Chinese wheat subsidies called clear trade violation

China continues to flagrantly violate its World Trade Organization obligations, says U.S. Wheat Associates.

The Chinese government set its 2017 state wheat purchase price at 2,360 yuan per tonne last week, which is unchanged from the previous two years.

That amounts to $349 US per tonne or $9.50 per bushel, which is about double what North American growers are paid for various classes of wheat.

“These subsidies are the biggest distortion that we face in global markets,” said Dalton Henry, vice-president of policy with U.S. Wheat Associates (USW).

The U.S. has launched a WTO trade challenge against China for violating its WTO obligations.

China committed to provide grain subsidies no greater than 8.5 percent of the value of production when it joined the WTO in 2001.

The Office of the U.S. Trade Representative estimates China is exceeding that commitment by $100 billion a year through its exorbitant wheat, corn and rice subsidies.

The goal of the WTO challenge is to stop that practice.

“The hope would be that it leads to a reform in those policies to something that is less trade-distorting,” said Henry.

The subsidies are leading to a massive government stockpile of wheat that is weighing down global wheat prices. 

The U.S. Department of Agriculture estimates China will be sitting on 111 million tonnes of the crop by the end of 2016-17, or 44 percent of global stocks. 

“If those policies go unchecked, that’s a problem that is only going to continue to get worse,” said Henry.

China is expected to import 3.5 million tonnes of good quality wheat for blending in 2016-17. An Iowa State University study commissioned by USW believes that volume would rise to 9.6 million tonnes per year if China removed its wheat support.

Adding six million tonnes of annual global wheat demand would have a profound effect on prices, said Henry.

The study determined that China’s wheat subsidy is costing exporters more than $3 billion a year, including $653 million in the U.S. and $252 million in Canada.

“This isn’t an issue that just affects the U.S., it affects all world wheat exporters,” he said.

The WTO challenge was launched Sept. 13 with a request for consultations, which lasts 60 days.

The next step is for the U.S. to request the establishment of a dispute settlement panel. Other countries can join the WTO challenge at that stage in the process. USW would like Canada and other exporting nations to become co-complainants. 

“It’s a perfect example of ways we can work together even though we may be competitors in most international forums,” said Henry.

He anticipates a decision from the WTO in 12 to 18 months, which is pretty quick for this type of case. There are not a lot of other agricultural cases before the WTO, and there has already been plenty of back-and-forth on the topic.


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