China Phase One trade deal includes ag purchases, feed, biotech provisions

By Max Fisher, Vice President, Economics and Government Relations

The U.S.-China economic and trade agreement signed on Jan. 15 at a White House ceremony contains significant specific commitments, time deadlines and enforcement metrics designed to provide more predictable trade between the two countries, as well as commitments by China to purchase at least $80 billion of U.S. food, agricultural and seafood products by the end of calendar year 2021.

NGFA Chairman Eric Wilkey, president of Arizona Grain Inc., Casa Grande, Ariz., was among agricultural industry leaders who accepted invitations to attend the hour-plus signing ceremony in the White House East Room. Following signing of the agreement by President Trump and Chinese Vice Premier Liu He, the NGFA issued a statement commending the agreement. NGFA stated that the Phase One accord represented “a significant first step in resolving disruptions and long-standing, festering impediments involving trade between the world’s two largest economies, and contains substantial commitments from China to purchase significant volumes of U.S. food, agricultural and seafood products. It also is significant that the agreement contains Chinese commitments to abide by science- and risk-based processes with transparency and specific timelines for regulatory actions related to agricultural biotechnology, animal food, and meat and poultry products.”

As a concession for the agreement, the United States will reduce the 15 percent tariff rate it imposed on Sept. 1 on $120 billion in Chinese goods to 7.5 percent. However, U.S. tariffs of 25 percent on $250 billion worth of Chinese goods will remain as the countries begin negotiations on a Phase Two agreement later this year.  Those negotiations are expected to involve such vexing issues as China’s subsidies and support of state-trading enterprises, and industrial policies that the United States maintains creates an unlevel playing field.

NGFA identified these continuing challenges in its public statement, noting that the association “also seeks to restore competitive open market agricultural trade and a level playing field with China. NGFA appreciates the administration’s recognition of these issues and will be encouraging that they be addressed in Phase Two negotiations with China. NGFA hopes those discussions will begin soon to build on the momentum and progress established in the Phase One agreement.”

The Phase One agreement includes chapters on intellectual property, technology transfer, trade in food and agricultural products; financial services; macroeconomic policies to include exchange rates; agreement evaluation and dispute resolution. The Phase One agreement goes into effect immediately and will not require congressional approval, since it is part of a Section 301 investigation initiated by the U.S. Trade Representative’s Office that determined China’s acts, policies and practices related to technology transfer, intellectual property, and innovation were unreasonable and discriminatory.

China’s Commitments to Purchase U.S. Food, Agricultural and Seafood Products: Under the agreement, China committed to purchasing $80 billion worth of food, agricultural and seafood products by the end of calendar year 2021 from the United States. All U.S. shipments entering China on or after Jan. 1, 2020 will count toward the Chinese purchase commitment totals. (China purchased $24 billion from the United States in 2017, the baseline period. $80 billion in purchases is $32 billion more than the $24 billion baseline period – multiplied by two years.)

When the $32 billion in additional agricultural purchases are combined with commitments to purchase $77 billion more in manufactured goods, $52.4 billion more in energy products and $37.9 billion more in services from the United States over the next two years (compared to their respective 2017 baselines), the total commitment from China swells to $200 billion in additional purchases over the two-year period. There also is language in the agreement stating that China will “strive to purchase and import” $5 billion more in U.S. agricultural products on top of the “minimum” amounts stated in the agreement.

Concerning China’s purchase and import commitments, the agreement contains the following key paragraph: “The parties acknowledge that purchase will be made at market prices based on commercial considerations and that market conditions, particularly in the case of agricultural goods, may dictate the timing and purchases within any given year.” U.S. trade officials have emphasized that this language relates to the timing of purchases within each calendar year, but does not relieve China of its obligation to make the requisite total dollar value of purchases within each year. To determine compliance, the dollar values will be determined based upon official Chinese and U.S. trade data and the product’s value upon arrival in China. “If an analysis of the respective trade data gives rise to conflicting assessments of whether (the purchase commitments) have been implemented, the parties shall engage in consultations,” the agreement states.

Under the accord, China’s purchase commitments from the United States for calendar year 2020 and 2021 are as follows:

• Food, Agriculture and Seafood: For calendar 2020, $12.5 billion more than the 2017 baseline Chinese import level from the United States, and $19.5 billion greater than 2017 for 2021.  China imported $24 billion in U.S. food and agricultural goods in 2017; thus, China has committed to import a total of $36.5 billion worth of such U.S. products in 2020 and $43.5 billion in 2021.
• Manufactured Goods: For 2020, $32.9 billion more than China’s 2017 imports and $44.8 billion greater than 2017 for 2021.
• Energy Products: For 2020, $18.5 billion more than China’s 2017 imports and $33.9 billion above 2017 for 2021. China imported $9.1 billion in U.S. energy products in 2017; thus, China has committed to import $27.6 billion in U.S. energy products in 2020 and $43 billion in 2021.  This category includes liquified natural gas, crude oil, refined products and coal.
• Services: For 2020, $12.8 billion greater than China’s 2017 import level and $25.1 billion more than 2017 for 2021. China imported $56 billion in U.S. services in 2017; thus, China has committed to import $68.8 billion in U.S. services in 2020 and $81.1 billion in 2021.

While the agreement does not contain Chinese purchase commitments of U.S. products beyond 2021, it does state that the parties project that the trajectory of increased Chinese imports from the United States for manufactured goods, agricultural goods, energy products, and services will continue in calendar years 2022 through 2025. In addition, the United States has agreed to take appropriate steps to facilitate the availability of U.S. goods and services to be purchased and imported into China.

Other Food and Agriculture Provisions: In the food and agriculture chapter, the parties agreed on terms for agricultural cooperation, dairy, infant formula, poultry, beef, pork, aquatic products, rice, plant health, animal feed, pet food, tariff rate quotas (TRQ), domestic supports, agricultural biotechnology, and food safety.

• On agricultural cooperation, the two countries state they intend to encourage exchanges and dialogues and base their cooperative activities on the principles of integrity, reciprocity, openness, transparency, science, and rule of law.
• China has agreed that from Dec. 31, 2019, its TRQ measures for wheat (9.63 million metric tons), rice (5.32 MMT) and corn (7.2 MMT) will comply with the World Trade Organization’s Panel Report, in which the United States successfully challenged China’s failure to meet its quotas, as well as China’s commitments under the Protocol on the Accession of the People’s Republic of China to the WTO and China’s Schedule CLII, Part I, Section 1(B).

Under the agreement, the entirety of China’s TRQs for wheat, rice and corn for each year shall be allocated by Jan. 1 of that year to end-users. The accord also states that China’s requirements for TRQ eligibility, allocation, return, reallocation and penalties shall not discriminate between State Trading Enterprises (STEs) and non-STEs and shall apply equally to the STE share and the non-STE share.

China also committed to reallocate all unused and returned TRQ amounts, including all unused and returned amounts allocated to STEs, by Oct. 1 of each year. Only new applicants and entities other than those returning unused quotas shall be eligible to receive reallocated TRQ amounts. China has agreed to make TRQ allocations in commercially viable shipping amounts.

• Significantly, the agreement says the parties will continue technical consultations concerning facilitation of trade in grain and oilseed products, including on sanitary and phytosanitary issues. NGFA has learned that USDA and Chinese officials will be meeting in early February to discuss China’s 1 percent foreign material (FM) additional declaration currently required on phytosanitary certificates for U.S.-origin soybeans that have created risk for U.S. exporters and disadvantaged U.S. soybeans relative to South American-origin soybeans. NGFA and the North American Export Grain Association have been working with USDA to remove the FM disclosure from phytosanitary certificates during the upcoming negotiations.
• For domestic agricultural support programs, China committed to respect its WTO obligations and publish in an official journal its laws, regulations, and other measures pertaining to its domestic support programs and policies.
• On agricultural biotechnology, China agreed to implement a transparent, predictable, efficient, science- and risk-based regulatory process for safety evaluation and authorization of products of agricultural biotechnology. For agricultural biotechnology products intended for feed or further processing, China committed to significantly reduce, to no more than 24 months, the average time between the submission of a formal application for authorization of such a product and the final decision on approval or disapproval of the product. It also agreed to allow submissions of biotech applications year-round, instead of the current practice of only a couple times a year.  While retaining its right to conduct in-country field trials as part of its biotech-approval process, China committed to base its safety evaluation procedures on relevant international standards and recommendations of Codex Alimentarius Commission (a UN-established food safety body) and the International Plant Protection Convention.  China also agreed to extend product authorizations to five years

In addition, if an import shipment contains a low level of a biotech-enhanced trait that already has been approved as safe by the United States or another country (low-level presence, or LLP), China committed to take the following steps:

• • “Without undue delay,” inform the importer or the importer’s agent of the LLP occurrence and provide any additional pertinent information that will be required to assist China in making a decision on the management of the LLP occurrence;
  • Provide to the United States a summary of any risk or safety assessment that China has conducted in connection with the LLP occurrence;
  • Ensure that the LLP occurrence is managed without unnecessary delay; and
  • Take into account any relevant risk or safety assessment provided, and authorization granted, by the United States or any foreign country when deciding how to manage the LLP occurrence.

In addition, China committed to evaluate inadvertent or technically unavoidable LLP occurrences on a case-by-case basis to minimize trade disruptions. The United States and China agreed to organize experts to conduct further studies on the issue of LLP and to collaborate internationally on practical approaches to addressing LLP.

The two countries also agreed to implement exchanges take steps to enhance engagement with the public concerning agricultural biotechnology and public awareness of scientific information relevant to agricultural biotechnology, with the aim of building public confidence in, and acceptance of, the use of safe biotechnology in agriculture and the food system.

• Concerning food safety, the two countries agreed not to implement food safety regulations, or require actions of the other country’s regulatory authorities, that are not science- or risk-based and shall only apply such regulations and require such actions to the extent necessary to protect human life or health.
• For rice facilities, the agreement states that within 20 working days of each time the United States provides China with a list of rice facilities, China shall register the facilities and allow the importation of U.S. rice from each of the approved rice facilities without onsite inspections or other measures.
• To allow the importation of U.S. barley, a phytosanitary protocol is to be implemented within three months.
• For animal feed, China agreed to the following:

• • Not require an on-site audit or inspections or export protocols as preconditions for registering facilities or for approving the importation into China of feed additives, premixes, compound feed products, and distillers’ dried grains with solubles (DDGS) – all of which are lumped under the term “animal feed.” China, “in accordance with international standards,” does retain the right to conduct “risk-based audits” of such facilities “in coordination with the relevant U.S. competent authority.” It also is authorized to conduct “risk-based (inspections of a) selection of shipments of U.S. animal feed” at ports of entry;
  • Ensure that its requirements for imports of animal feed from the United States are consistent with international standards and guidelines.
  • Publish a list of animal feed registered facilities provided by the United States (a requirement for such animal feed facilities to export to China) within 20 days after receiving the list;
  • Issue a license allowing importation of DDGS within three months and 20 days after receiving an application from a U.S. DDGS manufacturer.
  • Within nine months of receiving an application for the approval of the importation of a new animal feed product, complete the review of that application and add the product onto China’s List of (Authorized) Feed and Feed Additives;
  • Within three months of receiving a new application for the approval of the importation into China of an animal feed product, complete its review of that application and issue a license allowing importation of the product;
  • Within 20 working days of receiving an application for renewal for an animal feed product license, issue a renewed license allowing importation of products from the facility.

In the agreement, China continues to have the right to audit the U.S. animal feed safety regulatory system, including a representative sample of U.S. animal feed facilities, in coordination with the relevant U.S. competent authority. Such auditing shall be risk-based. China also continues to have the right to conduct inspections of a risk-based selection of shipments of U.S. animal feed products at the port of entry. If China determines, based on scientific inspection, that a particular shipment of U.S. animal feed is in violation of applicable feed safety import requirements, China may refuse importation of that shipment.

• For meat and poultry, China agreed to remove age restrictions for import of U.S. beef and beef products upon completion of a science-based risk assessment; recognize the U.S. beef and beef product traceability system; and adopt internationally accepted maximum residue levels for three widely used veterinary drugs (zeranol, trenbolone acetate and melangesterol acetate). For pork, China committed to expand the number of pork products allowed for import, while for poultry, it committed to finalize a regionalization protocol for poultry diseases to minimize future trade disruptions and to abide by World Animal Health (OIE) standards for international trade of poultry products.  Further, China committed to conduct a possible risk-assessment for the use of ractopamine in cattle and swine, consistent with Codex and other internationally accepted risk-assessment guidance.

The complete text of the 96-page agreement is available here. A detailed four-page fact sheet on the agricultural provisions is available here. 

Click here for a fact sheet on the accord’s animal feed provisions, and here for one on pet food. A fact sheet on the agricultural biotechnology provisions is here.