The SPS agreement and New Zealand's primary industries
From Biosecurity issue 14, September 1999.
Malcolm Bailey was recently appointed by the government as a special agriculture trade envoy for New Zealand. Earlier this year, as national president of Federated Farmers of New Zealand, he spoke at MAF’s SPS seminar on what the agreement means to this country’s primary producers.
My aim in this address is to provide a New Zealand primary industry perspective on the WTO SPS agreement, particularly how New Zealand primary industries have benefited from the SPS agreement.
There are two key elements to this: what this agreement has meant to New Zealand in creating market opportunities overseas, and the flip side for New Zealand farmers — balancing trade imperatives and biosecurity risks.
When the SPS agreement came into force in 1995, the benefits were identified as:
- improved market access (harder to erect non-tariff barriers);
- lower compliance costs (through harmonisation, equivalence, transparency, consistency);
- potential new markets.
The benefit to New Zealand’s primary industries are obvious. We are a very small player in world trade terms, despite being significant in the international trade of sheep meat and dairy products.
The New Zealand economy is heavily reliant on agricultural exports; they still account for around 57 percent of our total exports.
But the harsh reality is that very few of our export markets really want our produce. We certainly do have good consumer demand, but in between New Zealand producers and these consumers we have domestic farmer lobbies and politicians who would close down this trade tomorrow given half a chance.
An SPS restriction, which is not actually justified for health or biosecurity reasons, can be a very effective protectionist device. Because of complexity, and divergent views between scientists, these can be particularly deceptive and difficult barriers to challenge.
I cannot stress too strongly how important the SPS agreement is in helping to prevent this happening.
While some examples exist, such as the Australian ban on our apple exports, this behaviour has been greatly constrained. Further, the SPS agreement is accompanied by trade panel procedures to deal with disputes.
Lower compliance costs
Compliance costs are very important in international trade. Unreasonable costs themselves can be a trade barrier. The SPS agreement has helped facilitate cost savings, or at the very least avoided some costs rising further. This is of considerable benefit to New Zealand.
This has occurred through application of equivalence, harmonisation, transparency and consistency.
WTO members should accept the SPS measures used by other members if they afford the same level of protection. It is not necessary that exporting countries adopt the same measures as used within an importing country.
The onus is on the exporting country to demonstrate that their measures will give the level of protection required by the importing country, but to do so the exporting country must be able to understand the level of protection that the importing country wants to achieve.
Members are required to base their SPS measures on an assessment of the risks to human, animal and/or plant life or health, taking into account risk assessment techniques developed by the relevant international organisations.
The only relevant economic factors that can be considered relate to assessment of the economic damage from the entry of unwanted pests and diseases.
Members should base their SPS measures on international standards, guidelines or recommendations from Codex, OIE or IPPC. Following these standards can help lower costs.
Members are required to notify any new or altered SPS measure and to provide information on request.
This has benefited New Zealand as it allows us to make submissions on the SPS proposals made by other countries. This is similar to the consultation New Zealand undertakes domestically between government and industry groups.
The agreement also makes specific recommendations on technical assistance and on special and differential treatment for developing countries. It also sets out the basis for dispute resolution.
Members are required to be consistent in their determination of the appropriate level of protection against risk (also referred to as the acceptable level of risk), so as to avoid arbitrary distinctions that result in discrimination or disguised restrictions on trade.
In determining the appropriate level of protection the importing country must take into account the objective of minimising negative trade effects. In determining the appropriate level of protection the SPS agreement principles provide some discipline as to how the level will be set.
Regulatory authorities have to make a clear distinction between matters that are genuinely related to animal health and those which are now considered to be commercial matters between seller and buyer. For example, semen fertility is considered a matter of ‘quality’ rather than animal health.
Another example. If there is no domestic control programme for a pest or disease that is present in New Zealand, then imports should not have any controls for that particular pest or disease placed upon them. To do so would be discriminating against imports. In New Zealand, there is a control programme for bovine TB under a national pest management strategy, so border measures are legitimate. Live cattle imports could be required to undergo a testing regime for tuberculosis.
However, voluntary industry quality assurance programmes, which have no statutory control, do not have the same status and therefore similar measures on imports are unlikely to be imposed. This is a challenge for industry as it increasingly seeks to take responsibility for managing the safety and quality of products.
Members are required to apply SPS measures that recognise pest and disease-free areas whether they be within a country or spanning more than one country within a region. The onus is on the exporter to provide the necessary evidence to justify a claim on freedom from a pest or disease.
This has benefited New Zealand producers if a pest or disease is only found in one part of the country. For example, fruit exports from some parts of New Zealand were able to continue while the fruit fly incursion was being dealt with in the upper North Island.
Some examples of compliance cost benefits
The Food Safety Inspection Service of the United States Department of Agriculture now accepts of the equivalence of New Zealand’s microbiological monitoring programme in relation to the E. coli bacteria testing requirements of the US pathogen reduction: HACCP final rule, the so-called Megareg. This benefits New Zealand producers as it focuses on delivering the same food safety outcomes rather than replicating overseas inspection regimes.
The European Union – New Zealand veterinary agreement, signed in 1996, provides for the recognition of the legislative controls applied to animal diseases by trading partners. This reduces the compliance costs of New Zealand industry meeting requirements such as animal health certification assurances, and contributes to improved market access for New Zealand products to Europe. It also recognises New Zealand meat and dairy inspection systems as equivalent.
I cannot stand here and claim that the SPS has opened up many markets and given farmers a big win. But I can surely say that the agreement has been of enormous benefit in other ways. It is almost certain it has prevented us losing some markets.
Prior to the SPS agreement, SPS measures affecting trade could be imposed with little discipline. Countries could establish national measures and requirements on exporting countries without considering scientific justification or alternative controls. It was very difficult to challenge measures.
The impetus for the SPS agreement came from the concern that unless this area was addressed, gains made in the Uruguay Round could be undermined if countries erected barriers in the form of sanitary and phytosanitary measures.
Balancing trade imperatives and biosecurity risk
Has New Zealand suffered a negative trade-off from increased threats to our biosecurity from signing up to the SPS agreement?
The short answer is no. There is not universal agreement on this but we have not been forced to take any unnecessary risks. We had a robust scientific risk analysis prior to 1995, and this has continued.
An example of where there was a strong difference of opinion on this concerned the importation of bovine semen from the UK in the wake of the BSE crisis. Many primary producers were very concerned at the risks of both BSE and scrapie.
However, following advice from a panel of science experts, a ban on the import of semen was lifted. The BSE Expert Science Committee stated that the controls imposed by MAF on the importation of bovine semen from the UK would be adequate to prevent the introduction of BSE into New Zealand.
Not surprisingly the scientific assessment has proved to be correct, but this episode underscored the importance of ‘risk communication’ and ensuring that industry groups be kept fully informed.
Frankly, in comparison to direct trade issues, I think a more important challenge is posed by trying to balance the desires of some domestic producers to access new genetic material and biological controls with our desire to retain freedom from unwanted pests and diseases. The rabbit calicivirus issue graphically exposed this.
It is clear that some of our domestic industries may face new competition if imports can meet import health standards. An example is the import of pork from Australia, Canada, and US. Imports to New Zealand have increased as world prices have dropped. But New Zealand pig producers’ concerns relate more to the impact of Canadian and US domestic policies on the price of pork than with SPS issues.
It is quite apparent that the Uruguay Round did not really threaten the status quo of many highly subsidised farming systems in the developed world. The cutbacks in export subsidies, minimum market access provisions, and constraints on domestic support have not caused fundamental changes.
As a consequence, the anticipated pressure on some governments to find ‘ways’ of blocking some unwanted trade has not been that great. Of course there are examples of SPS measures being used to unfairly block trade but they are fewer than we might have expected.
Having said this, we need to be wary with regard to the WTO round that commences later this year. New Zealand and many other nations will be seeking rapid progress in terms of building on the WTO Agreement on agriculture.
Meaningful success in cutting export subsidies and domestic support will surely increase the pressure that domestic farm lobbies will exert on their governments to find other ways of blocking trade. The obvious way is to find sanitary and phytosanitary excuses.
More than ever we will have to ensure that the SPS agreement is sufficiently robust to resist this potential challenge. We will also have to ensure that dispute resolution procedures and outcomes are backed up with enough clout to sort the problems out.
The EU ban on use of growth-enhancing hormones in meat production is an example of dispute resolution dragging on too long.
The rapid advance of biotechnology also poses some problems for the future, which will occur where consumers do not accept scientific risk assessment and place political pressure on governments to impose restrictions that are not consistent with the SPS agreement.
In New Zealand, and I suspect in most other countries, we need to achieve a far higher level of public understanding about scientific risk assessment.
We must communicate the fact that there is no such thing as a zero risk. We must communicate the fact that there is at least a theoretical risk with everything that we do. We must communicate that it is scientifically impossible to prove a negative hypothesis.
But at the same time we must clearly communicate that food safety and human health, along with our flora and fauna will not be put at risk.
New Zealand’s ban on trout imports
I also have to deliver a very blunt message about New Zealand’s commitment, or might I say an example of lack of commitment, to the SPS agreement. It is with no joy I broach this subject.
“As a signatory to the SPS agreement, New Zealand can continue to regulate to protect agriculture [and our flora and fauna] from unwanted pests and diseases.
“But this right is linked to some important obligations. We must be accountable for these regulations, and be able to justify them on scientific grounds.
“New Zealand has earned a reputation at the leading edge of trade reform, but to maintain this position we must lead by example. Existing barriers that don’t stand up to scrutiny must be dismantled, and no new ones built.
“If we want the SPS agreement to work to our advantage in overseas markets we must apply the same principles to items entering our domestic market.”
Are these my words? No! These are the words of our own government as reported in the document Trade opportunities: how the World Trade Organization’s sanitary and phytosanitary agreement will benefit New Zealand primary producers. (Ministry of Agriculture and Ministry of Foreign Affairs and Trade; Wellington, New Zealand; 1997; 14 pp).
Sadly we have not lived up to these high standards because our government has ignored its own scientific risk assessment and effectively banned trout imports.
This is not scientifically justifiable under the SPS agreement as a trade ban, and MAF has issued an import health standard for salmon, trout and char. However, as a result of domestic political pressure a trade ban remains in place although proponents of the ban argue that the ban is not for SPS reasons.
We have a wonderful wild trout fishery in New Zealand. It would be crazy to put this at risk. But allowing trout imports will not put it at risk.
In the meantime we invite retaliatory action that in turn threatens our own exports. We can argue that any retaliation is unfair and we could expect to have it overturned by a WTO disputes resolution panel; but what price would we pay in the meantime?
Unless we quickly reverse our stance, New Zealand is almost certain to face the humiliation of having Canada take our trout ban to the WTO for resolution.
Their case will be a simple. They will simply use and quote our own scientific risk assessment against us.
The SPS agreement is very valuable to New Zealand. Almost more than any nation we would be exposed to unfair barriers against our trade if it did not exist. We cannot demonstrate huge new gains since 1995 but in the absence of the agreement we would be very exposed and potentially facing serious market access problems. We have clearly benefited from lower compliance costs.
There has not been a negative trade-off between the commitment we must give to allowing trade into New Zealand and increased biosecurity risk.
The government must sort out the trout trade ban quickly or we will pay a high price. Our government must faithfully adhere to the SPS agreement in every case.
Further work is needed. New challenges will emerge as the next WTO round takes shape. The pressure to find ways to restrict imports as further subsidy cuts bite is likely to increase. Also, biotechnology is likely to pose new challenges.
The WTO disputes resolution process has teeth, but we may need to sharpen them a bit to deal with these challenges.
Finally, I must pay tribute to our officials who toiled away for years to help make this agreement a reality. You have achieved a great deal for New Zealand’s primary industries and for this we sincerely thank you.