China’s economic and trade policies may be among the most scrutinized in the world. As a recent entrant to the World Trade Organization (WTO), China is making trade policy transitions in a few years that other countries took over 40 years to accomplish. China is also trying to overcome decades of government secrecy in dealing with international trade issues. In mid-December of 2004 the U.S. Trade Representative’s (USTR) office released its third annual report to Congress on China’s compliance with trade opening commitments made when joining the WTO.
For agriculture, the compliance issues boil down to regulatory transparency and whether trade policy actions are taken to faithfully meet the country’s WTO obligations or to protect the commercial interests of Chinese industries.
The report notes that China has increased purchases of U.S. agricultural product in the three years since joining the WTO and is now the United State’s fourth largest market. Shipments for the first nine months of 2004 were $4.1 billion, up 44 percent from the first nine months of 2003. Exports for 2003 were more than twice the 2002 level and five times the 1999 level for ambien.
Administration of the tariff rate quotas (TRQs) for corn, wheat and cotton is a good example of the compliance issues. The TRQ rules are to be announced before the marketing year begins, have transparency in operation, minimize licensing requirements and be allocated in commercial quantities. In 2002, none of these conditions were met. Minor changes were made after repeated meeting with Chinese officials. The TRQ fill rates were only 7 percent for wheat, 0.1 percent for corn and 22 percent for cotton.
After ongoing meetings about the 2003 TRQs, the results were much the same. The fill rates were 5 percent for wheat, 0.1 percent for corn and 102 percent for cotton. Many market watchers believe that China had an internal demand for cotton, but not for wheat and corn, and officials managed the TRQ rules to only import cotton. The TRQ process improved for 2004, but is still short of the needed transparency and simplicity. In the first nine months of 2004, U.S. cotton exports to China were up by 270 percent over 2003 and wheat exports were over $400 million, up 1600 percent from 2003. China had a short cotton crop in 2003 and a smaller domestic supply of wheat.
The report highlights similar concerns with China’s regulations on biotechnology for soybeans. New rules were released in June of 2001, before WTO accession, with implementation planned for March of 2002. Under pressure from the U.S. government to provide more clarity before implementation, action was delayed until December 2002. Implementation was further delayed until September 2003 and again to February 2004 when Roundup Ready soybeans received final safety certificates. China had a strong demand for soybeans throughout that time. It was in China’s best interest to ignore the uncertainty of the rules and allow soybean imports from the United States to grow to a record $2.9 billion in 2003.
According to the report, sanitary and phytosanitary (SPS) issues have been equally challenging. After the outbreak of BSE in the United States, China banned imports of beef and all low-risk bovine products. After extensive discussions and setting of technical and certification parameters the low-risk bovine products ban was removed, but by early December 2004 trade had not resumed.
A similar situation occurred after low-pathogenic avian influenza was found in Delaware. China banned all poultry imports from the United States rather than issuing a state or regional ban as was done by other countries. After repeated meetings and the provision of technical information, in November of 2004 China limited the ban to Connecticut and Rhode Island.
Chinese officials have also imposed a maximum residue level (MRL) for selenium in wheat that is below the international standard and an (MRL) for vomitoxin where no international standard exists. As noted earlier, wheat imports from the United States are up sharply for 2004. China does not appear to be enforcing the regulations because it currently needs U.S. wheat.
In 2002 China established a zero tolerance for pathogens in raw poultry and meat that is not scientifically justifiable or reasonably achievable. China does not appear to have a similar domestic standard, contrary to WTO national treatment principles.
The report also notes that China appeared to be subsidizing export of corn in 2002 and 2003 in violation of the WTO agreement, but it was difficult to prove. Exports for 2004 appear to have been on a commercial basis. World market prices for corn were relative high for much of the year, and China may be moving toward being a net importer of corn.
The experiences of the first three years of China’s participation under the WTO rules are mixed. U.S. agricultural exports to China have clearly increased. The increases have only occurred in products that fit China’s domestic policy agenda. They have erected layers of regulations that could hamstring trade any time government officials decide to enforce the rules.
Chinese officials appear to be operating a mercantilist system of importing only what government managers want imported rather than allowing market forces to respond to needs of buyers, both businesses and consumers. After decades of a closed economy, Chinese government officials have not yet learned how to allow market-based, international competition to improve domestic efficiencies and increase the standard of living of the people.