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October 20, 2000

Trade with China...
PNTR:
What does it mean for the U.S.?

By Blair Fannin
Extension Communications Specialist

A landmark trade agreement signed Oct. 11 by President Clinton between the United States and China will open new doors for trade opportunies between agricultural producers across Texas and the nation to sell products and services to the world's largest emerging marketplace.

The passage of Permanent Normal Trade Relations (PNTR) should increase the opportunity and probability that China will become a larger market for U.S. food and agricultural products, said Parr Rosson, director of the Center for North American Studies at Texas A&M University.

"This eases the way for China to become a member of the World Trade Organization," Rosson said. "China must agree to abide by the same trade rules as any other World Trade Organization signatories. While this alone won't open markets, it will force closer scrutiny of the mechanisms and policies used by China to support agricultural production, protect markets, employ state trading enterprises and ensure the integrity of human, animal and plant health."

Agriculture in the United States and Texas has become increasingly dependent on trade during the last decade.

Approximately $2.5 billion of Texas agricultural products in 1999 generated 25 percent of farm cash receipts, with agricultural exports providing an additional $3.3 billion in economic activity and creating 39,000 jobs in the state.

U.S. exports to China reached $14 billion in 2000, while agricultural exports reached approximately $1.1 billion. The United States Department of Agriculture estimates that U.S. agricultural exports to China could reach nearly $3 billion by 2005 as a result of this new trade agreement.

The U.S.-China trade agreement will make the latter country eligible to use United States export guarantees to facilitate the purchase of U.S. food and other agricultural products, Rosson said.

"For fiscal year 2000, $5.7 billion in credit guarantees have been authorized by Congress. U.S. export credits are used to stimulate sales to countries where credit is needed, but financing is limited or unavailable," Rosson said.

While the credit has been used in China, it has never been on a permanent basis, Rosson said, and it was subject to annual approval.

"Only about one-half of all U.S. export credit guarantees have been utilized in recent years," Rosson said. "Under an export credit guarantee, the Commodity Credit Corporation underwrites the extension of credit terms from a United States bank to a foreign bank or government. U.S. budget exposure is minimal since only defaults require any outlay of funds by the CCC."

Rosson said under the terms of the Nov. 1999 pre-accession agreement between the United States and China, it was agreed that China would eliminate all import quotas and other nontariff barriers on agricultural products, replacing them with tariffs which would be reduced by Jan. 2000.

"For all agricultural products, Chinese tariffs will be reduced from 22 percent to 17.5 percent," Rosson said. "For those products designated by the United States as a priority for greater market access, tariff levels will fall from 31 percent to 14 percent."

He notes that animal products, fruits and dairy products are included in this priority category.

One other important factor is China faces challenges in meeting consumption needs in the future, and will not likely remain self-sufficient in meat production.

The Center for North American Studies has forecast China's net trade potential for beef, pork, poultry and fish from 2001 through 2010. Results show China will become a large net importer of beef, poultry and fish. Pork production, however, will still exceed consumption by about 9 million tons as China will remain a net pork importer.

China's beef consumption is projected to exceed beef production by 59,000 tons in 2000, growing to 2,682,000 tons in year 2010.

China's fish consumption will exceed production, increasing from 1,556,000 tons to 3,641,000 tons.

Poultry consumption will exceed production by about 736,000 tons in 2000, expanding to about 2,142,000 tons by 2010.

According to Rosson, these forecasts are contingent upon consistent government policy and continued economic stability in China.