by the Food and Drug Administration (FDA)—as would occur under the Coordinated Framework if transgenic pest protected plants were not legally categorized as pesticides.

Regulation of transgenic pest-protected plant products will affect the crop-protection and seed industries. It may also affect crop breeding more broadly with implications for future agricultural productivity growth and for the structure of US agriculture. The possibility that regulation would function as a barrier to the entry of new participants is of special concern in this regard. The notion that regulation can function in such a manner is well established in economics. Regulatory requirements can create or enhance economies of scale by increasing the fixed costs of doing business in an industry, thereby limiting entry. Some have gone so far as to argue that established firms may even seek regulation precisely to inhibit entry and thus maintain market power (for a brief discussion see Viscusi et al. 1995).

The costs of generating test data on transgenic pest-protected plants might make regulatory review serve as a barrier to entry. Strict pre-market review of potential products with extensive testing requirements can be expensive. Imposing such fixed costs on newly developed products can have two kinds of negative effects. First, it can increase the potential size of the market (expected sales) needed to break even and thus justify investment in a new plant variety. Regulation could thus be one factor limiting investment in transgenic pest-protected plants with small potential markets; in other words, high testing costs could engender an “orphan crop” problem by discouraging research and development (R&D) aimed at crops for which annual seed or propagule purchases would be small. Second, it can limit entry into the market by entities that have relatively little capital, including small biotechnology startup companies, small to medium seed companies, and public-sector breeders. Limiting entry can reduce competition in varietal development, which in turn can lead to lower overall levels of investment in breeding R&D and affect the future growth and sustainability of agricultural productivity.

Regulation of transgenic pest-protected plant products as pesticides raises special concerns. The Environmental Protection Agency's (EPA) approach to regulation of these products typically involves requiring an applicant to submit more and more-expensive test data than submitted to the US Department of Agriculture (USDA) and the Food and Drug Administration (FDA) during their reviews of comparable products. As a result, regulation of transgenic pest-protected plant products by EPA under FIFRA and FFDCA has the potential to impose more substantial barriers to entry than regulation by USDA and FDA.

This appendix examines the extent to which regulation of transgenic



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