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The Faroe Islands, a tiny, windswept land halfway between Scotland and Iceland, is so barren its 50,000 inhabitants import almost everything except fish and sheep. Now it wants to leap to the frontier of genetic medicine.

A proposed plan would decipher the complete DNA sequence of every citizen, from its fishermen to the prime minister, using the data for medical treatment and research. Scientists already see the Faroes becoming a model for the use of human genomes.

“We’re feeling our way right now to figure out if this new technology can really benefit individual patients and populations,” said James Evans, a geneticist at the University of North Carolina at Chapel Hill. “It’s really important that they do it right.”

Like an ethical petri dish, the Gulf Stream-warmed Faroes are incubating debate about issues of privacy, ownership and the utility of making each patient’s complete DNA makeup accessible in everyday medical decisions. Questions range from how to protect information, when it’s appropriate to use and whether it might heighten discrimination against the mentally ill and people with inherited diseases.

“They’re...