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China needs to better back farmers
2002-05-21
Business Weekly
Though not expecting to be dealt a particularly harsh blow from the new US farm bill, China still needs to give stronger support to its farmers to meet the challenges resulting from its entry into the World Trade Organization (WTO).
US President George W Bush signed a farm bill on May 13 that will shower billions of dollars in new subsidies on its bread-basket states that will help determine control of Congress in November's elections.
The new bill would dramatically increase domestic support for US farmers through a new system of payments that critics say will put a chill on efforts to negotiate international disciplines on farm subsidies and cause the United States to violate its negotiated domestic subsidy limits in the Agriculture Agreement of the WTO.
The support efforts included in the new bill are raising questions about how payments will be counted in the WTO framework, which limits subsidies linked to production as trade-distorting.
However, it is difficult to project whether the new programs will push the United States over its WTO commitments on domestic agriculture support, because the amount the US Government actually pays farmers depends on price fluctuations of the commodities.
The subsidy bill is estimated to cost US$190 billion over 10 years, increasing by 80 percent from the current level.
Such a surge in farm subsidies is expected to adversely affect China's farm trade and production.
Soaring farm subsidies will further enhance the competitiveness of US farm produce in the global market and increase exports for US farmers.
On the other hand, China will gradually open its market wider now that it has entered the WTO, and consequently, the nation's farm imports are expected to grow robustly.
Last year, China's imports of grains registered a 9.4 percent rise while exports fell by 36.5 percent.
However, the subsidy bill is not likely to made a strong impact on China's agricultural trade as China's demand for agricultural produce is rather fixed and does not fluctuate greatly.
Besides, the nation will implement a tariff-rate quota system consistent with its WTO agreements over the five years, which will limit imports exceeding the set quota.
Under pressure from rising imports, China needs to shore up its agricultural production by modifying its present farm subsidies policy.
The nation should give stronger support to farmers while decreasing its subsidies for distributors.
Currently, China grants an estimated 2 percent subsidy on agriculture, well below the 8.5 percent cap stipulated by the WTO Agricultural Agreement.
China needs to alleviate the tax burdens placed on the nation's huge farm population to boost farmers' coffers.
The nation should also increase "green box" or non-trade-distorting subsidies, which include payments in research and technology application, infrastructure construction and environmental protection.
China can also make full use of some preferential policies the WTO Agricultural Agreement grants to developing countries to subsidize some impoverished regions.
The new US farm bill has infuriated some of the United States' crucial trading partners in Europe and Asia.
Major farm exporters including members of the European Union, Canada, Australia and Brazil are expected to be greatly affected by the new bill.
Developing countries, however, are expected to be hit the hardest. Farm subsidies in developed countries have posed a major obstacle to the expansion of agricultural exports of developing countries.
As the largest farm exporter in the world, the United States exported farm produce worth US$53.5 billion in the 2001 fiscal year.
Low-priced but high-quality farm produce from the United States has taken an increasing share of the global market.
However, in the long term, the new bill will turn out negative results, even for the United States.
Encouraged by rising farm subsidies, US farmers are expected to seek further expansion in the following years. This would intensify the current oversupply of farm produce in the market and further lower prices of agricultural produce.
In addition, large pools of farm subsidies will add to the fiscal burden of the US Government.
The author is a senior expert with the State Information Center.
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