The Wait for Free Trade with China Just Got a Little Longer

Beijing's new trade rules are slowing down imports

When China joined the World Trade Organization in December, no one thought Beijing would completely honor the agreement. Quite the contrary. The Chinese were expected to throw up roadblocks to foreign imports and investment, especially in sectors least prepared for foreign competition.

Well, it's already happening. Beijing is about to impose new regulations that will slow the import of some agricultural products, as well as rules that will hamper the expansion of foreign banks. During his two-day trip to

Beijing in mid-February, President George W. Bush tried to persuade the Chinese to be more flexible on crop imports. His appeal went nowhere. As a U.S. trade expert says: "China didn't join the WTO to make life easier for foreign exporters."

Indeed, for now, Beijing is clearly most concerned with protecting its huge, inefficient agricultural sector. In that regard, China is not acting much differently from the Europeans or Americans, both of whom subsidize farmers. With tariffs on imported farm products set to fall gradually over the next few years, Beijing fears that a sudden flood of imported grain could feed unrest and instability.

So, partly to buy time, the government is making a fuss about imports of genetically modified crops. This is of particular concern to U.S. soybean farmers, because 70% of their crops are genetically altered. Under Beijing's new rules, the Agriculture Ministry must deem genetically modified imports safe for human consumption, a process that can drag on for more than nine months. An Agriculture Ministry official in Beijing acknowledges that the regulations could be seen as "a form of protection" for domestic farmers but insists that their primary purpose is to ensure the safety of Chinese consumers.

That's no consolation to foreign farmers, of course. Thanks to the new rules, Chinese orders for U.S. soybeans--a business worth some $1 billion last year--have come to a virtual halt. "They want to raise the price they can get for their own soybeans," says Phil Laney, head of the American Soybean Assn. office in Beijing. "They want to have vague rules so that they can manipulate imports."

Then there are the new banking regulations, which foreign lenders say are aimed at protecting China's debt-laden banks. As of early February, new branches are required to have a minimum of $72 million in operating capital, up from $15.7 million, in order to do local retail business. The requirement will likely make it too expensive for any but the largest foreign banks to set up mainland networks. Particularly galling to foreign bankers is the fact that the regulation was announced as part of a package intended to fulfill China's WTO commitments. Joachim Fuchs, general manager of the Shanghai branch of Commerzbank, says the requirement's real purpose "is to give the local banks breathing time."

There is a bit of good news elsewhere on the trade front. Beijing is beginning to open up parts of the long-protected telecom sector. Foreign cell-phone makers are finding it easier to get new models approved for sale in China. And subsidies for local phone makers are being phased out. "We still have concerns," says David Hartley, managing director of Nokia Mobile Phones China. "But our expectation is that over time these barriers will be removed."

Meanwhile, Beijing is working feverishly to ensure that thousands of laws jibe with global trading rules. "This is a huge task," says Yang Guohua, the director of WTO legal affairs in the Ministry of Foreign Trade & Economic Cooperation. "But it's still only the first step as China enters the WTO." A higher hurdle will be implementing the new laws--a challenge given the sheer number of officials who must be trained.

And that could have ramifications for foreign farmers hoping to send their products to China. It could take up to two years to work out the kinks in the regulations governing genetically modified grains, says Peng Yufa, a scientist at the Chinese Academy of Agricultural Sciences and one of the main authors of the new legislation. Still, Peng insists that China's new regulations are no more complex than those used in Europe and the U.S. "Before there was too much freedom" in importing, he says. "Now there are new requirements, so, of course, there are complaints." As soybean exports to China dry up, expect the chorus of complaints to get a whole lot louder.

By Dexter Roberts in Beijing, with Alysha Webb in Shanghai

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