Trade Accord Could Help AG Products

06 December 1999 00:00  [Source: ICB Americas]

By Jim Papanikolaw

China's potential entry into the World Trade Organization (WTO) may provide an opportunity for oilseed producers and processors to open up new trading avenues to a substantial market.

Although the trading agreement formed between the US and China earlier this month faces stiff opposition, the US agribusiness industry considers the accord a major step and says its ratification would bring important benefits to everyone involved.

"This is a huge win for farmer cooperatives as well as all of agriculture," says Noel Estenson, chairman of the National Council of Farmer Cooperatives and CEO of Cenex Harvest States. "This agreement, which provides unprecedented market access for US agricultural products to China, will be a huge help to the struggling farm economy here in the US."

As part of the pact, tariffs on agricultural and industrial goods would either be cut or eliminated. Tariffs on priority agricultural products, which include beef, grapes, wine, cheese, poultry and pork, would be reduced from an overall average of 31.5 percent to 14.5 percent. The livestock feed market is important to oilseed meal suppliers.

China would also grant greater import access to bulk agricultural commodities, including soybean oil, other vegetable oils, corn, cotton, wheat, rice and barley.

China's export subsidies would be eliminated. The deal could also open up opportunities for the telecommunications and banking industries.

The deal with the US also requires Congress to grant China Normal Trade Relations. In addition, China will have to complete agreements with other trading partners, including the European Union, before the US can gain access to China's markets as a WTO member.

Canada recently reached its own bilateral agreement with China that would lower tariffs on Canadian exports to China, with priorities to certain products, including telecommunications equipment, paper goods and canola oil.

The oils industry sees the bilateral pact signed between the European Union and Mexico as a sign that other WTO members will emulate the US and Canada.

Total US and China trade nearly reached $90 billion in 1998, 13 percent higher than 1997, and installed US investment in China surpassed $21 billion. The US ranks second among China's trade partners, and China is the US's fourth-ranked trading partner, according to the US-China Business Council--a Washington, D.C.-based organization of US companies that operate and invest in China.

"China's entry into the WTO will serve to solidify and further its recent economic reforms, as well as to increase the openness and transparency of the Chinese commercial environment," says Michael R. Bonsigpore, chairman of the US-China Business Council and chairman and CEO of Honeywell Inc.

US agribusiness companies also view the agreement as beneficial because the reduction of trade subsidies and other trade-distorting mechanisms would give US goods greater access to a market of 1.2 billion customers.

"We are a major participant in world trades and a sizable supporter of the WTO," say Martin Andreas, a spokesperson for Archer Daniels Midland Company.

"We think that many facets of the WTO and the agreement with China will be very beneficial to US agricultural trade and companies like ourselves," he says.

Mr. Andreas notes that a reduction in trade barriers on products, including soybeans and soybean products, would benefit the whole industry because it would expand the trade of raw and processed oilseeds and grains, enhancing the growth of companies that serve as a pipeline for farmers. "The ripple effect of exporting more goods is simple. You create economic activity and new jobs," he says. "This is a win-win situation."

During a speech at last week's WTO talks in Seattle, Wash., Cargill Inc. chairman Ernest Micek noted that industrial tariffs have been slashed from 40 percent at the end of World War II to about 4 percent today, helping to catapult industrial economies into the most dramatic period of sustained growth in human history.

Mr. Micek says that a similar reduction in agricultural tariffs could spur additional economic development. He adds that more open trade, such as the kind that could be created by the US-China deal, offers benefits beyond economic enhancement.

"Trade creates prosperity," he says. "Prosperity promotes peace. Of course, these are dividends from open trade generally, making both individual families and countries more secure. But no area of commerce will do more to advance these goals than agriculture and food trade. That's why I hope we can all work together to take down the protectionist walls that impede sustainability, prosperity and security."

The deal is also expected to benefit the Chinese, protecting them from unfair trade policies overseas, as they try to become a world economic power. "It enhances China's prestige as part of the world economy and as a leader of the Asian nations," says Richard Loewy, president of AgResource Company, a Chicago, Ill.-based consultancy.

Analysts add that resources that the Chinese government is allocating toward export subsidies can be redirected. The US trade deficit with China may also improve because of reducing trade barriers.

Opponents of the accord, which range from politicians to civilian groups, say that the deal does not address a number of issues, including labor, human rights and the environment. Many of these groups are against the WTO in general, and some have staged protests during the talks in Seattle.

Despite these obstacles, analysts and industry expect the accord to pass.

"I believe this should fly," says Mr. Loewy. "With all of the large multinational corporations that have potential business stakes in China, I don't see how Congress would have the intestinal fortitude to squelch this kind of a transaction. It means too much to the world economically."

"This is such a good deal for US trade that I find it hard to believe that it would not go through," says Mr. Andreas.

Although the agreement could bring substantial long-term benefits to agriculture, the rate at which they would come is unclear.

Some say that an increase in sales of processed foods, including oilseeds and grains, would strengthen the demand for bulk commodities.

Yet others caution that any initial economic growth may be stunted by the current oversupply within the global oilseed complex, which has contributed to a soft world farm economy.

CORN--Private exporters reported to US Department of Agriculture export sales of 110,600 metric tons of corn to Japan during 1999-2000 marketing year.

DELTA & PINE LAND Co. had record sales of $260.4 million during the fiscal year that ended August 31, 1999, a 35 percent increase from $193.3 million in fiscal 1998. The company had a fiscal 1999 net income of $26.9 million, up from $15.1 million in fiscal 1998.

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly