Xu Xiaoqing

I. Influences of China’s entry into WTO upon its bulk farm produce

The third ministerial meeting of WTO was held in Seattle of the United States in November, 1999. Because the United States and the 14 nations of the Keynes Bloc, that is, the major farm produce exporting countries, demanded that the members of WTO terminate their national policies on subsidization of agriculture as soon as possible, and fell out widely with the European Union, Japan, Norway and other countries, no results concerning the agricultural policy of WTO came out of the meeting. WTO now demands that when implementing its agricultural agreement, all its member countries abide by its rules on the trading of farm produce, and is laying its emphasis on the supervision of agricultural support and protection policies (including mainly their supply of direct price subsidies to exporters and export-oriented farm produce) implemented by its member countries at home.

After joining WTO, China would partially open its farm produce commodities market to the outside world. What will be affected comparatively more seriously would be its production and trade of bulk farm produce. To sketch out, China will first of all meet with the following problems in its farm produce trade:

1. Change of formerly non-tariff trade barriers into tariffs

During the five-year transition period that will follow its entry into WTO, China will lower the average nominal import duties of farm produce from the 21.2 per cent at present to 17 per cent. The products to be covered in the duty-reduction drive will include mainly livestock and poultry, dairy, aquatic products, dried and fresh fruit and vegetables, and processed products.

2. Adoption of TRQ when opening its bulk farm produce market to the outside world during the transition period

The farm produce China imports under the TRQ system fall into five varieties: wheat, corn, rice, cotton and soybean oil. TRQ requires low tariff rates (1-3%) for products covered in import quotas, and high tariffs (76-40%) for products not covered in import quota. The amount of quotas indicate the degree of openness of the domestic market to the products listed above, and differs from minimum import promise (such as the promises made by Japan and Taiwan Province of China for minimum import of rice). China’s import quota for cereals will rise from 14.466 million tons now to 22.156 million tons by the end of the transition period, and its import quotas for cotton and soybean oil will increase from 743,000 tons to 894,000 tons and from 1.718 million tons to 3.261 million tons respectively during this period. The import duty for soybean oil imported within the quota will be 9 per cent, and that imported beyond the quota will be cut from the current 74 per cent to 9 per cent by the end of the transition period.

3. Influences upon the system of domestic and overseas marketing of farm produce commodity

When TRQ is applied, it is required in WTO rules that some of the import quota be assigned to non-state-owned enterprises specialized in foreign trade. This requirement is designed to break government monopoly of foreign trade and minimize distortation of the prices and trading of farm produce. Within the transition period, 90 per cent of the quotas for wheat and early polished indicia rice, 33 per cent of the quotas for cotton, 75 per cent of the quotas for corn, 50 per cent of the quotas for Japonica rice, and 50 per cent of the quotas for soybean oil can be assigned by the government to state-owned foreign trade enterprises, with the remaining quotas being assigned to non-state-owned foreign trade enterprises. This calls for a reform of China’s current foreign trade system and its system for the circulation of farm produce at the domestic market, and creation and development of market-oriented enterprises specialized in both domestic marketing and export of farm produce.

Opening of a part of China’s bulk farm produce market to the outside world under the TRQ system will expose the country’s grain, cotton and soybean oil products to comparatively strong competitions from the international market. Since China’s agricultural production is restricted by the great pressure from a big population and land and water resource shortage for a long period of time, and the business scale and labour productivity of its rural households are small and labour productivity is low, the domestic prices of its grain and cotton products have risen above their prices at the international market in recent years. Generally speaking, the TRQ system will produce a comparatively greater influence upon corn and cotton production than upon wheat and soybean oil production, and may result in an increase in the export of rice. Farmers in major grain and cotton producing areas (mostly traditional agricultural areas with moderate and low incomes) will possibly suffer employment and income pressures. It has been concluded in most domestic and overseas studies in this regard that China’s land-intensive farm produce does not boast any clearly seeable comparative superiority. The disputes raised in these studies lie in issues concerning the resource cost and efficiency of efforts to achieve a high grain self-sufficiency ratio.

In February this year, relevant departments of the US Government completed a research report on the influences in the 10 years after China’s entry into WTO upon the Sino-US trade of farm produce and upon the international farm produce market. It is supposed that China fully comply with the market access agreement after it becomes a WTO member, no special changes take place in the growth of its GDP during the period of forecast, all trade of farm produce is handled by state-owned enterprises in China, the prices at the world market are transmitted to the domestic market via state-owned trading enterprises (as revealed by current data on state-owned trade), and the prices of farm produce at the domestic market are determined by supply and demand. Following are the forecasts made by these US departments:

Produce variety	Import and export amount before China’s membership in the WTO (US$100 million)	Import and export amount after China’s membership in the WTO (US$100 million)
Corn	Net export  4.26	Net import  0.71
Wheat	Net import  2.43	Net import  7.27
Rice	Net export  8.28	Net export  8.43
Cotton	Net import  4.29	Net import  7.57
Soybean	Net import  14.22	Net import  10.24
Soybean oil	Net import  4.55	Net import  8.03
Soybean dreg	Net import  2.81	Net import  5.01
Sum total	Net import  15.76	Net import  30.40

It concluded in their prediction that in the 10 years after it becomes a WTO member, China will grow from a net corn exporter to a corn importer, its net export of rice will increase slightly, and its net import of all the other products will go up. Before its membership in WTO, China’s net import of the seven varieties of farm products mentioned above is US$1.576 billion a year on the average. After its membership in WTO, the figure will grow to US$3.04 billion. In other words, its net import of these products will increase by US$1.464 billion a year. It is estimated that China will use 50 per cent of its tariff quota during the transition period, with its import peak hours to appear in the year 2005.

At the same time, it is predicted in the report that the world grain demand will grow steadily in the 10 years to come, and the price of grain on the world market will also rise somewhat. From the year 2000 to the year 2009, the average price of corn, wheat, cotton and soybean on the world market will go up by 1.5-4.5 per cent, and consumption of livestock and poultry will outgrow that of grain.

A comparison between the results of various domestic forecasts for China’s supply and demand of bulk farm produce in the coming five years and the above-mentioned predictions made by the US departments reveals that the two sides agree with each other in their prediction of the trend of changes in China’s demand for bulk farm produce. Suppose China’s population grows to 1.35 billion five years later, the country will have a supply surplus of 8 million tons of rice and about 10 million tons of maize. Its supply of wheat and soybean, meanwhile, will fall short of demand by about 3-4 million tons. Its cotton supply and demand will basically be balanced with each other.

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