Genetically Modified Food: Trade Regulation in view of Environmental Policy Objectives : Trade Regulation in view of Environmental Policy Objectives [1 ed.] 9783842800137, 9783842850132

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Marie Kreipe

Genetically Modified Food

Copyright © 2010. Diplomica Verlag. All rights reserved.

Trade Regulation in view of Environmental Policy Objectives

Diplomica Verlag

Genetically Modified Food: Trade Regulation in view of Environmental Policy Objectives : Trade Regulation in view of Environmental Policy Objectives, Diplomica Verlag, 2010.

Marie Kreipe Genetically Modified Food: Trade Regulation in view of Environmental Policy Objectives ISBN: 978-3-8428-0013-7 Herstellung: Diplomica® Verlag GmbH, Hamburg, 2010

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Dieses Werk ist urheberrechtlich geschützt. Die dadurch begründeten Rechte, insbesondere die der Übersetzung, des Nachdrucks, des Vortrags, der Entnahme von Abbildungen und Tabellen, der Funksendung, der Mikroverfilmung oder der Vervielfältigung auf anderen Wegen und der Speicherung in Datenverarbeitungsanlagen, bleiben, auch bei nur auszugsweiser Verwertung, vorbehalten. Eine Vervielfältigung dieses Werkes oder von Teilen dieses Werkes ist auch im Einzelfall nur in den Grenzen der gesetzlichen Bestimmungen des Urheberrechtsgesetzes der Bundesrepublik Deutschland in der jeweils geltenden Fassung zulässig. Sie ist grundsätzlich vergütungspflichtig. Zuwiderhandlungen unterliegen den Strafbestimmungen des Urheberrechtes. Die Wiedergabe von Gebrauchsnamen, Handelsnamen, Warenbezeichnungen usw. in diesem Werk berechtigt auch ohne besondere Kennzeichnung nicht zu der Annahme, dass solche Namen im Sinne der Warenzeichen- und Markenschutz-Gesetzgebung als frei zu betrachten wären und daher von jedermann benutzt werden dürften. Die Informationen in diesem Werk wurden mit Sorgfalt erarbeitet. Dennoch können Fehler nicht vollständig ausgeschlossen werden und der Verlag, die Autoren oder Übersetzer übernehmen keine juristische Verantwortung oder irgendeine Haftung für evtl. verbliebene fehlerhafte Angaben und deren Folgen. © Diplomica Verlag GmbH http://www.diplomica-verlag.de, Hamburg 2010

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Abstract The controversial issue of genetically modified (GM) food is discussed in this book. While the United States (US) is a strong supporter of GM technology having adopted a rather lax regulation of trade with GM products, the European Union (EU) is representing a sceptical position towards this new technology and has even imposed a de facto moratorium on further approval of GM products from 1998 to 2004. The purpose of this book is an extensive analysis of the current status on risks and benefits of genetically modified organisms (GMOs) and a suggestion on how an appropriate regulation of GM products could be derived. Potential guidelines are provided for policy formulation both in a qualitative and in a quantitative dimension. The US is applying the principle of substantial equivalence, which means that GM products are in their substance identical to products produced by conventional methods. Therefore, no new regulations are necessary for the trade with GM products. In contrast, the European Union (EU) disagrees that GM products are equivalent to their conventional counterparts due to the different production process. Instead, the EU refers to the precautionary principle in its GMO policy, meaning that trade with GM products should be restricted until it will be proven that no additional risks are implied by the use of these products. The divergence of opinions about the right policy to regulate GM products has significant impacts on trade flows and welfare effects. The US and the EU have already tried to resolve their dispute before the World Trade Organization (WTO). Relevant laws of the General Agreement on Tariffs and Trade (GATT) and the WTO are presented

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as well as indications for a potential consensus.

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Table of contents Acronyms and abbreviations......................................................... V List of figures ............................................................................... VIII List of tables................................................................................. VIII Introduction ......................................................................................1 1 1.1

Definition and characteristics of GM food..........................3

1.2

Negative impacts of GM food............................................7

1.2.1

Risks for human health .....................................................7

1.2.2

Risks for the environment .................................................8

1.3

Positive impacts of GM food ...........................................10

1.3.1

Benefits for farmers.........................................................10

1.3.2

Benefits for the environment ...........................................12

1.3.3

Benefits for consumers ...................................................14

1.3.4

Benefits for developing counties .....................................15

2

Trade policy: Two approaches ...........................................16

2.1

US: The "principle of substantial equivalence“ ................16

2.2

EU: The "precautionary principle“ ...................................18

3

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Portrait: Genetically modified food ......................................3

The legal framework for trade with GMOs .........................22

3.1

Legislation of the World Trade Organization ...................22

3.1.1

Article I and III GATT (WTO)...........................................22

3.1.2

Article XI GATT (WTO) ...................................................23

3.1.3

Article XX GATT (WTO) ..................................................23

3.1.4

WTO Sanitary and Phytosanitary (SPS) Agreement .......24

3.1.5

WTO Technical Barriers to Trade (TBT) Agreement .......25

3.2

Cartagena Protocol on Biosafety ....................................25

3.3

Implications for the EU-US trade dispute on GMOs ........27

4

Tensions between GMO trade policy and environmental policy objectives..................................................................30

4.1

Scientific findings about risks of GM food .......................30

4.2

GMO policy against the background of limited scientific findings – qualitative approach........................................31

4.2.1

Utilitarian theory as a basis for policy formulation ...........32 III

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4.2.2

Normative theory as a basis for policy formulation.......... 33

4.2.3

Behavior of consumers as a basis of policy formulation . 36

4.2.4

Behavior of biotech firms as a basis of policy formulation ...................................................................... 39

4.3

GMO policy against the background of limited scientific findings – quantitative approach ..................................... 46

4.4

Conclusions about the appropriate GMO policy.............. 48

5

Consequences for international trade ............................... 51

5.1

Trade flows and global welfare effects............................ 51

5.2

Potential protectionist behavior of the EU ....................... 53

5.3

Risk of an isolation of the EU from international trade .... 55

5.4

Recovery of international trade ....................................... 56

Conclusion ..................................................................................... 58 A

Appendices .......................................................................... 60

A.1

Negative and positive impacts of GMOs ......................... 61

A.2

The environmental impact quotient (EIQ) ....................... 63

A.3

GMO regulations by country groupings........................... 64

A.4

Multilateral agreements citing the precautionary principles......................................................................... 67

A.5

Comparison of the US and the EU biotechnology regulatory process .......................................................... 68

Bibliography................................................................................... 69 List of literature ................................................................................ 69

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List of internet sources..................................................................... 80

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Acronyms and abbreviations AIA

Advance Informed Agreement

ASA

American Medical Association

BBSRC

Biotechnology and Biological Sciences Research Council

BSP

Cartagena Biosafety Protocol

Bt

Bacillus thuringiensis

Codex

Codex Alimentarius

DNA

Deoxyribonucleic acid

EC

European Commission

EFSA

European Food Safety Authority

EPC

European Parliament and Council

ESI

Environmental Sustainability Index

EU

European Union

EUCR

European Union Council Regulation

FAO

Food and Agriculture Organization of the United

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Nations FDA

US Food and Drug Administration

FD&C Act

Federal Food, Drug and Cosmetic Act

GATT

General Agreement on Tariffs and Trade

GDP

Gross Domestic Product

GM Crop

Genetically Modified Crop

GM Food

Genetically Modified Food

GMO

Genetically Modified Organism

GM Plant

Genetically Modified Plant

GM Product

Genetically Modified Product

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GRAS

Generally Regarded As Safe

IPPC

International Plant Protection Convention

IPR

Intellectual Property Rights

ISAAA

International Service for the Acquisition of AgriBiotech Applications

JIC

John Innes Centre

Kanr

Kanamycin

LMO

Living Modified Organism

mRNA

messenger RNA

NAS

National Academy of Sciences

NIH

US National Institutes of Health

NLM

US National Library of Medicine

OECD

Organisation of Economic Co-operation and Development

OIE

International Epizootics Organization

RA

Risk Assessment

rDNA

recombinant DNA

RNA

Ribonucleic Acid

R&D

Research and Development

SA

Safety Assessment

SPS Agreement

Agreement on Application of Sanitary and Phyto-

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sanitary Measures TBT Agreement

Agreement on Technical Barriers to Trade

TEP

Trans-Atlantic Economic Partnership

TOI

Trade Openness Index

TOT

Terms-of-trade

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US

United States of America

WHO

World Health Organization

WSJ

Wall Street Journal

WTO

World Trade Organization

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List of figures Figure 1–1:

Development of global GM crop area (area in million hectares) ....................................................... 4

Figure 1–2:

GM crop area and global crop area for the four principal GM crops 2005 (area in million hectares)... 5

Figure 2–1:

Two main approaches used for the regulation of GM crops ............................................................ 16

Figure 4–1:

The causal relationship between trade and GMOs. 40

Figure 4–2:

The relationship between trade openness and environmental sustainability ................................... 45

Figure 4–3:

Biosafety regime scenarios and social costs .......... 47

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List of tables Table 1-1:

Global area of biotech crops in 2006 by country (million hectares) ...................................................... 6

Table 1-2:

Impact of changes in the use of herbicides and insecticides from growing GM crops globally, 1996-2004 .............................................................. 12

Table 1-3:

Impact of GM crops on carbon sequestration impact in 2004 (car equivalents)............................. 14

Table 4-1:

Respondents grouped according to perceptions of riskiness and usefulness .................................... 38

Table 5-1:

GM production share of global crop trade in 2004 (million tonnes) ....................................................... 52

VIII

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Introduction Modern biotechnology has opened new possibilities in food production. Genetic modification of food is probably one of the most controversial issues in this field. Countries, such as the United States (US), Argentina and Brazil took the leadership in the marketing of genetically modified (GM) food. Scepticism among European consumers is, however, slowing down their former enthusiasm. As a huge sales market the European Union (EU) has significant influence on farmers’ decision whether to plant GM or non-GM crops. An issue of debate is the different perception that US and European consumers have of GM food. Proponents of GM products believe that European consumers are more informed about risks than about benefits of GM food. In contrast, opponents of these products argue that consumers do not perceive benefits of GM food simply because there are no benefits for them. The promised vitamin or protein enriched food is still not on the market. The reason for this, however, is the strategic behavior of biotechnology and seed firms (hereafter, biotech firms). Being aware of consumers’ resistance towards GM food, biotech firms did not see any future market in this field. Much more promising seemed to be the redirection of research and development (R&D) activities to insect and herbicide resistant crops that would be valued by farmers. This concept worked. GM seeds are very popular by farmers because they are easier and cheaper to grow than traditional seeds. Biotech and seed firms have focused on seeds for agribusiness, ones that produced such goods as animal feed, bio fuels (ethanol and biodiesel) and corn syrup. This market pattern does not seem likely to change in the years to come, unless a demand for GM food among consumers will arise.

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This book contributes to the determination of an appropriate regulation of genetically modified organisms (GMOs). The search for the right GMO policy is characterized by the tension between trade policy and environmental objectives. In the first chapter risks and benefits of GMOs are studied, which are the basis for the different GMO regulations that the United States (US) on the one side and the European Union (EU) on the other side have adopted. After an examination of the principle of substantial equivalence adopted by the US and the precautionary principle applied by the EU in chapter two, chapter three 1

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gives an overview of the relevant legislation of the World Trade Organization (WTO) in the GMO trade dispute. After this review of the current state of the GMO debate in the first three chapters an extensive discussion about guidelines for policy formulation is conducted in chapter four. It is analyzed what instruments policy makers can use in order to decide upon an appropriate GMO regulation in regard to scientific uncertainty. There is a qualitative and a quantitative approach to this discussion. Chapter five reveals implications for international trade. It investigates welfare effects of an EU import ban on certain GM crops, the consequences of a potential protectionist behavior of the EU, the probability of an isolation of the EU from international trade and possible

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solutions to resolve the EU-US trade dispute.

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1

Portrait: Genetically modified food

Advances in cellular genetics and cell biology methods in the 1960s contributed to the so-called “green revolution“. The key driver of this technological advance was to improve the potential to provide sufficient food for all. This objective suddenly seemed reachable with the help of a technology often called “modern biotechnology” or “gene technology”, sometimes also “recombinant DNA (rDNA) technology” or “genetic engineering”. It allows selected individual genes to be transferred from one organism into another, also between non-related species. Such methods are used to create genetically modified (GM) plants – which are then used to grow genetically modified (GM) food crops (WHO website1). Characteristics of GM food are described in section one. Their negative and positive impacts are discussed in section two and three, respectively (for further bibliography on the impacts, see appendix A.1).

1.1

Definition and characteristics of GM food

GM food is based on genetically modified organisms (GMOs), which can be defined as organisms in which the genetic material (DNA) has been altered in a way that does not occur naturally. To overcome limitations by the natural diversity of trait genotype within crop series and sexual-compatibility boundaries between crop types was only possible with the development and use of recombinant DNA (rDNA) in the 1980s. With this technique DNA sequences with a specific trait (e.g. insect resistance) can be identified, selected and modified in a donor organism (microorganism, plant or animal), in order to be transferred to the recipient organism. As a result the recipient organism will express this trait (WHO, 2005). The products of this technique are GMOs.

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The possibility to alter the DNA of an organism is used to make plants adopt new traits, such as increased agricultural productivity, increased resistance to diseases and pests, or improved quality and nutritional and food processing characteristics, which can contribute directly to enhancing human health and development. There may also be benefits for the environment, such as reduction in agricultural chemical usage. Indirectly social improvements may 1

See the web site of the World Health Organization (WHO) in the list of internet sources at the end of the document.

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arise, i.e. enhanced farm income, crop sustainability and food security, particularly in developing countries (WHO, 2005). The global cultivation area of GM crops has been increasing steadily over the past years, as illustrated in Figure 1-1. Today, about 7% of the world’s entire farmland acreage is now planted with genetically modified crops (Hindo, 2007). Figure 1–1: Development of global GM crop area (area in million hectares) mio ha

120

102.0 90.0

100

81.0 67.7

80 52.6

60

39.9 27.8

40 20

58.7

44.2

11.0 1.7

0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: James, 2006.

At present, the main GM crops that are permitted for food use and traded on the international food and feed markets are herbicide- and insect-resistant corn (Bt2 corn)3, herbicide-resistant soybean, herbicide-resistant canola4, and insect- and herbicide-resistant cotton (primary a fibre crop but refined cotton seed oil is used as food). The adoption rates of the four major GM crops compared to their respective global crop areas are relatively high, considering that 56% of the global soybean acreage is planted with GM crops. The corresponding figures are 28% for cotton, 19% for oilseed rape and 14% for corn (figure 1-2). The sum

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of the GM crop area of the four principal GM crops corresponds to 32% of their aggregated global crop area.

2

Insecticidal toxins from the bacterium Bacillus thuringiensis (Bt) have been used as a trait to make crops insect-resistant. 3 Corn (American English) = maize (British English). 4 Canola (American English) = rape (British English).

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Figure 1–2: GM crop area and global crop area for the four principal GM crops 2005 (area in million hectares) mio ha 300

281.0

250 200 150

140.0

100

86.0

50

54.4 21.2

0 Soybean

Corn

9.8 32.0

Cotton

90.0 4.6 23.0

Global crop area GM crop area

Canola

Total four crops

Source: James, 2005.

From these crop areas key growth centers in each of the continents are the following (James, 2006): The Americas: The United States continues to drive growth in North America and globally, accounting for the greatest absolute acreage increase in 2006 with the addition of 4.8 million hectares. Brazil leads growth in South America with an increase of 22 percent to total 11.5 million hectares of soybeans and biotech cotton, the latter commercialized for the first time in 2006. Asia: India is emerging as a key leader in Asia. The country tallied the most substantial percentage increase at 192 percent or 2.5 million hectares to

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total 3.8 million hectares, jumping two spots in the world ranking to become the fifth largest producer of biotech crops in the world, surpassing China for the first time. Africa: South Africa made significant strides in the past year to lead the African continent forward by almost tripling its biotech crop area. Notably, the gain came from Bt white corn, primarily used for food, and Bt yellow corn used for livestock feed. 5

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Europe: Growth also continues in the countries of the EU where Slovakia became the sixth EU country out of 25 to plant biotech crops. Spain continues to lead the continent, planting 60,000 hectares in 2006; however, the other five EU countries reported a five-fold increase in plantings from 1,500 hectares in 2005 to about 8,500 hectares in 2006. More than 80% of current GM crop production takes place in three countries: the US, Argentina, and Brazil. An overview of the countries that are planting GM crops gives table 1-1. Interestingly, there are also some EU countries that participate in GM food production. Six out of the 25 EU member countries are planting biotech crops. Spain continued to be the lead country in Europe planting 60,000 hectares in 2006. Table 1-1:

Rank

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1* 2* 3* 4* 5* 6* 7* 8* 9* 10* 11* 12* 13* 14* 15 16 17 18 19 20 21 22

Global area of biotech crops in 2006 by country (million hectares) Country

Area (million hectares)

USA

54.6

Argentina Brazil Canada India China Paraguay South Africa Uruguay Philippines Australia Romania Mexico Spain Columbia France Iran Honduras Czech Republic Portugal Germany Slovakia

18.0 11.5 6.1 3.8 3.5 2.0 1.4 0.4 0.2 0.2 0.1 0.1 0.1 < 0.1 < 0.1 < 0.1 < 0.1 < 0.1 < 0.1 < 0.1 < 0.1

Biotech crops Soybean, corn, cotton, canola, squash, papaya, alfalfa Soybean, corn, cotton Soybean, cotton Canola, corn, soybean Cotton Cotton Soybean Corn, soybean, cotton Soybean, corn Corn Cotton Soybean Cotton, soybean Corn Cotton Corn Rice Corn Corn Corn Corn Corn

* 14 biotech mega-countries growing 50,000 hectares, or more, of biotech crops

Source: James, 2006.

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While the Americas led the first decade of biotech crop adoption, the second decade will likely feature significant growth in Asia and its developing countries of India, China and the Philippines, as well as new biotech countries like Pakistan and Vietnam (James, 2006).

1.2 1.2.1

Negative impacts of GM food Risks for human health

The motivation for genetic modification of crops originates rather on the production than on the consumption side. GM food was rather triggered by producers’ objective to increase agricultural output rather than consumer demand for healthier products. The origin is therefore characterized as a "technology-push“ in contrast to a "demand-pull“, which makes the necessity of analyzing dangers for human health and the environment seem more than justified (Aslaksen et al., 2006, p. 7). Many, but not all, genes used in agricultural GMOs have no history of safe food use. With the present technology, there are still cases where random insertion in the host genome could occur. Therefore, genetic modification carries potential direct risks to human health and development (WHO, 2005). The three main human health risks debated are tendencies to provoke allergic reaction (allergenicity), gene transfer and outcrossing (WHO website): Allergenicity. As a matter of principle, the transfer of genes from commonly allergenic foods is discouraged unless it can be demonstrated that the protein product of the transferred gene is not allergenic. While traditionally developed foods are not generally tested for allergenicity, protocols for tests for GM foods have been evaluated by the Food and Agriculture Organization Copyright © 2010. Diplomica Verlag. All rights reserved.

of the United Nations (FAO) and WHO. No allergic effects have been found relative to GM foods currently on the market. Gene transfer. Gene transfer from GM foods to cells of the body or to bacteria in the gastrointestinal tract would cause concern if the transferred genetic material adversely affects human health. This would be particularly relevant if antibiotic resistance genes, used in creating GMOs, were to be

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transferred.5 Although the probability of transfer is low, the use of technology without antibiotic resistance genes has been encouraged by a recent FAO/WHO expert panel. Outcrossing. The movement of genes from GM plants into conventional crops or related species in the wild (referred to as “outcrossing”), as well as the mixing of crops derived from conventional seeds with those grown using GM crops, may have an indirect effect on food safety and food security. This risk is real, as was shown when traces of a corn type which was only approved for feed use appeared in corn products for human consumption in the United States of America. Several countries have adopted strategies to reduce mixing, including a clear separation of the fields within which GM crops and conventional crops are grown. Besides these direct effects, there are also uninteded effects, such as levels of antinutritional or toxic constituents in food. Unintended effects are classified as insertional effects, i.e. related to the position of insertion of the gene of interest, or as secondary effects, associated with the interaction between the expressed products of the introduced gene and endogenous proteins and metabolites. GMOs may also affect human health indirectly through detrimental impacts on the environment, or through unfavourable impacts on economic (including trade), social and ethical factors. It should be mentioned, however, that unintended development and physiological effects can also occur in conventional breeding, even though in organisms created through genetic modification, the probability of these effects is slightly enhanced (WHO, 2005). 1.2.2

Risks for the environment

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The main environmental risk is the capability of the GMO to escape and potentially introduce the engineered genes into wild populations. This would directly lead to a loss of biodiversity by reducing the spectrum of other plants 5

In the process of transferring specific genes from one species to another, so called genetic markers are often used to show the successful uptake of the novel genetic material. The most common marker genes, such as the Kanamycin (kanr) resistance gene, have however the negative effect that they inactivate antibiotics. This procedure is used by scientists as a convenient way to test via antibiotics resistance which of the novel plants have successfully taken up and expressed the relevant gene. The concern about marker genes of this type is that they will inadvertently inactivate antibiotics intended for therapeutic use. Kanamycin is used for treatment of a variety of human infections, including septicemea5 (Sheldon, 2004, fn 21).

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and indirectly affect food safety and food security by contamination of genetic resources. Wildlife would be endangered if newly induced genes could either harm non-target organisms (e.g. insects which are not pests) who might be susceptible to the gene product, or promote a faster induction of resistant insects. Other environmental issues of concern include potential generation of new plant pathogens (biological agents that cause disease or illness to its host), eventual herbicide resistance, increased use of chemicals in agriculture, the persistence of the gene after the GMO has been harvested, decreased biomass, unintended effects on ecosystems, and consequences for agricultural practices (Hauge Madson et al., 2003; Dale et al., 2002; Phipps et al., 2002; Watkinson et al., 2000). An ecologically important practice is the crop rotation, which tends to decrease because of the high adaptation rates of GM crops. The environmental safety aspects of GM crops vary considerably according to local conditions (WHO, 2005). In order to eliminate major risks from GM products, risk assessments (RAs), or safety assessments (SAs), are conducted. According to the WHO, the GM products that are currently on the international market have all passed RAs conducted by national authorities. Principles and methodologies for the risk analysis are specified in the Codex Alimentarius (international food code) adopted by a joint FAO/WHO body, the Codex Alimentarius Commission in July 2003. It dictates a premarket assessment, performed on a case-by-case basis and including an evaluation of both direct effects from the inserted gene and unintended effects that may arise as a consequence of insertion of the new gene. An important element of GM food safety assessment is the concept that allows for the comparison of a final product with one having an acceptable standard of safety, called "substantial equivalence“. GM foods can be Copyright © 2010. Diplomica Verlag. All rights reserved.

considered as safe as conventional food when key toxicological and nutritional components of the GM food are comparable to the conventional food, and when the genetic modification itself is considered safe (OECD, 1993). This principle has already been recognized by the OECD in 1993 and was then further developed at a FAO/WHO Consultation in 1996 (FAO/WHO, 1990). The Codex regulations do not have a binding effect on national legislation but they serve as a guideline (WHO, 2005). To account for the different approaches to risk 9

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assessment in different countries, the concept of "familiarity“ has been developed. To be "familiar“ means to have enough information to be able to make a judgement of safety or risk (FAO/ WHO 2000). While the Codex is covering food safety, environmental safety is regulated in the Cartagena Protocol on Biosafety or Cartagena Biosafety Protocol (BSP). It also takes into account effects on human health (CBD, 2000) and specifies in Annex III principles and methodology for risk assessment of GMOs (known as living modified organisms or LMOs under the Protocol).6 Additionally to these two legal documents, feasibility and methods for post-marketing monitoring of GM food products for the continued surveillance of the safety of GM food products are under discussion (WHO website).

1.3 1.3.1

Positive impacts of GM food Benefits for farmers

GM foods are developed – and marketed – because there is some perceived advantage either to the producer or consumer of these foods. This is meant to translate into a product with a lower price, greater benefit (in terms of durability or nutritional value) or both. Initially GM seed developers wanted their products to be accepted by producers and have concentrated on innovations that farmers (and the food industry more generally) would appreciate. A highly appreciated innovation was the improvement of crop protection. Conventional crop protection methods relying on chemical pesticides have damaged agricultural land and the environment. In addition, soil cultivation practices such as tilling have largely contributed to soil degradation by increasing erosion, nutrient loss and degradation of biological processes (Tilman et al., 2002; Ammann, 2005).

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Genetic modification of crops contributed to the improvement of its protection by either making them more resistant against plant diseases caused by insects or viruses or by incresing their tolerance towards herbicides (WHO website):

6

While the Cartagena Protocol on Biosafety is the key basis for international regulation of living modified organisms (LMOs), it does not deal specifically with GM foods, and its scope does not consider GM foods that do not meet the definition of an LMO. Furthermore, the scope of its consideration of human-health issues is limited, given that its primary focus is biodiversity, in line with the scope of the Convention on Biological Diversity (WHO, 2005, p. 20).

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Insect resistance. By incorporating into the food plant the gene for toxin production from the bacterium Bacillus thuringiensis (Bt), GM crops require lower quantities of insecticides in specific situations, e.g. where pest pressure is high. This toxin is currently used as a conventional insecticide in agriculture and is safe for human consumption. Virus resistance. Introducing into a crop a gene from certain viruses which cause plant disease, makes the newly created GM crop less susceptible to diseases caused by such viruses. The achieved virus resistance results in higher crop yields. Herbicide tolerance. The introduction of a gene from a bacterium conveying resistance to some herbicides makes plants herbicide tolerant. In situations where weed pressure is high, the use of such crops has resulted in a reduction in the quantity of the herbicides used. High adoption rates of GM crops reflect farmer satisfaction with the products. Besides increased crop protection benefits range from more convenient and flexible crop management, lower cost of production, higher productivity and/or net returns per hectare as well as health benefits for farmers. A study about Btcotton has shown that its commercial cultivation has resulted both in a significant reduction in the quantity and in the number of insecticide applications (FAO, 2004; Fitt et al.; 2004). This direct environmental benefit results in health benefits for farm workers (Hossain et al., 2004; Bennett et al., 2003; Pray et al., 2002) due to less chemical pesticide spraying in Bt-cotton. Future trends in the research for farmer benefits aim at plants higher tolerance to environmental stress factors, such as salinity and drought, or at animals, such as fish species, with enhanced growth characteristics. An interesting Copyright © 2010. Diplomica Verlag. All rights reserved.

branch of research is the attempt to make crops less susceptible to consequences of climate change. Researchers at John Innes Centre (JIC) have identified a gene through which plants time their flowering in response to daylength. This gene offers breeders the chance to produce crops that will flower earlier than usual in the UK and so avoid burning up in long hot summers which will occur due to climate change (BBSRC, 2006, p. 2ff).

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1.3.2

Benefits for the environment

The introduction of GM food is usually associated with risks for the environment. However, there are significant beneficial effects that result from the change from conventional crop cultivation to the cultivation of GM crops. Main benefits are the reduction of insecticide and herbicide use, as well as the mitigation of green house gas emissions. Reduced insecticide and herbicide use In the cases of GM herbicide tolerant (to glyphosate) soybeans, herbicide tolerant corn, herbicide tolerant cotton, and herbicide tolerant canola reductions in herbicide use could be observed. Similarly, for GM insect resistant (Bt) corn, and GM insect resistant (Bt) cotton reductions in insecticide use were estimated for the period of 1996-2005 (Brookers et al., 2006). Not only pesticide use but also the environmental impact of GM crops decreased. Empirical results are shown in table 1-2. The environmental impact is measured by the so-called environmental impact quotient (EIQ), which is explained in more detail in the appendix (A.2). The study about Btcotton mentioned in the section above has also concluded that the decreased amount of chemical pesticide spraying has not only contributed to the health of farmers but has also reduced pesticide inputs in water (FAO, 2004). Table 1-2: Impact of changes in the use of herbicides and insecticides from growing GM crops globally, 1996-2004

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Trait

Change in pesticide use (million kg)

Change in field EIQ (million field EIQ/ha units)

% change in pesticide ai use

% change in EIQ footprint

GM HT soybeans

-41.4

-4,111

-3.8

-19.4

GM HT corn

-18.0

-503

-2.5

-3.4

GM HT cotton

-24.7

-1,002

-14.5

-21.7

GM HT canola

-4.8

-252

-9.7

-20.7

GM IR corn

-6.3

-377

-3.7

-4.4

-77.3

-3,463

-14.7

-17.4

-172.5

-9,708

-6.3

-13.8

GM IR cotton Totals

Note: HT=herbicide tolerant, IR=insect resistant, EIQ=environmental impact quotient, ai=amount of pesticide active ingredient used per hectare.

Source: Brookes et al., 2005a.

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The adoption of GM herbicide tolerant crops has allowed the use of a single broad spectrum herbicide (usually glyphosate or glufosinate). This way herbicide combinations or chemicals that require multiple applications (Brimner et al., 2005; Duke, 2005; Fernandez-Cornejo et al., 2002), and herbicides that are more toxic to human health and the environment could be replaced (Duke, 2005; Fernandez-Cornejo et al., 2002). The number and amount of pesticides has been reduced as well (Brookes et al., 2005a; Fitt et al., 2004; Phipps et al., 2002). An important impact of the adoption of GM herbicide tolerant crops is that the change to conservation tillage agriculture has been facilitated. Growers were able to reduce their tillage operations, thus preventing soil erosion, soil degradation and runoff of chemicals (Duke, 2005; Carpenter et al., 2002; Fawcett et al., 2002; CCOC, 2001). Less frequent soil cultivation also results in a decrease in the emission of greenhouse gases (carbon dioxide emissions), partly arising from a reduction in fuel use (Brookes et al., 2005a). Reduced green house gas emissions The serious and urgent concerns about the environment highlighted in the 2006 Stern Report on Climate Change7, have implications for biotech crops which can potentially contribute to reduction of greenhouse gases and climate change in three principal ways. First, there are permanent savings in carbon dioxide emissions through fewer insecticide and herbicide spray use because tractors have to conduct less spray passes, and thus, the necessary amount of fossil-based fuels is reduced. In 2005, this was an estimated saving of 962 million kg of carbon dioxide (CO2), equivalent to

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reducing the number of cars on the roads by 0.43 million. Secondly, herbicide tolerant biotech crops enhance the farmers ability of weed control, and thus, less or even no ploughing is needed. As a result, tractor fuel use for tillage is reduced, soil quality improved, levels of soil erosion cut, which together led to an additional soil carbon sequestration equivalent in 2005 to 8,053 million kg of CO2, or removing 3.6 million cars off the road. Thus, in 7

Stern Review on the Economics of Climate Change, UK 2006 (www.sternreview.org.uk).

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2005 the combined permanent and additional savings through sequestration was equivalent to a saving of 9,000 million kg of CO2 or removing 4 million cars from the road. Thirdly, in the future, cultivation of a significant additional area of biotech-based energy crops to produce ethanol and biodiesel will, on the one-hand, substitute for fossil fuels, and on the other, will recycle and sequester carbon. Recent research indicates that bio fuels could result in net savings of 65% in energy resource depletion. Given that energy crops will likely occupy a significant additional crop hectarage in the future, the contribution of biotech-based energy crops to climate change could be significant (James, 2006). Table 1-3 shows estimations of carbon dioxide savings in car equivalents removed from the road for a year. Table 1-3: Impact of GM crops on carbon sequestration impact in 2004 (car equivalents)

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Country: Crop with specific trait US: GM HT soybeans Argentina: GM HT soybeans Other countries: GM HT soybeans Canada: GM HT canola Globally: GM IR cotton Total

Carbon dioxide savings from soil carbon sequestration in family car equivalents removed from the road for a year

Carbon dioxide savings arising from reduced fuel use (million kg of carbon dioxide)

Carbon dioxide savings from reduced fuel use in family car equivalents removed from the road for a year

Carbon dioxide savings from soil carbon sequestrat ion (million kg of carbon dioxide)

322

142,889

3,762

1,672,178

532

236,444

4,186

1,860,400

73

32,444

569

252,889

94

41,778

906

402,800

61

27,111

0

0

1,082

480,666

9,423

4,188,267

Note: HT=herbicide tolerant, IR=insect resistant; data assumes that an average family car produces 150 grams of carbon dioxide per km. A car does an average of 15,000 km/ year and therefore produces 2,250 kg of carbon dioxide/ year.

Source: Brookes et al., 2005a.

1.3.3

Benefits for consumers

The commercial introduction of GM crop plants with agronomic traits is often referred to as the first generation of transgenic plants. Consumers benefit from

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these traits because farmers having lower production costs can sell GM food for lower prices. Research and development (R&D) is continuing, however, which already gives way for the prospect of the so-called second generation GM crops. Increasingly not only agronomic traits but also changes in quality and nutritional traits will be developed. The interest in the increase of quality and the nutrient level of plants focuses on vitamin-A-enhanced rice, "high iron“ rice, improved protein content in vegetables, increased starch content in potatoes, increased antioxidant content in tomatoes and soy, reduced levels of saturated fats in soy and canola, as well as on removing allergens or antinutrients from food crops, and developing plants or animals producing pharmaceutically important proteins such as vaccines (WHO, 2005; WHO website). Plants that contain pharmaceuticals became known as ”pharmafoods” (Smith, 2000). 1.3.4

Benefits for developing counties

A potential benefit of biotech crops is its contribution to the humanitarian Millennium Development Goals (MDG) of reducing poverty and hunger by 50% by 2015. The use of biotechnology to increase efficiency of first generation food/feed crops and second-generation energy crops for bio fuels will have high impact presenting both opportunities and challenges. About 10.3 million farmers from 22 countries planted biotech crops in 2006, up from 8.5 million farmers in 2005. Of the 10.3 million, 90% or 9.3 million (up significantly from 7.7 million in 2005) were small, resource-poor farmers from developing countries whose increased income from biotech crops contributed to their poverty alleviation. This initial modest contribution of biotech crops to the Millennium Development Goal of reducing poverty is an important development, which has enormous potential in the second decade of commercialization from 2006 to 2015 (James,

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2006).

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2

Trade policy: Two approaches

In the wide range of possible trade policies applied to GM products. Countries have adopted different regulations of GMOs (see appendix A.3). Two principal approaches stick out of the variety of GM policies. Since risks of GM products are still not fully known scientifically, there are two options to treat them. One can either declare GM food to be substantially equivalent to conventional food and therefore adhere to free trade. Or, one can decide for an approach of precaution and withhold the approval of GM food until more scientific knowledge about risks is available. As it is illustrated in figure 2-1, the first approach is adopted by the United States (US) and various other countries, such as Canada, Australia, or Argentina, whereas the second one is preferred by the EU. Figure 2–1: Two main approaches used for the regulation of GM crops in North America and in Europe that diverge in their perception of how risks should be managed. USA, Canada, etc. Substantial equivalence As long as no damage can be detected Î harmless



Europe Precautionary approach As long as it is not proven that there is no damage Î harmful

Source: Sanvido et al., 2006.

Since the US is the greatest advocate of free trade in GM products, in order to simplify, I am going to speak of a US/EU dispute, where the US is representing all other countries that are taking the same approach. Let us have a closer look on the GMO regulation of the US in section one, and then continue with the Copyright © 2010. Diplomica Verlag. All rights reserved.

European regulation in section two.

2.1

US: The "principle of substantial equivalence“

In the mid-1990s the US, Canada and Argentina adopted four commercially available GM crops: corn, soybeans, canola and cotton. In 2002, 98% of GM crops planted worldwide were situated in these three countries, with the US

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accounting for 67% of the global cultivation, Argentina for 23% and Canada for 8% (The Economist, 2003b). The US Food and Drug Administration (FDA) has been critical in providing guidelines for the regulation and labeling of GM foods (Korwek, 2008).8 This is due to its position that rDNA methods of plant development are not "material“ information under the terms of sections 403(a) and 201(n) of the Federal Food, Drug and Cosmetic Act (FD&C Act) (FDA, 1992). Importantly, the FDA takes the position that crop development through genetic modification is simply an extension to the molecular level of traditional plant-breeding methods. In this sense, the principle of substantial equivalence has been established, saying that existing GM foods do not differ in any substantial way from those developed through traditional plant breeding methods. This principle also serves as a guidance in the labeling regulation: Products are only required to be labelled in cases where the GM version of an existing food product is substantially different, where the GM food has very different nutritional properties than its conventional counterpart, and where the GM product contains an allergen that would not normally be present in that food product (Sheldon, 2004). In the US approach GMOs fall into the category of food products that are generally regarded as safe (GRAS) and to which the principle of minimal oversight applies. This is the main idea in the US policy treating GM products and it is based on the insight that zero tolerance level for potentially hazardous ingredients in food would result in few foods ever being marketed. The objective, however, should not be to establish absolute safety, but to consider whether a GM food or ingredient is as safe as its conventional counterpart.

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Therefore, the focus lies solely on the identification of intended and unintended differences between the two types of food or ingredient, which are then analyzed in a pre-market safety assessment (Sheldon, 2004). The regulatory approach of the US is consistent with recommendations for assessing the safety of GMOs made by the OECD (1993), the World Health Organization 8

Besides the Food and Drug Administration (FDA), USDA’s Animal and Plant Inspection Service (APHIS) is involved in regulating small-scale field testing of GM plants. The Environmental Protection Agency (EPA) is responsible for regulating plants that are genetically engineered to express pesticides (Sheldon, 2004, fn 28).

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(WHO) together with the Food and Agriculture Organization (FAO) (1995, 1996, 2000) and the Codex Alimentarius of the European Commission (2001) (Sheldon, 2004, fn 29).

2.2

EU: The "precautionary principle“

In history, it was very common to release products whose hazards were still unanticipated such as tobacco, asbestos, DDT9, and many currently known carcinogens10 at the time of product commercialization (Chambers et al., 2007, p. 1). In recent years, however, a rethinking has been taken place in the EU. Confronted with environmental issues, such as GMOs, the EU is applying the precautionary principle as a guideline for decision making. This principle emerged already in the mid-1980s as a clause in international treaties such as the Conference of Rio on Environment and Development or the Maastricht Treaty (O’Riordan et al. 1995). Article 15 of the Rio Declaration states that "In order to protect the environment, the precautionary approach should be widely applied by States according to their capabilities. Where there are threats of serious and irreversible damage, lack of full scientific certainty shall not be used as a reason for postponing cost-effective measures to prevent environmental degradation.“11

Since then it was integrated in various multilateral agreements (see appendix, A.4). The European policy regulating GMOs started with two key pieces of EU legislation on agricultural biotechnology: The European Council Directives 90/219/EEC and 90/220/EEC, both adopted on 23rd April 1990.12 The former covers the management of GMO research and development (R&D), including containment and control, record keeping, emergency planning, and notification. The latter concerns the deliberate release of GMOs, mostly requiring notification of the release to the relevant competent authority in the member state where the GMO would first be marketed. Between 1992 and April 1998, the EU Copyright © 2010. Diplomica Verlag. All rights reserved.

approved 18 GM crops for commercial marketing, including four varieties of GM corn, four varieties of oilseed rape, one variety of soybeans, and one variety of tobacco (Sheldon, 2004). Even though, the EU approved several GMOs under 9

Dichloro-Diphenyl-Trichloroethane is a synthetic pesticide (http://en.wikipedia.org/wiki/DDT). Cartagen is any substance, radionuclide or radiation that is an agent directly involved in the promotion of cancer or in the facilitation of its propagation, for example inhaled asbestos and tobacco smoke (http://en.wikipedia.org/wiki/Carcinogen). 11 This is an example of a weak version of the precautionary principle (Myhr et al., 2003). For a strong version see the Bergen declaration (Cameron et al., 1991). 12 Directives available at: http://eur-lex.europa.eu/en/index.htm. 10

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Directive 90/220/EEC, individual member countries, such as Austria, France, Germany, Greece, Italy, and Luxemburg chose to ban the import and marketing of several varieties of Bt corn and oilseed rape, on the grounds that they had established new evidence of risk (WTO, 2003a). In January 1997 the Novel Foods Regulation, No. 258/97 was adopted (EUCR 258/97, 1997). It established an approval procedure for novel foods and novelfood ingredients, which are defined either as foods or food ingredients containing or consisting of GMOs, or foods and food ingredients produced from but not containing GMOs. In addition, the regulation required the labeling of both unprocessed GMOs and foods that may contain GMOs (Sheldon, 2004). However, against the background of widespread consumer concern over the safety and environmental impacts of such crops the Novel Foods Regulation did not seem to be sufficient. Following a dispute within the EU about Bt-176 corn in 1996 based on the claim of a number of member states that the marker gene contained in the corn could be harmful to human health13, even though the French government had already approved it, the EU formally imposed a moratorium on the approval of additional transgenic crops. In June 1999 the Council formalized this moratorium by recommending to the Commission an amendment to Directive 90/220/EEC, saying that GMOs should not be placed on the market until it could be demonstrated that there was no adverse impact on human health and the environment (Sheldon, 2004). This was the date when the EU officially started applying the precautionary principle in its GMO-policy.14 At the time the moratorium was instituted, it was indicated that it would last for five years because at that point the use of antibiotic marker genes will have been phased out (Harvey, 2001).

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Other regulatory changes followed, such as the adoption of Decision 99/468/EC still in June 1999 as well as the replacement of Directive 90/220/EEC by Directive 2001/18/EC on 17th October 2002.15 The new regulatory system 13

For further information on the dispute in the Bt-176 corn case, see Hervey (2001). The regulatory approach of the EU is enshrined in Article 174 of the EC Treaty: „Community policy on the environment... shall be based on the precautionary principle and on the principles that preventive action should be taken....“ (European Commission, 2000a). 15 The adoption of Decision 99/468/EC changed the voting rules in a way that allowed Denmark, France, Greece, Italy, and Luxemburg to declare on 25 June 1999 that they would block future GM approvals, which amounted to an EU moratorium (Sheldon, 2004, p. 9). 14

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requires a scientific-risk assessment carried out by the European Food Safety Authority (EFSA) (Article 5-2), followed by a proposal for the granting of authorization (Article 7), which has to be approved by a qualified majority of EU member states. Once authorized, the products are entered into a public register for a period of ten years, which is renewable (Articles 7-5 and 28). GMOs already approved under previous EU legislation will also be entered into the public register, the ten year approval period being made retroactive to their first date of marketing (Article 8). All authorized GMOs that may be used in both food and feed have to be authorized for both or neither (Article 27). In addition, all GM products are subject to a post-market monitoring plan. With these new regulations the concept of substantial equivalence, by which GM foods have previously been placed on the market, will be abandoned (point 6 of preamble) (Sheldon, 2004). The rules for labeling GM products have been expanded in the following way: All foods that contain ingredients that have been derived from GM crops have to be labelled, irrespective of whether the relevant recombinant DNA (rDNA) or proteins are still detectable (Articles 12 and 13); exempt from labeling are accident traces up to 0.9% of authorized GM material (Article 12-1).16 An important detail is that the new labeling rules, while applying to animal feed (Article 24 and 25), do neither apply to meat, milk, and eggs from animal fed GM feed, nor to cheese and beer produced with GM-based enzymes (Sheldon, 2004).17 With the system of mandatory labeling traceability became a requirement for GMOs in order to facilitate the monitoring of environmental effects, accurate labeling, and removal of GM products if an unforeseen risk arises either to

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human health or the environment (Article 1) (EPC, 2003). Therefore, operators have to transmit and retain information on the use/handling of GM products at all stages of the marketing system, including handling, processing, and/or

16 For GM materials that have recieved a favorable risk assessment, but have not received full EU approval, the treshold for accidential presence of this material is 0.5% for a maximum of three years (Lapan et al., 2004 and Sheldon, 2004, fn 26). 17 The European Commission’s reason for this exemptions is that these products are not produced „from“ GM ingredients but rather „with“ GM-based aids to processing that are not present in the final product (point 16 of preamble).

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marketing, and will have to retain this information for five years (Articles 2, 3 and 4). .

The precautionary approach of the EU is strongly criticized by the US claiming that it is identical with non-tariff barriers to trade.18 Attempting to find a way out of the trade conflict about GMOs, the European Parliament proposed that producers of GM products accept liability for damage to health. However, the European Commission rejected this proposal (Perdikis, 2001). A striking fact is the lack of influence that the European biotech firms have had on GMO policy-making compared to the US. One explanatory factor might be the lack of internal unity of EU’s biotech industry due to differences in national culture, technological sectors, and size. A second reason could be the limited access of industry to decision-making. The EU policy system is characterized by a diversity of interests, which adds uncertainty to its receptivity to lobbying. A third factor is found in the strength of environmental groups. They are considered to be particularly powerful in the area of GM policy because of the close link between environmental risks and human health concerns. Finally, a fourth explanation might be the industry’s interest in protectionism (Rosendal, 2005). Whether protectionist interests might be an explanation for the strict European GMO regulation is discussed further in chapter 5. For more detail on participating agencies in biotechnology regulation and their interaction with the

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scientific community both in the US and the EU, see the appendix (A.5).

18

It is worth mentioning that both the US as well as the EU have not always been adhering strictly these two positions. In fact, the decision not to approve StarLink for human consumption in the US could be considered an application of the precautionary principle (Moschini, 2001). The EU on her part, has applied the principle of substantial equivalence when adopting the first GM products that have been commercialized by the US.

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3

The legal framework for trade with GMOs

Nine international bodies are currently trying to coordinate and regulate different aspects of food safety. These institutions fall into three types. Five are largely science-based organizations: the International Plant Protection Convention (IPPC), International Epizootics Organization (OIE), Codex Alimentarius (Codex), the Food and Agriculture Organization of the United Nations (FAO) and the World Health Organization (WHO). One, the World Trade Organization (WTO), is a trade-based organization. Three others have broader objectives such as environmental protection and other social or political goals: the Organisation of Economic Co-operation and Development (OECD), the Cartagena Biosafety Protocol (Biosafety Protocol, BSP) and Regional Initiatives (Phillips, 2003). From these bodies we will have a closer look on the WTO legislation assuring free trade in section one and the BSP regulating environmental and human health aspects in section two. In section three both legislations will be applied to the case of GM products.

3.1 3.1.1

Legislation of the World Trade Organization Article I and III GATT (WTO)

The articles I and III GATT are the two main principles of the WTO that would impinge on the regulation of GMOs in world trade. Article I GATT is about nondiscrimination and article III GATT covers national treatment. According to the former it would not be WTO consistent to ban imports of GM products from one WTO member and allow them from another, whereas the latter embodies regulations that prohibit imposing additional restrictions on GM products once the product had been imported, if such restrictions were not imposed on

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domestic producers of GM products. The claim of discrimination by the EU arises on the basis of Article III, which states that countries cannot discriminate between "like products“. The EU, however, bans imports of some GM products while allowing imports of conventional products. If GM products and conventional products are interpreted as "like products“ because neither genetic modification nor the presence of GM ingredients constitute sufficient grounds for

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differentiation from their conventional counterparts, then the EU would violate Article III GATT. 3.1.2

Article XI GATT (WTO)

According to Article XI GATT it is not conform to WTO legislation to impose import or export prohibitions as well as quantitative trade barriers. At the same time, the article allows for certain exceptions in which standards or regulations for the classification, grading or marketing of commodities are tolerated in international trade (Article XI (b)). Import restrictions on any agricultural or fisheries product, imported in any form, are tolerated as well if their purpose is (i) to restrict the quantities of the like domestic product, or if there is no substantial domestic production of the likeproduct, (ii) to remove a temporary surplus of the like domestic product, or if there is no substantial domestic production of the likeproduct, by making the surplus available free of charge or at prices below the current market level, or (iii) to restrict the quantities permitted to be produced of any animal product, the production of which is directly dependent on the imported commodity (Article XI (c)). The "standards or regulations for the classification, grading or marketing of commodities in international trade“ as well as the measures (i) to (iii) can potentially be applied to environmental objectives (Altemoeller, 1998, p. 50). 3.1.3

Article XX GATT (WTO)

In Article XX GATT the WTO explicitly recognizes the right of countries to develop policies that protect human, animal or plant life or health (Article XX (b)) as well as policies aimed at the conservation of exhaustible natural resources (Article XX (g)). Article XX (a) does even allow the use of trade barriers to

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protect public morals, but there is insufficient detail in the article to predict how a dispute panel might actually rule (Sheldon, 2002, p. 168). In theory, the WTO would not get involved in regulations for the testing and adoption of GMOs in specific countries according to this article of GATT.19 It would, however, be involved in potential conflicts over GMO regulation insofar as there are rules 19

The relevant section of Article XX GATT reads: „...nothing in this Agreement shall be construed to prevent the adoption or enforcement of by any contracting party of measures: ...(b) necessary to protect human, animal or plant life or health...“ (Sheldon, 2004, fn 35).

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over import restrictions contained in the GATT 1994, and in the Sanitary and Phytosanitary (SPS) and Technical Barriers to Trade (TBT) Agreements (Sheldon, 2004). These agreements are explained in the following sections. 3.1.4

WTO Sanitary and Phytosanitary (SPS) Agreement

There has already been a nonbinding Agreement on Technical Barriers to Trade (TBT) in the Tokyo Round of the General Agreement on Tariffs and Trade (GATT). Subsequently, the Sanitary and Phytosanitary (SPS) Agreement was agreed to at the Uruguay Round of GATT in 1994 and adopted in 1995, which extended for the first time the newly formalized and binding dispute settlement system to cover trade concerns related to sanitary and phytosanitary rules and technical barriers to trade. It permits national “standards or regulations for the classification, grading or marketing of commodities in international trade” (Article XI GATT) and the adoption or enforcement of measures necessary to protect human, animal, or plant life or health (Article XX(b) GATT) but limits these acknowledgements by setting some rules on when and how they may be used. Specifically, it requires that measures (1) do not discriminate between member states, (2) are conform where possible to international standards developed by the Codex, OIE, or IPPC, (3) are based on scientific principles and the completion of a risk assessment study, and (4) do not constitute a disguised restriction on international trade (Phillips, 2003). This means that governments are allowed to impose temporary national measures that are stricter than international standards if harmlessness of foodstuffs is not assured but only if they can scientifically prove that international standards provide less sanitary protection and if the measures do not distort trade. The SPS Agreement uses the International Plant Protection Convention (IPPC) Copyright © 2010. Diplomica Verlag. All rights reserved.

and International Epizootics Organization (OIE) standards as the basis for evaluating SPS disputes. Furthermore, both the IPPC and the OIE nominate experts for WTO SPS dispute panels and provide technical background information to the panels based on their standards. The Codex Alimentarius (Codex) also plays an important role in agri-food trade. Under the joint FAO/WHO Food Standards Program, it develops international food standards, which identify the product and its essential composition and quality factors, 24

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identify additives and potential contaminants, set hygiene requirements, provide labeling requirements, and establish the scientific procedures used to sample and analyze the product. These standards, guidelines, and recommendations are acknowledged, like the IPPC and OIE provisions, in the SPS and Technical Barriers to Trade Agreements during consideration of trade disputes (Phillips, 2003). 3.1.5

WTO Technical Barriers to Trade (TBT) Agreement

The Technical Barriers to Trade (TBT) Agreement had already originated in the Tokyo Round of GATT. It incorporates technical rules of national regulations and standards, and states food quality requirements and obligations. The TBT does not focus on safety-related attributes of food. Instead it is applicable to a wide range of characteristics of all products, such as how a product was produced. It is, however, possible to derive technical prescriptions from the measures on food safety, inspection and labeling that are included in the TBT (Larach, 2001). The objective of the TBT is to ensure that technical regulations are applied in a manner that is least trade disruptive, although no scientific justification for a specific regulation is required (Sheldon, 2004, fn 36).

3.2

Cartagena Protocol on Biosafety

The Organisation of Economic Co-operation and Development (OECD) and the Cartagena Protocol on Biosafety (BSP) are the two bodies that are involved in environmental and human health aspects of trade with GM products. Since 1985 the OECD has undertaken a number of projects to make regulatory processes more transparent and efficient, to facilitate trade in the products derived through biotechnology, and to provide information exchange and

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dialogue with non-OECD countries (Phillips, 2003). An ample legislation regulating these aspects is provided by the recently adopted BSP. The BSP was finalized and adopted in Montreal by 133 governments on 29th January 2000, and has subsequently been ratified be the required 50 signatories. It became necessary because the SPS Agreement allows regulations that restrict trade in order to account for health risks, environmental or animal risks only if these risks are measurable and therefore science-based. 25

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As long as non-science concerns such as consumer preference, animal welfare, or nonmeasurable environmental risks can still not be proven scientifically, the SPS Agreement does not permit regulations. The BSP was therefore adopted as an effort to provide a more comprehensive international structure to ensure the protection of biodiversity and to facilitate consideration of non-scientific concerns in food trade. The protocol’s objective is to assure that the transfer, handling, and use of living modified organisms (LMOs)20 do not have an adverse effect on biological diversity and do not impose risks to human health. The main features are the following: Anyone wishing to export an LMO has to inform the relevant authority in the importing country. The importing country has then 90 days in which to notify the exporter of its decision as to whether transboundary movement of the LMO can proceed. This decision has to include a scientifically sound risk assessment. Additionally, a country may take into account, consistent with its international obligations, any socio-economic considerations relating to the impact of LMOs on the value of biological diversity to indigenous and local communities (Sheldon, 2002). According to the current interpretation import bans must, however, still be consistent with the WTO principles already noted (Phillips, 2003). Although the BSP is primarily designed to provide rules facilitating advance informed agreement (AIA) for first-time transboundary movements of living GM organisms intended for environmental release, it also provides for labeling (but not AIA) of GM elements in commodity shipments destined for the food chain (Phillips, 2003). One of the requirements is a process for notification of any LMO that is placed on the market for direct use as food or feed, or for processing. Any LMOs intended for marketing as food or feed, or for processing have to be clearly identified that they ‚may contain’ LMOs and are not intended Copyright © 2010. Diplomica Verlag. All rights reserved.

for introduction into the environment. However, it is not clear whether there is a requirement for labeling of LMOs. The language of the BSP implies 20

Living modified organism (LMO) is defined by Article 3 of the BSP as "any living organism that possesses a novel combination of genetic material obtained through the use of modern biotechnology." In the protocol, living organism means "any biological entity capable of transferring or replicating genetic material, including sterile organisms, viruses and viroides" and modern biotechnology means "the application of a) in vitro nucleic techniques, including recombinant deoxyribonucleic acid (DNA) and direct injection of nucleic acid into cells or organelles, or b) fusion of cells beyond the taxonomic family that overcome natural physiological reproductive or recombination barriers and that are not techniques used in traditional breeding and selection"(OECD, http://www2.oecd.org/biotech/).

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accompanying documentation (Article 18, Clause 2) with standards to be yet worked out (Article 18, Clause 3) (Sheldon, 2002). Exceptions are LMOs that are intended for either contained use or intentional introduction into the environment. In this case a clear identification is required. The BSP explicitly appeals to the precautionary principle, which has already been incorporated into principle 15 of the Rio Declaration on Environment and Development (Sheldon, 2004, fn. 31). It is not yet clear, whether rights to restrict trade in LMOs as embodied in the BSP will generate conflict with the SPS and TBT Agreements (Heumueller et al., 2001). For countries that are signatories to both the SPS Agreement and the BSP, the latter may take legal precedence over the former because it has been adopted later and is more specific (Sheldon, 2004). Besides the OECD and the BSP a number of bilateral or multilateral regional initiatives should be mentioned that have played an increasingly important role in regulating trade in goods and services. The Trans-Atlantic Economic Partnership (TEP) between the US and the EU, for example, was adopted at the London EU-US Summit of 18th May 1998 and has undertaken talks in recent years. Objectives are the improvement of regulatory processes and scientific cooperation through mutual recognition of testing and approval procedures, a progressive realignment or adoption of the same standards, regulatory requirements, and procedures as well as the adoption of internationally agreed upon standards, and dialogue between scientific and other expert advisers in standard-setting bodies and regulatory agencies. Regional agreements, memoranda

of

understanding,

mutual

recognition

agreements,

formal

dialogues, and joint research projects are mechanisms that can be used to

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decrease bilateral regulatory barriers to GM food trade (Phillips, 2003).

3.3

Implications for the EU-US trade dispute on GMOs

In an attempt to resolve the GMO dispute before the WTO panel, the US initiated a "Request for Consultation“ on 13th May 2003 (WTO, 2003b). In response, the Commission stated that the move by the United States was “legally unwarranted, economically unfounded, and politically unhelpful”

27

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(European Commission, 2003b). Since this request for consultation failed to resolve the issue, as a result the United States filed a "Request for Establishment of a Panel“ on 8th August 2003 (WTO, 2003b). The key measures affecting approval and marketing of GMOs covered in the request are:

Suspension

by

the

European

Union

of

considerations

for

application/granting of approval of biotech products; and the marketing and import bans put in place by six EU member states.21 In terms of WTO/GATT rules, the request claims that the measures are inconsistent with GATT Articles I, III, X, and X, the SPS Agreement, Articles 2.2, 2.3, 5.1, 5.2, 5.5, 5.6, 7 and 8, and also the TBT Agreement, Articles 2.1, 2.2, 2.8, 2.9, 2.11, 2.12, 5.1.1, 5.1.2, 5.2.1, 5.2.2, 5.6, and 5.8 (Sheldon, 2004). The Commission announced subsequently that member states would vote on the approval of Syngeta’s Bt-11 sweet corn as a test case for lifting the moratorium, and that it plans to vote on Monsanto’s Roundup Ready® corn22 in 2004 (Reuters, 2003). In addition, on 15th July 2003, the Commission referred Austria, Belgium, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, and Spain to the European Court of Justice for failing to adopt and notify national legislation implementing Directive 2001/18/EC. Also, on 2nd September 2003, the Commission ruled that an EU region, Upper Austria, could not become a statutory GM-free zone (European Commission, 2003a). Presumably, this ruling will apply to other countries such as Italy, France and Germany, and regional authorities such as various counties in the United Kingdom, that have declared that they will be GM-free zones (Sheldon, 2004). On approving Syngenta’s Bt-11 corn the EU Standing Committee on the Food Chain and Animal Health was split 6-6 with three abstentions in its vote of 8th December 2003. Finland, Ireland, the Netherlands, Spain, Sweden and the Copyright © 2010. Diplomica Verlag. All rights reserved.

United Kingdom were in favour of approval, while Austria, Denmark, France, Greece, Luxembourg and Portugal were opposed, and Belgium, Germany, and Italy abstained (The Scientist, 2003). On 19th May 2004, the European Commission subsequently approved Bt-11 corn, and has allowed Member 21

There is, however, no mention in this „Request for Establishment of a Panel“ of the EU’s regulatory system, its mandatory labeling requirements, or the rules on traceability (Sheldon, 2004). 22 Monsanto is a US biotech firm and by far the leading producer of genetically engineered seed, holding 70%–100% market share for various crops (http://en.wikipedia.org/wiki/Monsanto).

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States three months to either endorse or reject the Commission’s decision through the Council (The Guardian, 2004). Eventually, no country rejected this decision and the approval of Bt-11 corn marked the end of the EU moratorium on new GMO authorizations (EurActiv, 2006). Despite the end of the moratorium, the US, Canada and Argentina brought a case against the EU because they are not convinced that the EU is judging applications for approval of GM products on scientific rather than political grounds. In a preliminary ruling the WTO judged that the unofficial EU moratorium from 1998 to 2004 on the approval of GMOs was illegal. It also ruled that national bans on certain types of GM food in six EU states – Austria, France, Germany, Greece, Italy and Luxemburg – were illegal. The EU cannot justify its import ban of GM products on the grounds of the SPS Agreement. The moratorium was not based on a risk assessment and therefore violates Article 5.1 of the SPS Agreement. Essential is also the definition of "like goods“. Interpretations of Article III by GATT panels suggest that likeliness of products is judged on a case-by-case basis, taking into account "the product’s end-uses in a given market; consumers’ tastes and habits, which change from country to country; the product’s properties, nature and quality...“ (GATT Panel Report, 1987). The application of this regulation merely on the GM products rather than on the process of production leads to the conclusion that they are "like products“ with conventional food. The US hopes that a systematic WTO ruling

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will prevent other countries following the EU’s example (BBC News, 2006).

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4

Tensions between GMO trade policy and environmental policy objectives

Before analyzing what might be an appropriate GMO policy taking into account both unrestricted trade and environmental objectives, I will briefly sketch the recent knowledge about risks of GM food. Only based on scientific findings concerning risks the best possible decision about an adequate GM food regulation can be taken. The review of researchers’ opinions about GMO risk analysis will be the first section of this chapter. From there I will turn to an analysis of possible guidelines for GMO policy. There is a qualitative and a quantitative approach in this analysis, which will be discussed in sections two and three. The last section provides for a short summary.

4.1

Scientific findings about risks of GM food

Numerous national and international scientific organizations have reached the conclusion that there are no measurable risks from GM products, amongst which are the American Medical Association (ASA), the National Academy of Sciences (NAS) or the WHO.23 The European Commission refers to various studies such as those of its proper Joint Research Centres and concludes similarly that there are no dangers caused by GMOs for the environment or human health (Fritz-Vannahme, 2003). In contrast, there are authors who argue that studies about the safety of GM products are limited and that risk assessments do not cover all aspects of risk (see for example Domingo, 2007; Bakshi, 2003; Pryme et al., 2003; Zdunczyk, 2001). Pryme and Lembcke found a total of ten studies on the health effects of GM-foods and feeds. They claim that much more scientific effort and investigation is necessary, particularly long-term studies, before introducing GM Copyright © 2010. Diplomica Verlag. All rights reserved.

food on the market.24 The above mentioned ASA backs up this idea. It has declared that there is a lack of substantial information about the actual effects of GM crops on the environment (ASA, 2000).

23

See the web sites of these organizations in the list of internet sources in the back of this document. Sanvido et al. (2006, p. 62) argue that the ongoing debate about GMOs is not primarily due to a lack in scientific data, but more to a lack in clear definitions on how to put a value on effects of GM crops on biodiversity in the context of current agriculture. Consequently, there is no baseline for the comparison of the different scientific studies. 24

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Therefore, the crucial point is that available scientific studies do not find significant risks for human health and the environment from genetic modification. However, this fact does not mean necessarily that GM products are safe because studies about GMOs are very scarce. That is why there is no consensus as to the seriousness, or even the existence, of any potential environmental harm or health risk from GM technology. Supporters of GM products argue that in the peer-reviewed scientific literature no dangers of GMOs are reported. Opponents, however, reject this argument by stating that the present number of studies about GMOs has been too small to possibly find any dangers. One reason for the small number of risk studies is that long-term effects might exist that are either beyond our imagination, or that we do not attribute to GM crops due to knowledge gaps on the natural variation occurring in any biological system. Scientists still have an incomplete understanding of physiology, genetics, and nutritional value of genetically engineered crops as well as their integration in ecosystems (Bakshi, 2003). A second reason lies in the lack of technological means to test GMOs for certain risks that we assume theoretically. Profiling techniques, for example, such as ie, DNA micro assays, mRNA profiling techniques, proteonomic, or chemical fingerprints, can be very valuable in increasing the probability of detecting unintended effects of GMOs but are still only applied in few cases. As a result, the current situation, in which policy makers have to decide about the type of regulation for GM products, is characterized by scientific uncertainty.

4.2

GMO policy against the background of limited scientific findings – qualitative approach

The Biosafety Protocol explicitly recognizes that scientific uncertainties exist

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and that decisions must be taken recognizing that those uncertainties may not be resolved (CBD, 2000). This is also recognized by the European Commission, which states that the precautionary principle is particularly relevant to the management of risks (European Commission, 2000a) and risk management should control an identified risk and cover the uncertainties (European Commission, 2002). Having reviewed basic facts in the previous chapters, the

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crucial question remains: How to deal with scientific uncertainty?25 This term characterizes situations where hazards associated with an activity are either imperfectly known or cannot be assessed accurately in a probabilistic framework (Chambers, 2007, p. 1). The search for the best policy to regulate GM products when scientific findings are limited falls in the area of decision theory. In the standard terminology of decision theory its objective is that society decides how to trade off the costs and benefits of a new technology across possible states of the world (Sheldon, 2004). Recognizing the challenge of policy makers who struggle to ensure unrestricted trade at the same time as human health and environmental protection, some possible guidelines for developing an appropriate GMO regulation will be presented in this section. 4.2.1

Utilitarian theory as a basis for policy formulation

A profound basis for a decision about the best policy is a cost-benefit-analysis of the concerning product or technology. This step is in line with the utilitarian theory aiming at welfare maximization, i.e. the increase of benefits and the decrease of costs. Whereas forecasts of potential benefits of GM products already exist, knowledge about costs is still very sporadic. Costs are typically assessed via methods of risk assessment26. However, lack of scientific knowledge makes risk assessments of GMOs very difficult. A recent study of Raybould proposes a new type of risk assessment based on "risk hypothesis“ that predict the likelihood of unacceptable harmful events. It is argued that risk assessment cannot prove that cultivation of a GM crop is safe. A more feasible problem formulation is therefore to predict unacceptable harmful events, compare them with observations and if they do not coincide, the theory is falsified and a new theory can be developed. In other words, if no effects

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supporting the "risk hypothesis“ are detected, the certainty that unacceptable harmful effects are improbable is increased. This kind of risk assessment does not necessarily have the usual purpose to broaden scientific knowledge in 25

Harsanyi (1978) distinguishes between behavior under certainty, i.e. when we can predict the actual outcome of any action we can take, under risk, i.e. when we know at least the objective probabilities associated with alternative possible outcomes and under uncertainty, i.e. when even these objective probabilities are partly or wholly unknown or even undefined. 26 There are two different types of risk assessment: Qualitive risk assessment based on expert judgements about risk and probabilistic risk assessment based on mathematical models setting up assumptions and dependencies (Linacre et al., 2006).

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general but rather to specifically contribute to decision-making (Raybould, 2006). The result of this utilitarian approach is an evidence-based policy. Due to the purely rational procedure to obtain implications for policy formulation it is, however, generally criticized. The valuation of benefits and the choice of discount rates can be difficult, particularly in the case when non-market quantities are involved (Lave, 1996). These arguments in addition to a lack of scientific information about risks of GMOs let the decision-maker draw back on alternatives to utilitarianism. More appropriate frameworks seem to be two principles from the normative theory. 4.2.2

Normative theory as a basis for policy formulation

The case of the GMO dispute is a typical example to illustrate the difficulties linked to decision theory under scientific uncertainty. There are basically two approaches that can be used as a guideline for policy makers: the learn-thenact-principle or learn-then-regulate-principle on the one side and the act-thenlearn-principle or regulate-then-learn-principle on the other side. The learn-thenact-principle means that imports of GM products should not be regulated until more scientific information will be available about dangers for human health and the environment because with this knowledge advantage the necessary regulation could be designed much more effectively. This is the approach that the US is taking. In contrast, the act-then-learn-principle opts for a regulation of imported GM products in order to avoid dangers for human health and the environment, which can be adapted with the time as more scientific information will be available. This is the approach of the EU, which is compatible with the

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precautionary principle and the GMO moratorium. The difficulty to decide which principle to choose as the appropriate one in handling GMOs arises because we cannot predict the impact of information gained in the future on the optimal timing of prevention efforts. Waiting until scientific uncertainty is reduced has the advantage of making more informed decisions. However, it also implies taking the risk of irreversible effects, so that

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physical constraints may restrict future actions. Let us examine the two normative principles in a little more detail. The act-then-learn-principle We suppose that we would apply the act-then-learn-principle, which is conform to the precautionary principle in order to find the best trade-off between allowing free trade in GM products and taking into account human health and environmental risk issues. First of all, it has to be mentioned that there is not just one precautionary principle. Since it can be interpreted weakly or strongly, at least 19 different versions exist being listed in various domestic regulatory settings as well as in international agreements, ranging from the 1969 Swedish Environmental Protection Act, through the 1982 World Charter for Nature, to the Cartagena Protocol of Biosafety (Löfstedt et al., 2002). The statements of the principle are "often individually vague and mutually contradictory“ (Löfstedt et al., 2002, p. 382). In some cases the precautionary principle is interpreted to demand a conclusive proof of zero risk before approving a new technology, such as GMOs. However, this strong interpretation makes the principle not feasible in the decision about the best policy. If the status quo is presumed safe, then any technological change creates some risk. It would be erroneous to deny any form of risk and adopt a zero risk approach.27 The precautionary principle should rather be understood as implicating three key points. First, if preventive measures are not taken today, vulnerability to environmental damage may be increased in the future, so that there is a precautionary motive for risk prevention (compatible with the act-then-learn-principle). Second, if introduction of a new technology such as GMOs is an irreversible decision, any decision to adopt it now, reduces flexibility in the future. Flexibility in the Copyright © 2010. Diplomica Verlag. All rights reserved.

future is a benefit that is typically modelled in a so-called option value28. Taking a decision with irreversible effects now, such as the introduction of 27

This is conform to a judgement made by the European Court of the First Instance agains Pfizer (2002), concerning withdrawal of EU authorization for the use of antibiotic additives in animal feedstuffs. The Court ruled that in applying the precautionary principle, a zero risk approach can not be used (point 134 of ruling). The burden of proof cannot be that safety has to be proven (point 145 of ruling), and that the definition of risk must be based on plausible scientific credibility (point 143 of ruling). However, determining the level of risk deemed unacceptable to society is left for Community institutions to determine (point 151 of ruling) (Sheldon, 2004, fn 33). 28 To calculate the option value one could either use dynamic stochastic programming or the theory of real option values (Dixit et al., 1999).

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GM seeds in agriculture, would result in the loss of this option value.29 Third, by taking early measures to prevent risks, regulators could take advantage of a process called "learning by doing“ and prepare themselves this way for larger risks in the future when their knowledge will have already improved (Sheldon, 2004). Critics view the precautionary principle less than an approach to risk management rather as a tool for non-governmental organizations and other lobby groups to influence the regulatory process, undermining the role of science in that process. Regulators facing a sceptical public can also use the principle to seek political legitimacy through its adoption (Sheldon, 2004). The learn-then-act-principle Let us suppose that we choose the other plausible approach to find the best GMO-policy and that we apply the learn-then-act-principle. In contrast to the precautionary principle, which aims at avoiding any possible risk for human health and the environment, it could be argued as well that there is not enough scientific information available at present in order to determine effective preventive measures. Costs for random measures protecting against risks today would be very high. In contrast, measures taken in the future would create less costs because we would be better informed about the risks and therefore able to adopt more precise regulations. Better information has the effect of a decrease in future costs. Due to the willingness to smooth consumption over time, we have an incentive to spend some of the costs necessary for preventive measures in the future. We try to avoid taking a bulk of preventive measures today implying high costs and

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noticing in the future that the risks we have been protecting ourselves from are not relevant. Utilitarian and normative approaches are theoretic means of policy formulation. In order to develop an effective GMO regulation, it is necessary to relate policy to the relevant actors in the trade with GM food. The objective of a regulator is 29

Competing biotech firms may be tempted to introduce GM products immediately in order to pre-emt the market without caring about the possible future loss of the option value. This risk emphasizes the necessity of public regulation applying the precautionary principle.

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to correct the actors’ behavior in a welfare enhancing way with the help of policy incentives. Participating actors in the trade with GM food are clearly consumers on the demand side and biotech firms on the supply side. Their role in the GMO debate will be analyzed in the following sections. 4.2.3

Behavior of consumers as a basis of policy formulation

Very decisive is the response of individuals to the offer of GM products. For consumers the decision whether to buy GM food or not is a decision affected by uncertainty about both the benefits and the risks involved with GMOs. We will now examine how consumers behave faced with this uncertainty. Consumers’ reaction to scientific uncertainty Individuals are averse to uncertainty, which makes them sceptical towards GM food. In a case where uncertainty cannot be avoided, they still prefer an event which has a less uncertain distribution of benefits and risks than one with a more uncertain distribution. According to the Ellsberg’s Paradox30, they are ready to pay more to get rid of a more uncertain risk (Gollier, 2001). This concept is reflected in European GMO policy. Since European consumers perceive a relatively high degree of uncertainty about risks and benefits of GM food, the EU regulation is relatively strict. In short, the degree of uncertainty matters. A study conducted by Gollier shows that more scientific uncertainty as to the distribution of a future risk induces society to take stronger prevention measures today. The author explains this phenomenon with a higher value society assigns to flexibility in the future, i.e. a higher option value as uncertainty level rises (Gollier et al., 2000). The risk perception of consumers is influenced by both researchers and

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policy makers. Researchers are responsible for risk assessment, which is a technical step to analyze risks relying on scientific evidence. Policy makers on their part have to care about risk management, meaning the policy stage, where a decision is made on how much risk can be tolerated (conceivably in 30 Daniel Ellsberg’s (1961) experiment is based on the Keynes-Ellsberg „two-color“ problem refering to two urns each containing red and black balls. In urn 1 there is a certain distribution of colors, 50 red and 50 black balls, whereas for urn 2 it is uncertain how many balls of each color it contains. If a person correctly predicts the color of a ball drawn at random from an urn, he recieves 100 euros. The result of this experiment shows that most of the people choose to bet on the first urn where the „weight of evidence“ is felt to be greater (Gollier, 2001).

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exchange for expected net benefits) (Moschini, 2001). Consequently, the crucial concept political decision makers should focus on when assigning the optimal level of prevention is risk tolerance. At the end, it depends on the level of consumers’ risk aversion, as to how much prevention is required. Empirical evidence Among the public of the European Union a relatively high level of risk aversion can be observed. The Eurobarometer survey on biotechnology is a series of surveys measuring the attitudes and perceptions of a representative sample of the adult population of each member state. According to the latest survey in 2005, only 25% of the 25 member states’ population could be classified as "outright supporters“ of GM food. "Risk tolerant supporters“ amounted to 17%. However, a majority of the Europeans, namely 58%, were classified as "opponents“ of GM food. They believe that the development of GM food should not be encouraged (Gaskell et al., 2006, Figure 6).31 European survey data show that many people’s concern are related to a wish for transparency in decision making about GM food, a questioning of the market power of the multinational firms, i.e. at present a few firms dominate the development and commercialization of GM crops, and a concern for implications for landscape and culture embedded in the agricultural system (Marris et al., 2001). Dispute exists about whether public scepticism towards GM food is due to a misperception of risks or rather due to an actual lack of benefits for consumers. George Gaskell, a sociologist at the London School of Economics, defends the latter as the true reason (The Economist, 2003b). The authors of an extended version of the Eurobarometer survey disagree.

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They argue that there are actually benefits from GM food but consumers are simply not aware of them. Policy makers and researchers took these benefits for common sense, which is why the risks of GMOs have been communicated much more frequently to consumers. The results of the

31

The three classification types are defined as follows: „outright support“ means that biotechnology application for GM food is useful, not risky, morally acceptable and should be encouraged; „risk tolerant support“ means useful, risky, morally acceptable and should be encouraged; „opposition“ means not useful, risky, morally unacceptable and should not be encouraged (Gaskell et al., 2006).

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extended Eurobarometer survey (table 4-1) show that 62% of the respondents believe that GM food offers no benefits and carry risks. For this group GM food fails to meet the key criterion of an innovation: An improvement of the status quo. Risk communication is more or less an irrelevance in this case. Without the perception of an improvement in terms of quality, price, or other attributes there is simply no incentive to deliberate further on the issue. Public scepticism towards GM food is consequently rather due to a misperception of benefits than due to a misperception of risks (Gaskell et al., 2004). Table 4-1: Respondents grouped according to perceptions of riskiness and usefulness GM food poses generations

GM food will bring BENEFITS to many people

RISKS

for

Agree

Disagree

Agree

18%

14%

Disagree

62%

6%

future

Note: Europe: N = 4524: excluding "don’t know“ and neutral responses.

Source: Gaskell et al., 2004.

Biotech firms will not be able to sell any GM food if there is no demand for it. Therefore, consumers’ attitude towards GM food is a crucial component in the determination of the best policy. Consumers need to be well informed about both risks and benefits in order to make a decision that reflects their preferences. The US biotech firm Monsanto invested US$ 5 million in an advertising campaign designed to convince the Western European public of the benefits of GM crops (Shurman, 2004). Multinational firms within the biotechnology sector have a strong belief that if the public receives enough information about GMOs and biotechnology, it will come around to accepting Copyright © 2010. Diplomica Verlag. All rights reserved.

the technology and its products. The strengthening of consumers’ demand for GM food is, however, only one part of an efficient GMO policy. Equally important is the creation of an innovative and investment friendly environment for biotech firms in order to give them the opportunity to produce marketable GM products. The behavior of firms and how it can be influenced by policy incentives in a welfare enhancing way will be viewed in the next section.

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4.2.4

Behavior of biotech firms as a basis of policy formulation

The notion of an inevitable struggle between economy and ecology that is characterizing a firm’s behavioral scope grows out of a static view of environmental regulation, in which technology, products, processes and customer needs are all fixed. In this static world, firms have already made their cost-minimizing choices. Thus, environmental regulation inevitably raises costs and will tend to reduce the market share of domestic firms on global markets. It is much more realistic, however, to assume a dynamic framework, based on innovation. The term innovation is meant in a broader sense. It includes a product’s or service’s design, the segments it serves, how it is produced, how it is marketed and how it is supported. In the GMO debate all these aspects should be taken into account. The further development of GM products can be accelerated significantly with the help of innovation. Policy makers are therefore advised to shift away from the static model and set regulations that account for innovation. Biotech firms have mostly redirected their research and development (R&D) efforts away from food towards pharmaceuticals because the latter have faced almost no opposition by consumers (Anderson et al., 2004). In the EU small and medium-sized enterprises have stopped participating in innovative plant biotechnology research, and large biotech firms have relocated research, field trials, and commercialization of new GMOs outside the EU (Rosendal, 2005). An appropriate regulatory framework would be one that makes it more profitable for firms to invest in GM foods. The relevance of innovation for GM products becomes clear when we analyze the key issue of this book, namely the relationship between trade and environment.

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Causal relationship between trade and environment A huge scope of literature exists about the positive effect of free trade on environmental quality, which can be applied to GMOs. A convenient framework for the GMO debate is the study of Frankel et al. (2002). Applying the causal relationships that he is assuming between various variables to GM products leads to the illustration in Figure 4-1. It is showing in particular

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that trade can contribute to a higher level of GMO regulation, and thus to higher quality of GM food. Figure 4–1:

The causal relationship between trade and GMOs

Geography

Factor cumulation 1

Trade

GDP

2

4

3

GMO regulation

Democracy

Quality of GM food

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1. Economic gains from trade 2. Reverse causality from income to trade 3. Effect of regulation on productivity, whether negative (usual) or positive (Porter hypothesis) 4. Effect of trade on GMO regulation, whether negative (race to the bottom hypothesis, pollution haven hypothesis) or positive (environmental gains from trade hypothesis) Source: Frankel et al. (2002, p. 9).

The relationship between trade and GMO regulation is based on an interaction between trade and income (Gross Domestic Product, GDP). The more a country is trading, the higher are its gains from trade and thus its income. Openness to trade has a positive effect on a country’s real income per capita (Frankel, 2002, p.2). If a country’s GDP rises, more financial 40

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means are available for investments. More efficient or new products can be developed, which will lead to an increased trade volume. This in turn will once again raise economic gains, income, GDP and so on (numbers 1 and 2 in the figure). Each of the two variables -trade and GDP- influence GMO regulation and are in reverse influenced by it. The higher the GDP, the more money a country is able to spend for GMO regulation. With economic development due to a higher GDP, the demand for quality of GM products among the population also rises, which pressures the policy makers to adopt more regulations for environmental and human health protection. The effect of GMO regulation on GDP can be either negative or positive. The usual relationship is negative because with higher spending for regulations the GDP will decrease. However, the attempt of firms to meet environmental standards having been adopted with the GMO regulation triggers innovation. With innovation the productivity, and thus the GDP are positively affected. This phenomenon is called the Porter hypothesis. When policy makers decide to adopt stricter GMO regulation, firms will compete in innovation in order to comply with this regulation in the best way possible. With properly designed environmental standards firms can achieve "innovation offsets“ that partially or more than fully offset the costs of complying with the regulation (Porter et al., 1995) (number 3 in the figure). Similarly, trade has an effect on GMO regulation and vice versa. A negative effect from trade would arise from the race-to-the-bottom hypothesis, meaning that countries, which are open to international trade (and investment) will adopt looser standards of GMO regulation out of fear of a

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loss in international competitiveness. This phenomenon is closely linked to the pollution-haven hypothesis, where "pollution haven“ describes countries that adopt lax environmental standards to attract multinational corporations and export pollution-intensive goods.32 Positive effects are environmental

32

The difference between the race-to-the-bottom hypothesis (race-to-the-bottom effect) and the pollutionhaven hypothesis (pollution-haven effect) is that the former implies a negative effect on the overall world level of environmental regulation whereas the latter does not. Some countries may choose high environmental standards for their own production, and import from others goods that embody pollution.

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gains from trade that occur according to the gains-from-trade hypothesis by the simple fact that trade allows countries to attain more of what they want, including environmental goods. If consumers demanded environmentally friendly GM products, international trade would offer them broader opportunities to obtain them. Trade also stimulates firms to invest in managerial and technological innovation in order to enhance their international competitiveness, which has beneficial effects on both the economy and the environment (number 4 in the figure). Reverse causality exists because likewise GMO regulation can stimulate technological innovation, which would lead to a higher productivity affecting both the GDP and trade (Porter hypothesis). Internationally competitive firms are those with the capacity to improve and innovate continually. Through "innovation offsets“ firms enhance their competitiveness, which can even lead to absolute advantages over firms in foreign countries (Porter et al., 1995). Once a country has adopted strict GMO regulations, an international ratcheting up of environmental standards can occur through heightened public awareness. This is typically observed in the area of product standards (Braithwaite et al., 2000; Fischer et al., 2000; Porter et al., 1995; Vogel, 1995). Finally, democracy is another factor that leads to more GMO regulation due to a higher level of civilian participation. Domestic firms that are protected from international competition invest less in R&D than they would do in the case of free trade. As a result, domestic firms will be "innovated over“ by foreign firms (Saggi, 2002). Already by now, the US is commonly said to have an advantage in know-how of at least five years (Gruber, 2004; Bailey, 2002).

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In contrast, by allowing for unrestricted trade with GM products, biotech firms are exposed to international competition. Firms would have an incentive to innovate and invest in research in order to develop environmental technology because it would confer them a cost advantage over their competitors. Biotechnology is an improvement of technical efficiency. The most efficient firm will be rewarded by selling more GM The second group can be said to exploit or develop a „comparative advantage“ in pollution (Frankel et al., 2005).

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products and acquiring higher profit. The objective of each firm is to earn profits that outweigh its costs of innovation, so that it can experience “innovation offsets“, which have been described above. This is the right path to advance in the knowledge about GMOs. A GMO regulation that gives biotech firm the incentive to innovate is the way out of the dilemma of scientific uncertainty about dangers of GMOs. Firms will invest in R&D and innovate, seeing advantages for themselves in doing so. While working on the development of GM products that better comply with farmers’ and consumers’ needs for their own purposes, firms will contribute at the same time to a higher marketability of GM products, which has a value for society. Innovations are the best way to account for risks of GMOs, enhance their quality and nutritional traits, or make the production process more efficient, and thus sell the products for lower prices (Jolly, 2005). All these criteria enhance the competitiveness of GM products on international markets and result in higher gains from trade. Consequently, a GMO regulation should be developed that does not stifle trade with GM products. This does not mean, however, that policy makers should abstain from any type of environmental standard. While standards for GM products are likely to restrict biotech firms in their marketing strategies in the short-term, firms are typically stimulated by regulation and start competing with each other in order to meet environmental standards. In fact, the more stringent the environmental regulation (or the earlier the regulation is imposed), the stronger is the effect of stimulating innovation. In the longterm, the resulting incentive to innovate leads to enhanced competitiveness on international markets, and thus to the development of high-value GM

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products being marketed and traded. Studies in recent literature show that increased competition between biotech firms can lead to strategic incentives to raise environmental standards internationally. Other advantages are the absorption of frontier technologies and best-practice management, as well as closer international collaboration of researchers are factors that enhance knowledge about GMOs. Further, trade allows for an efficient allocation of global resources, which gives firms

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and researchers a larger spectrum of possibilities in their pursuit of improving GMOs. Empirical evidence The positive effect of trade on the environment has been shown in various empirical studies (Antweiler et al., 2001; Eiras et al., 2001; Harbaugh et al., 2000). In one of them it could be found that in countries with an open economy the average environmental sustainability score is more than 30% higher than the scores of countries with moderately open economies, and almost twice as high as those of countries with closed economies (Eiras et

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al., 2001, p. 4). Figure 4-2 illustrates this relationship:

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Figure 4–2:

The relationship between trade openness and environmental sustainability

Environmental Sustainability Index (0 = low sustainability) 70

62.4 56.8

60

45.2

50

40.2 34.9

40 30 20 10 0 1 most open

2

3

4

5 least open

Trade Openness Index

Sources: Environmental Sustainability Index (ESI) from World Economic Forum, CIESIN, and Yale Center for Environmental Law and Policy, January 2001; Trade Openness Index (TOI) from the Index of Economic Freedom (2001) published annually by The Heritage Foundation and The Wall Street Journal.

More specific studies seeking to identify some direct measures of trade policy and their effect on the environment have not been successful. It was not possible to resolve the difficulties in measuring trade policies on the one hand and a fundamental conceptual problem of simultaneity on the other hand (i.e. Sala-i-Martin, 1991). Empirical studies about the effect of trade in the specific case of GM products are scarce as well. The reason for that is mostly the lack of trade data for GMOs. Official trade statistics of the EU do not differentiate between its GM and non-GM imports.33 Exploring this area empirically would, however, be a valuable contribution to change the typical

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image of a trade-off between free trade and regulations to ensure human health and environmental protection. Further research on the gains from trade, such as incentives to innovate, stimulated R&D, technology spillovers, spreading of best-practice management, or ratcheting up of environmental standards, would be of great benefit.

33

Answer given by Mrs Fischer Boel on behalf of the European Commission on 24 July 2007, available at http://www.europarl.europa.eu/sides/getAllAnswers.do?reference=E-2007-3108&language=EN.

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4.3

GMO policy against the background of limited scientific findings – quantitative approach

The previous sections illustrated a number of crucial aspects that should be taken into account when designing an effective GMO policy. In the process of incorporating these aspects it is not less important, however, to decide how much regulation is needed. This question can be easily analyzed by the concept of opportunity costs. Every possible GMO regulation implies certain costs of implementation for the government. Therefore, it should be anticipated whether the probability of risks from GM food justifies the costs of a certain regulation, and if so, whether the regulation is effective enough to prevent these risks. The objective is the implementation of an effective regulation that prevents risks that are likely to occur at the lowest cost possible. This way opportunity costs are kept low and the regulation becomes normatively more acceptable. A very descriptive illustration of this approach is presented by Herring (2007). Figure 4-3 shows two major questions that decide whether a GMO policy is good or bad: (1) Is significant risk added to plant breeding by rDNA techniques? and (2) Is the biosafety regime effective or ineffective? It depends on these two questions whether spending on GMO regulation is wasted or whether it exceeds

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opportunity costs.

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Figure 4–3: Biosafety regime scenarios and social costs

Is significant risk added to plant breeding by rDNA techniques?

if Yes

if No

Effective regime

Ineffective regime

High cost

Waste

Waste

Waste

Less risk

More risk

No added risk

No added risk

Cost > benefits Waste

Effective regime

Opportunity costs exceed benefits: Costs < benefits

Bad policy

Ineffective regime

Bad policy

Waste

Benefits exceed opportunity costs

Good policy

Source: Herring (2007, p. 147).

If there is no additional risk in rDNA technique compared to conventional breeding techniques, all expenditures, such as human capital, administrative

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time, institution building, and money, will be wasted, whether the biosafety regime is effective or ineffective. If there is incremental risk in rDNA technique, it matters whether the biosafety regime implemented by GMO regulation is effective or ineffective. If institutions are ineffective, costs spent on safety will be wasted because detrimental effects of GM food cannot be impeded. The outcome again would be waste. In contrast, if there is additional risk and the biosafety regime is effective and

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prevents these risks, then we move on to the question whether this objective was reached with reasonable costs. If costs of impeding detrimental effects of GM food exceed the benefits, and the biosafety regime is nevertheless established and nurtured, the outcome is still waste. However, if benefits of preventing risks exceed costs of risk prevention, we move on to one last normative question. It has to be assured that benefits still exceed costs when opportunity costs are included into the calculation. Only if this can be confirmed, then the GMO policy not only establishes an effective biosafety regime but also prevents risks with reasonable costs. The benefits of a biosafety regime would clearly exceed the value of alternative uses of resources, which implies a strong justification of the GMO policy. Biotech firms often claim that there is too much regulation of GM food. Environmentalist groups typically argue that there is too little. The figure above might contribute to cease this dispute.

4.4

Conclusions about the appropriate GMO policy

In the debate about how to set priorities against the background of limited scientific findings it does not seem to be the right approach to impose stringent GMO regulations in order to avoid every least possible risk. Policy makers should ensure some level of GMO regulation but without protecting the domestic market from international trade. The above analysis has shown that free, unrestricted trade with GM products should not be seen as a threat that has to be controlled. Trade does not induce pure dangers for human health and the environment. By letting countries trade freely with GM products, policy makers take advantage of firms’ capacity to improve and innovate continually. This is identified as a dynamic approach to GMO regulation. Policy makers Copyright © 2010. Diplomica Verlag. All rights reserved.

should rely on the firms’ ability to compete with others and support an innovation friendly environment with its regulation. It is crucial to expose firms to international competition. This does not mean, however, that policy makers should abstain from any protection of human health and the environment. The necessary risk prevention could be ensured by adopting somewhat strict environmental standards, such as labeling, or risk

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assessment, which will have less detrimental effects than an import ban on GM products. Environmental standards do even reinforce the beneficial effect of openness to international trade. Firms will strive to meet these standards because it would enhance their competitiveness. Competitiveness at the industry level arises from superior productivity; either in terms of lower costs than rivals or the ability to offer products with superior value that justifies a premium price (Porter et al., 1995). A GM product with the characteristic to meet an environmental standard would justify such a premium price. Both factors, international competition and environmental standards, will stimulate firms to innovate, which is the way out of scientific uncertainty. In this context a strict application of the precautionary principle in line with the act-then-learn-approach is not advisable (van den Belt 2003). Compatible with a dynamic framework for GMO regulations is, however, a weak interpretation of the precautionary principle. An appropriate measure to apply this principle would be the monitoring of commercial cultivation in order to detect changes in the environment related to GM crops, for example. To ensure that a policy is truly precautionary one should compare the risks of adopting the policy against the risks of not adopting it (Goklany 2002). Assuring that more costs arise from not regulating GM food than from regulating it, including opportunity costs, will give the designed policy a significant normative legitimacy. Unfortunately, the EU does not consider possible benefits for the approval of GM crops. Only potential adverse effects on human health and the environment are evaluated, although a risk/ benefit assessment should be common practice in an approval process, as it is common for many other hazards (European Commission 2000b).

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It should be kept in mind that decision-making is normally not purely based on scientific criteria. Policy makers should also take political, social, economical and ethical factors into account. Ecologically significant effects are only judged unacceptable (i.e. representing a damage) by the society if they are perceived as being linked to a deterioration in quality of a particular entity (e.g. biodiversity). Valuation of scientific data is thus influenced by the individual and subjective perceptions of the terms safety, risk and uncertainty by the society

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and particularly by the persons involved in decision-making. When performing a risk/ benefit assessment that compares positive and negative effects of a GM crop system, it is in the end the society’s decision whether genetic engineering is considered being safe enough (Sanvido et al., 2006). Integration of society into political decisions is also crucial in regard to the current scepticism of consumers towards GM food. By taking into account consumers’ concerns, the image of GM food should improve considerably. Such a change in the public opinion is crucial for the establishment of a market for GMOs, which currently is not the case due to a lack of demand for GM food. The right path is one that is focused on innovation-based solutions that promote both environmental

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compatibility and industrial competitiveness.

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5

Consequences for international trade

The decision about an adequate GMO policy is crucial due to its implications for international trade. In the first section some data is provided about how the European ban on the approval of GM products changed trade flows on international markets and what welfare effects resulted from it. Some considerations about ways to analyze whether the EU moratorium was a result of protectionist behavior are presented in section two. However, protectionist behavior is not only harmful for European trade partners. The fact that the EU is risking to isolate itself from international trade is shown in section three. The final section suggests some solutions how to resolve the trade dispute in the case of GMOs in order to avoid welfare losses.

5.1

Trade flows and global welfare effects

The EU moratorium from 1998 to 2004 had severe impacts on trade flows. Effects from the European non-approval of certain GMOs can be seen particularly with regards to trade with the two main GM products: corn and soybeans. Trade volume data suggests that there has been a 99% decline in the volume of total US corn exports to the EU and a 44% decline in the volume of total US soybean exports to the EU over the period from 1995 to 2002. The main reason for this decline in corn exports has been a mixture of both EU nonapproved varieties of GM corn in US corn exports and imports from the US being replaced largely by imports from Argentina of EU-approved GM-corn (European Commission, 2003b). In the case of soybeans, the EU has approved the importation of a variety of GM soybeans grown in the US. However, at the same time it increased its soybean imports from Brazil, which is a lower cost

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source and also the main source of non-GM soybeans (The Economist, 2003a). Despite the EU imports decline of US GM products, the GM crop share of global crop trade is still very high. As table 5-1 shows, GM soybeans and GM corn accounted for 90% and 80% of global trade in 2004.

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Table 5-1:

GM production share of global crop trade in 2004 (million tonnes) Soy beans

Corn

Cotton

Canola

Global production

189.0

740.0

25.6

43.9

Global trade (exports)

59.3

74.0

7.3

5.5

Share of global trade from GM producers

58.1

60.3

3.2

4.0

Share of global trade from GM producers if GM share of production used as proxy for share of exports

35.4

33.4

2.05

3.0

Estimated size of market requiring certified non-GM (in countries that have import requirements)

5.0

Less than 1.0

Negligible

Negligible

Estimated share of global trade that may contain GM (i.e. not required to be segregated)

53.1

59.3

3.2

4.0

Share of global trade that may be GM

90%

80%

44%

73%

Note: Estimated size of non-GM market for soybeans in the EU 15%, and in Japan and South Korea 40%.

Source: Brookes et al., 2005b.

The high share of GM trade is attributed to the redirection of US GM products from the EU to other importing countries. However, the US still underwent clear welfare losses due to the import ban of the EU on US products. Anderson et al. (2002) calculated with the help of a global, computable general equilibrium model (GTAP model) a loss in welfare gains amounting to $300 million in North America. If unrestricted GM trade has been allowed, North America would have gained $2,624 million and Western Europe $2,010 million. For the situation of a EU non-approval of certain GM crops, North America can still maintain a $2,299 million welfare gain by adopting GMOs, while Western Europe looses $4,334 million in welfare. In terms of world economic welfare, two-thirds of the global gains from the new GM technology were eroded by the import ban imposed by Western Europe: The gains fell from $9.9 billion per year to 3.4 billion Copyright © 2010. Diplomica Verlag. All rights reserved.

(Anderson et al., 2002). Considering the fact that the three countries that have embraced GM crops are large exporters of agricultural commodities, while the most restrictive domestic regulations aimed at GMOs, which necessarily interfere with imports, are being implemented by countries that are natural importers of agricultural products, implications for international trade are extensive (Sheldon, 2002). Following the

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end of the EU moratorium on approval of GM products in 2004, welfare losses are expected to decrease in the future. Still, the strong implications for welfare call for mature decisions about the type of regulation that will be taken towards GMOs. In the next section we will explore whether the EU regulation can be identified as protectionist.

5.2

Potential protectionist behavior of the EU

In 2003, the US filed a case against the EU criticizing the suspension by the European Union of considerations for application/granting of approval of biotech products and the marketing and import bans put in place by six EU member states. The US claimed that the EU is acting in a protectionist way by imposing non-tariff-barriers (NTBs) on trade with GM products, which is violating the WTO legislation. The EU claimed, however, that it is applying environmental standards to comply with its national interests. Environmental standards, such as tolerance levels for GMOs regulated through labeling, have the purpose to prevent environmental deterioration, or to protect consumers from direct environmental contamination as well as health risks. There are, however, circumstances in which an environmental standard may intentionally or unintentionally become a NTB to trade. First, an environmental standard may be deliberately used as a trade barrier, for example when the imported goods are subject to different standards than domestic goods or when the standard does not meet the stated environmental objective. Second, inter-country differences in standards can become an NTB when the differences occur for no inherent reason. This way they will cause foreign producers to incur extra costs compared to domestic sellers. Third, the different standards exist because of different social preferences, for example different assessments of the increase

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in welfare due to more stringent standard. To evaluate whether this justifies a difference in standard between countries, the marginal costs of the more stringent standard should be compared with the marginal benefits. Should the costs exceed the benefits, the standard is a disguised NTB (Dean, 1992). In the case of the EU moratorium, the WTO declared in a preliminary judgement that it was illegal.

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In the absence of the WTO, any country would have a unilateral incentive to impose a tariff (or a non-tariff barrier, such as a standard), knowing that part of the cost of such protection will be borne by foreign exporting countries receiving lower prices. This means that there is a terms-of-trade (TOT) effect, which alters relative market access levels across countries. Similarly, other countries would have an incentive to impose such tariffs as well, resulting in an inefficient level of market access. From this scenario the role of the WTO has been derived, namely to secure Pareto improving, i.e. reciprocal exchanges of increased market access (Bagwell et al., 2001a). For the case of GMOs, Lapan et al. (2004) showed that imposing per-unit costs on imported GM products results in a welfare loss for the country exporting GM products but a welfare gain for the one importing these products. Even a complete ban on the imports of GM products may increase welfare in the importing country (Lapan et al., 2004). Further, each country would like the other one to allow the good, test it, and provide the safety information, which is a certain type of free-riding (Calzolari et al., 2005). Those arguments show that NTBs are a relevant problem that has to be mitigated by an efficient WTO regulatory system. The EU is a lagger in biotechnology, which would support the idea that it is acting strategically to delay imports. Comparative disadvantage in the use of GM crop technology results in support by EU farmers for strict GM standards (Anderson et al., 2004). This would give European biotech firms the opportunity to catch up with the technological lead of US firms. It has even been suggested that the concerns of European consumers might have been manufactured to justify the protection of European biotech firms from world market competition. If this has been the case, such a strategy would be counterproductive as altering consumer attitudes, once acquired, may be extremely challenging. Further, Copyright © 2010. Diplomica Verlag. All rights reserved.

stringent regulations put in place to allay consumers’ fears are likely to be difficult to remove (Perdikis, 2001). In the long run, the EU might even risk becoming isolated from international trade, which will be discussed in the next section.

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5.3

Risk of an isolation of the EU from international trade

The EU is running the risk of isolating itself from both technological development and trade policy. The technological risk is implied by the fact that the EU is lagging behind in biotechnology compared to the US. In 2001, there was a significant drop in market capitalization of Europe’s biotech firms adding up to the already existing dramatic disparity in the level of investment in the EU compared to the US industry (Ernst and Young, 2002 and 2001). The US biotech industry is more advanced in all facets of the commercial development of biotechnology. Explanatory factors for the US leadership are stronger scientific and industrial base, better communication between academia and industry, and a stronger Intellectual Property Rights (IPR) regime (Rosendal, 2005). Technology is, however, a crucial factor for the continuous improvement of products. If modern biotechnology will establish itself as a recognized production process, and the EU will not keep up with this development, it risks to loose competitiveness, and thus to isolate itself from international trade. Another threat is the political risk of isolation of the EU being the only economic region that imposes relatively strict GMO regulations. GM products that are still not approved by the EU are redirected to other importing countries. Whether there is a risk of isolation arising from this constellation depends on the behavior of the other countries. The vast majority of states follows the principle of substantial equivalence and applies regulations similar to the one of the US. However, there are also countries that reject the production and import of GM products because they fear to loose Europe as an export market. Zimbabwe has, for example, refused the shipment of US food aid in 2002 because it contained GMOs, and Zambia and Ethiopia have also raised concerns about GM food donations (BBC News, 2006). If more countries will follow EU’s Copyright © 2010. Diplomica Verlag. All rights reserved.

example in being sceptical towards GM products, the EU will not have to fear international isolation. However, if in the long run most countries will adopt a rather liberal approach towards trade with GM products, there would be a risk of isolation from international trade for the EU. In order to avoid the isolation of countries, the goal should always be to establish some international standard about the release of GM products to

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prevent that one country uses its higher standards as non-tariff-barriers (NTBs). If disagreement exists in the scientific community over the additional benefits of more stringent standards, like it is the case in the GMO debate, it is important to weigh these against additional costs they generate. The restrictive impact, the so called "tariff equivalent“, has to be assessed in order to decide about the justification of strict standards (Dean, 1992). If still no consensus can be found about one unique international standard for GMOs, other solutions have to be considered. Some of them will be presented in the next section.

5.4

Recovery of international trade

The divergence of regulatory approaches of the EU and the US can also be characterized as a "clash of rights“ (Nelson et al., 1999). Hereby the first right is the legal right to develop and export products subject only to barriers incorporated into current WTO schedules. The second right is that of national governments to restrict access to their markets on possible health and safety grounds in cases where there is insufficient knowledge about the risks associated with new technologies such as genetic engineering (Sheldon, 2002). To solve this "clash of rights“ the EU could set its own standards for GMO regulation, at the same time as maintaining the levels of market access for imports from the US that the EU had committed to in WTO negotiations (Bagwell et al., 2001b). The costs for the EU would be increased domestic prices. The WTO legislation already allows a country that introduces a regulation that raises domestic firms’ costs to apply a broader tariff to protect the domestic industry from import competition. The condition of such a measure is a renegotiation of any market access rights that have been harmed (Roessler, 1996).

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The problem with this solution is the fact that bound tariffs on "like goods“ would have to be increased to allow the importing country to raise domestic standards, and at the same time maintain negotiated levels of market access (Anderson et al., 2001). So far, the EU has not recognized, however, that GM products are "like products“ to their conventional counterparts because it argues that they are not substantially equivalent.

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Considering the opposite opinions about whether GM products fall under the category of "like products“ or not, the optimal solution to this asymmetric information problem might be some sort of labeling, either the labeling of GM foods or of non-GM foods (Caswell, 2000). Informed consumers would be able to maximize their utility, relative prices would reflect their choices, and the gains from trade would be maximized. However, exporting countries may argue that labeling would unfairly "stigmatise“ GM foods, undermining their negotiated levels of market access, and hence, free trade (Sheldon, 2002). Another solution is one that has already been suggested in the hormone-treated beef case. US beef exports could be given increased market access to the EU, as long as the beef is certified hormone-free. This "rebalancing option“ would mean in the case of GMOs that the EU would give increased access for certified, and labeled non-GM foods, whereas GM foods would be subject to regulations for approval, import and labeling. As a net result, the EU would maintain overall negotiated access for each crop (Sheldon, 2002). This regulation would again imply some additional costs for the EU: the costs of segregation of GM and non-GM products. Still, this might be the most feasible

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solution in the long run.

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Conclusion In the decision about the right GMO policy in regard to scientific uncertainty about risks and benefits of GM products, the precautionary principle is not an entirely wrong approach. The EU’s strict interpretation of the principle, however, cannot be seen as the optimal policy. Not only does the European trade policy lead to global welfare losses due to trade distortions and considerable administration costs caused by its approval process, it also has serious implications for European firms. Not being allowed to trade with GM products, they are condemned to lag behind in the promising biotechnology sector. Instead the precautionary principle should be applied in its weak interpretation, meaning the adoption of environmental standards such as labeling, or the conduction of monitoring of commercial cultivation of GM crops. There are signs indicating that the EU is gradually abandoning its severe position towards GMOs. On 14th January 2008, the European Commission adopted a new proposal to alter the Novel Food Legislation of 1997. Already in April 2004, GMOs were excluded from the Novel Food Legislation and are since then subject to separated regulations. According to the present proposal novel foods, which are either foods or food ingredients produced using new techniques or foods not traditionally consumed in Europe but having a safe history of use in a third country, would be assessed and authorised through a central system: the European Food Safety Authority (EFSA). Further, the initial applicant for the approval of a GM product has authorization to market the GM food for five years before it becomes a generic foodstuff that can be produced and marketed by others. This is a great encouragement for firms to invest in the development of new types of foods and food production techniques.34

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In the US some changes are taking place in firms’ consideration of public opinion. It is the biotech firms’ responsibility to monitor for unintended or unexpected environmental effects following the release of its new GM crop variety. They are further supposed to inform the regulatory authorities of any new information regarding the risks to the environment (Sanvido et al., 2006). In this regard, US firms have been strongly criticised and accused to disregard 34

For more information, see: http://ec.europa.eu/food/food/biotechnology/novelfood/index_en.htm.

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their responsibilities. Recently, however, they slowly seem to react to critics. Monsanto has started to take into account the opinion of groups concerned about GMOs and to engage in dialogue with them, to respect the cultural and ethical concerns of others, to be more transparent in the methods it uses and the data it has about safety, to share its technology with the developing countries, and to make sure to deliver real benefits to its customers and to the environment. The firm is hoping that this new set of commitments will improve both its reputation and the acceptance of modern biotechnology (Nemecek, 2006). Current developments both in the EU and in the US raise hope that their positions are not too far apart from each other and a consensus about GMO legislation might still be possible. The best option would be a consensus within the WTO regulatory framework. If this will not be possible, the international trading system would be weakened dramatically. Such a consensus should most importantly create an innovation friendly environment for international biotech firms that does not stifle trade with GM products. This is compatible with the adoption of environmental standards to prevent environmental and human health risks. This kind of GMO regulation is at the same time an incentive for firms to innovate in order to comply with these standards and to enhance their competitiveness. This process would result in higher investments of biotech firms in R&D and the development of environmental technology. Both factors contribute to the reduction of risks that are attributed to GM products while

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taking advantage of the possibilities that they offer.

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A Appendices A.1

Negative and positive impacts of GMOs................................ 61

A.2

The environmental impact quotient (EIQ) .............................. 63

A.3

GMO regulations by country groupings ................................. 64

A.4

Multilateral agreements citing the precautionary principles ... 67

A.5

Comparison of the US and the EU biotechnology regulatory process ................................................................. 68

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A.1

Negative and positive impacts of GMOs

Potential risks or concerns from use of GM foods Risks or concerns

References

Alteration in nutritional quality of foods

Young et al., 1995; Phillips, 1994

Antibiotic resistance

Hileman, 1999b; Phillips, 1994

Potential toxicity from GM foods

Phillips, 1994

Potential allergenicity from GM foods

Billings, 1999; Coleman, 1996; Nordlee et al., 1996

Unintentional gene transfer to wild plants

Hileman, 1999b; Kaiser, 1996; Rissler et al., 1996 and 1993

Possible creation of new viruses and toxins

Phillips, 1994

Limited access to seeds through patenting of GM food plants

Koch, 1998; Lustgarden, 1994

Threat to crop genetic diversity

Koch, 1998; Phillips, 1994

Religious/ cultural/ ethical concerns

Robinson, 1997; Thomson, 1997; Crist, 1996

Concerns for lack of labeling

Hoef et al., 1998; Federal Register, 1992

Concerns of animal rights group

Kaiser, 1999; Koenig, 1999

Concern of organic and traditional farmers

Koch, 1998

Fear of the unknown

Longman, 1999; Koch, 1998

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Potential benefits from GM technology Benefits of GM technology

References

Increase in food availability

Rudnitsky, 1996; Schardt, 1994; Moffat, 1992; Jackson, 1991

Improved shelf-life and organoleptic quality of foods

BIO, 1998; Thayer, 1994; Walters, 1994

Improvement in nutritional quality and health benefits

Elliot, 1999; Nguyen et al., 1999; Smaglik, 1999; Ames, 1998; BIO, 1998; Clinton, 1998

Improved protein quality

BIO, 1998; Roller et al., 1998; De Lumen et al., 1997; Haumann, 1997; Kitamura, 1995

Increase in food carbohydrate content

Liu, 1999; BIO, 1998; Starke et al., 1996

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Improvement in quantity and quality of meat, milk and livestock

Rohricht, 1999; Dalrymple, 1998; Wilmut et al., 1997; Bishop, 1996

Increased crop yield

Jacoby, 1999; BIO, 1998; Hadfield, 1996; Paoletti et al., 1996; Wood, 1995; Jackson, 1991

Manufacture of edible vaccines and drugs

Hsu, 1999a and b; Lesney, 1999; Sloan, 1999; Ames, 1998; Kiernan, 1996; Oldham, 1996; Daie et al., 1993

Biological defence against diseases, stresses, pests, weeds, herbicides and viruses

Hileman, 1999a, b and c; Jacoby, 1999; Liu, 1999; Losey et al., 1999; Thayer,1999; BIO, 1998; Wilkinson, 1997; Wood, 1995

Bioremediation

Gray, 1998; Howe, 1997; Paoletti et al., 1996

Positive effect on farming/ food product

Thayer, 1999

Protection of the environment

BIO, 1998

GM crops function as bio-factories and source of industrial raw materials

Hsu, 1999a; Sloan, 1999; Hercberg et al., 1998; Del Vechio, 1996; Goddijn et al., 1995; Block et al., 1994; Moffat, 1992

Wealth/ job creation

Alliance For Better Foods, 1999; Thayer, 1999

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Source: Uzogara, 2000.

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A.2

The environmental impact quotient (EIQ)

The EIQ is a universal indicator that has been developed by Kovach, Petzoldt, Degni, and Tette (1992) and is being updated annually. It effectively integrates the various environmental impacts of individual pesticides into a single field value per hectare. This provides a more balanced assessment of the impact of GM crops on the environment, as it draws on all of the key toxicity and environmental exposure data related to individual products, as applicable to impacts on farm workers, consumers, and ecology, and provides a consistent and comprehensive measure of environmental impact. It is calculated with the help of the following formula: EIQ = { C [ (DT * 5) + (DT * P) ] + [ (C * ((S + P) / 2) * SY) + (L) ] + [ (F * R) + (D * ((S + P) / 2) * 3 + (Z * P * 3) + (B * P * 5) ] } / 3 B = beneficial arthropod toxicity C = chronic toxicity D = bird toxicity DT = dermal toxicity F = fish toxicity L = leaching potential

P = plant surface half-life R = surface loss potential S = soil half-life SY = systemicity Z = bee toxicity

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Source: Brimner et al., 2005.

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A.3

GMO regulations by country groupings

Multiple agencies

Fieldtesting regulations

Labeling (effective date) (% threshold)b

Food approval regulations

Products approved (number)a

Y

Y

Y (corn, cotton, and soybeans, ban on new approvals at present)

Voluntary

Y

Y (concept of substantial equivalence)

Y (38)

Voluntary (2001)

Y

Y (concept of substantial equivalence)

Y (40+)

Voluntary (1992, 2001)

Y

Y (concept of substantial equivalence)

Y

Mandatory (end 2001) (1%)

Y

Y

Soybean approval suspendedc

Mandatory (end 2001) (4%)

Y

Y (procedures similar to EC Directives)

?

Mandatory (10th May 2000)

Y

Y (concept of precautionary principle)

Y (10)

Mandatory (15th May 1997) (1%)

Y

Y (procedures similar to EC Directives)

?

Mandatory

Country grouping 1

Argentina

Canada

USA

?

Y

Y

Country grouping 2

Australia

Brazil

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Czech Republik

EU

Bulgaria

Y

CTNBio

Y

Y

Y

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Hungary

Japan

New Zealand

Norway

Poland

Y

Y

Y

Y

Y

Y

Y (procedures similar to EC Directives)

Y

Y

Y

Y (concept of substantial equivalence)

?

Mandatory

Y (20)

Manatory (1st April 2001) (5%)

N

Mandatory (end 2001) (1%)

?

Y

Y

Mandatory (July 1997) (2%)

Y

Y (adopted EC Directives 90/219 and 90/220)

?

Mandatory

Russia

Y

?

Y

?

Mandatory (some exemptions) (1st July 2000)

Switzerland

Y

Y

Y

?

Mandatory (March 1995)

?

Mandatory under discussion, similar to Japan (12th July 2001)

?

Mandatory (20th June 2001) (1%)

South Korea

Y

?

Y (based on Biosafety Protocol)

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Country grouping 3

Chile

?

Y

?

Hong Kong

?

?

?

?

Probably voluntary (2003) (5%)

Indonesia

?

?

Y

?

Mandatory

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(January 2001) Malaysia

Y

Y (soybeans)

Preference for no labeling

?

Y

?

Mandatory under discussion

?

Mandatory under discussion

Mexico

Y

Y

Cibiogem developing

Philippines

?

Y

?

N

Mandatory (15th February 2001)

Saudi Arabia

?

?

Y (proposed import ban)

Singapore

?

?

Case-bycase

?

No scheme proposed

Sri Lanka

?

?

Import ban

?

?

Thailand

Y

Y

Y

Y (40)

Mandatory (end 2001)

a

Products approved for commercial use, either as imports of for domestic use or planting and subsequent marketing. b The % threshold above stands for the percentage of GM ingredients, at which these ingredients has to be labeled. c Before 1998, imports of all GM products into Brazil were prohibited. GM soybeans were subsequently approved by the federal government for planting, and later banned by a federal judge.

Y = Yes, N = No, ? = not known. Country grouping 1: The three major agricultural exporting countries in this group have a high level of development of agricultural biotechnology and/or high rates of commercial adoption of GM crops. Country grouping 2: This group consists of two sub-groups: (1) countries with relatively welldeveloped regulatory systems, and (2) countries that are either independently developing their own systems of regulation or are following the lead of the first sub-group. Country grouping 3: This group includes countries that have some limited regulations in place or are still in the process of developing them as well as countries who are less developed country signatories of the Cartagena Protocol of Biosafety (Secretariat of the Convention on Biological Diversity, 2000).

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Source: Sheldon, 2002, pp. 162-163.

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A.4

Multilateral agreements citing the precautionary principles

---------------------------------------------------------------------------------------------------------------• 1991 Bamako Convention on the Ban of Import into Africa and the Control of

Transboundary Movement and Management of Hazardous Wastes within Africa • 1992 UN Framework Convention on Climate Change • 1992 UN/ECE Convention on the Protection and Use of Transboundary Watercourses and International Lakes • 1992 Paris Convention for the Protection of the Marine Environment of the North-East Atlantic • 1992 Convention on Biological Diversity, Preamble • 1992 Helsinki Convention for the Protection of the Baltic Sea Area • 1994 Oslo Protocol on sulfur emission reductions • 1995 Straddling Fish Stocks Agreement, implementing the UN Convention on the Law of the Sea • 1996 Syracuse Amendment Protocol (to the 1976 Barcelona Convention) for the Protection of the Mediterranean Sea against Pollution from Land-Based Sources, Preamble • 1996 London Amendment Protocol to the Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matter • Two 1998 Aarhus Protocols on heavy metals and on persistent organic pollutants • 1999 Gothenburg Protocol on acidification, eutrophication and ground-level ozone to the 1979 UN/ECE Convention on Long-Range Transboundary Air Pollution, Preamble • 1999 (UN/ECE) London Protocol on Water and Earth ----------------------------------------------------------------------------------------------------------------

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Source: Sand, 2000.

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A.5

Comparison of the US and the EU biotechnology regulatory process

Area of comparison

United States

European Union

Administration of Regulation

Wide variety of agencies (FDA, USDA, EPA and others). When two or more agencies have jurisdiction, the 1986 Coordinated Framework establishes a lead and secondary agency.

DG XI (Environment). In specific cases, such as novel foods and pharmaceuticals, DG III (Industry) or the EMEA administer the regulation, but in all cases products must conform to an environmental risk assessment equal or similar to that prescribed by DG XI.

Ability to adapt to new scientific information

Regulations are easy to revise in light of scientific evidence and both research and product regulations have been revised many times. Exemptions are possible.

Regulations are difficult to revise. Major revisions to 90/219 have taken place once. Major revisions to 90/220 are still being discussed. (Some minor revisions to 90/220 have been made.) No exemptions are possible.

Effective interagency coordination

Interagency coordination began in 1984 prior to passage of the Coordinated Framework.

Effective interagency coordination occurred only after the passage of Directives 90/219 and 90/220.

Rule making consultation process

Open. Scientists, business, special interest groups and other agencies are free to comment through the Federal Register process.

Closed. Consultation occurred primarily between DGs and their specific clients or occasionally among DGs. There was no public record or open comment period prior to the formulation of the regulatory framework. Since the formation of the BCC, interest groups are consulted on an ad hoc basis.

Input from scientific community

Extensive.

Extensive. Marginalized. Communicated primarily with DG XII (Research).

Source: Patterson et al., 2002.

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Autorenprofil

Marie Kreipe, Dipl.-Volkswirtin, wurde 1982 in Dresden geboren. Ihr Studium der Internationalen Volkswirtschaftslehre an der Universität Tübingen mit den Schwerpunkten Ökonometrie

Finanzwissenschaft,

ergänzte

die

Autorin

Internationale durch

Wirtschaftspolitik

praktische

Erfahrungen

und im

Umweltbereich. Am Instituto Nacional de Ecología (Nationalen Institut für Ökologie), einem staatlichen Forschungsinstitut in Mexiko City (Mexiko), arbeitete sie an einer Studie zu Biokraftstoffen und entwickelte ein besonderes Interesse am Thema der genetischen Veränderung von Pflanzen. Mit den Möglichkeiten der Regulierung global relevanter Umweltfragen setzte sich die Autorin bei den United Nations (Vereinten Nationen) in New York (USA) auseinander. Das VWL-Studium schloss sie im Jahre 2008 erfolgreich ab und

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ist derzeit bei dem schwedischen Energiekonzern Vattenfall tätig.

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