Why a Canada-China trade dispute was (almost) a gift to US biotech

Canada and China are in a trade dispute over canola oil. The origins of the case are pure politics. Canada held a Huawei executive on a U.S. fraud charge, and China retaliated by banning canola oil exports from two Canadian companies and slow-walking inspections more generally.

Canada sued at the World Trade Organization (WTO), filing a case that promised big returns for U.S. 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 the world over. It’s among the lowest in saturated fats and is a major Canadian export to China. Or at least it was, until an executive from Huawei was detained by Canadian authorities on a U.S. warrant for selling crucial equipment to Iran. China retaliated by banning canola imports from two Canadian firms, Viterra and Richardson International, and hit other canola imports with “enhanced” inspections. China also arrested two Canadians on allegations of spying.  

Canola sales to China plummeted, prompting Canada to file a case at the WTO. And it’s a good one. The most interesting part of the case concerns health and safety standards. Canada is arguing that China has no scientific basis to do what it’s doing. The request for consultations is a whopping seven pages, hits China on a long and thorough list of legal claims and adds, for good measure, that China isn’t just violating the letter of the law, but its spirit too.

Canada can win this case. The ruling, net of all appeals, was shaping up to be a gift to U.S. biotechnology. Indeed, the dispute centers on key parts of China’s import regime on genetically modified foods, meaning the case matters beyond canola.

But since the Biden administration is refusing to unblock the AB, U.S. biotechnology will be short-changed. Why? Because Canada and China have decided to use arbitration as a work-around for an appeal, known as the multi-party interim arbitration agreement. They have no choice; the AB isn’t working. But this means that it will not be possible for U.S. biotechnology to get the full benefits of what was shaping up to be a “free ride.”

China’s import regime on genetically modified foods poses numerous challenges to U.S. biotechnology. Getting an import permit is time-consuming, mired in opacity and depends on things that make no scientific sense. China is a global outlier in terms of testing procedures, its toxicity restrictions, and its insistence on rat testing. Exporters need to field test in China, even though they’re not allowed to grow in China. 

Canada’s case raises two big issues that U.S. biotechnology cares about. First, that China pursues different health and safety goals depending on the food, including whether it is home-grown versus imported. Second, that there are less trade-restrictive means by which China can get the job done. Just getting China to explain its “appropriate level of protection” would have been a serious win for U.S. biotechnology.

But that’s not going to happen now. Canada and China will pursue arbitration in the AB’s absence. The two countries may reach a solution to their dispute, but there won’t be a ruling to give China political cover to comply or for the U.S. to leverage in future litigation. That’s a shame because U.S. biotechnology stood to benefit even more from a ruling than Canada, given that the U.S. is a far bigger exporter of genetically modified foods, and other countries might mimic China in closing their markets.

There’s a cost to putting trade policy on pause in a global economy. This is an example of how costly it is. If the Biden administration doesn’t soon unblock the AB, canola won’t be the last gift from an ally that the U.S. misses out on.

Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service at Georgetown University. Follow him on Twitter @marclbusch.