Seafood Source - 30 September 2020
Norway tries to seal FTA with China this year, but complications abound
By Mark Godfrey
There’s speculation in Beijing diplomatic circles this month as to whether China will sign a free trade deal with Norway this year.
Negotiators have been working on the deal for more than a decade, but the talks were paused after the Nobel Peace Prize was awarded to Chinese dissident Liu Xiaobo in 2010. Afterward, Norwegian exporters had to watch the Chinese salmon market grow 30 percent while Norway’s share was eaten up by newcomers to the market like Scotland.
While relations between Norway and China have thawed, lately, Norway appears eager to do more to finally get the free trade deal done, with Chinese construction companies winning or in the running for big-ticket construction deals in the high-value Norwegian market. The Sichuan Road and Bridge Group is building a large bridge in Narvik and another Chinese-owned construction firm is bidding for a port redevelopment job in Kirkenes. Perhaps most significant is the arrival of a ship from China to Narvik port (after a record of just two weeks sailing) has been portrayed in Chinese media as a proof of concept for China’s Polar Silk Road, which cuts shipping time to Europe in half.
A deal would be a huge win for Norway’s big salmon exporters, which are looking at China as a promising source of future demand and growth.
“Trade is a basis for increasing total value creation and provides consumers options of supply. Hence, we support free trade agreements,” Astrid Aam, communications manager at salmon exporter Cermaq, one of Norway’s largest salmon companies, told SeafoodSource. “Today, the free trade agreement between China and Chile is resulting in Chilean salmon being less expensive to Chinese consumers than Norwegian salmon.”
A China-Norway FTA will benefit Norwegian salmon export to China, both fresh and frozen salmon, because this FTA will ultimately save 8 percent import duty for Norwegian salmon, according Fan Xubing, the founder and president of Beijing-based Seabridge Marketing.
“But this eight percent import duty normally will be reduced over a five-year period, so the impact could not be very obvious for the first one to two years,” he told SeafoodSource.
Fan said a deal will accelerate Norway’s goal of selling more cod and mackerel directly to Chinese consumers.
“The majority of Norwegian export to China is for processing and re-exporting, so a free trade agreement would not have any impact unless those cod and mackerel could be sold for China’s domestic consumption,” Fan said.
A free trade agreement would level the playing field when it comes to seafood trade with China, and make trade easier by creating a bilateral framework for conducting of trade, according to Fan. Yet there are questions over whether China will eventually cut tariffs on seafood across the board, as it begins to depend more on imports for its seafood needs.
“By 2030, China is likely to see seafood consumption outstrip domestic production. To meet the seafood gap, China will likely attempt to increase domestic freshwater and offshore aquaculture, increase seafood imports, possibly expand the distant-water fishing industry, and invest in seafood production abroad,” according to a paper published recently in the journal One Earth by a group of academics coordinated by Beatrice Crona, a researcher with the Royal Swedish Academy of Science and Stockholm University.
Critical inputs into China’s aquaculture and seafood industries are in any case already tariff-free: the Customs Tariff Commission of China’s State Council announced on 14 September that exemptions from duties for U.S. shrimp broodstock and fishmeal suppliers would be extended beyond 16 September, when the exemptions were set to expire.
A free trade deal doesn’t necessarily mean a surge in exports to China, Fan said.
“Iceland signed [an] FTA with China some years ago, but I have not seen the Icelandic cod and mackerel domestic consumption in China increase a lot,” he said.
Likewise, FTAs also don’t protect exporters from a souring of political relations with China. Australian seafood exporters once considered a free trade deal with China as a major coup. But even after an FTA was achieved in 2015, Australian exporters’ zero-tariff access to China have recently encountered an effective block on shipments of their goods due to increasingly disruptive Chinese import license inspections and suspensions after the Australian government questioned China’s response to the COVID-19 outbreak.
Australian exports to China fell 26 percent year-on-year in August, according to The Economic Daily, a Chinese financial newspaper, which said Australia’s meddling has “cost” the country’s seafood exporters, who now wish “their politicians would shut up and let things return to normal.”
Chinese companies have shown they can cancel contracts with foreign companies when their governments have acted against Beijing’s wishes. Earlier this month, a Chinese company suspended a USD 23.8 million (EUR 20.3 million) order from Czech piano company Klaviry Petrof after a Czech government official visited Taiwan, the island nation China claims as its own territory and has sought to isolate diplomatically.
An FTA with China hasn’t been a substitute for other factors, like marketing, according Fan Xubing, pointing to the case of Chilean salmon in China. Chile still leads Norway in terms of volume of salmon shipped into China, but the Norwegian Seafood Council has spent much more on marketing, making salmon a desirable product. It’s popular “Arctic cod” offerings have become synonymous with Norway in China.
“Salmon Chile has not done any marketing in China, so its brand is not strong enough, and that gives Norwegian salmon more opportunity,” Fan said.
Fan, whose firm has helped Norwegian companies – including Pelagia – do marketing of Norwegian mackerel in China, said he believes Chile has been late to recognize the importance of public relations and marketing in China.
“I know Salmon Chile has decided to do marketing in China from October 2020, but I think they choose an unexperienced agent in China which is doing Chilean wine marketing and don’t have any seafood marketing experience. So this choice might be not so wise for Salmon Chile,” he said.
Meanwhile, China continues to widen its options with trade deals that aren’t necessarily the conventional free trade agreements sought by Western suppliers like Norway. Beijing, for instance, is being much more coy about another trade deal that could be much more impactful than the Norwegian FTA: a 25-year partnership with Iran, which would link that country into an existing blueprint to integrate western China and Pakistan. While Beijing doesn’t want to announce the deal at such a delicate time in Sino-U.S. relations), Tehran has announced Chinese money and builders will construct a 2,300-kilometer road connecting Iran’s ports with the western Chinese city of Urumqi, linking up with the China-Pakistan Economic Corridor on the way. That road links the Indian Ocean port of Gwadar with western China.
The infrastructure project, which will be paid for with Iranian oil and gas, will be a boon for Iranian shrimp farmers, particularly if trade is facilitated in yuan (a long-stated Beijing goal) rather than dollars. India, which has a similar agreement with Iran to develop its Chabahar port, could also use the new route to the Chinese market, if its current border tensions with China subside.
The China-Iran relationship shows ease of access to the Chinese market doesn’t have to center on tax-free access. But free trade deals, while imperfect, do create new opportunities, especially for seafood, which is frequently traded internationally, according to Geoff Irvine, the executive director of the Lobster Council of Canada.
Free trade deals have been “worthwhile” for the Canadian lobster industry, Irvine said, referencing the newly negotiated United States-Mexico-Canada Agreement (USMCA), as well as the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) Canada forged with the European Union in 2016, and Canada’s FTA with South Korea that went into effect in 2015.
“Trade deals are a negotiation and a trade-off. Nobody gets everything they want without a cost to some group or groups within the economy,” Irvine told SeafoodSource.
For Canada, FTAs are worth the trouble, Irvine said.
“Canada is a trading nation and our federal government, of all political stripes, has always made negotiating trade deals a key foreign policy priority,” he said.