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. 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). 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. 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. "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. 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. 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. 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. 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. 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. 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. Argentina: 17% (soybeans) Canada: 10% (canola) China: ~1% (cotton) U.S: 72% (soybeans, corn, cotton, & others) *Based on USDA National Agricultural Statistical Service's June 2000 Acreage Report. Photo source: USDA. biotechnology. agreements. agreements. products. products. *APHIS: Animal and Plant Health Inspection Service; FAS: Foreign Agricultural Service. 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. 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. 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. 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. Photo source: USDA. Strict labeling requirements could impact U.S. exports because they could reduce consumer demand and increase costs. 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. Various countries have taken action to enact mandatory labeling requirements (shaded areas on map) 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. 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. Photo source: USDA. 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. U.S. U.S. Photo source: USDA. In addition to the persons named above, Howard Cott, Jody Woods, Richard Seldin, and Janey Cohen made key contributions to this report. The first copy of each GAO report is free. Additional copies of reports are $2 each. A check or money order should be made out to the Superintendent of Documents. VISA and MasterCard credit cards are also accepted. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. Orders by mail: U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Orders by visiting: Room 1100 700 4th St., NW (corner of 4th and G Sts. NW) Washington, DC 20013 Orders by phone: (202) 512-6000 fax: (202) 512-6061 TDD (202) 512-2537 Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists. Web site: http://www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov 1-800-424-5454 (automated answering system)

Summary:
This report reviews the challenges facing U.S. agricultural biotechnology products in international trade. 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.