China Bureaucrats Have
Biotech Companies Worried

May 12, 2002
CHINA WATCH: China Biotech Barriers Reflect Turf War
By PHELIM KYNE

A Dow Jones Newswires Column

BEIJING -- Last week's revelation that China's Health Ministry will
implement new rules governing genetically modified food imports underscored
the tangle of internal bureaucratic agendas that threaten China's capacity
to honor its World Trade Organization commitments to open its agricultural
sector to foreign imports.

The new rules were posted on the ministry's Web site and forbid the
importation of GMO food products without its approval. The new rules go into
effect on July 1 and involve an approval process of up to six months, posing
a new potential delay for producers and importers.

"Once again, here is drive-by legislation in that there was no apparent
coordination from within the government and certainly no notification or
coordination with industry or trading partners," a Beijing-based western
diplomat said of the new regulations.

"It's not that China is regulating that's the problem, it's the way they're
going about it without transparency, notification and without an adequate
grace period to allow traders to come into compliance."

The Ministry of Health's rules add a new level of bureaucratic confusion to
regulations issued in January by the Ministry of Agriculture and the
Administration of Quality Supervision, Inspection and Quarantine.

Those rules were criticized as vague and unpredictable and threatened to
interrupt annual $1 billion in U.S. soybean imports. An interim agreement
negotiated by the U.S in March allowed a nine- month grace period for
imports to continue.

However, the Ministry of Health's decision to wade into the GMO regulatory
fray has fanned fears that China is exploiting international concern over
GMO foods to circumvent its World Trade Organization commitments to open its
agricultural sector to foreign imports.

"Here was this deal brokered by the U.S. government, a good deal that
seemingly gave enough time to work out any problems, but now China has
continued creating new regulations," a Beijing-based western agricultural
expert said. "It's just another set of hurdles...and there appears to be a
fair bit of duplication between what the Ministry of Agriculture wants and
what the Ministry of Health wants."

TURF WAR

China's new rules regulating the import of GMO agricultural imports are
widely perceived as non-tariff barriers to shield its farm sector from the
impact of increased foreign imports.

"What they've put in place is a mechanism that lets China modulate trade,"
the agricultural expert said. "In the fall when domestic soybeans are coming
onto the market, the government can use the regulations to slow imported
beans to drive up domestic prices and protect the farmers in soybean-growing
areas."

But the multiplying layers of regulations are also seen as an attempt by
increasingly cash-strapped government ministries to expand their regulatory
reach to bolster cash flow and justify increased budget allocations.

Observers view the efforts of the three agencies that have imposed
regulations on GMO imports as symptomatic of a general trend among China's
ministries to avoid downsizing by bolstering their regulatory functions in
key economic sectors.

Such efforts are seen as a survival reflex to avoid the kind of bureaucratic
bloodletting by an increasingly budget-minded central government that in
1998 cut the number of ministries from 40 to 29.

"In (China's) restructured economy, it is the regulatory agencies, not
central planners, who will have the real power," a CLSA Emerging Markets
report released last week said. "Power and money is shifting from
bureaucrats...to regulators...(and) officials and ministries are all making
a grab for roles that were, up until WTO membership last year, considered
unimportant."

The Ministry of Agriculture opted to regulate GMO imports as well as to
prohibit foreign investment beginning April 1 in China's domestic
biotechnology sector as a means of boosting its status from that of a weak,
underfunded and ineffectual arm of government, the Beijing-based western
agricultural expert said.

In the new world of China's post-WTO accession, the quarantine
administration's responsibility for approving all agricultural imports
allows a once-minor bureaucratic backwater to punch far above its weight.

"The inspection and quarantine department...may sound boring, but it may
also now be the most powerful arm of the government, with the ability to
eviscerate China's WTO commitments," the CLSA report said.

The fact that three agencies have now laid competing regulatory claims to
GMO agricultural imports has prompted suggestions that the central
government has provided at least tacit support for such action.

"There is also the possibility that the leadership has instructed (the
quarantine ministry) and others like them to take these steps, for obvious
domestic political reasons even though they may contradict international
commitments," CLSA's Andy Rothman said.

NO EASY SOLUTION

Foreign trade negotiators will find resolution of the complications posed
for GMO agricultural imports by the triple layer of imposed government
bureaucracy no easy matter.

The Ministry of Health has yet to issue specific implementing rules for its
new regulations that go into effect on July 1. Meanwhile importers and trade
officials alike are still scrambling to clarify and comply with the Ministry
of Agriculture and quarantine administration-imposed import rules before the
expiry of the interim grace period on Dec. 20.

"In the U.S. you also have three agencies regulating GMO crops, but there is
a fair bit of communication between these agencies and there is a mechanism
for consensus," the Beijing-based western agricultural expert said. "But
that's going to be very tough in China where the agencies really view each
other as competitors."

The Beijing-based western diplomat was similarly pessimistic about the
prospects for streamlining China's GMO import rules in line with
international standards in order to allow imports to continue unimpeded.

"Different ministries are producing competing and contradictory
regulations...and the problem we face is that transparency and
predictability are not characteristics of Chinese decision-making," he said.

-By Phelim Kyne, Dow Jones Newswires