China’s agriculture in the international trading system

292 Pages·2001·2.479 MB·English

by  OECD

OECD Proceedings
China’s Agriculture in the
International Trading System
Publisher’s note
The views expressed are those of the authors
and do not necessarily reflect those of the Organisation or of its Member countries
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FOREWORD
The world today is avidly anticipating China’s further economic opening through trade and investment
liberalisation and its integration into world markets. The possible implications of China’s accession to
the WTO have been widely discussed as negotiations draw to a close. The potential impacts on the
agricultural sector, both within China and throughout the world, are enormous. Preparations for these
developments should be as well informed as possible, so that appropriate strategies can be formulated
and policy choices made.
To achieve a better understanding of the short- and medium-term consequences of China’s strategy for
opening up, the Chinese authorities and the OECD held a Workshop on “China’s Integration into the
International Trading System: Issues for, and Impacts on, Agriculture”, at OECD headquarters in
Paris, on 16-17 November 2000. The Workshop brought together experts on a wide variety of issues
related to the transformation of Chinese agriculture from OECD Member countries and the FAO. The
Chinese delegation was led by the Director-General, Department of Sectoral Policy and Law in the
Ministry of Agriculture. Several other delegates from OECD Member and non-member countries
participated in the discussion. As the present volume demonstrates, the Workshop provided a unique
venue for in-depth analysis and penetrating, open discussions of the issues at stake.
The Executive Summary captures the essence of the discussions at the Workshop, as well as highlights
from each of the papers presented there and published in these proceedings. Each of the twelve papers
and the five additional background papers is preceded by an abstract to orient the reader.
These proceedings are rich in quantitative detail and analysis. They provide detailed analyses of trends
and patterns of China’s agricultural production, assessing comparative advantages down to the
provincial level. The reader will also find simulations of possible scenarios, incorporating the most
up-to-date results from China’s negotiations with its major trading partners, particularly in the grain,
oilseeds and livestock sectors. Modelling techniques have been applied to analyse the effects of
agricultural trade liberalisation on China’s estimated 150 million excess farm labourers. The latest
information on the evolution and prospects of township and village enterprises (TVEs) and their
potential to absorb rural labour is presented.
Two papers examine likely impacts from the perspective of the political economy, taking both
domestic and international points of view. The compatibility of the current agricultural policy regime
with China’s WTO commitments is assessed. Several papers give fresh insights into the evolving
strategies of Chinese policy makers on how best to manage the transition to freer trade in agriculture
and adjust to its consequences. Policy conclusions and recommendations are drawn in nearly all
papers and, taken together, provide a wealth of policy insights and guidance.
These proceedings, also available in Chinese, are produced under the auspices of the Centre for Co-
operation with Non-Members of the OECD as part of its programme of co-operation with China. This
work is published under the responsibility of the Secretary-General of the OECD.
Gérard Viatte Eric Burgeat
Director Director
Directorate for Food, Agriculture and Fisheries Centre for Co-operation with Non-Members
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ACKNOWLEDGEMENTS
These Proceedings bring together the papers from the Workshop on China’s Integration into the
International Trading System: Issues for, and Impacts on, Agriculture, held at the OECD, Paris, on
16-17 November 2000. For the OECD, Josef Schmidhuber was responsible for the design and
organisation of the Workshop together with Yupeng He until July 2000. After that Andrzej
Kwiecinski, Xiande Li , and Alexandra Trzeciak-Duval were responsible. Dewen Wang prepared and
organised the Workshop on behalf of the Ministry of Agriculture, China. Alexandra Trzeciak-Duval
and Sally Taylor prepared these Proceedings. Stefanie Milowski assembled and formatted the final
publication.
ALSO AVAILABLE
The Agro-Processing Sector in China, Developments and Policy Challenge (OECD 2000)
Agriculture in China and OECD Countries: Past Policies and Future Challenges ( OECD 1999)
Agricultural Policies in China (OECD 1997)
FURTHER READING
Agricultural Policies in Emerging and Transition Economies 2000 (OECD 2000)
Agricultural Policies in Emerging and Transition Economies 2001 (forthcoming)
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TABLE OF CONTENTS
FOREWORD ........................................................................................................................................3
EXECUTIVE SUMMARY ..................................................................................................................7
OPENING STATEMENT - Mr. Seiichi Kondo..................................................................................15
SESSION ONE: Trade policy changes and impacts on agricultural markets
Changes in China’s agricultural trade policy regime: Impacts on agricultural production,
consumption, prices, and trade - Mr. Josef Schmidhuber .....................................................................21
China’s agricultural restructuring and system reform under its accession to WTO
- Mr. Ying Du ........................................................................................................................................52
WTO SPS Agreement -- Implications for China’s accession
- Ministry of Agriculture, Australia.......................................................................................................61
SESSION TWO: Trade integration and impacts on factor markets and natural resources
China’s trade integration and impacts on factor markets - Mr. Colin Carter .......................................71
Trade integration and impacts on natural resources - Mr. Frederick Crook ........................................89
Regional comparative advantage in China’s grain production: Implications for
policy reform - MM. Funing Zhong, Zhigang Xu and Longbo Fu .....................................................102
SESSION THREE: China’s accession to the WTO and changes in the political economy
The political implications of the WTO agreement on agriculture - Mr. Joseph Fewsmith.................125
China in the WTO: Implications for international trade and policy making in agriculture
- MM. Brad Gilmour and Lars Brink..................................................................................................137
SESSION FOUR: China’s accession to the WTO: Issues for, and impacts on,
agricultural policy
Changes to domestic agricultural policy after China’s accession to the WTO
- Mr. Xiaoqing Xu...............................................................................................................................161
China’s WTO accession: Conflicts with domestic agricultural policies and institutions
- MM. Hunter Colby, Xinshen Diao and Francis Tuan.......................................................................167
Trade integration and the prospects for rural enterprise development in China
- Mr. Albert Park.................................................................................................................................184
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China’s grain economy toward trade integration: Policy adjustment and trade implications
- Mr. Dewen Wang..............................................................................................................................208
ANNEX
Pig farming development in China under the WTO framework: Trade and policies
- Mr. Liangbiao Chen..........................................................................................................................231
Entering WTO and opening agricultural markets: Impact on China’s use of foreign funds
in agriculture - Mr. Hongxin Ni...........................................................................................................242
Improvements in China’s agricultural legislation in light of WTO entry
- Mr. Lejun Wang................................................................................................................................250
Industrialisation of the agro-food chain - An effective way to enhance agricultural
competitiveness under WTO - Ms. Xiuman Zheng..............................................................................258
Development of rural enterprises (TVEs) in China and adjustment policies in light of
WTO accession - Ms. Qiuxia Zhu.......................................................................................................268
Programme..........................................................................................................................................283
List of Participants...............................................................................................................................285
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EXECUTIVE SUMMARY
China’s accession to WTO brings great opportunity and, at the same time, great challenges for the
whole agro-food sector. A joint China-OECD Workshop was held on 16-17 November 2000 to
examine the range of possible impacts. Participants were confident that trade integration would
enhance reforms and accelerate structural changes that are already ongoing in China. Trade integration
can produce many benefits to the extent that the Chinese economy, including the agro-food sector, is
able to adjust to exploit new comparative advantages under trade liberalisation. This understanding
underpins the Chinese leadership’s commitment to entering the WTO. However, if China adopts
defensive or conflicting policies rather than embracing new opportunities, adjustment will be longer
and more painful, and may bring strong inter-regional distortions that could exacerbate existing
political tensions. Therefore, the Workshop presentations and the discussions that followed focussed
on the challenges that the Chinese government needs to address in order to accelerate adjustment.
Summary of Workshop discussions
Compatibility of China’s domestic agricultural policies with WTO commitments
Current domestic agricultural policies and institutions in China may conflict with or be incompatible
with WTO accession in several ways. While the change in China’s import tariff duties is not expected
to have a significant impact on either domestic policy or on government revenues, commitments
related to non-tariff barriers will mean important changes in the Chinese trade system. Thus, China
will need to replace its import quota and licensing system with a tariff-rate quota (TRQ) system and
eliminate the state trading company monopoly over agricultural trade in grains, cotton and soybean oil.
Another key area of change relates to the domestic policies that manage agricultural supply and
distribution of such priority agricultural commodities as grains and cotton. As China is committed to
allow private traders, including foreign companies, to have full trading and distribution rights in
retailing, wholesaling, warehouse, and transportation, this will be incompatible with China’s current
agricultural marketing and distribution system, involving the government’s near monopoly over
procurement and allocation of these commodities.
The more competitive framework will also have an impact on the government’s grain stockholding
policy. The government will have to compete with private marketing enterprises for procurement,
which may require government agencies to pay higher prices to procure grain for strategic reserves,
raising government expenditures. This in turn might lead to a reassessment of current policies that
result in large strategic grain reserves.
The impact on agricultural employment
The greatest challenge to Chinese policy-makers will be providing alternative employment
opportunities for redundant farm labour. Chinese agriculture employs more than 300 million people
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and accounts for about half of total employment and about 70% of employment in rural areas in China.
Unofficial estimates suggest that one third of the rural labour force is not productively employed, even
under currently low levels of technology. However, some experts convincingly argue that China’s data
significantly overestimate the number of farm workers. In any case, there is a high agricultural labour
surplus in China, which has brought about low wages and hidden unemployment and has become the
driving force for the vast ongoing rural-urban migration process, not fully captured by official
statistics. A more competitive economic environment could intensify this migration process.
There are several factors, all linked with WTO entry, which may potentially have an impact on the
actual outflow of labour from agriculture. These include changes in the relative prices of agricultural
goods in China and, thus, changes in rural real wages; development of rural industries (TVEs); labour
market reforms; land market reforms; creation of new employment opportunities in urban areas; and
access to the social infrastructure and social security system. Participants concluded that changes in
the relative prices of agricultural products will have a relatively limited impact on agricultural
employment. Similarly, the expected reform process of the TVEs, further strengthened by the WTO
accession, will result in labour being released rather than absorbed by rural industries.
The single most important factor could be labour market reforms linked with the relaxation of the
household registration system (hukou). The hukou system remains an important barrier to migration as
registration rights are very expensive to purchase, and those not registered as urban residents cannot
access housing, education, medical services, etc. In addition, farmland allocation and grain quota
policy impose opportunity costs associated with leaving the land. There is a very limited land market
in China, and migrants give up their implicit rights to the farmland and forego any future ownership
possibilities. At the same time, government procurement quotas for grain keep farmers in grain
production and discourage out-migration. The grain market reforms, as discussed above, and more
flexible land leasing arrangements between farm households and communities would stimulate
mobility of labour. The textile industry, higher value agri-food exports, and light manufactured goods
were singled out as the most promising sectors which would benefit from China’s WTO accession and
would be in a position, along with the service sector, to absorb part of the labour released by
agriculture.
Comparative advantage
For China, the four-year transition period envisaged in the WTO agreement should allow domestic
policies to make significant progress in adjusting and adopting production and trade patterns more in
line with the country’s comparative advantage. With its labour-rich and land/water-deficient
agriculture, China ought to reduce the land and water-intensive production of cereals and oilseeds. It
should in turn shift towards the more labour-intensive production of vegetables, tobacco, and selected
livestock commodities in which it has a comparative advantage. This could bring about a “win-win”
situation with benefits for the economy in general and China’s natural resources base in particular,
saving water and protecting marginal farmland. However, lowering border measures alone may not be
sufficient to increase imports of those products in which China has a comparative disadvantage (grains
and oilseeds) and to reallocate resources to products in which China may develop important export
capacity. As explained above, domestic policy reforms - in addition to trade policy reforms - will be
necessary to stimulate the restructuring of China’s domestic production.
China’s opening to international competition and domestic policy reforms should also bring
reallocation of production across regions. However, under the current policy framework led by the
concept of regional self-sufficiency in major farm products, the utilisation of regional comparative
advantage is very limited. This challenge remains critical and more work is needed to suggest how to
bring regional comparative advantage into play.
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Institutional changes and political economy issues
For China, WTO accession is part of a broader strategy to lock in the transition from a command
economy to a market economy. Final commitments made at the time of China’s WTO accession will
have to be transformed into law in China. Out of the overall WTO agreement, the agricultural
component is potentially the most contentious due to the number of people employed in agriculture,
the fragility of the agricultural economy, and the implications for social stability if foreign competition
undermines the livelihood of large numbers of farmers. Participants expected that the pressures on the
agricultural sector resulting from the agreement would reinforce the existing pressures for good
governance at the local level. In particular, they may add to the deepening of democratic forces at the
village level and increase the will to extend those elections upward, at least to the township level.
However, in the short run, this rather optimistic evaluation could be contradicted by social unrest
supported by and providing support to the critics of globalisation.
In terms of possible effects on international relations, China, on balance, is likely to favour faithful
adherence to the WTO rules based system and thereby strengthen it. China may co-operate with other
groups of countries, such as developing countries, to develop common positions on specific issues, but
will above all represent a weight in itself and seek to protect its own economic interests.
Rural finance
While there was no agreement on the impact of the WTO accession on agricultural terms of trade,
there are grounds to expect that the impacts on China’s food and agricultural economy are likely to be
less positive than on China’s economy as a whole. Rural incomes are 1.7-2.8 times lower than those in
urban areas, and there is little doubt that the farm sector is heavily taxed on a net basis. Even if the
question of the level of farmgate prices relative to world market prices remains unresolved, the
onerous taxation system consisting of multiple state, township and village taxes and levies imposes a
heavy burden on the farming sector. Moreover, due to the household registration system about 90% of
the agricultural population has no access to the welfare system. A large proportion of farmers are
subsistence or semi-subsistence producers having no or very weak links with markets and no access to
credit. Financing problems for rural areas are further exacerbated by an institutional bias against
township and village enterprises (TVEs), which has made it more difficult for them to maintain access
to adequate finance.
Policy reforms and the role of government
Various policy measures were suggested to ease the adjustment process:
− Reduce administrative impediments to the flow of labour from agriculture to other
activities;
− Reform the education system to improve access of the rural population to education and
to enhance the competitiveness of farm labour on labour markets;
− Reassess the implications of the exchange rate overvaluation that leads to implicit
taxation of sectors producing tradable goods, including agriculture;
− Reform the fiscal system to ease the explicit and implicit tax burden imposed on the farm
sector;
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− Introduce social policy reform to provide farmers with basic social security;
− Relax the governor’s grain responsibility system to ease the reallocation of grain
production in accordance with regional comparative advantage;
− Decouple the food security policy from the concept of food self-sufficiency;
− Reform the state trading system to comply with the WTO requirement of opening and
gradually increasing tariff rate quota access to private traders;
− Reform the state system of grain handling, distribution and storage to increase
competition among traders and to comply with the WTO requirements;
− Reform “the spider web” of institutions dealing with agricultural policy to make it more
transparent, better co-ordinated and more consistent with market economy principles;
− Create a proper technical and administrative framework to successfully implement the
WTO Agreement on the Application of Sanitary and Phytosanitary Measures (the SPS
Agreement); like many developing countries, China is likely to find full implementation
of the SPS Agreement particularly difficult;
− Ensure that locally elected leaders buy into the market economy system; this would
increase support for market-oriented reforms.
This policy agenda is not exhaustive and would need careful assessment in terms of costs involved and
implementation periods. In general, as China’s government is expected to withdraw from direct
market interventions, it should concentrate on the provision of public goods to facilitate adjustments
and ease the functioning of market forces.
Data availability
Any quantitative evaluation of the impact of China’s integration into the international trading system
necessitates careful assessment of the quality of statistical data. During the meeting several cases were
quoted which suggest that the quality of data remains a problem in China. This applies to such basic
data as farmgate prices, the total number of those employed in agriculture, the actual size of labour
flows between agriculture and other sectors, the arable land area, the intensity of land use (multiple
cropping), the volume of meat production. It is clear that without reliable statistics it will be difficult
to assess the results of reforms undertaken and to formulate appropriate policy responses.
Overview of Workshop papers
These Proceedings are organised in line with the Workshop programme (page 283). The opening
statement by Kondo highlights the achievements of China-OECD co-operation overall and in the
agricultural sector and introduces the four sessions of the Workshop.
In the first session on Trade policy changes and impacts on agricultural markets, Schmidhuber
sketches the current policy environment and the likely changes in China’s trade regime in terms of
tariffs, the tariff rate quota system and its administration, and sanitary and phyto-sanitary (SPS)
measures. His detailed analysis of the effects of China’s integration into international markets on
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