries a standard from which they can accuse other countries of not meeting the standard, (2) there is a pent-up demand for disputes among countries because many disputes were delayed until the WTO standards were decided, and (3) innovations in food production, processing, and transportation technologies, and member countries attempts to respond to these innovations while simultaneously improving current levels of food safety protection will result in more complicated regulatory structures. They conclude that national-level food quality regulation does have an important influence on business decisions regarding choice of strategies, such as foreign direct investment and export sales, for attaining sales in foreign markets. National-level regulation will increase in importance as a restraint in trade and foreign direct investment in the future, instead of lessening the importance a movement to harmonization and mutual recognition would suggest.
