DP1934 On the Need for More Economic Assessment of Quarantine/SPS Policies

Author(s): Kym Anderson, Sarah James
Publication Date: July 1998
Keyword(s): Externalities, Optimal Policy, quarantine, risk and uncertainty, SPS measures
JEL(s): F13, F14, Q17, Q28
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1934

Quarantine policy reviews are becoming more sophisticated following the Uruguay Round?s Agreement on Sanitary and Phytosanitary (SPS) Measures and, in Australia?s case, following also the 1996 Nairn Report. Yet they still focus primarily on the effects of restrictions just on import-competing producers. A fuller analysis that includes the consumers demonstrates that even if imported diseases were to wipe out a local industry, the gains to consumers may outweigh the losses to import-competing producers from removing a ban on imports. This paper provides the simplest partial-equilibrium framework for thinking more about the economics of quarantine policy measures. An empirical analysis of Australia?s ban on imports of bananas, used to illustrate the methodology, suggests a move to free trade may well cause a major contraction of banana growing in Australia but the economic welfare gains to consumers are almost certain to far outweigh the losses to producers. The paper concludes by arguing that there is a need for a comprehensive economic review of Australia?s myriad quarantine restrictions.