Genetically Modified Food Standards as Trade Barriers: Harmonization, Compromise, and Sub-Global Agreements

GMOs have brought new concerns into an already challenged world trading system. This paper considers the jointly enodogenous formation of GMO-related standards and sub-global trading agreements. Standards are understood as tolerance levels for GMOs. Sub-global trading agreements may be either formal agreements between countries sanctioned by the WTO, or they may be implicit agreements, e.g. a developing country accepting the U.S. standards.We develop a theoretical model of standard formation and agreement formation. In autarky, national standards reflect the preferences of domestic consumers. The possibility of gains from trade encourages countries to modify their standards to facilitate trade with other countries having similar standards. Whether or not a country engages in trade depends on the magnitude and nature of the gains from trade--e.g. economies of scale, greater variety for consumers, etc.--and the degree of standard modification required for trade. If the gains from trade are sufficient, countries will compromise or harmonize standards to achieve these gains. In the case of countries of similar size (bargaining power), compromise may be feasible. In the case of countries of different size, harmonization of the smaller country's standard to that of the larger country may be more likely. The case of the European Union's de facto prohibition on trade in GMOs is represented as a case in which the gains from trade are insufficient to catalyze a compromise position. Analogously, the North American refusal to restrict or prohibit GMOs indicates that the gains from trade with Europe are insufficient to compensate for this change in standard. In the absence of a common global standard, countries with similar preferences cluster into smaller clubs to capture at least some gains from trade.