Agriculture Industry Update - July 31, 2018
Dear USCBC members following agriculture and food safety:
As I am sure you are aware, Chinese tariffs on $34 billion in US goods went into effect on July 6 shortly after the United States imposed tariffs on Chinese imports of equal value. The tariffs cover nearly all US agricultural exports to China, as well as automobiles and auto parts, and could have a serious long-term impact on the market share of US agricultural products in China.
The US-China Business Council (USCBC) is encouraging the US and Chinese governments to engage to discuss solutions rather than implement tariffs, which will damage the economic interests of both sides and fail to address US concerns about China’s intellectual property (IP) protection and technology transfer policies.
The escalating tariff conflict
US agriculture products have become caught up in a trade conflict that escalated over the past six months. The Trump administration announced on June 15 that it would be implementing 25 percent tariffs on $50 billion in Chinese imports, resulting from a Section 301 investigation on China’s IP and tech transfer policies. US tariffs on $34 billion in Chinese imports went into effect July 6, and tariffs on an additional $16 billion in imports were subject to a separate public comment process and are expected to go into effect in early September.
China responded on June 15 with its own two lists of retaliatory tariffs, mirroring the United States’ actions on timing and dollar value. USCBC has released unofficial translations of both lists. In response, the administration announced that it would impose 10 percent tariffs on an additional $200 to $400 billion in Chinese imports, and on July 10, released a list of $200 billion worth of Chinese products, also subject to a separate public comment period ending in mid-August.
The back and forth on tariffs has been part of ongoing actions throughout 2018, starting with US tariffs on aluminum and steel. In response to that action, China implemented a 25 percent tariff on many pork products and 15 percent tariffs on a range of fruits and nuts.
China’s Section 301 retaliation covers virtually all US agriculture exports to China, including soybeans, beef, pork, fruit, nuts, tobacco, and seafood. The tariffs implemented July 6 are cumulative, meaning that products on both lists will be assessed the total of both sets of tariffs. For example, pork products will face an additional 50 percent tariff.
Bilateral negotiations this spring over agriculture market access and increased energy sales had given some hope that tariffs might be averted. While details were never announced, China said at the conclusion of the last round of discussions in June that it would not proceed with additional purchases if the United States proceeded with tariffs. Since that time, there are no indications that the two governments are discussing what steps will be necessary to halt the tariffs.
Tariffs causing pain for US agriculture
There are multiple ways that trade tensions have affected and may continue to affect US agriculture companies:
- Uncertainty: The extent and duration of retaliatory Chinese tariffs on US agricultural products remains uncertain, making it difficult for businesses to plan. This is largely because of the lack of clarity from the United States on what it would view as sufficient action by China to address concerns about IP protection and technology transfer policies. Policy stability is particularly important in agriculture, where farmers need to determine ahead of time what crops they will plant for a given growing season.
- Lost market share: The longer tariffs remain in effect, the more supply chains will adjust and cut into US market share, even after tariffs are removed. China has been implementing several policies that will contribute to that shift. In late June, as China’s Ministry of Finance announced it would remove tariffs on animal feed from neighboring Asian countries in an apparent effort to offset the effect of tariffs on US agricultural products.
- “Qualitative” retaliation: China has said that it will respond to US actions with both “quantitative” measures (i.e., tariffs) and “qualitative” measures. These could include an array of actions, such as licensing and regulatory approval delays, tax investigations, and antimonopoly reviews. US agricultural companies have already begun experiencing increased customs inspections and delays of products at Chinese ports, which could intensify if the trade conflict continues to escalate. Licensing and regulatory delays for US companies could give their other foreign competitors an advantage, especially in markets newly opened by China’s recently revised negative list for foreign investment.
Please see below for the recent policy and news developments covered in this update:
- EU Promises to Purchase More US Soybeans
- Trump Administration Announces $12 Billion Plan to Aid Farmers Impacted by Tariff Retaliation
- National Grain and Oils Information Center on Coping with Reduction in US Soybean Imports
- China Cancels US Soybean Shipments as Tariffs Come Into Effect
- China Drops Tariffs on Asian Neighbors, Lifts Bans on French and British Beef as Trade Dispute with the United States Escalates
Domestic Agricultural Policy
- Revised Negative List for Foreign Investment Includes Openings in Agriculture
- Beijing-Tianjin-Hebei Agricultural Product Processing Development Plan Announced
- Premier Li Keqiang Holds State Council Meeting on “Internet+ Agriculture” and Rural Industry Integration
- China Faces Challenges Pushing Out Ethanol-Blended Gasoline Nationwide by 2020, Tianjin to Require E10 Gasoline Use by End of August
- National Biosafety Committee Meets, Raising Hopes for New GM Import Approvals
- Circular on Plant Oil Labeling Specifies Requirements for Genetically Modified Products
- Chinese Company Admits to Illegally Selling GM Corn Seeds in Northern China
- SAMR Seeks Comments on Draft Guiding Principles for Registering Changes in Infant Formula Recipes
- Jinan, Chengdu, and Xixia Launch Food Safety Classification Pilots
- China Customs Releases Report on Quality and Safety of Imported Food in 2017
- SAMR Official Discusses Food Safety in the Internet+ Age as Online Food Sales Reach Nearly RMB 10 Trillion
- State Council Food Safety Commission Personnel Changes
- Announcement of Nine National Food Safety Standards
Below please find English summaries and related links for the listed developments. If you have any questions on these or other developments, please do not hesitate to be in touch.
If you find this update useful, please forward it to your colleagues and encourage them to subscribe! If there are any major developments that we missed or issues you follow that we did not include, please let us know so that we can continue to improve our industry updates.
John A. Kamensky
Manager, Business Advisory Services
US-China Business Council
1818 N Street NW, Suite 200, Washington, DC 20036
EU Promises to Purchase More US Soybeans
On July 26, US President Donald Trump and EU Commission President Jean-Claude Juncker announced in a joint press statement that they were working on a deal to address tariffs and regulatory barriers that could lead to increased EU purchases of US soybeans and LNG, and would hold off on implementing further tariffs during negotiations. Juncker said, “As far as agriculture is concerned, the European Union can import more soybeans from the US, and it will be done.” Increased EU purchases of soybeans were already being driven by market forces, though, since Chinese tariffs on US soybeans have caused their price to fall.
Reuters: Discount Not Discourse to Boost US Soy Sales to EU
White House: Remarks by President Trump and President Juncker of the European Commission in Joint Press Statements
Trump Administration Announces $12 Billion Plan to Aid Farmers Impacted by Tariff Retaliation
On July 24, the Trump administration announced a $12 billion plan to support American farmers impacted by trade retaliation from China, the EU, and other countries. According to Secretary of Agriculture Sonny Perdue, the aid would be financed through the US Department of Agriculture’s Commodity Credit Corporation, which would not require congressional approval. Perdue also specified that the aid would be temporary in nature. Such an aid program would not help in alleviating lost market share in international markets. Some Republican lawmakers expressed their discontent, highlighting divides between the president and his party. Senator Ben Sasse (R-NE) likened the plan to spending “$12 billion on golden crutches.”
Politico reported that according USDA trade counsel Jason Hafemeister, the aid would not push the US beyond the “amber box” subsidy limits under the World Trade Organization (WTO). The US currently reports about $5 billion worth of agricultural domestic support to the WTO, and has a $19.1 billion cap.
Reuters: Trump to Provide $12 Billion in Aid to Farmers to Ease Trade Pain
White House: Donald Trump Will Protect American Farmers from China’s Trade Retaliation
WSJ: Trump Administration Plans Up to $12 Billion in Farm Aid to Ease Concerns Over Trade Disputes
Politico: Details of Farm Aid Program Still Weeks Away
National Grain and Oils Information Center on Coping with Reduction in US Soybean Imports
In a July 10 People’s Daily report, China’s National Grain and Oils Information Center discussed China’s ability to cope with reduced US soybean imports. The Center, which falls under the State Reserves and Grain Administration, stated that China’s 25 percent import tariff on US soybeans will increase the US soybean import costs by RMB 700-800 per ton, which is about RMB 300 per ton higher than Brazilian soybeans. The article also states that since June 28, China has not purchased US soybeans and cancelled 615,000 tons of US soybean orders. According to the Center, between Brazil’s successful harvest this year, increases in South America’s planting area, production increases in Belt and Road countries and domestically, and improvements in animal feed research, China will be able to satisfy its soybean demand without American imports.
People’s Daily: 国家粮油中心：有能力应对美大豆进口减少缺口
China Daily: Nation Can Find More Soybean Sources
DimSums: China Can Replace US Soybeans, Propaganda Says
China Cancels US Soybean Shipments as Tariffs Come Into Effect
China has begun canceling US soybean purchases as additional tariffs on US soybeans went into effect on July 6. According to US Department of Agriculture data for the week ending June 28, China lowered purchasing commitments by 366,000 metric tons for the 2017-2018 marketing year, ending August 31, and cut commitments on 66,000 tons the following year. China also resold about 120,000 metric tons of US soybeans to Bangladesh and Pakistan. China still has outstanding sales of about 771,000 tons of US soybeans for the current marketing year, and 1.39 million tons the following year.
Bloomberg: China Cancels US Soybean Purchases as Trade War Takes Hold
China Drops Tariffs on Asian Neighbors, Lifts Bans on French and British Beef as Trade Dispute with the United States Escalates
As trade tensions with the United States escalate, China has been taking measures to reduce trade barriers with other countries for products caught up in the disputes. Effective July 1, China reduced tariffs for 8,549 types of goods from five Asian neighbors under the Asia Pacific Trade Agreement: India, South Korea, Bangladesh, Laos, and Sri Lanka. These products include 415 agricultural products, 144 of these are products that the United States is facing retaliatory tariffs from China on. Tariffs for animal feed ingredients including soybeans, rapeseed, soybean meal were reduced to zero.
In late June, China also lifted longstanding bans on beef imports from France and the United Kingdom. France and China have negotiated an export protocol, so France will be able to export beef once its plants are officially registered. The United Kingdom will still need to negotiate an export protocol before exports can resume. US beef has faced increased tariffs from China since July 6, when China imposed retaliatory tariffs on a wide range of US agricultural products.
Reuters: China Drops Tariffs on Animal Feed from Asian Countries as US Dispute Escalates
China Daily: Tariff Cuts Will Spur Asian Trade
USDA GAINS: China Lifts Ban on Imports of French and British Beef
USDA GAINS: China Announces Tariff Reductions for Asia-Pacific Trade Agreement Members
Domestic Agricultural Policy
Revised Negative List for Foreign Investment Includes Openings in Agriculture
On June 28, the China’s National Development and Reform Commission and Ministry of Commerce released a revised negative list, outlining remaining restrictions on foreign investment in China. The new negative list will take effect July 28. Equity caps were removed in breeding new varieties of agricultural products and seed production, aside from wheat and corn. Investment restrictions were also removed in rice, wheat, and corn wholesale markets. Many non-investment barriers to agriculture companies remain in China, including approvals for biotech imports, which will continue to have an effect on foreign companies. However, restrictions remain in areas like agricultural biotechnology, and additional hurdles such as licensing and regulatory approvals remain for companies to begin conducting business in the areas removed from the negative list, so it remains unclear just how significant the openings will be in practice.
USCBC: What You Need to Know About China’s New Negative Lists for Foreign Investment
USCBC: China Updates Foreign Investment Restrictions List to Reflect Recent Openings
USCBC: Unofficial Translation of the 2018 Nationwide Negative List for Foreign Investment
USCBC: Comparison of the 2017 and 2018 Nationwide Negative Lists
USCBC: China’s Ownership Caps on Foreign Investment
Beijing-Tianjin-Hebei Agricultural Product Processing Development Plan Announced
At a July 4 event, the Beijing, Tianjin, and Hebei governments jointly announced a Beijing-Tianjin-Hebei Agricultural Product Processing Development Plan, which sets a target for the output value of this sector in 2020 to increase by more than 50 percent compared to 2015. According to the plan, the three regions will leverage their respective advantages to advance mutual benefits. The plan further clarifies the industrial layout among the three regions and highlights five main tasks, which include fostering an agricultural industrialization consortium, strengthening brand building in processing, improving technological capability, promoting the sharing of related resources, and using “Internet+” to achieve integrated development.
Farmer Daily: 京津冀出台农产品加工业发展规划
Premier Li Keqiang Holds State Council Meeting on “Internet+ Agriculture” and Rural Industry Integration
On June 27, Premier Li Keqiang chaired a State Council executive meeting on promoting the integration of the Internet and agriculture. The meeting proposed three points to integrate the Internet and agriculture to make agricultural production more efficient and connect farmers with markets:
- China aims to accelerate the application of information technology in the agricultural industry. Big data and Internet of Things can be utilized to improve the efficiency of agricultural production management, especially in seed breeding, field management, pest control, harvesting, and storage. China will establish big data for the whole agriculture industry chain.
- China will strengthen the connection between e-commerce companies and farmers, and enhance the construction of Internet broadband and cold chain logistics to make it easier to sell agricultural product.
- Social forces are encouraged to develop new types of agriculture business to diversify the development of agriculture, rural areas, and rural residents. More training on information technology will be given to farmers to make cellphones a new agriculture tool. The Internet will be an important tool to integrate the first, second, and third industries in rural areas.
The meeting also decided to increase investment in infrastructure construction to strengthen long-distance rail transportation capabilities and to clean up service charges in transportation.
State Council: 李克强主持召开国务院常务会议 听取深入推进“互联网+农业”促进农村一二三产业融合发展情况汇报等
CGTN: How is China Reshaping Its Farms with the Internet?
China Faces Challenges Pushing Out Ethanol-Blended Gasoline Nationwide by 2020, Tianjin to Require E10 Gasoline Use by End of August
In September 2017, the Chinese government outlined a plan to use ethanol in gasoline nationally by 2020, and 11 provinces have put out rules implementing increased ethanol requirements including Heilongjiang, Jilin, Liaoning, Henan, Anhui, Guangxi, and Hebei. Most recently, the province of Tianjin has mandated implementation of gasoline containing 10 percent ethanol (E10 gasoline) by the end of next month. China's annual production of fuel ethanol is nearly 2.6 million tons, ethanol-blended gasoline accounts for a fifth of the nation's gasoline consumption. Currently, China’s ethanol production ranks third in the world behind the US and Brazil. However, it still falls far short of the amount that would be required to push out E10 gasoline nationwide by 2020, and only one major plant has been approved to begin construction in China since the E10 mandate was issued in 2017. Steep tariffs on US ethanol cast further doubts on China’s ability to push out E10 gasoline nationwide by 2020.
Xinhua: 2020年全国普及乙醇汽油 汽车“喝酒” 生物燃料要唱主角
Reuters: China's Ethanol Push in Doubt as US Trade Dispute Widens
National Biosafety Committee Meets, Raising Hopes for New GM Import Approvals
According to Reuters sources, China’s National Biosafety Committee, the scientific advisory committee that reviews new genetically modified (GM) crops for import approval, met from June 20 to 22 for the first time in over a year. This meeting raises hopes for the approval of new GM products for import, including some US products currently awaiting approval. However, it remains to be seen which, if any, products are approved, and whether US-China trade tensions will impact the approval process. China’s slow and unpredictable GM approval process has been a key issue in bilateral talks. Beijing promised to speed up its review of pending product applications under the US-China 100 Day Action Plan last summer, although only four of the eight pending applications were approved in the following weeks.
Reuters: China GMO Crop Panel Meeting Raises Approval Hopes: Sources
Circular on Plant Oil Labeling Specifies Requirements for Genetically Modified Products
On July 16, the State Administration for Market Regulation, the Ministry of Agriculture and Rural Affairs, and the National Health Commission issued a notice regarding the proper labeling of edible plant oils. The notice aims to curb illegal and misleading behaviors in edible plant oil labeling. The notice specifies that genetically modified vegetable oils are prohibited from being labeled “non-GMO.” It also requires mixed oils to be labeled with the respective proportions of the various oils they contain. The notice also outlines certification requirements and orders the establishment of a traceability system. Edible plant oils produced legally before December 21, 2018 are allowed to be sold until their expiration dates.
SAMR, MARA, NHC: 关于加强食用植物油标识管理的公告
China Daily: Vegetable Oil Labels Must Avoid Touting Non-GM Status
People’s Daily: 转基因食用植物油应显著标示
Chinese Company Admits to Illegally Selling GM Corn Seeds in Northern China
Recently released court documents show that the Chinese company Yuan Longping High-Tech Agriculture Co. Ltd. supplied illegal genetically modified corn seeds to dealers in northern China. Four dealers were fined and sentenced to two to three years in jail for purchasing and distributing 67,000 bags of GM corn seeds in 2015 and 2016. It remains unclear the acreage of land involved and how the authorities dealt with the illegal crops. While China imports GM grains for animal feed, commercial planting of GM crops other than cotton and papaya in China is illegal, although China has struggled with enforcing this ban. A 2016 report by Greenpeace found that 93 percent of corn samples taken from fields in Liaoning Province contained GM crops.
Caixin: Producer Admits Illicit Sale of Genetically Modified Corn Seeds
Caixin: Famous Supplier at Center of Illegal Genetically Modified Corn Scandal
Reuters: Chinese Farmers are Illegally Growing GMO Corn: Greenpeace
DimSums: Stop Illegal GMO Corn by Legalizing It, China Scientists Say
SAMR Seeks Comments on Draft Guiding Principles for Registering Changes in Infant Formula Recipes
On July 26, the State Administration for Market Regulation (SAMR) issued draft Technical Guiding Principles for the Registration of Recipes for Formula Powder Products for Infants and Young Children for public comment. The draft clarifies the requirements stipulated in the Administrative Measures for the Registration of Recipes for Formula Powder Products for Infants and Young Children (CFDA  No. 26) for companies to register changes to their formula recipes. It outlines different registration requirements depending on the type of change, and specifies required registration materials. SAMR is collecting comments on the draft guiding principles through August 15. Comments can be emailed to [email protected].
SAMR: 国家市场监督管理总局关于公开征求《婴幼儿配方乳粉产品配方变更注册技术指导 原则（征求意见稿）》意见的公告
Jinan, Chengdu, and Xixia Launch Food Safety Classification Pilots
Several areas with high concentrations of food vendors in Jinan City, Shandong Province; Chengdu City, Sichuan Province; and Xixia County, Henan Provinces have started pilot programs to implement a quantitative food safety classification system. A July 24 report in the People’s Daily explains that this new system refines the classification of food safety levels and incorporates indices for nine areas, such as license management, information publication, sanitation, ingredient control, and dishware disinfection. Specific practices differ between the different pilot zones. For example, Chengdu included food safety administration into a smart supervision platform, which enables consumers to receive food safety classification information by scanning a QR code.
People’s Daily: 食品安全分级管理引导消费者择优就餐
China Customs Releases Report on Quality and Safety of Imported Food in 2017
On July 23, China’s General Administration of Customs (GAC) released a report on the quality and safety of China’s imported food in 2017. China imported 53 million tons of food worth $58.3 billion from 187 countries, a 36.5 percent increase in weight and a 25.0 percent increase in value from the previous year. China’s top three food import sources were the European Union, the United States, and New Zealand, and its top three imported products were meats, oils, and dairy. Chinese customs seized 49,000 tons of unqualified imported food worth $69.5 million from 94 countries in 2017, which was destroyed or returned. A GAC spokesperson urged the continuation and improvement of international co-governance to ensure the safety of the global food supply chain.
Guangming Daily: “舌尖上的进口”大盘点 透视2017年中国进口食品质量安全状况
Xinhua: Economic Watch: Imported Food Gains Popularity in China
SAMR Official Discusses Food Safety in the Internet+ Age as Online Food Sales Reach Nearly RMB 10 Trillion
On July 19, the State Administration for Market Regulation (SAMR) revealed that China’s Internet food sales were nearing RMB 10 trillion per year and emphasized the need for a revolution in online and offline food safety supervision. SAMR Deputy Director Sun Meijun discussed the need to integrate online and offline food industry regulation to ensure food safety in the Internet+ age. Another SAMR official emphasized the importance of Internet food safety regulation to people’s lives and the importance of social governance in food safety. The article mentioned that companies are also taking action to promote standardization and grading systems for fresh produce.
State Council Food Safety Commission Personnel Changes
On June 27, the State Council announced changes to its Food Safety Commission, a high-level interagency coordinating body formed in 2010 with members from over 20 party and government organizations. Vice Premier Han Zheng replaced Zhang Gaoli as the director of the commission, and Vice Premier Hu Chunhua and State Councilor Wang Yong replace Wang Yang as deputy directors. The commission’s office, which is in charge of the commission’s day-to-day work, was moved from the former China Food and Drug Administration (CFDA) to the State Administration for Market Regulation (SAMR), and is headed by SAMR party secretary and deputy director Bi Jianquan. In terms of Chinese government bodies represented, the commission no longer includes a representative from the former Ministry of Supervision, and has added representatives from the Cyberspace Administration of China, Ministry of Education, Ministry of Culture and Tourism, State Forestry and Grasslands Administration, Civil Aviation Administration of China, and China Railway Corporation.
State Council: 国务院办公厅关于调整国务院食品安全委员会组成人员的通知
Announcement of Nine National Food Safety Standards
On June 21, National Health Commission, Ministry of Agriculture and Rural Affairs (MARA), and State Administration for Market Regulation (SAMR) announced nine national food safety standards, which will be officially implemented in six months. The standards include maximum residue limits for pesticides as well as testing standards for certain chemical residues in food.
National Health Commission: 关于发布《食品安全国家标准 食品中百草枯等43种农药最大残留限量》（GB 2763.1-2018）等9项食品安全国家标准的公告（2018年 第6号）