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Agriculture Trade Issues: The U.S. and the European Union
(Released February 2001)



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The use of biotechnology in food production has emerged as the central issue in a trade conflict that has been brewing between the U.S. and the European Union for years.

The U.S. agricultural industry has embraced biotechnology as a convenient and effective way to improve crop yields, growth efficiency, pest resistance, and quality of food products. Biotechnology is responsible for products such as Bt corn, which manufactures its own pesticides, the hardy Flavr Savr tomato, and hormone implants that encourage faster growth in beef cattle.

Not everyone favors the application of this technology to agriculture. Europeans remain highly suspicious of genetically modified foods and products. The clash between the U.S. and the European Union over standards, techniques, safety assessments, consumer rights, and ethics has affected the agriculture industries on both sides of the Atlantic.

The use of hormones in beef cattle is one of the major issues of contention, as described in the CRS Issue Brief, The European Union's Ban on Hormone-Treated Meat (December 19, 2000). Used in cattle for the past 30 years, implants deliver either naturally-occurring hormones or synthetic ones that mimic them. They promote growth and produce a leaner carcass that is more appealing to health-conscious consumers. Implants are regulated by the FDA and by the USDA, both of which maintain that beef produced in this way poses no health threat to humans. However, the European Union refuses to import such meat, suggesting that there are insufficient studies to prove its safety for human consumption.

Some suspect that economic motives, not genuine concern for the health of consumers, lie behind this decision. Banning imports protects European beef from competition with cheaper U.S. beef. Meat producers in Europe also note that beef sales have suffered since the mad-cow disease outbreak and the current foot-and-mouth disease problem, and are anxious not to give consumers any additional reason, such as hormones, to avoid beef. The U.S. beef industry claims that the European Union ban is costing it more than $200 million a year in lost revenue.

The World Trade Organization ruled that such a ban was illegal under the 1994 Uruguay Round Agreement on Sanitary and Phytosanitary Measures. This agreement requires countries to demonstrate that there is a valid health concern, backed up by scientific studies, for banning a particular agricultural import. The WTO also authorized the U.S. to retaliate by assessing heavy import tariffs on European agricultural products, including cheese, chocolate, and ham.

In continued defiance of the WTO ruling, the European Union Commission voted in May 2000 to ban all implant hormones provisionally, and one of them indefinitely. The U.S. has rejected the European Union's offers of compensation, and the issue remains unresolved.

Another high-profile conflict between the U.S. and the European Union is the banana trade war. Europe's banana import policy favors its former colonies and restricts import of bananas from several Latin American countries where U.S. companies are dominant. The CRS Issue Brief The U.S.-European Union Banana Dispute (December 9, 1999) notes that the economic stability of some Caribbean nations hangs in the balance pending resolution of this disagreement.

Food labeling is another aspect of international agricultural trade. Most, but not all, imported foods are required to be labeled with their country of origin when they are offered for sale in U.S. stores. Exceptions are eggs, fresh fruits and vegetables if sold loosely from a bin or crate (if packaged in plastic, the bag must be labeled), nuts, and any meat that undergoes further processing in the U.S., even processing as simple as cutting a large piece of meat into several smaller pieces. The agricultural industry would like to stop allowing these exceptions, so that customers in a U.S. supermarket would always be able to distinguish between foods of domestic and international origin. Industry representatives say that when given the choice, customers will buy domestic items more often, offsetting the effect of persistently low food prices. They also say that U.S. consumers have the right to this choice due to health and safety concerns associated with imported foods, such as the recent mad cow disease epidemic that affected European beef.

Several bills were proposed to the U.S. 106th Congress to address this issue, as detailed in the CRS Report, Country of Origin Labeling for Foods: Current Law and Proposed Changes (December 1, 2000). The bills would expand the labeling standard to include all imported items.

The requirements would levy an enormous burden of expense both domestically and abroad. Some say that the cost of implementing such a law, and of regulating all the retailers who provide these items for sale, would far outweigh the benefits. These critics contend that U.S. customers are not more likely to buy domestic products, that it is unfair to imply that domestic products are higher quality or safer without scientific proof of such a distinction, and that just as many food-borne illnesses originate in domestically-produced foods as in imports.

Other agriculture bills proposed in the 106th Congress sought, like the country-of-origin labeling bills, to redress low prices for agricultural products. These included six emergency farm relief bills and a bill to increase coverage for crop insurance, as discussed in the CRS Report, Agriculture and the 106th Congress: A Summary of Major Issues (December 15, 2000). Legislation to require labeling of genetically modified foods was proposed, but has not yet been ratified.

The report notes that a quarter of farm income comes from international trade, suggesting that improving and expanding trade may be a long-term solution to persistently low prices for agricultural products in the U.S. Efforts in this area included the approval of permanent normal trading relations with China, the exemption of agricultural products from unilateral trade sanctions on certain countries (such as Cuba), and increased pressure to resolve the meat hormone conflict with the European Union. One technique that is being used to pressure the European Union to comply with the WTO ruling is carousel retaliation, rotation of the products the U.S. chooses for trade retaliation.

The next round of World Trade Organization talks is expected to focus, among other issues, on resolution of the meat hormone dispute, and on restrictions on importation and labeling of genetically modified products.