Friday, December 9, 2011

China's 10 Years in WTO: Success and Challenges

Ahead of the tenth anniversary of China's accession to the World Trade Organization on December 11 Chinese officials are putting out a propaganda blast proclaiming the successes and continuing challenges from WTO membership.

At least two interviews with agricultural officials have been published: an Economic Times interview with Cheng Guoqiang, an economist with the State Council's Development Research Center who has been researching agricultural trade and support since the 1990s, and a Farmers Daily interview with Vice Minister of Agriculture Niu Zhi. Both officials emphasize that joining WTO was a strategic decision with historic significance that integrated China with the global economy and kept up the momentum on the country's market-oriented reforms. The officials emphasize that carefully designed policies allowed imports to relieve stress on China's domestic resources while shielding farmers from import competition. The officials are upbeat about China's experience during the first ten years but they also note remaining problems.

Both officials bring up the "two markets" and "two resources" strategy. China must import some commodities to relieve pressure on domestic natural resources while at the same time protecting domestic suppliers and "security" for domestic industries. At the same time there is an effort to boost exports of labor-intensive commodities and reduce barriers to those exports in foreign countries.

Cheng explained how the "comparative advantage" concept guided trade strategy. Trade barriers were lowered to allow more imports of land-intensive commodities, utilizing a combination of domestic and international markets to supply China's demands. Cheng points out the large imports of soybeans and edible oils as an example of the benefits of trade. If these imported products were to be produced in China,  the oils would take up 68% of China's grain area. Within China there is a strategy to concentrate production of particular commodities in the regions where they have a comparative advantage.

At the time of WTO accession there were gloomy predictions about the negative impacts on small-scale uncompetitive Chinese farmers. Both officials emphasize the importance of policies implemented to support and protect farmers after WTO accession. Niu said China designed new support policies that reflect Chinese conditions and conform to WTO rules. "We take our commitments seriously," said Niu. The policies include subsidies to farmers, subsidies for improved crop varieties, price supports for commodities, spending on infrastructure, science and technology, marketing infrastructure, and support for agricultural industries.

The authors note that China has opened its market much wider to imports with an average agricultural tariff to 15%. However, they complain about China's domestic industries being under pressure from imports. Niu says Chinese exports are still constrained by many unfair trade barriers in other countries. Cheng complains that China has no power to influence prices, leaving Chinese businesses and farmers vulnerable to big swings in commodity prices.

The officials worry that foreign companies are dominating some industries. Cheng reports that some multinational edible-oil processing evaded restrictions on entry into particular industries. He said some investment projects approved for cotton seed and palm oil processing were subsequently extended to crushing soybeans and rapeseed or edible oil refining activities that had not been approved. In other cases, local officials motivated by "GDP worship" allowed foreign companies to start projects that were not approved by the State Council. According to Cheng, "Some foreign grain merchants use their global supply chain advantage" to undercut prices of medium and small Chinese grain enterprises to grab market share.

Niu said that China intends to open its market a little more. He said China needs to make even better use of "two markets" while avoiding the disadvantages of open markets. Commodities in short supply like soybeans, edible oils, and cotton can be imported--utilizing the resources of foreign countries--with "guidance" and "controls."  Imports of grains which are considered more strategic will be kept small in order to remain mostly self-sufficient. Niu called for China to "fully utilize tariffs and TRQ management,  stronger import management of bulk agricultural commodity imports and building a stronger trade remedy system to reduce pressure on domestic markets from foreign commodities."

Niu calls for absorption of advanced technology, structural adjustment, and improved science and technology dissemination. Niu said farmers will receive more support and protection. The first focus is on infrastructure investments. The amount of subsidies will be increased and the scope widened and subsidy methods will be improved. Niu emphasizes use of loan guarantees, interest subsidies, and "guidance"of private investments in agriculture.

Cheng cited the important role of policies in protecting farmers from adverse impacts of WTO accession, but he worries that the relative profitability of crop production is falling. When asked to identify continuing problems, he emphasized organizational weakness among Chinese officials. He said there is not a coordinated means of responding to international challenges. Responsibilities are officials are not well-defined and there are frequent conflicts among interests of central and local officials. 

Both officials voice a commitment to free trade and progress on the troubled Doha round, but they also complain about the continued prevalence of high subsidies in agriculture among WTO members and hope for a global trade environment that puts developing countries on equal footing with developed countries.

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