China struggling to meet "Phase One" seafood purchase commitments

On 20, January, a group of more than 140 U.S. lawmakers from both parties issued a request that U.S. Trade Representative Katherine Tai revive and expand a tariff-exclusion process for Chinese imports.

U.S. Rep. Ron Kind (D-Wisconsin) and U.S. Rep. Suzan DelBene (D-Washington) teamed up with U.S. Rep. Darin LaHood (R-Illinois) and U.S. Rep. Jackie Walorski (R-Indiana) to spearhead the letter-writing effort, according to Reuters. They’re hoping to expand the number of allowable exceptions to the Section 301 tariffs imposed by the administration of former U.S. President Donald Trump and continued by current U.S. President Joe Biden.

"These increased costs are undermining the competitiveness of American manufacturing workers, whose inputs are now more expensive compared to those made by foreign competitors," they wrote in the letter.

The campaign has been given prominent attention by China’s state-controlled media, centering on the lawmakers’ comments that the tariffs are harming U.S. competitiveness and driving inflation.

Seafood has been swept up in the Sino-U.S. trade war since its beginning in 2018. However, when two sides agreed to the so-called “Phase One” trade agreement in January 2020, hopes rose that there would be a decline in tensions and an easing of trade restrictions affecting the industry. Central to that belief was a statement from then-U.S. Trade Representative Robert Lighthizer that the deal would provide U.S. fishermen and seafood companies “expanded access to China’s rapidly growing market for imported seafood products” and the explicit inclusion of language in the deal limiting China’s ability to restrict U.S. seafood imports through regulatory initiatives. China also promised to purchase USD 80 billion (EUR 71.6 billion) worth of agricultural goods, including seafood, through 2022.

However, the latest data, as compiled by the Peterson Institute of International Economics, reveal Beijing is still well short of its purchasing commitments under the deal. American agricultural exports to China increased by 35 percent last year, said Craig Allen, president of the U.S.-China Business Council (USCBC) and a veteran American trade official. Allen said China imported about USD 74 billion (EUR 65.8 billion) worth of U.S. agricultural goods by the end of November 2020, which was still about USD 6 billion (EUR 5.32 billion) short of the target for 2021, according to data provided by the Office of U.S. Trade Representative. While it’s a “tremendous increase,” it’s still short by half of what China committed to purchasing, according to Allen.

However, China may have ramped up purchasing in December 2021, when it imported more than six million tons of U.S. soybeans, up 67 percent from November 2021. At the same time, the volume of Brazilian soybeans imported by China was down 43 percent month-on-month, though this shift may be partially explained by seasonality of harvests. China was on target to meet 83 percent of its 2021 commitments for purchases of U.S. agricultural goods as of October 2021, according to the Peterson Institute. But that’s largely because it has exceeded targets on corn and pork and hit targets on grains. By contrast, China has only fulfilled 51 percent of its commitment on purchases of lobster as of October 2021.

As part of its commitments in the Phase One agreement, China opened up to two dozen new species of U.S. seafood, but this has not resulted in a major increase in American seafood shipments to Chinese buyers, Allen told SeafoodSource. This is related to the type of tariff exemptions offered – and the nature of China’s agricultural commodities trade, which remains dominated by state-owned trading companies, Allen said.

“If you import [high-volume] soy or beef, it’s relatively easy to get a tariff exemption,” Allen said. “But if you are seeking tariff exemptions for a species of fish, it’s not so easy. It’s risky and it’s expensive. Also, exemptions are not typically for the long-term, they’re for a limited period. You are not guaranteed a return on investment.”

Also, the typical Chinese seafood importer is more likely to be smaller in scale than the typical importer of soy or grains, which are usually state-owned buyers who can more easily secure tariff exemptions, he said.

There is large potential for American soy in China said Jim Zhang, head of the aquaculture program at the China offices of the U.S. Soybean Export Council.

“I can only say that for aquaculture, China's consumption of soy products will continue to grow based on the continuous growth of the industry and the change toward more of feed-based industry,” he told SeafoodSource. “Of course, we want to see more U.S. soybeans come into the country. However, there are many factors that can impact the import.”

For the U.S. lobster industry, which previously counted China as its biggest growth market, hopes were high the Phase One deal would restore sales to their previous levels. In a tweet sent after the Phase One deal was signed, U.S. Senator Susan Collins (R-Maine) said she successfully advocated for lobster to be specifically named in the Chinese purchase agreement. In the first 11 months of 2021, American exporters sent more 6,000 tons of lobster to China, about 6 percent more than the same time period the previous year. But this performance is still well below China’s commitments under the deal.

Boston lobster – a generic terms in China for premium North American product, which also encompasses Canadian lobsters – featured prominently on Chinese e-commerce portals in the run-up to Chinese New Year on 1 February, though much of the shipping has been into airports in southern China like Guangzhou and Shenzhen due to an effective shutdown of chilled foods freight into Beijing and Tianjin in the run-up to the Winter Olympics, beginning Friday, 4 February.

Chinese media reports falsely linking the origin of the COVID-19 to U.S. lobster imports have not dented Chinese demand for American lobsters, according to Allen, who said they are less about Chinese trade protectionism and more “an extreme form of nationalism.”

“It’s much easier to find a foreign source [of COVID-19],” he said, pointing to China’s frequent issuance of penalties against foreign seafood exporters for alleged traces of COVID-19 on seafood packaging, despite statements from world health authorities confirming that food has not been implicated in the transmission of COVID-19.

However, China’s zero-COVID policy has been affecting seafood consumption, which is not yet back to pre-pandemic growth rate, according to Chinese offices of French investment bank Natixis.

“Even though households’ propensity to consume rebounded to 77 percent, per capita household expenditure growth went down to 8.6 percent in the fourth quarter, from 11.5 percent in the third quarter due to the slower growth in household income,” the bank said in a recent note to investors.

Another factor impacting seafood consumption in China is the divergence in global monetary policy. While the U.S. Federal Reserve has signaled a coming increase in interest rates, China is loosening credit conditions to spur growth. During 2021, China’s currency, the renminbi, appreciated from 6.5 to 6.4 against the U.S. dollar. But worried about rapid currency appreciation during an economic slowdown, China’s central bank has explicitly dampened notions of any “one-way movement” of the renminbi. Those currency dynamics play a significant role in determining Chinese buying power for imported foodstuffs.

American trade officials will be watching the fate of the Chinese economy this year for signs as to how or if China plans to continue its purchases, according to Allen. China’s economy expanded 8 percent last year, off a low 2020 base. But debt troubles have forced a traditional engine of growth – real estate – into retreat.

One sign of hope for U.S. seafood exporters is their recent success on Chinese e-commerce platforms like Alibaba, JD.com, and Tmall. E-commerce has the potential to move the dial further and more quickly in terms of purchases of U.S. goods, Allen said. He said he has seen a “vast increase” in purchases of cherries from the U.S. state of Washington on Tmall after the latter ran a promotional campaign featuring the fruit, which like cooked lobster, is also a hue of red – always popular around Chinese New Year, as it is considered auspicious.

Photo courtesy of U.S.-China Business Council