Analysis of regulatory heterogeneity in agricultural trade

The purpose of this study is to introduce two indices that capture the difference in pesticide MRL regulations between economies that trade bilaterally. The Regulatory Heterogeneity Index (IHC) shows the dissimilarities between the requirements established by two countries. In a complementary way, the Regulatory Heterogeneity and Costs Index (IHRC) considers only the differences that generate some cost of compliance to the exporter, due to the higher level of rigor employed by the importing country. The analysis is based on the requirements of the EU and the Mercosur countries, given the constant flow of agri-food commodities and also because they have different regulatory structures. The results show that although the regulatory dissimilarity between the blocs is high, the adjustment costs for Mercosur producers are modest, which may suggest ease of adjustment to the higher levels of European standards requirements and little loss of trade associated with dissimilarity in the markets pesticide requirements. The international harmonization policy would be the most appropriate to standardize international regulations and reduce information asymmetries in trade. Agri-food trade; commercial costs; trade index; maximum residue limit; pesticides.