Harmonization of seed legislation and regulation in CEEC, CIS and other Countries in Transition - David Gisselquist

ACRONYMS

1. INTRODUCTION

Although the seed industry is crucial for modern agriculture, total sales and profits are not as large as for other agricultural inputs, such as pesticides, machinery or fertilizers. At the same time, countries need many large to small seed companies to ensure farmer access to a full range of technology from world and local research at competitive prices. With the modest total size of national seed markets on the one hand, and a need for many players on the other, a country’s seed industry can be stunted or strangled if regulations are not workable.

But what are workable regulations? Harmonization - to broadly accepted international practices as well as to regional agreements - can be an important part of the process to ensure that seed regulations are workable. Harmonization to world best practice and regional rules allows farmers in any country - even a country with a small seed market - to have a choice of varieties from competing companies in large seed markets that overlap international boundaries.

Harmonization to world best practice lowers barriers for variety and seed movement with all countries, while regional harmonization may further (marginally) cut regulatory costs and barriers and improve phytosanitary controls among countries in a region.

2 NATIONAL SEED LEGISLATION AND REGULATIONS: ISSUES AND OPTIONS

Over the last decade, seed research, production and trade in CEEC, CIS and other Countries in Transition (CT) have been moving from socialist patterns of organization toward market patterns. Before 1990, regional agreements facilitated movement of varieties and seeds across regional borders. However, pre-1990 mechanisms for coordinating the seed industry have broken down, not only regionally but even within individual countries. Seed industries in many regional countries have suffered, losing access to new varieties from regional research on the one hand, and on the other losing access to regional markets. In many countries, seed industries have turned inward, trying to survive on national research and protected domestic markets.

Revising seed regulations has been and continues to be part of the process of ongoing changes in seed industries across the region. Unfortunately, many of the changes in seed regulations, as well as in seed production and trade, have been toward separate national markets and industries. Governments can foster a return to regional and international cooperation for their seed industries by: (i) harmonizing seed regulations to world best practice; and (ii) further harmonizing regulatory details and decisions according to regional agreements and practice.

2.1 Harmonization to world best practice

Harmonization to world best practice is the bottom line to promote a modern and competitive seed industry. Many regulatory features are crucial for the development of a market-oriented seed industry, including, for example, easy entry for new seed companies, allowing seed companies to contract with farmers of their choice, allowing seed companies to introduce new varieties, and giving seed companies responsibility and authority to ensure seed quality. In many countries in the region, local seed companies have a hard time doing their work because government licences and approvals are required at so many steps. In such cases, harmonization to world best practice means an overall shift from ex ante controls on seed company business decisions and production processes, to ex post controls on truth-in-labelling at the retail level.

All of the countries in the region could have access to the best seed technology in the world at competitive prices by adjusting regulations to accept varieties and seeds from the EU, other OECD countries, and regional neighbours. This does not necessarily mean that foreign seed companies would invest or otherwise move in to take over markets. More often, regional and EU companies would seek partnerships with new or existing local companies to produce or market, or both, seeds of new varieties with features that farmers might want. In some cases, companies may want to move seed across borders to cut production costs and to reduce seed inventories.

Government control on the introduction of new varieties is a major obstacle in most countries. As far as the writer knows, Lithuania is the only country in the region that allows companies to introduce new varieties for all crops without government review (similar to USA, Malaysia, India, and many other countries). From 1997, Romania accepted all varieties from EU Common Catalogues without further in-country tests. Later, Bulgaria also took steps to accept varieties from EU Common Catalogues without further tests. Recently, Albania has passed a new seed law that gives Albanian farmers access to new vegetable and flower varieties from all sources without prior government approvals, and for field crops allows all varieties in the OECD Seed List without further tests, except for national tests on maize, alfalfa, wheat and potatoes.

Another set of obstacles to seed industry development is in the controls that governments impose on seed company entry, seed farms and seed production. Most countries in the region have skilled technicians and farmers distributed throughout the country. Central controls on seed production, including compulsory certification and licensing for seed farms, can create conflicts with pro-market and pro-reform processes. New seed companies coming out of old state seed companies and seed farms can find their hands tied at a time when they need to be able to act fast and on their own to adjust to market demands and opportunities.

Overall, lack of harmonization to international best practice regulations - especially using regulations to block new entry for companies and varieties - has delayed the development of mutually beneficial ties between national, regional and world seed markets. Only two regional countries, Hungary and Czech Republic, rank among the top 25 seed exporters.

2.2 Regional harmonization

Regional harmonization of seed regulations is a concept that covers many options. In most discussions, the objective of regional harmonization is to create a larger regional seed industry and market in place of multiple smaller national markets. With complete harmonization, although that is not necessarily the intent of those who talk about harmonization, companies would be able to operate across international borders within the region without any more effort than they face operating, for example, across oblast, state, or provincial boundaries in individual countries.

However, not all advocates for regional harmonization want to go so far as to create one unified market. In some cases, objectives may be more limited. For example, countries might want to lower costs for registering plant variety protection (PVP), or they might want to improve phytosanitary controls against extra-regional pests.

Below, some of the major issues and options for regional harmonization of seed regulations are discussed.

Variety controls (i.e. allowing seed sale of a new variety)

In most CEEC, CIS, and CT, each governments decides what varieties seed companies are allowed to sell for most, if not all, crops, with government decisions based on government-supervised distinctness, uniformity, stability (DUS) and value in cultivation and use (VCU) tests. Options to harmonize variety controls across a region include:

• Each member government agrees to waive controls for some or all crops.

• For a list of crops, each country agrees to automatically accept varieties approved in any other country without further testing or decision. This is what is done in the EU.

• For a list of crops, countries agree to allow some regional body to test or to approve, or both, new varieties. This is what has been agreed among six Central American countries from early 2000. The arrangement is arguably unwieldy and unworkable. The governance of the regional body becomes an issue. Also, since it is a single body, it has monopoly authority (unlike the EU system, which lets companies choose which of 16 independent authorities to go through to get a variety approved).

Virtually all options to harmonize variety controls within the region offer far less benefit to a country than simply opening to varieties from all countries. Moreover, any country that accepts to work within a framework of regional variety controls may be binding itself into an agreement that blocks much greater potential benefits from unilateral opening. For example, if Kyrgyzstan wants immediate access to new EU varieties, all it has to do is relax controls on variety introduction (e.g. no controls or automatic acceptance of varieties in EU Common Catalogues). If, however, Kyrgyzstan enters a regional agreement with four or five other Central Asian countries that includes controls on variety introduction, Kyrgyzstan, unless it withdraws from the regional agreement, no longer has the option to liberalize access to EU varieties.

Phytosanitary and other import/export controls

In many of the countries in the region, permits for seed export and import are not managed in a routine fashion. Phytosanitary controls are part, but not all, of the problem, since governments also control seed imports, and even exports, on the basis of other factors as well. Unlike variety controls, this is an area where farmers and seed companies in the region have something to gain from governments getting together. Through regional meetings, phytosanitary experts can pare the list of pests and diseases to control on seeds in regional trade to those that: (i) exist in some of the countries but not in others; and (ii) represent an economic threat. When this is done, seeds for many crops can be moved from one country to another without phytosanitary certificates, while seed for other crops may be traded with phytosanitary controls for a reduced list of realistic threats.

Another aspect of harmonizing phytosanitary barriers can and should be to strengthen external barriers to a minimum standard. It is in the interests of all concerned that extra-regional seedborne pests and diseases do not enter any regional country.

Seed quality controls

This is another area where unilateral liberalization is arguably more important than regional agreements to reduce obstacles to seed movement among countries. Options to liberalize or harmonize seed quality controls to facilitate regional seed trade include:

• The easiest solution is for regional countries to agree to allow commercial sale of truthfully labelled seed for most, if not all, crops.

• The next-easiest solution would be to agree to allow commercial sale of truthfully labelled seeds that meet minimum laboratory standards (germination and purity), allowing companies to do their own tests.

• Many countries in the region have mandatory certification for major, and even minor, crops. If countries in a regional agreement are not willing to give up compulsory certification for some crops, seed markets would be larger (and seed would tend to be cheaper) if countries would accept each other’s certified seed. For several major crops, leading countries around the world already agree on certification standards through OECD Seed Schemes. Hence, those are the obvious standards for regional countries to endorse.

According to WTO, imports must be accorded equal treatment to locally produced goods. In other words, imported seed cannot be subject to more stringent quality controls than locally produced seeds. Many countries in the region are not members of WTO, so this condition does not constrain their actions. Nevertheless, this does show once again how de-regulating the internal market and harmonizing to world best standards can eliminate many of the possible obstacles to regional seed movements.

Plant variety protection

In several regional agreements around the world, governments agree to recognize each other’s decisions to assign PVP, and governments may create a regional body to assign PVP or patents.

Other factors

Other minor details covered in regional agreements can include packaging, truth-in-labelling, tariffs, etc.

2.3 Harmonization strategies

Most of the interest in harmonization flows from the gains that are expected with larger markets. Larger markets allow more (competing) seed companies to spend more to breed, test, and introduce new varieties. As already described, one way to move from a small national to a much larger regional or international seed market is to simply reduce barriers to varieties and seed moving into the country from other market(s). For example:

• Australia links into the world seed market by allowing variety introduction from anywhere without government control. Phytosanitary controls on seed imports are science-based in theory (but may be excessive at times).

• Romania (from 1997) and Bulgaria (from 1999) revised seed laws and regulations to allow automatic approval for all varieties in EU Common Catalogues. In the short time since Romania adopted this new policy, major European-based seed companies have established a presence in the market, companies have introduced many new varieties, and Romania’s seed exports to the EU have boomed.

Another strategy for moving from smaller to larger seed markets it to harmonize regulations among countries in a region (see Table 1). For example:

• The EU is the oldest and best example of countries harmonizing seed regulations to facilitate variety and seed movement. Varieties and seeds move across the EU with little regard for borders. Within the EU, we can see some specialization among countries in seed production. For example, France produces about 80% of EU maize seed, while the Netherlands produces over two-thirds of EU potato seed. However, across all crops, national seed production tends to follow national seed sales. For example, French seed imports are less than 20% of total seed sales (domestic and exports), while seed exports account for about 25% of total sales.

• From early 2000, agriculture ministers from six Central American countries - Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama - agreed to adjust regulations to create a regional seed market for five crops: rice, field beans, soybean, maize and sorghum. Ministers agreed: (i) to accept common certification standards; (ii) to streamline phytosanitary controls to focus on science-based concerns; (iii) to introduce PVP; and (iv) to cooperate to approve new varieties for seed sale in all five countries, based on regional tests.

• A number of seed harmonization schemes are under discussion, including six countries in MERCOSUR, four in southern Africa, and the three in eastern Africa (see Table 2).

Table 1. Existing and prospective harmonized seed markets

Benefits from regional agreements may be obscured if we focus too much on the EU. Because the EU market is so large, it is easy to overlook the high degree of openness between the EU and the rest of the world. Without access to non-EU technology and markets, EU seed companies could not and would not compete on a world scale. Even for the EU, with its enormous market, liberalization is more important than harmonization.

If we look outside the EU, harmonization to world best standards becomes even more important. Consider, for example, the new regional seed market that has been created among six small countries in Central America, with estimated annual sales of US$ 5 million. With a market that is so small, it is more important for seed companies that they can move varieties and seeds into or out of the region (e.g. from Mexico or Brazil to Panama) than from one small intra-regional market to another (e.g. from Panama to Nicaragua).

In countries with small seed markets, the option to form small to medium regional seed markets offers little gain unless there is first harmonization and liberalization to world best practice. This is the situation that applies to most CEEC, CIS and CT. Seed markets are far too small, not only country-by-country, but also considering several countries together, to allow world class research and competition to develop without at the same time taking steps to allow closer ties with the world seed market and industry.

For each country entering a regional agreement, the gains (and losses) that are possible depend on: its pre-existing degree of openness; whether the proposed regional market is open or closed; the size of the country; and the size of the proposed regional market. The interplay of some of these issues is illustrated in Table 2. In most cases, the dominating feature is openness.

Table 2. Potential gains to farmers, seed industries and seed companies in shifting from national to regional markets

While farmers, consumers, and agri-businesses will almost invariably gain from access to more (foreign) varieties and seed companies, local breeders (in the public sector) and seed companies may fear losses from competition. Since there are many more farmers than public breeders, there should be no choice between giving farmers access to the best seed vs protecting government breeders. In practice, one of the best investments during transition may be to support public breeding and research from the government budget so that they do not oppose liberalization of variety introduction, which would allow farmers to buy seeds of better foreign varieties.

3. ROLE OF GOVERNMENT AND PRIVATE SECTORS IN HARMONIZING SEED REGULATIONS

Although governments may take the initiative during periods of major change or reform to draft new seed laws and regulations, achieving workable regulations over time almost always requires dialogue with a private seed industry. It is not easy, in other words, to draft workable seed legislation unless one can see how the private industry is working. Furthermore, seed regulations are never a finished business. As technology and other factors change over time, the regulatory needs adjustment. For example, a decade ago there was little discussion about how to regulate agricultural biotechnology. Similarly, before the Trade-Related Aspects of Intellectual Rights (TRIPS) agreement in the mid-1990s, there was little interest in many countries to protect intellectual property rights in varieties.

What this means in practice is that seed legislation is a work in progress, and this is especially so for many of the countries in the region, where competitive private seed industries are still emerging from state-managed trade and research, and in some cases with excessive controls on entry, production and trade. Although most of the countries in the region passed new seed legislation in the 1990s, often with technical assistance provided by the EU, World Bank, FAO or other aid agencies, many of these laws and supportive regulations are less than ideal and will be amended and even replaced over time as countries continue to move towards private seed industries and competitive markets well linked to the world seed industry.

If things are working as they should, multiple domestic groups of seed experts contribute to regulatory design over time. These include the local private industry (seed companies and association[s]), public breeders, and regulators.

In addition, politicians ideally represent the interests of broader groups in the society. In some situations, what seed companies, breeders and regulators want may be damaging to farmers, consumers and agri-businesses. For example, regulators may want more authority and higher fees. Private companies and public breeders may want protective tariffs or other barriers against foreign seed and varieties. Hence, as seed regulations evolve over time, it is up to politicians to represent the interests of farmers, consumers and agri-businesses wishing for access to the world’s best varieties at a price that is not unnecessarily inflated by regulatory costs and restricted competition.

4. INTERNATIONAL ASSISTANCE TO HARMONIZE SEED REGULATIONS

4.1 Harmonization in the region

The prospects for harmonization to have a beneficial impact on farmers and seed industries in the region can be broken down into several subregions.

(i) For the 10 countries in Central Europe that plan to join the EU in the near to intermediate future, harmonization for all intents and purposes means opening to the EU and to the world seed industry and markets. These 10 countries represent some of the strongest seed industries in the region. Seed companies in Poland (US$ 400 million annual sales), Hungary (US$ 200 million annual sales), and Czech Republic (US$ 150 million annual sales) already have many joint ventures with EU and other foreign companies, and are getting tied into world research and trade. Romania and Bulgaria have unilaterally accepted varieties in the EU Common Catalogue. At the same time, in the short term, all 10 countries could gain from more open and liberal regulations facilitating closer ties with non-EU companies.

(ii) Newly independent countries in south Central Asia have at least informally considered the option to harmonize seed regulations. The gains that are possible for any such regional grouping are probably too small to bring them together. Large gains in access to new varieties, competitive seed markets and seed export sales are not possible for these countries without also including Russia, but, even so, bigger gains are possible by simply liberalizing to work with EU and other OECD seed companies, as well as with Russia and other regional countries.

(iii) Yugoslavia’s break up leaves a number of neighbouring countries with small seed markets, but with good research and technical skills. All regional countries have more to gain by harmonizing to EU and world markets than by any attempt to work back into a closed but unified regional market. Furthermore, if everyone opens to world markets, they will also be opening to each other, which may be the easiest way to recover some of the gains from regional trade and cooperation.

(iv) Newly independent countries in the Caucasus are countries that also have small markets. The best options may be to work more closely with Russia, the EU and other OECD countries. By far the biggest gains come with opening to OECD seed companies and markets, with or without enhanced trade and exchange among regional countries.

(v) Among Russia, Ukraine and other countries in Central Europe, Russia and Ukraine have been regional leaders in research and seed trade. Maintaining this position depends at least in part on continued excellence in research. This is only possible with active private as well as public scientific partnerships and exchange with OECD universities, research organizations and companies. Over time, as competitive seed industries develop in the region, countries that have been leaders in the past can be expected to maintain strong positions in regional markets on the basis of their large size, as well as continuing scientific leadership. For Russia and Ukraine, opening to western companies and markets is crucial to maintain regional leadership.

Although harmonization to world best practice is the most important task, within subregions there are opportunities to cut costs and to improve efficiency through regional cooperation, particularly in the areas of PVP and phytosanitary controls.

4.2 Role of international organizations in assisting harmonization

Through the 1990s and ongoing, bilateral and multilateral donors and other foreign and international organizations have often advised and otherwise pushed countries in the region to adjust seed regulations and seed industry organizations. After 10 years, it can be seen that some things have worked, but many have not.

Arguably, the international organizations that have had the most favourable impact are the public and private organizations that focus exclusively on seed issues, including Union Internationale pour la Protection des Obtentions Vegetales (UPOV), FAO’s Interim Commission on Phytosanitary Measures, the International Seed Testing Association (ISTA), OECD Seed Schemes, and FIS (Federation Internationale du Commerce des Semences). The influence that these organizations have grows over time as more regional countries become members and as seed trade, seed companies and national associations emerge and grow. So far, 22 regional countries are members of ISTA, and 11 are members of UPOV. Five countries (Czech Republic, Hungary, Russia, Slovakia and Slovenia) have seed associations that are members of FIS.

In addition to the activities of these seed-specific organizations, many bilateral donors and international organizations - including the EU, World Bank, FAO, USAID and others - have sought to influence seed sector development through technical assistance, grants and loans. After 10 years, success has often been partial or absent. Looking to the future, we can reasonably expect that technical assistance and aid will continue to many countries in the region. The impact of this aid might be improved with attention to some of the following issues.

First, development of national seed industries in isolation is not a reasonable goal. One of the major challenges is to encourage international openness and partnerships - be it in public research, regulatory design, private joint ventures, or whatever - so that ambitions and skills that are currently under-used and frustrated in countries with stagnant and isolated seed sectors are given an opportunity to contribute as much as they can.

Second, in all OECD countries, seed regulations - in practice, whatever the details and differences might be in design - allow competitive markets. OECD countries allow new entry for small to large companies, foreign and local companies, and new varieties. Too often over the last decade, donors have advised and helped regional governments to design and implement new seed regulations that are technically accurate and superficially similar to what is done in one or more OECD countries, but which are in practice an obstacle to new entry and competition. For example, donors have advised and assisted many countries in the region to establish centralized seed certification agencies. In some cases, ministries are using (or threatening to use) these new centralized agencies to control who can produce seed, obstructing local initiative (including local organizations that have many years of experience producing high quality seed). In most OECD countries, certification is either voluntary or decentralized (in the EU, to member governments), so that the centralized seed regulatory organizations that aid has helped to build are arguably not standard practice across OECD countries.

Finally, as private seed industries develop in regional countries, it gets easier over time for technical assistance to work not only with government agencies but also with the private sector. As the private seed sector develops, special attention should be given to small and medium enterprises and retail sales. Wherever these can develop, large seed companies will also have opportunities. In contrast, if local small and medium enterprises are not able to get into the seed business, many foreign companies with useful varieties will not be able to find local partners, and large companies that are already in the market may have trouble getting their seeds to farmers (for lack of retail outlets). Regulations that work for small and medium businesses will work also for large companies, but it is small businesses, and new entry, that are crucial for seed industry development over time.

BIBLIOGRAPHY

Constantine, J.H., Alston, J.M., & Smith, V.H. 1994. Economic impacts of the California One-Variety Cotton Law. Journal of Political Economics, 102(5): 951-974.

Gisselquist, D. 1994. Import barriers for agricultural inputs. UNDP-World Bank Trade Expansion Program, Occasional Paper, No. 10.

Gisselquist, D. 2000. Evolving Commercial Farm Services for the New Farm Structure. in: C. Csaki, and Z. Lerman, (eds). Structural change in the farming sectors in Central and Eastern Europe. World Bank Technical Paper, No. 465.

Gisselquist, D. in press. Regulatory issues. In: D. Wood and J. Lenne (eds). Agrobiodiversity: Characterization, Utilization, and Management. Forthcoming.

Gisselquist, D., & Gretther, J-M. 2000. An argument for deregulating the transfer of agricultural technologies to developing countries. World Bank Economic Review, 14(1): 111-127.

Gisselquist, D., & Pray, C.E. 1999. Deregulating technology transfer in agriculture: impact of Turkey’s 1980s reforms. World Bank Policy Research Working Paper, No. 2086.

Gisselquist, D., & Srivastava, J. (eds). 1997. Easing barriers to movement of plant varieties for agricultural development. World Bank Discussion Paper, No. 367.

Gisselquist, D., Feher, I., Gill, S., Grozdina, S., Gill, S., Smolcz, E., & Toma, L. 1999. Agricultural input industries in EU accession countries. In: C. Csaki and J. Nash (eds). Regional and International Trade Policy: Lessons for EU Accession in the Rural Sector. [World Bank] Environmentally and Socially Sustainable Development Sector Series, Paper No. 3,, 1999.

Pray, C.E., & Echeverria, R.G. 1988. Transferring hybrid maize technology: the role of the private sector. Food Policy, 13(4): 366-374.

Ulrich, A., Furtan, W.H., & Schmitz, A. 1987. The cost of a licensing system regulation: an example from Canadian prairie agriculture. Journal of Political Economy, 95(1): 160-178.

ANNEX 1 - HARMONIZING SEED REGULATIONS TO WORLD BEST PRACTICE AND REGIONAL AGREEMENTS