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Situation and Outlook of China’s WTO Accession On its Agricultural Sector

Situation and Outlook of China’s WTO Accession On its Agricultural Sector. By Xiang Dong Qin North Carolina Agricultural & Technical State University. Introduction.

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Situation and Outlook of China’s WTO Accession On its Agricultural Sector

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  1. Situation and Outlook of China’s WTO Accession On its Agricultural Sector By Xiang Dong Qin North Carolina Agricultural & Technical State University

  2. Introduction • China has finished all its WTO accession bilateral and multi-lateral negotiations this month, it is going to be a full member of the WTO late this year. • China will face serious challenges because many of its domestic farm products are already priced above those prevailed at the world market.

  3. Introduction • China’s agricultural/rural sector : --Rural population: 70% --Agricultural labor force: 50% --Agricultural GDP: 18% • Current protections provided to the domestic agricultural sector include: --Tariff and Non-tariff Border Measures --State Trading and Domestic Policies

  4. Short-Term Impacts of the WTO Accession on China’s Agriculture • Three major factors: --Tariff reduction --Tariff-Rate-Quota --Reform of domestic agricultural policies • Tariff Reduction: --On average, tariff on imported agricultural products will be reduced from 22% to 17%. --Buck commodities such as grain, cotton and oil seeds are subject to TRQs.

  5. Tariff Reductions:Non-TRQ Commodities • Source: USTR(1999), Inside US Trade (1999)

  6. Short-Term Impacts... --The tariff reduction will encourage more legal imports instead of smuggling. • For Livestock Products: --Beef Import is expected to grow slowly due to price deferential -- Pork import is expected to increase steadily (mainly pork offal imports) -- Poultry import will grow, in part because of the demand of re-exportation (Japanese Market)

  7. China's Pork Production and Consumption, 1980-2005 Source: Zhong, 1997; Qin, Amponsah and Peng 2000.

  8. China's Pork Production and Consumption, 1995-2005 Source: Zhong, 1997; Qin, Amponsah and Peng 2000.

  9. Short-Term Impacts… • Tariff-Rate-Quota System -- Due to food security concern (in China, food security is equivalent to Food Self Sufficiency), the TRQ in-quota quantities of grain are about 2.4% to 3.3% of total domestic consumption, including seed and all other non-human uses.

  10. TRQs for Cereals and Soybean Oil

  11. Short-Term Impacts… -- Cotton is still considered as a strategic commodity, the TRQ in-quota allowed imports will start at 743 TMT, and increases to 894 TMT in five years, with U.S. remaining as a major supplier. -- In quota tariff will be reduced from 3% to 1%, and out of quota tariff will be cut from 76% to 40% in five years. -- China is facing bollwarms problem in east provinces (adoption of BT cotton)

  12. Short-Term Impacts... • Domestic Policy Reform Domestic policies reform may lead to structural adjustment in Chinese agriculture as government control is loosen further. (e.g. suspensions of low quality rice and wheat productions and government procurement program in certain provinces, which will potentially open rooms for imports)

  13. Structural Adjustment and Labor Migration • The reallocation of resources may result in improvement in efficiency and realization of regional comparative advantage; it will also lead to massive exodus of rural labor to urban areas (the excess labor in rural areas could exceed 300 millions)

  14. Regional Comparative Advantage and Structural Adjustment • There is substantial regional differences in agricultural production and trade. • The overall efficiency will be improved in Chinese agriculture if domestic free trade is made possible after the WTO accession.

  15. Potential Long-Term Impacts of the WTO Accession on China’s Agriculture • The diminishing contribution of the agricultural sector to China’s economy, from 1990 to 1997: --the share of agricultural GDP declined from 27.1% to 18.7% --the share of labor force in agriculture declined from 60% to 50%,

  16. Potential Long-Term Impacts... • The possible solution: to free labor market, allowing rural labors to migrate freely and to find employment outside agricultural sector and in urban areas. • Strategies: --Government: encourage adopting and developing more labor-intensive technology --Encourage further structural adjustment in the whole economy --Technology innovation

  17. Concluding Remarks • Short-Term impacts on China’s agriculture is not expected to be very significant; • Reform of domestic policies may improve Chinese agriculture in terms of resource allocation and cost efficiencies; • Long-Term impacts might be very significant due to the small scale of the farm and high labor cost per unit of product; • More fundamental structural adjustment is needed in the whole economy.

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