China's Ban on Biotech Investors May Violate WTO Obligations

PHELIM KYNE / Dow Jones News Wires 13 May 2002

BEIJING -- While Chinese restrictions on genetically modified farm goods
have drawn strong protest, few have noticed China has quietly sealed off
investment in its burgeoning biotechnology sector.

Chinese import regulations on genetically modified agricultural products
created widespread concerns that China was exploiting international
worries over genetically modified food to circumvent its World Trade
Organization commitments to open its agricultural sector to foreign
competition.

The new import rules have drawn the ire of the U.S. farm lobby,
motivating everything from special U.S. trade missions to President Bush
specifically raising the issue during his meeting with Chinese Premier
Zhu Rongji in Beijing during February.

An interim agreement brokered on March 20 has lifted the immediate
threat of an interruption of U.S. soybean imports valued at more than $1
billion annually, but a satisfactory resolution of the dispute has been
plagued by vague and contradictory regulations issued by competing
government ministries.

Meanwhile, on April 1 China's "Catalog for the Guidance of Industries
for Foreign Investment" went into effect -- including a set of rules
prohibiting foreign companies from investing in the lucrative
genetically modified seed-development business.

The investment ban so far hasn't attracted widespread attention. But to
companies such as U.S.-based agribusiness giant Monsanto Co., the new
prohibition suggests a disregard for the spirit, if not the text, of
China's WTO obligations. And although China-based joint-venture
operations of Monsanto and other major international biotech companies
haven't been affected by the new regulations, the company is plainly
aggrieved by the new regulations.

"China has imposed the most restrictive regulations on the production,
research and importation of GMO crops in the world," says John L.
Killmer, Monsanto's greater China president. The ban, Mr. Killmer
argues, is specifically designed to shut foreign companies out of the
world's largest government-funded biotechnology-development programs.

"They have one foot on the accelerator, which is funding biotech
research and development, and they have the other foot on the regulatory
brake," Mr. Killmer says.

Much of the interest in investing in China's biotech industry stems from
the fact that the Beijing itself is investing so much. While public
funding for biotech development in industrialized countries has waned in
recent years in reaction to consumer wariness about the potential health
and environmental impact of the new technology, China has gone on a
spending spree to boost its genetically modified agriculture sector.

"China is accelerating investments in agricultural biotechnology
research and is focusing on commodities that have been mostly ignored in
industrialized countries," notes a recent article in the journal
Science. China's Ministry of Science and Technology boosted its funding
of biotech research to $48 million in 1999 from $8 million in 1986, the
article notes. And China devotes 9.2% of its national crop-research
budget to biotech research, up from 1.2% in 1986 and well above the
2%-to-5% range of other developed countries.

Those funds have helped produce a bumper crop of 141 genetically
modified plants, including cotton, rice, wheat, soybean and tobacco,
that have been approved for field trials, environmental release or
commercialization, the article says. And if it follows through on its
announced plan to raise its national plant biotech-research budget by
400% before 2005, China will account for one-third of the world's
spending on biotech research and development, the article adds.

But China's willingness to spend on developing its own biotech sector
isn't matched by a willingness to allow foreign investment in the
industry.

"Up until a year ago we were of the opinion that China was a
wholehearted supporter of this technology and [the prohibition] really
was a surprise to us and, as far as I know, to Chinese scientists," a
Beijing-based Western diplomat says of the issue.

While the purpose of the policy is not entirely clear, some agricultural
experts say the prohibition is an attempt to protect domestic biotech
companies against competition from more technically and commercially
sophisticated Western biotech companies like Monsanto.

Several Chinese biotech companies and researchers declined to comment on
the issue.

In any case, it isn't likely that international biotech companies such
as Monsanto will change China's policy soon, says the Beijing-based
diplomat. "Lawyers don't seem to find any WTO violation in this
investment prohibition," he says.

Another Western diplomat involved in agricultural-trade negotiations
said calling the investment prohibition a protectionist measure would
oversimplify the complexity of internal divisions among China's leaders
on the best approach to cultivation of GMO agricultural crops.

"I think it was imposed due to extreme nervousness about biotech in
general because the government hasn't come to a consensus about whether
biotech is good for China and the potential consequences that going down
the GMO road might have on major trading partners like Japan," this
diplomat says. "On the other hand, there may also be the thought that if
China can become a leader in biotech development without foreign
involvement, it will be a matter of pride and national achievement, a
high-tech sector that's theirs."

China risks going it alone and failing, however. The cost could be high.
If China doesn't have its own top-quality genetically modified seeds to
offer its farmers, they may turn to illegally imported foreign seeds,
says one agricultural expert.

"Perhaps people involved will come to the understanding that it's a
high-tech industry and without injections of vigor and technology from
outside, [China's] going to see countries like India getting ahead," he
said. "They say they're protecting their consumers and farmers from
foreign competition, but all they're doing is delaying the inevitable."

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POWER PLANTS

Genetically modified plants in China as of 1999

Crop:  Introduced trait
Cotton:  Insect resistance, Disease resistance
Rice:  Insect resistance, Disease resistance, Herbicide resistance, Salt
tolerance
Wheat:  Virus resistance, Quality improvement
Maize:  Insect resistance, Quality improvement
Soybean:  Herbicide resistance
Potato:  Disease resistance, Quality improvement

Source: Science magazine