U.S. European Agricultural Trade: Food Safety and Biotechnology Issues

U.S. European Agricultural Trade: Food Safety and Biotechnology Issues

Order Code 98-861
Updated January 17, 2001
CRS Report for Congress
Received through the CRS Web
U.S. European Agricultural Trade:
Food Safety and Biotechnology Issues
Charles E. Hanrahan
Senior Specialist in Agricultural Policy
Resources, Science, and Industry Division
Summary
Differences over food safety measures and biotechnology have affected U.S.-
European Union (EU) agricultural trade. Particularly contentious in both bilateral trade
relations and in World Trade Organization (WTO) dispute settlement has been the EU's
ban on meat produced using growth-promoting hormones. EU policy on bio-engineered
products has also been a contentious issue although no formal disputes have been raised
in the WTO. Developments in regulation and labeling of bio-engineered products could
potentially affect future U.S.-EU agricultural trade. This report will be updated as
events warrant.
Introduction
Exports of $6.4 billion of agricultural products make the EU the United States' third
largest market for U.S. farm products. Soybeans, which benefit from a zero-tariff binding
and from an EU-wide ban on the use of meat-and-bone meal in livestock feeding, are the
leading export. However, U.S. soybeans exports to the EU have declined–from $2.1
billion in 1996 to $1.1 billion in 2000-- as consumer concerns about bio-engineered crops
have grown and the EU has sought to import non-biotech varieties from other sources.
The EU also is the leading U.S. export market for corn by-products (corn gluten feed),
almonds, dried fruit, wine and tobacco. The EU had an agricultural trade surplus of
around $1.7 billion with the United States in 2000. Although it remains a key market for
U.S. farm products, the EU’s share of total U.S. farm exports has declined from just over
30% in 1982 to around 15% currently.
The application of import restrictions in agricultural trade based on food safety
considerations, such as the EU’s meat hormone ban, is governed by the WTO Agreement
on Sanitary and Phytosanitary (SPS) measures. That Agreement requires that SPS
measures be applied only to the extent necessary to protect health and that they be based
on scientific principles and on assessment of risk. The Agreement encourages countries
to base their SPS measures on international standards and to recognize each others'
standards (equivalency) as long as they achieve the same degree of protection. Disputes
Congressional Research Service ˜ The Library of Congress

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between WTO members over the requirements of the SPS agreement fall under WTO
dispute settlement procedures, which were strengthened as part of the 1994 Uruguay
Round multilateral trade agreements to make procedures more expeditious and decisions
more binding. The ban effectively has eliminated U.S. beef exports to the EU, except for
around 6,500 metric tons of non-hormone treated beef imported by the EU as part of an
11,500 ton import quota.
Differences over measures affecting trade in bio-engineered crops and foods also are
an issue in U.S.-EU agricultural trade. Issues have been dealt with in bilateral U.S-EU
discussions and, with the exception of the Biosafety Protocol Negotiations, in non-
negotiating fora such as the Organization for Economic Cooperation and Development
(OECD) or the Codex Alimentarius Commission.1 Bringing disputes over bio-engineered
foods into the WTO appears problematic because there are no specific WTO rules and
disciplines for bio-engineered products in international trade.2 Establishing such rules and
disciplines may be on the agenda of the on-going WTO multilateral agricultural trade
negotiations.3
The Meat Hormone Dispute4
Since 1989, the EU has banned imports of meats produced with growth-promoting
hormones. The international counterpart of internal EU regulations that prohibit use of
hormones in domestic meat production, the ban has been justified as needed to ensure food
safety and consumer health. Although entirely unrelated to hormone use, concern about
"mad cow disease" or BSE (bovine spongiform encephalopathy), a disease of cattle shown
to be transmissible to humans as Creudzfeldt-Jakob Disease (CJD), has created a climate
in Europe that is unfavorable to resolving the meat hormone issue.
In 1996-97, the United States successfully challenged the ban as a violation of the
SPS Agreement in WTO dispute settlement. WTO dispute and appellate panels ruled
1 Biosafety Protocol for Genetically Modified Organisms: Overview by Alejandro E. Segarra and
Susan R. Fletcher, CRS Report RL30594, July 5, 2000. The OECD is an organization that
provides for intergovernmental discussions among 29 industrial countries in the fields of economic
and social policy. The Codex Alimentarius Commission is a joint activity of the U.N. Food and
Agricultural Organization and the World Health Organization. The Commission drafts nonbinding
standards for food additives, veterinary drugs, pesticide residues and other substances that affect
consumer safety.
2 Trade lawyers differ over the need for sui generis rules and disciplines for bioengineered
products in international trade versus other approaches such as interpreting or clarifying
existing agreements to take them into account. With respect to the latter approach, if
restrictions on bio-engineered products were justified on the basis of food safety concerns,
then the provisions of the WTO's SPS Agreement could apply. Labeling could fall under the
terms of the Technical Barriers to Trade (TBT) Agreement.
3 The U.S. proposal in the current round of WTO agricultural trade negotiations calls for
procedures for approval and regulation of the products of agricultural biotechnology that are
transparent, predictable, and timely.
4 For detail, including historical background, on this dispute see the European Union’s Ban on
Hormone-Treated Meat, by Charles E. Hanrahan, CRS Report RS20142.

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(August 1997) that the ban was not based on scientific evidence nor on an assessment of
the risk to health from meat treated with hormones. The appellate panel left open the
option to the EU to conduct a risk assessment of hormone-treated meat and a WTO
arbitration panel subsequently ruled that the EU had 15 months from the date of the
appellate decision to bring its ban into compliance with SPS rules.
Although the United States called for the immediate lifting of the ban, the EU kept
it in place while it conducted its risk assessment. On May 13, 1999, the deadline for EU
compliance with the WTO dispute ruling, the EU indicated that the ban would continue
in force. As justification for continuing the ban, the EU Commission offered what it said
was evidence that one of the U.S.-approved hormones is carcinogenic. U.S. trade and
veterinary officials rejected the EU evidence which, they said, ignored and contradicted
numerous scientific studies, including some by European scientists, that show "absolutely
no human risks associated with consumption of beef from animals treated with growth -
promoting hormones." With WTO approval, the United States retaliated against the EU
by imposing prohibitive tariffs on $116.8 million of EU agricultural imports.
The EU has offered to negotiate compensation in lieu of retaliation, but the United
States has held to its position that compensation would be acceptable only as an interim
solution until the EU lifted the ban. The EU’s approach to compensation focuses on
increasing the quota for non-hormone treated beef and reducing the 20% in-quota tariff.
Under a compensation scheme, U.S. retaliation would be reduced by the amount of the
increased value of exports of non-hormone treated meat. The EU seeks sanctions relief
especially for French exports, particularly hard hit by U.S. retaliation.
U.S. beef producers, initially receptive to an enlarged quota, became disenchanted
with the compensation negotiations when (May 24, 2000) the EU Commission announced
that it was banning outright one of the hormones and that the ban on the others would be
maintained provisionally. U.S. meat industry representatives expressed concerns that such
an approach meant that the EU would in the future ask for WTO approval to remove the
U.S. retaliation (and thereby end the compensation) because the ban would then accord
with WTO rules.5 The prospect of ending compensation without lifting the ban, according
to the meat industry representatives, constitutes a disincentive for the industry to invest
in the additional production of non-hormone treated beef needed to fill an expanded quota.

Resolution of the hormone dispute could remove a critical irritant to the overall U.S.-
EU trade relationship.6 Trade experts indicate that the meat hormone dispute has spilled
over into other trade disputes such as the EU’s successful challenge to U.S. tax breaks
for off-shore export companies.7 How the hormone issue is resolved could have important
implications for future disputes over SPS measures. The WTO meat hormone decision is
a strong affirmation of the Uruguay Round SPS Agreement and its requirements that
countries base their SPS measures on scientific justification and risk assessment. At the
5 “Industry Letter on U.S.-EU Beef Talks”, Inside U.S. Trade, November 10, 2000.
6 Trade Conflict and the U.S.-European Union Economic Relationship by Raymond J. Ahearn,
CRS Report RL30732, November 8, 2000.
7 See The Foreign Sales Corporation (FSC) Tax Benefit for Exporting and the WTO by David
Lee Brumbaugh, CRS Report RS205l71.

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same time, the dispute illustrates the difficulty of enforcing multilateral rules and
procedures that are in conflict with popular concerns and national political decisions.8
Bio-engineered Products
Bio-engineered crops and food products that contain them are leading to conflicts
that have already disrupted U.S.-European trade in soybeans and corn. At issue are both
approval procedures and labeling requirements for genetically modified (GM) products
(crops and processed foods). Underlying the disputes are pronounced U.S.-EU differences
over environmental effects of GMOs and the safety of GM foods.
U.S. farmers have rapidly adopted GM crops. More than 20 bio-engineered crops
are now sold commercially and others are being developed. Among those adopted are
herbicide-, insect-, and disease-resistant hybrids and varieties, mainly of soybeans, corn and
cotton. In 2000, an estimated 54% of soybean acreage and 25% of corn acreage (down
from 33% in 1999) in the United States are planted with GM varieties.9 Reduced input
costs and enhanced production flexibility (e.g., reduced tillage) are among reasons cited
by farmers for adoption of GM varieties. Europe has been slower to accept and introduce
GM crops, although the European Union has approved some GM varieties of soybeans
and corn--Monsanto's Roundup Ready soybeans and Novartis's BT corn. (Monsanto's
soybean variety is resistant to the herbicide Roundup. BT corn contains a gene that gives
the plant resistance to the corn borer.)

Although some consumer, environmental, and scientific groups in the United States
are calling for more regulation and monitoring of GM crops and food products, polls and
surveys indicate that consumers in the United States have been largely accepting of bio-
engineered products and their safety for human consumption. In the EU, however, there
has been widespread concern among consumers about the quality and safety of the foods
they consume, including GM foods. Official handling of the BSE (“mad cow disease”)
crisis is often cited as having undermined consumers’ confidence in food regulatory
agencies and scientific assurances about food safety. The discovery of dioxin in poultry
feed in Belgium and recent outbreaks of “mad cow disease” in EU countries thought to
be BSE-free have exacerbated food safety worries. Environmental groups, such as
Greenpeace, have been particularly active in opposing the introduction of GM crops and
consumption of GM foods.10 Views espoused by Greenpeace are widely shared by
organized consumer groups throughout the EU. These groups and some scientists in the
EU maintain that the long-term effects of GM products on health and the environment are
unknown and that GM products should bear cautionary labels to inform consumers about
their contents.
8 Marsha A. Echols, “Food Safety Regulation in the European Union and the United States:
Different Cultures, Different Laws,” Columbia Journal of European Law, Columbia University,
Summer 1998, pp. 525-543.
9 U.S. Department of Agriculture, National Agricultural Statistics Service, Acreage, June 2000.
10 Position taken by Greenpeace can be found at [http://www.greenpeace.org/~geneng/]

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The U.S. approval process for GM crops has facilitated their introduction into U.S.
agriculture and their use in food processing.11 The U.S. position has been that GM foods
are no different from non-GM foods. Thus existing regulations for approving them are
appropriate and adequate. Labels are not required, with some exceptions, although
voluntary labeling as to GM content is permitted. The EU, however, maintains a separate
regulatory system for GM products; requires mandatory labeling; and currently has in
place a de facto moratorium on the approval of new GM crops while the European
Commission develops new EU-wide legislation for approving and regulating bio-
engineered products.
The EU Commission has been working on a new regulatory framework for GM
products for some time. The Commission's role is not only to decide on the introduction
of GM crops into EU agriculture, but also to regulate their use. Even after Commission
approvals there can be delays in actually introducing the crops into EU agriculture. For
example, France, which had initially requested the approval for BT corn, subsequently
prohibited its sale. Austria and Luxembourg continue to prohibit the use of GM crops.
Approval by the EU Council of Ministers of three varieties of GM corn after months of
delay has been blocked by France, causing the loss, according to the U.S. Department of
Agriculture (USDA), of an estimated $220 million annually of corn exports to Spain and
Portugal.

As to labels, the EU argues that they should be mandatory so as to respond to
consumer desires for information about the food products they consume. Food processors
in the EU are required to perform mandatory DNA or other laboratory tests to determine
the GM content of products and label them accordingly. The United States, on the other
hand, has opposed mandatory labeling, with some exception on the basis that available
scientific evidence shows that food products made from GM crops approved for human
consumption pose no threat to human, animal or plant health, and therefore should not
need special labels.
Some U.S. companies, like their EU counterparts, have been taking steps to respond
to perceived consumer demand, both at home and abroad, for GM-free foods or approved
GM products. A number of U.S. food companies, including Heinz, Gerber, Frito-Lay and
McDonalds have announced that they will not use GM ingredients in their products. The
recent discovery of the presence of a GM corn, the StarLink variety, approved for animal
feeding, but not human consumption, in tacos and some other products also evoked a
response from the grain processing sector.12 A.E. Staley, the U.S. corn-processing unit
of a British commodity firm, Tate and Lyle PLC, has suggested that farmers consider
raising only non-GM crops. Archer, Daniels, Midland (ADM), a processor of corn and
soybeans, has urged its suppliers to produce only crops that have “full feed and food
approval world-wide.”13
11 Food Biotechnology in the United States: Science, Regulation, and Issues by Donna U. Vogt
and Mickey Parrish, CRS Report RL30198, June 2, 1999.
12 StarLink Corn Controversy: Background, by Alejandro E. Segarra and Jean M. Rawson, CRS
Report RS20732, November 17, 2000.
13 “Companies: Grain Processors Apply New Pressures to Biotech Industry–U.S. Farmers Get
Warnings Against Modification of Crops,” Wall Street Journal, European Edition, November 20,
2000, p. 6.

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Recent Regulatory Developments. Recent developments in both the United States
and the EU indicate that their respective regulatory frameworks for GM foods are
evolving. The EU appears ready to eliminate its de facto moratorium on approvals of GM
crops under an agreement reached in early December 2000.14 According to reports, the
moratorium could be lifted as early as February 2001. Under a revised approval system,
the European Commission will submit applications to plant GM crops individually to a
committee of experts. The Commission would then seek member governments collective
approval for products endorsed as safe by the experts provided the companies requesting
approval agree to be bound by the legal framework to be established under the December
12 agreement. The legal framework would require that licenses for GM products be
renewed periodically, that the public be consulted more widely, and that companies
provide clear labeling.
The EU is also moving toward the establishment of an EU-wide food safety agency
with advisory responsibilities, whose charge would be to assure EU consumers of the
safety of foods they consume, including foods with GM ingredients. According to the
EU’s Commissioner for Health, David Byrne, such an authority would, among other
things, restore citizens’ confidence in biotechnology for agriculture and food through
better information and communication. The new food authority would also, he said, bring
a coherent and predictable regulatory framework to GM foods, feeds, and seeds.15
In the United States, the Clinton Administration (in May 2000) announced plans to
require biotech companies to notify the Food and Drug Administration (FDA) four months
before marketing a GM food. FDA would also create a regulatory mechanism by which
foods could be labeled, voluntarily, as free of GM ingredients. USDA would also become
directly involved in validating new scientific tests to detect the presence of GM
ingredients in foods. More recently, in response to the StarLink controversy, USDA has
begun the process of developing standards for separating biotech crops from conventional
ones in calling for public comment on the issue by February 28, 2000.16
The U.S.-EU Biotechnology Consultative Forum, a panel of experts, selected to
advise the United States and the EU on the pros and cons of biotechnology, including GM
crops and GM foods in June 2000 made its report to the U.S.-EU summit on December
18, 2000 in Washington. Among its recommendations, was a proposal that the United
States and the EU establish “content-based mandatory labeling requirements for finished
products containing genetic material.”17 What impact this recommendation would have
as the new Administration takes its place in the Trans-Atlantic dialogue on biotechnology
and other issues remains to be seen.
14 Deborah Hargreaves, “Deal to Revise Laws on GMOs”, Financial Times, London: December
13, 1000,. P. 2; and “New GMO Laws Imminent Say EU Officials”, AgraEurope, AE1931,
December 15, 2000.
15 “EU to Continue Efforts for Consumer Acceptance of G MO Products,” SCI Policy Report, June
26, 2000, p. 4.
16 For details, see [http://www.usda.gov/gipsa/rulemaking/current/fed.reg.htm]
17 The EU-U.S. Biotechnology Consultative Forum: Final Report, December 2000, p. 16.