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Since March, China has been rejecting banana imports from the Philippines for not meeting quarantine standards. This may appear as a normal issue in bilateral trade, but one needs to connect the dots to discover the larger political game in the region. China’s announcement regarding rejection of Philippines’ Cavendish bananas came just when the Scarborough skirmish was in the limelight.

The issues
It was reported that scale type insects (Aonidiella comperei) were found in one of the containers, but Chinese quarantine officials claimed to have discovered insects in 43 shipments. China has also rejected mangoes and pineapples from Philippines. With its stricter quarantine controls since earlier this year, so far only 290 out of 1500 containers have entered China, causing a loss of about $23.1 million to Filipino farming community, especially smaller farmers in Mindanao region.  According to the president of the Philippines Banana Growers and Exporters Association (PBGEA), now the growers are forced to sell their produce to Russia and Middle East at a much lesser price of US$1.43-US$2.87 per box than the original price of US$4.78. Exporters say that this is happening for the first time and the government’s advice to explore new markets is an extremely difficult task. Thus, the issue has become a speed breaker in PBGEA’s target to achieving 40 per cent growth this year.

China is the largest importer of Philippines’ bananas, supporting the livelihood of about 200,000 farmers. Exporters have blamed the crisis for souring relations between the two countries and Philippines’ handling of the Scarborough shoal issue. At the same time, the Philippino authorities are sceptical of Chinese quarantine reports, (as the said insect is found in coconuts and not in bananas). Also, China does not conduct 100 per cent inspection on imports from other countries, so far Filipino containers were randomly inspected. Philippines’ quarantine officials claim that they did not find any pests on China-bound bananas. China rejected Philippines’ demand for joint-inspection of Filipino containers at Chinese ports. China in the meanwhile has sought bananas from Ecuador to fill the void, causing worry within the Philippino exporters of losing the Chinese market.

Political economy of the trade
In June, the US announced that it would import bananas from the Philippines as it qualified the required tests. Since 2005, Philippines’ banana exporters were trying to enter the US market, but were stalled for quarantine reasons. The US department of agriculture accepted the phyto-sanitary report from Philippines and has issued an import -risk assessment to them. However, a weekly container to the US cannot remotely match the approximately 800 containers a week to China. To exemplify, although US has authorised mango imports from Philippines since 2001, the latter has not sent a single shipment in last five years because the exports are not competitive. Philippines’ administration has taken swift steps to diversify its export market for bananas in order to avoid a situation like this in future. Yet the official line maintains the importance of Chinese market.

On the other hand, many Philippino economists believe that China’s rejection can cause hiccups in Philippine’s growth, but it cannot cripple the economy. This is because bilateral trade is interdependent and balanced. Economists in Philippines believe than in a scenario of complete sanctions, China would lose a substantial volume of mineral exports from Philippines, on which it is significantly reliant.

Conclusion
China clearly is treating its influential trade relationship with Philippines as a zero-sum game. It is sending a warning to countries in its neighbourhood – that is, their dependency on China as a major export destination and as a major trade partner should not be underestimated while dealing with political issues. Which if required, China can use to bring it’s adversaries on knees. And that seems to work, because Philippines has chosen to deal with the issue as it is, rather than looking at it as a  fallout over Scarborough Shoal dispute.

The government has not been forthright in defending its produce with the fear of antagonising China; the official reaction too has demanded domestic exporters (including small farmers) to match international standards. Obviously, because for its agro-based exports, it cannot afford to replace Chinese market on account of its geographical proximity as well as volume. US allowed the Cavendish bananas to be exported to its market, this may have provided some psychological respite but the move appears symbolic than substantive. Primarily this could be interpreted as US’s self projection as an alternative trading partner to countries of Southeast Asia. Or as a shock-absorber in case China employs trade as an instrument of punitive action. It probably wants to be seen as all round provider and as a driver of growth.

Apparently, there were lapses in maintaining quarantine standards from the Philippines. China therefore may be legally correct over raising quarantine issues. But the question is, that why did this not happen before? Was it remiss deliberately? Is it being done for political reasons? These questions are perhaps feasible but the fact remains that China has pulled the choking chord, raising suspicion on China’s commitment to its ‘good neighbour policy’.