US Wheat Associates (USW) and the National Association of Wheat Growers (NAWG) have welcomed two trade dispute actions by the US Trade Representative (USTR) challenging Chinese government policies that distort the wheat market and harm wheat growers throughout the rest of the world. USW and NAWG are encouraged to see the US government take such a strong position on trade enforcement, which is crucial for building confidence in existing and new trade agreements.
The USTR filed a request on Dec. 15, 2016, for consultations with the World Trade Organization (WTO), alleging that China is not fairly administering its annual tariff rate quotas (TRQ) for corn, rice and 9.64 million metric tons (MMT) of imported wheat. This request states that China’s TRQ administration unfairly impedes wheat export opportunities. The USTR announced the TRQ action simultaneously with a request that the WTO form a dispute panel in the case it filed in September against China’s excessive market price support for domestic wheat, corn and rice production.
“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 USW President Alan Tracy.
“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. “Both actions call attention to the fact that when all countries follow the rules, a pro-trade agenda and trade agreements work for US 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 percent of the TRQ to be imported through government buyers, or state trading enterprises (STEs), with only 10 percent 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. However, China’s notifications to the WTO on TRQ usage show an average fill rate of only 23 percent.
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.
“When you consider that China’s domestic wheat prices are more than 40 percent 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,” said Tracy. “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.”
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 an estimated 45 percent of the world’s abundant wheat supplies. If China met its 9.64 MMT wheat TRQ, it would move up from number 14 to number 2 on the list of the world’s largest wheat importers, and its farmers would still produce 90 percent of domestically consumed wheat. Opening the wheat TRQ would also allow private sector millers and food producers to import the types of wheat they say they need, but cannot now obtain, and the benefits would be passed on to China’s consumers.
USW and NAWG also applaud the USTR’s request for a dispute panel in its WTO challenge to China’s trade-distorting market price support programs for wheat, corn and rice. It is a crucial step toward reining in a policy that costs U.S. wheat farmers between $650 and $700 million annually in lost income by pre-empting export opportunities and suppressing global prices, according to a 2016 Iowa State University study sponsored by USW.
