Indo-US Trade in Wheat and Mango: A Game-Theoretic Approach to SPS Standards

Abstract

The gradual elimination of quotas and tariffs from international agricultural trade has given way to non-tariff barriers such as the SPS measures. SPS standards are mostly based solely on agro-biological scientific evidence. However, over-cautiousness in standard setting may lead to trade distortions and lower welfare. We summarise various approaches used to study SPS restrictions, propose a game theoretic approach to assess strategic interaction between two trading partners, and juxtapose the cost-benefit analysis to estimate payoffs of the game. As a topical application of the proposed approach, we pick up the case of potential Indo-US trade in mangoes and wheat. Estimates of the payoffs, which are the net changes in welfare, would suggest whether or not complete ban is justifiable in terms of economic welfare, and, what levels of SPS restrictions may be optimal.