By: Jordan Deschenes
(Note: This is the unedited version of an article I wrote for The American Moderate, which can be found here)
On January 26, the U.S.-China Economic and Security Review Commission held a pre-litigation hearing about Chinese investment in the United States. During the “Industry Case Studies” portion of the hearing, the concerns of panel members’ testimonies centered mainly on China’s near-monopolistic grip on advanced American industries.
Notably, several of the panelists addressed growing Chinese authority over certain American food and agriculture practices such as farming and animal husbandry.
Patrick Woodall, the director of the Food and Water Watch, talked specifically about Chinese manipulation of the pork industry since the implementation of its most recent Five-Year Plan. He accused the Chinese government of setting up certain American farms as “export-platforms for agro-business” that will drive up pork prices on a global scale.
In his written testimony, Patrick Woodall revealed that “Chinese firms have made 34 food and agricultural acquisitions in the United States totalling $7.4 billion since 2000” and in 2012, owned “over 42,000 acres of U.S. farmland worth $900 million” according to U.S Department of Agriculture figures.
As his primary example, Woodall discussed last year’s buy-out of Virginia-based Smithfield Foods for $4.7 billion by Shuanghui Group, a government-sponsored pork processing company. In doing so, Shuanghui became the largest pork producer in the world, and according to Woodall, gave the Chinese government a monopoly on the “pig slaughter industry”.
Shuanghui’s monopoly status certainly comes into question when accounting for the fact that Smithfield already had a monopoly on the American pork market before the purchase; the company was responsible for 97% of U.S. pork exports at the time, according to Woodall.
Woodall explained that Shuanghui will assume the subsidized tax benefits associated with Smithfield’s hundreds of acres of farmland. In doing so, the Chinese company will be able to beat bilateral agreements about FDA factory standards because they allow U.S. sellers to package Chinese-processed pork domestically.
By “taking a loss” in giving American sellers this ability, Chinese companies actually benefit because they are able control the most profitable steps in the industry: slaughtering and processing.
Two other panelists gave testimonies that addressed the issue of China’s exploitation of international trade laws as well as its own. Their concerns centered specifically on anti-trust laws.
In response to a question about his views on Chinese investment in 2000, Robert Atkinson, President of the Information Technology and Innovation Foundation, said that China’s recent investment in the United States has been a “surprise” in comparison to 15 years ago.
Atkinson answered that “the path that we thought that China was creating did not emerge” with regards to its “mercantilist” pursuits and “disrespect for international trade laws”.
Patrick Jenevein, CEO of Tang Energy Group and Co-Chair of Watt Stock Power Equipment, expanded on Atkinson’s statements in his testimony, explaining the difficulty of bringing litigations against Chinese state-owned firms and businesses. He argued that lawsuits are often costly and drawn-out because of “opaque, complex corporate structures” that often “defer liability and responsibility”.
Based upon his own business experience and the stories of others, Jenevein revealed that Chinese officials often use the excuse that English translations are “not good enough.” Jenevein’s testimony also included his personal observation of Chinese politicians’ understanding of law.
“Chinese politicians look at law as a means of protecting the Communist Party,” said Jenevein. “It’s not like the United States, where it (law) is an institution. When leadership changes, so does the interpretation of law.”
Atkinson added that evidence of Chinese legal wrongdoing has been clear during the Obama administration, where investigations into People’s Army hacking of American servers were drawn-out and never truly resolved. Atkinson referred to a “new rule” established by Chinese investors in the United States: “if you raise your head, you will get hit”.
In addition to Smithfield and pork exports, Woodall voiced even greater concerns about China’s potential to gain a global monopoly on GMO farming, bringing up China National Chemical Corporation’s ongoing $43 billion dollar purchase of Syngenta, a Swiss agrochemical and seed agribusiness.
A powerful U.S. antitrust panel overseen by representatives from both the Federal Trade Commission and the Justice Department has been investigating the legality of the purchase earlier this month, and amid a “few” minor concession settlements, have finally approved it. ‘ChemChina’ is also being investigated by an E.U. antitrust panel, where most processes – aside from those in Brussels – have indicated signs of giving the go-ahead for approval.
To complicate matters, ChemChina filed individual lawsuits against Syngenta and licensed farmers who had priced Syngenta GMO-grown corn for global sale after November 11, 2013. The lawsuit claimed that the Chinese government lost billions as a result of the corn’s sale because the Syngenta seed type was not yet approved by for sale in China at the time.
As the hearing segment came to a close, the panelists’ testimonies about the actions of Chinese investors in the U.S. market had undoubtedly confirmed fears about the government’s current capacity to defend antitrust laws in the 21st century.
Atkinson testified that some legal precedents set during the 1980s and 90s were not written with the intent to fundamentally address today’s increase in global market competition. Using Xerox’s monopoly on the printing market as an example, he further argued that at the time, competition was “good” for the market with regards to antitrust laws.
Woodall provided a picture of the reality of the food industry in China today, one that has been shaped by decades of limited U.S. oversight, allowing Chinese companies to “cut corners” in order to skirt laws and litigations.
“I have seen truly horrifying stories in the past,” Woodall said in response to a question on food inspection by Byron Dorgan, the senior policy advisor at the Washington-based law firm, Arent Fox LLP, who mentioned a shocking New York Times article. In the story, Chinese inspectors had seized “nearly half a billion dollars’ worth of meat” across the country that “in some cases” had been frozen for over forty years.
Woodall argued that the FDA has had significant problems with keeping up on import alerts in past years, resulting in hundreds of recalls and food alerts. To make matters worse, the FDA employs a “tiny number of inspectors” in comparison to the number of factories that need to be covered in China.
According to Woodall, past visa access problems for U.S food inspectors are “better than they were six or seven years ago” in Chinese factories, but random spot-checks still cannot be conducted. Imported meat products are mostly packaged in the U.S., which has contributed to consumer ignorance about the quality of their products.
“If it has a U.S. brand, people don’t know where it’s made, or processed,” Woodall commented.
In light their individual criticisms of Chinese antitrust manipulation, the three panelists proposed their own opinions about solutions to the problem. Throughout his testimony, Woodall frequently suggested that food investment should be considered a “critical infrastructure” in America, with increased scrutiny over imported products.
Atkinson made a simple proposition with regards to effective litigation – that American business owners need to make sure that they fully comprehend deals proposed by Chinese investors. To facilitate this process, he advised that businesses should standardize the practice of providing “simple translations” to non-speakers of Mandarin, among other languages. Jenevein argued that that public access to China’s Treasury is essential to ensure fairness and complete transparency for “litigation purposes”.
Although a Chinese monopoly on GMO seed production will certainly affect the global market, it will not “starve us all” as suggested by co-chair Michael Wessel in a question to Woodall.
While downplaying the idea of massive world starvation, Woodall warned that the economic repercussions on the free market would be similar in impact, as consumer’s choices will be narrowed.
“China is dominant because of its ability to make the decision where people grow crops,” he explained. “Syngenta and ChemChina will take all the rights. This (deal) forces farmers to buy the Chinese-made Syngenta chemicals and fertilizers if they want to grow their GMO Syngenta seeds.”