United States Wins WTO Dispute Finding China Provides Excessive Government Support to its Grain Producers

United States Wins WTO Dispute Finding China Provides Excessive Government Support to its Grain Producers
Photo Credit:AgView | Story Source: USDA/USW

U.S. Trade Representative Robert Lighthizer and Secretary of Agriculture Sonny Perdue announced that a World Trade Organization (WTO) dispute settlement panel found that China has provided trade distorting domestic support to its grain producers well in excess of its commitments under WTO rules.  China’s market price support policy artificially raises Chinese prices for grains above market levels, creating incentives for increased Chinese production of agricultural products and reduced imports.

This panel report is a significant victory for U.S. agriculture that will help American farmers compete on a more level playing field.  This dispute is the first to challenge China’s agricultural policies that disregard WTO rules and shows that the United States will take whatever steps are necessary to enforce the rules and ensure free and fair trade for U.S. farmers, ranchers, workers, and businesses.

“The United States proved that China for years provided government support for its grain producers far in excess of the levels China agreed to when it joined the WTO.  China’s excessive support limits opportunities for U.S. farmers to export their world-class products to China.  We expect China to quickly come into compliance with its WTO obligations,” said Ambassador Lighthizer.

“We know that America’s farmers and ranchers thrive in a market-oriented, rules-based global economy.  That means all countries must play by the rules, which is why this finding is so important to U.S. agriculture,” said Secretary Perdue.

 

Background:

In December 2016, USTR requested that the WTO establish a dispute settlement panel to consider whether China provides “market price support” for Indica (long-grain) rice, Japonica (short- and medium-grain) rice, wheat, and corn in excess of China’s domestic support commitments.  Market price support programs are some of the most trade-distorting agricultural policies, and are therefore subject to clear limits under the WTO Agreement on Agriculture and a WTO Member’s specific commitments. 

 

Under WTO rules, China may provide non-exempt support up to the de minimis level of 8.5 percent of the value of total production of a particular commodity, a commitment set out in China’s WTO accession agreement.  

 

The panel report agreed with the United States that China provided domestic support to its agricultural producers in 2012, 2013, 2014, 2015, well in excess of its WTO commitments.  Specifically, the panel found that China had provided support in excess of permitted levels for Indica (long-grain) rice, Japonica (short- and medium-grain) rice, and wheat, in every year.  Each finding individually established that China broke its overall agricultural domestic support commitment for agricultural producers.  For corn, the panel declined to make findings on the support provided to corn in 2012-2015 given that China had apparently changed its program in 2016, just prior to the WTO’s establishment of the panel.   

     

Compliance with WTO rules will lead to a reduction in the excessive support provided to China’s grains producers and should increase market forces in China, leading to a more level playing field.

 

Read more about the United States’ challenge, including additional details about how China’s excessive domestic support to its grain producers breach its WTO commitments.

 

U.S. Wheat Associates (USW) welcomes the ruling  by a World Trade Organization (WTO) dispute panel that Chinese government payments to farmers for wheat exceed China’s aggregate measure of support (AMS) commitments and significantly distort global wheat trade.

 

The panel was formed after the U.S. Trade Representative (USTR) challenged China’s domestic agricultural support programs for wheat, corn and rice through the WTO dispute settlement process in September 2016.  “We are very pleased that the Trump Administration has continued to support this dispute and a second case that challenges China’s administration of the 9.6 million metric ton (MMT) tariff rate quota (TRQ) on imported wheat that its government agreed to when it joined the WTO,” said USW President Vince Peterson. “U.S. farmers have been hurt by China’s overproduction and protectionist measures for too long and it’s past time for China to start living up to its commitments.”

 

According to a 2016 Iowa State University study sponsored by USW, China’s domestic market support price for wheat at the time of almost $10 per bushel cost U.S. wheat farmers between $650 and $700 million annually in lost income by preventing export opportunities and suppressing global prices. As a result, the Chinese government has purchased and stored enormous stocks of domestic wheat. USDA now estimates that by June 2019, China will hold 140 million metric tons of wheat, accounting for 52 percent of global ending stocks. Not coincidentally, this hugely disproportionate stock holding is almost the same as the cumulative 130 MMT of wheat that China has not purchased under its WTO TRQ since 2001. This is a fundamental supply factor that continues to depress market prices. It also hurts Chinese flour millers who are forced to purchase over-priced, low-quality domestic wheat from these stocks, as well as their customers who pay more for the flour.“

 

The past two decades have been a lost opportunity for the WTO negotiating function as major countries like China have refused to take on new responsibilities,” Peterson said. “Perhaps this unfortunate situation will be the wake-up call countries need to realize that restricting trade and unfairly advantaging domestic industries in global markets winds up hurting everyone. Meanwhile, we applaud the use of the WTO dispute settlement and counter notification processes to push back when countries violate rules on agricultural support.”

 

USW’s mission is to “develop, maintain, and expand international markets to enhance the profitability of wheat for U.S. producers and its value for their customers.” USW activities in more than 100 countries are made possible through producer checkoff dollars managed by 17 state wheat commissions and cost-share funding provided by USDA’s Foreign Agricultural Service.