Why a Canada-China trade dispute was (almost) a gift to American biotechnology
Canada and China are in a trade dispute over canola oil. The origins of the case are purely political. Canada detained a Huawei executive for fraud in the United States, and China retaliated by banning canola oil exports from two Canadian companies and generally carrying out slow inspections.
Canada has filed a lawsuit with the World Trade Organization (WTO) filing a case that promised big returns on investment for US biotechnology. But that’s no longer in the cards, not because Canada can’t win, but because the Biden administration refuses to unblock the WTO’s Appellate Body (AB).
Canola oil is a genetically modified cooking oil that is popular around the world. It is among the the lowest in saturated fat and is a major Canadian export to China. Or at least it was, until a Huawei executive was detained by Canadian authorities on a US warrant for the sale of crucial equipment to Iran. China retaliated by banning canola imports from two Canadian companies, Viterra and Richardson International, and hit other canola imports with “tightened” inspections. China too arrested two canadians on allegations of espionage.
Canola sales in China tumbled, prompting Canada to file a Case at the WTO. And that’s a good one. The most interesting part of the case concerns health and safety standards. Canada maintains that China has no scientific basis to do what it is doing. The consultation request is a whopping seven pages, hits China on a long and comprehensive list of legal claims, and adds, for good measure, that China is not only violating the letter of the law, but its spirit as well.
Canada can win this cause. The decision, clear of all appeals, was announced as a gift to American biotechnology. Indeed, the dispute revolves around key elements of China’s import regime on genetically modified foods, meaning the case goes beyond canola.
But since the Biden administration refuses to unblock AB, American biotechnology will be harmed. Why? Because Canada and China have decided to use arbitration as a workaround for an appeal, known as a multi-party adjudication agreement. They do not have the choice ; AB does not work. But that means that it will not be possible for American biotechnology to take full advantage of what was shaping up to be a “free spin”.
China’s import regime on genetically modified foods poses many challenges for US biotechnology. Obtaining an import permit takes time, becomes mired in obscurity, and depends on things that make no scientific sense. China is a global outlier in terms of testing procedures, toxicity restrictions, and insistence on rat testing. Exporters must conduct field tests in China, even if they are not allowed to expand in China.
The case of Canada raises two major questions of concern to American biotechnology. First, China pursues different health and safety goals for different foods, including whether they are locally grown or imported. Second, there are less trade restrictive ways that China can get the job done. Just getting China to explain its “appropriate level of protection” would have been a serious victory for US biotechnology.
But that will not happen now. Canada and China will continue arbitration in the absence of the AB. The two countries can come to a solution to their dispute, but there will be no ruling to give China political cover to comply or for the United States to use in future litigation. It’s a shame because American biotechnology would benefit even more from a decision than Canada, given that the United States is a much larger exporter of genetically modified food and other countries could emulate China by shutting down their markets.
There is a cost to putting trade policy on hold in a global economy. This is an example of how expensive it is. If the Biden administration doesn’t unblock BS soon, canola won’t be the last gift from an ally the United States is lacking.
Marc L. Busch is Karl F. Landegger Professor of International Trade Diplomacy at the Walsh School of Foreign Service at Georgetown University. Follow him on Twitter @marclbusch.