Trade, GMOs and Environmental Risk: Are Current Policies Likely to Improve Welfare?

Food with inputs from genetically modified organisms (GMOs) has met considerable skepticism among European Union (EU) consumers. The EU import ban on GM food has triggered a great deal of controversy and has been partly replaced by a mandatory labeling scheme. Although there is no measure in the General Agreement on Tariffs and Trade that directly addresses the use of product labeling, WTO and others have been skeptical to mandatory product labeling on the grounds that they may be used as hidden protectionism hampering global welfare. This study has two foci. First, we examine how different policies for the production and use of GMOs might influence the market outcome in consumer food markets. Second, we evaluate the welfare effects of the policy measures. We find that mandatory labeling often increases domestic welfare and, may also enhance global welfare. On the other hand, a trade ban is more likely to decrease global welfare.