In a separate matter, the USTR also announced it has 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.
“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 USTR Michael Froman. “The United States will aggressively pursue this challenge on behalf of American rice, wheat and corn farmers.”
According to USTR’s analysis, China’s administration of short- and medium-grain rice, long-grain rice, wheat and corn TRQs is not transparent, predictable or fair. The TRQs are necessary to import medium- or short-grain rice, long-grain rice, wheat and corn at lower duty rates. China’s application criteria and procedures are unclear, and China does not provide meaningful information on how it actually administers the tariff-rate quotas.
Despite lower global prices that favor the importation of grains into China, the TRQs for each commodity persistently do not fill, the USTR said. During China’s accession to the WTO, it agreed to permit 2,660,000 tonnes of short- and medium-grain rice, 2,660,000 tonnes of long grain rice, 9,636,000 tonnes of wheat and 7,200,000 tonnes of corn to enter China at lower “in quota” duty rates through its TRQs.
The United States Department of Agriculture (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,” U.S. Secretary of Agriculture Tom Vilsack said. “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. Today’s announcement is another step toward advocating for fairness in the global trading system on behalf of American farmers.”
In September, the USTR launched a WTO challenge on China’s domestic support policies, noting they were 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.
The parties held consultations on Oct. 20 in Geneva, Switzerland. The dispute was not resolved in consultations, and requesting a panel is the next step in the WTO dispute settlement process. The WTO Dispute Settlement Body will consider the U.S. panel request at a meeting scheduled for Dec. 16.
U.S. Wheat Associates (USW) and the National Association of Wheat Growers (NAWG) said they welcomed the two trade dispute actions by the USTR. The groups said they were encouraged to see the U.S. government take such a strong position on trade enforcement.
“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 Alan Tracy, president of USW.
“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, U.S. “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.”
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, USW and NAWG said. However, China's notifications to the WTO on TRQ usage show an average fill rate of only 23%.
“When you consider that China’s domestic wheat prices are more than 40% 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,” Tracy said. “This troublesome administration of China’s wheat TRQ is restraining export opportunities for U.S. wheat farmers and farmers from Canada, Australia and other wheat exporting countries to the detriment of Chinese consumers.”