By Mark Tarallo

Bridge News

WASHINGTON (B)--The year 2000 may be crucial one for U.S.-Chinese farm trade, analysts say, even if it is not evident in the export balance sheets.

China has agreed to take several measures to further open its markets to U.S. farm exports this year, on the condition that it gains entry into the WTO and secures permanent normal trade relations (NTR) status from Congress.

Given China's currently low import needs, it is unlikely that these developments will lead to significant U.S. farm trade gains in 2000. But in the long run, they could make U.S. exporters significantly more competitive in a market with great future potential.

As the world's most populous nation with limited arable land, China is considered something of a holy grail by U.S. farm exporters. In the grains sector, USDA forecasts that China will be go from exporting more than 2 million tonnes of corn in 2000-01 to importing almost 4 million tonnes by 2008-09.

And these forecasts, which USDA will update next month, do not take into account the possibility of WTO membership and NTR status for China.

"I think it's extremely likely that China will get in (the WTO) in 2000," Alex Jackson, a trade specialist with the American Farm Bureau, said.

But in order for the U.S. to benefit from the market-opening concessions agreed to by China last year, Congress must grant the country permanent NTR status. At this point, the conventional wisdom in Washington is that Congress will do so, given the potential of the Chinese marketplace.

Once NTR is granted, China has agreed to:

--Eventually eliminate export subsidies;

--Reduce import tariffs and establish a tariff-rate quota system for bulk farm commodities;

--Allow Chinese companies to import without going through state-controlled enterprises; and

--Consider dismantling phytosanitary trade barriers not based on sound science.

For corn, the import tariff rate quota would initially be set at 4.5 million tonnes, and then raised to 7.2 million in 2004. The private sector will initially receive 25% of the quota, with that percentage rising to 40% in 2004. Traditionally, the U.S. has met about two-thirds of China's corn import needs.

But according to Mike Callahan, an Asian specialist with the U.S. Grains Council, it is very unlikely China will make the transition from net corn exporter to net importer in 2000, because of high domestic supplies.

"They're sitting on 30 to 40 million tonnes of corn stocks," Callahan said.

However, there are a few factors that could alter the picture, he added. One would be if international corn prices fell below China's domestic prices.

Another would be a change in the Chinese government's production subsidy policy for corn farmers. In a recent report, a USDA attache noted that the gov ernment is paying farmers in some provinces to rotate corn with soybeans or pasture, and this should translate into a production drop of about 2 million tonnes.

Also, given China's massive population of more than 1.2 billion, the supply situation is not as rock solid as it may seem. "It only takes one lousy harvest," Callaghan said, "to get it in the neck."

U.S. wheat exports, in Jackson's view, stand to benefit from a "double bonus"--the bilateral agreement mentioned above, and a separate agricultural cooperation agreement reached last year with China. Under the latter agreement, China pledged to lift its import ban on U.S. wheat from the Pacific Northwest.

This is significant tradewise, as shipping wheat to China from the Pacific Northwest can reduce freight costs by as much as $5 to $10 per tonne, and thus erode the freight advantage that has been enjoyed for years by Canada.

Moreover, under the bilateral agreement, China has agreed to establish a tariff rate quota of 7.3 million tonnes of wheat, rising to 9.6 million in 2004. These developments may make some exporters nostalgic for the days when China was a major importer of U.S. wheat. In 1988-89, China's imports of U.S. wheat peaked at 7.3 million tonnes, with the country importing more than 15 million tonnes of wheat from all sources.

But for 1999-00, USDA has estimated China's overall wheat imports at only 700,000 tonnes, with the U.S. capturing about 195,000. In its baseline forecast, USDA sees China's wheat imports rising to 5.3 million tonnes by 2008-09.

Like the corn baseline, USDA is scheduled to update these long-range forecasts next month.

"Up or down is anybody's guess," said Rick O'Meara, an analyst with USDA's Foreign Agriculture Service.

But at least for 2000-01, a large wheat import increase is not widely expected, since China is coming off three consecutive bumper wheat harvests.

"The main impact of this (cooperation) agreement will be felt longer term," USDA said in a recent published analysis. "The country's current wheat import needs are historically low."

Still, China-watchers caution that statistics on Chinese agricultural production are notoriously imprecise, so it is wise not to bet the ranch on any one scenario.

"They (the Chinese) do some really funny things when it comes to their own policies," Callaghan said. "There's things they do that just defy imagination."

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