The U.S. Trade Representative has taken two more steps in the long, laborious process of trying to persuade the People’s Republic of China to abide by the rules of the WTO on the levels of support it can provide for wheat, corn and rice and on imports of those crops.
The USTR requested the formation of a World Trade Organization dispute settlement panel to hear arguments on why China should reduce those levels of support. It also challenged the way China administers tariff rate quotas for grain imports.
Although China’s internal prices for wheat, corn and rice are significantly higher than world prices, the USTR and U.S. commodity organizations say China’s administering of the tariff rate quotas is so unreasonable that U.S. and other exporting countries with lower prices are unable to make full use of the TRQs.
“China’s TRQ policies breach their WTO commitments and limit opportunities for U.S. farmers to export competitively priced, high-quality grains to customers in China,” said United States Trade Representative Michael Froman. “The United States will aggressively pursue this challenge on behalf of American rice, wheat, and corn farmers.”
USDA’s Economics Research Service estimates China’s TRQs for these commodities were worth over $7 billion in 2015. If the TRQs had been fully used, China would have imported as much as $3.5 billion worth of additional crops last year alone.
WTO accession agreement
“Real access under tariff-rate quotas is vital to global trade and to providing our farmers and ranchers the opportunity to export high-quality, American-grown products to the world,” said Agriculture Secretary Tom Vilsack. “Although China has become a significant market for our grain exports, we could be doing much better than we are today.
“When China joined the WTO, it committed to implementing an agriculture regime that would facilitate market access consistent with international obligations. However, China has frustrated exporters through generous price support and unjustified market restrictions, said Vilsack.”
Some analysts believe China now has corn reserves 10 times the size of what it needs because of its price supports for corn. USTR filed a complaint in September, noting China’s market price support for all three of those commodities was $100 billion in excess of its WTO commitments.
“Taking action against grain price supports was one piece of the puzzle, and now we must confront China’s improper administration of its TRQs to ensure that our grains have the meaningful market access that China bound itself to as a member of the WTO,” said Vilsack. “Today’s announcement is another step towards advocating for fairness in the global trading system on behalf of American farmers.”
Members of Congress and leaders of the organizations representing those commodities applauded the USTR’s actions.
Actions against India and Thailand?
“China continues to ignore the commitments it made in joining the WTO,” said Rep. Mike Conaway, chairman of the House Agriculture Committee. “Not only is China unfairly subsidizing its producers to the detriment of American farmers, they are also refusing to provide the market access they promised.”
“Earlier this year, the U.S. requested consultations with China at the WTO on the very high levels of China's domestic support for corn, wheat and rice producers, but the results were unsatisfactory,” said Betsy Ward, USA Rice CEO and president. “The next step in the WTO dispute process is requesting a panel to hear the arguments, and we've now done that.”
Ward said it could take as many as two or three months to set up a panel, and that a report from that panel could take another 10 months. “We knew from the outset this was a long process, which is why keeping things moving forward is important.”
Ward said China provides import licenses under the TRQs contrary to several of China's WTO commitments and in a manner that effectively acts as import restrictions prohibiting the fulfillment of these TRQs.
“While the United States cannot yet ship under China’s large rice TRQ, this case will be precedent-setting,” Ward said. “We support efforts to have China administer these TRQs in a transparent manner that allows trade to occur, looking ahead to the day when the U.S.-China rice phytosanitary protocol is finally signed, and we are shipping rice to this important market.”
USA Rice is also pressing the administration to broaden enforcement action against other WTO members, like India and Thailand, whose domestic support levels for rice are inconsistent with WTO rules and have resulted in large increases in production, stocks, and exports that harm U.S. rice producers and exporters, Ward said.
'Thumbing its nose'
While any action against China brings the risk of a trade war in the current environment, some members of Congress apparently have had enough of the Chinese government’s lack of transparency in its TRQs and exorbitant farm subsidy programs for grains and for cotton.
“Over the course of the past two years, the House Agriculture Committee has held extensive hearings concerning the predatory trade practices of foreign countries which employ enormous subsidies, high tariffs, and non-tariff trade practices to advantage their agricultural sectors in violation of their own trade commitments to the harm of U.S. farm and ranch families,” said Conaway.
“Among the most notorious is China, which can always be relied upon to thumb its nose at the rules the United States always plays by, with China exceeding its subsidy commitments by $100 billion in a single year on just three crops—corn, wheat, and rice. Put in perspective, this is more than the U.S. will legally provide as a safety net—including insurance—for more than 100 crops for the entire life of the five-year Farm Bill.”
“As with its price support case, the USTR is shining a light on other policies that pre-empt market driven wheat trade, stifle our export opportunities and force private sector buyers and Chinese consumers to pay far more for milling wheat and wheat-based foods,” said U.S. Wheat Associates President Alan Tracy.
“The facts in these two cases go hand-in-hand, demonstrating how Chinese government policies create an unfair advantage for domestic wheat production,” said Gordon Stoner, president of National Association of Wheat Growers and a wheat farmer from Outlook, Mont. “Both actions call attention to the fact that when all countries follow the rules, a pro-trade agenda and trade agreements work for U.S. wheat farmers and their customers.”
90 percent to domestic producers
China’s wheat TRQ was established in its WTO membership agreement in 2001, NAWG officials said. Under that agreement, China is allowed to initially allocate 90 percent of the TRQ to be imported through government buyers, or state trading enterprises, with only 10 percent reserved for private sector importers.
The private sector portion of the TRQ is functioning well enough to be filled in recent years, in part because Chinese millers are trying to meet growing demand for products that require flour from different wheat classes with better milling and baking characteristics than domestically produced wheat provides. However, China's notifications to the WTO on TRQ usage show an average fill rate of only 23 percent.
“When you consider that China’s domestic wheat prices are more than 40 percent higher than the landed cost of U.S. wheat imported from the Pacific Northwest, it would be logical to assume the TRQ would be fully used if the system were operating fairly, transparently and predictably as the rules intend. It is clearly not operating that way,” said Tracy.
The facts also argue against potential claims that enforcing the TRQ agreement would threaten China’s food security. China produces more wheat each year than any other single country and currently holds an estimated 45 percent of the world’s abundant wheat supplies.
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