Increasing regulations for natural health products : an investigations of trade effects

Abstract

Natural health products (NHP) have been experiencing strong growth in consumer demand, both domestically and in foreign markets. The nature of NHP and the small sector of the population that used them in the past, has allowed them to “slip between the cracks” of regulatory bodies. As NHPs have become mainstream and have been marketed and distributed through major agri-food supply chains, governments have had to become more active regulators. New Natural Health Product Regulations came into force in Canada on January 1, 2004 to regulate these product which had been generally regulated under the Food and Drug Act. Canada is not alone in its regulatory reform and other countries have begun to create new and often more rigorous regulations for NHP. It as often the case that domestic regulations have unintended and sometimes trade restricting side effects. The current restructuring and focus on regulations of NHP, and the potential importance of trade within this sector, suggests that a better understanding of the non-tariff barriers that may arise could be important for the development of the industry in Canada and elsewhere. Analysis of trade effects arising from standards and regulations is not an easy task. Non-tariff barriers to trade tend to have product-specific effects making it difficult to find general results. Using a review of current approaches to address technical barriers, an analytical framework has been selected and applied to case studies. The cases studies examined the welfare effects of regulations as they pertain to three products with different characteristics; flax omega-3 supplement, elk velvet, and a probiotic supplement. The case studies identified a range of non-tariff barriers arising from international regulatory divergence. The results suggest that trade barriers are likely to arise in the NHP industry and that they will differ from product to product. As a result, there is unlikely to be a single policy prescription that will facilitate the removal of barriers to international market access. Suggestions are made as to how barriers could be eliminated or reduced through formal trade negotiations or less formal bilateral discussions.