The U.S. Trade Representative’s “2006 Report to Congress on China’s WTO Compliance” is a once-a-year report required by the U.S.-China Relations Act of 2000. The eleven pages devoted to agriculture in the 109 page report can be summarized in one word “uncertainty.” Trade agreements, in theory at least, are designed to reduce uncertainty in trade relationships by providing a transparent structure so participants know the rules in advance. China has gone in the opposite direction by adding complexity to trading rules.
China’s WTO agricultural commitments fall into the well known categories of market access, domestic supports, export subsidies and sanitary and phytosanitary (SPS) issues. It agreed to lower tariffs over five years on products of most interest to U.S. farmers and ranchers from an average of 31 percent in 1997 to an average of 14 percent by January 1, 2006. According to the USTR report, China has met that obligation. It also agreed to implement tariff rate quotas (TRQ) for wheat, corn, cotton and vegetable oils and provide a portion of the TRQ for private company traders rather than Chinese state trading enterprises. From the beginning, China has refused to provide details about the TRQs, issued them in quantities that were not commercially viable and required burdensome licensing. Despite increased exports of cotton and wheat under the TRQ, transparency issues remain.
China also agreed to eliminate all agricultural export subsidies. Corn has been a problem with reports of export prices 15-20 percent below domestic prices. The report notes that this issue may be resolved by market forces as China becomes a net importer of corn and sells on a commercial basis.
Biotechnology regulations have been an issue since China’s ascension to the WTO. The Ministry of Agriculture issued regulations in June of 2001 without allowing importers adequate time for scientific assessments and then repeatedly delayed implementation until April of 2004, disrupting growing U.S. soybean exports. Despite resolving some issues for soybeans, corn, cotton and canola, biotech product approval challenges remain. Products must be approved in the U.S. before submission for approval in China and only two new product applications can be submitted each year. Concerns about products with multiple traits have been raised because of the lack of clarity on requirements. The current safety certificates for corn, soybeans, cotton and canola begin to expire in February 2007. The Ministry of Agriculture announced new requirements in November of 2006, but that may not provide sufficient time to get approvals, particularly since importers need Quarantine Inspection Permits (QIPs) that can take 30 days to acquire.
The report notes that, “QIPs are one of the most important trade policy issues affecting the United States and China’s other agricultural trading partners.” These are issued by the State Administration of Quality Supervision and Inspection and Quarantine (AQSIQ) prior to companies signing purchase contracts for commodities. AQSIQ slows down or suspends issuing QIPs without warning or explanation. Since importers at times must buy before getting permits, unloading delays and demurrage costs result. While the QIPs are now valid for six months instead of only three months, uncertainty remains about arbitrary management of the system.
Regulations related to BSE have been equally frustrating after China banned U.S. beef imports in December 2003. As the report states, “After three years, China still has not provided any scientific justification for continuing to maintain its ban.” In June of 2006, China unilaterally announced a market opening for boneless beef of 30 months of age or less, but followed up a month later with 22 onerous entry conditions. These rules are meaningless without export safety certificates. China also banned bovine-origin products that the Office International des Epizooties (OIE) guidelines consider as safe for trade regardless of the BSE status of a country. After long negotiations the only bovine-origin product still restricted is protein-free tallow.
The list of other SPS issues include pathogen standards and residue standards for raw meat and poultry products, trade restrictions for avian influenza, maximum residue levels for selenium and vomitoxin in wheat, hygienic standards for uses of food additives and fire blight in fresh fruit. The patterns are the same: disregard for well established international standards and setting zero tolerances that cannot be achieved.
While China is now the fourth largest market for U.S. agricultural products at $6.7 billion for fiscal year 2006, exports are concentrated in only a few products. Soybean exports were $2.4 billion, 35.8 percent of total U.S. agricultural exports; raw cotton exports were $2.3 billion, 34.3 percent; and hides and skins exports were $767 million, 11.4 percent. These three commodities were 81.5 percent of total U.S. agricultural exports to China. The only other product above $100 million in sales was poultry meat at $147 million. That leaves a lot of other U.S. products that the rest of the world considers high quality and competitively priced that are insignificant in Chinese trade. A reasonable question is how large would markets be if Chinese officials sought to facilitate trade rather than create uncertainties?
The USTR’s office and other agencies are committed to continuing to pressure China to reform its import processes. Other countries, including ones that China is courting for economic and political reasons, are equally frustrated. We often want quick answers to complex issues. They won’t be found in trade policy disputes with the Chinese. Their policies may change some over time as old hands experienced at obstruction are replaced by younger staff with a more open view of the world, but the U.S. must continue to push hard for trade policy reforms.