Chinese Premier Zhu Rongji has admitted that he is most worried about agriculture after WTO entry. At the summit of the Association of Southeast Asian Nations (ASEAN) plus China, Japan and the Republic of Korea held November 6 last year, Zhu said Chinese farmers would be affected if foreign farm produce floods into the country after WTO entry.

Commitments

In line with the WTO agreement on farming, the Chinese Government has made the following pledges on market entry, domestic support, export subsidy, quarantine of animals and plants:

l Market entry. Average import duty will be reduced to 17.5 percent by 2004 and to 15.6 percent by 2005 from the current average of 21.3 percent.

According to WTO rules, China should not limit imports of farm products after it enters the WTO. Given this, the Chinese Government has pledged to use a tariff-rate quota (TRQ) system, instead of the original quota administration system, for certain sensitive products as wheat, corn, rice, edible oil and sugar. Initial TRQ is determined by choosing the larger of the two figures—the average import volume over the three years prior to the talks, or 3 percent of the domestic consumption over that period. Imports under the TRQ level will enjoy low duty and those above the level will face a higher duty.

China has pledged to establish a transparent, predictable, unified, fair and non-discriminatory TRQ administration system. Currently, the State Development Planning Commission has publicized the Measures on Tariff-rate Quota Administration for the Imports of Agricultural Products. The TRQ administration will be applied to both general trade and processing trade. Currently, the TRQ is mainly reserved for state trading enterprises, with an increasing proportion to be allocated to non-state traders in the future.

• Export subsidy. The Chinese Government has pledged to cancel export subsidies.

• Domestic support. Following WTO entry, the subsidy rate for farming will be 8.5 percent.

• Animal and plant quarantine. China commits to abide by the term of the WTO Agreement on Sanitary and Phytosanitary Measures (SPS).

Impacts

While integrating into the liberalization process of the global farm produce trade, Chinese agriculture is exposed to immense risks and challenges by removing trade barriers and opening up the domestic market.

Cheng Guoqiang, a researcher with the Development Research Center (DRC) of the State Council and an agriculture expert who has participated in talks on China’s WTO accession, believes WTO entry will bring about severe challenges to the country’s farming, due to the short transitional period, wide opening up of the market and limited means for government regulation and control.

Xu Boyuan, researcher at the Rural Economic Research Center of the Ministry of Agriculture (MOA), summed up the challenges:

• Irrational government administrative system. Currently, administration of the production, distribution and trading of farm products is divided among agricultural, domestic trade and foreign trade departments. Such an administrative system obviously cannot adapt to the new situation after WTO entry.

• Impacts on disadvantageous farm products. The domestic price for wheat, soybean, corn, cotton, edible oil and oil crops, and sugar and sugar crops, is 10-70 percent higher than in the international market. Once foreign farm products flood into China, the country’s farming sector will be hit hard. Take wheat as an example. U.S. exports to China will increase by 3 million tons each year, causing a 5-billion-yuan loss to Chinese wheat farmers. This will result in an even slower growth of income and rising unemployment for Chinese farmers, whose income heavily relies on primary farm products such as grain, cotton, oil and sugar crops.

Although the price of meat, vegetables, fruit and aquatic products is 40-80 percent lower than those in the international market, they have difficulties meeting the requirements for variety, appearance, taste, freshness and processing for such products in the international market.

In the short term, WTO entry will trigger the following three problems: Firstly, adding to the difficulties of selling domestic farm products and pressures for distribution; secondly, causing a price drop for some farm products in the domestic market; and thirdly, preventing income growth of farmers in some areas and undermining their enthusiasm for farming.

• Influence on agricultural structure. After WTO entry, Chinese farm products will compete on a market that favors only healthy products of good quality and a cheap price. Currently, however, many Chinese farm products are unable to meet market requirement for quality and variety. If product mix and quality are not improved, Chinese farm products will have little chance to edge into the international market.

• Influence on domestic farm product market of tariff concessions and the lowering of non-tariff barriers. For a long time, the Chinese farm product market has been shielded by import permits, import quotas and other non-tariff measures. After WTO accession, the non-tariff measures will be replaced by a tariff-based system, in which tariff concessions will be phased in as required by the WTO. Tariff concessions and the removal of non-tariff policies will create a favorable condition for the invasion of foreign farm products into domestic market.

• The marketization level of Chinese farming is low and unable to meet new needs after WTO entry.

The opening up of the farm product market also involves market entry, export subsidy, sanitation, quarantine and other important issues. Given this, many believe that the WTO will have an all-round impact on Chinese agriculture.

Yet others are not as pessimistic. Ma Youxiang, Deputy Director of the Development Planning Department of MOA, said Chinese agriculture has already done much preparation for WTO entry, including four voluntary tariff cuts that have lowered import duty from 46 percent to 21 percent. In addition, farm product imports have already increased, with soybean imports reaching 3 million kg a year. Although more import quotas will be given to U.S.- produced wheat, corn, rice and cotton, the TRQ system, in place until 2005, will remain a barrier since low duty is only given to imports under the quota level.

Chen Xiwen, Director of the Agriculture Department at DRC of the State Council, and Du Ying, Director of the Policy and Regulation Department of MOA, believe the expanded import quota is within the country’s bearing capacity. According to Sino-U.S. agreements on China’s WTO entry, the import quota will increase year-on-year to reach 21.8 million tons by 2004. Actually, grain imports reached an historic high of 20.81 million tons in 1995. After a span of 10 years, the country is able to handle the 1 million tons of extra imports. Furthermore, even such large imports only accounts for less than 5 percent of the domestic output. Given this, massive dumping of foreign farm products is unlikely after WTO entry.

In addition, China’s increased import of grains will cause a price hike in the international market. If China imports 20 million tons of grain, the price in the international market will rise 30-40 percent. By then, the price advantage of foreign grain will be non-existent. So even when the quota is phased out after the transitional period, the price will take over to balance the market.

Though WTO entry will severely hurt some wheat-and-soybean-producing areas, the effect is not enough to cause a nationwide panic.

Opportunities

The WTO will bring about both challenges and opportunities to Chinese agriculture. Many experts believe that WTO entry will play a positive role in accelerating modernization of Chinese farming.

Firstly, it is conducive to the opening up of Chinese agriculture. After WTO entry, China, in accordance with international rules, will further improve domestic agricultural policies and regulations, optimize the investment environment, open up the domestic market, and absorb more foreign capital, technology and managerial know-how.

Secondly, it will accelerate the readjustment of the farming structure as well as the structure of farm product imports and exports. China has rich labor resources and inadequate arable land. Given this, China will expand imports of corn, wheat, oil crops, sugar crops, soybean, cotton and other resource-intensive farm products, and increase exports of vegetable, fruit, flowers and other labor-intensive horticultural products after WTO entry. Animal husbandry, excluding dairy and wool, will benefit most from WTO entry.

Thirdly, it will help improve the export environment of Chinese farm products. WTO membership will enable China to enjoy non-discriminatory trade status as do other members, thus reducing the costs for trade negotiation and trade and opening formal channels for Chinese farm products to enter the international market. Kong Xiangyun, a professor of economics at Tsinghua University, believes WTO entry will not only help improve the country’s international trade environment, strengthen international cooperation and strengthen Chinese agriculture’s international competitiveness, but also promote development of market-oriented agriculture and speed up its convergence with the international market.

Experts’ Suggestions

Facing the impact on agriculture following WTO accession, experts hold that China’s agriculture must adopt necessary countermeasures to reduce the negative impact of WTO accession and to seize opportunities.

Xu Xiaoqing, Director of the Rural Economic Department under the DRC of the State Council, believes that Chinese agriculture needs to adjust production structure, establish management and product distribution systems suitable for international market rules, and reduce market-opening risks.

Xu noted that China’s WTO accession will promote the reform of agricultural management and product distribution systems. This is more important than product competition.

Since 2001, China has conducted reform of the cotton distribution system by liberalizing eight grain-marketing regions, marking the full opening of cotton purchase markets. The government is phasing out mandatory grain purchase.

Xu says that following China’s WTO accession, the State’s monopolized grain distribution system would be broken. Nurturing a new distribution system is the countermeasure China must adopt.

Prof. Tian Weiming of China Agricultural University holds that from a long-term point of view, it is impossible that 900 million farmers will become wealthy by merely raising the productivity of available land. So, it is imperative to readjust the economic structure. China must propel rural laborers to move toward non-agricultural fields.

Zhang Zhongfa, a researcher at the DRC of the State Council, said there are "special rules" in Uruguay negotiations, demanding that developing countries’ agricultural protection standards reach developed countries’ 1995 level prior to 2004. "We should make the best use of this period and increase input in agriculture to catch up with developed countries," said Zhang.

Second, the State should formulate a series of policies and rules to protect agriculture, striving to raise the agricultural protection rate to 15-20 percent in 2010.

Third, the State should support capital- and technology-intensive industries through industrial policies to offset the negative impact on agriculture brought about by trade liberalization and to upgrade Chinese agriculture.

Fourth, the domestic taxation policy will play an important role in income redistribution, thus curbing the expansion of income differences following WTO accession, enabling all groups to equally enjoy the benefits of trade liberalization, and preventing social disorder.

Fifth, necessary conditions should be created for the transfer of agricultural laborers. It is a basic trend that agricultural laborers move toward secondary and tertiary industries from rural to urban areas. This is also essential for China to realize its industrial modernization.

Sixth, a relatively high deposit rate should be maintained and foreign capital be absorbed. The transfer of agricultural laborers needs a forceful backup of capital supply. Due to a great number of laborers and low capital-labor ratio, the increase in capital will still be a key factor in the future.

Experts hold that agriculture in China will pay the price of WTO accession. But generally speaking, from a long-term point of view, there are more pros than cons. If proper measures are taken, Chinese agriculture will make substantial progress in the near future.

Government Countermeasures

The Chinese Government has already made efforts to deal with challenges brought about by China’s WTO accession.

The State stipulated that beginning in 2001, when new grain enters the market, grain varieties of low quality that are not accepted by the market must be excluded from the purchase with protective pricing. It conveys such a message to Chinese farmers: Good quality will fetch a good price, you decide what to grow.

Premier Zhu told farmers’ deputies to the National People’s Congress they should find a market instead of asking the mayor what to grow. Regional cooperation is an important aspect of modern agriculture. The eastern region is close to the market, which is suitable for the development of high-quality export agriculture; while the western region is suitable for water-conserving agriculture, as it is short of water.

Western development is also an opportunity for agricultural restructuring. China proposes building and protecting the western eco-environment, reducing cultivation to expand afforestation, which is practical under current surplus grain deposits. The State has provided grain to farmers who returned cultivated land to afforestation, and has let them concentrate on tree planting. This has not only controlled soil erosion in the western region, but also alleviated the pressure of difficult grain sales, thus significantly contributing to sustainable agricultural and socio-economic development.

Farmers’ Choice

Chinese farmers never expected to worry about selling their grain.

"How should we till land following China’s WTO accession," many farmers wondered.

Huang Xianguo, a farmer in Anshan City of northeast China’s Liaoning Province, is not worried. He contracted 87 hectares of cultivated land in early 2000 with a term of 30 years. "My wife and I are in our 50s, and we are local farmers. In 2000, we did not have a corn harvest, for we lacked technology and management and were affected by the drought and high costs. In 2001, the per-hectare output of corn reached 11,250 kg, and our annual income was nearly 300,000 yuan, thanks to the good climate and our experiences," said Huang.

Huang noted that following China’s WTO accession, he would still benefit from growing grain. "First, we have superiority in operation scale and low costs in machine planting, the use of laborers, insect and disease prevention, harvesting, storage and marketing. Second, we apply science and technology and scientific management, such as seed selection and cultivation, seed packages, virus destruction and an increase in seed fertilization, as well as the use of a potash fertilizer.

"To prevent plant diseases and insect pests, I have adopted mechanical hoeing methods, and combined manual with aerial crop-dusting, which has had good results. Last autumn, I rented a harvester. I expect the per-hectare output this year can increase nearly 1,500 kg," he added.

"Per-hectare investment, including seeds, fertilizer, pesticides and machine costs, is about 3,900-4,050 yuan. In short, it is not a bad thing to grow grain, for it uses less labor, is easy to store, has less risks and generates a stable income," Huang concludes.

Huang believes that if you concentrates on one thing, you will naturally occupy a position in the market.

(Beijing Review February 7, 2002)