Peoples Republic of China International Trade Issues

By Jim DeLisi
President of Fanwood Chemical 

China is clearly the dominant force in agrochemicals as well as many of the complex intermediates that are consumed by active ingredient producers worldwide. Through a myriad of individual companies, many of which are SOEs (State Owned Enterprises), it is likely that more than 50% of all active agrochemicals, worldwide, either originate in China or contain a critical component solely or predominantly sourced from China. Therefore, it is important to have a better understanding of China’s current international trade agreements, many of which help support these businesses.

China joined the World Trade Organization (WTO) on Dec. 11, 2001. This was a very important achievement as it assured China access to the worldwide market. The WTO is a rules-based system, with tiered membership. China is considered a developing country, which gives them some special privileges that would be lost if this status were upgraded to developed, including the fact that their dues would increase substantially.

There is pressure to change their status from developing to developed as China has the second largest economy in the world. The U.S. economy remains the largest.

Various sources report that China has bilateral investment agreements with more than 107 countries and economies, including Austria, the Belgium-Luxembourg Economic Union, Canada, France, Germany, Italy, Japan, South Korea, Spain, Thailand, and the United Kingdom. China’s bilateral investment agreements cover expropriation, arbitration, most-favored-nation treatment, and repatriation of investment proceeds. They are generally regarded as weaker than the investment treaties the U.S. seeks to negotiate. (Information courtesy of trade.gov).

China maintains 17 Free Trade Agreements (FTAs) with its trade and investment partners and is negotiating or implementing an additional eight FTAs. China’s FTA partners are ASEAN (Brunie, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Timor-Leste, and Vietnam), Korea, Pakistan, New Zealand, Chile, Peru, Costa Rica, Iceland, Switzerland, Maldives, Mauritius, Georgia, South Korea, Australia, Cambodia, Hong Kong, and Macao. (Information courtesy of trade.gov).

In addition, in November 2020, China and 14 other countries signed the Regional Comprehensive Economic Partnership (RCEF). China announced the ratification of the agreement in early 2021.  The Regional Comprehensive Economic Partnership is a free trade agreement among the Asia-Pacific nations of Australia, Brunei, Cambodia, China, Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. The 15 member countries account for about 30% of the world’s population (2.2 billion people) and 30% of global gross domestic product (GDP) ($29.7 trillion), making it the largest trade bloc in history and the first free trade agreement among the largest economies in Asia. It is said that this agreement reduces tariffs to zero for more than 90% of their trade. (Information courtesy of ASEAN.org).

While few of these agreements are as robust as similar agreements that the U.S. has negotiated, most have requirements that includes MFN status (most favored nations) requiring that their exports get treated fairly. They all include duty free access for all or almost all manufactured goods produced in China.

The combination of all of these agreements gives China a strong leg up in the region. However, except for Switzerland and their strong working relationship with Russia, there are no FTA’s in existence with the European countries. With the outstanding exception of Brazil, there are few such agreements in the western hemisphere. Interestingly, while committees of investigation were set up with India in 2003, nothing has come to fruition from this effort.

Current Situation with the U.S. Remains Difficult

USTR (United States Trade Representative) has been reviewing the impact of the currently levied surtaxes on the imports of many Chinese goods into the U.S. since the comment period ended in early January 2023. It is not expected that any significant changes in these levies will be made until at least after the next U.S. presidential election.

China levied retaliatory tariffs on many U.S. goods after the U.S. took this action. These levies make it very difficult for U.S. producers to ship anything to China that is on the list.

There are very testy discussions concerning a range of issues impacting China trade with a number of their trading partners impacting agrochemicals, including, but not limited to:

• State Owned Enterprises (SOE’s): Syngenta, the worlds’ largest agrochemical/seed company is an SOE. The U.S. and the EU have been working on ways to “discipline” SOEs so that they cannot dominate industries.
• Food Security: There are concerns that China’s dominance in the agrochemical industry could potentially cause issues with food security. It is likely that more than 50% of all formulated agrochemicals have an active ingredient or intermediate that is produced dominantly in China.
• Russia/Ukraine Conflict: China appears to be supporting Russia in this conflict, if by no other means than purchasing Russian oil, which is what largely funds Russia’s war efforts. If Chinese explosives turn up in the Ukraine, this could have a huge impact on the agricultural chemical industry as the U.S. seeks out and then penalizes any company that supplies such munitions and the chemicals required to produce them.
• Taiwan: China’s continued aggressive acts against Taiwan threaten to overturn decades of stability in this region. If they choose to re-unite Taiwan with mainland China by force, it could lead to World War III.
• Forced labor: The issues with the Uyghurs’ region of China are not likely to subside in the near term. U.S. Customs seizures of goods have impacted items far beyond solar panels, including some chemicals.
• U.S. Land Ownership: Arkansas is the first state to impose its own restrictions on Syngenta’s investments in the U.S. Their recent demand that Syngenta divest farmland that it owns in the state is unprecedented and has the possibility to spread to other states where Syngenta owns similar parcels. It is possible that the federal government might pass legislation or take regulatory action to limit the ability of Chinese companies to own land, especially if it is close to a military installation.
• The House of Representatives Select Committee on China: Continuing its work, which included a recently completed hearing in the Midwest concerning food security issues, it is very hard to predict where and how this committee’s work will impact the U.S./China trading relationship.

One other commercial issue that will have a continuing impact on trade is falling prices, many of which are caused by the massive amount of inventory that pervades the supply chain for agrochemicals.  In addition, in some instances, many Chinese companies have made investment decisions that have resulted in significant excess capacity impacting many individual products. These inventories and the crashing of values and volumes that has occurred have resulted in some of the worst earnings performance in all areas of the agrochemical sector in memory.

The Chinese Government encourages their agrochemical producers to export formulated products over straight active ingredients. In this manner, as much of the “value added” as possible can be retained in China.

Chinese census statistics, sourced from Datamyne for the period January 1 through Sept. 30, 2023, appear to show the following for total exports by value in USD and in metric tons (MT) for formulated insecticides (3808.91), formulated fungicides (3808.92), and formulated herbicides (3808.93). Also included is the number of countries that this report shows as receivers of these materials directly from China.

For point of comparison, we have included U.S. exports for the same time-period, sourced from the USITC Dataweb. As you will see, China has exports that greatly exceed the U.S. in every way, except for the gross value of insecticides. Since the U.S. figures are based on total exports, it would be expected that at least some of these quantities are based on active ingredients sourced from China. With the exception of USMCA partners, Canada and Mexico, U.S. law allows for the refunding of import duties, which would include “the China surtax,” so such levies would not be an impediment to U.S. exporters.

The below charts, show the top 25 countries by volume and value for China for each of these classes of agrochemicals.

The entire list of countries for all three categories is available on the Agribusiness Global website by clicking here.

Jim DeLisi is the President of Fanwood Chemical and an AgriBusiness Global advisory board member. DeLisi invites readers to ask questions or comment on this article. He can be reached at jdelisi@fanwoodchemical.com.

https://www.agribusinessglobal.com/special-sections/quick-look-at-agrochemical-trade-in-the-united-states/