United States International Trade Commission China's Agricultural Trade: Competitive Conditions and Effects on U.S. Exports Investigation No. 332-518 USITC Publication 4219 March 2011 U.S. International Trade Commission COMMISSIONERS Deanna Tanner Okun, Chairman Irving A. Williamson, Vice Chairman Charlotte R. Lane Daniel R. Pearson Shara L. Aranoff Dean A. Pinkert Karen Laney Acting Director of Operations Michael Anderson Acting Director, Office of Industries Address all communications to Secretary to the Commission United States International Trade Commission Washington, DC 20436 U.S. International Trade Commission Washington, DC 20436 www.usitc.gov China's Agricultural Trade: Competitive Conditions and Effects on U.S. Exports Investigation No. 332-518 Publication 4219 March 2011 Project Leader Joanna Bonarriva [email protected] Deputy Project Leader Marin Weaver [email protected] Office of Industries Laura Bloodgood, David Coffin, John Fry, John Giamalva, Brendan Lynch, Douglas Newman, and Alison Rozema Office of Economics Jose Signoret, Danielle Trachtenberg, and Marinos Tsigas Primary Reviewers Kimberlie Freund and Alexander Hammer Administrative Support Phyllis Boone, Monica Reed, and Wanda Tolson Under the Direction of Jonathan R. Coleman, Chief Agriculture and Fisheries Division Abstract This report describes and analyzes government policies and other factors that affect the conditions of competition in China’s agricultural market and trade, as well as their effects on U.S. agricultural exports. It provides an overview of (a) China’s agricultural imports, exports, consumption, and production during 2005–09; (b) Chinese government regulations relating to the agricultural market; (c) competitive factors affecting the Chinese agricultural sector, with case studies to analyze these factors; and (d) Chinese tariffs, nontariff measures (NTMs), and free trade agreements (FTAs). The study also uses economic modeling to provide an analysis of the effects of Chinese tariffs, FTAs, and certain NTMs on U.S. agricultural exports. Results suggest that the elimination of Chinese tariffs and nontariffs measures could lead to an additional $3.9 billion to $5.2 billion in U.S. agricultural exports to China. China’s agricultural trade has grown rapidly, particularly since its market liberalization leading up to its 2001 accession to the World Trade Organization. China’s chief agricultural exports consist of labor-intensive horticultural products shipped mainly to regional markets, while imports are limited to a small number of commodities, including soybeans, vegetable oils, poultry, cotton, and hides and skins. Chinese consumption patterns are changing because of urbanization, rising incomes, and the importance of food safety and quality to consumers. China is a major global producer of agricultural products, especially fruits, vegetables, rice, cotton, and pork. Overall, China is largely self-sufficient, with the exception of a few key commodities which it imports. Government support for China’s farm sector has grown significantly since 2004 when, in an important shift in economic policy, the government began supporting agriculture instead of taxing the sector to support industrial development. Most government programs for agriculture fall into four categories: direct payments, price support programs, agricultural infrastructure projects, and regulatory reforms (e.g., food safety and standards). Several factors of production––such as low labor costs and government support–– enhance the competitiveness of Chinese agricultural products, while other factors––such as its land tenure system and its fragmented transportation and cold storage infrastructure––weaken its competitiveness. Many of these agricultural competitive factors are illustrated in case studies of China’s fresh apple, pork, processed foods, and wheat sectors. Chinese average agricultural tariffs are relatively low, but remain high for several import- sensitive products, including beverages, tobacco, and nuts. China also maintains restrictive tariff-rate quotas for certain commodities, such as wheat, cotton, and sugar. The Commission’s quantitative estimates indicate that China’s NTMs particularly its sanitary and phytosanitary (SPS) measures have a larger effect on U.S. exports to China than its tariffs: SPS measures substantially limit or effectively prohibit certain U.S. agricultural products. China’s FTAs and preferential trade agreements are largely with trade partners in East Asia and Oceania. Their provisions vary in scope, but overall have had a negligible effect on total U.S. agricultural exports because for several food and agricultural products, the level of U.S. exports to China is either very large or very small relative to the level of China’s imports from its PTA partners. i CONTENTS Page Abstract ................................................................................................................................... i Acronyms ............................................................................................................................... xi Executive Summary....................................................................................................... xv Chapter 1 Introduction ............................................................................................. 1-1 Overview............................................................................................................................. 1-1 Scope of the report .............................................................................................................. 1-4 Approach............................................................................................................................. 1-5 China’s policy framework................................................................................................... 1-7 Policy environment......................................................................................................... 1-7 Policy objectives............................................................................................................. 1-9 Policy instruments.......................................................................................................... 1-11 Bibliography........................................................................................................................ 1-12 Chapter 2 Chinese Agricultural Trade ....................................................... 2-1 Overview ............................................................................................................................. 2-1 Imports ................................................................................................................................ 2-2 Imports by product ......................................................................................................... 2-2 Soybeans .................................................................................................................... 2-5 Vegetable oils............................................................................................................. 2-6 Cotton......................................................................................................................... 2-6 Hides and skins .......................................................................................................... 2-7 Meat........................................................................................................................... 2-7 Grains......................................................................................................................... 2-8 Other products............................................................................................................ 2-9 Imports by major trading partner.................................................................................... 2-9 Exports ............................................................................................................................... 2-11 Exports by product ......................................................................................................... 2-11 Horticultural products................................................................................................ 2-14 Other products............................................................................................................ 2-15 Exports by major trading partner.................................................................................... 2-16 China-U.S. competition in third-country markets ............................................................... 2-17 Bibliography........................................................................................................................ 2-20 Chapter 3 Chinese Agricultural Consumption...................................... 3-1 Overview ............................................................................................................................. 3-1 Consumption trends............................................................................................................. 3-2 Consumption patterns..................................................................................................... 3-2 Caloric intake................................................................................................................. 3-3 Factors affecting consumption ...........................................................................................