Sung Jae Kim School of Public Policy George Mason University

1. Does Institutional Capacity Matter in Overcoming Technical Barriers to Trade? A Case of Food Standards and Technical Regulations Sung Jae Kim School of Public Policy George Mason University Prepared for the Technology, Management, and Policy Graduate Consortium Annual Meeting June 26-28 Cambridge, MA

2. Outline • Background • Research questions • Methodology • Data • Outcome • Policy implications

3. Some definitions • Standards and Technical Regulations (STRs) • Quality or Health-related safety STRs. • Products or Production Process related STRs • Institutional Capacity (IC) • The quality of governance or the ability of governments or private entities to deliver essential services to the public.

4. Background • Importance of Food and Agriculture Exports for Developing Countries (estimation for 2003, the World Employment Report, 2004-2005) • Poverty: 1b (19.5%) people under $1 consum. per capita a day • Primary source of income: 75% of the world’s poor living in rural area and 40% of developing countries’ workers employed in agriculture sector. • The Importance of Standards in Food and Agriculture Trade -Technical Barriers to Trade • Tariffs: decreasing since the conclusion of the WTO in 1995. • Technical Barriers: becoming a serious concern to developing countries. • The Importance of Institutional Capacity • The lack of financial and institutional capacity as a major problem in complying with food and agricultural standards.

5. The Impact of STRs on Trade • Otsuki, Wilson, and Sewadeh (2001). Saving two in a billion: Quantifying the trade effect of European food safety standards on African exports. Food Policy, 26(5), 495-514. • Simulation study for the maximum level of Aflatoxin B1 residue in cereal products, nuts, and dried fruits. • The new EU harmonized standard (2002) – 2ppb. • The Codex Standard – 9ppb • Under the new EU standard • The reduction of African exports to EU by $ 670 millions • about 11% of ODA by UK in 2003 ($ 6.28b) • about 4% of ODA by USA in 2003 ($16.25b). • 2.3 less liver cancer deaths a year out of total 33,000 liver cancer deaths (about 0.007% reduction). • Limitation - Institutional capacity is not taken into consideration.

6. Research Questions • Q1: Do STRs negatively affect the exports of developing countries? • Q2: Does the institutional capacity of exporting countries make a difference?

7. Methodology: The Gravity Model Where k = product, i = import country, and j = export country

8. Data: STRs and Other Variables (2001) • ST – Standards and Technical Regulations • The maximum level of Aflatoxin B1. • V – Bilateral trade value (imports data) • SITC 04 (v.3) – cereal and cereal preparations (wheat, barley, rice, maize, and processed products) • SITC 05892 (v.3) – preserved or prepared nuts. • GDP – Gross Domestic Production, PPP adjusted • POP – Population • DIST – Distance • AveTar – Average Tariff

9. Data: Four Institutional Capacity Variables (2001) • Informational – Average score of three stat. to measure information technology readiness. • Conformity – ISO 9000 certifications per establishment. • Enforcement – the existence of STRs-related government agencies. • International Standard Setting – participation status of STR-related international organizations (Codex, IPPC, and WTO).

10. Outcome and Discussion Note: * - Significant at the 10% level, ** - significant at the 5% level, and *** - significant at the 1% level.

11. Outcome and Discussions Note: * - Significant at the 10% level, ** - significant at the 5% level, and *** - significant at the 1% level.

12. Policy Implications • Helping developing countries in coping with STRs • Institutional capacity can make a positive impact: information and conformity capacity • Increase the effectiveness of assistance to help local farmers and producers in developing countries • Through multinational corporations • Through technical assistance by governments with international development agencies

13. Comments or Questions? Thank You!!