A Sign of the Times: US Cotton Merchants Fighting China Over AQSIQ

Wednesday, March 18, 2009

There has been a rash of stories in the media recently suggesting the age of globalization may have come to an abrupt end as a result of the global recession. There’s certainly plenty of evidence to support such reporting. Whereas free trade has been a key mantra of globalization, trade liberalization deals may have been easier to come by when the global market was expanding, for it now appears that greater access to international markets, over the past few months, has been gradually replaced by trade squabbles and restrictive actions.

For example, just today, an acquisition of Huiyuan Brands, a Chinese producer of fruit juices, by U.S.-based Coca-Cola was rejected by Chinese officials on the grounds that it would violate China’s anti-trust requirements. Anti-trust requirements? Since when is it possible to have anti-trust issues in a state-run economy? Maybe I’m missing something … I don’t know.

At any rate, there are numerous other examples that I could cite, but one in particular come to mind and it directly involved cotton and, yes, it also involves China and the U.S.

Recently, China established a new inspection policy under its General Administration of Quality Supervision, Inspection, and Quarantine (AQSIQ) that outlines minimum quality standards for cotton shipped to China. The program, in effect, aims at ensuring that the quality specs provided in shipments are consistent with the actual quality levels of shipments received by contracting parties in China.

U.S. exporters, in particular merchants, have resisted this program, as they fear it would lessen their flexibility to meeting the requirements of fulfilling orders. They also have problems with the new regulations, as it would require exporters would have to register and provide some information on the volume and value of cotton shipments they have made to China, which some U.S. industry sources consider business confidential information. In turn, based on the information provided, exporters would be classified in three groups but cotton shippers and cooperatives say that they do not know what these groupings would be based upon and what the consequence of a given classification would represent.

Originally, U.S. exporters refused to participate in the program, but were excluded from these qualified lists, thus presumably leaving such companies open to having their shipments rejected by Chinese Customs upon entry. Yet exporters now appear resigned to working with China to implement its new cotton import program in such a way as to minimize the damage to U.S. producers after the failure of a concerted effort to push back the implementation of the program, although reports suggest that a technical team from U.S. cotton exporters would meet with AQSIQ officials later this month to attempt to persuade Chinese officials to remove requirements for reporting volume and value of cotton shipments.

According to industry sources, China has implemented this new policy in response to a continuing dispute with the U.S. over restrictions of imports of Chinese canned chicken into the U.S.

So, this appears to be a good example of the kind of tit-for-tat types of trade retaliation that we may see more of in the coming months. Certainly, while the global economy remains weak, it will probably make more and more sense to policy makers to introduce new protectionist measures to safeguard local producers. The bigger question is if free trade as a key aspect of globalization has seen its best days already or if current events simply represent a temporary situation. Only time will tell.

For more detail and copies of the lists of AQSIQ-qualified cotton companies, please click HERE to read updated reports on the Globecot News Network.

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