Source: 4th Media (2011)
During the negotiation and accession process, an array of liberalization reforms—in terms of domestic market and international trade —already dominated China’s policymaking landscape. Most prominently, China introduced an export-oriented and more open trade system that consisted of significant reductions in agricultural tariffs and non-tariffs, the latter included state trading alongside import and export quotas and licenses. The average tariff for agricultural products was cut in half between 1992 and 2001. China continued to reform its economy and agriculture upon entry into the WTO. By 2009, China’s average tariff for agricultural products had fallen below 16 percent according to the WTO.
An important aspect of the negotiations was related to dismantling the monopoly held by various state trading agencies in the import and export of their specified products, encouraging competition by deregulating the trade of many commodities and allowing the participation of private firms. Before the reforms, for example, the China National Cereals, Oils, and Foodstuffs Import and Export Company (COFCO) held exclusive import and export rights over many agricultural products. WTO membership prompted the partial handover of COFCO’s import and export tariff quotas to non-state agencies. While COFCO currently accounts for a small share of total agriculture trade, it has retained significant dominance over the trade of commodities that are considered “strategically” important for China’s food security, including wheat, maize, and rice.
China’s entry into the WTO has opened the door to a more integrated global trade system for China. The removal of trade distortions promotes a more efficient system of production, competition, and trade that is based on comparative advantage. Producers can thus specialize in the production of goods that are most suited to the country’s resource endowments. In China’s case, the large rural labor force (relative to land area) gives the country a comparative advantage in labor-intensive agricultural production. China can therefore take advantage of this by exporting more labor-intensive agricultural products such as fruits, vegetables, and aquatic products.
However, these opportunities also pose a number of challenges to the Chinese economy. First, a large segment of the agricultural products in which China has a comparative advantage are high-value crops that need to comply with stringent levels of quality and safety for export. Moreover, these products demand more complicated post-harvest supply channels—including processing and transport—due to their high perishability. In order to ensure that the high-value products meet the quality and safety standards that are required in various international markets, appropriate mechanisms and infrastructure throughout the supply chain have to be established, especially focusing on smallholder farmers.
Second, while trade liberalization has the potential to benefit the producers of labor-intensive products, it also favors the diversification of agricultural output away from certain agricultural subsectors in which China lacks a comparative advantage. As a result, less-developed areas that are often focused on more land-intensive production—such as grain—are penalized due to the difficulties they face in shifting to high-value activities. More specifically, negatively affected farm households and groups often lack the resources and skills to convert their production to more labor-intensive crops or to non-farm employment.
At the same time, Chinese agriculture is increasingly under stress due to a dynamic and emerging set of challenges, including limited water and land resources alongside demand-side growth in population and incomes and supply-side increases in labor costs. As a result, China’s food security will be progressively under more stress if these challenges are not addressed. Agriculture has also increasingly been required to address broader development issues such as environment, nutrition, and health. The recent food price increases at the both domestic and international levels is a strong testimony of the link between agriculture and other development outcomes.
China has a number of tools at its disposal to tackle these challenges efficiently and sustainably. First, China should use the international trade system and its own agricultural policies to further adjust its trade structure to better reflect its comparative advantage, importing more land and water intensive agricultural products and exporting more labor intensive commodities. Second, investments in rural infrastructure and agricultural research and development alongside innovative institutional arrangements are needed to link smallholders to high-value supply chains and to enhance land and labor productivity. Special focus should be placed on promoting technological innovations that address the challenges to smallholders’ shift towards high-value production. Third, the establishment of social protection system in rural areas should be accelerated to protect the poor, particularly women and children. Finally, collaboration with African and Latin American countries for improving their agricultural technologies and rural infrastructure is essential to increase productivity according to comparative advantage, thereby diversifying China’s import and export markets.
These actions are essential to help China maximize the opportunities presented by WTO membership, while simultaneously improving local, national, and global food security.
Tags: China, food prices, food security, trade, WTOPosted in News
