International Trade: Concerns Over Biotechnology Challenge U.S. Agricultural Exports
Published: 2001-06-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: This report reviews the challenges facing U.S. agricultural biotechnology products in international trade.
section_title: What GAO Found
paragraphs: GAO found that new regulations and guidelines that may restrict U.S. exports of crops with a large biotech component are being enacted or considered by some U.S. trading partners and are also under discussion in various international organizations. These actions address approval, labeling, and traceability of agricultural biotech products. U.S. corn and soybean exports are most threatened by new foreign regulatory measures because of their biotech content. Although U.S. soybean exports have not yet experienced disruptions, U.S. corn exports have been largely shut out of the European Union (EU) market because U.S. farmers are producing some biotech varieties that have not been approved for marketing in the EU. U.S. agricultural biotech exports face several significant challenges in international markets. First, as the single major producer of biotech products, the United States has been relatively isolated in its efforts to maintain access to markets for these products. Second, in many parts of the world, consumer concerns are growing about the safety of biotech foods, which have led key market countries to implement or consider regulations that may restrict U.S. biotech exports. Another challenge is that U.S. industry combines conventional and biotech grain in the distribution chain. Consequently, foreign regulations governing biotech varieties could affect all U.S. exports of these commodities. Finally, as international negotiations in Codex Alimentarius and elsewhere take on greater importance, the U.S. government faces increasing demands for staff resources and coordination among the multiple agencies involved in biotech trade issues.

section_title: Letter
paragraphs: Agricultural biotechnology exports have already encountered disruptions  in international markets and are likely to face further challenges. U.S.  producers of corn and soybeans, in particular, have become increasingly  concerned over the potential adverse effects of regulatory measures that  have been adopted or are being considered by the European Union (EU)  and other countries that could limit exports. In 1996, crop varieties  developed using modern biotechnology techniques, such as genetic  engineering, were introduced for commercial production. These crops  lowered pest management costs and enhanced yields, and by the end of the  decade they had been planted on nearly 100 million acres worldwide. U.S.  farmers readily embraced this technology, making the United States by far  the largest producer of biotech crops.
We recently briefed your staff on the issues affecting trade in agricultural  biotechnology products. Specifically, we (1) summarized developments in  key international organizations and among major U.S. trading partners that  are likely to affect agricultural biotech trade; (2) identified the principal  U.S. commodities most affected by foreign restrictions on biotechnology  exports; and (3) described challenges U.S. biotech exporters face in  maintaining access to foreign markets. We did not address the  appropriateness of U.S. or foreign regulatory measures regarding  agricultural biotech products. This report summarizes the content of our  briefing. (See glossary for an explanation of the technical terms in this  report.)
subsections: section_title: Background
paragraphs: Modern agricultural biotechnology refers to various scientific techniques,  most notably genetic engineering, used to modify plants, animals, or  microorganisms by introducing in their genetic makeup genes for specific  desired traits, including genes from unrelated species (see slide 1). For  centuries people have crossbred related plant or animal species to develop  useful new varieties or hybrids with desirable traits, such as better taste or  increased productivity. Traditional crossbreeding, however, can be very  time-consuming because it may require breeding several generations to  obtain a desired trait and breed out numerous unwanted characteristics.  Genetic engineering techniques allow faster development of new crop or  livestock varieties, since the genes for a given trait can be readily  introduced into a plant or animal species to produce a new variety  incorporating that specific trait. Additionally, genetic engineering increases  the range of traits available for developing new varieties by allowing genes  from totally unrelated species to be incorporated into a particular plant or  animal variety.
To date, the principal biotechnology products marketed have been certain  genetically engineered field crops (see slide 2). No genetically engineered  animals have yet been approved, and only a modest number of plant  products obtained from biotechnology have been marketed. However, for  three key crops grown in the United States-−-corn, soybeans, and cotton—a  large number of farmers have chosen to plant varieties derived from  biotechnology. In 2000, biotech varieties accounted for about 25 percent of  the corn, 54 percent of the soybeans, and 61 percent of the cotton planted  in the United States. These crops are the source of various ingredients used  extensively in many processed foods, such as corn syrup and soybean oil,  and they are also major U.S. commodity exports. The United States  accounts for about three-quarters of biotech crops planted globally. Other  major producers of biotech crops are Argentina, which produces primarily  biotech soybeans, and Canada, whose principal biotech crop is canola.
Several U.S. government agencies are involved in trying to address foreign  regulatory measures that affect biotech exports (see slide 3). Some of  these government entities, including several agencies within the  Department of Agriculture (USDA), the Food and Drug Administration  (FDA), and the Environmental Protection Agency (EPA), play a role  because of their regulatory expertise in plant and animal health, food  safety, or environmental protection. Other agencies, such as the Office of  the U.S. Trade Representative (USTR), USDA’s Foreign Agricultural  Service, and the Department of State, are involved because of their  responsibilities for trade, export facilitation, or diplomatic negotiations.
section_title: International Developments Potentially Affecting Exports
paragraphs: Recent developments in countries that are major markets for U.S.  agricultural exports and in various multilateral organizations raise  concerns about the prospects for U.S. agricultural biotech exports. For  example, no agricultural biotech products have been approved in the EU  since 1998. In addition, several countries have already passed or are  considering regulations mandating labels for foods obtained from  biotechnology. Furthermore, in the EU there is an effort to establish  regulations requiring documentation to trace the presence of biotech  products through each step of the grain handling and food production  processes. International organizations, such as Codex, are also developing  guidelines or rules affecting agricultural biotech trade (see slide 4).
subsections: section_title: Approval Processes Vary
paragraphs: Some countries have not approved for marketing certain biotech products  that have been approved in the United States (see slide 5). Given the  novelty of agricultural biotech products, harmonized regulatory oversight  by major trading countries is still a work in progress. Indeed, many  countries have no approval process for these products at all. Codex is  currently developing international guidelines for analyzing the risks of  foods derived from biotechnology that countries may use in establishing  their own product approval regulations.
The United States and the EU already have in place very different  regulatory frameworks for approving new agricultural biotech products or  genetically modified organisms. The United States applies existing food  safety and environmental protection laws and regulations to biotech  products, and makes decisions on approvals based on the characteristics of  products rather than whether they are derived from biotechnology. In order  to evaluate new products, U.S. regulators require sufficient evidence to  determine their safety or risk. Some of this evidence is developed through  testing. Under this approach, the United States has approved most new  biotech varieties to date. The EU, on the other hand, has established a  distinct regime for regulating biotech products and since 1998 has not  approved for marketing any new genetically modified organisms. Based on  a concept the EU calls the “precautionary principle,” the European  Commission maintains that approval of new biotechnology products  should not proceed if there is “insufficient, inconclusive or uncertain”  scientific data regarding potential risks. U.S. regulators stress that they  also consider scientific evidence and exercise precaution in evaluating new  products derived from biotechnology. U.S. officials note, however, that the  EU’s “precautionary principle” may allow product approval decisions to be  influenced by political considerations.
Failure of the EU to approve new products is affecting the viability of  biotech trade in other parts of the world. For example, given the  importance of the EU market, U.S. soybean producers have been reluctant  to introduce new biotech varieties that have not been approved for  marketing in the EU. Similarly, corn growers in Argentina, who export to  the EU, are deferring planting a biotech variety known as “Round-up  Ready” corn because the EU has not approved it.
section_title: Labeling Requirements Being Considered, Adopted
paragraphs: In advance of international guidelines, the EU, Japan, and Korea have  already passed regulations requiring labels for food and food ingredients  derived from biotechnology (see slide 6). These three countries are all  significant markets for U.S. agricultural exports. Several other countries,  including Australia, New Zealand, and Mexico, are also taking action to  adopt such labeling requirements. U.S. officials have raised concerns that  such regulations, depending on how they are crafted, could significantly  increase production costs and disrupt trade. U.S. producers argue that a  label identifying foods as derived from biotechnology is likely to be  construed by consumers as a warning label, inhibiting demand for these  products. Ultimately, if food producers seeking to avoid such labels reject  biotech-derived ingredients, grain handlers may be compelled to separate  conventional products from biotech varieties, which would raise handling  and documentation costs considerably.
Labeling requirements also raise questions about threshold levels for  biotech ingredients in food. It would not be possible for many foods to  avoid labeling requirements that set a zero tolerance for the presence of  biotech ingredients, according to U.S. officials. This is primarily because of  the comingling of conventional and biotech varieties in the U.S. grain  handling system. In the case of Japan, at least, USDA believes that U.S.  products will be able to comply with its new labeling rules because foods  containing less than a 5-percent threshold of biotech ingredients do not  require labeling. More highly processed products, such as seed oils, are  exempt from Japan's labeling requirement because they have no detectable  trace of genetic modification.
The Codex Food Labeling Committee is currently in the process of  developing international guidelines for countries that choose to establish  mandatory labeling of food and food ingredients obtained through  biotechnology. The U.S. delegation has supported a Codex guideline for  mandatory labeling only when biotech-derived foods differ significantly  from corresponding conventional foods in composition, nutritional value,  or intended use. Draft language under consideration in the committee also  includes an option for mandatory labeling based on the method of  production, even if there is no detectable presence of DNA or protein in the  end product resulting from the genetic modification. The U.S. delegation,  led by FDA, has opposed this language. The committee remains deadlocked  on this issue and has been for several years.
section_title: Traceability Through Each Step of Production
paragraphs: “Traceability” is a concept that forms the basis for a proposed EU  regulation of agricultural biotech products that could affect U.S. exports  (see slide 7). This regulation would require documentation tracing biotech  products through each step of the grain handling and food production  processes. Currently, no countries have enacted traceability requirements.
The European Commission is expected to adopt new regulations on both  traceability and labeling requirements for foods and animal feed that  contain biotech ingredients or are derived from biotechnology later in  2001. Under these proposed rules, margarine made from soybean oil, for  example, would require documentation to identify whether it contains or  was derived from a conventional or biotech soybean variety. If the oil was  obtained from a biotech soybean variety, the margarine would have to be  labeled, even though the oil may not contain detectable traces of modified  DNA or protein. After the Commission adopts the regulations, it will  forward them to EU legislative bodies for final approval, a process that may  take up to a year or more.
The EU has also pushed for traceability rules to be included in Codex  guidelines and in the Biosafety Protocol's pending rules for documentation  of bulk commodity grain shipments. The U.S. government has opposed  the inclusion of traceability requirements for biotechnology products in  these multilateral discussions. U.S. government officials maintain that  traceability requirements could significantly disrupt trade while having no  compelling public health benefit. Moreover, U.S. industry groups are  concerned about the burden these new regulations would place on the U.S.  grain handling and food production systems because of the associated  documentation requirements and the need to segregate biotech from  conventional crop varieties.
section_title: Certain Commodity Exports May Be Limited By Foreign Regulations
paragraphs: Corn and soybeans are the principal U.S. commodity exports most  threatened by foreign regulations governing biotech products (see slide 8).  While exports of both crops are mainly destined for animal feed, these  crops face notable differences in overseas markets. Corn exports have  already experienced significant losses. From average annual sales of about  $300 million in the mid-1990s, U.S. corn exports to the EU have dropped to  less than $10 million in recent years. This decline is primarily because new  biotech corn varieties have been introduced into production in the United  States that have not been approved in the EU. Since it is possible that  traces of biotech varieties not approved for marketing in the EU could be  present in any shipment of U.S. corn, exporters have opted to discontinue  most corn exports to Europe.
While the EU has never accounted for more than 5 percent of the world  market for U.S. corn, Asian and Latin American countries purchase more  than three-quarters of U.S. corn exports. Recently some of the largest  markets in these regions—Japan, Korea, and Mexico—have taken action to  enact regulatory measures that would require labeling of biotech foods and  food ingredients. U.S. industry representatives note that labeling  requirements in these countries may adversely impact the marketability of  products with a biotech component and present additional difficulties for  U.S. corn exports.
Unlike corn, U.S. soybean exports have not yet experienced disruptions. As  noted above, U.S. soybean exports to the EU are primarily intended for  animal feed. The European market is much more important for U.S.  soybean exports than it is for corn. U.S. soybean producers have been more  restrained about introducing biotech varieties that have not been approved  in the EU. Currently, only one biotech variety of soybeans is in general  production in the United States, and it has been approved in the EU and  most other major markets. However, U.S. officials note that regulations on  labeling and traceability now being considered in Europe may pose a threat  to future soybean exports even if no new biotech varieties are introduced.  This is because for the first time these regulations are expected to apply to  animal feed as well as to food meant for human consumption.
section_title: Challenges Facing U.S. Biotech Exports
paragraphs: The United States faces a number of challenges to maintaining access to  markets for biotech crops and foods containing or derived from  agricultural biotechnology products (see slide 9). Among these challenges  are the EU's moves to establish labeling and traceability requirements and  gain recognition of the “precautionary principle” in various international  organizations. U.S. and industry representatives are concerned that some  developing countries may use the EU regulatory framework as the basis for  their own regulations on agricultural biotechnology products. They also  fear that some foreign governments' lack of experience regulating this new  technology may lead them to impose rules that would restrict trade in a  manner inconsistent with their WTO obligations. The United States is  relatively isolated on biotech trade issues since currently only a few other  countries produce or export these commodities. According to U.S. officials,  other countries tend to view biotech as primarily a bilateral trade problem  between the United States and the EU. Furthermore, since the United  States is not a party to the U.N. Convention on Biological Diversity, U.S.  participation will be limited in future Biosafety Protocol discussions,  including those regarding bulk commodity shipments.
Growing consumer concerns, particularly in Europe, about the safety of  biotechnology underlie actions taken by foreign governments that may  restrict biotech trade. EU and U.S. officials note that recent food safety  scares involving “mad cow” disease and dioxin and the ineffective response  to these incidents by certain EU member governments have undermined  European consumers' confidence in their food safety regulatory system.  Consequently, according to these officials, consumers in Europe question  the capacity of regulatory authorities to ensure food safety, and even  though these scares were not associated with biotechnology, European  attitudes toward biotech foods have been adversely impacted. Some  consumer groups contend that there are uncertainties about the risks and  benefits of biotech foods, and they are not satisfied with existing U.S.  health and environmental safety regulations. Moreover, the first generation  of biotech products has primarily provided benefits for producers (such as  lower pest management costs and enhanced yields)—-not consumers.  Recognizing this, the agricultural biotech industry is now promoting the  potential benefits to consumers of the next generation of products,  particularly improved nutritional content. However, such products have yet  to be marketed and may not be for a number of years. Thus, the potential  benefits to consumers are not yet well defined.
The difficulty grain handlers encounter in trying to completely separate  biotech from conventional varieties poses an additional challenge. This  problem was highlighted by last year's discovery in U.S. supermarkets of  foods containing a biotech corn variety known as StarLink. StarLink had  been approved in the United States only for animal feed but found its way  into processed foods, as well as into grain shipments to Korea and Japan  where the product was not approved. According to industry  representatives, the competitive advantage of the U.S. grain handling  system results from the comingling of bulk commodity crops, including  conventional and biotech varieties. Any regulatory measure that would  ultimately lead to segregation or traceability would raise handling costs  and potentially undermine the efficiency and competitiveness of this  system, they maintain. While growers generally support biotechnology,  some actors in the agricultural sector, notably exporters, have been critical  of biotech companies for marketing varieties in the United States that have  not yet been approved in major market countries.
Another challenge is the ability of U.S. government agencies to address  other countries' new biotech regulations as they arise and protect U.S.  interests in multilateral organizations in matters affecting biotech trade.
Given the numerous international discussions in Codex committees and  elsewhere, the U.S. government must contend with an increasing demand  for staff resources devoted to biotech trade issues. U.S. officials have also  highlighted the need for greater outreach to countries participating in these  talks or considering their own biotech regulations. Such outreach efforts  place an additional burden on agency resources. Finally, the number of U.S.  trade and regulatory agencies with biotech-related roles, both domestically  and internationally, creates a challenge for effective coordination. For  example, there are several different U.S. government agencies representing  U.S. interests in international organizations on biotech issues and working  with other countries bilaterally, including USTR, USDA, FDA, and State.  Their efforts require extensive interagency coordination in order to  develop and carry out consistent U.S. positions on these issues.
section_title: Agency Comments and Our Evaluation
paragraphs: We obtained oral comments on a draft of this report from the Office of the  U.S. Trade Representative, including the Director for Sanitary and  Phytosanitary Affairs. We also obtained oral comments from the  Department of Agriculture's Foreign Agricultural Service. The agencies  provided technical comments that we incorporated as appropriate.
section_title: Scope and Methodology
paragraphs: To meet our objectives of (1) summarizing developments in key  international organizations and among major U.S. trading partners that are  likely to affect agricultural biotech trade; (2) identifying principal U.S.  commodities most affected by foreign regulations on biotechnology  exports; and (3) describing challenges U.S. biotech exporters face in  maintaining access to foreign markets, we studied official documents from  various U.S. federal agencies and foreign governments. We did not,  however, independently review all foreign government rules or regulations  affecting biotech imports. We examined statements by industry groups and  nongovernmental organizations, as well as academic studies that  addressed agricultural biotechnology trade issues. We interviewed U.S.  officials from relevant agencies, including USTR, USDA, FDA, EPA, and the  Departments of State and Commerce. We also met with USTR, USDA, and  State Department officials in Brussels and Geneva. We met with a cross- section of industry groups, including representatives of growers,  processors, exporters, food manufacturers, and biotech companies. In  addition, we attended three conferences on agricultural biotechnology  issues, and met with agency officials assigned to U.S. delegations to Codex.
Our focus was on challenges encountered by U.S. agricultural biotech  exports. Pharmaceutical products derived from biotechnology were not  part of our review. Moreover, we did not address the appropriateness of  U.S. or foreign regulatory measures regarding biotech products. We  conducted our work from October 2000 through May 2001 in accordance  with generally accepted government auditing standards.
We are sending copies of this report to the Honorable Ann Veneman;  Secretary of Agriculture; the Honorable Robert B. Zoellick, U.S. Trade  Representative; the Honorable Colin L. Powell, Secretary of State; the  Honorable Tommy Thompson, Secretary of Health and Human Services;  and the Honorable Christine Todd Whitman, Administrator, Environmental  Protection Agency. Copies will be made available to other interested  parties upon request.
If you or your staff have any questions concerning this report, please call  me at (202) 512-4347. Additional GAO contacts and staff acknowledgments  are listed in appendix V.
section_title: Report Slides
paragraphs: What is Agricultural Biotechnology?
Agricultural biotechnology is a collection of scientific techniques, such as genetic Agricultural biotechnology is a collection of scientific techniques, such as genetic engineering, used to modify plants, animals, or microorganisms by introducing in them engineering, used to modify plants, animals, or microorganisms by introducing in them desired traits, including characteristics from unrelated species.  For example, traits may desired traits, including characteristics from unrelated species.  For example, traits may be introduced to facilitate pest management and improve yield or nutritional value. be introduced to facilitate pest management and improve yield or nutritional value.
subsections: section_title: Major Biotech Crops and Producers
paragraphs: To date the principal biotech products marketed have been certain genetically To date the principal biotech products marketed have been certain genetically engineered field crops. The United States is by far the world’s largest producer of engineered field crops. The United States is by far the world’s largest producer of biotech crops. biotech crops.
subsections: section_title: Major U.S. Biotech Crops
subsections: section_title: Corn: 25%
paragraphs: Argentina: 17% (soybeans)
Canada: 10% (canola)
section_title: Soy: 54%
paragraphs: China: ~1% (cotton)
section_title: Cotton: 61%
paragraphs: U.S: 72% (soybeans, corn, cotton, & others) *Based on USDA National Agricultural Statistical Service’s June 2000 Acreage  Report. Photo source: USDA.
section_title: Agricultural Biotechnology and the U.S. Government
subsections: section_title: Regulatory Responsibilities
subsections: section_title: Regulates food and animal feed
paragraphs: biotechnology. agreements. agreements. products. products. *APHIS: Animal and Plant Health Inspection Service; FAS: Foreign Agricultural Service.
section_title: USDA, FDA, EPA, State, and USTR all play a role in agricultural biotechnology trade.
section_title: International Organizations Addressing Agricultural Biotechnology Issues
paragraphs: Codex: Sets international food safety standards recognized under the WTO Sanitary and Phytosanitary (SPS) agreement.  Active discussions related to biotech are taking place in several Codex committees. USDA manages overall U.S. participation in Codex. USDA and FDA lead U.S. delegations to Codex committees.
subsections: section_title: the Biosafety the Biosafety Protocol. U.S. Protocol. U.S. seeks to ensure
paragraphs: Biosafety Protocol:  Environmental agreement under the U.N. Convention on Biological Diversity, covering the transshipment and use of living modified organisms. Protocol takes effect upon ratification by 50 countries. The United States has not ratified the Convention nor signed the Protocol. State Department represented U.S. interests at Biosafety Protocol negotiations. consistent with WTO disciplines.
WTO disciplines.
WTO: Provides institutional framework for multilateral trade. Trade disciplines established under the SPS and Technical Barriers to Trade (TBT) agreements and the General Agreement on Tariffs and Trade (GATT) are related to biotech trade issues. USTR represents U.S. interests at WTO.
section_title: International Developments Affecting Trade: Approval Process
paragraphs: Some foreign countries have not approved for marketing certain biotech products that have been approved in the United States. Resistance to new product approvals in the EU has affected U.S. exports and biotech trade in other parts of the world.
subsections: section_title: U.S. POSITION
paragraphs: Product approval regulations must be clear, transparent, timely, science-based, and predictable.  U.S. regulators have concluded that approved biotech foods on the market now are as safe as their conventional counterparts.
subsections: section_title: Ongoing Developments
paragraphs: Photo source: USDA.
section_title: International Developments Affecting Trade: Labeling Requirements
paragraphs: Strict labeling requirements could impact U.S. exports because they could reduce consumer demand and increase costs.
subsections: section_title: U.S. POSITION
paragraphs: Mandatory labeling should only be implemented when the new biotech product represents a significant change from the conventional variety or poses a threat to consumer safety.  FDA has recently proposed voluntary labeling guidelines.
subsections: section_title: Ongoing Developments
paragraphs: Various countries have taken action to enact mandatory labeling requirements (shaded areas on map)
section_title: International Developments Affecting Trade: Traceability Requirements
paragraphs: EU is pushing for traceability requirements to track biotech products throughout the production and distribution chains. However, the implementation cost to producers may be prohibitive.
subsections: section_title: U.S. POSITION
paragraphs: A costly and onerous traceability system is not justified because biotech products are not inherently less safe than other foods. U.S. officials have opposed traceability requirements in Codex.
subsections: section_title: Ongoing Developments
paragraphs: Photo source: USDA.
section_title: Major Exports Potentially Affected By Foreign Regulations
paragraphs: Corn and soy exports are most threatened by foreign regulations on biotech products. Because the U.S. grain handling system comingles biotech and conventional products, restrictions on biotech varieties affect nearly all exports of these commodities.
Corn and soy exports are most threatened by foreign regulations on biotech products. Because the U.S. grain handling system comingles biotech and conventional products, restrictions on biotech varieties affect nearly all exports of these commodities.
section_title: Challenges Confronting U.S. Agricultural Biotech Exports
subsections: section_title: Lack of knowledge about biotech issues in developing countries
paragraphs: U.S.
U.S.
section_title: U.S. INDUSTRY
paragraphs: Photo source: USDA.
section_title: Important Dates in Biotechnology Trade
section_title: GAO Contacts and GAO Acknowledgments
subsections: section_title: GAO Contacts
section_title: Acknowledgments
paragraphs: In addition to the persons named above, Howard Cott, Jody Woods,  Richard Seldin, and Janey Cohen made key contributions to this report.
section_title: Glossary
subsections: section_title: Ordering Information
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