International Trade: Concerns Over Biotechnology Challenge U.S.  
Agricultural Exports (15-JUN-01, GAO-01-727).			 
								 
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. While 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.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-727 					        
    ACCNO:   A01126						        
  TITLE:     International Trade: Concerns Over Biotechnology	      
             Challenge U.S. Agricultural Exports                              
     DATE:   06/15/2001 
  SUBJECT:   Agricultural products				 
	     Labeling law					 
	     Exporting						 
	     Safety standards					 
	     International trade restriction			 
	     Product safety					 
	     Codex Alimentarius 				 
	     European Union					 
	     Japan						 
	     Korea						 
	     Mexico						 
	     Australia						 
	     New Zealand					 

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GAO-01-727
     
A

Letter 3 Results in Brief 3 Background 5 International Developments
Potentially Affecting Exports 6 Certain Commodity Exports May Be Limited By
Foreign Regulations 10 Challenges Facing U. S. Biotech Exports 11 Agency
Comments and Our Evaluation 13 Scope and Methodology 13

Appendixes Appendix I: Report Slides 15 Appendix II: Important Dates in
Biotechnology Trade 24 Appendix III: GAO Contacts and GAO Acknowledgments 25

Glossary 26

Abbreviations

EPA Environmental Protection Agency FDA Food and Drug Administration EU
European Union UN United Nations USDA U. S. Department of Agriculture USTR
U. S. Trade Representative WTO World Trade Organization

Lett er

June 15, 2001 The Honorable Charles Grassley Ranking Minority Member
Committee on Finance United States Senate

Dear Senator Grassley: 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.)

Results in Brief U. S. exports of crops with a biotech component are facing
restrictions in foreign markets. Since 1998, the EU has effectively blocked
approval of new agricultural biotech products. In addition, new regulations
and guidelines that may further restrict exports of biotech products, such
as requirements for labeling and traceability, or tracking, are being
enacted or considered by U. S. trading partners and are being discussed in
international organizations. For example, the EU, Japan, and Korea have

enacted mandatory labeling requirements on foods containing or derived from
biotech products. Other countries are in the process of enacting similar
regulations. The EU is expected to enact requirements for traceability of
biotech crops and foods throughout the distribution chain, a

measure that could further limit exports. As countries move forward
independently with regulatory measures, international organizations are also
developing guidelines and rules for biotech products. Multilateral
discussions affecting biotech trade are taking place in Codex Alimentarius,
which sets international food safety standards, and the Biosafety Protocol,

a U. N. environmental agreement. U. S. officials are working to ensure that
measures adopted by other countries and international guidelines are
consistent with member countries' obligations under various agreements of
the World Trade Organization (WTO).

U. S. corn and soybean exports are most threatened by new foreign regulatory
measures because of their biotech content. While U. S. soybean exports have
not yet experienced disruptions, U. S. corn exports have been largely shut
out of the EU market because U. S. farmers are producing some

biotech varieties that have not been approved for marketing in the EU. In
contrast, only one biotech variety of soybeans is now in general production
in the United States, and this variety has been approved in most major
markets, including the EU. However, U. S. soybean exports could also
encounter difficulties in the future if foreign regulations are adopted that
would raise handling costs by ultimately requiring segregation of biotech

from conventional varieties. 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 biotech and conventional varieties are typically combined in the U. S.
grain

handling system, which relies on the efficiency of mixing crops from
multiple sources. U. S. industry contends that segregating biotech from
conventional varieties would significantly raise handling costs, and that
completely removing traces of biotech grain from bulk shipments may not be
possible. Consequently, foreign regulations governing biotech varieties
could affect all U. S. exports of these commodities as well as food products
containing or derived from biotech crops. Finally, as international
discussions in Codex 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.

Background 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). 1 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. 2 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.

International Recent developments in countries that are major markets for U.
S. Developments

agricultural exports and in various multilateral organizations raise
concerns about the prospects for U. S. agricultural biotech exports. For
Potentially Affecting

example, no agricultural biotech products have been approved in the EU
Exports 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).

1 The government's approach for addressing foreign trade measures related to
plant, animal, and/ or human health issues is complex, involving at least 12
federal trade, regulatory, and research entities. The part various U. S.
agencies play in this process is discussed in depth in Agricultural Exports:
U. S. Needs a More Integrated Approach to Address Sanitary/ Phytosanitary
Issues (GAO/ NSIAD- 98- 32, Dec. 11, 1997). 2 The White House set overall U.
S. biotech regulatory policy in 1986, which called for

applying the existing regulatory framework for food safety and environmental
protection to biotech products.

Approval Processes Vary 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.
3 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. 4 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. 5 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. 6 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 3 In 1995, the Organization for Economic Cooperation and Development
established a

Working Group on Harmonization of Regulatory Oversight in Biotechnology.
This working group issued a report on May 25, 2000 C( 2000) 86/ ADD2 which
summarizes various countries' regulatory regimes. 4 While U. S. government
and industry typically use the term ?agricultural biotechnology products,?
EU documents generally refer to these products as ?genetically modified
organisms.?

5 In February of this year, the EU revised its biotech product approval
directive in an attempt to provide for the possibility of new product
approvals. However, thus far, this directive has not been implemented
because six EU member states are insisting on ancillary regulations on
labeling and traceability. 6 See Commission of the European Communities,
Communication from the Commission on the Precautionary Principle (Feb. 2,
2000).

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.

Labeling Requirements In advance of international guidelines, the EU, Japan,
and Korea have Being Considered, Adopted 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. 7 U. S. officials have raised concerns
that such regulations, depending on how they are crafted, could
significantly increase production costs and disrupt trade. 8 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. 7
Australia and New Zealand have enacted labeling requirements for biotech
foods that will take effect in December 2001. The Mexican Senate has passed
legislation calling for mandatory labeling of biotech products, but there
has been no further action to date. 8 The United States does not require
special labeling for foods derived from biotechnology. Biotech foods are
subject to the same labeling requirements that apply to foods in general;
any significant difference from their traditional counterparts, such as the
presence of an allergen, must be disclosed on the label.

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 Through Each ?Traceability? is a concept that forms the basis
for a proposed EU

Step of Production 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. 9 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 9 The
EU's stated objectives for requiring traceability of biotech products are to
facilitate (1) the withdrawal of products in the event of an unforeseen risk
to human health or the environment, (2) monitoring of potential health or
environmental effects, and (3) control and verification of labeling claims.

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. 10 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.

Certain Commodity Corn and soybeans are the principal U. S. commodity
exports most Exports May Be

threatened by foreign regulations governing biotech products (see slide 8).
While exports of both crops are mainly destined for animal feed, these
Limited By Foreign crops face notable differences in overseas markets. Corn
exports have Regulations

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

10 The Biosafety Protocol, signed in January 2000, is an agreement under the
1993 U. N. Convention on Biological Diversity. The protocol applies to the
transboundary movement, transit, handling, and use of living modified
organisms that may have adverse effects on the conservation and sustainable
use of biological diversity. The protocol will go into effect after it has
been ratified by 50 countries, which is expected to occur within the next 2
years.

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. Challenges
Facing U. S. The United States faces a number of challenges to maintaining
access to Biotech Exports

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. 11 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.
11 Some unintentional mixing of biotech grains with non- biotech grains can
occur even when different varieties are not comingled, such as through the
spread of pollen from a biotech

plant to a non- biotech plant, or by inadequate cleaning of storage or
shipping facilities that contained biotech grains.

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.

Agency Comments and We obtained oral comments on a draft of this report from
the Office of the Our Evaluation

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.

Scope and To meet our objectives of (1) summarizing developments in key
Methodology

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 crosssection 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. Sincerely yours,

Loren Yager, Director International Affairs and Trade

Appendi Appendi xes x I

Report Slides What is Agricultural Biotechnology?

Agricultural Agricultural biotechnology biotechnology is is a a collection
collection of of scientific scientific techniques, techniques, such such as
as genetic genetic

engineering, engineering, used used to to modify modify plants, plants,
animals, animals, or or microorganisms microorganisms by by introducing
introducing in in them them

desired desired traits, traits, including including characteristics
characteristics from from unrelated unrelated species. species. For For
example, example, traits traits may may

be be introduced introduced to to facilitate facilitate pest pest management
management and and improve improve yield yield or or nutritional nutritional
value. value.

Example of Agricultural Biotech Process

The microorganism Bacillus Bt gene is inserted into

The resulting corn variety (Bt thuringiensis (Bt) produces an

corn (maize) DNA. corn) produces its own insecticidal substance.

insecticide, reducing the need for farmers to spray pesticides.

8/ 29/ 2000 1

Major Biotech Crops and Producers

To To date date the the principal principal biotech biotech products
products marketed marketed have have been been certain certain genetically
genetically

engineered engineered field field crops. crops. The The United United States
States is is by by far far the the world?s world?s largest largest producer
producer of of

biotech biotech crops. crops.

Major U. S. Biotech Crops Percent of Global Land Area Planted in

(Percentage represents biotech share of overall crop)*

Biotech Crop Varieties - by Country

1999 total global land area: 98. 6 million acres

Corn: 25% Argentina: 17% (soybeans) Canada: 10% (canola) Soy: 54%

China: ~1% (cotton) Others: <1%

Cotton: 61% U. S: 72%

(soybeans, corn, cotton, & others) *Based on USDA National Agricultural
Statistical Service?s

Source: International Service for the Acquisition of Agri- Biotech June 2000
Acreage Report. Photo source: USDA.

Applications, ?Global Status of Commercialized Transgenic Crops: 1999.? 8/
29/ 2000 2

Agricultural Biotechnology and the U. S. Government

The White House

Set overall U. S. biotech regulatory policy Regulatory Responsibilities
Trade Responsibilities

EPA FDA

USDA USDA

USTR State

USDA/ APHIS*

Department

Regulates Regulates food

regulates USDA/ FAS*

Coordinates pesticiderelated and animal feed

movement, Monitors foreign

U. S. trade Negotiates

derived from importation, and

regulations and policy and

environmental agricultural

biotechnology. field testing of

restrictions on negotiates trade

agreements. biotech

biotech biotech

agreements. products.

products. products.

*APHIS: Animal and Plant Health Inspection Service; FAS: Foreign
Agricultural Service. USDA, USDA, FDA, FDA, EPA, EPA, State, State, and and
USTR USTR all all play play a a role role in in agricultural agricultural
biotechnology biotechnology trade.

trade. 8/ 29/ 2000 3

International Organizations Addressing Agricultural Biotechnology Issues

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. Discussions Discussions on

on USDA and FDA lead U. S. delegations to Codex committees.

biotechnology biotechnology

are are taking taking

place place in in Codex Codex

Alimentarius Alimentarius and and

Biosafety Protocol: Environmental agreement under the U. N. the the
Biosafety

Biosafety Convention on Biological Diversity, covering the transshipment and

Protocol. U. S. use of living modified organisms. Protocol takes effect upon

Protocol. U. S. ratification by 50 countries. The United States has not
ratified the

seeks seeks to to ensure ensure

Convention nor signed the Protocol. State Department represented guidelines
guidelines set

set U. S. interests at Biosafety Protocol negotiations.

by by these these

organizations organizations are are

consistent consistent with with

WTO WTO disciplines. 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.

8/ 29/ 2000 4

International Developments Affecting Trade: Approval Process

ISSUE ISSUE 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.

U. S. POSITION

Product approval regulations must be clear, transparent, timely,

U. S. POSITION science- based, and predictable. U. S. regulators have
concluded that approved biotech foods on the market now are as safe as their
conventional counterparts.

Ongoing Developments

 European Commission efforts to resume new biotech product approvals
effectively blocked by six member states

 EU pushing for ?precautionary principle? in various international
organizations, including Codex and Biosafety Protocol

 Codex Ad Hoc Task Force on Biotechnology developing guidelines for
analyzing risks of biotech foods Photo source: USDA.

8/ 29/ 2000 5

International Developments Affecting Trade: Labeling Requirements

ISSUE ISSUE Strict labeling requirements could impact U. S. exports because

they could reduce consumer demand and increase costs.

U. S. POSITION

Mandatory labeling should only be implemented when the new

U. S. POSITION biotech product represents a significant change from the
conventional variety or poses a threat to consumer safety. FDA has recently
proposed voluntary labeling guidelines.

Ongoing Developments Potential Markets Affected

 Various countries have taken action to enact mandatory labeling
requirements (shaded areas on map)

 Codex Labeling Committee developing

EU Saudi Korea

mandatory labeling guidelines

Arabia Japan

 Codex Ad Hoc Task Force on Animal

Mexico

Feeding considering biotech labeling for feed

Australia New Zealand

8/ 29/ 2000 6

International Developments Affecting Trade: Traceability Requirements

EU is pushing for traceability requirements to track biotech

ISSUE ISSUE products throughout the production and distribution chains.

However, the implementation cost to producers may be prohibitive.

U. S. POSITION

A costly and onerous traceability system is not justified because

U. S. POSITION biotech products are not inherently less safe than other
foods. U. S. officials have opposed traceability requirements in Codex.

Ongoing Developments

 EU developing new regulations on traceability and labeling for food and
feed in conjunction with revised directive on biotech product approvals

 Codex Ad Hoc Task Force on Biotechnology divided on traceability
guidelines

 Biosafety Protocol negotiations on documentation requirements may address
traceability issue for bulk shipments Photo source: USDA.

8/ 29/ 2000 7

Major Exports Potentially Affected By Foreign Regulations

Corn Corn and and soy soy exports exports are are most most threatened
threatened by by foreign foreign regulations regulations on on biotech
biotech

products. products. Because Because the the U. U. S. S. grain grain handling
handling system system comingles comingles biotech biotech and and

conventional conventional products, products, restrictions restrictions on
on biotech biotech varieties varieties affect affect nearly nearly all all
exports exports of of

these these commodities. commodities.

U. S. Soy and Corn Export Markets Soybeans

Corn

Europe & Other 4% Other 7% Africa &

EU 26% Middle East 15%

Latin America 18% Latin America 23%

Japan 37% Japan 17% Other Asia 32%

Other Asia 21% Total 1999 exports: $4.5 billion Total 1999 exports: $4.9
billion Exports as percent of production: 29%

Exports as percent of production: 18%

Source: USDA, Economic Research Service. 8/ 29/ 2000 8

Challenges Confronting U. S. Agricultural Biotech Exports

FOREIGN

 Persistent opposition of the EU and some of its members

FOREIGN

 Relatively isolated U. S. position

GOVERNMENTS GOVERNMENTS

 Lack of knowledge about biotech issues in developing countries

U. U. S. S.

 Coordination required among numerous agencies

GOVERNMENT GOVERNMENT

 Increased resource demands for biotech- related activities

 Comingled nature of U. S. grain handling process

U. U. S. S. INDUSTRY INDUSTRY  Different perspectives within industry
heightened by StarLink crisis

 Potential consumer resistance in

CONSUMERS CONSUMERS major markets

 Benefits to consumers not well defined

Photo source: USDA. 8/ 29/ 2000 9

Appendi x II

Important Dates in Biotechnology Trade Source: GAO Analysis.

Appendi x II I GAO Contacts and GAO Acknowledgments GAO Contacts Elizabeth
Sirois, (202) 512- 8989 Juan Gobel, (213) 830- 1031 Acknowledgments In
addition to the persons named above, Howard Cott, Jody Woods,

Richard Seldin, and Janey Cohen made key contributions to this report.

Glossary Bacillus thuringiensis (Bt) A bacterium commonly found in soil,
lethal to certain insects. It has been

marketed for control of many plant pests. A gene from this organism has been
spliced into the genetic material of various crops to protect them from
specific pests.

Biosafety Protocol An environmental agreement completed in January 2000
under the U. N. Convention on Biological Diversity. The protocol applies to
the transboundary movement, transit, handling, and use of living modified
organisms that may have adverse effects on the conservation and sustainable
use of biological diversity.

Codex Alimentarius The joint food standards program for the U. N. Food and
Agriculture Organization and the World Health Organization established in
1962. Its objectives are to help protect the health of consumers and
facilitate trade through the establishment of international food standards,
codes of practice, and other guidelines. The WTO Sanitary and Phytosanitary
Agreement cites Codex standards and guidelines as the preferred

international measures for facilitating trade in food. Comingling The
practice of combining crops from multiple farms in the grain

distribution system of the United States, including grain elevators and bulk
commodity shipments. Consequently, biotech and conventional varieties are
typically combined. Comingling enables the efficient handling and shipment
of large quantities of bulk grain.

Dioxin A class of chemical compounds shown by studies of highly exposed
human populations to produce adverse developmental effects and increases in
cancer, and to possibly affect immune and endocrine functions.

DNA (Deoxyribonucleic acid) The genetic or hereditary material of all
cellular organisms. It carries the information needed to direct the
replication of cells. European Commission A body of the European Union that
among other things exercises the EU's executive functions for implementing
and managing policy and makes

proposals for all new legislation. The Commission has recently revised the
approval process for genetically modified organisms.

Gene The basic unit of heredity found in all living organisms.

General Agreement on Tariffs Multilateral arrangement established in 1947
until the advent of the World

and Trade (GATT) Trade Organization in 1995. It provided the legal framework
for international trade. Its primary mission was the reduction of trade
barriers.

Genetic Engineering A modern scientific technique used to modify plants,
animals, or microorganisms by introducing in their genetic code genes for
specific desired traits, including genes from unrelated species. Genetically
Modified Organism A plant, animal, or microorganism produced by genetic
engineering. Hybrid A plant or animal that is the result of crossbreeding
between different varieties or species.

Identity Preservation Strict separation of one crop from another, typically
involving shipping in separate containers, to preserve a product's unique
characteristics. Identity preservation is generally used for marketing
value- enhanced products such as food- grade corn and soy, which command
higher prices. Living Modified Organism Any living organism that possesses a
novel combination of genetic material obtained through the use of modern
biotechnology.

Mad Cow Disease A degenerative brain disease of cattle technically known as
Bovine Spongiform Encephalopathy (BSE). A number of studies have confirmed
that BSE in cattle can be transmitted to humans causing a form of
Creutzfeldt- Jakob disease, a fatal brain disease in human beings.

Modern Biotechnology A collection of scientific techniques, such as genetic
engineering, used to modify plants, animals, or microorganisms by
introducing in their genetic code genes for specific desired traits,
including genes from unrelated species.

Organization for Economic Multilateral organization founded in 1961 to
coordinate the economic

Cooperation and Development policies of industrialized nations. It has
issued several studies on various aspects of biotechnology.

Precautionary Principle A general concept contained in EU legislative texts.
According to the EU, the precautionary principle covers circumstances ?where
scientific evidence is insufficient, inconclusive or uncertain and . . .
there are reasonable grounds for concern? about a product's ?potentially
dangerous

effects on the environment, human, animal or plant health.?

Round- Up Ready The trade name for biotech crops modified to tolerate the
use of a specific herbicide known as Round- Up.

Sanitary and Phytosanitary Sanitary measures pertain to human and animal
health and safety.

Measures Phytosanitary measures pertain to protecting plants from pests and

diseases. Species (Plant or Animal) A group of plants or animals possessing
traits or characteristics in common

that distinguish them from other groups. Members of the same species may
interbreed and reproduce their traits in their offspring. StarLink A
trademark for several corn hybrids obtained through biotechnology. StarLink
hybrids contain a plant pesticide protein that kills certain destructive
pests. The EPA approved StarLink for animal feed only, not for

use in food intended for human consumption. Threshold The level for content
of a regulated substance below which a regulatory

measure would not be triggered. For example, a biotech food labeling
requirement with a 5 percent threshold would not be triggered if a food or
food ingredient has less than 5 percent biotech content.

Tol erance Maximum limit for the amount of content or residue of a regulated
substance in food or feed. A regulatory measure that sets a ?zero tolerance?
is triggered by any detectable presence of the regulated substance.

Traceability A concept serving as the basis for a proposed regulation in the
European Union that would require the identification and tracking of biotech
or biotech- derived products at all stages of the production and
distribution chain in the food and feed sectors.

Transgenic A plant or animal variety that contains genes from a different
species transferred using genetic engineering techniques. U. N. Convention
on Biological

A convention whose principal aims are the conservation and equitable and
Diversity

sustainable use of biological diversity. The convention entered into force
in December 1993. Variety (Plant or Animal) A group of plants or animals
forming a subdivision of a species consisting of naturally occurring or
selectively bred individuals sharing certain traits or characteristics.

World Trade Organization (WTO) International trade organization established
in January 1995 to provide the institutional framework for the multilateral
trading system. It administers rules for international trade and provides a
forum for resolving trade disputes and conducting trade negotiations.

WTO Sanitary and Phytosanitary An agreement under the WTO establishing
disciplines on member

(SPS) Agreement countries' measures to protect human, animal, or plant life
or health. Under the agreement, such measures must be based on an assessment
of risk and

science and should not be applied arbitrarily or in a way that constitutes a
disguised restriction to trade. WTO Technical Barriers to Trade

An agreement under the WTO establishing disciplines on member (TBT)
Agreement

countries' technical regulations and standards for protection of human,
animal, or plant life or health, or the environment not specifically within
the scope of the SPS Agreement. Under the agreement, such regulations and
standards cannot be more trade- restrictive than necessary to fulfill a
legitimate objective.

(320045) Lett er

A

Report to the Ranking Minority Member, Committee on Finance, U. S. Senate

June 2001 INTERNATIONAL TRADE

Concerns Over Biotechnology Challenge U. S. Agricultural Exports

GAO- 01- 727

GAO United States General Accounting Office

Page 1 GAO- 01- 727 International Trade

Contents

Contents Page 2 GAO- 01- 727 International Trade

Page 3 GAO- 01- 727 International Trade United States General Accounting
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Washington, D. C. 20548 Page 3 GAO- 01- 727 International Trade

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Appendix I

Appendix I Report Slides

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Appendix I Report Slides

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Appendix I Report Slides

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Appendix I Report Slides

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Appendix I Report Slides

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Appendix I Report Slides

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Appendix I Report Slides

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Appendix II

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Appendix III

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Glossary Page 27 GAO- 01- 727 International Trade

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