GM RICE CREATES STIR WITH GOJ - COULD HAVE MAJOR

C O N F I D E N T I A L SECTION 01 OF 02 TOKYO 005695 SIPDIS USDA FOR ACTING U/S TERPSTRA USTR FOR AUSTR CUTLER, MICHAEL BEEMAN, AND RON MEYERS SIPDIS E.O. 12958: DECL: 09/29/2016 TAGS: EAGR ECON JA TBIO SUBJECT: GM RICE CREATES STIR WITH GOJ - COULD HAVE MAJOR IMPACT ON TRADE Classified By: CDA Joseph Donovan, for reasons 1.5 (B) and (D) Summary -------------- ¶1. (C) Over a month since USDA announced a genetically modified variety had been found in U.S. long grain rice crops, Japanese authorities continue to sound alarm bells, potentially putting at risk over $800 million of U.S. food exports to Japan. Several million dollars worth of frozen potatoes and potato chips that contain long-grain rice as an ingredient have been stopped so far. The good news is that a deal has been struck that appears to solve part of the problem. MHLW will lift the ban on future imports of rice-containing products if U.S. exporters can provide testing data proving their products do not contain the suspect variety. The bad news is that, for an assortment of technical reasons, some U.S. exporters may not be able to provide the data. Moreover, the ban on products in the pipeline -- mostly sitting at Japanese ports -- falls outside the agreement. The affected companies may have to write off millions of dollars worth of shipments. End summary. In the Potatoes? -------------- ¶2. (C) Since USDA announced August 18 that it discovered a regulated, genetically engineered long grain rice (called LLRICE601),post has been working with GOJ authorities to minimize the damage to trade. Long grain rice itself is not exported to Japan, but it may be an ingredient in a number of processed foods U.S. suppliers sell in Japan. FAS approached Health (MHLW) and Agriculture (MAFF) ministry officials to explain the problem and put it in context. The initial response was muted, but within a matter of weeks MHLW slapped a ban on frozen potatoes and potato chips that contained rice flour, which could have been made from rice containing the GM protein. They told FAS there was no way to avoid taking the action -- to allow shipments to enter Japan which may contain the protein would be to break the law. It may be only a matter of time before other products, including some U.S. beers, face similar problems. ¶3. (C) With FAS taking the lead, post has discussed the problem extensively with the relevant ministries. The DCM warned MOFA North American Affairs Bureau Director General ;Kawai on September 20 that the two sides needed to work closely to resolve the issue before it expanded into a serious trade dispute. EB DAS Chris Moore during his meetings in Tokyo September 21-22 delivered a similar message. MOFA 2nd North American Affairs Director Koichi Mizushima told us the ministry is "fully aware" of the problem and has talked to MHLW. He was aware of the talks FAS has been carrying on with MHLW to find a solution. The Deal on Offer -------------- ¶4. (C) What Health Ministry officials are offering this week in negotiations that are continuing is a partial solution to the immediate ban on processed potato products -- or at least a solution that will work for some U.S. exporters. If the companies can provide data confirming that their products do not use the suspect GM strain, the GOJ will lift the ban for future shipments which are accompanied by a negative testing certificate. We are told that the biggest exporter in question, P&G, is in a position to comply. Other exporters may not be able to comply; identifying the origin of what are minuscule amounts of rice powder used in production is either technically impossible or too costly, compared to sales in Japan, to justify the effort. Similarly, few of the U.S. companies will be able to test products already in the pipeline. Progress on the pipeline issue is complicated by the fact that the GOJ is demanding that the USG provide information on the prevalence of LLRICE601 in the U.S. food supply -- something we are unable to do. The Potential Risk -------------- ¶5. (C) Meanwhile, we are waiting for the other shoe to drop. Other U.S. food exporters, including large companies like Budweiser, may come under suspicion and be asked to provide similar confirmatory data. In a related development, on September 27, MAFF, the largest buyer of U.S. short and TOKYO 00005695 002 OF 002 medium grain rice, told us they will require testing of the rice they purchase from the United States under its Uruguay Round minimum access commitments. If any evidence of the banned GM protein turns up, this could scuttle what have been about $130 million worth of annual purchases -- rice, by the way, that authorities, to protect domestic farmers, have not allowed into the Japanese food network since imports began in the early 1990s. Comment -------------- ¶6. (C) Given that the LLRICE601 variety of rice is safe, and Japanese experts understand this, the easiest solution would be for the GOJ to approve it and the worries of U.S. exporters would quickly melt away. Japan has already approved 20 other bio-engineered crops that produce the same protein. The company, however, which developed LLRICE601 has no intention to seek approval -- in part because it has no plans to market this strain of rice, in Japan or anywhere else. GOJ authorities claim there is no flexibility in its regulations and there is no alternative for potential exporters -- at least the ones they have identified so far -- other than to prove that the GM strain is not in their shipments to Japan. To avoid these sorts of trade problems in the future, we need to encourage Japan to base its food safety regulations on sound science. There may be more opportunity than in the past as the new Agriculture Minister has set as a priority boosting food exports and the Prime Minister's office has set up an office for this purpose -- which may force authorities to take a closer look at how out of touch they are generally with the realities of food safety, both on SPS and biotech issues. DONOVAN