The great barrier debate

AUTHOR: Lachlan Colquhoun   DATE: 06.09.07   ISSUE 1, 2007

Consumers who are grateful to quarantine regulations they perceive as limiting the threat of epidemics such as avian flu or mad cow disease may not realise that biosecurity measures can sometimes be to their economic disadvantage.

In some cases, it is claimed that biosecurity regulations function as de facto trade barriers, protecting a country’s producers from competition on the basis of sometimes flimsy scientific evidence. In these cases, consumers effectively pay to subsidise a protected local industry.

The economic cost of quarantine is the subject of a major research project led by UNSW Professor of Economics Kevin Fox, the director of the Centre for Applied Economic Research. Working with UNSW PhD student Daniel Bunting and Professor R. Quentin Grafton from the Australian National University, Professor Fox is aiming to estimate the economic impact of biosecurity restrictions such as quarantine, and to use these estimates to formulate informed policy initiatives and an appropriate approach to the quarantine issue.

There have been quite blatant cases where biosecurity regulations have been used to keep Australian goods from reaching intended markets, but the same accusations have also been made against Australia.

Illustration: Alison Wallace

“There’s been a lot of attention on the issue of biosecurity regulations and how they are replacing traditional trade barriers such as tariffs and quotas,” says Professor Fox.

“As international trade agreements have moved forward to freer trade there is an increasing use of non-tariff barriers to restrict trade and quarantine is right up there as one of the leading alternatives.”

Recognising the trade-off
The use of quarantine as a trade restriction has been noted by the World Trade Organisation, which has an agreement on the use of sanitary and phytosanitary restrictions, “but this is very controversial and there are a lot of cases in front of the WTO for resolution, brought by countries which think that their trading partners’ quarantine barriers are simply trade barriers,” says Professor Fox.

Australia has been on both sides of the biosecurity debate.

“Australia is very concerned about its exports being subject to unreasonable security regulation in other countries, and our wheat industry, for example, has been subject to that approach,” he says. “There have been quite blatant cases where biosecurity regulations have been used to keep Australian goods from reaching intended markets, but the same accusations have also been made against Australia.”

Canada, for example, recently took Australia to the WTO over the issue of raw salmon imports and won that case, while Australia has only recently lifted a ban on the importation of European hams.

New Zealand apples have been banned from Australia since the 1920s supposedly because of the dangers of fireblight, but Professor Fox says there appears to be “no scientific evidence at all” that the importation of these apples will cause fireblight in Australia.

“Why doesn’t NZ put up more of a fuss about this, when the science doesn’t support it?” he asks. “Well, there have been plenty of other markets for NZ applies and only in the last couple of years has this question been re-examined and there’s been talk of lifting this ban.”

One of the key parts of the study is an analysis of the Australian banana industry, and in particular its behaviour after the recent cyclone in North Queensland. Australia does not allow the importation of bananas, and consumers who wanted bananas were forced to pay extremely high prices for them in the aftermath of the cyclone, which severely restricted supply at a time when Australia was actually reviewing its policy on banana imports.

“What happened was that the banana lobby jumped on an error in the spreadsheet of the Government agency doing the review which held things up for a few years,” says Professor Fox. “The quarantine ban was quite close to being lifted at the time the cyclone hit and I remember listening to the radio a few days later and I heard a person from the banana lobby say the restrictions would not now be lifted, and he was right.

“The Australian Government deemed it was better to keep the prices high rather than giving Australian consumers access to reasonably priced bananas, so they considered it was better for North Queensland farmers to re-establish themselves and in the meantime created millionaires out of the few remaining banana growers.”

The researchers are looking to what happened to banana prices during the shortage and Professor Fox says there are “some interesting results”. “It's a possibility that some retailers were then taking advantage of consumer confusion on banana prices, so we are looking at the gap between the farm gate price and the retail price,” he says.

The most important aspect of this case, says Professor Fox, is that the Government used quarantine regulations to make a “welfare choice” to keep banana prices high and not let Australian consumers have access to cheaper bananas.

Considering fruit sources
Another focus of the study, being undertaken by Daniel Bunting, is an examination of Australian rules on the importation of mangoes. Australia has insisted on only allowing mangoes into the country which have been chemically treated in a particular way, which is more expensive. The Government view was that the cheaper method of chemical treatment was hazardous to the fruit handlers in the country of origin.

“This Australian Government concern for the welfare of foreign workers had an impact on the price of mangoes bought by Australian consumers,” says Professor Fox. “The price went up but it also had an impact on quality, so we have some techniques to separate out the quality and price effects.

“The result was that some countries changed the way they treated their fruit, and then went back to the old method, saying they didn’t care about Australia, so this had an impact on where we sourced our fruit.”

The point of the study, says Professor Fox, is that other countries imposing “unreasonable quarantine” can have a huge impact on Australian producers, while unreasonable restrictions from Australia can impact negatively on the welfare of our consumers.

“It is also related to border issues,” he says. “Restrictions on bananas mean that we keep Filipino banana growers impoverished, but at the same time we give aid to the Philippines.

“If you read the Filipino newspapers they are puzzled about the Australian Government policy, because their banana growers are among the poorest people and perhaps the best aid for them would be for Australia to allow the importation of Filipino bananas.”