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Biotechnology – Can We Trade It?

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By Maury Bredahl

Can we trade the current generation of products from biotech or the technology itself? Can we trade future generations of products of the technology? These authors pose these questions and attempt to answer them in their commentary about the future of biotechnology and its trade-ability. Given current consumer concerns about food safety and product attributes, some constraints have already been placed on commodity trade, especially by importing countries. This paper focuses on the future of nutraceuticals and functional foods. These products have consumer-desired traits as opposed to agronomic functionality. How will these biotechnologically engineered foods be classified? As food or as drugs? Currently, we see many private initiatives to heighten consumer awareness and demarcate food containing GMO’s from products that do not or vice versa. Some producers, processors, and marketing agents make it part of their corporate strategy to “protect” consumers from GMO products.

Attempts to resolve this issue on an international level have been spearheaded by the WTO. The Cartagena Protocol on Biosafety has been drafted as a proposed regulatory framework for the trade of biotechnologically engineered organisms and products. Identified as the three most prominent threats to free trade of GMO products are the safety of GMO containing food, potentially detrimental environmental effect, and the ethical concerns with the technology itself. Mainly, the Cartagena Protocol advocates the employment of the precautionary principle, that we should proceed cautiously until product safety and soundness may be proven scientifically. Currently, the largest problem in adapting a regulatory protocol is our lack of knowledge and understanding about the long and short term effects of these products.

However, proceeding without any type of regulation or regulatory guide could encourage market segmentation and inefficiencies may arise out of that. There is already attitude discrepancy between importing and exporting countries in approach to regulation: the importing countries tend to be much more skeptical and likely to enact regulation due to negative consumer response.

Biotech’s next quest is to produce crops with value to the consumer as opposed to ones with agronomic value. This will enable farmers to target the needs of the end user. The future implications for trade of these products will undoubtedly mean that product attributes must be carefully targeted to local markets and this will largely take place through direct investment as opposed to product flows. The EU and the US will establish the tenor of these potential regulations and problems may arise in EU’s greater concern with the safety of the underlying production process.

In conclusion, trade will happen and so will the trade of biotechnology and its products. “Institutional developments such as agreement on labeling standards will be so slow and any outcome so ambiguous that reducing risk and transaction costs will fall to the private sector.” This may be the most efficient and desirable outcome. The market will eventually be differentiated on the basis of consumer attributes that will vary across nations and geographic areas.

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Biotechnology Regulations and the WTO

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By Ian M. Sheldon and Tim Josling

This paper examines the regulation of trade in genetically modified organisms (GMOs) by the WTO. Despite rapid adoption of GMOs by a few exporters, many importers have developed relatively restrictive procedures for pre-market approval of GMOs, and are introducing mandatory labeling. While exporters have yet to seek a ruling from the WTO on these regulations, a trade dispute over GMOs is likely to occur before too long. Exporting countries will likely argue that importing countries’ regulations are too restrictive, given existing scientific knowledge of the safety of current GM crops, and that labeling of GM foods is unnecessary due to the fact that they are typically similar to their conventional counterparts. In response, importing countries will likely argue that existing scientific knowledge about GMOs is insufficient, and that a precautionary approach to approval is appropriate. In addition, importers will claim that labeling is necessary due to the fact that they are not equivalent to their conventional counterparts, and consumers have a right to choose whether or not consume such foods, be it for religious, ethical or other reasons.

In the event a panel will have to decide on whether GM and non-GM products are “like goods”, whether adequate risk assessment was undertaken for any regulation introduced for health reasons, whether labels constitute the “least trade distorting” way of meeting legitimate objectives, and whether regulations imply discrimination among suppliers or in favor of domestic producers. Experience with the SPS and TBT Agreements has not been extensive enough to indicate how such a panel might rule. But one can also view the issue in broader trade policy terms, as a balance between market access obligations that need to be adjusted as domestic regulations on new technologies are developed.

A possible solution is for importing countries with tough GM regulation and mandatory labeling to offer reciprocal increases in market access for non-GM foods in compensation for any losses of market access for GM foods. There is a question though of whether such “rebalancing” is actually practical, and it would certainly add to the costs of dispute settlement in the WTO, but it may be the only viable solution in the long run if the WTO is not to be dragged in to evaluating social and ethical bases for regulation of biotechnology.

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Trade Disputes and Disruptions

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While trade disputes and disruptions have been a fact of life for as long as countries have been trading with each other, the number of disputes has risen dramatically since the creation of the World Trade Organization (WTO) in 1995. A central feature of the WTO is a dispute settlement mechanism based on clearly defined rules and timetables for settling trade disputes. Agriculture has been the subject of major trade disputes over genetically modified organisms (GMOs), sanitary and phytosanitary (SPS) regulations, export subsidies, production subsidies, and alleged cases of dumping.

Concerns about food safety and the health of domestic crops and livestock have led to many trade disruptions in recent years. Well-known examples include cases of mad cow disease in the United States and Canada, and bird flu in Southeast Asia.

Regional Trade Agreements in the Americas: Impacts on Rice Trade

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By Eric Wailes, Frank Fuller, Harjanto Djunaidi and Alvaro Durand

Rice is one of leading agricultural exports from the southern region of the United States. Approximately 50% of U.S. rice exports are shipped to Western Hemisphere nations. Yet competition for these markets is intensifying as production expands in Argentina, Uruguay, Brazil, and Guyana. The U.S. is also facing fierce competition from Asian rice exporters, Thailand, Vietnam, India and China. The U.S. has remained competitive in the Western Hemisphere in part because, unlike competitors, the U.S. is willing to export rough rice as well as milled rice. Many Western Hemisphere countries have preferential tariffs that favor rough rice imports relative to milled rice.

Regional trade agreements such as NAFTA have helped to sustain exports. However, the proposed Free Trade Area of the Americas (FTAA) would subject the U.S. to growing competition from the MERCOSUR nations for rice trade in the Western Hemisphere.

This study evaluates the potential of U.S. rice exports under the proposed the FTAA Agreement against the existing trade regimes of the region. It is anticipated that this agreement will provide preferences for U.S. rice relative to Asian competitors but competitors within the Americas will challenge the U.S. as the dominant export supplier.

The study results indicate that the FTAA agreement will have limited impact on the global rice market because the Western Hemisphere consumes and produces less than 10 percent of the world’s rice. It accounts for nearly 15 percent of rice trade. The agreement increases trade of all types of rice by degree of milling with the largest increase in paddy rice. Prices increase marginally for milled and brown rice but by nearly 10 percent for paddy. Trade creation exceeds trade diversion by 568 thousand mt, nearly three percent of world rice trade.

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