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CHINA: Government Refusal to Cut Aid to Farmers Blocks Bid to Join WTO

Bloomberg News
January 16th, 2001

China won't sacrifice income support for farmers in talks this week to join the World Trade Organization, officials and analysts said yesterday.

China's level of farm support is lower than in more developed countries such as the United States, said Ke Bingsheng, director-general of the Ministry of Agriculture's Research Center for Rural Economy. Rural incomes in China grew just 2 percent in 2000 compared with 7 percent for city dwellers, according to the National Bureau of Statistics, and China says it needs to support farmers to close the income gap with urban workers.

"I don't understand the position of the U.S. and other trading partners insisting that China must further reduce its domestic supports," Ke said. "China will never be in a position to support its farmers at as high a level as developed countries because it does not have enough money."

Members of the 140-nation WTO are meeting in Geneva this week in an effort to reach an agreement on how much China must open its markets in order to join the group that governs international trade. Yesterday's talks lasted just five minutes--with delegates failing to break the deadlock over agricultural support and other issues such as foreign access to the country's service industries.

"There is little time left" to overcome those differences in the talks due to end tomorrow, WTO Deputy Director-General Paul-Henri Ravier told the closed-door meeting. More bilateral and multilateral meetings are needed despite "intensive work and serious efforts" during the weekend, he said.

On Friday, after the first three days of talks, China's chief negotiator Long Yongtu expressed frustration with attempts by the United States and the 18-nation Cairns Group, which includes Australia, Canada and Brazil, to limit China's farm subsidies to 2 percent of the value of the nation's agricultural output, rather than the 10 percent limit allowed for developing nations.

China's only real farm supports are the above-market procurement prices paid to farmers for strategic grains such as corn, rice and wheat, and subsidies to cotton marketing agencies to hold reserves, Ke said.

China in 1999 spent 31.9 billion yuan ($3.85 billion) on subsidies for grain and cotton, according to the National Bureau of Statistics. That is less than a quarter of the $16.9 billion in farm income support outlays reported by the U.S. Department of Agriculture in the same year.

On a net basis, after taking into account China's 8 percent agriculture tax, China's support for the domestic agriculture is actually negative, Ke said.

China's spending is also spread over a rural population of 900 million, compared with about 5 million farmers in the United States.

If China's farm supports are capped by the WTO, it may restrict the nation's ability in the future to reduce the perceived threat to social stability caused by the gap between rural and urban earnings, said Michael Goettl, Shanghai-based president of consultancy China Food and Agricultural Services Inc.

Strict limits on China's domestic farm supports would be onerous, as the country has already agreed to end export subsidies for farm products and increase import quotas, Goettl said.

Average rural per capita income rose 1.5 percent in the first half of the year to 1,013 yuan ($122), compared with an 8.7 percent gain in urban incomes to 3,208 yuan, according to the National Bureau of Statistics. Final income figures for 2000 have not been released yet.

"Chinese officials want to allow themselves the flexibility to address this issue without being hampered by WTO commitments," Goettl said. "It's a perfectly legitimate policy goal and I don't know why other countries would come down hard on them if this is really the only issue at stake."

The world's most populous nation can't end its 14-year effort to join the Geneva-based trade body until the WTO drafts a final agreement that combines the terms Beijing agreed to in its individual accords with member countries.

Although an agreement is close on several issues that will form the legal basis of China's accession terms, divisions remain in areas ranging from trading rights to safeguards on textiles. A final accord could be months away.

Progress on Chinese membership has also been hampered by the U.S. presidential election. While President-elect George W. Bush supports China's accession, his team may want to pick apart pieces of the plan already endorsed by the Clinton administration.

"One can understand if the Chinese are nervous about doing a deal with the outgoing administration," said David Woods, editor of Geneva-based World Trade Agenda. "China's ambition to enter the WTO as soon as possible hasn't changed. It's uncertain about the mood on trade in the new Congress.

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