In December of last year the U.S. Trade Representative’s office released the 2012 Report to Congress on China’s WTO Compliance, the 11th annual report mandated in the U.S.-China Relations Act of 2000.  Agriculture is one of the nine broad categories of WTO commitments undertaken by China examined in the report.

The second paragraph of the summary of the report includes a key observation, “For much of the past decade, the Chinese government has been re-emphasizing the state’s role in the economy, diverging from the path of economic reform that drove China’s accession to the WTO.”  WTO rules are designed to provide certainty for buyers and sellers operating across market economies.  China’s agricultural trade policies do not decrease uncertainties and at times adds to them, which are detrimental to trade and places importers and consumers at a disadvantage.

The agriculture section of the report begins by noting that China has met its commitment to reduce tariffs on agricultural products from an average of 31 percent in 1997 to 14 percent by January 2006.  Agricultural exports from the U.S. to China increased from $2.0 billion in calendar year 2002 to a USDA projected $21.2 billion for the fiscal year that began on October 1, 2012.  Another $4.0 billion of U.S. exports are expected to go to Hong Kong.   But the report notes, “…the full market access potential of China’s tariff cuts was not realized for some products.  …a variety of non-tariff barriers continue to impede market access for U.S. agricultural exports to China, particularly exports of consumer-ready and value-added products.”

Tariff rate quotas (TRQ) for major bulk commodities were phased in from 2001-2004 and then fixed.  The TRQ for wheat was fixed at 9.6 million metric tons (MMT) with the state trading share at 90 percent, corn at 7.2 MMT and 60 percent state traded, short/medium grain rice and long grain rice TRQs were set at 2.66 MMT each and 50 percent state traded and cotton at 0.89 MMT and 30 percent state traded.  Oilseeds and products do not have TRQs.  The vision was that these would lead to transparent, market driven decisions to import products.  From the beginning, the State Development and Planning Commission and now the National Development and Reform Commission used the lack of transparency in the TRQ process to protect domestic interests and favor state trading enterprises.  TRQs regularly go unused and despite U.S. efforts to make the system more open, transparency issues remain.  After ten years of use, there is no reason for TRQs to remain a mystery, unless it is to maintain state control of trade.

Agricultural crop biotechnology regulations have had continuing problems with timeliness to avoid trade disruptions and the protection of intellectual property.  China continues to require approval for a trait in the country of origin before it can be submitted for approval in China, which guarantees a lack of timely approval of new traits.  Five new products were given approval in May 2012 and 12 existing ones were reapproved in December 2012, but other new events are waiting for approval.  Foreign investment restrictions continue to limit product development and control of genetic resources.

Sanitary and phyto-sanitary issues (SPS) are the biggest challenge as regulations continue to be imposed in a non-transparent manner and without clear scientific bases.  China’s beef market continues to be totally closed to U.S. beef because of BSE issues.  While the U.S. is in negotiations with other countries to fully open markets, China still has a closed market, even though there have been repeated promises of an open market.  China banned the imports of U.S. pork in April of 2009 because of concern about the H1N1 influenza A virus, but the international consensus is that the virus is not transported by meat products.  The ban was lifted in March 2010, and China continues to demand H1N1 language in export certificates for pork that the U.S. considers inappropriate based on science.  China continues to ban poultry products from certain states due to Avian Influenza.

China has a zero tolerance limit for the presence for salmonella bacteria, Listeria and other pathogens, even though elimination of these is not considered achievable.  There appears to be a ‘national treatment’ issue because China does not apply the same standards to domestic raw meat and poultry.  It also has a zero tolerance for ractopamine which is inconsistent with a recent Codex decision that the product is safe.

Under the WTO SPS agreement, most SPS measures must be reported to the WTO SPS Committee and affected members should have the chance to respond before the measures take effect.  Since 2003, the U.S. has counted more than 250 measures that have not been identified to the WTO SPS Committee.

Importers are required to obtain a Quarantine Inspection Permit (QIP) before signing purchase contracts for almost all agricultural commodities.  The USTR report states, “QIPs are one of the most important trade policy issues affecting the United States and China’s other agricultural trading partners.”  Since 2004 QIPs have been valid for six months and are issued frequently, but uncertainty still exists because importers have a very narrow window to purchase, transport and unload cargo before the QIP expires.  Traders are hesitant to push for changes because they risk falling out of favor with what remains a very arbitrary system.  Little improvement has been made since 2004 despite continued U.S. pressure.

The best indication of the difficulties in the regulatory structure on imports to China is the narrow range of products actually imported.  For the first ten months of 2012, total U.S. agricultural exports to China were $21.7 billion.  Whole soybeans and products were $10.3 billion, 47.3 percent of the total.  Cotton exports were another $3.1 billion, 14.3 percent of the total.  Hides and skins and coarse grains were next in line at about $1.0 billion each.  Pork imports were $500 million, and dairy products were $350 million.  Other consumer-ready and value-added products are far down the list.  One positive factor is that the product list is more diversified than it was a few years ago.

There is no easy way in the WTO system to force a government to choose a market based policy structure with minimal government control.  Cases can be filed at the WTO, but that is a slow and costly process.  Governments have to see such an approach as being in the best interest of consumers, which is central to a market-based economy.

Ross Korves is an Economic Policy Analyst with Truth About Trade & Technology (www.truthabouttrade.org).