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Behind the Screen: Dishing up U.S.-Japan Trade Friction a la 'Frankenfoods'

TOKYO -- Japan has jumped headlong into the ongoing international fracas over genetically modified foods.

It is unlikely that the government fully recognized the consequences of finalizing a proposal this past week to mandate labeling of the modified foods beginning April 2001. Though it was hailed as a major victory by Japanese consumer groups concerned about the safety of so-called "Frankenfoods," the step could propel the nation into a major trade dispute with the U.S.

The U.S. government and American agribusiness representatives are hinting that the labeling is a nontariff trade barrier. They fear that the new measure will stigmatize genetically modified foods and strike another bruising blow to the Monsantos (MTC) of the world.

After investing billions of dollars in genetically modified food production, the industry is getting hammered in a Europe that is shell-shocked from the deaths caused by mad cow disease. In Brazil, the world's second-largest grower of soybeans, a heated battle is being waged over whether to allow the planting of genetically modified soybeans.

The stakes are huge.

Japan annually imports about $10 billion in U.S. food products, more than any other country in the world. More significantly, Japan is also the largest importer of genetically modified foods from the U.S., the largest grower of genetically modified crops globally.

In fact, the new rule will apply only to a small fraction of Japan's U.S. food imports. The proposal includes stipulations that allow producers to forgo labeling foods containing undetectable or small amounts of genetically modified ingredients.

This is little consolation for Dennis Kitch, Japan's director of the U.S. Grains Council. He believes genetically modified foods are being unfairly singled out and that labeling is entirely unnecessary since both the U.S. and Japanese governments have determined that the targeted genetically modified foods are safe for consumers.

Kitch's greatest concern is that labeling will leave a bad taste in the mouths of Japanese consumers. His fear is that the market in Japan for such foods may dry up and hobble U.S. agribusiness.

Japanese food companies already are feverishly working to get labels on products such as tofu and corn snacks to indicate they are free of genetically modified ingredients. Japan's trading companies are also lining up new import orders for unmodified grains and soybeans.

Public sentiment and the politics surrounding this issue suggest the controversy won't go away any time soon.

For starters, skittish consumers don't trust Japan's health regulators for a nickel -- and for good reason. Several years ago, the Ministry of Health and Welfare got caught red-handed trying to cover up the fact that it knew it was permitting the administration of HIV-tainted blood products to patients, a debacle that resulted in the deaths of hundreds of hemophiliacs. More recently, the nation has been stunned by government reports that the mother's milk of Japanese women contains inordinately high levels of dioxins.

Politics figures prominently in this as well.

The recent groundswell of public concern over genetically modified foods has given politicians good reason to jump on the bandwagon, particularly with a Lower House election on the horizon. Moreover, support for labeling is a no-brainer for the ruling Liberal Democratic Party. Japanese farmers provide key political backing for the LDP and they don't plant genetically modified seeds in their fields. In fact, with the growing demand for unmodified soybeans, Japan's tiny soybean cultivation industry stands to get a boost from the labeling.

An interesting side note: Agriculture Minister Shoichi Nakagawa has been intimately involved in the labeling initiative. Perhaps not coincidentally, he represents a district in Hokkaido, a prefecture in northern Japan that grows the country's biggest soybean crop.

Bureaucrats in the Ministry of Agriculture have rallied to the cause as well. Initially, they showed little interest in this issue, but changed tack after coming under pressure from consumer groups and realizing they could expand their bureaucratic purview with the labeling requirement.

This isn't to say Japan's government is of one mind in dealing with genetically modified foods. Food security is always a controversial issue for the Japanese, who are taught in grammar school that they live in a vulnerable island nation with limited natural resources.

Concerned about food supplies and fearing domination by foreign companies, the Japanese government is planning to include 1 trillion yen ($8.63 billion) for biotech research, including genetically modified foods, in its fiscal budget for 2000. This is roughly four times the biotech funds budgeted for this year.

Japan's room for maneuver is shrinking. Domestically it's being pulled in two directions. Consumers and farmers are for labeling and protection, while some ministry planners are looking at long-term food security implications for the nation. At the same time, Japan is setting itself up for a nasty trade spat with the U.S. And hanging over all this is the upcoming Millennium Round of World Trade Organization negotiations scheduled to begin in Seattle this November. Agriculture in general and genetically modified food, specifically, promise to complicate these trade talks, with Japan in the thick of things.

So even if this country's consumers remove genetically modified products from their dinner tables, Frankenfoods will remain on the plates of Japanese policymakers for many years to come. Pass the Pepto Bismol, please.

John F. Neuffer, a longtime observer of Japanese politics, is an analyst at Mitsui Marine Research Institute. He writes occasional commentary for TSC. Neuffer publishes an in-depth roundup of Japanese politics at his Web site, www.behindthescreen.com. The views expressed above are those of Neuffer and not necessarily those of MMR. This column is exclusive to TheStreet.com.

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