Global Policy Forum

By Nidhi Nath Srinivas

Beijing can certainly teach the world how to swim with the sharks in Cancun without being eaten alive. Instead of buying more from American and European farms after joining the WTO, China has actually become an even larger net exporter of agricultural products in its very first year as WTO member.

More importantly, China's agricultural exports to US rose 23% to cross the $1bn mark for the first time. In contrast, US exports to China increased by only $128m. The lesson for India is clear: if you really know how to fish, you can reel in any shark you want.

After joining WTO in '01, China's agricultural exports surged 13.3% in '02, while its farm imports rose only 3.5%. China's $1.5-bn rise in farm exports exceeded the $369m increase in farm imports by more than $1bn. As a result, its trade surplus in farm products shot up to a whopping $2.2bn in '02 (January-December).

Both the US and EU were keen that China join the WTO because many analysts had predicted that its WTO commitments to cut tariffs, reduce the role of state trading monopolies, and streamline regulations would open China's markets to greater imports. Its commitment to remove export subsidies was expected to make its corn and other grain uncompetitive in world markets.

However, export of corn and horticultural products like vegetables, fruits and nuts have added more than $1bn to China's $1.5-bn increase in farm goods exports last year. Instead of dropping, corn exports touched 11.7m tonnes in '02, increasing $542m in value.

The joker in the pack, of course, was China's export of consumer-oriented farm produce. Most forecasts relating to China's WTO accession focused on prospects of greater imports of bulk commodities such as grain, cotton and soyabeans. Less attention was paid to China's emergence as a major exporter of vegetables, fruits, meat products and processed foods. As these products are labour-intensive and need less land per unit of output, they are well suited to China's land-scarce, labour-abundant economy.

During '02, these goods were worth $6.7bn in exports, accounting for more than 60% of all farm exports. Trade pundits, particularly in the US government, expected China's new tariff rate quota (TRQ) system to boost imports of key commodities (rice, wheat, corn, cotton, wool, vegetable oil and sugar), whose trade was tightly controlled by PSUs before WTO accession.

China's WTO agreement set quotas for imports at tariffs as low as 1%. China was not required to fill these quotas, but imports of commodities under TRQ were expected to rise due to the combined effects of low tariffs and extension of importing rights to all potential end-users.

But American trading companies were in for a rude shock. The TRQ system did little to boost imports during '02, and the quotas were largely unused. Its imports of wheat, corn, rice and rapeseed oil amounted to less than 10% of their respective quotas. Business was especially bad in corn, cotton and wheat, where US is competitive in the China market. Palm oil, where US is not a player, was the only commodity whose quota was nearly filled. In total, import of farm goods under TRQs amounted to just 20.8% of the total quotas set for '02.

Though one reason for the drop in import of wheat, corn and rice were the adverse world market conditions, which made trade uneconomic during the latter half of '02, Beijing's administration of the TRQs also may have had something to do with it. China also successfully disrupted soyabean imports from US in '02 by its vaguely worded regulations for GM foods.

In the coming years, China will remain an important importer of corn, wheat and soyabeans, apart from processed foods to meet growing consumer demand, which is fuelled by rising incomes. But it is unlikely to be averse to using all tricks in the book, such as phytosanitary measures, tightened inspection rules, delays in approval of TRQs, new domestic regulations for importers, indirect taxes and fees, to restrict the imports. Simultaneously, China will become an increasingly important source of inexpensive vegetables, fruits, fish and processed foods by raising food safety standards and quality, giving stiff competition to others. As they say, "It's not the game which matters, but it's the skills you bring to it."

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