July 1, 2004

Unclear Rules Continue To Restrict China Soybean Imports

China has lifted a temporary injunction on 23 foreign suppliers barred from selling Brazilian soybeans to the country, but access to the world's largest soybean market continues to be restricted by the lack of clarity on inspection rules, market participants said Wednesday.
 
While China has succumbed to pressure to lift the ban on suppliers, it is simultaneously erecting new trade barriers to restrict soybean imports, or at least slow down the pace of imports as many Chinese soy crushers are still mired in financial troubles caused by months of weak feed demand and expensive beans imported earlier, they said.
 
The new rules going into effect on Thursday and the uncertainty surrounding their implementation could mean further delays in resumption of regular imports, at least until late August.
 
"The supply chain may be stalled for a month or two due to a messy regulatory environment. No one is sure how to import now. Everyone is watching closely how rules effective July 1 will affect imports," said a manager at a major Chinese soy crushing plant located in Eastern China.
 
China's fast expanding soy crushing industry took in an average of 2.5 million tons a month of South American soybeans in July and August last year.
 
The current row arose after China adopted a zero-tolerance policy on fungicide-tainted seeds starting April, as against an international practice of allowing up to three tainted seeds per kilogram of soybeans imported.
 
Chinese quarantine authorities banned 23 international suppliers from supplying Brazilian soybeans after finding fungicide tainted seeds in the cargoes they supplied.
 
Brazil's agriculture ministry said China has agreed to allow cargoes with one tainted seed per kilogram gram of soybean following bilateral negotiations earlier this month. However Chinese quarantine authorities have yet to confirm this claim.
 
Traders say China often adopts confounding rules when it wants to restrict imports.
 
A similar restrictive regulatory environment was witnessed in 2001, when soybean imports fell to a trickle in May and July of that year, waiting for the government to clarify its policy on the import of genetically modified crops into the country.
 
Although China has lifted the ban on the 23 supplies, the authorities have asked these suppliers to "clear up" their cargos waiting at Chinese ports at their own expense before the soybeans can be discharged.
 
The suppliers have been told cargoes that fail to pass the test after being "cleaned up" will be rejected. There was no specification whether the authorities will now accept cargoes with up to one tainted seed per kilogram or continue to stick to their zero tolerance policy.
 
"Can anyone tell us how to pick out all such seeds? Hire some men to scavenge a cargo of 60,000 tons of beans? And it's not even clear what kind of measurement we are subject to, zero or one per kilogram?" said a China-based trader affiliated with an international trading house.
 
Frustrated suppliers said they also face potential defaults by some Chinese crushers who are unwilling to honor their contracts, because prices in the Chinese markets have fallen sharply from the levels at which these cargoes were originally contracted. Meanwhile, the delay is costing suppliers demurrage to the tune of roughly $150,000 a day per Panamax-size cargo berthed at ports.
 
The only comfort is that perhaps not every local port inspection authority sticks to such stringent rules in practice, some said.
 
"China had rejected five cargoes in total on grounds of cargo contamination before the bilateral talk concluded last week. Since then, we have not received any news (of any other cargo being rejected)," said Jim Liu, an official at the commercial section of the Brazilian Embassy in Beijing.
 
There are no clear estimates yet on how many cargoes are currently stuck at Chinese ports awaiting fresh inspection by the authorities.
 
In the case of an estimated 18 cargoes that left South American ports prior to the Sino-Brazil agreement but have yet to reach Chinese ports, importers may now be required to get new quarantine permits with the suppliers' name printed on it.
 
This process could take as long as a month or more, although some importers said they have been informed the old permits can be extended. China's General Administration of Quality Supervision, Inspection and Quarantine, or AQSIQ, has yet to make any announcement on the fate of the old permits.
 
"Everyone is watching how these ships will be treated after July 1.  Some may have already changed hands to be rerouted to other buyers in the region because of this uncertainty," said a China-based trader attached to a multinational supplier.
 
Traders attached to foreign suppliers say all the recent changes in rules are aimed at slowing imports and helping Chinese crushers renegotiate earlier contracts at lower prices.
 
General rules governing plant and animal imports released last week by AQSIQ stipulated importers must now secure quarantine inspection permits before signing new contracts starting July 1.
 
Importers may face a wait of up to 45 calendar days for the quarantine bureau to issue a new permit, according to the government agency's statement. This would, in effect, mean that even if importers apply for new permits in the first week of July, they will not be able to sign fresh import contracts and ship the goods until mid-August.
 
Traders and analysts said the immediate impact of these new rules will be a further delay in imports, although importers and suppliers will eventually find their way through the maze.