Asia’s Promise Needs Commitment

Posted September 3, 2003 at 8:56am

Promise has two meanings. The first is potential. The second is commitment. In the case of trade with Asia, both meanings apply. Asian markets hold great promise for U.S. agricultural exports. But in order for farmers and ranchers to fully realize this potential, U.S. trading partners in the region need to adhere to the letter and spirit of their trade commitments. On top of that, our trading partners in Asia should commit to further liberalization in the ongoing agriculture negotiations in the World Trade Organization. Unfortunately, the record so far for some trading partners in Asia is mixed. There are worrisome signs that this may continue. Lack of leadership from Japan is especially disappointing. The stakes are high. Agricultural exports make a big contribution to the U.S. economy. According to the U.S. Agriculture Department, every dollar of direct export sales generates another $1.39 in supporting economic activity. Agricultural exports generated an estimated 790,000 jobs in 2000, of which 318,000 were on farms. In 2002, the United States exported $53.3 billion in agricultural products. Asia accounted for nearly one-third of this trade, so we need to pay attention to the region. A close look at our experiences with Japan and China illustrates both the dangers and opportunities for our agricultural exports.

Japan has the second-largest economy in the world. Japan is also our largest market in Asia, taking in $8.3 billion in U.S. agricultural exports, with more than $2 billion in beef and pork. The potential for Japan is even greater. Japan’s economy could serve as an engine for regional and worldwide economic growth, but economic leadership is sorely lacking.

Instead of embracing trade liberalization and opening its markets, Japan is aggressively erecting trade barriers. Take for example the lack of transparency in the way Japan administers its tariff-rate quota for milled rice imports. Or consider the recent imposition of a safeguard tariff on beef imports set at 50 percent. The beef safeguard is especially irksome. The increase in Japanese beef imports that triggered the safeguard stemmed from rebounding consumer demand following a 2001 outbreak of bovine spongiform encephalopathy in Japan, not an overall increase in imports. The increase in beef imports simply reflected the readjustment of the Japanese market to conditions that prevailed prior to the outbreak of BSE. Japan’s Temporary Tariff Measures Law, under which the safeguard was imposed, was never intended to address such an extraordinary situation.

One area in which Japan could play a more constructive role in the world economy is through the WTO Doha round agriculture negotiations. Here, the United States is seeking substantial improvements in market access, the elimination of export subsidies, and reduced and harmonized domestic support subsidies. Unfortunately, Japan is taking a go-slow approach to liberalizing agricultural trade in the WTO negotiations. It is leading efforts to block reforms that would expand global agricultural trade and economic growth. The obstinance of Japan on these and other issues threatens to derail the negotiations as they enter this critical phase leading up to the WTO ministerial meeting in Cancun. Failure at the WTO will benefit no one and deprive all nations of the opportunity to realize increased worldwide economic growth and prosperity.

In the case of China, trade reforms and rapid economic growth have made it an increasingly important trading partner for the United States. With a population of 1.2 billion people, rising incomes and a growing middle class, China has enormous potential as a market for U.S. food and agricultural products. China already is the fifth-largest purchaser of U.S. agricultural exports, nearly one-half of which are oilseeds. Those are mainly soybeans, with a value of about $890 million in 2002. However, commercial relations between the United States and China have been marked by friction over a variety of issues. Those include a growing trade imbalance, Chinese trade barriers, and China’s failure to comply with all of its WTO accession commitments.

Most recently, China’s quarantine department drew up a list of foreign soybean exporters that have allegedly violated phytosanitary standards, including four different U.S. companies. While USTR’s chief agricultural negotiator quickly condemned this action, there’s still reason to be concerned that China is seeking to erect a nontariff barrier to soybean trade in the guise of SPS concerns.

In addition, recent developments with China’s proposed biotechnology regulations continue to threaten U.S. soybean exports. China’s regulations created unfair burdens and effectively blocked soybean trade from January to March 2002. Our trade officials were able to reach an interim solution whereby China agreed to issue temporary certificates to allow our soybean exports to resume. This interim solution has been extended twice by the Chinese government, most recently until April 20, 2004. But we still haven’t resolved the underlying unfairness in the original regulations. Meanwhile, U.S. farmers contend with the uncertainty surrounding whether China’s interim solution will be extended and, if so, for how long.

The bottom line is that China is undermining the improved market access granted to U.S. exports of soybeans, not to mention other biotech products, when China entered the WTO. China is a major producer of agricultural biotech products, so it is especially frustrating when China unfairly impedes imports of biotech products from the United States.

China’s implementation and allocation of agricultural TRQs has also been woefully inadequate. Again this results in U.S. exporters failing to experience the market gains they were promised under China’s WTO accession agreement. The administration has used a variety of means to try to resolve these issues, but despite some recent regulatory changes by the Chinese government, problems remain. China continues to withhold information on entities that have received TRQ allocations.

Without transparency, it’s difficult to evaluate potential buyers in China. Here again, exports of our corn and soybean products suffer.

Another issue specific to our corn exports is China’s export subsidies. Despite a WTO pledge to eliminate export subsidies on corn, China’s export sales are priced as much as $20 per ton below equivalent domestic sales. This difference is too great to be accounted for by any rebate of value-added tax, as China suggests. Here again, China is failing to meet its promise.

The administration needs to take a more aggressive stance toward China’s implementation of its WTO commitments, even if this means bringing a case before the WTO, in order to help expand our access to China’s market. The administration could also lend its support to the bill I introduced to create a special 301 provision for agriculture. The United States Agricultural Products Market Access Act of 2003 enjoys broad support from the agriculture community. It would focus the full attention of our trade officials and the Congress on the most egregious barriers to U.S. agricultural exports erected by our trading partners around the world. That way, they can be targeted for elimination as quickly as possible.

Trade plays a vital role in bringing prosperity and improving the lives of people everywhere. It fosters economic growth, ingenuity and innovation, creating high-quality jobs in the United States. It promotes economic and political stability around the world. The Asian region in particular offers great promise for U.S. farmers and ranchers. Again, that means both potential and commitment.

It’s often noted that the Chinese use two brush strokes to write the word “crisis.” One brush stroke stands for danger and the other for opportunity. We haven’t reached a crisis point in our agricultural trade relations with Asia. But there’s a danger that some of our important trading partners in the region are opting for the road of protectionism and obfuscation, instead of staying on the path of cooperation, market liberalization and opportunity. Vigilance is needed to see that our trading partners in Asia meet their commitments today and fulfill the opportunity for greater prosperity which open markets can bring tomorrow.

Sen. Chuck Grassley (R-Iowa) is chairman of the Finance Committee.