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By Ben Conner, USW Vice President of Policy

It has been my pleasure these past four years to contribute content to this newsletter but, unfortunately, all good things must come to an end, as this will be my last Wheat Letter article as a U.S. Wheat Associates (USW) colleague. I am grateful especially to the half dozen (or so) regular readers of my articles. You may not like agricultural trade policy as much as I do, but it is a critically important part of this industry so thank you for working to understand it.

There are several issues I could have chosen to write about for this final article, but during my tenure at USW there has been no market as affected by trade policy issues as China. One of the first trips I took for USW was to Geneva, Switzerland, and the World Trade Organization (WTO) in 2015. I was there to discuss the market distortions caused by China’s domestic support policies, an issue first identified and pursued by my predecessors at USW. Coupled with those policies was an approach to tariff rate quota (TRQ) administration that had — to that point — dashed our hopes of China becoming the world’s largest importer of high-quality wheat (the TRQ quantity is for 9.636 million metric tons).

More recently, the trade friction between the United States and China has stopped virtually all imports of U.S. wheat in China. The additional 25 percent tariff on U.S. wheat imposed in response to U.S. tariffs has proven to be prohibitive. A market that could now be among our top import markets with steady demand of more than a million metric tons per year was reduced to practically nothing. As I noted before, trade policy matters to farmers and importers alike.

However, USW has always taken a long-term view and our trade policy goals with China are no exception. We encouraged the U.S. government to launch the domestic support and TRQ trade cases not due to any animus towards China, but because we want to be closer trading partners. What was holding us back were policies that are not consistent with WTO rules, a fact confirmed again in the TRQ case by the WTO dispute panel.

The WTO panel determined that China administered its wheat TRQ in a way that was not “transparent, predictable, and fair” using “clearly specified administrative procedures.” The panel sided with the United States on most of its arguments, and came to the following conclusions:

  • Basic eligibility criteria – It is not clear from China’s regulations what would qualify an entity to receive quota allocation for wheat. China admitted to the panel that it relies on the entity not being placed on the Credit China blacklist, rather than the published eligibility criteria, but this is not made clear to applicants.
  • Allocation principles – In determining how China allocates the TRQ, the panel found a disparity between its written principles and practice. TRQ quantities are allocated based on actual import performance, which supersedes all other factors, though China does not make this practice clear to applicants.
  • Reallocation procedures – China has two conflicting measure on reallocation, with one document setting out a first-come, first-serve method for reallocation, but a separate document referencing other allocation principles.
  • Public comment process – China accepts public comments on the TRQ allocation process, but it is not clear at all how these comments are used, and so China fails to meet its obligations to administer TRQs transparently and through clearly specified procedures.
  • Administration of STE and non-STE portions – 90 percent of China’s wheat TRQ allocation goes to state trading enterprises (STEs), i.e. COFCO. If a private entity does not use its TRQ allocation, it must return it to NDRC, but if COFCO doesn’t import 90 percent of the TRQ (it never has) there is no requirement to return unused quota. The panel found that COFCO’s unused quota should be returned and reallocated – so in 2018 COFCO should have returned 6.8 million metric tons (MMT) that could have been reallocated to non-STE end users.
  • Usage requirements – China also inhibits the filling of TRQs by requiring recipients to process in the mill specified in the application or be subject to penalty if the wheat was moved to another mill or sold to another company irrespective of commercial conditions. The panel’s view is that this would cause users to be overly cautious in their applications and import less than they would otherwise.

Bringing these and other policies discussed by the panel policies into compliance and removing retaliatory tariffs should allow China to grow into one of the largest and most consistent markets for U.S. wheat, increasing the availability of high-quality products provided by China’s food processing sector. This is the objective that USW will continue working towards long after I have handed the organization’s policy responsibilities to someone else and, more importantly, long after the trade tensions between our countries subside.

[Editor’s Note: Ben Conner is leaving USW to join DTB Associates, a Washington, D.C., firm providing consulting, legal and business services in trade, agricultural policy and legislation.]

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It is certainly true that the trade relations between the United States and China are in a difficult place. With the latest round of tariff increases announced and imposed, it is certainly possible to imagine that this conflict will not end soon. But we must all remember that negotiations are happening, and reworking the trading relationship between the two largest economies in history was never going to be easy.

In the meantime, U.S. Wheat Associates (USW) stands firmly by the following article by USW President Vince Peterson, “In Spite of Trade Conflicts, U.S. Wheat Farmers Will Not Abandon Customers in China,” published in “Wheat Letter” nine months ago.

USW remains engaged in keeping our once and future customers in China informed about the quality, variety and value of U.S. wheat in anticipation of future opportunities. Upcoming work includes a short course on contracting for wheat value, baking demonstrations in cooperation with the USDA’s Foreign Agricultural Service trade office in Beijing, and additional technical milling support activities in China. The commitment to service there will continue long after this trade conflict has ended. 

In Spite of Trade Conflicts, U.S. Wheat Farmers Will Not Abandon Customers in China

By Vince Peterson, USW President. Originally published August 21, 2018.

Chinese Vice Minister of Agriculture Han Jun recently acknowledged the decades of work that U.S. farmers have put into growing the Chinese market for U.S agriculture. He then warned that this market may never come back to where it was if the trade dispute with the United States continues much longer.

We can guarantee the Vice Minister, and the wheat food industry in China, that U.S. Wheat Associates (USW) and the farmers we represent will not turn our backs on our outstanding customers in China. We remain dedicated to our core mission in China, as we are everywhere in the world, to bring profitability and value to our customers even if that is temporarily more difficult today.

Presumably, Chinese leaders believe that U.S. farmers can persuade the Trump Administration to end this trade war with China. However, U.S. farmers have been clear with their own government that China’s predictable response to the conflict has harmed them and we have supported negotiations to resolve this conflict. While we agree that escalating rounds of tariffs are a bad idea, we also believe that many of the U.S. government complaints about China’s policies are valid.

In our experience, state disruption of the wheat trade has been an enormous problem, severely limiting opportunities and profitability for both U.S. farmers and our wheat food industry customers in China. Through opaque administration of its wheat tariff rate quota (TRQ), China has deprived its flour mills of an average of 6.5 MMT of imported wheat annually over the past decade. In fact, recent import volumes are still well below what China imported in the 1980s and early 1990s; that is, before it joined the World Trade Organization (WTO). One could be forgiven for thinking China was a more promising market before joining the WTO than after; almost entirely because of excessive subsidies to the domestic wheat crop in recent years, as well as tight limits on TRQ access. This is why the U.S. government, under the Obama Administration, initiated two WTO cases on these issues in the fall of 2016. The prosecution of those cases has been continued and pressed forward by the Trump Administration. We are highly supportive of this action.

The Chinese government should recognize that its many years of flouting international commitments and highly interventionist “state capitalism” have led directly to the present conflict. If China had lived up to the commitments made when it joined the WTO, it is highly doubtful that we would still find ourselves in this situation. If Chinese leaders want to avoid further conflict and bolster the international trading system that they claim to defend, China can first start behaving like a responsible economy and adhere to its trade commitments in both letter and spirit. Of course, we are urging the same from the United States, which must also approach China with clear demands and a path towards achieving them.

Nevertheless, we are confident that this trade confrontation will one day be resolved. In the meantime, we will continue to reach out to our customers and friends in China, to reassure them of our unfailing dedication to our work with them. Further, we will make the guarantee that, once this trade dispute is resolved and behind us, we will work harder than ever to continue earning their business as we chart a path, together, to build the commercial channels that hold so much promise for Chinese and American industries and people.

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By Ben Conner, USW Vice President of Policy

On February 19, 2019, the World Trade Organization (WTO) released the final report of the panel in the U.S. case alleging that China has not complied with its domestic support commitments on wheat and rice. While the panel disagreed with a few arguments, it agreed with the accusation that China was far out of compliance due to the operation of the market price support (MPS) program for certain commodities.

U.S. Wheat Associates (USW) believes it is important for its overseas customers and the farmers it represents to better understand why the United States brought this case to the WTO and how the panel reached its conclusion.

Most countries with sizable agriculture sectors provide some domestic support (subsidies or safety net programs) for farmers. The countries that negotiated the WTO Agreement on Agriculture (AoA) established disciplines for domestic support because they had experienced the price suppressing effects of foreign or, in some cases, domestic agricultural subsidies. The WTO members agreed to set limits on the types of support that could impact farmer’s production decisions and, thus, distort trade. A government subsidy that incentivizes the farmer to plant more wheat than barley is one example. On a large enough scale (such as across a country), that additional production can significantly suppress wheat prices for other wheat farmers who are not eligible for these subsidies.

Developed countries like the United States, Japan, and European states provided most agricultural subsidies at the time the AoA was negotiated. Over time, these countries either reformed their programs or have stayed within their limits. However, within the past decade, trade distorting domestic support has shifted significantly to developing countries, with China and India leading the way. Those countries are, in many cases, far out of compliance with their WTO commitments.

The U.S. government recognized that if any countries are allowed to flout WTO rules consistently, the incentive for others to follow the rules collapses. It also kills the potential for productive negotiations, since negotiating partners must be convinced that others will uphold their end of the bargain. Therefore, in 2016, the U.S. launched this case against China both to address the particular concerns in China and to demonstrate that the rules apply to all countries (Australia, Brazil, and Guatemala recently launched similar cases against India over its support for sugar production).

In the China domestic support case, the U.S. legal team chose to focus specifically on a measure called market price support (MPS) to demonstrate that China had breached its commitment on aggregate measurement of support (AMS). MPS sets a commodity’s floor price at which a farmer can sell to a government buyer instead of to a private buyer. This keeps internal prices artificially high and signals farmers to produce more of the supported commodity.

The AoA has a specific formula to calculate how MPS contributes to AMS: the quantity of eligible production multiplied by the difference between the annual support price and a fixed reference price established in the AoA. This was a legal case, so there were arguments about everything, but the most important question was what constitutes eligible production.

China’s argument was that eligible production is only the amount procured by the government. But the panel agreed with the United States, saying eligible production is the “amount of product which qualifies to be purchased from producers,” not the amount that is, in fact, purchased. The only limitations in Chinese rules were that the price supports only applied in six provinces (covering approximately 80 percent of production) and to wheat that met basic quality standards (99 percent of production in those provinces). In 2015, this was 103 MMT out of the 130 MMT produced. In its notification to the WTO for that year, China claimed only 21 MMT. Under that notification, China claimed it was complying; under the panel’s methodology, this quantity put China far out of compliance.

The 2015 support price was 2360 renminbi (RMB) per metric ton (MT) and the panel confirmed that the fixed reference price was 1698 RMB/MT. The difference between the two times the 103 MMT of eligible production equals 68 billion RMB, or 22.4 percent of the value of production. Since China’s WTO limit is 8.5 percent, China’s AMS for wheat in 2015 was nearly triple its allowed limit. This AMS figure only accounts for MPS – the panel did not review a suite of other subsidies available to Chinese wheat farmers that would likely increase the size of China’s AMS violation. The panel made a similar finding for rice and did not make calculations for corn due to technical reasons.

The United States and other countries have been arguing for years that China has a responsibility to bring its programs into compliance so that its farm production decisions are no longer based on artificial price signals or other incentives that violate China’s WTO commitments.

Now they – and thousands of wheat farmers outside China – have a WTO panel decision to back them up.

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By Ben Conner, USW Vice President of Policy

If there is anything we learned from 2018, it is that the trade policy landscape is unpredictable. While many upcoming or ongoing issues are known, there are a range of possible outcomes within each, some of which could drastically alter the trade landscape in the future.

Let us start with China. This week, U.S. and Chinese negotiators met in Beijing to work toward resolving the current trade dispute, which has seen tariffs slapped on over $300 billion in trade. According to the U.S. Trade Representative, there is a hard deadline of Mar. 1 to reach a deal that will at least prevent further imposition of tariffs. U.S. wheat farmers have been shut out of China since March 2018, leaving their Chinese customers scrambling for other sources. The next couple months could reveal if trade will resume this year, or if the conflict will continue.

The United States has also initiated formal processes for trade negotiations with Japan, the European Union, and the United Kingdom (U.S. Wheat Associates will submit comments on the UK negotiations next week). However, there are still a number of unknowns, such as the scope and length of negotiations with Japan, the inclusion of agriculture in negotiations with the EU and the nature of the UK’s post-Brexit relationship with the EU.

The new U.S.-Mexico-Canada Agreement (USMCA) will likely be submitted to Congress this year to replace the North American Free Trade Agreement (NAFTA), but shifting political dynamics in the United States complicate Congressional approval and implementation of the agreement.

There is the threat of new tariffs on automobiles under Section 232 authority, potentially covering hundreds of billions in trade. While this is mitigated somewhat due to side letters negotiated alongside USMCA and the promise to avoid imposing tariffs on Japan and the EU while negotiations are ongoing, declaring automobile imports to be a national security threat has the potential to enrage U.S. trading partners and lead to new retaliatory measures.

Finally, there is the possibility that the World Trade Organization (WTO) Appellate Body will cease to function by December 2019. This is the culmination of over a decade of complaints by the United States about the way the Appellate Body functions. It is important for other countries to engage the United States to find a solution, because if a solution is not reached, it will mean the effective end of the WTO’s dispute settlement function and the ability of countries to enforce trade commitments.

In other words, based on the uncertainty these trade issues represent, we cannot expect 2019 to be less exciting than 2018.

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By Ben Conner, USW Vice President of Policy

U.S. trade policy has been going through a wild ride recently. The current U.S. administration believes that the existing trade architecture is outdated or constricting, and new forms of leverage are needed to achieve its goals. Meanwhile, they have correctly pointed out that some countries seem to interpret trade commitments as rules to ignore until caught, and then to be circumvented. In the words of President Trump, “they have been taking advantage of us.”

In our view, this perspective has a ring of truth but understates the major benefits of international trade institutions to the United States and may have long-term costs. However, using the space such leverage creates has certainly produced results in trade talks, including an updated U.S.-Korea agreement, a completed North American Free Trade Agreement (NAFTA) renegotiation, renewed efforts to address longstanding U.S. complaints at the World Trade Organization (WTO) and agreements to begin negotiations with Japan and the European Union.

This situation has even allowed U.S. Wheat Associates (USW) to make progress on some longstanding issues, so we certainly appreciate the effort to use the tools available in ways that can help U.S. wheat farmers and their customers.

Overall, these tactics have shifted the U.S. role from a bulwark of the global trading system to a major disruptor. The Trump Administration is making a case that the rules-based system has been inadequate in disciplining policies of countries like China that have pursued state-led economic growth at the expense of once-vibrant industries in the United States and elsewhere. Regardless of one’s views on the approach, this case does deserve consideration and new rules will likely be needed to keep the rules-based system relevant.

Of course, we do not know fully what the cost of these tactics will be. The most obvious cost to U.S. wheat farmers is being shut out of the growing Chinese wheat market, uncertainty during the NAFTA negotiations and vulnerability created by the withdrawal from the Trans-Pacific Partnership (TPP). The imposition or threat of unilateral tariff barriers is particularly worrisome and has damaged crucial trade relationships.

USW will continue to question certain approaches that we believe could disrupt the hard-won, mutually beneficial trade between the wheat farmers we represent and their overseas customers. But we will also strongly support the Administration when its approach can help strengthen the international trading system and make trade freer. If that is the ultimate outcome perhaps the ride will have been worth it.

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By Vince Peterson, USW President

Chinese Vice Minister of Agriculture Han Jun recently acknowledged the decades of work that U.S. farmers have put into growing the Chinese market for U.S agriculture. He then warned that this market may never come back to where it was if the trade dispute with the United States continues much longer.

We can guarantee the Vice Minister, and the wheat food industry in China, that U.S. Wheat Associates (USW) and the farmers we represent will not turn our backs on our outstanding customers in China. We remain dedicated to our core mission in China, as we are everywhere in the world, to bring profitability and value to our customers even if that is temporarily more difficult today.

Presumably, Chinese leaders believe that U.S. farmers can persuade the Trump Administration to end this trade war with China. However, U.S. farmers have been clear with their own government that China’s predictable response to the conflict has harmed them and we have supported negotiations to resolve this conflict. While we agree that escalating rounds of tariffs are a bad idea, we also believe that many of the U.S. government complaints about China’s policies are valid.

In our experience, state disruption of the wheat trade has been an enormous problem, severely limiting opportunities and profitability for both U.S. farmers and our wheat food industry customers in China. Through opaque administration of its wheat tariff rate quota (TRQ), China has deprived its flour mills of an average of 6.5 MMT of imported wheat annually over the past decade. In fact, recent import volumes are still well below what China imported in the 1980s and early 1990s; that is, before it joined the World Trade Organization (WTO). One could be forgiven for thinking China was a more promising market before joining the WTO than after; almost entirely because of excessive subsidies to the domestic wheat crop in recent years, as well as tight limits on TRQ access. This is why the U.S. government, under the Obama Administration, initiated two WTO cases on these issues in the fall of 2016. The prosecution of those cases have been continued and pressed forward by the Trump Administration. We are highly supportive of this action.

The Chinese government should recognize that its many years of flouting international commitments and highly interventionist “state capitalism” have led directly to the present conflict. If China had lived up to the commitments made when it joined the WTO, it is highly doubtful that we would still find ourselves in this situation. If Chinese leaders want to avoid further conflict and bolster the international trading system that they claim to defend, China can first start behaving like a responsible economy and adhere to its trade commitments in both letter and spirit. Of course, we are urging the same from the United States, which must also approach China with clear demands and a path towards achieving them.

Nevertheless, we are confident that this trade confrontation will one day be resolved. In the meantime, we will continue to reach out to our customers and friends in China, to reassure them of our unfailing dedication to our work with them. Further, we will make the guarantee that, once this trade dispute is resolved and behind us, we will work harder than ever to continue earning their business as we chart a path, together, to build the commercial channels that hold so much promise for Chinese and American industries and people.

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Overall, U.S. wheat farmers are certain they produce some of the highest quality milling wheat in the world and want to compete on that basis freely and fairly. That desire is being challenged in unique ways right now by trade policies and global reactions that have never been a part of the world wheat market. To express the challenges of these policies on farmers and the rural community, the National Association of Wheat Growers (NAWG) this week arranged for one of their members to testify before the U.S. House of Representatives Ways and Means Committee’s Trade Subcommittee. We want to share that testimony here:

Mr. Chairman and Members of the Committee. My name is Michelle Erickson-Jones and I am the Co-Owner of Gooseneck Land and Cattle from Broadview, Montana. I also currently serve as the President of the Montana Grain Growers Association, am on the Board of Directors of the National Association of Wheat Growers and a member of Farmers for Free Trade. As a fourth generation farmer, it is my honor to testify today on the impacts of tariffs on my farm, my industry and most importantly my community that depends on trade for its livelihood.

American agriculture is a tremendous global marketing success story. We export 50 percent of our wheat and soybeans, 70 percent of fruit nuts, and more than 25 percent of our pork. We are also the top exporter of corn in the world. Exports account for 20 percent of all U.S. farm revenue and we rely on strong commercial relationships in key markets including Canada, Mexico, Japan, the European Union and, of course, China – the second largest market for U.S. agriculture, accounting for nearly $19 billion in exports in 2017. U.S. agriculture exports also support over 1,000,000 American jobs. As such, trade is critically important to the U.S. economy and our rural communities.

Rep. Dave Reichert (R-WA) and Michelle Erickson-Jones.

Farmers across the country depend heavily on the ability to sell our commodities to foreign consumers. We are painfully aware of the prevalence of unfair trading practices used by some countries and we support the Administration’s interest in finding solutions to tariff and non-tariff barriers that impede fair trade. But what I’d like to share with you today are some examples of the impact of tariffs imposed by our own Administration and by the retaliatory tariffs levied by our trading partners. These impacts are felt by farmers such as myself throughout our supply chain, from higher input costs to reduced exports and lower market prices.

In May, I testified at Section 301 hearing at the International Trade Commission. As I said then and believe more strongly than ever now, “while many rural American families are optimistic about economic growth under the current Administration, there is mounting concern among farmers about trade policies that would reduce access to the export markets they depend on.”

There have been very few issues in my career as a farmer that have caused me to lose sleep. But these tariffs are one of them. I’d like to share some of the effects that have directly impacted my farm and family.

The first wave started at the time the Administration imposed tariffs on steel and aluminum. For me and farmers across the country that translates into increased costs of capital investments. For example, earlier this year we priced a new 25,000-bushel grain bin to increase grain storage capacity on our farm. The price was 12 percent higher than an identical bin we had built in 2017.

As we weighed our options, the bid on bin #2 expired, so we sought a second bid. This bid was 8 percent higher than the one we received just a few weeks prior – a 20 percent increase total in the cost of the same steel product in just one year.

The bin company attributed the difference in the final bin cost to a significant increase in their cost of steel. I learned that their domestically sourced steel suppliers had increased their prices to match the price of imported steel which was subject to an additional 25 percent duty when imported. As a result of this dramatic cost increase and volatility in the market, we abandoned our grain storage expansion project. The implications of that decision not only harmed my operation, it also hurt my community: a small local construction company lost a project, a U.S. grain bin company missed a sale, and a domestic steel company had one less shipment to send out of their factory.

Another unexpected outcome is something we are living through right now. Back in January, we built cattle guards for several capital improvement projects we had planned for later in the fall. A neighbor saw the finished product and asked to buy several from us. We agreed because we thought we would be able to utilize the profits for other investments. Last week I priced the steel needed to replace the cattle guards I had sold. To my shock, the price of steel had increased 38 percent – evaporating our profits. To make matters worse, now we will no longer break even on the project.

These scenarios are playing out across the nation, particularly the states that depend on agriculture. These states depend on healthy agricultural commerce for a robust economy. As our profits evaporate and our ability to spend on rural main street businesses or take weekends away decreases, our other top economies, including tourism and manufacturing, are negatively impacted as well.

While one singular example is a small sum of money in the big picture, adding up those small singular examples shows the real and substantial increase to agriculture and rural main street.

There are countless examples in Montana, where last summer, large portions of my state were on fire. Just imagine the cost or replacing fencing or other equipment with prices increasing by double digits – at a time of record low prices for agriculture commodities. The impacts on our input costs coupled with increased market volatility and lower farmgate prices have further reduced our already slim margins. According to the USDA Economic Research Service net farm income is expected to drop to a 12-year low, down 6.7 percent from 2017.

Now allow me to further illustrate the impact of tariffs on our topline – sales – especially in an industry that exports $450 million in wheat to China annually, $65 million of which was from Montana. China is the world’s largest wheat consumer, with a significant trade opportunity in their market. In market year 2016/2017 China was our fourth largest customer, however when China placed a 25 percent retaliatory tariff against U.S. wheat not one new shipment has been purchased from the United States since March, and the last shipment arrived in June.

Wheat growers also understand that China hasn’t been keeping to their trade obligations they agreed to when they joined the WTO (World Trade Organization), and as such the United States has two cases against China for their domestic support programs and their TRQ (tariff rate quota) requirements for wheat, rice and corn. We applaud the Administration for moving forward with these cases and believe this is the proper course of action to hold our trading partners accountable to their trade commitments. We do not, however, support the tariffs which have already hurt many farmers across the United States through both the tariff retaliation and domestic decisions as I have outlined.

For Montana, other commodities are also being hurt. Our producers are already suffering from the 25 percent import tariff on American pork and are bracing for the impacts on beef. Mexico has also targeted these two sectors in response to the steel tariffs.

In addition, these markets that we’ve been growing for decades could be lost to our competitors who do not have tariffs against their products, a fate that could last for years or decades to come. The same can also be said by not seeking or joining new trade agreements, for example when CPTTP (Comprehensive and Progressive Trans-Pacific Partnership) is implemented our Canadian and Australian wheat competitors will gain a price advantage in Japan against U.S. wheat, potentially losing our largest wheat market.

Currently farmers like me are not only struggling to ensure this year’s crop is profitable, but we are also concerned about the long-term impacts to our valuable export markets. For young and beginning farmers like me the stakes are even higher. We are often highly leveraged, just establishing our operations, as well trying to ensure we have access to enough capital to successfully grow our operations. Increased trade tensions and market uncertainty makes our path forward and our hopes to pass the farm on to our sons less clear. I hope to pass my farm to my sons and as such urge you to consider the tolls these tariffs will have on my operation and how it impacts that possibility, and many other family farms, as outlined in my testimony.

Thank you for the opportunity to testify today.

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By Ben Conner, USW Vice President of Policy

Tomorrow, June 15, 2018, marks the next step in the accelerating U.S.-China trade dispute as the Trump Administration plans to reveal its final tariff list on up to $50 billion in Chinese exports. China is expected to retaliate immediately, an outcome that could further erode the incomes of farm families who strongly support addressing the real concerns about China’s trade policies.

In marketing year 2016/17, China was the fourth largest export destination for U.S. wheat. That dropped to eighth in 2017/18, in part because of uncertainty about whether the U.S. would implement tariffs on Chinese goods.

U.S. Wheat Associates is not in the business of ceding a market like China with so much potential for growth. That is why in 2016 we called for World Trade Organization (WTO) cases intended to push China to meet its WTO commitments on domestic support and tariff rate quota management. We are happy that the Trump Administration supports and is pursuing those cases.

USW and the National Association of Wheat Growers know that farmers still want our organizations to keep fighting for fair opportunities to compete in China and other countries. They would prefer, however, to see our government do that within the processes already in place.

On June 1, 2018, USW and 17 other agriculture groups sent a letter to President Trump asking the Administration to continue negotiations to address trade concerns with China, rather than imposing mutually destructive tariffs

At this point it remains unclear what will happen after U.S. tariffs are implemented; but there no doubt that it will be a bumpy ride.

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By Ben Conner, USW Director of Policy

Every year, the USW Wheat Letter features an article on the annual release of the National Trade Estimate (NTE) report by the Office of the U.S. Trade Representative (USTR). While the issues it quantifies do not change rapidly, the latest NTE shows the extent of the problems facing the Trump Administration, which has made trade enforcement a cornerstone of its economic policy.

The NTE is the U.S. government’s most comprehensive report on trade barriers. It covers more than 40 countries or country groupings. In just under 500 pages, it clearly shows that these barriers pose a major challenge for U.S. exporters and investors. Most of the issues are policies that violate rules of a U.S. trade agreement or the World Trade Organization (WTO).

Considering trade enforcement, the NTE may understate the challenge. For the wheat industry alone there are several barriers not listed in this massive report. If USTR decided to pursue every long-standing issue facing the United States through dispute settlement, it would stretch its resources far past the breaking point. Unfortunately, new problems seem to arise faster than it takes governments to fix old problems.

This underscores the need for countries to commit strongly to a rules-based trading system. Trade disputes are one way to address the problems, but even a country with considerable resources for trade disputes like the United States, which has sued or been sued in nearly half of all WTO disputes, can barely begin to address outstanding issues through disputes alone.

However, strategic enforcement is important to maintaining the effectiveness of international trade rules. There are economic benefits from fixing specific trade barriers, but just as vital is the deterrence effect on countries that would consider implementing new barriers. If we must litigate every issue, the system could collapse.

Last year, USTR took a big step in challenging non-compliant domestic support programs in China — a growing problem for at least a decade. The NTE mentions similar problems in India, Turkey and Brazil and the hope is that the China cases lead to serious reforms to subsidies in these countries as well. USW and USTR need to stay vigilant to help reverse the trend of increasing WTO-violating subsidies and ensure that countries consider their trade commitments before implementing new policies.

Every country, including the United States, has unique internal pressures that may divert them from trade commitments at the margins. The NTE is an important way to demonstrate how those pressures affect U.S. industries, but without effective enforcement and negotiated solutions, it is just a very long list.

As an industry stakeholder, USW provided input on its key trade barriers through comments submitted in October 2016. Read those comments here. The full 2017 NTE report is posted online here.

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USW President Alan Tracy joined the International Grains Council (IGC) for their 25th annual conference June 14 to present an overview of changes in global wheat trade, trade distorting government policies and the United States’ shift to quality-based wheat markets. More than 200 attendees at the conference in London, United Kingdom, came from grain importing and exporting countries around the world to hear updates on production prospects and discuss major issues facing the grain trade.

One of the biggest shifts in the world wheat market in the last 15 years has been the emergence of Russia as a major wheat exporter, averaging 17.9 MMT from 2011/12 to 2015/16. With that growth, Russia has become a primary supplier of wheat to price-sensitive markets across the Middle East and North Africa, displacing other traditional suppliers including the United States, Canada and the European Union (EU).

USW has narrowed its activities in markets now served mainly by Black Sea suppliers but increased its resources in growing quality-sensitive markets, primarily in Southeast Asia and Latin America. An increasing majority of flour millers and wheat food processors in those markets see wheat as a food ingredient with specific value, rather than as a bulk commodity sourced merely on price. Connecting with these new markets provides more value for overseas customers and, in turn, helps U.S. farmers capture more revenue per acre for the high-quality wheat they produce.

Tracy also discussed government policies that distort trade. Reflecting on previous IGC meetings, he recalled long-past discussions on the harm caused by rival country export subsidy programs — which are largely no longer in use. Today, instead of export subsidies, the biggest market distortion comes from domestic support programs, primarily in several advanced developing countries.

Every WTO member country has agreed to specific limits and rules on agricultural support programs. However, many countries exceed those limits and fail to report their programs accurately. When an importing country provides a government support price above world market prices, they encourage domestic production. That offsets imports to the detriment of the global trading system and to farmers in other countries.

USW has spent the last five years documenting and quantifying the effects from these programs. The forum presented an ideal place to share and discuss the data as out-of-compliance programs not only harm the United States, but also exporters around the world.

By Dalton Henry, USW Director of Policy