MARKET DEVELOPMENT
11-06-2002
China slaps tariff on U.S. soybean oil to retaliat
05/06/2002 (Asia Intelligence Wire) - Since China placed bean oil onto itsproposed list to retaliate against the tariff imposed by the United Stateson China's steel imports, the country has learned to master the techniqueof protecting its own interests under the framework of the World TradeOrganization (WTO), analysts said."While showing a warning to the Bush administration, the selection of beanoil as a retaliative item can give domestic farmers and producers morebreathing room before the impact of the US imports of soybean and beanoil,"said Wang Zihui, an analyst with Beijing-based newspaper ChinaBusiness.Wang's comments came after China submitted a list of US production whichit intends to suspend promised tariff reductions in line with its WTOcommitments. Imports of waste paper, bean oil and electric compressorsfrom the US will be subject to 24 percent tariffs, after the WTO disputesettlement body gives its final jurisdiction against the US tariffs andwill be valid until 2005.The measure was declared two months after US President George W Bushslapped tariffs ranging from 8 to 30 percent on steel imports fromcountries like Japan, the European Union (EU), and China. It also came oneweek after Bush signed a farm bill guaranteeing US$190 billion subsidiesto US farmers over the next 10 years.Compared with the proposed suspension list that would cause total dutiesof US$94 million for US produce, China's reaction on the US farm bill wasquite reserved. On June 4, a joint statement from the Ministry of ForeignTrade and Economic Cooperation (MOFTEC) and the Ministry of Agricultureindicated that the US bill distorted international farm trade, and Chinawould reserve the right to take further action."China's restrictive attitude is quite understandable, because so far itis unclear how much the new farm bill will impact our farmers,"said LuFeng, an agricultural economist with Peking University.According to Lu, there are certain procedures before the bill -- which hebelieves is against the free trade principle -- would play an effectiverole in lowering US farm costs, and major grain exporters such as Canada,Australia and EU look set to suffer the most from the bill.On the issue, China could further watch the concrete reaction of thesecountries, the professor suggested.Larry M Senger, minister-counsellor for the US Embassy to China in chargeof agricultural affairs, contended the subsidy level of the 2002agricultural bill saying it is in line with WTO requirements and is stilllower than the EU's level."It could help Chinese people have easier access to high-quality USfarming products,"Senger said.On the other hand, the country's proposed punitive tariff on the US beanoil could become a powerful weapon to fight back against the risingprotectionism policy of the Bush administration, which appears to be aimedat gaining more votes from US farmers and steel workers for theRepublican.The US agriculture-heavy states that benefited the most from the farm billare traditional supporters of the Democratic. The expected loss fromsoybean growers resulting from China's proposed tariff on bean oilthreatens to weaken the effect of the measure.In fact, the list ranked by China echoes those of the EU and Japan, whichall include agricultural products.While the amount of the tariff China proposed to levy was not very high,it sent a signal that the punishment could be extended to soybean or otherproducts, said Wang of China Business.For domestic soybean growers and bean oil producers, the list has broughtgood news. In the past week, prices for soybean futures in the Zhengzhougrain future exchange has seen a continuous growth.In recent years, China's annual imports of US soybean have reached 1.5million tons, equal to the amount of domestic output. The heavy import hasseriously impacted the domestic market and has caused heavy loss tosoybean growers in China.In March, a regulation on genetically modified organisms (GMO) whichrequires a 270-day inspection period for imported GMO, has stalled therising import of US soybean, 70 percent of which are GMO. Since March, noshipment of imported soybean has docked in Chinese ports, according toChina Business.Reduced soybean imports and the proposed duties on bean oil could greatlystimulate the demand of domestic oil production, increasing the income ofgrowers, China Business quoted Tang Yanli, a senior analyst with theMinistry of Agriculture's Information Center, as saying.Tang predicted the hiking soybean price would end in late June, whensoybean imports resume.After all, domestic growers have harvested the current good market.For the long-term benefit of Chinese growers, the government would have tosignificantly increase its subsidies for domestic farmers, said Niu Li, aneconomist with the State Information Center."Although the import quota system would help reduce the US farm subsidy'simpact on domestic farmers, the bill also urges us to significantlyincrease our own subsidies,"said Niu.According to China's commitments to the WTO, by 2004, the country wouldoffer import quotas of up to 5 percent of its grain outputs, which ensuresthe demand for imported agricultural produce does not fluctuate greatly.At present, China's subsidies for farmers are 2 percent, while the countryhas promised the WTO they would not surpass 8.5 percent."Our subsidies only cost US$10 billion a year while the US would giveUS$190 billion to its farmers, which offers an excuse for us tosignificantly increase our subsidy level in the framework of the WTO,"saidLong Yongtu, vice-minister of MOFTEC, last week.
