China Sends Pork Packing, Escalating U.S. Trade Dispute

By Jason Simpkins
Staff Writer

Clearly agitated by controversy related to the safety of its exports, China is striking back. Early this week, Beijing rebuffed shipments of both Canadian and American meat products, citing safety concerns.

Shipments of pork kidney from the United States and spare ribs from Canada were rejected, after Chinese authorities found evidence of the growth agent ractopamine. Ractopamine is an adrenal stimulant used to make pork leaner. China has banned the substance since 2002.

The timing is both interesting and precarious, given that China is currently experiencing a domestic pork shortage, which has resulted in rising food prices and rampant inflation. According to Xinhua, the state-run news service, Chinese officials have said they expect the shortage continue into 2008. But prices have already started to recede from their August high. Reportedly, prices have fallen 11.3% in the September's early goings.

Inflation reached a ten-year high of 6.5% in August.

The fact that China would send back a shipment of pork products even as it faces an inflationary crisis underscores just how determined the nation is to strike back at the United States over trade relations. China's product safety agency, the Administration for Quality Supervision, Inspection, and Quarantine (AQSIQ) has made a point of stepping up its inspections of U.S. imports.

Authorities used to inspect as little as 5% of the nation's imported goods, but now are checking every single shipment of American poultry, pork, and beef. The effort has had little impact on the bottom lines of manufacturers and retailers, but is very clearly a pointed political statement. China, which maintains a multi-billion-dollar trade surplus with the United States, has accused the U.S. government of using over-hyped safety concerns as an excuse to block imports from China.

Altercations such as these have been a routine occurrence all summer long. It began when such Chinese-made products such as toothpaste and pet food were found to pose serious health risks. Then, in June, Chinese authorities banned chicken imports from two Tyson Food (TSN) plants after finding salmonella in a number of shipments. In July, the United States restricted imports of five different types of seafood from China, a measure Beijing criticized as unnecessary and excessive.

Then came the great Mattel Inc. (MAT) toy controversy, which really exacerbated the already-strained trade relations between the two countries.

On Aug. 14 and Sept. 3, Mattel recalled a total of roughly 20 million Chinese-made toys. Some of them involved lead paint from Chinese suppliers. More than 90%, however, were recalled because of dangerously designed magnets that could come loose and create choking hazards.

This issue in particular has become a sore point with U.S. consumers, and has become a media cause celebre.

And the conflict hasn't ended with product recalls either.

Beijing is also filing a separate grievance with the World Trade Organization (WTO).

This dispute, also with the United States, concerns anti-subsidy duties on Chinese paper exports. The United States broke a 23-year precedent by imposing countervailing duties on exports from what it refers to as a 'non-market economy.'

Such duties are imposed if domestic companies are able to prove that the exporter's government is subsidizing their overseas competitors. The United States has accused China of offering tax breaks and generous loans giving their exports an unfair advantage. It has also accused China of 'dumping,' or selling a product at a lower, even predatory, price.

The designation of China as a 'non-market economy' makes it easier for domestic companies to win anti-dumping actions against Chinese goods.

In March, the U.S. Commerce Department imposed countervailing duties of 10.9% and 20.4% on Chinese producers of coated paper. China retaliated, saying the United States failed to demonstrate to what degree China's government subsidy program has benefited its exports, as mandated by the WTO.

News and Related Story Links:

• Money Morning News:
  As China Soars, Prices Are Rising More Than Most Realize.
• MSNBC. COM:
  China rejects U.S. imports, citing sanitary code.