Agriculture Secretary Tom Vilsack was in China last week to try to get the Asian powerhouse to speed up its approval process for importing agricultural products. The Middle Kingdom lags several years behind the rest of the world in giving the green light to a new variety of genetically modified (GM) corn, for example. While Beijing claims the delay is about guaranteeing food safety, the reality is the communist state is using the GM issue to fire a volley in an undeclared trade battle.
China’s monthly trade surplus of $33.8 billion in November was the largest in five years. Part of this imbalance is to be expected because low-cost producers offer better prices and thus have a natural advantage as exporters to markets where wages, utilities and other expenses are higher. That’s the way the world works. But the darker side of China’s trade imbalance is how the bureaucracy uses its regulatory power to block access of some imported commodities to its massive consumer market. This is a non-competitive force that manipulates the market to the benefit of Chinese products.
In the current GM case, which involves an insect-resistant U.S.-developed strain, Beijing’s foot-dragging is holding hostage the whole global market for corn as Chinese regulators take their time to rule on the product. The holdup is unnecessary on safety grounds and just plain ridiculous in regards to international standards for timely review of trade goods. The rest of the world’s major importers approved this GM corn several years ago. This was consistent with a standard agreement that biotech products are only commercialized after they have been approved by all of the major importers.
The kink in the system developed when China, the second largest consumer of corn, switched from being a corn exporter to an importer. Suddenly, Chinese regulations went from being a footnote in the world trading scheme to having a massive impact on trade flows. They are now abusing their newfound clout. Typically, Chinese regulators do not even begin their review until a producing nation completes its own, and then for inexplicable reasons they continue to delay approvals. This has a stifling effect on ag-tech innovation as development slows in reaction to the sluggish Chinese approval process.
One important goal of Mr. Vilsack’s mission was to win an agreement that China will reform the timing of its regulatory reviews to be in sync with the other major players. Unfortunately, progress doesn’t appear to be imminent. The U.S.-China Joint Commission on Commerce and Trade held its annual meeting in Beijing last week with no resolution to this problem.
There are hints that this standoff isn’t primarily about the product in question or even GM in general but has more to do with a tit-for-tat between the two biggest economies in the world. The same strain of corn currently is being imported into the Chinese market from Argentina, suggesting the U.S. provenance of this particular product is really what’s at issue and not sudden, uncharacteristic Chinese scruples about safety. Such a hunch is reinforced by the inconvenient fact that China was importing American corn – almost all of which contained Viptera, the component now at issue – without any qualms until recently. U.S. authorities have been pressuring China on various trade practices, such as dumping and technology theft, so the corn holdup is likely simple, passive-aggressive pushback. It’s also possible that the uncooperative spirit is tied to Beijing’s ongoing territorial disputes with Japan and other close U.S. allies.