Major U.S. grain exporter Cargill Inc's lawsuit against Syngenta AG over losses stemming from China's rejection of genetically modified corn demonstrates how U.S. markets are becoming increasingly subject to foreign rules, legal experts said on Tuesday.
Cargill sued Syngenta on Friday in Louisiana state court for "negligence" in selling U.S. farmers a genetically modified seed that had not yet been approved for import in China.
China has rejected hundreds of thousands of tonnes of U.S. corn since November due to the presence of Syngenta's modified corn, called Agrisure Viptera, or MIR162, which makes the corn resistant to insects.
"I'm sure it will spur controversy in the U.S. from folks who think that U.S. companies shouldn't have to comply with the laws of other countries, in the U.S.," said Andrew Torrance, a biotechnology law professor at the University of Kansas.
Torrance said the lawsuit could reflect economic power shifting away from the United States.
Legal experts said that while similar case law was slim, foreign regulations could not be ignored in cases that involved domestic courts and companies. This is in part because there are no globally harmonized rules governing GMOs.
"This case is really about whether Chinese regulatory decisions can bar innovation in American agriculture," said Eric Olson, a Denver attorney who worked on litigation over genetically modified rice that concluded in 2011 with Bayer settling for $750 million. "The U.S. government has approved this product as safe and effective for use by American farmers, and that should end the inquiry."
Olson, who is with Bartlit Beck Palenchar & Scott, added that it was like being told you could not buy an iPhone 6 in the United States because China had not gotten around to approving it.
In the rice litigation, about 11,000 U.S. farmers had accused Bayer's modified rice of tainting their crops, sending export values plummeting.
"Juries were clear in that case, Bayer was liable for farmers' damages," said Adam Levitt, an attorney at the Grant & Eisenhofer firm in Chicago. "It comes down to who is responsible for the irresponsible handling of unapproved genetically modified crops."
He said the rice litigation indicated that export to foreign markets was now an important consideration in how U.S. producers and traders must behave.
The legal experts said the key in the Cargill case would be to determine whether or not a seed maker owed the grain trader any duty to ensure its products had foreign approval before releasing them in the United States, where they already had approval, as was the case with MIR162.
Establishing that duty "strikes me as unusual, unless Syngenta had made some guarantees to Cargill (in a contract)," said law professor Anastasia Telesetsky of the University of Idaho. "We're talking about sovereign nations here."
Cargill said it had lost $90 million as a result of Syngenta's actions. Another exporter, Illinois-based Trans Coastal Supply Co, said in a separate lawsuit also filed Friday that it expected to lose $41 million. Syngenta called both cases "without merit."
Legal experts said the lawsuits could also trigger more lawsuits.
"I think we’ve seen in the past that this kind of lawsuit tends to involve everyone in the supply chain, from farmers to mills," Olson said.
(Reporting By Andrew Chung; Editing by Ted Botha)