Challenges, Recommendations and Conclusions .Food safety is a complex issue in China, presenting challenges to central government regulators as well as international trading partners. A deteriorating environment, lack of up-to-date food safety laws, ineffective governmental supervision, lack of general public awareness, all contribute to the problem. An effective approach to increasing compliance of Chinese products will require greater understanding of their challenges and innovative responses, including building the capacity among US agencies to more effectively address international challenges.
Working closely with provincial and local authorities will improve the effectiveness of implementing future strategies, whether they are focused on certification or inspection processes. The central government recognizes that the willingness of local officials to comply is critical. Vice Premier Wu Yi, the chairwoman of China’s interagency product safety committee chaired a meeting with provincial authorities in August 2007, emphasizing in her speech that local level officials could not evade responsibility for product safety or protect illegal or sub-standard enterprises.
According to the “who is in charge and who is responsible” principle, the detection and elimination of potential safety problems is the assigned responsibility of each department, each region, each county, each township, every street, every community, every business and shop. 要严格责任追究制度。 We must strictly assure accountability in the system.
[i]
The lack of local government willingness to enforce central government dictates is a problem in multiple sectors and attributable to the lack of progress achieved in various government initiatives such as the campaign to eliminate counterfeiting and improve air and water pollution. As demonstrated by the Hong Kong experience, provincial participation in implementation is necessary for success. This is particularly true if a system is in place where a limited number of suppliers are licensed to export specific products to the US market in a regime where both Chinese and US regulators recognize the certification. Currently, the US FDA does not recognize Chinese certifications, which reflects a justifiable lack of faith in Chinese certification processes. However, this leaves the US market open to shipments from any supplier, regardless of whether they are subject to even marginal Chinese oversight. An ideal scenario would include a certification that is recognized by both Chinese and US authorities, backed by periodic inspections carried out by US FDA employees. The Memorandum of Agreement between the Chinese AQSIQ and US FDA establishes that AQSIQ is responsible to certify all food exports to the US, though that certification serves mostly as a screen to ensure only legitimate companies export products and does not alter US standards, nor does it exempt products from further inspection in the US. The agreement does not establish a cartel system of suppliers, nor does it require US inspectors to certify exporters or shipments prior to exporting.
This cartel and inspection paradigm resembles elements of the Hong Kong, as well as Japanese regulatory system for overseeing Chinese exports. Following a 2002 crisis caused by contaminated spinach imported from Japan, regulators there reformed their import regulation system, establishing approved supplier lists and sending Japanese inspectors to visit Mainland factories. Receiving a certificate limits the farm to exporting only products grown on their own farms, prohibiting subcontracting or consolidation with products grown on other farms. Like in Hong Kong, Japan also has an aggressive testing program, with testing rates between 10 and 15 percent of shipments, compared to the one percent tested by US authorities. In the case of spinach, the cause of the 2002 crisis, every batch is tested for pesticide residues. This import regime, relying on supplier cartels and extensive testing is expensive, but effective.
Perhaps most encouraging is the behavior change amongst suppliers (and to a lesser extent, buyers) that the cartel system fosters. A limited number of exporters who obtain a permit to export enjoy a privilege, as well as an obligation to meet the buyer’s standards, which are ostensibly articulated as part of the licensing process. Privileged market access and a limited number of suppliers will undoubtedly cause prices to increase, which will encourage farmers and processors to avoid “cutting corners” through adulteration or mis-use of drugs or chemicals to boost profits that parsimonious buyers would otherwise absorb. The loss of a valuable export license is a significant disincentive for an exporter to cut corners. Like an organic farmer supplying customers willing to pay a premium, US consumers will have to pay for safety. In a large country like China, a realistic objective might be to establish supplier cartels for specific products, ensuring that certified suppliers are distributed in each province. Ensuring that some licenses are earmarked for less-wealthy provinces will be a priority for Beijing, concerned about a costal-inland wealth gap. However, inland provinces, farther from seaports and lacking in infrastructure will be less competitive than coastal suppliers. The allocation of licenses in a cartel system should not devolve into an extension of the state macro-economic planning process, where an imbalance between quota and capacity will undoubtedly lead to inefficiencies and black market behaviors which are antithical to a transparent, high-quality supply chain driven by voluntary, rather than coercive commercial behaviors.
The issue of cost and capacity are central to the deliberation over quality assurance. Regardless of the regime, consumers will pay for increasing capacity to provide effective oversight by regulators, whether it comes in the form of higher taxes, duties or fee-for-service levies on specific consignments entering the country. Likewise, the cost of encouraging safe practices by farmers and processors in exporting nations, including China, will be affected by pricing mechanisms and the willingness of buyers to take greater responsibility in managing their supply chains and paying reasonable prices for quality products. Technology provides some solutions, such as RFID tracking, but the market is likely to determine that the value added by some technologies is not equal to the cost.
Regardless of the balance of technology and process in the strategy that is ultimately developed, transparency will be a critical factor in the regime’s long-term success. Most Chinese government processes are exceedingly opaque, particularly compared to US systems. A lack of transparency enables local protectionism, inconsistent application of rules and generally undermines trust. For instance, a licensing process, as well as the maintenance of “black lists” will need to be a collaborative effort. While potentially cumbersome, a transparent and collaborative process of determining which companies are able to export specific products has political ramifications for both sides. Ensuring enough exporters have access to the US market is a political priority for the Chinese side, while accessibility of the process and reliability of the exporters is a necessity for the US side. Achieving a level of transparency that is satisfactory to US regulators will likely be a challenge. Conflicting political interests and a culture of secrecy within the government will work against efforts to establish a collaborative and transparent system. That said, the central government has made dramatic strides to increase transparency over the past 10 years, including the naming of ministerial spokespersons and creation of government websites at national, provincial and county levels. “Pushing” the notion of transparency, particularly with outsiders, on provincial, prefectural and county governments will be a major challenge for Beijing. However, gaining privileged, and therefore profitable access to the US market is a compelling incentive for local-level authorities to cooperate with the central government and US agencies in a better managed export regime.
Unfortunately, there is the conspicuous lack of an effective non-governmental capacity in China to facilitate the establishment and maintenance of an effective export safety regime in China. Public-Private Partnerships (PPPs) can potentially contribute to improving manufacturing safety in China in the future. Broadly defined, a PPP is an enterprise combining government and private sector inputs to deliver a public good. The National Council for Public Private Partnerships defines a PPP more narrowly:
A Public-Private Partnership is a contractual agreement between a public agency (federal, state or local) and a private sector entity. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public. In addition to the sharing of resources, each party shares in the risks and rewards potential in the delivery of the service and/or facility.
[ii]
The Chinese government is more focused on generating revenue and ensuring economic growth at the expense of delivering public goods effectively and efficiently. The poor performance of the Chinese healthcare system and the inability of the government to control environmental degradation are a case in point. As the government takes stern measures to “rectify” the export safety problem, an opportunity exists for the Chinese government to increase its capacity, increase transparency and engender greater “buy-in” from farmers, manufacturers and importers abroad. Strengthened PPPs, or industry associations can play a greater role in developing new laws and scientific standards, as well as helping members adhere to new and higher standards. Furthermore, PPPs or expanded government contracting can quickly build government’s oversight capacity, such as employing private sector laboratories or universities to carry out third-party testing, training or certification programs. The US can help China achieve greater participation of civil society in China by fostering and encouraging exchanges between universities, industry associations and even encourage Chinese corporations to join certain US associations, enabling them to better understand the benefits and services that representative associations provide. Greater representation in policymaking processes and improved technical support provided by civil society involvement will increase “buy in” amongst farmers and food processors, further ensuring that they will adhere to accepted and established quality standards.
While the challenges to establishing a safe food, drug and consumer product manufacturing environment in China are many, there are reasons to be optimistic. The Chinese government has expressed their concern about the situation and by all accounts is addressing the issue aggressively. Both the US and China have very different cultures and approaches to regulating markets which will undoubtedly make the negotiating process towards establishing an equitable and effective system arduous at best. Hopefully, the integrity of a future system will not be undermined by excessive compromises made in pursuit of an agreement.
Collaboration between US and Chinese regulators is vital and should continue as part of a regular product safety agenda. The collaboration process builds trust, particularly from the Chinese perspective, which enables progress to be made towards establishing a functioning regime which achieves the ultimate objective of ensuring that only safe products enter international trade. That trust, and successful engagement with Central government officials will need to be followed up with provincial level engagement. Thankfully, food and product safety is a mutual, core interest that is shared by both the US and China, ensuring that officials from both sides will adapt to a changing global economy and establish an appropriate and effective food and product safety regime that ultimately protects the interests of Chinese exporters and US consumers.
[i] “Wu Yi Zai Quanguo Chanpin Zhiliang Shipin Anquan Zhuan Xiang Zhengzhi Hui Shang de Jianghua,” [Wu Yi Address to National Food Quality Rectification Meeting], August 23, 2007,
http://www.gov.cn/ldhd/2007-08/24/content_726932.htm. Original Chinese text: 要按照“谁主管、谁负责”的原则，把发现和消除质量安全隐患的责任落实到每个相关部门、每个地区、每个县、每个乡镇、每个街道、每个社区、每个企业和店铺。 要严格责任追究制度。
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