Geographic Indications and International Trade (GIANT)

I. Identification

1. The Issue
Taking genetically modified foods (GM foods), from GM soybeans to other GM crops as an example, the aim of this study is to provide a preliminary analysis for creating a more eco-friendly patent system or the "Green Patent System."

2. Description
This research contains three parts. The first part explains the current situation about the legislation and business on GM crops, especially soybeans, and others. The second part reports some patent disputes about GM crops. The third part proposes the Green Patent System to settle these disputes.

Coupled with sustainable development, GM foods are gaining popularity. These foods have a genome containing the DNA sequence which produces an artificial protein in their cells. This protein gives GM foods the characteristics which by farmers and merchants want, for example, pest resistant and drought resistant. Many studies have shown that GM foods are required if we want to overcome food-shortages caused by an increasing world population. However, there are many arguments for or against this type of foods in terms of the economic impact and the safety of the foods. Taking soy beans as an instance, the US produces 80% of their soybeans using GM crops, and Latin America is trying to catch up and overtake the US. Argentina grows 80% of its crops as GM foods and Brazil has farmers who illegally import and grow GM crops. Since GM foods can reduce the amount of pesticide use, they seem to be good for the environment, and they may be one method of fighting against food-shortages. However, European countries have pointed out that the technique of producing GM foods is not the conventional breed improvement. This means that GM foods are never produced naturally. Unnatural techniques may have unforeseen consequences on human's health and the environment. European countries think that GM foods need more research in order to make sure that they are safe for us and our descendants.

The above-mentioned conflict between opponents and proponents with GM foods has caused several GM patent disputes as shown in Appendix I. Appendix I suggests that one of root-causes for the patent disputes is that the GM market fails to incorporate “environmental externalities” concerning with safety of GM foods. From this economics standpoint, Appendix II proposes a novel patent system to internalize environmental externalities to settle the patent dispute in GM foods and safely promote GM foods.

3. Related Cases
In TED case studies, six cases below contain broad and basic background for GM crops.

4. Author and Date: Itaru Nitta, December, 2004 Contact the author

II. Legal Clusters

The webpage of Global Status of Commercialized Transgenic Crops has comprehensive links about legislation and regulations on GM Crops for international and domestic. The following is a summary of findings from the links.

5. Discourse and Status
The table below shows each country’s law. It is still in a situation of disagreement and in progress.

6. Forum and Scope
The forum of each country's law below is regional and the scope is multi-national. It is also WTO case and multilateral.

7. Decision Breadth
Major players in GM foods are WTO members including the US, Canada, the EU, China, Japan, Australia, New Zealand and Argentina.

8. Legal Standing
The GM market needs a firm treaty for more benefits.

EACH COUNTRY'S LAW

The US	In the US, FDA (Food and Drug Administration) examines the safety of foods or food additives. Although safety examination is not legally obliged, notifying or submitting data to FDA are required before commercialization. Moreover, USDA (US Department of Agriculture) checks the influence on environment, and approval of EPA (Environmental Protection Agency) is also required about noxious insect resistance agricultural products. In addition, although a duty of the label about GM is not imposed. When nutrition compositions are different from the conventional, ingredients should be label. Moreover, the label of "not using the genetically modified organism" cannot be used. When labeling, the expression "derived through biotechnology" (biotechnology is used) or "bioengineered" (biotechnology application) is desirable.
CANADA	About safety, food and the medical-supplies rule were proclaimed in October, 1999, and it was obliged to submit data. In addition, when nutrition composition differs from the conventional, a label is imposed.
The EU	The safety of a GM crop is checked based on "EC instructions about intentional environmental discharge of a 2001/18/EC GM crop" enforced in October, 2002. In commercialization, producer applies to a market country first, and the check of safety is received. Then, safety examination is undergone by other member nations and EU. The European Parliament had the bill about a label or traceability (pursuit possibility) approved about genetically modified food and feed in July, 2002. The bill about a label was expanded to all food and feed, and additives, and it was sent to the Minister-of-Agriculture-and-Forestry executive board in November, 2002. Moreover, the bill about traceability was recognized in the Secretary of State for the Environment executive board held in December, 2002. In addition, with the approved label proposal, a duty of the label about GM is imposed upon all the food generated from the GM crop irrespective of whether the protein which DNA originating in a GM crop and its DNA build exists in the last product. Thereby, a duty of a label was newly imposed about a processed food like oil which does not need to be labeled under the system of present, a food additive, feed, etc. It is obliged to describe the method of a label as "this product including a GM crop" or "GM (crops name) to manufacture." However, the non used label is not accepted. Moreover, about the agricultural products if a GM crop is accidentally mixed to the conventional crop, and the rate is more than 1%, the present law demands the label.
CHINA	The medical department (MOH) announced the genetically modified food health bill (DecreeNo.28), and the executive committee of the medical department reexamined the bill and it recognized on December 11, 2001. This bill establishes the application system for using a GM crop and the ingredient of the GM crop origin, and the system to check the quality and the safety of genetically modified food in manufacture or processing. According to this bill, the food manufactured from the materials originating in a GM crop and a GM crop should be labeled. Finally, it aims at introducing the surveillance system of the manufacturer of food, or a processor. For that purpose, required documents must be submitted and organization specified by the Department of Agriculture carries out safety examination. The medical department announced officially about the details of this bill on April 8, 2002, and started registration of an evaluation application from April, 2002.
JAPAN	In Japan, a genetically modified organism has been used for the food since 1997. Since that time, the safety check of genetically modified organisms (corn strong against the soybean and noxious insect which are not influenced of a weed killer etc.) has been imported by the Ministry of Health and Welfare (now Welfare Ministry of Labor), however, the labeling was not required. Therefore, consumer organizations requested "wanting to know that gene recombination is used" in conferences by a consumer's representation, production and a distribution industry company. Then, specialist in the Ministry of Agriculture, Forestry and Fisheries discussed from 1997 to 1999. Consequently, the JAS (Japan Agricultural Standards) method was established and the label system of genetically modified food was incorporated, and the label system completely started from April, 2001. In addition, Food Sanitation Law requires the label system of the same contents as the JAS method by welfare Ministry of Labor.
AUSTRALIA AND NEW ZEALAND	A duty of labeling was imposed about the agricultural products and the processed food in December, 2001.
ARGENTINA

III. Geographic Clusters

9. Geographic Locations.
a. Continental Domain: North America.
b. Geographic Site: Eastern North America.
c. Geographic Impact: the US.

10. SUB-STATE: No.

11. HABITAT: Temperate forest and plains.

GM CROP BUSINESS

A standoff continues between proponents and opponents of genetically modified (GM) or transgenic crops. Proponents advocate that since crops genetically altered to resist disease and insects can increase production and decrease costs on chemicals, they have incredible potential to support the world's population and feed the poor in developing nations. Opponents disagree, claiming that GM crops cannot "feed the world," because the global food crisis is a problem of not quantity but distribution of foods and that whatever GM crops can do can be done by other methods without bringing risks into the environment. However, for once opponents agree with proponents on one thing: the area of land planted with commercial GM crops across the world must inevitably rise because Brazil, China and South Africa launched fully into preparations toward joining to the conventional major GM producers, the US, Argentina and Canada (Clive, 2003).

Area of land for GM crops
Since 1997, the global area planted with commercial GM crops has continued to expand for seven consecutive years at a sustained double-digit rate (Clive, 2003; Figure 1.1). Among four main commercial GM crops, i.e. soybean, cotton, canola and corn, GM soybeans continue to lead others with an increase of more than 10 percent rate -- 55 percent of the world total soybean field in 2003 (Clive, 2003; Figure 1.2). The International Service for the Acquisition of Agri-biotech Application (ISAAA) predicts that in the next five years, GM crop area will increase to 100 million hectares and 10 million farmers in 25 or more countries will grow GM crops. According to their report, the world market of GM crops will expand from $4.5 billion in 2003 to $5 billion or more by 2005. These data and prediction mean that despite ongoing furious debates in the European Union (EU) and strong public oppositions in the EU and Japan, GM business will keep going with a remarkable progress.

Geographic dimension of GM crop production
In 2003, nineteen countries commercially grew one or more GM crops; however, only six countries, the US, Argentina, Canada, Brazil, China and South Africa together accounted for 99 percent of the global area for GM crops (Clive, 2003; Figure. 1.3).
- The U.S. is richly cultivated with GM soybeans and corns, and they make up more than 60 percent of global total area for GM crops.
- Argentina also grows GM soybeans and corns, and accounts for ca 20 percent of the world total area. Argentina is one of the world's leading soybean exporters, and GM soybeans accounts for almost 100 percent of their soybean national production. This once-agripower is now dreaming of reviving their past glory by trading GM soybeans.
- In addition to soybeans and corns, Canada plants GM canola and rapidly expands GM canola field. More than 80 percent farmers grow GM canola in western Canada.
- In 2003 Brazil officially started GM soybean plantation after notorious illegal production since the federal court banned GM soybeans in 1999.
- China profusely grows GM cottons, and ca 60 percent of the national cotton crop is GM cotton.

Source: James, Clive, 2003, Preview: Global Status of Commercialized Transgenic Crops: 2003, ISAAA Briefs No. 30 (Ithaca, NY: ISAAA).

Patent protection and market penetration
Aggressive research and development (R&D), successful patent strategy and active merger and acquisition (M&A) have induced rapid industry concentration in the GM crop business. In the U.S, biotech firms have accelerated their R&D programs since the late 1980s, and number of patent applications and issues has significantly increased since the early 1990s (Figure. 2.1; JPO, 2001). From 1971 to 1999, Monsanto, DuPont, Pioneer and DeKalb are principal applicants in the U.S (Figure. 2.2; JPO, 2001). In the 1990s, Monsanto alone acquired thirty research firms and sixteen seed companies to expand their ability both to develop and distribute GM corps (King, 2002). As a result, they are now the market leader in the U.S. and world -- Monsanto maintained their shares in the U.S. market for GM soybeans and corns at more than 60 and 40 percent respectively from 2001 to 2003 (Figure 2.3, left: soybeans, right: corns; Casale, 2003), and their global shares for GM soybeans and corns was 59 and 47 percent respectively in 2003 (Figure 2.4; Casale, 2003).

Source: JPO, 2001, Report for Patent Application of Genetically Modified Crops (Tokyo, Japan: Japan Patent Office).

Source: Casale, Carl, 2003, Presentation (St. Louis, MO: Monsanto Company).

Major products
Monsanto commercially provides three major GM products: "Roundup Ready," "Bt crops" and "Golden Rice."
- Roundup Ready is a trademark for a type of various crops in-plant tolerance to Monsanto's herbicide registered as "Roundup." Roundup Ready allows farmers to control weeds by spraying only Roundup -- farmers no longer need other herbicides because all plants other than Roundup Ready crops are eliminated. Monsanto markets four Roundup Ready crops: Roundup Ready soybeans, Roundup Ready corns, Roundup Ready cottons and Roundup Ready canola.
- Bt crops have bacterium Bacillus thuringiensis's gene which produces a pest-control protein naturally the bacterium produces. Bt crops -- named after the initials of Bacillus thuringiensis -- have a "built-in" resistance against various insects. Monsanto sells Bt soybeans, Bt corns and Bt cottons.
- Golden Rice is a vitamin A-enhanced rice with golden color by the vitamin A precursor, ? -carotene. Over a hundred million rice-eating children in developing countries suffer from vitamin A deficiencies because rice contains less vitamin A and poverty prevents the children from other nutritious foods than rice. In early 2000, Monsanto developed Golden Rice to address vitamin A deficiencies, and licensed their patent for free in an effort to improve nutrition in developing countries.

IV. Trade and Environmental Clusters

12. Type of Measure: Regulatory Ban.

13. Direct v. Indirect Impacts: Direct.

14. Relation of Trade Measure to Environmental Impact
a. Directly Related to Product: Soybean.
b. Indirectly Related to Product: No.
c. Not Related to Product: No.
d. Related to Process: GMO.

15. Trade Product Identification: GMO.

16. Economic Data: Industry output will reach $5 billion by 2005.

17. Impact of Trade Restriction: High.

18. Industry Sector: Food.

19. Exporters are US, Argentina, Canada and Brazil, and Importers are China and African countries.

20. Environmental Problem Type: Bio-diversity Loss.

21. Names of species: Soybean, Cotton, Canola and Corn.

22. Resource impact and effect: High and Product.

23. Urgency and Lifetime: Medium and 1-5 years.

24. Substitutes: Organic Foods.

25. Culture: Yes.

26. Trans-Boundary Issues: No.

27. Rights: Yes.

28. Relevant literatures are linked.

APPENDIX I: PATENT DISPUTES

There have been several patent disputes in the field of GM foods, which result from conflicts in a relationship between the patent system and economics, and another relationship between economics and the environment. More specifically speaking, the ultimate reason for these patent disputes is "environmental market failure;" namely, the market or the patent system neglects "environmental externalities," as illustrated in the table below.

APPENDIX II: THE GREEN PATENT SYSTEM

If the market prices of natural resources fully reflected or internalized environmental externalities, and if resource prices increase to the level of true values including their hidden and future costs, many economists predict that significant market turmoil would occur. For example, many studies report that the "true cost" of gasoline is at least $5.60 per gallon when all environmental externalities are included. If the price of gasoline rose to this true price in the US, it would rock the foundation of the US economy similar to how it was threatened by the oil crises in the 1970s. These facts mean that market-based environmental externality internalization is not realistic because society cannot accept such large fluctuation of prices.

While the market system cannot handle environmental externalities, the patent system can, and it has a responsibility to internalize environmental externalities due to two reasons. First, since all products and services in any market are derivatives from natural resources in the ultimate sense, they exclude some environmental externalities in the existing market system. This is also true of the products and services which a patent right protects: namely, they inherently neglect environmental externalities like other unprotected products and services. Because using these products and services the patent system contributes to building wealth for a patentee, the patent-built wealth misses these "inherent environmental externalities." One way to internalize the inherent environmental externalities is that the patent system would have a mechanism to force a patentee to pay the inherent environmental externalities because a patentee obtains extra patent-built wealth which should be subtracted as the inherent environmental externalities.

Second, the patent system accelerates an accumulation of extra environmental externalities in addition to the inherent environmental externalities. This is because the patent system helps to concentrate capital or increase capital intensity for a patentee, and this heightened capital intensity enables a patentee to plow new investment into further development. This patent-driven development results in consuming more environmental resources and generating "epigenetic environmental externalities" as extra environmental externalities added by the patent system. The patent system increases capital intensity in four different courses. First, since the patent system prohibits unauthorized people from commercializing a protected product or service, a patentee can monopolize all benefits from the market. Second, by the same reason, a patentee can set a favorable price for the protected product or service without competition against other rivals. This price is higher and contains more benefit than a price that is a simple result from equilibrium between supply and demand without patent protection. Third, a patentee can obtain an enormous license fee or royalty if a patentee permits other people to commercialize the protected product or service. Fourth, a patentee can receive a large amount of compensation if a patentee wins a patent infringement case. In addition to increasing capital intensity, these four courses also guarantee that a patentee well collects the investment which he made for developing new products. This guarantee has another function for encouraging a patentee to conduct further development which causes further epigenetic environmental externalities. To internalize the epigenetic, the patent system should demand a patentee to pay the externalities.

This new pathway for internalizing environmental externalities would introduce a drastic reform into the present patent system that would reduce environmental impact and realize sustainable development. We could call this new patent system the "green patent system."