The Obama Administration has launched its 15th trade enforcement challenge against the Chinese government regarding the country's administration of tariff-rate quotas for rice, wheat and corn.
In a complaint filed Dec. 15 at the World Trade Organization, the Office of the U.S. Trade Representative charges that China's administration of its tariff-rate quotas for rice, wheat and corn breaches its WTO commitments and undermines U.S. farm exports.
Why does that matter?
USDA estimates that China’s TRQs for these commodities were worth more than $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.
“Although China has become a significant market for our grain exports, we could be doing much better than we are today," said Agriculture Secretary Tom Vilsack. "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. 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."
China’s wheat TRQ was established in its WTO membership agreement in 2001. Under that agreement, China is allowed to initially allocate 90% of the TRQ to be imported through government buyers, or state trading enterprises (STEs), with only 10% 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%.
The WTO does not require that TRQs fill every year, but it has established rules regarding transparency and administration that are intended to facilitate the use of TRQs.
China produces more wheat each year than any other single country and holds an estimated 45% of the world’s abundant wheat supplies. If China met its 9.64 MMT wheat TRQ, it would move up from number 14 to number 2 on the list of the world’s largest wheat importers, and its farmers would still produce 90% of domestically consumed wheat. Opening the wheat TRQ would also allow private sector millers and food producers to import the types of wheat they say they need, but cannot now obtain, and the benefits would be passed on to China’s consumers.
What's up with China's domestic price supports?
The U.S. Trade Representative has also requested that the WTO establish a dispute settlement panel to examine China’s level of domestic support for Chinese producers of rice, wheat and corn. USTR launched a WTO challenge on this matter in September 2016, noting that China’s market price support for these commodities was estimated to be nearly $100 billion in excess of its WTO commitments. According to USTR’s analysis, China's domestic support measures and non-transparent TRQ regime work together to distort global markets for wheat, rice and corn. Compliance with WTO rules would lead to a reduction in the domestic support provided to China’s grains producers to bring Chinese production in line with market forces, and improvements to China’s TRQ administration would facilitate market access for U.S. and other exporters of these commodities.
"Today's enforcement action on China's administration of tariff-rate quotas for wheat, corn and rice appears to be yet another example of China's refusal to play by the rules,” said Senator Pat Roberts, chairman of the Senate Committee on Agriculture, Nutrition and Forestry. “I am committed to working with our producers and alongside USDA and USTR as we continue to fight for U.S. farmers' ability to compete in the global market on a level playing field."
"We need to hold China accountable for unfair trade practices that hurt American farmers,” said Senator Debbie Stabenow, ranking member of the Senate Committee on Agriculture, Nutrition and Forestry. “I applaud the USTR for taking steps today to level the playing field so that our businesses can create jobs and compete in the global economy."
What is the industry saying about this effort?
U.S. Wheat Associates (USW) and the National Association of Wheat Growers (NAWG) welcome the two trade dispute actions challenging Chinese government policies that distort the wheat market and harm wheat growers throughout the rest of the world. USW and NAWG are encouraged to see the U.S. government take such a strong position on trade enforcement, which is crucial for building confidence in existing and new trade agreements.
“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 USW 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 NAWG and a wheat farmer from Outlook, Montana. “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.”