The U.S. government is within its rights under WTO rules to ask for consultations about the 50.3-105.4 percent antidumping duties and 4.0-30.3 percent countervailing duties imposed by the Chinese government. According to the USTR, chicken meat exports to China are down 90 percent and lost sales by the end of 2011 will be about $1 billion. The U.S. position is that China failed to follow transparency and due process requirements, did not explain the basis for the findings and conclusions, incorrectly calculated dumping margins and subsidy rates and made unsupported findings of injury to domestic industries.
The chicken meat case began in September of 2009 when the U.S. imposed a 35 percent anti-dumping tariff on Chinese automobile tires. The Chinese government’s general approach on trade issues is to immediately retaliate against imports of any country that challenges Chinese export policies. Two days after the tire tariff decision was announced, the Chinese announced an investigation on the dumping of U.S. chicken meat and feet which totaled $670 million of imports in 2009. Later China announced an investigation of subsidies for U.S. chicken production. In 2010 Argentina faced a similar situation with China over retaliation against soybean oil imports after imposing antidumping measures on footwear and textiles.
Total U.S. agricultural exports to China in 2009 were $14.3 billion, but most purchases were bulk commodities of $10.3 billion, including soybeans at $9.2 billion and cotton at $862 million. The Chinese government has a preference for imports of raw agricultural products rather than consumer ready products like chicken meat. The investigation was also good politics because the Chinese Animal Agriculture Association had filed a petition asking for an investigation on imports.
To no surprise, the investigation found the U.S. industry was not meeting WTO commitments. The subsidizes in question were actually for growing corn and soybeans fed to chickens, not direct chicken production subsidies. For determining dumping, China used average cost of production, viewed as inconsistent with multilateral trade rules, rather than U.S. market prices for comparable sales.
According to estimates from the U.S. agricultural attaché in China, in 2009 the U.S. accounted for 85 percent of the 723,000 metric tons (MT) of chicken meat imported by China. By 2010, the share had declined to 17 percent of 517,000 MT, and for the first seven months of 2011, the U.S. share was 9 percent of 227,000 MT. Overall imports are constrained by available export supplies in the rest of the world. Domestic production is estimated to be up 5 percent in 2011 and projected at 5 percent again for 2012. Chicken prices in July were 24 percent higher than a year earlier due to higher pork prices, lower chicken meat imports and rising feed costs.
Higher chicken and pork prices could cause a change in the Chinese government’s policy position on chicken meat imports. While policies encourage production of chickens and imports of soybeans for soybean meal production as feed for poultry and hog production, the Chinese government is apprehensive about rising consumer prices for pork and chicken meat. Imports of pork in 2008 were allowed to dampen market prices, and fresh, chilled and frozen pork imports for 2011from the U.S. are up 720 percent for the first seven months at 70,000 MT. Part of that reflects more direct imports to China rather than through Hong Kong. The previous high in U.S. pork exports was 108,000 MT in 2008. According to the Agricultural Attaché, pork production will be down 3 percent for 2011, while imports will be up 10 percent. Projections for 2012 show pork production up 4 percent due to higher market prices and increased subsidies, but imports may be up another 8 percent. The same import increase could happen for chicken meat if market conditions require it and government policies allow it. Subsides for chicken production have increased, but market prices may not be high enough to offset higher labor costs.
The reactive attitudes by the Chinese government complicate the Obama Administration’s efforts to be more aggressive in taking cases to the WTO when it believes China has not honored its commitments. In the USTR press release announcing this latest action on chicken meat, other cases mentioned included the automobile tires case, steel products, industrial raw materials, electronic payments services and wind power equipments. These actions play well for the Obama Administration in the domestic political market and may somewhat restrain Chinese policies, but they do little to resolve specific trade issues.
The Obama Administration and U.S. agriculture should be concerned about Chinese trade policies that skew imports toward raw commodities and use further processed agricultural products in trade policy retaliation. China is projected by the Foreign Agricultural Service of USDA to be tied with Canada as the largest export market for U.S. agriculture in fiscal year 2012 at $19.0 billion, but through the first seven months of calendar year 2011, raw agricultural products continue to account for 80 percent of U.S. agricultural exports. If cases at the WTO against China really improved trade prospects for U.S. agriculture, they would be worth the time and effort. All that has happened so far has made the policy environment more difficult.
China has been in the WTO for almost ten years and has not always lived up to its commitments as understood by trading partners. For agriculture, much of that is related to a self sufficiency attitude for most food. Despite that attitude, China is a major importer of agricultural products and at the point where it is in its best interest to import more processed products like pork and chicken meat. U.S. trade policy has to be conducive to making the U.S. a major supplier of higher value products, while remaining committed to the WTO rules-based system.
Ross Korves is the Economic Policy Analyst for Truth About Trade and Technology