China's food exports face dumping laws.

China is becoming integrated into the global food market, but it has found that most countries are politically sensitive to rising food imports, especially from low cost suppliers. Importing nations are quite willing to use nontariff trade barriers, such as trade remedy laws, to restrict imports from emerging exporters like China. There are three distinct categories of trade remedy law: antidumping (AD), countervailing duty (CVD), and safeguards. China is a principal target of AD cases brought by food importers, especially the United States. These laws classify China as a nonmarket economy, which typically results in very steep AD tariffs.

The purpose of this article is to estimate how trade remedy laws have affected China's ability to break into the world market as a food exporter. While significant research has been conducted on the use of trade remedy laws in manufacturing, very little attention has been paid to agriculture (Blonigen 2004). We begin by summarizing trends in China's food production and exports. Then we discuss specific trade remedy cases, mainly AD cases brought against horticultural exports from China. Our conclusion is that U.S. trade remedy laws disrupt China's exports in the short term but offer limited protection to U.S. farmers.

China's Export Patterns and Acreage Shifts

Over the past twenty-five years, market liberalization has occurred in China's agriculture. As a result, production of staple grain crops declined and an expansion of horticultural and animal products expanded. But the job of liberalization is not yet complete and significant changes in production and trade patterns are expected to take place in the coming years. China is expected to become a more significant food exporter, specializing in horticultural products (Carter and Li 2005).

From 1990 to 2004, the value of China's agricultural exports grew from 10.1 to 24.1 billion USD, while at the same time imports grew from 7.9 to 42.3 billion USD. As of 2004, China accounted for about 4.1% of global agricultural trade, according to WTO international trade statistics. Japan is the top destination for China's agricultural exports, receiving about 25% of China's agricultural exports. Hong Kong is the second most important export market (13%), but the numbers for Hong Kong could be misleading because middlemen in Hong Kong handle a large share of China's foreign trade. As the main destinations for China's food exports, Japan and Hong Kong are followed by South Korea, the EU, and the United States (based on 2003 data).

China's agricultural trade growth reflects the production changes that have taken place over the last fifteen years. Grain production is competing with other crops for use of China's farmland but is losing the battle as more and more arable land is being devoted to nongrain crops that bring farmers higher returns. During the 1995-1997 to 2003-2005 time period, FAO data show that cereal grains harvested area declined from 91.6 to 79.8 million ha (13% decline), with sharp drops in rice (11%) and wheat (24%) harvested areas. At the same time, fruit and vegetable harvested areas experienced a strong expansion, rising from 8.6 to 10.2 million ha (19%), and from 11.8 to 21.7 million ha (84%), respectively. As pointed out by Huang and Gale (2006), China's expansion in vegetable acreage just since 2000 alone, exceeds the entire vegetable acreage in the United States. China now accounts for about one-third of the world's production of horticultural products. Despite the very rapid growth in fruit and vegetable production, China is only a moderate player in the world horticultural trade. FAO data indicate that China's fruit and vegetable exports currently account for about 6% of the world total.

Antidumping Cases against China

Between 2000 and 2004, China was by far the main target of global AD cases for all merchandise trade, and surprisingly, it was also the third largest user of anti-dumping legislation, behind India and the United States (WTO 2006). As shown in figure 1, AD cases initiated against Chinese exports have been steadily increasing in recent years. (1) The left axis in figure 1 reports the absolute number of AD cases initiated against China and against all countries, represented by the shaded columns. The right axis corresponds to the line graph that shows the percent of cases lodged against China relative to all countries.

[FIGURE 1 OMITTED]

According to the WTO, between 1995 and 2005, 469 AD cases were initiated against China. Of these, 338 (72%) resulted in measures imposed on Chinese exports out of a total of 1,804 worldwide. India alone instituted sixty-six measures against China. By 2005, almost 30% of all cases worldwide were targeted at China, which is exceptional because China accounts for less than 7% of world merchandise trade. The United States imposed the second largest number of AD measures against China, 50, which represented about 20% of all U.S. measures imposed over the same period. Over the ten-year period, China's export sectors most often targeted were metals, chemicals, and machinery (WTO 2006). (2)

Agricultural cases which resulted in final duties make up a very small share (4%) of the cases against China, but this is not too surprising as China's agricultural exports are only slightly more than 4% of the total value of China's merchandise exports. (3) Between 1995 and 2005 only 12 AD cases were initiated against China's agricultural exports. Fruit and vegetable products accounted for eight of these. In addition, there were two cases dealing with prepared foodstuffs and two cases that focused on fish. (4)

Despite the fact that China was the target of most of the EU's AD cases filed between 1979 and 2000, with ninety cases lodged, only one case involved food (canned pears). We note that over this time period, the EU was one of the top markets for China's agricultural exports, ranking ahead of the United States. Of Canada's thirty-six agricultural AD and CVD cases initiated since 1980, only two were against China (fresh garlic in 1996, and fresh or frozen garlic in 2000). The cases resulted in duties of 70% and 68.1% respectively, the highest AD duty rates Canada has ever imposed against agricultural imports.

The United States has been the main user of AD laws against agricultural imports from China. Between 1980 and 2005, the United States initiated eight cases against agricultural imports from China; seven of those occurred after 1994. (5) These seven cases included fresh garlic (1994), crawfish tailmeat (1997), preserved mushrooms (1998), non-frozen apple juice concentrate (1999), honey (1994 and 2000), and frozen or canned warm-water shrimp and prawns (2004).

With the exception of the 1994 honey case that resulted in a suspension agreement, all of these cases resulted in a final dumping order. As of May 2006 all six orders remained, although most have been through annual administrative and shipper reviews. These reviews often resulted in duties being lowered for some specific exporters and shippers. Indeed, for garlic, mushrooms, and apple juice, some exporters managed to have their duties lowered to zero (table 1).

Of all the U.S. AD orders currently in place against China, agricultural cases make up 10%. Note that two-thirds of the U.S. agricultural AD cases against China involve horticultural products. (6) Given the importance of horticulture in these trade disputes, the next section reviews trends in U.S. horticultural imports from China. We then discuss trade patterns for China's horticultural exports targeted by the U.S. trade remedy laws.

U.S. Horticultural Imports from China and AD Orders

There has been a surge in U.S. agricultural imports from China since around 2002, largely explained by imports of horticultural products (figure 2). The U.S. horticultural sector can be categorized into three principal areas: vegetables, nursery/greenhouse, and fruits, nuts, and berries. While growth of U.S. imports of vegetable products from China has been significant, when compared to other countries, China is not yet a main exporter to the United States, but it is a strong competitor in third markets, China is the fourth largest supplier of vegetables to the U.S. market, but only accounts for 4% of U.S. imports, behind Mexico, Canada, and Spain. As for fruit products, China is not yet a significant supplier to the U.S. market relative to other countries such as Mexico, Chile, and other South American countries (USDA 2006).

[FIGURE 2 OMITTED]

Prior to 1994, there were no U.S. AD or CVD cases against China's agricultural exports that resulted in duties. Of the six cases initiated since that time (through 2005), all were AD cases that resulted in very high import duties ranging from 51.7% to 376.7%. Four of the six targeted commodities were horticultural products, and these products were subject to import tariffs greater than 183%. Only imports of pistachios from Iran have been subject to U.S. duties of the same magnitude. To put the duties on imports from China in perspective, the average AD duty for all U.S. agricultural cases during this time period was 57%.

The magnitude of the import duty rates is partly the result of the method used by the investigating agencies, including the U.S. Department of Commerce (DOC), to calculate the dumping margin (Blonigen 2004; Messerlin 2004). China's status in AD investigations is that of a nonmarket economy. As such, investigating agencies may determine the normal value of the named good by valuing each factor of production. These values are typically based on publicly available data from a surrogate market economy country that is (a) at a comparable level of economic development and (b) a significant producer of comparable merchandise. For inputs that are sourced from a market economy, such as packaging, the DOC will use the actual price paid for the input. India was used as the surrogate country in each of the six agricultural AD cases against China since 1994. Surrogate costs were used for factors of production including raw inputs, (7) freight rates, electricity costs, factory overhead, etc. As noted by Messerlin (2004).

Such proxies make the existence of dumping

much easier to prove than the rules for

market economies, and they inflate the magnitude

of the estimated antidumping margins

compared to those (already high) imposed on

market economies (p. 123).

China's WTO accession protocol includes a special provision on AD which allows its trading partners the continued use of China's "nonmarket economy" status in AD investigations until 2017 (Messerlin 2004).

U.S. AD Cases against China's Horticultural Exports

Fresh Garlic, 1994

In 1994, U.S. garlic producers filed an AD petition claiming that imports of fresh garlic from China were being sold at less than fair market value. The impetus for this petition was a surge in U.S. imports of fresh garlic from China in 1993 (figure 3). China's share of U.S. fresh garlic imports jumped from 18% in 1992 to 64% in 1993 (table 2). At the same time, the import price of fresh garlic fell from $0.84/kg to $0.20/kg (77% decline), creating significant competitive pressure for U.S. fresh garlic producers.

[FIGURE 3 OMITTED]

The U.S. International Trade Commission (USITC) ruled that imports of fresh garlic from China were materially injuring U.S. producers and a China-wide duty of 376.7% was imposed on all 159 garlic shippers and exporters. As shown in figure 3 and table 2, imports of fresh garlic from China then dropped sharply toward zero between 1995 and 2000. Interestingly, over this time period, total U.S. imports of fresh garlic from all sources did not wane. The gap in the market left by China was filled to a large extent by Mexico and Argentina, and the average import price rebounded over this period.

The extent to which Mexico and Argentina were able to fill U.S. demand for fresh garlic raised some questions about China attempting to circumvent the dumping order by either shipping "like" products not specified in the order or by shipping the product through a third country, a practice which is illegal but can be difficult to prove. While the dumping duty successfully protected the U.S. market from imports of fresh garlic from China throughout the late 1990s, imports of dehydrated garlic products were not part of the order and therefore not subject to the duty. As shown in figure 3, U.S. imports of dehydrated garlic jumped by 315% between 1997 and 1998, and have remained high ever since.

A five-year sunset review conducted by the USITC in 2000 determined that removing the duty on imports of fresh garlic from China would result in material injury to the domestic market. The China-wide rate of 376.7% remained in place against all shippers and exporters, at least until 2002. In 2002, administrative and shipper reviews resulted in lower duties applied to various shippers. (8) The lower duties allowed for a resurgence in China's exports of fresh garlic to the United States (figure 3). Within six years, between 2000 and 2005, U.S. imports of fresh garlic from China increased from 165 metric tons to 50,797 metric tons, with a corresponding increase in China's market share from 1% to 74%.

Preserved Mushrooms, 1998

In 1998, U.S. producers of processing and preserved mushrooms initiated an AD case against imports of preserved mushrooms from China, Chile, India, and Indonesia. The U.S. producers alleged that they were subject to increased foreign competition over the previous four years, putting downward pressure on the domestic price of processing mushrooms. Between 1993 and 1995, the world price of preserved mushrooms averaged around $2.20/kg (USITC 2004). Over this period, the total value of U.S. imports from the four targeted countries more than doubled, boosting their combined import share from 59% to 77%. Subsequently, a decline in average world prices between 1995 and 1997, to $1.75/kg, caused total U.S. import value to fall by a third. However, the share of imports from the named countries increased further to 82% in 1997. (9)

The U.S. producers won the case and imports of preserved mushrooms fell in 1998. This was principally due to the significant decline in the volume of imports from China and India. China's market share fell immediately from 52% to 41% (table 2). This drop in trade provided an opening in the U.S. market that was seized by two other large exporters of preserved mushrooms: Taiwan and Mexico. Two smaller exporters, the Netherlands and Canada nearly tripled the value of their exports to the United States in the same year. By 1999, China's market share fell to nearly zero. While the China-wide AD duty of 198.6% duty on imports restrained the speed of recovery, China's exports to the United States would steadily increase over the course of the next six years, reaching a 46% market share by 2005.

The most recent administrative review of this case by the DOC in September 2005 ruled that the AD duty should remain. (10) Consequently, the original China-wide AD duty remains unchanged to this day, although rates for some specific exporter and/or shippers are significantly lower (refer to table 1).

Non-frozen Concentrated Apple Juice, 1999

Between 1996 and 1998, there was a 46% drop in the unit import price of non-frozen concentrated apple juice, from $0.38 to $0.19 a liter (USDA 1999). The decline in price was blamed on a surge in China's apple production and consequent low-priced Chinese exports of concentrated apple juice to the United States. Hungary, Chile, and Argentina lowered their export prices, presumably to maintain their share of the American market, yet the value of U.S. imports from China jumped by 265%, from $8.1 million to $29.7 million (USDA 2006) between 1996 and 1998. As shown in table 2, China's share of U.S. imports climbed from 2% to 19% over these two years, making it the third most important foreign source of U.S. non-frozen concentrated apple juice imports, behind Argentina and Germany (USDA 1999).

In 1999, the U.S. apple industry initiated an AD case against China's suppliers of apple juice concentrate. The U.S. industry claimed that this product was being sold for 91% below the cost of production (Paulson 1999). The U.S. domestic price for processing apples fell 45% between 1996 and 1998, from $155 to $85 per metric ton (USDA 2000). The trade action resulted in a China-wide duty of 51.74%, and most likely caused the value of imports from China to decrease 20% in 1999 despite a small upturn in prices. The total value of U.S. imports was not affected, however. Argentina, Chile, and Germany reclaimed some of their original foothold by increasing the combined value of their exports to the United States by 36% in 1999.

By 2000, U.S. imports of non-frozen concentrated apple juice from China had rebounded to 1998 levels despite the AD duty. The resurgence in market share from a low of 13% in 1999 to 17% in 2000 probably had much to do with the lower duty rates (8.9% and 27.6%) applied to 14 shippers and exporters of the product, duties not sufficiently high to seriously dampen U.S. import demand. In 2002, the duty rates applied to ten shippers were further reduced to 0%. It was in this same year that U.S. imports from China began to increase steeply, from 24% of total U.S. imports to nearly 60% in 2005 (table 2).

Honey, 2000

In November 2000, U.S. honey producers initiated an AD case against honey imports from China and Argentina. Earlier, an increase in the volume of imports from China during the 1990s led to an AD investigation in 1994. The outcome of that investigation was a suspension agreement that imposed a quota and a minimum price floor on imports of honey from China. Argentina, historically the principal foreign supplier of honey to the United States with roughly a 50% import share, increased its exports significantly while the suspension agreement against China was in place.

Despite the fact that China had complied with the terms of the 1994 suspension agreement, U.S. petitioners let the agreement expire by not participating in the five-year sunset review and then filed a new AD action. The outcome was a China-wide average AD duty of 183% imposed in 2001.

By 2001, the total value of U.S. honey imports had fallen by 18%. China's share of U.S. imports fell from 30% in 1999 to 8% in 2002 (table 2). The decline in total U.S. imports would have been considerably larger had countries such as Canada, Mexico, and Vietnam not increased their exports to the United States. The response by these countries was not only spurred by the AD cases, but also by a drought that had been affecting the United States since 2000 and which had caused U.S. honey production to fall by 22%.

Conclusion

China is the world's largest producer of labor-intensive horticultural products and it has expanded its exports of these products. However, importers such as the United States have responded to China's exports with non-tariff import barriers, primarily in the form of antidumping tariffs. In this article, we show that these antidumping orders sharply disrupt imports from China for three to four years, after which China is back in the game. U.S. administrative reviews of dumping orders, one year or more after the initial order, typically result in lower tariffs for some exporters and trade flows are restored accordingly.

References

Blonigen, B.A. 2004. "Food Fight: Antidumping in Agricultural Goods." In G. Anania, M. Bohman, C. Carter, and A. McCalla, eds. Agricultural Policy Reform and the WTO: Where

Are We Heading? Cheltenham, U.K: Edward Elgar Publishing, pp. 568-92.

Carter, C.A., and X. Li. 2005. "China's Horticultural Trade Patterns: Implications for World Markets." Journal of International Agricultural Trade and Development 1:1-15.

Donovan, J., and B. Krissoff. 2001. Trade Issues Facing U.S. Horticulture in the WTO Negotiations. Washington DC: U.S. Department of Agriculture, Economic Research Service Outlook Report 285-01, August.

Huang, S., and F. Gale. 2006. China's Rising Fruit and Vegetable Exports Challenge U.S. Industries. Washington DC: U.S. Department of Agriculture, Economic Research Service FTS-320-01. February.

Messerlin, P.A. 2004. "China in the World Trade Organization: Antidumping and Safeguards." World Bank Economic Review 18:105-30.

Office of the Federal Register, National Archives and Records Administration (NARA). 1993-2006. The Federal Register. Washington DC.

Paulson, M. 1999. "Apple Growers Accuse Beijing of "Dumping'." Seattle Post-Intelligencer, September 20.

U.S. Department of Agriculture. 2006. U.S. Trade Internet System. Foreign Agricultural Service. Available at www.fas.usda.gov/ustrade

--. 1998, 2000, 2003. "Noncitrus Fruits and Nuts." National Agricultural Statistics Service Reports, Available at http://usda.mannlib.cornell.edu/reports

--. 1999. Outlook for Concentrated Apple Juice Production and Trade in Selected Countries. Washington DC: Foreign Agricultural Service.

U.S. International Trade Commission. 2004. Certain Preserved Mushrooms from Chile, China, India, and Indonesia. Investigations Nos. 731-TA-776-779 (Review). Publication 3731. Washington DC.

World Trade Organization. 2006. Anti-dumping: Statistics on Anti-dumping. Available at www.wto.org/english/tratop_e/adp_e/adp_e.htm. May.

(1) Antidumping measures imposed against China (after an affirmative ruling) follow a pattern similar to that shown in figure 1.

(2) Of the 469 AD cases initiated against China between 1995 and 2005, 106 were against base metal products, 104 were against chemical products, and 50 were against mechanical and electrical items.

(3) Section headings l IV of the Harmonized System (HS), as listed by the WTO (www.wto.org/english/tratop_e/adp_e/adp_statindex_e.htm), were used to count the number of antidumping cases by sector. Agricultural cases comprise sections I-IV.

(4) There were fewer AD cases initiated against Chinese exports of live animals and products than measures imposed because of a case in crawfish tailmeat that was initiated prior to 1995.

(5) In 1982 the United States initiated an antidumping case against imports of preserved mushrooms from China that passed through Hong Kong. The case resulted in a final negative ruling.

(6) We use the USDA, ERS definition of horticulture (see Donovan and Krissoff 2001). This definition corresponds to chapters 7. 8, and 20 of the Harmonized System (HS) and includes all vegetable, fruit, and nut products, both fresh and processed. Coffee and tobacco are not included in these chapters.

(7) In the case of crawfish tail meat, the DOC used Spanish import data of whole processed crawfish as a proxy for the value of the raw product in China (U.S. Federal Register, Vol. 61, No. 202).

(8) In 2002, Jinan Yipin Corporation Ltd., one of the 159 shippers, successfully petitioned the USITC for a review of its duty. The duty was then reduced to 0% for this shipper. By 2003, another shipper, Taian Fook Huat Tong Kee Foods Co., also had its rate reduced to 0%. Indeed, over the course of the next three years, sixteen shippers and exporters had their rates significantly reduced despite the fact that the China-wide rate remained at 367.7%.

(9) The 1995 to 1997 decline in the unit prices of imports from China was notable, dipping from $2.04/kg in /995 to $1.44/kg in 1997, 30% below the 1997 world average.

(10) Federal Register, 70 FR 54361, September 14, 2005.

Colin A. Carter is professor in the Department of Agricultural and Resource Economics, University of California, Davis, and a member of the Giannini Foundation of Agricultural Economics. Caroline Gunning-Trant is a Ph.D. student at the University of California, Davis.

This article was presented in a principal paper session at the AAEA annual meeting (Long Beach, CA, July 2006). The articles in these sessions are not subjected to the journal's standard refereeing process. Table 1. U.S. Dumping Orders against Food Imports from China

Original Continued Commodity Order Date Date Fresh garlic 11/16/1994 03/13/2001 Crawfish tailmeat 09/15/1997 08/13/2003 Preserved mushrooms 02/19/1999 11/17/2004 Non-frozen apple juice 06/05/2000 11/02/2005

concentrate Honey 12/10/2001 Certain frozen or 01/27/2005

canned warm-water

shrimp and prawns

China-wide

Original Revised

Order % Order % Commodity (Max) (Max) Fresh garlic 376.67 376.67 Crawfish tailmeat 201.63 223.01 Preserved mushrooms 198.63 198.63 Non-frozen apple juice 51.74 51.74

concentrate Honey 183.80 Certain frozen or 112.81

canned warm-water

shrimp and prawns

Range %

(not incl.

China-wide Commodity rate) Fresh garlic 0-115.81 Crawfish tailmeat 91.5-156.77 Preserved mushrooms 0-167.72 Non-frozen apple juice 0-27.57

concentrate Honey 0.07-82.27 Certain frozen or

canned warm-water

shrimp and prawns Source: Office of the Federal Register National Archives and Records Administration. United States Federal Register. 1993-2006. Note: The China-wide AD tar it I applies to "other" exporters and shippers, i.e. those not subject to specific rates. Table 2. China's Share of U.S. Imports of Targeted Horticultural Products

Fresh Preserved Non-Fz Apple

Garlic (%) Mushrooms (%) Juice Conc. (%) Honey (%) 1992 18 25 0 45 1993 64 29 1 48 1994 29 28 1 43 1995 2 46 1 25 1996 0 54 2 25 1997 1 52 8 15 1998 1 41 19 23 1999 2 0 13 28 2000 1 6 17 30 2001 10 16 16 27 2002 44 18 24 8 2003 56 34 37 25 2004 70 42 57 33 2005 74 46 58 28 Source: U.S. Department of Agriculture. 2006. U.S. Trade Internet System. Foreign Agricultural Service. Available at www.fas.usda.gov/ustrade. Note: Bolded figures indicate the year the AD case was initiated for the particular commodity. Market shares based on quantities imported.