08 January 2002

Larson on Trade Liberalization, Biotechnology and Growth

Trade liberalization and support for biotechnology are needed to achieve global economic growth and development, U.S. Under Secretary of State Alan Larson says.

But he said some actions by developed countries -- especially the European Union (EU) -- have frustrated implementation of biotechnologies.

Speaking January 8 to the Washington International Trade Association, Larson said that the EU moratorium on approvals of biotechnologies imposed in 1998 may cause some U.S. farmers to decide against planting genetically modified corn they won't be able to sell on world markets.

"This in turn dampens the speed and eagerness with which industry develops new applications and brings them to the market," he said.

Larson said the United States has "cautioned Europe on the potential consequences for world trade" of continued restrictions on biotech and has urged the EU to restart the review and approval process.

He said developing and transition countries should work with development agencies, research institutions and nongovernmental organizations (NGOs) in private-public partnerships to meet their agricultural needs, including expensive biotech research.

Larson said that biotechnology crops reduce production costs associated with pesticides, resist doubts and floods and reduce losses from spoilage and disease.

Developing countries had an "unprecedented role" in shaping the new international trade liberalization agenda at the World Trade Organization (WTO) ministerial meeting in Doha, Qatar, Larson added. "They launched the round [of new trade negotiations]," he said.

He said in agriculture, WTO members will negotiate reducing and eventually phasing out export subsidies, improving market access, cutting trade-distorting domestic supports and guarding against loopholes that could be trade-distorting. He added that there was a recognized need at Doha to help developing countries increase their ability to "participate fully" in the global trading system.

Larson said that Organization for Economic Cooperation and Development (OECD) countries spend $327,000 million annually on agriculture subsidies, or 34 percent of total farm receipts, thereby distorting trade patterns and making it difficult for farmers in developing countries to compete.

"Trade restrictions raise the price of food to consumers, deprive LDC [least developed countries] farmers of income, generate a vicious cycle among food exporters to increase domestic and export subsidies and impair global food security," he said.

The world's population by 2040 will require double the current food output, Larson said.

Following is the text of Larson's remarks as prepared for delivery:

[In the following text "billion" equals 1,000 million.]

Remarks by Alan Larson, Under Secretary of State for Economic, Business and Agricultural Affairs before the Washington International Trade Association

January 8, 2002

Reforming the Global Food System

Good morning. Thank you for inviting me back to the Washington International Trade Association. I would like to discuss today the critical need to reform the global food system, and the role of biotechnology. The current system is not functioning properly. Four key points:

1. There are 800 million people today who are undernourished; by 2040, even the most conservative estimates of population growth imply the need to double current food output.

2. The "green revolution" that so dramatically increased food productivity has been fully exploited in most parts of the world -- but not Africa. Food production there has stagnated.

   -- Sub-Saharan Africa's per capita food production has declined, its dependence on food imports grows and its share of overall world trade, including agricultural trade, continues to decline, reflecting continuing difficulties in the agricultural sector, and disappointing economic growth in general.

3. Agriculture is the area of international trade most affected -- negatively -- by protectionism.

4. The development and spread of modern technology is being stymied both by inappropriate policy and poor capital allocation.

Liberalizing Trade -- The Challenge of the Doha Development Agenda

Liberalizing trade is part of the prescription to increase the productivity and efficiency of modern agriculture and ensure technological advances and continued growth in this sector.

World Bank surveys indicate that due to industrialized country protection of agriculture, the LDC [least developed countries] share in agricultural trade has fallen by almost ten percentage points over the past 30 years. Were industrialized country protection of agricultural markets reduced, the Bank anticipates the most important positive trade impact would go to the poorest countries, increasing their net exports by six percent.

The OECD [Organization for Economic Cooperation and Development] comes to similar conclusions: The OECD calculates that in 2000 member countries spent $327 billion in agricultural subsidies, equal to 1.3 percent of OECD area GDP [gross domestic product], and support to producers accounted for 34 percent of total farm receipts. This largesse not only insulates farmers from world market signals, but distorts global production and trade in agriculture.

Trade restrictions raise the price of food to consumers, deprive LDC farmers of income, generate a vicious cycle among food exporters to increase domestic and export subsidies, and impair global food security.

Work will soon resume to lower trade barriers. One of the major achievements of 2001 was the agreement in Doha to launch global trade negotiations -- the Doha Development Agenda. U.S. leadership played a key role; at Doha the United States engaged actively with all WTO members [World Trade Organization].

But, perhaps the most notable aspect of Doha was the unprecedented role of developing countries in shaping the new international trade liberalization agenda. In the end, it was the developing countries that made the difference in Doha -- they launched the round. And the reason why the LDCs moved to support a successful outcome in Doha was due to their understanding that next round would result in significant and real liberalization of agricultural trade.

In the area of agriculture, the Doha text says that WTO members will negotiate:

• reductions of, with a view to phasing out, export subsidies;

• substantial improvements in market access and cuts in trade-distorting domestic support;

• guards against creating new loopholes in the rules that could be used to disguise trade-distorting measures; and

• In addition, Doha recognized the need for capacity building and outreach to the developing countries to increase their ability to participate fully, not only in the global trading system, but also in the global economy.

Now we have to deliver on this agenda and demonstrate that an open world trading system can best generate economic growth and development for all its participants. This means that we, the developed countries, with the exception of legitimate SPS [sanitary and phytosanitary] standards, can no longer continue to impose barriers to market access for LDC agricultural goods.

Nor can we continue current levels of producer subsidies. Here, the European Union stands out as by far as the largest subsidizer with 89 percent of total notified export subsidies for the period 1995-98, according to the International Food Policy Research Institute (IFPRI). Farmers around the world would be better off without subsidies, but the agricultural trade system has been hijacked by EU and other rich country agricultural policy distortions.

At Doha, the U.S. went a long way to help the EU and Japan on key elements of the trade negotiation, including on the environment, competition policy and investment. It is time for them to step up to plate on agricultural trade by lowering trade barriers and reducing agricultural export subsidies.

Biotechnology -- A Key Technology For 21st Century

Another shortcoming of today's food system is its relative failure to facilitate the introduction and dissemination of technology. I believe that biotechnology writ large could be to the coming decade what the information technology revolution was to the 1990's with wide-ranging industrial, health, environmental and agricultural applications. Biotechnology could be a major productivity driver, raising incomes and reducing poverty worldwide, particularly in the developing world.

The UNDP's [U. N. Development Program] "Human Development Report 2001" concludes that many developing countries might reap great benefits in reducing malnutrition using the unique potential of GM [genetically modified] techniques to produce biotech foods and crops.

Nobel laureate Norman Borlaug estimates that with a population increase of 2.5 billion by 2025, constraints on land and water will require almost a doubling of developing country crop yields. He, too, believes biotechnology is an essential tool for reaching that goal.

Continued advances in biotechnology appear inevitable because its applications are delivering tangible benefits to both producers and consumers alike. The first generations of biotech products have already produced substantial benefits for farmers by increasing crop yields and making crops resistant to disease and drought just at a time when the benefits of the Green Revolution appear to be peaking. Biotechnology techniques:

• reduce crop production costs associated with pesticide use;

• are expected in the next few years to increase crop resistance droughts and floods, high levels of salt and minerals as well as increase resistance to plant viruses;

• reduce losses from spoilage and disease. (For example, the European corn borer destroys approximately seven percent of the world's corn crop each year -- or 40 million tons, enough to feed 60 million people); and

• are easily adopted: While biotechnology is complex, its end products are easy for farmers to adopt, unlike the large-scale irrigation and chemical inputs required in the Green Revolution of the '60s and '70s.

There are real stories to back up these claims:

• The French press ("Le Figaro") reported recently on 600 small farmers in the Makhatini plains of northeastern South Africa, who have for the past three years grown a new genetically modified, insect resistant cotton strain called Bollgard: With traditional seed varieties that required eight pesticide applications, one farmer named Absalum Tumedi said that he spent much of his time walking to and from the nearest water hole three kilometers away to fill his small backpack spraying device. Today, using the genetically modified cotton, Tumedi says that he only does two sprayings a year instead of eight, the yield is better, and he earns more money to feed and raise his family.

• Kenyan Agricultural Research Institute (KARI)/Industry Sweet Potato Project: In 1990, USAID [U.S. Agency for International Development] initiated an innovative partnership between the Kenyan Agricultural Research Institute and industry to develop virus resistant sweet potatoes through biotechnology. The sweet potato crop is vital to the food security and livelihoods of people living in semi-arid areas of Kenya, but the crop was suffering from a devastating complex of seven viruses which cannot be dealt with through conventional breeding. Though direct USAID support ended several years ago, industry has continued this collaboration, and Kenya last year granted biosafety approval for the field testing of new biotech sweet potatoes. This represents a significant milestone for biotechnology in Africa -- the first biotech-derived food crop to be tested outside of South Africa.

Biotechnology will offer in the coming years significant benefits for consumers as well:

• By boosting the nutritional value of foods, biotechnology can be used to improve the quality of basic diets in LDCs. For example, rice and corn varieties with enriched protein contents are in development.

• Consumers will be able to benefit from cooking oils with reduced saturated fat content derived from bio- engineered corn, soybean, or canola plants.

• Strains of rice are being developed with more iron and beta-carotene to prevent Vitamin A deficiencies that cause 500,000 cases of blindness a year, iron deficiencies that cause infant mortality, and anemia that puts at risk women of child-bearing age.

• In the future, advances in both agricultural and medical biotechnology will likely be combined to produce food products that can prevent, attenuate or even cure certain diseases.

The environmental benefits of biotechnology are also important:

• It allows farmers to grow more food on less land, helping preserve natural environments such as wetlands and rain forests, and results in less marginal land put into cultivation, thus reducing erosion and desertification. Biodiversity is thereby protected; and

• It reduces need for chemical herbicides and pesticides, which means a smaller risk of toxic contamination of both surface and groundwater.

I come from Iowa and recall a conversation I had with one Iowa farmer who takes his stewardship of the land very seriously. He was very proud of the ecological benefits of reducing chemical herbicides and pesticides, which he achieved by introducing new biotech corn and soybean varieties. Not only has he reduced the toxic contamination of both surface and groundwater, but he welcomed the direct health benefits from reduced exposure to these toxic substances.

Obstacles to Dissemination of Agricultural Biotechnology: Need for Enhanced Capacity Building Outreach

Despite these clear producer, consumer and environmental benefits, however, we are all aware that significant obstacles continue to slow the introduction and dissemination of this technology, especially to developing countries. One obstacle is clearly its high cost. By some estimates bringing a new biotech crop variety to market can cost $30 million to $50 million. Another is reduced spending on public sector agricultural research, especially in developing countries.

For biotechnology to be accessible to developing and transition countries, corporations, governments, development agencies, NGOs [nongovernmental organizations] and research institutions must find innovative ways to encourage public-private research and partnerships focused on developing/transition country agricultural needs. The private sector, in particular, will need to find new ways to do the very expensive biotech research while also sharing the technology with developing countries.

Stepped up biotech capacity building is essential to spreading this technology. Enabling these countries to use this technology gives them a sense of ownership, which, in the long term, not only allows local farmers to realize the benefits of biotechnology, but also translates into a more receptive policy environment on biotechnology regulation.

USAID, USDA [U.S. Department of Agriculture] and other federal agencies have active biotech outreach programs, which include research and technology development, technical training of scientists, capacity building in biosafety regulatory policy, intellectual property rights and technology transfer, and public and media outreach to promote understanding of biotechnology.

Research, undertaken by building partnerships among universities, companies, and research institutions in the United States and in developing countries, includes work on genetically engineered crops, research on molecular markers and disease diagnostics for traditional crop and livestock breeding, and the development of livestock vaccines.

European Union and the Consumer, Public Health and Environmental Backlash to Biotechnology

Actions in developed countries have also contributed to frustrate the implementation of biotechnologies. I'm thinking here primarily of Europe, where food safety concerns unrelated to biotechnology are being exploited by politically powerful interest groups to erect barriers to biotech products and produce policy gridlock.

There is growing concern within Europe that it is missing out on this technological revolution by implementing discriminatory regulatory systems and fostering widespread misinformation about this technology. This is causing flight of biotech R&D [research and development] capability and capital. Many European companies have established their biotech research centers in the United States to escape the capricious regulation and political grandstanding in Europe.

EU actions threaten to cast a pall over the development of this technology far beyond its own borders, however. The EU moratorium on approvals of biotechnology applications imposed in 1998 has begun to influence the decisions U.S. farmers make regarding the crops they intend to plant -- no sense in planting the latest variety of Bt corn if you can't then sell it in foreign markets. This in turn dampens the speed and eagerness with which industry develops new applications and brings them to market.

Anecdotally, we have heard that there are any number of potential biotech applications that leading firms have chosen at least temporarily to shelve pending an improvement in the receptivity to biotechnology in Europe. Research dollars are affected, and the uptake of the technology in LDCs has slowed as the EU has promoted its anti-biotech position in international fora and within the developing world.

We have pressed the EU over the last three years to restart the review and approval process, and we have cautioned Europe on the potential consequences for world trade and the development of this technology posed by its recent proposals on traceability and labeling.

But more importantly, I believe this is a critical moment ripe for U.S.-EU cooperation. To a certain extent, the lag in the dissemination of agricultural biotech applications in the developing world is an example of market failure. Given the number of hungry people still in this world, we need to work together and provide public sector support to drive down the high cost of developing applications and bringing to market suited to developing country conditions.

I would like to invite the EU and member states to work with us to find ways to speed the introduction of technologies that hasten the sustainable growth of agricultural sectors and rural development throughout the developing world. We need to support efforts by the World Bank, the Consultative Group on International Agricultural Research, and indigenous effort in the developing world to increase basic research and development and agricultural extension programs.

Conclusion: Trade, Biotechnology and Development Mutually Reinforcing

The challenges, again, are threefold:

• Enhance agricultural productivity, especially in the developing world, to end the hunger now faced by 800 million and to meet the food needs of growing populations in developing countries;

• In the Doha round, remove barriers to agricultural trade and industrialized country subsidies that endanger the development of agricultural sectors, the wealth of LDCs, and global food security; and

• Take actions to ensure that the development of technologies that would improve agricultural productivity -- especially in Africa and other LDCs -- is promoted, as appropriate with public sector support, or through public/private initiatives.

At its core, I am advocating that we take a hard look at how the global food system can be reformed. Free trade in agricultural products will make agricultural sectors in both the developed and developing worlds more resilient and thereby boost food security. Policies that are friendly to R&D [research and development] and new technologies will draw capital into agriculture and enhance the sector's productivity and efficiency. Where the dissemination of the technology is hindered due to its cost or other barriers, we should look hard at the public sector's possible role, and encourage public/private cooperation.

Together, trade liberalization and stronger support for agricultural technology -- including for agricultural biotechnology -- will raise farm productivity, could spark a new "Green Revolution", and form a solid base for global economic growth and development.

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