Welfare Assessment of SPS Standards: An Empirical Study of Indo-US Mango Trade Case

Sanitary and phytosanitary (SPS) standards under WTO’s ambit have gained prominence in recent years. However, due to mostly thin evidence, standards are set at prohibitively high levels, inducing sub-optimal outcomes. One such case is of mango trade between India and USA. The US banned import of Indian mangoes from 1989 to 2006 and permitted it thereafter under strict treatment and inspection standards. This study has examined the impact of various policy options on the two trading partners and has explored if the benefit from a higher standard regime is worth the marginal effort. Welfare impact of mango trade on India and US under four policy options (trade ban, nuclear irradiation, hot water treatment, and free trade) has been estimated using partial equilibrium framework with stylized microeconomic models. The study has suggested that policy choices of both the nations are consistent with their respective payoff estimates. However, if India undertakes to compensate the US for any losses due to an India-favouring policy, both the nations may gain more through trade; thereby, implying that there is social improvement if the gainers can fully compensate the losers and still be better off (Kaldor-Hicks efficient outcome).