i -ional Agricultural Trade and Policy Center
THE DILEMMA OF SAFER AND FREER TRADE: THE CASE
OF THE U.S. NURSERY INDUSTRY
Edward A. Evans & John J. VanSickle
PBTC 03-12 October 2003
POLICY BRIEF SERIES
Institute of Food and Agricultural Sciences
INTERNATIONAL AGRICULTURAL TRADE AND POLICY CENTER
MISSION AND SCOPE: The International Agricultural Trade and Policy Center
(IATPC) was established in 1990 in the Food and Resource Economics Department
(FRED) of the Institute of Food and Agricultural Sciences (IFAS) at the University of
Florida. Its mission is to provide information, education, and research directed to
immediate and long-term enhancement and sustainability of international trade and
natural resource use. Its scope includes not only trade and related policy issues, but also
agricultural, rural, resource, environmental, food, state, national and international
policies, regulations, and issues that influence trade and development.
The Center's objectives are to:
Serve as a university-wide focal point and resource base for research on
international agricultural trade and trade policy issues
Facilitate dissemination of agricultural trade related research results and
Encourage interaction between researchers, business and industry groups,
state and federal agencies, and policymakers in the examination and
discussion of agricultural trade policy questions
Provide support to initiatives that enable a better understanding of trade and
policy issues that impact the competitiveness of Florida and southeastern
agriculture specialty crops and livestock in the U.S. and international markets
The Dilemma of Safer and Freer Trade: The Case of the U.S. Nursery Industry
Edward A. Evans and John J. VanSickle
Although the recent collapse of global trade talks in Cancun, Mexico had nothing
to do with sanitary (human and animal safety) and phytosanitary (plant safety) issues, it
serves as a reminder of an ongoing heated debate concerning the implications of
Agreement on the Application of Sanitary and Phytosanitary Measures (SPS), negotiated
during the 1986-1994 Uruguay Round multilateral trade negotiations. Specifically, the
debate focuses on the extent to which implementing the Agreement (aimed at promoting
freer trade by preventing regulatory protectionism1) encroaches on a nation's sovereign
right to determine the level of risk it is willing to accept.
The debate is important to the U.S. nursery industry because, over the years, the
country has managed to maintain a fairly high standard of plant health and safety. This
stems in part from a well-developed safeguarding infrastructure that has evolved over the
last century, which has been fairly successful in restricting the number of foreign pests
and diseases entering the country while aggressively eradicating and controlling those
that escape border protection. Also, local scientists have greatly improved the quality of
germplasm and have made available a variety of disease-free (clean) planting materials.
Based on evaluations carried out by independent testing agencies, the U.S. nursery
industry ranks at the top (Kreith and Golino, 2003).
However, potential changes in the way the industry currently operates could
emerge from U.S. commitments to international trade agreements, particularly the World
Trade Organization's (WTO) Sanitary and Phytosanitary (SPS) Agreement, the North
1 Illegitimate technical barriers to trade aimed at shielding domestic industry from international competition
American Free Trade Agreement (NAFTA), and the proposed Free Trade Area of the
Americas (FTAA). Particularly, there are now pressures to open up the U.S. market and
facilitate freer trade in nursery stocks and planting material that could result in increased
imports of damaging pests and diseases. Such changes could undo some of the gains
made by the industry over the years if necessary steps are not taken.
This paper considers some of the issues facing the U.S. nursery industry in the
context of the aforementioned debate and examines the risks to the industry of trading
more freely in planting materials.
Advantages of Free Trade
There is consensus among economists that a country can increase its level of real
national income by efficiently utilizing its limited resources and engaging in mutual
trade. Consumers can thus enjoy a higher level of satisfaction and producers have the
opportunity to sell their products in an expanded market. However, when such trade
carries with it the possibility of negative externalities or hidden costs (such as the
likelihood of also importing damaging pests and diseases), acceptance of the general
premise becomes somewhat blurred. In such situations the gains from trade are no longer
a certainty. And, the decision of whether to engage in trade boils down to figuring out
whether the chance of "winning" the benefits is great enough relative to the chance of
"losing" them, so as to make the "risky" choice of trading far more attractive than the
"riskless" alternative of not trading. Stated differently, consideration must now be given
to: a) the likelihood that the benefits from trade can still be preserved in the face of the
uncertainties; and b) the magnitude of the net benefits.2
International Agricultural Trading Environment-SPS Agreement
An accepted international principle is that all nations have the right to adopt
necessary measures to protect human, animal, and plant health. In the past,
implementation of such measures was left largely to the discretion of the importing
countries, and they were undertaken based on the criterion of "zero risk" to the importing
country. This meant that if the disease in question was present in the exporting country,
the import was banned.
Although SPS measures can impede trade and were considered important under
previous General Agreement on Tariffs and Trade (GATT) rounds, they were relegated to
being included as parts of other agreements and as exceptions to the main provisions
fostering increased trade.3 The decision to negotiate separate disciplines for SPS
measures (Agreement on the Application of Sanitary and Phytosanitary Measures) during
the 1986-1994 Uruguay Round multilateral trade negotiations marked a turning point in
the development of multilateral trade rules and gave prominence to issues related to
agricultural trade and the risk of importing invasive pests and diseases and food-borne
The impetus for negotiating a separate Agreement stemmed from the deeper
integration of agriculture into the international trading system, particularly, the decision
2 Of course other factors have to be taken into account in the decision making process such as distribution
impacts and political considerations.
3 SPS measures were found in the original GATT Articles, mainly Article XX (General Exceptions) and
later in the 1979 Tokyo Round Agreement on Technical Barriers to Trade (a pluri-lateral agreement known
as the Standards Code).
to discipline the use of quantifiable non-tariff trade barriers (such as quotas, subsidies,
and licenses). Many countries, including the United States, feared that with a reduction
in the use and levels of these support measures, some importing countries would turn to
technical trade barriers (notably SPS measures) as a means of allowing them to continue
providing support to their farming communities. The intent of the Agreement was to
ensure that when SPS measures were applied, they were used only to the extent necessary
to ensure food safety and animal and plant health, not to unduly restrict market access for
other countries (James and Anderson, 1998; Josling, 2002; and Roberts, 1998).
The WTO's SPS Agreement sets out a framework to guide member governments
in devising measures related to border protection and eradication while facilitating the
WTO principle of encouraging freer trade. The Agreement was negotiated around the
following five general principles:
1. Harmonization-encourages the adoption of measures that conform to
international standards, guidelines, and/or recommendations of Codex
Alimentarius, International Office of Epi-zoonosis (OIE), and the
International Plant Protection Convention ( IPPC).
2. Equivalence-mutual recognition of different but equivalent measures to
achieve international standards.
3. Non-discriminatory-means imports are not to be treated any differently than
4. Transparency-requiring countries to notify trading partners of changes in
their SPS measures, especially in situations where the measures differ from
those of the international standards.
5. Regionalization-allows for continued exports from clean (disease-free)
areas when such approval for the entire exporting nation is not feasible.
The Agreement reaffirms the fact that countries are free to choose their
appropriate level of protection against imported pests and pathogens. However, in cases
where the measures chosen are not in conformity with international standards, the onus is
on the importing country to demonstrate the need for such measures on the basis of
science and to show clearly how the measures are related to the control of the risk.
Unintended Consequence of the Agreement
It is difficult to overlook the success the Agreement has had in facilitating
international trade, but there is concern that it has also served to increase the risks of
bioinvasion-the likelihood of foreign pests and diseases entering and becoming
established in a country. In other words, by making it much more difficult for countries
to use sanitary and phytosanitary issues as a means of erecting unjustified trade barriers,
the Agreement, at the same time, has actually weakened national protections against
bioinvasion and provides a greater opportunity for foreign species to spread accidentally
or deliberately (McNeely, 1999).4 This comes at a time when global concerns for the
environment is shrinking the available means for combating such invasions faster than
new technologies for control can be developed and proven (FAO, 2001). Together these
developments have led to a noticeable increase in the spread of unwanted pests and
diseases and the concomitant increase in the level of resources that countries now have to
put aside to address this growing problem. In the United States, for example, USDA-
4 The situation can be likened to that of taking a particular medicine to cure the common cold-it gets the
job done but, at the same time, weakens the body's immune system to fight off some of the more serious
APHIS spending on its emergency eradication program has increased twelve-fold since
the implementation of the Agreement, jumping from approximately $10 million dollars
per annum spent in the early 1990s to the current estimated spending at $120 million
dollars per annum (USDA Briefing Room, 2003).
Therefore the challenge confronting members including the United States, is how
to balance the regulatory needs of a country with the general goal of facilitating freer
trade, that is, to what extent should the regulations that are acceptable and desirable to
domestic stakeholders be made compatible with an international regime designed to
facilitate trade? To illustrate the points of the discussion we now focus on the case of the
U.S. Nursery Industry.
Brief overview of the U.S. Nursery Industry5
According to the Census of Horticultural Specialties, the nursery industry
includes nine plant groups: 1) broadleaf evergreens; 2) coniferous evergreens; 3)
deciduous shade trees, 4) deciduous flowering trees; 5) deciduous shrubs and other
ornamentals; 6) fruit and tree nut plants; 7) cut and to-be-cut Christmas trees; 8)
propagation material, or lining out stock; and 9) transplants for commercial truck crop
production. Table 1 shows the value of production, trade, and consumption, and Figure 1
illustrates the trends of selected variables.
Table 1 reveals that the estimated farm value of the industry in 2002 was
approximately US $8.92 billion. Between 1989 and 2001, the value of production
increased steadily from $5.3 billion to $8.93 billion, at an annual rate of approximately
5 Information presented in this section is taken largely from USDA/ERS Floriculture and
Nursery Crops Situation and Outlook Yearbook.
4.4 percent. The slow-down in 2002 was due to a weak U.S. economy caused by the
recession in 2001. Because the bulk of the plants produced are utilized locally,
consumption patterns mirrored production, increasing from $5.4 billion to $9.1 billion in
Of interest are the developments regarding the imports and exports of nursery
crops. Table 1 shows that the value of nursery crop imports doubled between 1989 and
Table 1. US Nursery Crops: Value of Production, Trade and
Year Production Consumption Imports Exports Import Share
---------------------million dollars---------------------- (%)
1989 5,329 5,393 143 79 2.7
1990 5,963 6,018 157 102 2.6
1991 6,182 6,241 166 107 2.7
1992 6,270 6,332 182 120 2.9
1993 6,325 6,373 192 143 3.0
1994 6,607 6,658 203 152 3.1
1995 7,007 7,109 240 138 3.4
1996 7,422 7,549 255 129 3.4
1997 7,981 8,099 264 146 3.3
1998 8,101 8,217 287 171 3.5
1999 8,524 8,668 301 156 3.5
2000 8,561 8,724 307 144 3.5
2001 8,927 9,095 312 144 3.4
2002 8,917 9,076 298 137 3.4
Source: Floriculture and Nursery Crops Situation and Outlook Yearbook, ERS/USDA,
S6,000 --- Imports
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Figure 1. Trends in Value of Production, Trade, and Consumption of Nursery
2002, increasing from $0.14 billion to about $0.30 billion. However, the share of
domestic consumption accounted for by imports remained relatively insignificant,
increasing slightly from 2.7 percent in 1989 to 3.4 percent in 2002. The relatively low
share of consumption accounted for by foreign supplies is due primarily to stringent
regulatory policies governing the imports of such products, the majority of which come
from Canada and the Netherlands. The export share of domestic production remained
relatively flat over the period at 1.5 percent, with the value of exports increasing only
slightly from $0.08 billion in 1989 to $0.14 in 2002.
The Dilemma Facing the Nursery Industry
The disease- and pest-free standards for U.S. Nursery products are considered
world class (Kreith and Golino, 2003). The industry's clean stock status has been
attributed largely to a federal system of quarantine regulations, under the Plant
Quarantine Act of 1912,6 and a series of voluntary state certification programs. To gain
entry into the United States, foreign nursery stock must either originate from approved
virus certification programs abroad, similar to the ones in the United States, or be placed
in quarantine, where they are tested for both exotic and domestic pathogens. This has
severely curtailed the volume of nursery stocks entering the country and reduced the
potential for accidental or intentional introduction of damaging pathogens not easily
Within the confines of the system described above, U.S. growers currently enjoy a
level of protection from diseased nursery stock imported from overseas, which carry
exotic pathogens or those domestic ones that are targeted by state certification programs.
As noted by Kreith and Golino (2003), since there is no cure or treatment for viruses in
perennial crops already planted in the fields, this is an efficient way of managing plant
health issues (from a disease control perspective). Also, by limiting the number of plants
entering the country, there is less need for elaborate government facilities, which
considerably minimizes government expenses and costs to taxpayers.
The problem, however, is that the above framework does not comport with the
general principles of the SPS agreement, particularly the principle advocating non-
discrimination between foreign and domestic goods. The specific issue has to do with the
way the IPPC, the international body mandated by the WTO to oversee the
implementation of the phytosanitary component of the Agreement, sets out its rules
governing the regulation of pests and diseases. In particular, the rules state that a country
can only regulate against damaging pests not known to occur in that country, or those
6 The Plant Quarantine Act of 1912 was repealed by the Plant Protection Act of 2000, which is considered
to better reflect the general provisions of the SPS Agreement.
which occur in the country but are targeted for eradication or control by an official
program (Foster, 2000). The state certification program being voluntary is not regarded
as an official program. Consequently, actions taken by federal quarantine regulators to
restrict entry of any domestic pests targeted by certification programs, but for which no
official control programs are being implemented, are viewed as being discriminatory
against foreign producers. This is irrespective of whether the particular domestic pest is
known to cause serious economic damages. Hence, the IPPC approach effectively
eliminates from the United States' current list of regulated pathogens a host of pests for
which no official eradication or control programs are currently being undertaken. These
include damaging pathogens that once plagued the industry, such as tristeza; stubborn;
exocortis and psorosis of citrus; fanleaf; leafroll; corky bark and stem pitting of grape;
green crinkle; flat limb; rubbery wood and blister bark of apple; stony pit; blister canker;
little cherry; necrotic ringspot; prune dwarf; X-disease of stone fruits; and red stele of
strawberry (Foster, 2000).
Implications for the US Nursery Industry
Foster (2000) points out that an obvious implication is that for every domestic
pest now included on the U.S. list of excluded pests, a decision will have to be made to
either implement an official control program or remove the pest from the list. Either
decision can prove to be costly. Moreover, many of these domestic pests are either on the
verge of being eradicated or are significantly controlled-thanks to the work of scientists.
In these cases, implementing official eradication programs at this time would not be
warranted. However, removing such pests from the restricted lists and allowing for the
possible infected planting material to enter the country could result in a resurgence of
some of these pathogens and severely undermine years of scientific work and investment.
Second, in the past, countries wishing to export nursery stock to the United States
had to have in place a certification program that was similar to the U.S.'s states
certification programs. Now, certification would only be required for those foreign pests
not yet present in the United States and declared to be of concern here, and the domestic
ones for which official control programs are being implemented. As pests are removed
from the excluded list and entry conditions made easier, it is conceivable that the
floodgates could be opened for entry of newer, more virulent strains of pests than were
Third, because of the limited amount of planting material that is currently being
imported into the country, there was no need to maintain an elaborate regulatory
infrastructure for imported nursery crops. However, with the expected deluge of imports
of nursery stock coming from all over the world, additional regulatory infrastructure
would be needed on the domestic front. Establishing and maintaining such systems could
have considerable budgetary implications.
Fourth, the WTO's SPS Agreement, by requiring scientific evidence as proof
before imports can be restricted, assumes that "there is no risk in the unknown".
However, as entry conditions are made easier and the United States begins trading in
nursery stocks and propagating materials from non-traditional sources, there is an
increased likelihood of introducing new pests and diseases. Invasive species are not
necessarily pests where they are native because natural predators and parasites keep them
in balance, but they can cause significant damage to agricultural systems and native
plants and animals in a new environment. Moreover, because many of these diseases are
not detected immediately, this could greatly offset the short-term gains from freeing up
One possible solution that has been suggested is a move towards federal or state
mandatory certification for nursery crops. Such a move would satisfy the WTO's SPS
principle of non-discrimination against foreign products and preserve the United States
current list of regulated pests. However, how such a system would work is not clear
because a federal mandatory certification program model does not currently exist in the
United States (Kreith and Golino, 2003). As these authors contend, it is conceivable that
many nurserymen and growers might consider such an idea to be intrusive. Also,
enforcing mandatory programs would require substantial additional funds far in excess of
what is spent on the current system.
Undoubtedly, freer trade can lead to unrealized benefits for a country. However,
when trading live organisms, particularly where such organisms are not destined for food
or feed, the underlying assumption of perfect knowledge does not hold, and the potential
gains from trade are questionable. Live organisms can reproduce, escape and become
invasive, causing damage to the surrounding environment. In addition, they can harbor
damaging pathogens that are not easily detected, compounded by the fact that it often
takes time before the full impact of the damage is realized. Hence, the extent of the
uncertainties surrounding the spatial and temporal outcome of such trades makes
computing the potential gains, at best, an educated guess.
The SPS Agreement recognizes the importance of a country protecting its
resources. However, the Agreement in its zeal to stamp out unfair trading practices
associated with the use of SPS measures, and by insisting on scientific proof of a disease
threat has also taken away the freedom of countries to exercise their prerogative to
determine the level of risk they are willing to take-science was never meant to provide
definitive proof. Thus, the Agreement might inadvertently be contributing to the spread
of damaging pests and diseases by weakening national safeguarding mechanisms in an
era of increased global trade of agricultural commodities and the movement of people.
As always, a country's first line of defense for and the most cost effective approach to
combating invasive species is to keep them from becoming established in the first place.
If the benefits of free trade are to be preserved, then necessary steps must be taken to
limit the detrimental impact-even if this means restricting freer trade to only certified
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quarantine policies." Australian Journal ofAgricultural and Resource Economics
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presented at the 24th West Indies Agricultural Economics Conference, Grenada
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Sumner. Ames, IA: Iowa State University Press.
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by J. A. McNeely, pp 5-22. Gland, Switzerland: IUCN Publishers.
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Sanitary and Phytosanitary Measures. Economic Research Service/ USDA.
Agriculture in the WTO/WRS-98-44. Washington, D.C.
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and Trade Economics Division, Economic Research Service, U.S. Department of
Agriculture, FLO-2003. Washington, D.C. (June).
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Negotiations: The Legal Texts. Geneva, Switzerland: World Trade Organization.