PORK PRODUCERS URGE CONGRESS TO ESTABLISH
PERMANENT NORMAL TRADE RELATIONS WITH CHINA

(April 13, 2000)

• The legislation of permanent normal trade relations with China is necessary for the U.S. to reap the complete benefits of Chinese accession to the World Trade Organization including the package negotiated on pork.

• The pork package negotiated by the United States with China has the potential, if fully and fairly implemented, to transform China into the single greatest export opportunity for U.S. pork producers. Currently, China blocks U.S. pork imports through a system of high tariffs, restrictive import licensing and distribution practices, and complicated and arbitrary sanitary requirements. Under the terms of a separate bilateral sanitary agreement negotiated with the U.S., China agreed to accept pork from any Food Safety and Inspection Service (FSIS) approved packing plant. Indeed, after China published rules concerning this agreement in late March 2000, a Shanghai retailer in early April imported the first "official" shipment of pork from the U.S. pursuant to the bilateral agreement. Under the terms of the U.S. – China WTO agreement, China will, upon WTO accession, phase out its restrictive import and distribution procedures, lower tariffs on pork, and cut subsidies. While the recent shipment of pork to the Shanghai retailer is significant, China must join the WTO and Congress must provide China the same status provided to other WTO members – permanent normal trade relations -- in order to create opportunity for significant volumes of U.S. pork to move to China.

• Tariffs on frozen pork variety meats (such as stomachs, intestines, and hearts --the predominant product currently demanded by Chinese importers) and frozen pork muscle meats, will be phased down to 12 percent. Tariffs on frozen pork carcasses and fresh and processed pork products will be set at 20 percent. Tariffs will be lowered from 20 percent to 12 percent in equal increments on the frozen products over a four-year period from the time China becomes a WTO member. Previously, in the course of negotiations with the U.S. during the past two years, China had agreed to lower all pork tariffs to 20 percent from rates as high as 43 percent.

• In China, pork is by far the predominant source of meat protein consumed. China consumes more pork per capita than the amount consumed per capita in the United States making it a vast pork consuming market. Indeed, China consumes approximately 50 percent of the total pork annually consumed in the world. While current annual pork consumption increases in China have slowed due to the economic slump, most analysts project pork demand in China to rebound in the next few years to a growth rate of 6 to 7 percent per year. Even if pork consumption in China stagnates at the depressed, current growth rate of three percent in coming years, the annual incremental increase in demand would be 2 times greater than the total amount of 1998 U.S. pork exports. Thus, China is not a potential market; it is a huge and growing immediate pork consumption market.

• While China is the world’s largest producer of pork, 85 percent of its pork comes from backyard producers. As incomes continue to rise and consumers demand higher quality pork and more of it, as well as more beef, poultry, dairy and alcohol products, commercial production of pork in China will become increasingly costly. This is because China must achieve this growth in consumption with only 9 percent of the world’s arable land. According to FAO data, China must feed 13.0 people for each hectare of arable land, whereas Europe must feed 4.1 people, and the United States must feed only 1.4 people.

• China is moving from having mid-western U.S. type corn prices to having Taiwanese and Japanese type corn prices. Meat should be produced in grain surplus countries not in grain deficit countries. Countries that import feed grains must pay a premium over world market prices and feed grains constitute over 60 percent of the cost of raising hogs. Pork producers in Japan and Taiwan pay approximately double the amount paid for feed by a mid-western pork producer. Thus, China apparently wants to avoid the mistakes made by Japan, South Korea, and Taiwan.

• Despite official import restrictions, demand from the population for pork, particularly high-quality variety meats (e.g. hearts, stomachs, intestines), is so high that sizeable quantities of imported pork are being smuggled into China principally through Hong Kong. The pork is distributed to the general population mostly through local wholesale markets with a small amount distributed through supermarkets. Technically the importation and distribution of this product is illegal, a fact which is generally acknowledged by the Hong Kong importers and Chinese distributors. In 1999, this trade represented approximately $32 million for U.S. exporters. (An additional $5 million of U.S. pork was imported directly by China in 1999. Industry sources in China report that even these imports that directly enter China do so on a negotiated basis, not in accord with the official position.) It is difficult and expensive to smuggle pork into China and, without question; pork imports would explode if China lifted its de facto ban. Even under restrictive trade regulations, Chinese demand is so large at times that they have bought the entire world’s supply of certain pork variety meats.

• One of the most striking things about Chinese consumption habits is that the parts of the animal least favored by U.S. consumers are those which are most in demand by Chinese consumers. For example, chicken feet sell for more than chicken breasts, and the internal and reproductive organs of pigs and beef animals sell for more than the muscles. This is why most of the pork and beef imports smuggled into China today are feet, stomachs, kidneys, hearts, tongues, ears, and bungs. The important point here is that the U.S. can add value to existing animal carcasses without increasing muscle meat prices for the U.S. consumer. According to Professor Dermot Hayes, an Iowa State economist, the Chinese market, if fully opened to U.S. pork variety meats, would add about $5 per head to each of the 100 million hogs that we slaughter each year.

• U.S. pork exports to Taiwan and Hong Kong, detailed below, have increased significantly as those markets have opened. The likelihood of increased U.S. pork exports to China is very good when China becomes a WTO member.

U.S. PORK EXPORTS TO TAIWAN

U.S. PORK EXPORTS TO HONG KONG

• China, unlike most other U.S. trading partners, is subject to the Jackson-Vanik amendment, which requires the U.S. to annually review China’s trade status. In order to get the full benefit of trade concessions that China makes in its accession to the World Trade Organization, the U.S. must extend to China permanent normal trade relations and abandon the annual review of China’s trade status.

• One of the cornerstones of the WTO is the "unconditional most-favored nation" or "MFN" principle. MFN is not a special privilege or "favor." It is the normal trade relationship between WTO Members. If the United States refuses to recognize China as a full WTO Member, China would have a right to withhold the benefits of key WTO commitments from the United States. (In this situation, the U.S. and China would probably invoke the so-called "non-application" clause of WTO Article XIII, even though China would become a WTO Member and grant WTO rights and benefits to its other trading partners.) As a result, Congress must approve Permanent NTR if the United States is to realize the benefits of China’s WTO commitments. Otherwise, the principal beneficiaries of a China WTO deal will be our competitors, e.g. Europe and Japan, who will reap the gains from America’s leadership in negotiating strong commercial WTO accession terms.

• Some opponents of PNTR have argued that the Congress does not need to pass PNTR for the United States to obtain the benefits of China’s accession to the WTO. Those opponents claim that the 1979 U.S.-China Bilateral Trade Agreement will provide the United States with the same benefits as extending PNTR to China. This is simply not correct. Both independent legal analysis and the Congressional Research Service have determined that the 1979 Agreement is not a substitute for approval of PNTR. Without PNTR, the U.S. would not benefit from a long list of Chinese concessions that are crucial to ensuring real market access – e.g., trading rights; retailing, wholesaling and distribution services; advertising. U.S. exporters would not have the protection of the WTO Agreement on Sanitary and Phytosanitary Measures. The U.S. would not have recourse to WTO dispute settlement or any other meaningful enforcement mechanism; in essence, we would have to rely on other countries to enforce the rights our government negotiated. Moreover, the 1979 Agreement is temporary; it is must be renewed every three years. Therefore, without the normalization of U.S.-China trade relations under the WTO, U.S. exporters could eventually lose even the tariff concessions in the accession package and face significantly higher border protection in the Chinese market than our foreign competitors.

• Pork producers do not deny that there are problems in the U.S. – China relationship. However, we do not see how walking away from these fantastic market access concessions negotiated with China would promote U.S. interests. This is a one-way trade agreement; the U.S. benefits significantly because China’s previously closed market now opens while China simply maintains the access to the U.S. market that it has had for about 20 years. Unlike NAFTA and the Uruguay Round, the United States doesn’t have to make concessions as part of China’s WTO entry -- our markets are already open. U.S. farmers, ranchers, workers, and business will benefit and our trade deficit with China will be reduced.

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