From “May Contain” to “Does Contain”: The price and trade effects of strict information requirements for GM maize under the Cartagena Protocol on Biosafety

Article 18.2.a of the Cartagena Protocol on Biosafety requires that each traded shipment of living modified organisms intended for food, feed or processing (LMO-FFPs)- essentially unprocessed genetically modified (GM) products- be labeled as such. More specifically, in 2006, Protocol members decided on a two-option rule. Shipments containing well identified LMO-FFPs would be labeled as “does contain” LMO-FFPs and would include a list of all GM events present in each shipment. Shipments containing LMO-FFPs that are not well-identified would be labeled as “may contain” LMO-FFPs as done previously. Members would also post a complete list of GM events approved on an internet database. This paper provides a comprehensive trade assessment of strict documentation requirements on traded shipments globally. More specifically we evaluate the trade diversion, price, and welfare effects of implementing the “does contain” rule on the maize sector in all significant trading countries. Using a new spatial trade equilibrium model, we implement scenarios by adding differential transport costs only between GM producers and CPB members. Our results show that information requirements would have a significant effect on the world market for maize. But they would have even greater effects on trade, creating significant trade distortion, diverting exports from their original destination. The measure would also lead to significant negative welfare effects, for all members of the Protocol and non-member that produce GM maize. While producers in non-GM Protocol member countries may benefit from increased protection, consumers and producers in selected countries of Sub-Saharan Africa will have to proportionally pay a much heftier price for such measure. This results call for governments in African and other affected Protocol member countries to reconsider their support for this new regulation that is bound to have no environmental benefits but significant and lasting economic costs.