A World Trade Organization dispute settlement panel found that China has administered its tariff-rate quotas for wheat, corn, and rice inconsistently with its WTO commitments. Contrary to those commitments, China’s TRQ administration is not transparent, predictable, or fair, and it ultimately inhibits TRQs from filling, denying U.S. farmers access to China’s market for grain, The WTO announced today (April 18).
This panel report is the second significant victory for U.S. agriculture this year, and, together with the victory against China’s excessive domestic support for grains, will help American farmers compete on a more level playing field, U.S. Trade Representative Robert Lighthizer and Secretary of Agriculture Sonny Perdue said.
“This second important victory for the United States further demonstrates that President Trump will take all steps necessary to enforce trade rules and to ensure free and fair trade for U.S. farmers. The administration will continue to press China to promptly come into compliance with its WTO obligations,” Lighthizer said.
China’s grain TRQs have annually underfilled. USDA estimates that if China’s TRQs had been fully used, it would have imported as much as $3.5 billion worth of corn, wheat and rice in 2015 alone.
“Making sure our trading partners play by the rules is vital to providing our farmers the opportunity to export high-quality, American-grown products to the world,” Perdue said. “Today’s announcement is another victory for American farmers and fairness in the global trade system. We will use every tool available to gain meaningful market access opportunities for U.S. grains and other agricultural products.”
This decision follows a seperate ruling in late February that determined China provides excessive domestic price supports in excess of its WTO commitments.
“With these decisions, we call on the Chinese government to come into compliance with the rules it accepted when it joined the WTO,” said U.S. Wheat Associates President Vince Peterson. “The world now sees that their policies stifle market-driven wheat trade, block export opportunities and force private sector buyers and consumers to pay more than they should for milling wheat and wheat-based foods.”
China’s wheat TRQ was established in its WTO membership agreement in 2001. Under that agreement, China may initially allocate 90% of the TRQ to government buyers, or state trading enterprises, with only 10% reserved for private sector importers. The private sector typically imports its full portion due to growing demand for 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 just 25%. 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.
Considering that China’s domestic wheat prices are significantly more than the landed cost of U.S. wheat imported from the Pacific Northwest, Peterson said the TRQ should be fully used if the system were operating fairly, transparently and predictably as the rules intend.
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 about 50% of the world’s wheat supplies. If China met its 9.64 MMT wheat TRQ, 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 more of the types of wheat they need, but cannot now obtain, and the benefits would be passed on to China’s consumers.
Upon accession to the WTO, China made commitments specific to its administration of TRQs, including the commitment to administer its TRQs in a transparent, predictable, and fair basis, using clearly specified administrative procedures and requirements that do not inhibit the filling of each TRQ. In August 2017, the United States requested that the WTO establish a dispute settlement panel to consider whether China administers its TRQs for long-grain rice, short- and medium-grain rice, wheat, and corn in a manner inconsistent with its WTO commitments.
Today’s panel report agrees with the United States that China administers its TRQs in a manner inconsistent with its Accession Protocol obligations, through its eligibility criteria, allocation and reallocation procedures, public comment process, and processing restrictions. In addition, China allocates a significant portion of each TRQ to a designated state-trading enterprise and does not subject the state-trading enterprise to the same rules applied to non-state trading enterprises applying for and importing grains under the TRQs. Each finding individually established that China’s TRQ measures are inconsistent with its obligations.
Compliance with WTO rules will lead to market-oriented TRQ administration and improved access for U.S. and other exporters, overall creating a more level playing field.