By 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.

Viewed from a rough division of the farm produce, China's import of corn may go up due to the existence of a price difference on the world and the domestic markets, reduction of maize-growing areas in the country, and increase in the demand for feed stuffs from animal husbandry in the southern part of the country. Since China can not yet fully meet its domestic demand in terms of either total supply and variety, no big changes will take place in its position as a traditional net wheat importer. Rice has always been China's traditional export product. It is predicted that in the coming five years, this trend will be maintained. As for soybean, there has been a shortage in total supply and the quality is not up to standard for the oil pressing industry. Although China can basically meet its demand for cotton in general terms, it will have to import certain amount of high-grade cotton every year as the domestic consumption level rises and when increases in the country’s textile export after its entry into WTO are taken into consideration. In addition, permit to engagement in import and export businesses by some non-state-owned trading enterprises, as required by the use of tariff quotas, will also lead to increases in import.

II. Major factors affecting the competitive edge of bulk farm produce commodities

Grain is the foundation of agriculture. A big population, limited land resources, a big number of rural residents, and shortage of agricultural resources (tilled land and water resources), however, have restricted the long-term development of China's agriculture. To face these factors squarely will help us make amends for our weaknesses by exploiting our strengths, and take clearly-directed measures.

The pattern of bulk farm produce trading that has developed in China in recent years is a reflection of the country's situation in market supply and demand and the competitive edge of these products. For instance, it has maintained its status as a net corn and rice exporter and as a net wheat, soybean and edible vegetable oil importer, while its import and export of cotton has fluctuated comparatively violently.

In price, the prices of China's major grain and oil products stayed above those of similar products sold at the international market between last January and September. The price of wheat and corn was 20-30 per cent higher; that of soybean, 41 per cent more expensive; and that of soybean oil, 106 per cent dearer. Even the price of its rice, which used to boast a sharp competitive edge so far as price is concerned, was about 10 per cent higher than the price of rice sold at the international market. It can be said that China has now fallen into an unfavorable position so far as the competitive edge of its bulk farm produce is concerned.

A major factor affecting the competitive edge of China's farm produce include the low productivity of its agriculture. Studies have showed that land productivity in China is three times higher than the world average and ranks third in the world, coming only behind that in Holland and Japan. Labour productivity in its agriculture, however, is only 39 per cent of the world average, and falls about 100 times behind that in developed countries (such as the United States, Japan, France, Canada and Australia).

Due to low labour productivity in agriculture, the production costs of China's bulk farm produce has moved upward along with the rise of the average income level of its population. It has been concluded respectively in the two research reports made by the Research Department of Rural Economy in our Center that China's cost of grain production rose by 10 per cent from 1985 to 1998 and by 8.44 per cent from 1978 to 1997. During the more than 20 years since China inaugurated its policy of reform and opening-up, the productive capacity of China's agriculture has grown substantially. Improvement of basic agricultural facilities, rise of technical and equipment levels, and universal application of the results of agricultural scientific and technical researches, in particular, have enabled the country's single-unit output of grain, cotton and oil products to double and redouble. The basic reason for the low labour productivity of its agriculture, however, still lies in the surplus of labours in its planting industry. China now has 330 million agricultural labours, about half of the country's total number of employed labours. Relevant studies have revealed that China has about 130 million surplus agricultural labours at present.

To improve the situation of utilization of agricultural resources and emigrate agricultural labours are two long-term tasks in the development of China’s agriculture, its rural economy, and its national economy as a whole. To join WTO will expose the country’s bulk farm produce commodity market to realistic pressures. On the other hand, it should be noted that about 65 per cent of the grain produced in China does not flow into the market because of its big rural population. Meanwhile, the pressure from China’s opening of part of its bulk farm produce market to the outside world can be expected to be alleviated along with the structural readjustment of its planting industry and the application of the results of agricultural scientific and technical researches; the gradual improvement of the variety and quality of its grain, cotton and oil products as well as its other labour and technology-intensive farm produce in which it boasts certain superiority; and the acceleration of its efforts in market construction and development of marketing technology.

III. Train of thinking about corresponding countermeasures

An analysis of China's present pattern of trading of farm produce commodity can roughly reveal the advantages and disadvantages of itself. Take 1999 as an example. In the year, China’s total imports and exports of farm produce were US$21.75 billion (including US$8.21 billion of imports and US$13.54 billion of exports) with a trade surplus of US$5.33 billion. If bulk farm produce (grain, cotton and edible vegetable oil) was excluded, its total imports and exports of other varieties of farm produce were US$17.597 billion (including US$5.663 billion of imports and US$11.934 billion of exports) with a trade surplus of US$6.271 billion. This pattern has been basically maintained in China's import and export of farm produce in the past few years. Such a situation shows that in China's agricultural production, labour-intensive and technology-intensive farm products boast a comparative superiority and are competitive at the internaitonal market in price, at least. When it comes to land-intensive commodity, such a superiority is basically non-existent.

After joining the WTO, what China will face up first of all will be the WTO rules on the trading of farm produce commodity and readjustment of its foreign trade system and corresponding laws and regulations. To readjust its domestic policies on agriculture and on the rural areas including deepening of its reform of the rural economic system and improvement of its system for the management of agricultural production and circulation, however, will still be of top importance. The decision made by 3rd plenary session of 15th Central Committee of the Communist Party of China made a scientific judgment of the development of the country’s agriculture and rural economy at the present stage and enacted the policy of making a strategic readjustment of the structure of the country's agriculture and rural economy, thus providing the basis for us to develop our train of thinking about the countermeasures China should take after its entry into WTO.

1. Implementation of measures for the readjustment of the structure of the country's agriculture and rural economy

(1). Adoption of different policies of support in rural areas with different development levels Different areas in China will have different capacities of adapting themselves to the new situation after the country becomes a WTO member. The comparatively developed coastal areas, with their comparatively closer contact with the international market, will boast greater adaptability to international competition so far as their economic strength and product mix are concerned, and can feel the benefits of China's membership in WTO at a comparatively earlier date. For these areas, the policy choice should include loosening of government control and installation and perfection of market systems. In underdeveloped areas with a small ratio of commercialization of farm produce, to provide sufficient food and clothing and to gradually raise their economic development levels should be tasks of the greatest urgency in the immediate future, and to help the poor and to promote local social and economic development should be taken as a chief policy choice. During the transition period after China’s entry into WTO, the traditional agricultural areas in Central China will suffer the biggest pressure