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Date:

March 20, 2001

Subject:

SHRINKING INTERNATIONAL MARKETS FOR GM CROPS?

 

SHRINKING INTERNATIONAL MARKETS FOR GM CROPS?

Robert L. Paarlberg

Robert Paarlberg (Rpaarlberg@wellesley.edu) is Professor of Political
Science at Wellesley College and Associate at the Weatherhead Center for
International Affairs at Harvard University. These remarks were delivered
to the USDA Agricultural Outlook Forum 2001, Arlington Virginia, February
22-23, 2001.

I'm going to address a trade policy area where the current SPS Agreement
in WTO may not be of much help, in the end, to U.S. farmers and commodity
exporters. I'm referring to international trade in genetically modified
(GM) foods, feeds, and other crops. The chief function of the WTO
(including the SPS agreement) has always been to stop protectionist
producer groups from using import restrictions to keep more efficiently
produced foreign goods out of a local market. In the case of GM crops,
foreign governments in Europe and East Asia have been moving toward import
restrictions of various kinds to keep more efficiently produced GM goods
out of their local markets, but they are not doing so in response to
pressures from protectionist producer groups, such as local crop
producers. Instead they are acting primarily in response to the concerns
of their own food consumers, most of whom have come to see GM products as
presenting no clear advantage over conventional foods from a consumer
standpoint, and as so novel that they might carry with them some not yet
discovered health or environmental risk.

Suspicious farm and agribusiness groups in the Untied States might fear
that this is just old-fashioned European and Japanese agricultural
protectionism masquerading as a consumer health or environmental safety
concern. After all, we in the United States have been growing and
consuming GM products such as herbicide tolerant soybeans and Bt corn
widely for five years now, with plenty of benefit to farmers in the form
of fewer and less toxic chemical sprays and less soil-damaging tillage,
and with no evidence yet of any environmental or human health harm. If
these foreign restrictions were in fact disguised producer protection, the
SPS agreement might offer U.S. industry some remedy. But the import
restrictions that have been going up against U.S. products in this case in
Europe and Japan have been based on sincerely felt consumer food safety
and environmental protection concerns. WTO agreements may be useful for
countering the rent-seeking actions of narrowly based producer
associations, but they cannot and probably should not ever be used to
frustrate the sincerely felt preferences of consumers. In a free market,
remember, it is the consumer who is always right.

Until now, fortunately, a number of prominent government officials in
Europe and Japan have actually been working - together with their own
import-dependent local livestock industries - to keep trade channels for
GM feed products, at least, as open as possible. Yet even trade in GM
feed products may now be coming under threat, as consumer anxieties in
Europe and Japan have extended into anxieties about eating meats from
animals raised with GM feed. When poorly informed but sincerely felt
consumer phobias of this kind emerge abroad, there won't be much the WTO
or the SPS agreement can do. And even if we could use the WTO to force
governments in Europe or East Asia to lift all official restrictions on
imports of GM foods or feeds, the resistance of consumers would remain in
place and these by themselves could work their way backward through
private commercial channels to produce the same results: sharply falling
U.S. sales of GM foods and GM feeds to Europe and Japan.

Let me describe, briefly, the various efforts that officials in Europe and
Japan have made until now to keep their import markets open to at least
some GM foods and especially animal feeds from the United States, despite
the clear preference of most of their own citizens not to consume GM
foods. They are doing this not out of any love for GM commodities, or out
of love for the farmers in the United States, Canada, and Argentina that
grow these commodities, or out of any special deference to the WTO SPS
agreement. They are trying to keep some import channels open mostly for
two reasons:

1) Because their own regulatory agencies five years ago approved the
planting, consumption, and import of at least some early varieties of GM
soybeans and corn. To reverse these earlier approvals now without any
scientific evidence of heightened risk - and they still don't have any
such evidence - would be an embarrassing admission that their regulatory
systems are no longer based on science.

2) They are also trying to keep some GM animal feeds coming into their
local markets out of a more practical deference to their domestic
livestock and livestock feed industries. This includes the highly
stressed European beef industry, which - despite the extreme culling of
herds now going on in response to the BSE scare - could be in need of more
rather than fewer imported soybeans (including GM soybeans) now that the
EU has finally, as of January 1, 2001, banned the use of animal remains as
a protein source in livestock feed.

One part of the official EU strategy to keep GM animal feeds coming in has
been to try to reassure consumers that the GM products they earlier
approved (including herbicide tolerant soybeans) are perfectly safe. For
example last year David Byrne, the European Commissioner for Health and
Consumer Protection, asserted that "Right around the world the scientific
evidence is that there is no problem with GMOs over and above any other
food." The other part of the official EU strategy, until now, has been to
try to satisfy those consumers still anxious about GM foods by requiring
labels on some foods with GM ingredients. The goal of this labeling
requirement was not to keep GM foods out of Europe, but to use labels to
reassure consumers in the supermarket by giving them an "informed choice."
Thus the original EU labeling requirement was designed to produce minimal
trade disruption, since it applied only to foods containing detectable
rDNA-derived materials above a level of 1 percent per ingredient, and
since it did not apply to animal feeds, or to meat from animals fed with
GM feed, or even to processed GM foods, where processing had made the
transformed DNA and the associated proteins no longer detectable.

This official EU strategy to keep import markets open for some GM crops
nonetheless ran into two significant barriers. First, private supermarket
chains and fast food outlets in Europe discovered that consumer anxieties
about GM foods were so pervasive that it made commercial sense to do more
than just segregate GM from non-GM on the retail shelf or on the menu with
labels; it made sense to eliminate the GM products altogether, and then
compete for customers on a claim of being entirely GM free. So chains and
outlets began stocking GM-free products only. Second, the open markets
strategy faltered when EU officials were pressured by green parties and
environmental activists into announcing in 1998 they were not going to
approve any additional GM crops for planting in Europe, beyond those it
had already approved, at least not until European biosafety approval
procedures had been tightened. This meant no approvals would be given in
Europe for the new GM commodities that were still getting approvals in the
United States, and this implied, in turn, that all bulk commodity
shipments from the United States - of corn, for example - that might
contain a new GM variety not yet approved in Europe would henceforth not
be allowed into the EU, on biosafety grounds.

The resulting post-1998 loss of the EU corn market has cost U.S. industry
roughly $200 million a year, a significant blow. Yet note that this has
not meant a complete shutdown in GM food and feed product sales to Europe.
Corn based feed products from the United States could still be imported
under the new EU ban, since corn in the form of processed feed could not
reproduce in the environment to pose a possible biosafety risk. And the
U.S. has also been able to continue bulk soybean sales to Europe, since
the GM soybean variety found in our bulk shipments was earlier approved in
Europe. This means Europe as a whole still represents a lucrative $1.1
billion market for U.S. soybean growers annually.

In Japan as well, officials have until now worked surprisingly hard to
keep trade channels open. Japanese consumers are almost as anxious to
avoid GM products as European consumers, and a number of Japanese food
industries have decided on their own to use only GM-free ingredients in
hopes of attracting more health-conscious customers. In fact, even
breweries and cigarette makers in Japan are now voluntarily using only GM
free ingredients, hoping that will appeal to the nation's more health
conscious drinkers and smokers. But the government of Japan has so far not
adopted anything more than a minimalist set of labeling requirements on GM
foods and feeds.

In August 1999 Japan's Ministry of Agriculture outlined a set of labeling
regulations on GM foods designed to give consumers a greater sense of
informed choice while minimizing disruptions to international trade.
Japan's new labeling regulations covered only corn and soy for food use,
not for animal feed (significant omission since roughly 85 percent of
Japan's corn and soy imports are for animal feed). These new labeling
regulations also omitted any GM foods where processing had rendered
undetectable the transformed DNA or the associated proteins. This meant
no labels would be required on GM soy sauce in Japan, or corn oil, or corn
syrup, or corn flakes.

Unfortunately, these import-friendly GM labeling regulations have recently
come under challenge in Japan. One reason was the discovery last fall that
small traces of a GM corn variety - named StarLink - that was not yet
approved for human food use in the United States (or anywhere else) had
leaked into corn shipments destined for food industry use in the United
States, and also into shipments destined for Japan, where no use of the
variety had been authorized. After the widespread publicity of this
regulatory malfunction last fall, Japan's corn purchases from the U.S.
dropped significantly and Japanese importers began sourcing more of their
corn imports from Brazil, which seemed safe because no GM corn varieties
were yet legal to plant in Brazil. U.S. authorities responded to this
crisis by recalling StarLink corn from the market, along with 300 U.S.
food products that might contain StarLink. Then in hopes of reassuring
Japanese importers specifically, late last year the U.S. negotiated a
tightened testing and sampling procedures agreement with the Japanese, but
on several occasions this past winter traces of StarLink were nonetheless
found by the Japanese in shipments that had earlier tested negative here
in the United States, so as a further possible reassurance the USDA just
last week, hosted several officials from Japan's Health, Labor and Welfare
Ministry, who monitored the new U.S. StarLink testing procedures here
first hand. Now with any luck, regular Japanese purchases of U.S. corn
for both feed and food use can resume.

The StarLink crisis also disrupted U.S. corn sales to South Korea over
this past winter.On three occasions since last November the Koreans have
detected traces of StarLink in corn shipments coming from the United
States, and in response Korean authorities suspended these shipments and
cleared them through customs only after the importers agreed to use the
corn just for animal feed. Most U.S. corn going to Korea is for feed use
anyway, so the final impact of this sort of restriction on trade volume
need not be very large, of course. The food/feed distinction also has
protected U.S. GM product sales to China so far. The U.S. is still able
to sell its GM soybeans to China because almost all the imported beans go
for animal feed; only China's own non-GM domestic soybeans are used for
tofu.

If we want to see the glass as half full rather than half empty, we can
point to the trade in GM commodities that is continuing under these
current policies and we could hope that this current pattern of official
policies toward GM crops in the EU, Japan, Korea, and China will be frozen
in place. But the current policies are unfortunately not frozen in place;
are all evolving rapidly, and uniformly in an anti-GM direction. In Japan,
for example, consumers are now worried that it might not be safe to
consume meat from animals fed with GM corn or GM soy. Japanese
authorities are trying, with little success, to assuage these fears. In
response to the StarLink crisis Japan's Scientific Feed Association
recently conducted tests on 256 chickens to prove that even if they were
fed StarLink corn there would be no traces of any GM DNA or protein in the
muscles, blood, or livers of the mature chickens. But consumers remained
skeptical.

Such anxieties about meat produced with GM feed are even more widespread
in Europe, where a number of supermarket chains have begun to advertise
chicken and pork raised on GMO-free feeds, and where Greenpeace has long
been advocating mandatory labeling of meat based on whether or not it
comes from GMO-fed livestock. These demands for a mandatory labeling of
meats derived from GM feed are now being taken up by a number of European
governments, including France and Belgium

EU officials have not yet yielded to this pressure to impose GM labeling
requirements on meat from GM-fed animals, but they are now on the verge of
requiring labels on processed GM foods even when the GM DNA or proteins
are no longer detectable because of the processing. This would be a
significant move in Europe away from a product-based labeling requirement
and toward a process-based requirement instead.

More important, the EU now also seems on the threshold of imposing new
restrictions including a "traceability" requirement on GM feeds and feed
products. The EU Commission has for months now been drafting new rules on
animal feeds which would require separate approvals for processed GM
feeds, like GM corn gluten. Currently there are no separate rules. Most
worrisome, this directive may require that each separate GM crop variety
be traced throughout the feed production process, implying that feed
exporters will have to impose their own costly tracking requirements back
onto the farm sector in order to avoid liability if unapproved varieties
are included in shipments. This new rule is still being drafted, and it
probably will not come into full effect throughout the EU for another two
years, but it could impose a major disruption on U.S. corn product and
soybean sales to the EU. It could also provoke a significant new trade
confrontation. An earlier draft of this new feed rule leaked last fall
and prompted not only objections from European feed industries but also
from U.S. representatives in Brussels who saw it as a potential source of
trans-Atlantic farm trade disruption.

Why are EU Commission officials abandoning in this fashion their earlier
effort to keep markets open to at least some GM feed imports? One reason
is heightened public concern in Europe about animal feed safety since both
the StarLink fiasco and the revived Mad Cow Disease scare. Another reason
has been legal pressures on the EU Commission to find some way to lift the
informal 1998 ban on new GM crop approvals. European biotechnology
industries had raised a strong challenge against this ban in the European
Court of Justice. But the ban was popular in Europe, so in order to get
away with lifting it the EU Commission had to tighten its regulations on
legal GM commodities across the board, including GM feed commodities. A
vote in the EU Parliament just last week moved forward the deal the EU
Commission recently struck with skeptical member governments for lifting
the ban. This vote set in place strict new rules for approving new GM
crops for planting in Europe, so strict that few new applications are
likely to be approved any time soon. In fact, half a dozen EU member
governments could resist implementing the deal over the next 18 months due
to strong internal anti-GM sentiments. And the new approval procedures,
while nominally based on scientific testing, also require a qualified
majority vote of member governments, so public opinion can continue to
trump good science in the end. Expect a second shoe to drop soon as
well: a second bill containing the tough new labeling and tracing
requirements for GM foods and feeds will be ready for the EU Parliament in
April.

In this setting we should ask, does the U.S. government have any influence
over this regulatory drift in Europe toward measures that could further
compromise U.S. feed exports? I would notice that whatever official
influence we do have has not been used, recently, to make an especially
strong case for GM food and feed sales. I know the USDA is strongly
committed to keeping international markets open for GM crops, but in the
last year several other U.S. government agencies have conspicuously
blinked on the issue. For example last February the U.S. State Department
- so as to avoid a bitter fight with some African countries as well as the
European Union - approved a new Cartagena Biosafety Protocol, within the
Convention on Biological Diversity, even though this new protocol undercut
the SPS agreement in the WTO by endorsing the right of importing states to
block shipments of GM products on "precautionary" grounds, without having
to produce any scientific evidence of risk.

Some other US officials then blinked again last spring, by acquiescing in
the formation of a new working group within the Codex Alimentarius
Commission in Rome to write new rules governing GM foods - possibly
incorporating once more the precautionary approach of requiring labels or
tightened regulation even in the absence of demonstrated risk. The latest
evidence is that the EU now plans to seek a "traceability" requirement for
GM foods inside Codex. All this is potentially important for trade
because Codex standards are those that set the technical foundation for
dispute settlement decisions in the WTO.

A final blink came just last December, at a summit meeting in Washington
between President Clinton and EU Commission President Romano Prodi, where
a new US-EU committee report on biotechnology regulations was unveiled and
tacitly endorsed by our President. This report called for, among other
things, the EU's favored precautionary approach on biosafety and food
safety, plus mandatory labeling of all products with detectable GM
ingredients, plus procedures to ensure the "traceability" of GM crop
materials through the food supply, and even the participation of
"non-experts" in the formulation of GM crop regulations. Now that a new
U.S. administration has taken over management of the GM commodity trade
issue, this unofficial committee report unveiled last December is likely
to be quickly forgotten, at least on our side of the Atlantic. In Europe,
however, it is being waved about as evidence that the Americans will
tolerate further restrictions on GM commodity trade.