WTO rules against China on wheat and rice subsidies

01.03.2019

In a major victory for U.S. farmers, the World Trade Organization ruled on Thursday that China was improperly propping up its wheat and rice farmers by maintaining artificially high prices for their crops.

The ruling by a WTO panel that China had exceeded WTO limits for domestic farm supports brought cheers from U.S. lawmakers, the Trump administration and farm groups.

 “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,” said U.S. Wheat Associates President Vince Peterson.

The Office of the U.S. Trade Representative first filed the complaint against China on Sept. 13, 2016, during the Obama administration, alleging that China’s subsidies distorted world markets and caused billions of dollars in losses every year for U.S. farmers and exporters. President Donald Trump, who has made Chinese trade reform a pillar of his agenda, continued the complaint along with another suit, claiming China has not followed through with promises to fulfill tariff rate quota imports.

The original U.S. complaint included China’s corn subsidies, but the WTO panel did not rule on that portion “on the grounds that the measure at issue had already expired before the initiation of the dispute,” according to a Geneva official.

“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,” USTR Robert Lighthizer said Thursday. “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.”

China just recently opened up its market for the first time to U.S. rice – another promise China made nearly 20 years ago when it joined the WTO – so the country’s price supports had no effect on U.S. rice farmers, but the impact on U.S. wheat was huge, according to a 2016 Iowa State University study.

U.S. wheat exporters lost roughly $700 million in revenue because of China’s domestic support programs that kept the price of Chinese wheat as high as $10 per bushel, spurring Chinese farmers to produce much more than they normally would.

“As a result, the Chinese government has purchased and stored enormous stocks of domestic wheat,” Peterson said, “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 (million metric tons) of wheat that China has not purchased under its WTO TRQ since 2001.”

Perhaps seeing the writing on the wall, China has been reducing its wheat subsidies. China lowered the floor price for wheat this year to $325 per metric ton – about $8.84 per bushel – but that is far from acceptable, said Steve Mercer, a spokesman for the U.S. Wheat Associates.

“Considering the cash offer for HRW wheat in Wichita, Kan., for May delivery is $4.34 per bushel, the new domestic support price in China is still bad,” Mercer said.

Although Lighthizer said he wants China to scrap the subsidies quickly, there’s no guarantee that will happen. He told lawmakers in a House Ways and Means Committee hearing Wednesday that the U.S. is leaning on China to comply as part ongoing talks to end a trade war between the two countries, but the outcome is unclear.

As to China abiding by the WTO ruling, the country could appeal the decision, sending it to an overburdened appellate system. Thanks primarily due to the U.S. blocking new nominees, there are now only three appellate judges in place at the WTO and two of their terms will expire in December. Under normal circumstances there should be seven in place to hear disputes.

China has not indicated if it will appeal the ruling, a USW spokesman tells Agri-Pulse.


Agri-Pulse.com

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