2013 Productivity Commission Inquiry on Regulation 20 October 2013

Publications & Resources

20 October 2013

The Committee of Inquiry on Regulation

C/o Murray Sherwin – Chair, Productivity Commission

PO Box 8036

The Terrace

WELLINGTON 6143

The Productivity Commission Inquiry on Regulation

PSGR is a New Zealand organisation comprising scientists and medical professionals providing an independent voice on genetic engineering technology, nanotechnology, synthetic biology, bio-geo-engineering, and other emerging technologies. PSGR has no affiliations with any political party or any vested interests.

The Commission has been asked to consult with those involved in receiving or providing regulation. PSGR members include professionals who have direct knowledge of regulation, and are well qualified to provide insights across a range of regulatory areas, and make cross-sector evaluations.

PSGR is concerned for the public interest and advocates long-term thinking, ethical and fair-minded regulation, and the application of the precautionary principle established internationally, to meet community expectations and the needs and protection of future generations.

Terms of Reference for the inquiry

The terms of reference for your inquiry have been provided by the referring Ministers – the Rt Hon. Bill English, Minister of Finance, and the Rt Hon. John Banks, when Associate Commerce Minister, Associate Education Minister, Regulatory Reform Minister and Small Business Minister - in their letter of 10 May 2013.

Cases Studies

The Commission has been asked to report on ways to improve design and operation of regulatory regimes, with case studies (paragraph 9 of the terms of reference).

This submission is provided as input for the committee's recommendations. It gives examples of potential case studies to illustrate the cross-system themes on which the Productivity Commission has been asked to report. Each example is highlighted because it provides insight into the issues, barriers and potential improvements for better outcomes.

Case studies have been indicated that relate to a number of areas listed in the terms of reference.

These will assist the Commission to make its recommendations for potential changes to improve regulatory outcomes.

Executive Summary

Examples of regulation have been identified which serve to diagnose issues which negatively impact desired outcomes across all sectors of regulation. The inadequate regulatory outcomes include risks to public health from an increase of chemical toxin exposure in novel foods, and risks to the environment arising from the release of novel organisms into the environment.

These shortcomings in regulatory outcomes are related to factors that create conflicting demands. These are:

• Government policy that promotes risk taking

• Official advocacy of market forces whilst subsidising and obscuring market failure

• Inequitable transfer of risk

• A culture within regulators of self-deception and refusal to recognise and address failures

Recommendations for the Productivity Commission's Report

The Commission has been asked to provide cross-sector recommendations to improve outcomes. In order to do this, the recommendations need to address the following issues:

• Accountability mechanisms are being undermined by sector interests and there is a lack

of responsiveness to community expectations

• There is a reduction in capacity for effective regulation because transnational harmonisation under trade agreements is allowed to dominate over other desired outcomes

• There is an unacceptable level of risk imposed on communities when the precautionary principle is not respected and a long-term view considered. Risk-taking in private commercial activity has been allowed to transfer risk to others, at the expense of the public and the environment

• There is an over-reliance by local regulators on equivalent regulators overseas. There is a failure to benefit from best practice where one equivalent regulator is favoured over another; for example, the US Food and Drug Administration (FDA) regulation of novel foods over the European Food Safety Authority (EFSA) protocols for animal feeding trials.

• There is a systemic weakness in learning the lessons of the past, and learning from experiences overseas

• Some regulatory authorities have an internal culture characterised by self-deception and inability to be self-critical. To maintain a sense of infallibility and self-belief that they ‘get it right’, regulators ignore contradictory evidence and give more weight to industry assumptions and opinions than they give to independent peer reviewed science

• These issues will be even more problematic if the TPPA and other multilateral agreements result in a weakening of New Zealand's capacity for self-governance and sovereignty

• There are serious gaps in regulation of new technologies such as new forms of genetic engineering, nanotechnology, and synthetic biology

References

We refer the Productivity Commission to the comprehensive supporting evidence in the recent report on New Zealand's regulation of genetically engineered organisms (GEOs)[1] by The McGuinness Institute, Wellington.[2]

PSGR is able to provide other references for the examples cited in this submission, which are on public record searchable on the internet. References for key documents are also included in the contents of letters to officials that are available on our website www.psgr.org.nz. Further supporting information is available in peer-reviewed journals and from the organisations involved in regulation (MPI, MFE, FSANZ, MED, NZTE, MFAT).

Please contact us for any further references not provided by any of the above.

Thank you for the opportunity to provide input. PSGR hopes this submission will assist the Productivity Commission in its important work.

Submission

The examples below have been drawn from PSGR's engagement with and monitoring of regulation across varied sectors over the last decade and a half.

The lessons to be learned are broad ranging and are not limited to one regulatory sector.

Although examples are mainly drawn from regulation of genetic engineering, they are indicative of the general factors identified as important for the Productivity Commission's recommendations to address.

1 - Accountability mechanisms are being undermined by sector interests, and there is a lack of responsiveness to community expectations

The public concern for precaution on GEOs and for the right to avoid consuming GM foods has been established through surveys of public opinion for more than a decade.

The Royal Commission on Genetic Modification (RCGM) was established in response to public concern, and its recommendations were largely accepted by government initially. However, there was a failure to meet the RCGM recommendations to create a Parliamentary Commissioner for Biotechnology, and the abolition after a few years of the Bio-Ethics Council has created a gap in regulatory oversight that is recounted in the previously mentioned McGuinness Institute report on GM in New Zealand.

The McGuinness Institute describes a situation that has resulted in a significant investment by government in private sector joint ventures that do not meet the shared values of New Zealanders in regard to ethical treatment of food animals, and the use of such animals as experimental bioreactors in contravention of the recommendations of the Royal Commission.[3]

The policy of government has been to continue to advocate and support private sector partnerships that are assessed in the McGuinness Institute report as potentially not in the national interest.

There is a view that investment has been biased to transgenic research at the expense of organic and other developments that are more beneficial to New Zealand’s brand reputation, export position and environmental wellbeing.

Concerns have been raised of a conflict of interest for members of the government-appointed research funding bodies that may result in the interests of one sector being served over another. There is the example of Vice President of Federated Farmers – Dr William Rolleston - and his role on funding boards, and as the long-time industry spokesman for the Life Science Network.

Responsiveness to community expectations for regulation is also lacking. There is continuing community concern on regulation of GEOs under HSNO Act which is based on ‘socialised risk’.

There is a transfer of risk to the public for long term, slow-moving harm caused by GEOs that the insurance industry refuses to cover.

In effect, there is a subsidy of commercial risk-taking with genetic engineering and an absence of normal constraints on risk-taking by business. This situation is one which puts at risk the greater good of preserving GE-free production and a coherent “Clean Green” Brand reputation, that would be of wider benefit to the non-GE export sector, and the national identity overall. These issues are discussed in the McGuinness Institute report.

Regulation outcomes are compromised because there is a benefit received by private investors whose risk-taking with genetic engineering projects is subsidised; i.e. private companies working with AgResearch (transgenic animals) and Scion (genetically engineered trees).

Government policy has been to refuse requests by Local Government New Zealand (LGNZ) and individual councils to end ‘socialised risk’.

Acting on their responsibilities under the RMA, Councils from Whangarei to Bay of Plenty are looking to make commercial use of GEOs a prohibited or controlled activity locally; for example, with users subject to a bond and proof of financial fitness to pay compensation for contamination or other damage.

As an example of why this is important is the situation in 2003 leading to the destruction of 3000 transgenic sheep at Whakamarumu. This experimental flock was funded by Netherlands company, PPL, which failed financially and was unable to then pay for the shutdown of the experiment, scientific testing of transgenic animals, or clean up and remediation of the site.[4]

Action by councils to prevent this happening and to encourage precaution are a benefit for sound regulation given the scientific uncertainty around the risks of GEOs, and the lack of any statutory responsibility for the EPA to adopt the Precautionary Principle in its own decision-making.

In response to public concern, a number of New Zealand councils have worked to develop a second tier of local regulation to compliment the EPA role. This should be considered a positive response to community, scientific and economic concerns relating to the impact of GEOs on New Zealand, but is being opposed by the Minister for the Environment who intends to amend the RMA to prevent such precautionary policy. The claimed justification by the Minister for this: “to avoid duplication with the EPA” is not credible. The Ministerial intervention to stop councils responding to concerns of the community and non-GE export sector will add to the risk of poor regulatory outcomes that will harm New Zealand.

2 - There is a reduction in the capacity for effective regulation because transnational harmonisation under trade agreements is allowed to dominate over other desired outcomes

These issues will be even more problematic if the TransPacific Partnership Agreement (TPPA) and other multilateral agreements result in a weakening of New Zealand's capacity for self-governance and sovereignty

It is a concern that the TPPA may undermine the rights of countries to test, prohibit, or label genetically engineered foods. The secret negotiations are not yet open to public scrutiny, but New Zealand's agreement may be made at cabinet level and may then not require parliamentary sign-off.

The potential for trade agreements or other agreements aimed to enable trade, or build 'harmonisation' is a serious risk to New Zealand being able to regulate effectively for its own national and local-level interests

3 - There is an unacceptable level of risk imposed on communities when the Precautionary Principle is not respected and a long-term view considered

Risk-taking in private commercial activity has been allowed to transfer risk to others, at the expense of the public and the environment. This has already been detailed in the sections above.

The socialisation of risk is a false subsidy for commercial risk taking. This is a government policy pursued to promote innovation, but at a cost that is unquantifiable and unacceptable to a majority of the New Zealand public. That this is the case is evidenced by the council-commissioned surveys of communities in Auckland and Northland in 2009 showing a majority find the risk exposure under HSNO to be unacceptable.

We refer you to the analysis of the McGuinness Institute on the issues of equity, poor outcomes, transfer of risks and the unfair accrual of private benefits from policy regulating GEOs.

4 - There is an over-reliance by local regulators on equivalent regulators overseas

There is a failure to benefit from best practice where one equivalent regulator is favoured over another; for example, the US FDA regulation of novel foods over EFSA protocols for animal feeding trials previously mentioned.

There are risks to desired outcomes for regulation that arise because of an over-reliance on other authorities.

In the first example below, officials at MPI identified there is no process for reviewing a decision in New Zealand that has been made by the Trans-Tasman regulator for food safety.

The example from Food Standards Australia New Zealand (FSANZ) is the approval of new transgenic food sprayed with multiple chemicals, including 2,4-D. This has happened without there being any independent testing of the food for its safety when consumed after being subjected to the sprays, and without any Maximum Daily Residue limit having been established.

The approval was made by FSANZ via the responsible Ministers, but no mechanism exists in New Zealand for review or appeal of such an approval even when it was made despite the absence of vital evidence from feeding studies. Such studies are considered best practice and absolutely necessary to establish the safety of genetically engineered foods by the EFSA and the Technical Expert Committee of the Supreme Court of India, both of which consider feeding studies must be mandatory before approval of new transgenic foods for sale as safe.

The lack of a mechanism to review such a decision is of great concern. To what extent the problem may apply to other trans-Tasman or multilateral regulators is a matter for the Productivity Commission to consider. The matter of the 2,4-D GM food approval is being considered by a committee of the New Zealand Parliament. The expert scientific witness testimony is provided on http://www.parliament.nz/resource/0001877325.

5 - Another case study for the Productivity Commission to consider is the impact on outcomes of the approach to transgenic food safety adopted by the US FDA and the EFSA

The FDA requires no long-term animal testing because it believes that genetically engineered foods are ‘substantially equivalent’ to conventional food. This theory was established at the FDA despite the objections of scientific staff and is still the official starting point for assessing novel transgenic foods. As a result of FSANZ deferring to the FDA rather than adopting EFSA protocols, the regulatory protections provided to New Zealanders are demonstrably inferior and inadequate.

This case study is important as it is an example of on-going regulatory failure based on a flawed scientific theory adopted by US regulators with knock-on effect for regulators in New Zealand and Australia. There is a need to establish and address the negative impact of similar inadequacies in different regulatory sectors where best practice has been compromised because of industry or sector pressure, dominant agendas to enable trade or for other reasons.

A Report of the US Sub-Committee on Science and Technology in 2007 - equivalent to the New Zealand Auditor General Office – states:

3.1.1 - FDA does not have the capacity to ensure the safety of food for the nation;

3.1.2 - The development of medical products based on "new science" cannot be adequately regulated by FDA; and

3.3.3 - The FDA cannot provide the information structure support to regulate products based on new science.

The “new science” referred to includes a plethora of research connecting glyphosate and Roundup Ready transgenic crops, hence animal feed, to leaky bowel syndrome, gut dysbiosis, disruption of neurogenesis and autoimmune diseases, Type 1 diabetes, autism and other problems. Dr Rosemary Mason and Dr Martha Herbert have also highlighted the relationship to autism at the June 2013 Autism Conference in Edinburgh.

These multitudes of connections reveal that regulatory inadequacies in one section can have wider impacts beyond the immediate category of regulation. These effects extend to New Zealand when local regulators rely on the overseas regulator to be leading the way.

The negative effects are exacerbated by inadequate funding of local regulators that prevents them from being effective in their work. New Zealand Trade Minister Tim Groser recently commented at a conference on trade with China that government cuts to biosecurity and other staff at MPI have had the effect of undermining regulation that has directly impacted our capacity to effectively monitor and ensure food safety.

The Minister’s comments add to the Auditor General's assessment of inadequate staffing and capacity at Biosecurity NZ (formerly MAF). There has been a long history of incursions and breaches, including PSA linked to imported contaminated pollen that has devastated some Kiwifruit orchards, and the varroa mite which has harmed honey production.

Lack of resourcing is one of the factors impacting regulation, and one of the reasons that there is a failure to back up the current rules - for example, for food safety and biosecurity - with monitoring. This is a fault that the Auditor General highlighted in last year's report on bio-security in New Zealand and MPI. A current example of this failure is the importation of thousands of tonnes of genetically engineered, RoundupReady crops entering this country's food chain via animal feed with no monitoring whatsoever by MPI because they are not required or funded to do so.

As such, this is an Achilles heel in the integrity of New Zealand’s food system that has negative implications across a range of regulatory areas: human health, animal health, biosecurity, economic development, exports and trade.

6 - There is a systemic weakness in learning the lessons of the past, and learning from experiences overseas

Some regulatory authorities have an internal culture characterised by self-deception and inability to be self-critical. To maintain a sense of infallibility and self belief that they ‘get it right’, regulators ignore contradictory evidence and give more weight to industry-assumptions and opinions than they give to independent peer reviewed science.

7 - The resistance of regulators to recognise and learn from mistakes may be part of an internal culture that undermines the desired outcomes for regulation

The lessons of new organisms becoming established as pests in New Zealand are also of importance, but have not been enough to prevent a government policy to promote increased use of new organisms, including genetically engineered organisms.

Regulators are also at risk from a culture of denial that new information calls into question previous decisions. There is resistance to facing the inconvenient truth of peer-reviewed scientific evidence of harm caused from consuming transgenic crops. A recent example of this was in the official response to the research of Professor Giles-Eric Seralini et al. which is the first lifelong animal feeding study of a genetically engineered food and showed the need for more rigorous testing of transgenic foods than has been done so far.

As mentioned, despite the industry-driven, immediate and unconsidered dismissal of the research, the findings have since provided the foundation of improved regulation being adopted by the EFSA, and are in line with the standards demanded by the Technical Expert Panel appointed by the Supreme Court of India. New Zealand and Australian officials continue to reject such standards, and follow the lead of the FDA by conducting no independent testing at all.

The failure of regulators to be learning organisations is shown by a history of breaches of controls on GEO field trials set by ERMA (now the EPA). Despite repeated breaches there has been no system of improvement in monitoring, enforcement or motivation to comply. At the same time, as risks are being taken under the HSNO Acts ‘socialised risk’ framework, the government continues to refuse to address the issues of strict liability as a means to moderate risk taking by users of genetic engineering technology. The repeated breaches of controls intended for containment of transgenic material have not been halted and ERMA/EPA have failed to use penalties to motivate future compliance. As mentioned, councils are considering bonds and proof of financial fitness as an additional tier of protection from risk-taking by commercial users of genetically engineered organisms.

The McGuinness Institute report on genetic engineering in New Zealand provides a context for the transfer of risk to the public and encouragement of risk taking by government policy, which runs counter to the country benefitting economically from meeting the demand for clean safe food.

There are also serious inadequacies in the regulation of labelling of GE foods or foods containing genetically engineered ingredients or additives so consumers can choose to avoid consuming them for health, cultural, ethical or other reasons.

There is a failure to back up the current rules with monitoring which could give the public confidence in the regulation and could encourage compliance.

By allowing consumers to be misled into buying products with transgenic ingredients that are hidden or unlabelled – for example, oils derived from transgenic crops; transgenic foods sold in cafes and restaurants - the regulation adds to market failure, rather than living up to free-market principles that have been advocated.

Constraints on labelling or prohibiting transgenic foods under the TPPA could further undermine consumer-led markets from operating as they should and would continue a false market for transgenic foods that would otherwise not exist. The absence of labelling of meat made from animals fed transgenic crops is also a gap in regulation. Animal feed has become a dumping ground for unwanted transgenic crops, but its consumption has been shown to impact animals. The waste from animals fed such crops sprayed onto land can contaminate soil with transgenic DNA. The failure in regulation to monitor and label products of animals fed transgenic crops also deceives consumers and perpetuates a false market that would fail if it was not for deception of the consumer.

8 - There are serious gaps in regulation of new technologies such as new forms of genetic engineering, nanotechnology and synthetic biology

The examples given in this submission have mainly come from genetic engineering technology regulation, objectives and outcomes, but raise broader issues.

PSGR draws the attention of the Productivity Commission to the regulation gap in managing risks from nanotechnology, synthetic biology and emerging technologies, including new techniques of genetic engineering that are not adequately regulated, but are occurring in a vacuum of policy and controls.

In conclusion

First principles in regards to public regulation tell us that government needs robust systems of governance to ensure the transparency and accountability of regulators to the public interest under administrative law. For this to occur there needs to be effective oversight both from within government and from the public to ensure that a high standard of performance in the public interest is being consistently achieved. It is critical that partisan self-interest in the world of commerce, politics and elsewhere, is managed by regulators in a manner that upholds the sole priority of the public interest.

For regulation overseen by government to work well there needs to be effective regulation of government itself. The reforms of the 1980s to government effectively reduced the ability of the State Services Commission to regulate the departments of government in a manner that would see them reach and maintain their responsibilities to the public interest under administrative law. A review of the structure of regulation in New Zealand should start at the top with a review by an independent international constitutional legal team with submissions from the New Zealand public as to how New Zealand government could be best structured to serve its administrative law responsibilities to the public interest of those under its jurisdiction.

In order to support the accountability to the public interest the public need to have ready and transparent access to contribute to that regulation and the ability to effectively challenge and shape regulatory policy and procedures in form and function to best serving the public interest. The maintenance of this democratic input into regulation is critical. In many instances the decentralisation of regulatory decision making to local authority level supports this democratic input. For example, maintaining local bodies power of regulation under the Resource Management Act, in regards to the care of their lands and waters in their regions, rather than centralising this regulation, maintains access and input from the public in regards to this level of regulation which directly affects them. There are many examples in New Zealand of over centralisation of regulation compromising the public interest. For example, in regards to food regulation the current harmonisation with Australia has compromised the ability of the New Zealand public interest to be reflected in decisions in regards to food regulations. This is a very serious regulatory structure failure, as it means that the New Zealand government’s responsibilities to the public interest in a safe food supply are not being met.

New Zealand has a reputation for being an honest broker and having relatively low levels of corruption within its public administration. In a world where the public and consumer markets are more sensitive to the quality of product they are being offered and the inherent risk of contamination of many products, effective regulation of our quality and health standards in New Zealand reflect in the quality of our exported goods and services. It is therefore very much in the public interest of our nation, in the economic as well as the environmental and social spheres, that the New Zealand regulatory framework is given a very high priority and that it functions effectively in its role of protecting the public interest. The corruption of some international regulators has become visible to the international public and good quality independent regulation here in New Zealand is critical to protect our markets and in time could add further value to New Zealand’s trading position as well as its domestic position.

The Trustees of Physicians and Scientists for Global Responsibility

Ends

[1] May also be referred to as genetically modified organisms (GMOs), transgenic organisms, or transgenes.

[2] http://mcguinnessinstitute.org/Site/Publications/Project_Reports.aspx

[3] http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10642031

[4] http://www.gaige.net/20030717060128933.html

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