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Phase One agreement offers real gains but leaves some key issues unresolved

The US and China have signed a Phase One trade agreement that removes some key barriers to trade in meat and other agricultural products.

While welcoming the deal however, US pork producers are questioning whether the provisions are sufficient to allow China to meet its commitment to spend at least USD80 million on US agrifood products over the next two years.

“While China’s phase one commitments are welcomed, US pork exports continue to be suppressed because of the country’s 60% punitive tariffs. In order to fully capture the benefits of this deal, we need China to eliminate all tariffs on US pork for at least five years,” said National Pork Producers Council (NPPC) President David Herring.

“Pork is a litmus test for the phase one deal with China. The worst kept secret in the world is China’s serious shortage of pork and rampant food price inflation. If China is unwilling to drop its tariffs on US pork, it’s difficult to envision the country meeting the USD40 billion per year agriculture purchase commitment,” he added.

The NPPC notes that China’s hog supply has been ravaged by African Swine Fever (ASF) resulting in huge shortages of pork and mounting food price inflation. As a low-cost producer with large volumes available, the US should be ideally positioned to fill gaps in Chinese pork supplies.

So long as the 60% tariff remains in place however, NPPC says US suppliers will struggle to compete with rival suppliers such as the EU and Brazil, whose pork is subject to a much lower 8% Chinese tariff.

‘Game changer’ for beef

The National Cattlemen’s Beef Association (NCBA) appears to have fewer reservations, saying the Phase One Agreement will be a ‘game changer’ for the US beef industry.

American producers scored an initial victory in June 2017, when the Chinese market was reopened for the first time since 2003. However, many non-science-based, non-tariff trade barriers remained in place, which limited the amount of American-produced beef that qualified for China.

NCBA says that this Phase-One Agreement will begin knocking down those trade barriers and significantly improve access to what is potentially a top export market for US beef producers.

“Non-scientific trade barriers like the ban on production technologies, the extensive traceability requirements, and the 30-month BSE restriction have greatly limited our ability to tap into growing beef demand in China,” explained NCBA President Jennifer Houston.

“The removal of these massive trade barriers gives Chinese consumers access to the US beef they desire, and it gives America’s cattlemen and cattlewomen the opportunity to provide US beef to a growing consumer-base that represents one-fifth of the global population and a middle-class that is greater than the entire U.S. population.

Meanwhile, the US Meat Export Federation (USMEF) says exporters are looking forward to capturing a greater share of the Chinese market, adding that the Phase One agreement lays ‘important groundwork toward the goal of lowering trade barriers.

National Farmers Union (NFU) President Roger Johnson was more circumspect, noting that “numerous deals [with China] that have been reached and then breached in the past two years.” He argued that given the damage the US ag sector has felt from the trade war it is imperative a Phase Two agreement “deliver more than vague, unenforceable, short-term commitments,” and focus on securing “real and lasting behavioral change from China.”

During the press conference held before the signing, US President Donald Trump said the accord is ‘totally enforceable” and “tears down” various barriers for US beef, pork and poultry.

Regarding US tariffs in place on Chinese goods, Trump stated, “All tariffs will come off when we finish Phase Two.”

So what exactly has been promised by China so far?

Pork

When it comes to pork, China has agreed to broaden the list of eligible US products to include processed products such as ham and certain types of offal. It has also agreed to share information on ASF.

For both pork and beef, China has also agreed to conduct a risk assessment for the veterinary drug ractopamine, which is allowed for use in the US but banned in many other countries, including China, Russia and the EU.

Once the assessment has been completed, China and the US will set up a joint working group to discuss the steps to be taken based on the results.

Pork and beef sent to China currently have to be provided via a dedicated ractopamine-free channel. It remains to be seen if this changes as a result of China’s upcoming risk assessment.

Beef and cattle

The US has secured a number of more immediate commitments when it comes to beef. China has recognised the US traceability system, while also agreeing to remove age-based restrictions on imports of US beef.

The agreement expands the list of US beef products eligible for export to China and also adopts internationally accepted maximum residue levels for three widely used veterinary drugs - zeranol, trenbolone acetate, and melangesterol acetate. This amounts to an acceptance of US beef treated with these hormones.

Within a month of the signing of the deal, the two sides are to start negotiating a protocol for the export of live US breeding cattle to China.

Poultry

For poultry, the big win came in November last year when China agreed to lift its import ban, which had been in place since avian flu outbreaks in 2014. The Phase One deal aims to prevent similar disruptions in future. The two sides have agreed to sign a protocol on control procedures for certain poultry disease, while also working on a protocol on regionalisation – potentially meaning future bans would only apply specific regions affected by avian flu.

A fact sheet from the US Trade Representative (USTR) says China has also agreed to lift its ban on other poultry commodities, including live birds.

Various other measures should help free up trade in all types of meat and poultry, including processed products.

The USDA’s Food Safety Inspection Service (FSIS) will have oversight over deciding which plants are eligible to export to China. All FSIS-inspected meat and poultry products will be accepted apart from a small list of specified risk materials such as tonsils and lungs of cattle and pigs, and feathers, heads and intestines of poultry.

China will still have the right to ban US suppliers that repeatedly violate food safety requirements. But China will accept replacement FSIS certificates if the original contains errors.

To streamline trade, the two countries have agreed to finalise an electronic and automated system for China to access certificates in future. If the system is shown to be reliable, China will implement it in February 2020.

Overall, the Phase One deal has a number of concrete provisions that will facilitate US meat and poultry exports to China – including commitments to allow a wider range of products to be traded. In some other areas, notably regionalisation and ractopamine, China has only agreed to consider making changes – meaning the benefits to US exporters are not guaranteed. For the pork sector however, the most important battle still lies ahead as Beijing and Washington work on a Phase Two deal, which would pave the way for the removal of the punitive tariffs that put US exporters at a disadvantage to their rivals.

 

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