Agriculture Reference
In-Depth Information
Adjustment costs of WTO entry and ther ncome mplcatons
Agrcultural lberalsaton may also produce challenges and adjustment
costs for the Chnese agrcultural sector. The logc s smple. Chna's WTO
commitments for the agricultural sector include tariff reductions, market
access and reform of state monopoles n agrcultural trade. Although
these measures may ncrease the long-term compettveness of Chna's
agrcultural sector and therefore contrbute to ncome growth for the
Chinese rural population, the structural adjustments necessary are likely to
cause short-term difficulties for Chinese farmers. For example, as indicated
by Table 3.1, tariffs for most dairy products will decline from 50 per cent
to 10-12 per cent; tariffs for apples and eight other fruits will be reduced
from 30-40 per cent to 10 per cent. The measures will reduce the Chinese
renminbi (RMB) price of foreign imported goods and therefore increase
compettveness of these foregn products n Chnese markets. Other thngs
being equal, the structural adjustments from the reduction of tariffs imply
shrnkng of the domestc producton of these products and adjustment
costs for farmers. The magntude of the substtuton effects from growng
mports for domestc products wll depend upon relatve prces between the
domestc market and the nternatonal market for the product after WTO
entry. For example, the import-led substitution effects may be relatively
small for fruts n whch domestc producton has an apparent comparatve
advantage. The external shock may be significantly larger for dairy products
as dary producton s less compettve.
The TRQ system for sensitive products is a double-edged sword for
domestic production. On the one hand, it provides a protective mechanism
for domestic production, as imports are usually unable to exceed the
quota threshold. On the other hand, the TRQ system makes it impossible
to restrict imports of the products within the quota, should the import
prices of these products be significantly lower than the domestic prices. As
bulk agrcultural products such as gran and ol-seed bearng products are
usually land intensive, and China generally lacks comparative advantage in
these products, imports of bulk agricultural products may increase. As a
result, domestic production will face adjustment pressures. Possible import
surges of grain, especially corn, are of most concern. If average annual
imports of corn increase by 5 million tonnes as a result of WTO accession,
domestc corn producton has to be reduced by that amount.
