Non-tariff Trade Barriers and Consumers' Information: The Case of the EU-US Trade Dispute over Beef

Building on the empirical case of the EU-US trade dispute on hormone-treated beef an analytical framework, where consumers are imperfectly informed about the quality of imports, is used to investigate the welfare effect of trade liberalisation in the case of a credence good. Opening the domestic market to foreign products that are perceived to be of lower quality than domestic products may lead to market inefficiencies (e.g., adverse selection) and multiple equilibria, even though these products are actually safe. This may offset some of the benefits of trade liberalisation. The welfare effects of ruling against national regulatory barriers are analytically ambiguous because of information problems. More globally, the settlement of international disputes on sanitary issues should include more cost-benefit analysis, rather than relying only on scientific considerations. Copyright 1998 by Oxford University Press.