The Environmental Protection Agency has decided to take over the regulation of the gene-engineering industry, putting several million dollars a year and two dozen staff members into monitoring the fledgling biotechnology industry.

The decision represents a milestone in the history of gene engineering, as it will shift the focus from hypothetical questions and preliminary studies to the introduction of real products into the environment.

The EPA "has decided to get ahead of the game for a change," and begin regulation just as products of the new industry are beginning to reach the marketplace, said Don R. Clay, acting assistant administrator for pesticides and toxic substances.

By next year, the EPA expects to have about 25 people working in the area with an annual budget of about $3 million.

Companies making the first two or three gene-engineered products that might be within EPA's regulatory reach have begun talks with the agency, according to Clay. But he said he could not be more specific about the products since trade secrets are involved.

Many believe that biotechnology marketing will be a tangle of lawsuits and countersuits for some years to come. It not only involves hundreds of potentially patentable inventions, but inventions that happen to be living organisms. It has been only in recent years that the courts have said it was possible to patent biological products, including new forms of life.

Biotechnology companies are split on the question of regulation, with some arguing that no new efforts are required, while others say the most important thing is to have the rules of the game defined, and soon.

EPA's move to regulate gene-engineered products will probably be challenged in court, said Thomas O. McGarity, a law professor at the University of Texas, since the law it is citing as the basis for its regulation says nothing about biotechnology or new organisms.

It is the Toxic Substances Control Act (TSCA), which governs all "new chemical substances." It is unclear whether the courts will count engineered creatures as "new chemical substances."

EPA lawyers have said the position is defensible, and that the regulators could go ahead. McGarity, in an article in the current issue of the Vanderbilt Law Review, said the EPA arguments are "convincing, albeit risky."

Under the toxic substances act, industries are required to notify the EPA every time they make a new substance, are required to keep records on the manufacture of the new substances, can be required to do safety tests, and are required to notify the EPA if a new product might present a risk. Thus, using the act, the EPA could build and maintain a permanent registry of gene-engineered products and their safety records.

Since many of the products created by gene engineering will still be common pharmaceutical and agricultural chemicals--such as pesticides or hormones like insulin--they will not require special regulation.

But some products, such as microbes engineered to degrade waste in waste treatment plants, fall into a special category because they are alive. Once introduced into the environment, they cannot be recalled because unlike chemicals and drugs, they live, grow, multiply, and move on their own.

The EPA's primary job in the next year will be to decide how to determine whether a microbe is risky, and how much risk is involved in putting it into the world.

Manufacturers must submit applications to the EPA when they are about to put a new chemical or pesticide on the market. Among the questions Clay said probably will have to be answered before a substance can be marketed:

* Is it a pesticide to be regulated under one law, or a "new chemical substance" to be regulated under another?

* Can the microbe survive on its own in the environment?

* Is it likely to be pathological? How can this be determined?

Many companies say they feel there is little need for new regulation. They say they hope that gene-engineered products will "not be considered special" but will be included alongside established industries such as drug companies and distilleries, whose manufacturing processes are very similar, said Michael Ostrach, vice president and general counsel of the Cetus Corp., a biotechnology company based near San Francisco.

"People have been putting new bugs or plants into the environment for hundreds of years," he said, referring to the specially grown bacteria that are used in fermentation and the hybrid plants used in agriculture. He said there is nothing different or inherently more dangerous in the biotechnology industry, and that it should not be treated differently.