7/27/2001 (The Economist Intelligence Unit ) - China's new GMO regulationsare already making an impact particularly on soybean trade. But the futureof bio-tech products in China remains far from certain.

The Chinese government has finally taken an official stance on geneticallymodified organisms (GMOs) and products derived from them. On June 6th,China's State Council released Regulations on the Safety Administration ofAgricultural GMOs. While the document has introduced long-overduelegislation for the handling of GMO crops and products, it has alsocreated confusion among producers and traders, stalled the flourishingsoybean import trade and raised serious questions about China's futureadherence to WTO commitments.

At last, there are rules

Consistent with the State Council's previous legislative endeavours, thewording of the new GMO regulations is purposely vague, leaving much to theimplementation rules that are to be drafted and enforced by the Ministryof Agriculture (MoA). The MoA has been vested with the authority tosupervise and administer GMO safety nationwide. This designation almostresolves a behind-the- scenes struggle for control over GMO policy andadministration among a host of ministries: agriculture, science andtechnology, environmental protection, health, foreign trade and economicco-operation, and the state entry/exit inspection and quarantine (CIQ)authorities.

In an attempt to make peace, the regulations afford overall jurisdictionto one ministry, while keeping other departments in the policy-makingloop. The MoA will assume general responsibility to administer GMO safetyevaluation and labelling, while a joint-ministry body, comprisingofficials from all above- mentioned ministries, will be established underthe State Council to "research and co-ordinate" major GMO-related issues.

The most sensitive such issue is GMO safety, defined in the regulations asthe "protection of humans, animals, plants and micro-organisms, and theecological environment from the danger or potential risk caused byagricultural GMOs". Before the MoA releases detailed implementation rules,it is impossible to determine how much of an impact the new regulationswill have on the proliferation of GMO crops and products in China. But twothings are spelled out: GMOs will have to undergo safety evaluation andcertification by the MoA, and GMO raw materials and products--includingimported ones--sold in China will have to be duly labelled.

The new regulations are more transparent than previous laws, going furtherto give details on implementation and enforcement. An exhaustive scheduleof administrative measures and fines is included, aimed at restrictingarbitrary penalties and charges at the local level. And the GMO safetycertification and labelling requirements extend not just to researchorganisations and producers, but also to companies and individualsinvolved in re-processing, packing or trading GMOs and GMO-containingproducts.

But problems abound

The new GMO regulations have drawn little praise. While they introduce aneeded legal infrastructure to a controversial technology, and demonstratecommitment on the part of the central government to food safety andconsumer rights, they have brought about considerable confusion among allconcerned parties--from researchers, to traders, to government personnel.

For example, the MoA has yet to outline the procedure for obtaining GMOsafety certification and the standards for labelling. In addition toupholding stringent testing and approval procedures for GMO researchers,the regulations impose strict requirements on producers. They must notonly obtain MoA approval at every stage of product development, but mustalso keep--and submit to the MoA upon request--detailed records indicatingplace of production, genetic source, method of genetic modification, andeven the whereabouts of their GMO products.

The confusion runs deeper for organisations engaged in marketing GMOproducts, which range from state-run procurement companies, to importers,to small or private traders. They, too, are required to keep detailedrecords, and are responsible for the proper labelling of GMO-containinggoods. Their GMO marketing licences are valid only for a designatedgeographic area, and marketers must receive MoA approval to advertise GMOproducts in the media. The same and more is required of importers offoreign GMO products, who also need to pass customs inspections.The most immediate effect of the GMO regulations has been the virtualtermination of soybean imports into China. For the past several years,bulk soybeans have been China's single largest agricultural import (see"Champion crop"). Since June 6th, however, Chinese soybean traders andimporters have been reluctant to sign new contracts, and are unlikely toresume trade until the GMO regulations are clarified.

The problem has become a serious one for foreign soybean exporters fromArgentina, Brazil and the US, but should also be of concern to all ofChina's trading partners who anxiously await the country's entry into theWTO. The new GMO regulations are an example of the tools China is likelyto use in the future to limit foreign companies' access to its marketswhile avoiding head-on trade disputes. The GMO rules squeezed through justprior to China's WTO accession, now forecast for early 2002. This may beemblematic of an eleventh-hour effort to amass an arsenal of protectionistrules before opening its market to global competition. According toPhillip Laney, China country director for the American SoybeanAssociation, under WTO regulations, China would probably be required toconsult with its trading partners before implementing laws like the newGMO rules.

What's it going to be?

The GMO muddle with soybean imports is proving to be an ironic lesson inglobalisation for the Chinese government. Cutting off soybean imports haspushed local prices up, while causing world soybean prices to slide.Higher domestic soybean prices will lead to more expensive animal feed,which is made from soybean meal, and in turn to inflation of meat anddairy prices. What is more, limiting imports will cause severe supplyshortages for the recently revived oilseed-crushing industry in China, andhigher local soybean prices will undercut crushers' profits, reducing taxrevenue and putting jobs at risk. Chinese consumers and workers may end upvictims of the import barrier.

Sensing these dangers, the MoA has already hinted it may take a morecautious approach to GMO soybeans. Just weeks after the release of the newregulations, a report appeared on the MoA's website advocating the use ofimported GMO soybeans and warning of the serious consequences ofrestricting such imports. The MoA also swiftly exempted contracts signedbefore June 6th.

But in another part of the administration, CIQ officials are rumoured tohave plans to charge steep GMO inspection and certification fees fromimporters and processors. The interagency tug-of-war is indicative of thecomplex political dynamic within the Chinese government that accompaniesChina's efforts to join the WTO. The introduction of the GMO regulations--and their immediate fallout-- has many wondering whether the governmentwas just clumsy and unprepared, or whether this is part of a plan to enterthe WTO with as much trade protection as possible.

In the long run, China is likely to remain pro-GMO, as it has investedheavily in bio-tech research and sees GMOs as a possible solution to manyof the problems plaguing its some 900m peasants. The hazards of GMOproducts are still hypothetical, and even strict regulators in the EU andJapan have not effectively implemented the many GMO restrictions they havelegislated. But someday, these lucrative export markets may curb bio-techproducts and China may want to keep the option of supplying them with GMO-free crops open.