Animal Disease Outbreaks and Trade Bans

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Animal Disease Outbreaks and Trade Bans

• WTO Impacts on U.S. Farm Policy
• Southern Regional Trade Research Committee
  (S1016)
• World Trade Center
• New Orleans
• June 1-3, 2005

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• Dr. Thomas Marsh
• Associate Professor, School of Economic Sciences
• Fellow, IMPACT Center
• Washington State University
• Dr. Thomas Wahl
• Professor and Director, IMPACT Center
• Washington State University
• Tamizheniyan Suyambulingam
• PhD Student
• School of Economic Sciences
• Washington State University

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Overview

• Provide background information/motivation
• Objectives
• Examine selected historical outbreak data
• Highlight selected WTO SPS policies
• Discuss a game theory model focusing on
• Disease outbreaks
• Trade bans
• Perceived risk
• Draw some implications

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Background Information

• Animal diseases are public goods that impose
  externalities on trade throughout the world.
• Typically, trade bans are imposed on exports from
  counties infected with a disease by importing
  countries.

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Background Information

• Even though the WTO agreements call for
  scientific basis of trade barriers, imposing
  trade bans are controversial, and costly
• Moreover, re-establishing trade is relatively
  difficult to achieve

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Background Information

• Key concerns
• Importing countries impose trade sanctions based
  on perceived risks rather than real risks.
• WTO regulations are not disease specific, but
  rather generically defined to accommodate a
  myriad of animal and plant diseases.
• WTO regulations are centrally planned schemes
  that are rule-based and not market-based.

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Objectives

• Review selected livestock outbreak data and
  policies governing major animal disease outbreaks
  across the world.
• Conceptually assess the effectiveness of trade
  bans as a mechanism to control these outbreaks.

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Outbreak Information

• Focus on selected diseases
• Avian Influenza (AI)
• Bovine Spongiform Encephalopathy (BSE)
• Classical Swine Fever (CSF)
• Foot and Mouth Disease (FMD)
• World Organization for Animal Health (OIE)
• Outbreak Data

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Outbreak Information
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Outbreak Information
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Summary Outbreaks

• The data exhibit that temporal trends and
  skewness are important characteristics of disease
  outbreaks.
• Disease outbreaks can be spatially concentrated
  and clustered regionally around the world.
• Economic impacts
• Outbreak costs are estimated to exceed billions
  of US
• Export losses alone due to the single BSE case in
  2003 for the US range from US 3-4 billion
  (Coffey et al. 2005)

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WTO SPS Standards

• The apparent role of the WTO is to maximize
  security against the international spread of
  disease with a minimum interference to world
  trade.
• WTO regulations are rule-based schemes covering
  risks to humans from diseases carried by animals,
  plants and their products the entry or spread of
  pests and additives, contaminants, toxins, and
  disease-causing organisms in food and beverages.
  

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Trade Ban Game

• Should a country impose a trade ban on imports
  from another country in the event of an animal
  disease outbreak?

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Trade Ban Game

• Game theory model focusing on trade bans in the
  event of disease outbreaks with perceived risk
  (Bauch and Earn 2004)
• Game theory is relevant in modeling
  interdependent behavior in the presence of risks,
  where risks faced by any one agent depend not
  only on its choices but also on those of all
  other.

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Trade Ban Game

• Let P denote an individual countrys strategy to
  ban trade and p be the proportion of other
  countries instituting a trade ban (i.e., the ban
  coverage level)
• Pure strategies are
• P1 impose a ban with probability 1
• P0 not impose a trade ban.
• A mixed strategy arises if 0ltPlt1.

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Trade Ban Game

• Expected payoff to country k facing perceived
  morbidity risks rb (with a trade ban in place)
  and ri (from infection with no trade ban) is
• where is the probability that an
  unprotected countrys livestock will be infected.

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Trade Ban Game

• Intuitive outcomes are driven by thresholds
• Thresholds depend on
• Perceived risks (both subjective and objective)
• Disease specific attributes in
• Likely also perceived

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Trade Ban Game

• Some implications
• Diseases have differing characteristics that
  influence individual country strategies
• FMD and CSF predominately have morbidity risk for
  animals
• AI and BSE have morbidity risk for animals and
  humans
• FMD, CSF, and AI are highly contagious

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Trade Ban Game

• Some implications
• Temporal issues and patterns are important.
• AI has immediate risks for animals and humans
• BSE exhibits temporal patterns that are latent in
  nature, having longer-term effects for animal and
  human risks

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Trade Ban Game

• Some implications
• Spatial issues and patterns of diseases are
  important.
• Assuming uninfected countries can be isolated
  from infected regions of other countries, then
  countries should implement a trade ban with some
  nonzero probability.
• Trade bans are likely to be ineffective and
  remain sufficiently risky if there is unfettered
  black market trade or livestock smuggling across
  borders.
• Effective border monitoring of adjacent
  countries, border buffer zones, or regionalizing
  the outbreak are essential for a trade ban to be
  successful.

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Summary

• Specific model outcomes are that
• Perceived information is critical to the
  likelihood of a trade ban
• Generic trade bans are not necessarily effective
  nor efficient tools in the event of a trade ban

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Summary

• General recommendations are that
• Because risks are often based on public
  perception it is vital to have effective risk
  communication strategies
• Public policies should be mixed with innovative
  market-based mechanisms and private incentives to
  effectively control disease outbreaks.

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Questions/Comments?
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