Import Rules for Foot-and-Mouth Disease Contaminated Beef

Abstract

To satisfy the Uruguay Round agreement, the United States proposed a region-based system of sanitary import rules for meat and livestock, whereby, as the risk of importing a disease rises, increasingly strict monitoring, certification, and quarantine rules are triggered. Paarlberg and Lee (1998) present an alternative policy in which the level of a trade barrier is linked directly to the health risk associated with imports. To illustrate how the risk of importing products containing Foot-and-Mouth Disease (FMD) affects the welfare-optimizing tariff, we use a simple model of trade in beef. The level of a welfare-maximizing tariff imposed by the United States is affected both by the risk taken with beef that contains FMD as it moves from one country to another and by the expected loss in U.S. national beef output. Greater risks of importing beef that contains FMD result in larger tariffs against the exporter of contaminated beef. Also, increased expected U.S. output losses cause increased tariffs. When the risk of importing FMD is low and the expected output loss is slight, the discriminatory tariff due to FMD is negligible. When the risk of importing FMD is high and the expected output loss is great, then the discriminatory tariff is prohibitive.