by Fengxia Dong and Helen H. Jensen

Choices 1st Quarter 2007 | 22(1) [1] (American Agricultural Economics Association)

Although SPS conditions as a whole in China are low, a number of enterprises, especially those that are export-oriented in the coastal and open provinces and regions, have reached SPS levels consistent with international levels. The improvements in food quality and product safety are a result of their operating in relatively open markets and exporting to developed countries, as well as their investment in modern food production, processing, and distribution industries. These markets are now mostly controlled by the "invisible hand" of international market forces, and producers can quickly adjust production to market signals. Their good practices can have spillover effects on domestic production and potentially expand supply sources available to export markets. This provides an optimistic prospect for China's food quality and safety. Recent estimates show that China has an opportunity to compete successfully because of low production costs that offset relatively high internal marketing costs (USDA, 2006). However, large regional differences limit prospects for broad participation in international markets, and it will take a long time for China to make the necessary adjustments to improve the overall SPS conditions in the country. During the transition, the potential for exports of China's agricultural products will vary, depending on the destination countries (which have different levels of SPS requirements), product varieties, and the capacity of producers to conform to SPS standards.

Although the WTO SPS Agreement requires members to ensure that SPS measures are based on sufficient scientific evidence, there are some well-founded concerns that countries may abuse SPS measures by using them as trade barriers. As China works to respond to the SPS regulations of other countries, concerns have risen that some countries will use SPS barriers to keep out lower-cost Chinese products, which are very competitive in world markets. Consequently, importing countries may look to restrict imports from China by setting relatively high standards or strict inspections in order to protect domestic markets. As China faces continuing SPS conflicts, the government has looked to bilateral negotiations to resist unfair trade restrictions and discrimination and is likely to call upon the WTO to coordinate and resolve trade disputes. As a member of the WTO, China can participate in the negotiation and establishment of international regulations and standards. What remains to be seen is whether China will improve its market opportunities under its new access to scientific review processes.

Asia has been the dominant destination for China's seafood, meat, vegetable, and fruit exports, accounting for over 50% of China's total exports in each category. Since U.S. exports have been of a different type, or seeking different destinations or market niches, China's exports of processed fruits and vegetables, which account for 60% of its total value of fruit and vegetable exports, generally had not posed challenges to U.S. exports. However, notable competition to U.S. exports brought about by China's increasing exports has been seen in the U.S. apple juice market and in Asian fresh fruit and vegetable markets, especially apples, onions, and edible brassicas (mainly broccoli and cabbages).

The value of China's apple juice exports to the United States increased from $1 million in the early 1990s to $108 million during the 2002-2004 period, and China has replaced the United States as the leading exporter of apple juice to Japan and Canada (USDA, 2006). And, due to low production costs and proximity to Japan, China's fresh vegetables are more price competitive than are U.S. vegetables. Declining U.S. market share in other Asian markets is also coinciding with increased vegetable exports from China.

At the same time, growth in China's domestic market, fueled by increased consumer income, modernization in the retail food system, and better transportation and distribution networks, has begun to compete with export outlets for the country's high-quality and processed food products, and this may dampen the expansion of products destined for international markets.

Full article available for download at http://www.choicesmagazine.org/2007-1/foodchains/2007-1-04.htm [2]