International Trade in Biotechnology Products and Strategic Mandatory Labelling

This paper examines strategic motives to impose mandatory labelling of biotechnology products when consumers perceive these products as being of lower quality. When a foreign dominant firm produces a biotechnology product, it is shown that without mandatory labelling fringe firms, which produce a conventional product, provide voluntary labelling as long as voluntary labelling is fully credible. Information on which product is biotechnologically engineered is hence completely disclosed without mandatory labelling. An importing country may nevertheless impose mandatory labelling mainly because part of labelling cost can be shifted to the foreign dominant firm. Strategic mandatory labelling, however, is not always protectionist.