The U.S. cotton industry is applauding the Obama administration’s decision to file a WTO trade enforcement action against the People’s Republic of China’s rice, wheat and corn price support programs.
Industry leaders say a similar action should be taken against China’s excessive support programs for cotton farmers, which they argue have contributed to a one-third reduction in U.S. cotton acreage since 2011. But the government shouldn’t stop there, they say.
U.S. cotton is no stranger to WTO trade enforcement actions having been on the receiving end of a complaint that resulted in the awarding of millions of dollars in damages to Brazil. But China’s target price program, reserve stocks policy and import quota administration have caused far greater disruption of the world cotton market than U.S. policies.
It’s China’s synthetic fiber subsidies, however, that are currently causing even more stress in the world fiber markets than its cotton support programs, according to Gary Adams, president and CEO of the National Cotton Council of America.
“Global synthetic fiber production capacity is three times the level of world cotton production,” he said. “With U.S. cotton area down almost one-third since 2011 and the fundamental changes in the safety net included in the 2014 farm bill, an honest critique of the global cotton market must include cotton policies in the developing world as well as subsidies provided to synthetic fibers.”
Cotton only commodity with mechanism
Dr. Adams noted that through the semi-annual dedicated discussions established by the WTO in December 2013, cotton is the only agricultural commodity with an explicit mechanism that allows for the multilateral evaluation of domestic support, export subsidies and market access.
“These discussions provide the venue to scrutinize and question China’s cotton target price program, reserve stocks policy and import quota administration, along with support prices and fertilizer subsidies in countries such as India,” he said. “However, to identify and understand all of the factors affecting global cotton markets, a thorough and comprehensive examination of all policies affecting global fiber production and trade – including synthetics – is required.”
The NCC appreciates the “strong, ongoing efforts of the United States government in questioning the practices and programs in other countries but more transparency is needed as key countries such as India, China and Pakistan have failed to meet their obligations of timely notifications to the WTO.”
In a press conference announcing the trade enforcement action against Chinese rice, wheat and corn support on Tuesday (Sept. 13), officials said China’s use of “market price support” for the three key crops has been in excess of its commitment of no more than 8.5 percent of market value under World Trade Organization rules.
They said China’s “market price support” for these products is estimated to be nearly $100 billion in excess of the levels China committed to during its accession to the WTO. The excessive support for rice, wheat, and corn inflates Chinese prices above market levels, creating artificial government incentives for Chinese farmers to increase production.
‘Undercut American farmers’
“These programs distort Chinese prices, undercut American farmers, and clearly break the limits China committed to when they joined the WTO,” said U.S. Trade Representative Michael Froman, speaking at the press briefing.
“As this administration has consistently and repeatedly shown, we will not stand by when our trading partners fail to follow the rules like everyone else. We will aggressively pursue this challenge on behalf of American farmers and hold the Chinese government accountable to the standards of fair global trade.”
“Through tariff cuts and the removal of other trade barriers, China has gone from a $2-billion-a-year market for U.S. agricultural products to a $20-billion-plus market," said Agriculture Secretary Tom Vilsack. "But we could be doing much better, particularly if our grain exports could compete in China on a level playing field.
“Unfortunately, China's price supports have encouraged wheat, corn and rice production in China that has displaced imports. When China joined the WTO, it committed to limit this kind of trade-distorting support, which it has failed to do. This has resulted in significant losses to American producers. We see substantial opportunities to meet import demand for grains in China if China is willing to operate a WTO-consistent trade regime.”
The trade enforcement action marks the 14th complaint brought by the Office of the United States Trade Representative against China at the WTO since 2009 and the 23rd such complaint against all countries, said Froman. The U.S. has won in all 23 cases.
“It demonstrates the Obama administration's ongoing commitment to ensuring China abides by its WTO obligations, and to strictly enforcing the trade agreements that protect the interests of American farmers, workers, and businesses,” he said. “The administration has taken, and will continue to take, all steps necessary to ensure American farmers, workers, and businesses can compete and win on a level playing field in the global economy.”
Members of the House and Senate Agriculture Committees and other members of Congress also participated in the briefing.
“Eliminating barriers to trade, and gaining access to new markets is critical for our producers. But, those efforts will go without reward if the existing trade rules are not enforced,” said Kansas Sen. Pat Roberts, chairman of the Senate Agriculture Committee. "U.S. producers know the importance of sticking to their commitments, and they have experienced first-hand the harm caused to the agriculture industry by countries that don't follow the rules.”
“In today's global economy, we need to hold countries like China accountable for anti-competitive trade practices that hurt American farmers and businesses," said Senator Debbie Stabenow, ranking member of the Ag Committee. “I applaud U.S. Trade Representative Michael Froman and Secretary of Agriculture Tom Vilsack for working with the WTO to bring this case forward.”
“Not only does China refuse to abide by the commitments it made in joining the WTO, it attempts to obscure its illegal actions by consistently failing to even report on the support it is providing to its farmers," said House Agriculture Committee Chairman K. Michael Conaway.
Enforcement action ‘past due’
“The actions of the Chinese government-and increasingly those of other advanced developing countries-are having a detrimental impact on America's farmers and ranchers. While enforcement action is long past due, I applaud the Administration for taking action on behalf of our nation's corn, rice, and wheat producers.”
“America's farmers are ready and able to compete in a global marketplace but can't do so without a level playing field," said House Agriculture Committee Ranking Member Collin Peterson. "The United States has a responsibility to hold other countries accountable when they fail to honor their WTO commitments, resulting in lost opportunities for American farmers.”
Other commodity organizations also weighed in with statements applauding the trade enforcement action and calling on the Chinese government to honor its World Trade Organization commitments.
One of the strongest statements was issued by the National Association of Wheat Growers and U.S. Wheat Associates which noted they and other industry partners had spent five years analyzing how China’s domestic support policies hurt U.S. farmers.
These programs cost U.S. wheat farmers between $650 and $700 million annually in lost income by pre-empting export opportunity and suppressing global prices, according to a 2016 Iowa State University study sponsored by USW. That loss estimate is actually 19 percent more than the losses estimated by a similar 2015 study due to the effect of increasing global stocks and resulting market price decline.
“Wheat production subsidies in China and other advanced developing countries are the single biggest policy issue affecting our farm gate prices and global trade flows,” said USW President Alan Tracy. “In taking this step, USTR and USDA are demonstrating that trade enforcement can ensure that our many trade agreements and a pro-trade agenda really work for American farmers.”
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