Geographic Indications and International Trade (GIANT)

I. Identification

1. The Issue

The Monsanto Company, according to its own publicity, works to "deliver products and solutions to help the world's food producers." Its ostensible goal is to "meet the world's growing food needs." One way in which Monsanto attempts to achieve this goal is through the use of genetically modified (GM) hybrid seeds. In March 1997, Delta and Pine Land (now a subsidiary of Monsanto), in partnership with the United States Department of Agriculture, patented a high-yielding variety of rice designed to self-terminate and prevent its ability to re-germinate. Monsanto first piloted its so-called "terminator technology" in Thailand with the support of the International Rice Research Institute (IRRI) and the Population and Community Development Association (PDA), a Thai NGO. Monsanto's terminator technology purports to raise average yields by 20%, but could have far reaching - and largely negative - implications across many areas including trade, culture and the environment. Monsanto claims that its objective is to help rice- producing communities increase their yields and thus their incomes and standards of living. However, it is equally likely that Monsanto's technology could reduce incomes over the long-term; and it would almost certainly reduce income security by taking control away from farmers.

The "terminator technology" gene can be inserted into any type of seed. It is designed to self-terminate or rather it terminates a seed's ability to re-germinate in the next growing season. This means that rice produced this year cannot be used as rice seed next year. The actuality of the terminator technology is that the seed may in fact re-germinate but it is impossible to control or predict what may be produced as re-germination produces significant abnormalities with second generation germination.

2. Description

Context: Rice cultivation plays a central role in Thai economics and culture. It has also shaped Thailand's natural environment. In terms of economics rice provides Thailand with at least five important benefits. First, rice exports are Thailand's second largest source of foreign exchange income. Second, it provides local income for many rural communities. Third, it provides at least seasonal employment for many low-income, vulnerable Thais living in urban areas. Fourth, rice (as seed) acts as a form of savings and collateral against which farmers can borrow to purchase other inputs. Fifth, and most importantly, it is by far the single most important component of the Thai diet and provides food security for the poorest.

Rice has always been the nucleus of Thai life. It permeates the Thai psyche daily. Its importance is celebrated by religious and secular festivals organized around the planting and harvesting seasons, its value as a gift, but most especially in the daily language: in Thai, "to eat" - Pai kin khao --translates to "go eat rice."

Thailand's unique culture developed around rice cultivation and daily life, at least in rural areas, continues move to the rhythm of the rice crop. For example, schools in both rural and urban Thailand close during harvest season. Many of Thailand's cultural festivals coincide with the planting and harvesting seasons and rice plays an important symbolic role in many religious festivals. About 14,000 separate varieties have been historically cultivated in Thailand, each with its own unique economic and social role. A significant percentage of world's varieties of rice cataloged by IRRI are of Thai origin.

Even Thailand's physical environment, for better or worse, has been dramatically affected by rice cultivation, particularly since the years of the Green Revolution. Large areas of Northeast Thailand have been deforested over the last thirty years as the country has focused on export-led growth under the direction of international donors. This deforestation, in turn, has led to soil erosion and frequent droughts, which have reduced the reliability of crop yields. Recent studies, in fact, have demonstrated that the traditional paddy method of rice cultivation was more sustainable than modern methods.

Monsanto's terminator technology would have fundamentally altered the economics of rice cultivation in Thailand. Because rice is so central to Thailand's economy and culture, large-scale use of its seeds by Thai farmers could have resulted in radical, and probably detrimental, changes in Thailand's terms of trade, its environment and even possibly its culture. Potential implications in each of these areas are summarized below.

Trade Issues: There are at least three ways in which Monsanto's terminator technology could affect Thailand's terms of trade. First, it would replace domestic inputs (i.e. seeds) with imported ones, exposing farmers to exchange risk and potentially worsening the country's balance of payments. Second, it could limit Thailand's export markets. The United Kingdom, for example, recently banned import of certain GM foods, specifically warning Thailand that all imports of Thai rice would be ended if any Thai rice was found to contain genetically modified samples. Third, the terminator technology could expose Thailand to even greater trade risk. The WTO, for example, is being pressured to address the issue of genetically modified foods. Future WTO regulations could negatively impact Thailand's terms of trade to the extent the country comes to rely on GM crops.

Environmental Issues: The potential environmental impact of GM crops such as Monsanto's is a subject of much controversy. There are three ways in which Monsanto's GM rice and its associated technologies might pose a risk to Thailand's already- precarious environmental situation. First, there appears to be a significant risk that the terminator gene could be passed to other species through pollination and ingestion. Second, Monsanto's hybrid rice is particularly resistant to their brand of herbicide which, coupled with its associated technologies will encourage greater herbicide use among Thai farmers. The environmental impact of these herbicides is not clear. Third, Monsanto also promotes "land-leveling" in association with its rice. It is not clear what effect this practice will have on the environment, but the possibility for further soil erosion and irrigation problems should be considered. Currently, most rice fields are irrigated by damming water from seasonal rains within paddy-dykes or is generated by differing means to trough-irrigation. Large-scale farmers and those closer to urban centers have industrial irrigation methods.

Cultural Issues: While it is more difficult to predict cultural changes, widespread use of Monsanto's rice production technologies could conceivably effect several changes in traditional rural Thai culture. First, to the extent Monsanto's associated technologies automate rice production they could cause significant changes in traditional patterns of seasonal employment and possibly weaken the links between rural and urban communities that these patterns tend to reinforce. Second, Monsanto's rice is best grown on dry, level land and harvested by tractors. Traditionally, however, Thai communities have grown their rice in paddies and harvested it largely by hand. Moreover, many aspects of village life revolve around paddy cultivation. For example, the fish, snails and frogs that grow in the paddies are seen as a seasonal delicacy as well as an important source of protein. In fact, snail and frog production has increased due to a rise in demand from California and France. Third, GM rice cultivation requires higher fixed costs than traditional varieties (e.g. purchased seeds, herbicides and tractors) and thus requires greater economies of scale. This in turn could significantly change traditional land use and ownership patterns in Thailand - the majority of Thai rice farmers currently cultivate less than five hectares of land.

3. Related Cases

The Following is a list of links to case studies that relate to Agriculture and Intellectual Property Rights or Food and Import Bans. These student projects are part of the Trade and Environment Database© (TED). This database is managed by Dr. James Lee, a Professor in the School of International Service at The American University in Washington, DC. TED is a unique inventory for cases of trade and environment.

 

ARGRICE-Argentina Rice Exports and Habitat

BASMATI-US-India Basmati Rice Dispute in WTO

CANOLA-Canola and Genetics Trade EUGENBAN-EU Bans on Genetic Imports

SCOTCH-Intellectual Property Rights of Scotch

SOYBEAN-EU-US Sobean Gene Dispute

URUGUAY-Uruguay Rice Production, Exports and Habitat Loss

4. Author and Date:

Amy Lofgren, April 2001

There are two legal aspects related to this case. First, Monsanto purposed to export its seeds and accompanying technology into Thailand. Second, presumably, much of the rice that would be grown using this technology would be exported out of Thailand into markets including the EU, US and others. Accordingly, there are two areas in which international trade agreements, such as those promulgated by the WTO, would affect this case. The first area is TRIPs-Trade Related Intellectual Property Rights. The second area includes conventions and agreements relating to the export/import of genetically modified (GM) food.

TRIPS: The "terminator technology" patented by Monsanto is intellectual property in itself, but is also a means of protecting other intellectual property. In the case of Thailand, Monsanto had developed a genetically modified strain of rice, which in conjunction with its associated technologies, it was claimed, would increase yields by 20%. This new strain represented a valuable innovation that could generate profits for Monsanto. The "terminator technology", when inserted into this strain of rice ensures that Monsanto could recoup its profits by preventing purchasers from reusing the previous year's seed, thus forcing them to purchase new supplies of seeds each year. In this way the "terminator technology" was designed to help protect the value of the intellectual property inherent in Monsanto's GM rice.

In concept, Monsanto's development and promotion of the "terminator technology" is consistent with existing TRIPs guidelines. Monsanto holds patents on both the GM rice strain it marketed in Thailand and the terminator gene that accompanied it. Monsanto therefore should, at least theoretically be permitted to protect its intellectual property. However, genetic modification and specifically the "terminator technology" introduce significant risks and externalities. For example, there is a fear that the terminator gene could inadvertently be spread to other varieties of rice or even to other plant species. The environmental impact of this transfer could be catastrophic.

More concretely, it has already been demonstrated that GM crops can "infect" nearby, conventional crops through inadvertent cross-pollination. This phenomenon raises complex and problematic legal issues. For example, a Canadian farmer recently found that his canola crop had been cross-pollinated by plants from a neighboring farms that was using Monsanto's GM canola. Monsanto somehow discovered its own GM seed among the farmer's crop and has launched a lawsuit against the farmer for unauthorized use of its patented technology. The farmer, in turn, has launched a counter suit against Monsanto for contaminating his crop. Canada however, has a reasonably transparent and fair judicial system so it is likely that an equitable decision will be reached in this case. However, there would likely be complications in many of the developing countries in which Monsanto products are used. In Thailand for example, Monsanto's GM rice could infect neighboring crops conventional Thai Jasmine rice. Monsanto could then claim, under the existing Trips framework that it owned the rights to the standard strain of Thai Jasmine rice. So far, international laws and guidelines regarding intellectual property have not been tailored to address the specific problems associated with GM technology.

Trade in GM Foods: Even the most marginal and smallest rice farmers in Thailand sell a portion of their rice production to middlemen for export. Therefore, it is safe to assume that a large percentage of rice grown from Monsanto's GM seeds would have been exported. This exported rice would then be subject to any requirements or regulations concerning the export/import of GM foods.

Requirements for trading GM foods can come from three sources: the WTO, individual countries or jurisdictions acting unilaterally, or multilateral agreements made outside of the WTO framework. The WTO per se has not yet issued any firm standards or guidelines specifically regarding trade in GM foods. However, last week the WTO issued a memorandum to its members asking for comments on a series of proposed requirements for the labeling of genetically modified food and food products. Specifically, the proposals would require food products containing any genetically modified elements to be clearly labeled as such. Food products with genetically modified content over 5% would require more detailed labeling, including a breakdown of differences in nutritional value and chemical make-up between the GM product and its conventional equivalent. The WTO asks its members to comment on three options for labeling requirements; a purely voluntary labeling framework, a voluntary framework that would eventually become mandatory, or a framework which would be mandatory from the beginning.

The WTO is likely to receive a wide variety of responses from its member states, as there are substantial differences among major trading blocs in their views towards GM foods. For example the US, Canada and some Latin American countries tentatively support voluntary labeling but are adamantly opposed to mandatory labeling and any restrictions on trade in GM foods. This position is not surprising given that according to the New Scientist, the US is the world's biggest exporter of GM seeds and Canada and Latin America are its biggest trading partners. The EU, on the other hand, has already adopted the "Novel Foods Regulation" which requires mandatory labeling of all food products containing GM elements. Increasingly, EU member states are unilaterally imposing outright bans on the importation of certain GM products. For example, Italy last year suspended the importation of four varieties of GM corn despite the fact that the EU Scientific Review Committee found no justification for the ban. This example suggests that the debate surrounding trade in GM foods is political rather than scientific. Nevertheless, the real and threatened bans on GM foods would represent a serious risk to Thai exporters were they to adopt Monsanto's product.

In addition to pending WTO regulation and existing unilateral requirements and bans, there are several multilateral forums outside of the WTO framework in which the issue of GM foods is being addressed. Perhaps the most significant of these is the Biosafety Protocol of the UN Convention on Biological Diversity, which was signed at the Earth Summit in Rio de Janeiro in 1992. While the Protocol was designed to be a legally binding treaty, the US has consistently refused to recognize it as such. The US holds that GM foods can be considered safe because there is no scientific evidence that proves they are harmful to human health or the environment. Other countries argue that, on the contrary, GM foods "should be considered potentially harmful unless proven innocent."

At the last meeting on the Protocol, held in 1995, the two sides came to a compromise. The US agreed to accept the Protocol as legally binding on the condition that it only covered trade in living GM organisms and did not include seeds, food or animal feed. It appears likely however, that a large bloc of developing countries intend to challenge this compromise and demand more stringent regulation at the next Protocol meeting.

In summary the international legal framework related to the import and export of GM foods is complex and rapidly changing. This situation creates risk for exporters, which in turn makes the purchase of GM seeds less attractive.

a. Geographic Domain: Asia

b. Geographic Site: East Asia

c. Geographic Impact: Thailand

10. Sub-National Factors: No

11. Type of Habitat: Tropical

12. Type of Measure: Intellectual Property Rights

There are three types of trade measures relevant to the Monsanto/Thailand case, as follows:
1. Thai tariffs and subsidies that impact rice exporters
2. Measures related to GM foods, set by importers or international bodies such as the WTO
3. Other measures enacted by importing countries that act as a barrier to Thai rice exporters
A brief review of specific measures within each of these three categories follows.

1. Thai tariffs and subsidies

Thailand has been reducing import tariffs since 1990. Maximum tariffs on most imports have been reduced from 100% to 30%, thereby cutting the average applied tariff from about 30% in 1994 to less than 17%. As a participant in the Uruguay Round, Thailand agreed to reduce or eliminate tariffs on virtually all agricultural products. As a member of Association of South East Asian Nations (ASEAN), Thailand will reduce tariffs on imports from other member nations from an average of 19% (1995) to 2.45% by 2003. Reduction in tariffs on agricultural imports such as seeds, fertilizer and equipment will increase the competitiveness of Thai rice exporters.

Over the same period, Thailand has been removing explicit and implicit subsidies to exporters, including rice producers. All remaining export-related incentives will be phased out by 2002. The new Government, however, has promised a debt moratorium and new "soft" loans for the country's farmers. If enacted, these measures will act as implicit subsidies to rice exporters.

2. International measures on GM foods

The WTO has so far not reached a firm ruling on the issue of genetically modified organisms (GMOs). Many WTO members seem to favor mandatory labeling of all GM foods, while others (such as the US and Canada) prefer a voluntary labeling framework. Some jurisdictions would prefer an outright ban on the import of all GM foods; but imposing such a ban unilaterally would conflict with WTO regulations that require collective agreement. Nevertheless, individual countries and trading blocs have been threatening to take unilateral action. The European Union, for example, specifically warned Thailand that it would reject any rice shipments found to contain GM elements. India has threatened to ban imports of "terminator technology" seeds. The draft Cartagena Protocol agreed to in early 2001 has so far postponed the labeling issue.

3. Unilateral import barriers

Thai rice exporters justifiably complain that the US has imposed high barriers to the import of Thai rice into the US, in the form of outright tariffs on imported rice as well as subsidies to US rice growers. Ironically, the USDA played an important role in developing the terminator gene and has promoted other GM technologies as a way to increase yields in developing countries and thus to promote exports and alleviate poverty. At the same time, however, the US makes it difficult or impossible for those countries to export their products to the US.

 

1. Global Rice Production, Consumption and Trade
Annual rice production: Annual rice consumption: Annual rice imports by volume: Annual rice imports by value: Annual rice exports by volume: Annual rice exports by value: World market price: World rice consumption: Asia: USA: Western Europe:	596,485,000 tons 511,675,000 tons 27,040,300 tons $7,341,945,000 28,605,400 tons $7,817,171,000 $240 per metric ton $565 for Thai jasmine rice (2000) 145 pounds per person per year 230 " " 27 " " 11 " "
2. Thai Rice Production, Consumption and Trade
Annual rice production: Annual rice consumption: Rice exports by volume: Rice exports by value: Rice imports by volume: Rice imports by value:	22,431,600 tons (1997) (68% in "modern varieties") 9,855,000 tons (44% of total caloric intake) TBD $2,102,434,000 TBD $ 564,000

As the data above illustrates, the vast majority of the world's rice is produced for domestic consumption - less than 5% is traded internationally. This "thinness" of the market makes the global price volatile: a slight change in the percentage of rice put on the market can result in substantial swings in the global price. Price volatility, in turn, makes production-for-export a risky income strategy for small rice farmers in Thailand - which makes it more difficult and risky to purchase expensive imported seeds. As seen above, Thailand produces a significant portion (27% by value) of the world's rice exports.

Finally, rice accounts for a large percentage of Thailand's export earnings and, as seen above, nearly half the nation's caloric intake. These facts underscore the potential importance of the Monsanto case to the Thai economy.

17. Impact of Trade Restriction: High-currently GM seed use is widely prevalent in the United States, Canada and Latin America. Nations with emerging economies are increasingly coming under direct pressure to use GM seeds in agricultural export production, while many of their own countries and the EU are expressing resistance to GM foods and consequently GM seeds.

18. Industry Sector: Agriculture

19. Exporters and Importers:

 

Top Ten Rice Exporters	Value of Rice Exports, 1998 (US$000s)
1. Thailand	2,102,434
2. United States	1,207,701
3. China	924,031
4. India	907,269 ('97)
5. Pakistan	572,358
6. Italy	351,819
7. Uruguay	273,446
8. Australia	225,405
9 .Argentina	225,327
10. Spain	156,465

 

Top Ten Rice Importers	Value of Rice Exports, 1998 (US$000s)
1. Indonesia	861,123
2. Philippines	646,610
3. Brazil	621,727
4. Saudi Arabia	502,665
5. United Kingdom	283,744
6. Japan	273,185
7. Bangladesh	246,153
8. France	239,802
9. United States	203,044
10. Malaysia	232,611

As the table above indicates, Thailand is the world's single largest exporter of rice, almost doubling the value of the second largest exporter, the US. This fact helps to explain Monsanto's decision to pilot its rice terminator technology in Thailand. It is interesting to note that the US is among the Top 10 importers as well as the Top 10 exporters, although it exports much more than it imports. Thai farmers complain of US subsidies and tariff barriers that make it difficult for countries like Thailand to export their rice to the US.

It is also significant that the United Kingdom is among the Top 10 importers of rice. It is not yet known what percent of rice imported into the UK is of Thai origin, or what percent of Thai exports go to the UK, but both numbers are likely to be significant. As mentioned in Assignment 1, the UK warned Thailand that it would refuse shipments of Thai rice that were found to be genetically modified. If the UK represents a substantial portion of Thailand's export market, then Monsanto's plan to roll out the terminator technology in Thailand could have serious detrimental effects on the livelihoods of Thai farmers.