Why the TPP spells trouble for China’s seafood exporters

Published on
November 12, 2015

Already pressured by low export demand, China’s seafood exporters will suffer under the Trans Pacific Partnership (TPP) and will have to adapt by selling more to the domestic market while also improving product quality.

That’s the view of one of the country’s leading trade experts, Fan Libo, a professor at the University of International Business and Economics in Beijing. He believes China’s key agricultural export categories – seafood as well as fruits and vegetables – face major challenges in key markets from cheaper produce entering tariff-free through the TPP into key markets such as the United States.

Fan is right, but the bigger problem may be China’s ability to source agricultural and seafood commodities for its own needs will also be impacted by the TPP. Due to rising consumption of proteins by its ever-wealthier populace, China faces a growing dependence on imported seafood, cereals and meat, but the country’s higher tariffs will make it much easier for exporters of commodities to sell to fellow TPP members. “China faces a huge challenge of intense international competition for agricultural resources even as its deficit in international agricultural trade continues to widen,” said Fan, who is also a researcher at the China WTO Research Institute.

If China sees itself as losing from the TPP, Vietnam will be a key beneficiary. China has quickly emerged as the third biggest export destination (after the EU and United States) for seafood from Vietnam, which relies on exports for 80 percent of its own GDP. Under the TPP, Vietnam would ultimately see tariffs on frozen seafood such as shrimp reduced from 5 percent to zero. While it will face competition from fellow TPP members in land-intensive forms of agriculture, Vietnam stands to gain in labor-intensive forms of aquaculture. Chinese seafood exporters and processors are rightly worried because Vietnam has become a key source of inputs of shrimp in particular and supply from Vietnam has been a check on price rises for domestically produced Chinese shrimp.

And while China has a free trade deal with the Association of Southeast Asian Nations (of which Vietnam is a member), making Vietnamese seafood competitive in China, the likelihood is that the TPP will open up a whole new range of options for Vietnamese exporters of shrimp – and pangasius. Thus China’s access to Vietnamese shrimp (for its own consumption and for the export-processing sector) will be challenged, while China’s own export markets – principally the United States – will now have access to Vietnamese supply at favorable conditions.

Of the 12 countries involved in the TPP, Vietnam will likely gain the most from the tariff reduction side, and will crucially be able to reduce the number of anti-dumping cases it faces, according to Trinh D Nguyen, an economist at Hong Kong-based investment bank Natixis. The TPP is crucial for Vietnam’s exports to the United States, says Nguyen, because it removes the threat of American anti-dumping actions. “As it is not considered a market-oriented economy due to the involvement of the state-owned enterprises in many aspects of the economy, Vietnam faces high anti-dumping duties. Thus, the tariff reductions by the US through TPP is a major step for Vietnam as it makes Vietnamese exports much more competitive than goods from emerging Asian countries that are not in TPP.”

This will mean more Chinese shrimp and aquaculture will be sold at home while alternative suppliers will be lined up to avoid over-reliance on Vietnam. And there will also likely be a movement by larger Chinese seafood firms to hedge their bets by setting up facilities in Vietnam to secure supply and take advantage of TPP opportunities. Recent FDI data shows that Vietnam is already seeing a surge of foreign investment trying to take advantage of its lower labor costs and expected favorable access to key markets. China’s seafood exporters are currently undergoing a painful transition to domestic sales as export demand continues to remain weak – but the TPP will likely speed up this transition.

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