*EPF405 02/05/2004
Text: U.S. Agriculture Official Says China's WTO Compliance "Mixed"
(Deputy Administrator Sheikh Feb. 5 testimony before USCC) (1980)

China has had mixed success in complying with its World Trade Organization (WTO) commitments in the agriculture sector, according to Patricia R. Sheikh, deputy administrator for international trade policy with the U.S. Department of Agriculture's Foreign Agriculture Service (USDA FAS).

Since China joined the WTO in December 2001, U.S. agricultural exports to that country have increased from just over $2 billion in 2002 to $4.1 billion for the first 11 months of 2003, Sheikh said in testimony before the U.S.-China Economic and Security Review Commission (USCC) February 5. If forest and fishery products are included in the total, she added, then the corresponding rise is from $2.2 billion to $4.5 billion.

Although the United States has seen improved market access in China, "that access is often inconsistent and erratic, with new trade problems or barriers emerging even as previous ones are resolved," Sheikh said.

Among the non-tariff trade barriers that U.S. agricultural exporters have faced are tariff-rate quota administration problems, unscientific sanitary and phyto-sanitary (SPS) barriers, trade restrictive biotechnology regulations, and complex, confusing licensing requirements, according to Sheikh.

"Control and administrative guidance is also evidenced in the form of state trading, quarantine directives, prohibited export subsidies, and threats of retaliation. Many observers within U.S. agriculture believe that the government of China provides administrative guidance that imports not exceed planned levels," the agriculture official added.

Sheikh said that the United States continues to "press our concerns with China" through fora such as the U.S.-China Trade Dialogue and the annual WTO Trade Policy Review Mechanism, and that the annual U.S. Trade Representative's Report to Congress and the National Trade Estimates Report highlight China's progress and deficiencies in meeting its WTO obligations in agriculture and other areas.

"We have seen that success in this effort is measured incrementally and recognize that this will be a lengthy process, given the complexity of the Chinese economy and its regulatory system," Sheikh said. "At the same time we remain convinced that as China more fully complies with its WTO obligations, it will become a more consistent and reliable trading partner."

The USCC monitors, investigates, and reports to Congress on the national security implications of the bilateral trade and economic relationship between the United States and the People's Republic of China. The commission is composed of 12 members, all of whom are appointed by members of Congress.

Following is the text of Sheikh's remarks, as prepared for delivery:

(begin text)

Testimony of Ms. Patricia R. Sheikh
Deputy Administrator for International Trade Policy
USDA, Foreign Agricultural Service
Before U.S.-China Economic and Security Review Commission
Cannon House Building, Room 345
February 5, 2004

Introduction

Thank you Mr. Chairman, and members of the Commission, for the opportunity to appear before you again to discuss the significant impact of China's entry into the World Trade Organization (WTO) and how the United States is monitoring and enforcing China's WTO compliance.

The integration of China into the global trade community is expected to offer timely benefits for U.S. agricultural producers, processors, and exporters in one of the world's largest and fastest-growing markets. Expanded export opportunities will directly benefit American farmers as China lowers its tariffs, reduces its trade barriers, and permits U.S. firms to participate in China's economy as China shifts to a rules-based system that is market driven rather than state-policy driven.

Overall Assessment of China's WTO Compliance Record

While it appears that some of these expectations have largely been met, as evidenced by the dramatic growth in demand for such products as soybeans, hides and skins, cotton, and hardwood lumber, China's accession has also been accompanied by a number of non-tariff barriers, non-transparent regulations, and behind-the-scenes interference in trade by China's central government. In essence, we are seeing improved market access, but that access is often inconsistent and erratic, with new trade problems or barriers emerging even as previous ones are resolved.

While problem areas remain, we have clearly made progress on many fronts, as evidenced by some very impressive trade figures. Since China joined the WTO in December 2001, U.S. agricultural exports have more than doubled, from just over $2 billion in 2002, to a record $4.1 billion for the first 11 months of 2003. If forest and fishery products are included in the total, then the corresponding rise is from $2.2 billion to $4.5 billion. While most of that rise can be accounted for by substantial gains made by soybeans and cotton, both of which reached record levels last year, other commodities, including hides and skins and forest products stand out as well. With 1.3 billion people -- one-fifth of the world's population -- China's membership in the WTO gives United States agriculture access to one of the world's largest and fastest growing economies. In the years ahead, we fully expect new export opportunities will emerge for a broad range of U.S. agricultural products, including grains, dairy products, meat, and processed goods.

Key Areas of Concern

But this dramatic growth in trade with China has not been realized without some difficulty. A major threat to U.S. trade interests continues to be the way China periodically veers from its WTO commitments by asserting central controls. Since China's WTO accession two years ago, U.S. agricultural exporters have been confronted with an array of non-tariff trade barriers such as tariff-rate quota administration problems, unscientific sanitary and phyto-sanitary (SPS) barriers, trade restrictive biotechnology regulations, and complex, confusing licensing requirements. Control and administrative guidance is also evidenced in the form of state trading, quarantine directives, prohibited export subsidies, and threats of retaliation. Many observers within U.S. agriculture believe that the government of China provides administrative guidance that imports not exceed planned levels.

I would like to highlight for you two areas that were of particular concern for us in 2002 and 2003, and which we continue to monitor. The first issue involves China's commitments related to tariff-rate quotas, or TRQs, on bulk agricultural commodities, including wheat, corn, cotton, and vegetable oils. Since China's State Development and Reform Commission (SDRC) (now known as the National Development and Reform Commission, or NDRC) began implementing these commitments following China's accession, a series of problems served to undermine the market access envisioned by WTO members. SDRC's performance in 2002 improved in certain respects, most notably in completing that year's re-allocations in a timely manner; nevertheless, USDA's Foreign Agricultural Service (FAS) and the Office of the U.S. Trade Representative (USTR) remained concerned, particularly because 2002 trade data showed extremely low fill-rates for the TRQ commodities of most interest to U.S. industry. Following announcement of the 2003 allocations, it became clear that the most serious problems still persisted. The United States again engaged China bilaterally on several occasions, culminating with high-level meetings in Beijing in June 2003, during which China agreed to take steps to address most of the United States' concerns. China followed through in part in October 2003 when it issued new regulations for shipments beginning January 1, 2004. The United States continues to carefully monitor how China enforces its new regulations in 2004.

The second area of concern, which emerged during China's first year of WTO membership, involved implementing regulations related to biotechnology safety, testing, and labeling. The implementing rules, issued by China's Ministry of Agriculture shortly before China's WTO accession, did not provide adequate time for scientific assessment and the issuance of final safety certificates for biotechnology products. These regulations particularly affected soybeans. Following concerted high-level pressure from FAS, USTR, and other U.S. government agencies, China agreed to a temporary solution effected through the issuance of temporary certificates, good through December 2002. When it became apparent that this extension would not be sufficient, further high-level engagement produced another extension to September 2003, and then again to April, 2004. In the fall of 2003, FAS, USTR, and other U.S. government agencies again urged China to issue final safety certificates in several high-level meetings, including the November 2003 Trade Dialogue, in an effort to ensure that further trade disruptions were avoided. In December 2003, China announced that it would issue final safety certificates by February 2004. As each of these deadlines approached, it appeared that U.S. soybean trade with China, now a more than $2 billion a year market for U.S. soybean farmers, would be jeopardized. However, the problem was not exclusively one of arbitrary deadlines. The government of China appeared to use both biotech and a variety of SPS barriers to restrict soybean trade at key times of the year, such as during Chinese harvest, in order to boost domestic soybean prices. This approach was used in a variety of product areas, but proved most vexing on soybeans, which represent roughly half of our overall agricultural exports to China. We believe the issue of final safety certificates for soybeans has now been successfully resolved, but other difficulties might lie ahead as China develops similar regulations for other biotech products, including corn and canola. We will work closely with China as they implement food-labeling requirements. We will remain closely engaged on these issues in order to avoid any further disruptions in trade.

USDA's Role in Monitoring China's WTO Compliance

USDA, working in tandem with other U.S. government agencies, including the U.S. Department of State and USTR, continues to press our concerns with China, both bilaterally and multilaterally, with some success, but progress remains incremental. A biannual U.S.-China Trade Dialogue has been established to address bilateral trade concerns, and the annual WTO Trade Policy Review Mechanism and the regular committee meetings in Geneva permit multilateral review of China's implementation efforts. The annual USTR Report to Congress and the National Trade Estimates Report also serve to highlight China's progress and deficiencies in meeting its WTO obligations in agriculture and other areas.

Shortly after China joined the WTO in December 2001, USDA recognized the need to gather expertise from across the department to aid in effectively monitoring China's WTO compliance regarding agriculture. As a result, USDA created two departmental task forces -- a USDA-wide task force and a working-level task force within FAS. Six USDA agencies participate in the USDA-wide China task force, which was created in 4 February 2002 and meets quarterly. The FAS-wide task force, which was first convened in March 2002, meets approximately every 4-6 weeks to develop strategies for resolving China compliance issues. We believe that both task forces are effective in sharing information and ensuring that the technical expertise of all relevant units are taken into consideration when responding to a compliance issue. FAS has also added staff in Washington, D.C. and overseas in China to help carry out these efforts.

Conclusion

In conclusion, this Department continues to vigorously monitor and enforce China's full compliance with the trade-liberalizing commitments it made when it joined the WTO two years ago. Overall, China's compliance efforts in the agriculture sector have produced mixed results in the past year, although progress was achieved in some sensitive areas such as biotechnology. China also kept its commitment on tariff reductions, which is in some part responsible for increased sales in 2003. However, many non-tariff barriers continue to limit the progress anticipated from China's WTO membership. We have seen that success in this effort is measured incrementally and recognize that this will be a lengthy process, given the complexity of the Chinese economy and its regulatory system. At the same time we remain convinced that as China more fully complies with its WTO obligations, it will become a more consistent and reliable trading partner.

(end text)

(Distributed by the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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