The Effects of Maximum Residue Limits on Trade: A Case of Canadian Wheat Export
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2020-11-05
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Abstract
Wheat is Canada’s most produced crop, and Canada is one of the major wheat producers in the world. Canadian wheat production well exceeds the domestic demands, and thus more than half of the wheat production is being exported. With climate change and the increase in global food insecurity, Canada can play an essential role to feed the world. The success of the Canadian wheat industry depends on exports and market access. In addition to customary tariffs, non-tariff measures can affect trade. Maximum residue limits (MRLs) are a class of non-tariff measures. MRLs are the maximum levels of pesticide residues that remain in food and are deemed legally permitted. Codex Alimentarius Commission, an international standard-setting of the United Nations, vii establishes MRLs by applying science-based risk assessments. Following the Codex MRLs is voluntary, and countries can choose to develop their national MRLs as long as they abide by scientific methodologies that do not impede trade. States can decide to follow Codex or national MRLs. In either case, the domestic agricultural products, as well as the importing commodities, must meet the MRL requirements. The problem of MRLs has increased recently since countries started to develop national MRLs. The increasing number of unharmonized national MRLs create trade issues because by following the national MRLs, producers and farmers do not necessarily follow the importing countries’ regulatory requirements. A trade barrier occurs when the importing country’s MRLs are more stringent than the exporting countries’ MRLs. In addition, missing MRLs and pesticide bans add additional trade barriers. The complexity of the MRLs setting provides an opportunity for nationalistic and protectionist approaches to limit trade to promote national productions. The current literature has not reached a consensus on the effects of MRLs on trade. This report is the first quantitative analysis of the impacts of MRLs on Canadian wheat exports. In this study, the trade effects of five MRLs of major pesticides in wheat production were studied for 2018. A time-series analysis was also performed between 2014 and 2018. The gravity model and a bilateral stringency index were utilized for the econometric analysis. Although no wheat violations were reported for Canada in the last few years, the theoretical results show low MRLs can potentially act as trade barriers for Canadian wheat exports. Further studies are required to assess the exact values of the MRL impacts on trade.
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Niksirat, P. (2020). The Effects of Maximum Residue Limits on Trade: A Case of Canadian Wheat Export (Unpublished master's project). University of Calgary, Calgary, AB.