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By Dalton Henry, USW Vice President of Policy

Each year, the Office of the U.S. Trade Representative (USTR) compiles and publishes the National Trade Estimates (NTE) report — a comprehensive report detailing barriers that U.S. exporters, including wheat farmers, face in markets around the world.

The first step in compiling the massive report (last year’s came in at 537 pages), is to collect feedback from the export stakeholders. U.S. Wheat Associates (USW) participates in this process each year by consulting with our offices overseas, talking to customers and researching trade barriers. That work culminated last week when USW submitted to USTR its compiled information, covering barriers in a dozen wheat importing countries.

Each year, many of the challenges highlighted in USW’s submission are issues that remain unresolved. This year, however, USW’s reports about on-going concerns with China and India were substantially changed.

The new report on barriers in China reflect the progress made since last year to bring China’s wheat import tariff rate quota (TRQ) and wheat subsidy policies into compliance with the government’s WTO commitments. This year’s report reflects the progress made in those areas as a result of the two WTO cases the United States won last spring, and China’s initial policy proposals to address those WTO rulings.

While the report shows some progress in the China section, it highlights a growing area of concern in India. India runs subsidy programs very similar to China, including minimum purchase prices and input subsidies. USW and USTR have demonstrated previously that India is well outside of its WTO limits in the level of government subsidies. Those subsidies have spurred excess production and subsequent wheat stocks that, once at a critical mass, India must subsidize to dump onto the world market. USDA projects that Indian wheat ending stocks will exceed 20 million metric tons (MMT) for 2019/20 — a level that historical data shows will likely result in India resuming wheat exports in the near future.

USW’s most recent NTE report can be found online here. It provides an overview of the key issues that USW works on every year and supplies USTR with up-to-date information on ongoing problems in wheat trade. In doing so, it fills a vital role in the enforcement of trade rules, something that U.S. farmers and their customers overseas want to see more than ever.

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By Dalton Henry, USW Vice President of Policy

While the trade policy headlines from the month of October have mostly been written about a possible “phase one” trade deal between the United States and China, much less has been said about the recently revised and published China Tariff Rate Quota (TRQ) rules for importing wheat and other agricultural products – though their impact could be nearly as significant for the affected commodities.

China’s TRQ rules were expected to be changed because of the World Trade Organization (WTO) ruling last April that found China had not complied with the terms they agreed to upon joining the WTO in 2001. TRQ’s govern the import of specified levels of products at a specific tariff rate that is lower than the global or Most Favored Nation (MFN) rate. Without TRQ, Chinese importers cannot profitably access the world market for wheat, as China’s MFN tariff is 65%. Restricted fill rates on TRQ over the past decades have proven to be the biggest constraint to growing market share for imported wheat in China. Today, imported wheat rarely exceeds 5% of mill use.

Upon accession to the WTO, China established a 9.64 million metric ton (MMT) TRQ for wheat, but that annual TRQ has never fully filled, despite world wheat prices and market conditions conducive to doing just that. When the United States filed the case at the WTO in 2016, they alleged that China had used a series of policies in administering the TRQ that were not “transparent, predictable or fair” and by doing so they, “…limited opportunities for U.S. farmers to export competitively priced, high-quality grains to customers in China.”

That limitation has had effects beyond the impacts on U.S. farmers though, as it also severely limits Chinese millers’ access to high quality wheat grown outside of China. In especially short supply in the domestic market are both soft wheats – often used for pastries and cakes as well at higher protein spring wheats, which are necessary for pizza crusts and hamburger buns.

When the United States won the WTO case, China agreed not to appeal and that they would come into compliance with the ruling by December 2019. That put the case on a relatively fast track to be completed, spanning just under three years since it was filed, much to the joy of U.S. wheat farmers who had long pushed for U.S. government action to force change in the TRQ administration.

U.S. Wheat Associates (USW) has been reviewing the new measures along with the U.S. government and Chinese flour millers. USW Regional Vice President for China and Taiwan, Jeff Coey, has found several of the new rules promising, especially the announcement’s stated goal for both the state and non-state portions of the TRQ to be fully utilized so long as market conditions allow it. Full utilization of both segments of the TRQ hasn’t previously been stated as a goal, leading to significant optimism about access to wheat supplies in 2020. Other positive changes include the allowance for more state-owned entities to apply for TRQ allocations and for non-state-owned entities to apply for the portion of the TRQ that was previously reserved for the state – essentially giving both groups the potential ability to import for the first time.

The TRQ changes and the need for quality wheat supplies may make China a significant wheat importer in 2020. If the changes are in fact implemented, and Chinese millers can respond to market signals, most of the 9.36 MMT TRQ should be used. The net result of that would be China becoming a top world wheat importer, even as they have adequate domestic wheat stocks on hand. From a quality supplier point of view, this opens many opportunities for the United States to provide technical expertise and assistance to our Chinese customers. While allowing those customers access to lower costs and wheat with specialized end-use applications that distinguishes U.S. wheat from domestic supplies.

As with so many issues in trade policy, only time will tell how effective these announced changes will be in allowing Chinese millers to source imported wheat. Both the U.S. government and U.S. Wheat Associates will be closely monitoring the changes to ensure compliance with the WTO ruling, but for now 2020 looks likely to start off on a better foot for U.S. producers and their Chinese customers.

 

By Dalton Henry, USW Vice President of Policy

Representatives from the Taiwan Flour Millers Association (TFMA) are in Washington, D.C. this week to sign letters of intent for the purchase of wheat and other U.S. grown commodities over the next two years. The trip is part of a biennial Agricultural Trade Goodwill Mission that takes TFMA delegates to both D.C. and major wheat-producing states. During their trip, the delegation is also making stops in Oklahoma, South Dakota and Idaho to meet with farmers, grain handlers and state officials before returning to Taiwan.

The Republic of China, known as Taiwan, is consistently a top ten market for U.S. wheat. TFMA imports wheat on behalf of all 20 Taiwanese flour mills and has imported far more wheat from the United States compared to other origins, at an average of 1.07 million metric tons (38.9 million bushels) per year since marketing year 2014/2015.

“We have long had mutually beneficial trade relations with the Taiwan milling and flour products industry,” said Vince Peterson, USW President. “They continue to be a reliable trading partner that fully recognizes the value of purchasing quality U.S. grown wheat”

Members of the Taiwan delegation in Idaho with state commissioner Joe Anderson.

This year, a team of four flour millers is joining the delegation of association representatives.

Significant hard red spring (HRS) imports reflect a need for strong gluten flour for breads, rolls and frozen dough products as well as for blending with hard red winter (HRW) to make traditional Chinese flour foods and noodles. Year-to-date sales to Taiwan in marketing year 2018/19 (June to May) are up 11% from 2017/18. Imports of soft white (SW), including Western White (a blend of SW and up to 20% club), help meet growing demand for cake, cookie and pastry flours.

Follow U.S. Wheat Associates (USW) on Facebook and Twitter for pictures from this weeks activities.

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By submitting the draft “Statement of Administrative Action” (SAA) to the U.S. Congress on Aug. 12, 2016, the U.S. Trade Representative moved one step closer to the final consideration of the Trans-Pacific Partnership (TPP). The SAA describes actions necessary to implement the provisions of TPP and contains details about how U.S. law would need to change to adopt TPP. The Trade Promotion Authority (TPA) bill passed in 2015 requires this submission before Congress can consider the agreement.

Under TPA, the President has the authority to conclude trade agreements and submit them to Congress for an up or down vote. This pre-empts legislative amendments from derailing the careful balance struck in trade agreement negotiations. Less well-known TPA provisions allow Congress to establish priorities in negotiations, specify necessary reports and provide timelines for consideration of agreements. TPA states that a draft SAA must be submitted to Congress at least 30 days before submitting the draft legislation that implements a trade agreement, setting up a potential vote on TPP this fall.

To continue compliance with TPA, the U.S. Trade Representative must still produce three reports detailing the agreement’s impact on key areas such as the environment, labor laws, and U.S. employment, and then work with Congress to submit the draft implementing bill for a vote. As work continues to address congressional concerns about the agreement that are predominately related to non-agricultural issues, the Administration has not yet signaled when the implementing bill will be ready.

President Obama maintains that final consideration and approval of the Trans-Pacific Partnership can and should be accomplished this year, despite increasingly negative rhetoric on trade coming from the U.S. presidential campaigns. TPP and the Asian and Latin American markets it affects are also key priorities for the wheat industry. The agreement stands as the only potential answer from the United States to competitors gaining more favorable trade access for their farmers within the Pacific Rim by continuing to negotiate and implement separate trade agreements. The submission of the SAA this month is a step in the right direction for U.S. farmers and their customers who need a wider variety of wheat classes and quality to meet the growing demand for new wheat foods.

Learn more about how USW supports free trade through multilateral, regional, and bilateral trade agreements. 

By Dalton Henry, Vice President of Policy

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By Dalton Henry, USW Vice President of Policy

The two joint farmer committees of USW and the National Association of Wheat Growers (NAWG) met last week in Fargo, ND, for a policy update and to consider key issues facing the wheat industry. The joint committees were created more than a decade ago to enable and ensure close collaboration between the two organizations on policy priorities in trade and technology.

The Joint Biotechnology Committee, which has broadened its agenda to include a number of technologies, heard updates from private breeding companies on non-GM products they are rolling out to growers. Many of these companies are working to help increase efficiency and drive additional productivity. Two major updates included the continual development of hybrid wheat and products to produce better seeding rate recommendations.

The committee also heard from a researcher from Cibus, a company that has a process for producing gene-edited plants that do not contain any foreign DNA, but can yield substantial improvements for both growers and end-users. Recently they have focused on flax and canola, but according to the speaker, while they do not any active wheat projects, the technology could be readily applied in the wheat industry.

The Joint International Trade Committee considered a range of updates on several priority trade issues for the wheat industry including foreign country domestic support, the Trans-Pacific Partnership (TPP) and possible future negotiations at the World Trade Organization (WTO).

Staff presented additional detail about the domestic support study that was released earlier this spring. The study focused on wheat support policies in China and their impact on U.S. producers and producers in other exporting countries. In the U.S., the total farm gate losses are now estimated at $653 million, an increase of about $100 million from over a year ago, caused by the continued decline of world wheat prices amid burgeoning Chinese wheat stocks.

NAWG staff discussed TPP and possible windows for Congressional consideration this calendar year. Staff were confident that the U.S. Trade Representative’s (USTR) office has been working closely and making progress with Congressional leadership to prepare for eventual introduction of the legislative text ratifying TPP, even though the negative rhetoric on trade has increased dramatically from many political candidates during the U.S. election season. TPP would lower tariffs and import restrictions on wheat to the benefit of U.S. wheat farmers and their customers overseas.

Committee members also briefly discussed the current negotiating status at the WTO. Though negotiations on agricultural market access have been largely stalled for some time, progress is being made in other sectors including services and environmental goods. Progress in these other areas may provide a template for future agricultural negotiations. The next WTO ministerial, the most likely target for an attempt at agreement on some portion of unresolved issues, will be in December 2018. The WTO remains a key body for liberalizing trade and ensuring a rules-based trading system exists.

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An old adage suggests that two of the biggest influences on a market are weather and governments. Though there is not much that USW can do about the weather, government policies are one key area where we can work with our customers to help achieve beneficial outcomes for both. A leading example of that cooperative work was on display last week as two Brazilian flour millers joined USW staff in a series of meetings in Washington, DC, in hopes of securing more favorable access to U.S. wheat supplies.

Brazil is an agricultural powerhouse, and one of the world’s largest exporters of agricultural commodities. In addition to well-known production success in corn and soybeans, Brazilian farmers also produce between five and six million tons of wheat annually — about half of the 10 million metric tons (MMT) of wheat the Brazilian people consume each year. That leaves Brazilian flour mills in need of significant wheat imports each year.

The relationship between the U.S. wheat and Brazilian milling industries goes back several decades. In the 1980s, Brazil was a regular and large customer of U.S. supplies, purchasing between two and three MMT annually. The 1990s brought the formation of the Southern Common Market or Mercosur trading bloc, allowing wheat from Argentina to enter Brazil duty-free and leading to a subsequent decline in imports from the United States. During that time, Brazil agreed to a 750,000 metric tons (MT) zero-duty tariff rate quota (TRQ), allowing Brazilian millers access to a dedicated amount of wheat from the United States, Canada and other world suppliers on an even basis with Argentine wheat. Unfortunately, Brazil never implemented that TRQ and negotiations on a replacement for it remain open today.

Resolution of the outstanding TRQ could prove to be a win-win scenario for U.S. wheat producers and their Brazilian customers. Current discussions focus on applying a TRQ that will provide Brazilian millers more favorable access to world wheat supplies, while not directly displacing Brazilian wheat production.

The long-outstanding Brazilian wheat TRQ is a prime example that for markets to work we must have the right policies in place and we must collaborate with our customers around the world to influence those policies. USW will continue to seek the best possible outcomes when government policies hinder access to U.S. wheat supplies.

By Dalton Henry, USW Director of Policy

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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

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U.S. trade negotiators are now focusing more and more on the Transatlantic Trade and Investment Partnership (T-TIP), a proposed free trade agreement between the United States and the EU. T-TIP negotiations started in 2013 and maintained a relatively slow pace until last fall when negotiators completed the 12-country Trans-Pacific Partnership (TPP)  now awaiting congressional ratification.

Last week, government representatives met in New York for their thirteenth round of T-TIP negotiations that included stakeholder comments. While both governments praised the progress to date and expressed optimism at possibly finalizing an agreement this year, significant differences remain with increased pressure to complete an agreement before the end of President Obama’s administration. In particular, the two sides seem to have significant gaps to bridge on key agricultural issues.

Due to fears that negotiators could strike a narrower agreement without resolving those agricultural issues, a bipartisan group of 26 senators is calling for agricultural issues to remain a priority. Their recent letter highlighted the need for broad-based tariff elimination, science-based approaches to animal and plant health issues and the improvements to the troublesome EU regulatory framework for approval of biotechnology products.

U.S. wheat exports currently face a complex “margin of preference” program that allows only high protein wheat and durum into the EU duty free, as long as world prices remain above a certain threshold. USW supports a comprehensive T-TIP agreement that eliminates all wheat duties, contains a fully enforceable sanitary and phytosanitary (SPS) chapter and provides for a predictable biotechnology approval process. USW established a full T-TIP priorities document as negotiations began three years ago.

As two large wheat producers and exporters, the United States and the EU are unlikely to see major trade shifts in wheat because of T-TIP. However, the agreement does have the potential to expand access for U.S. producers to the world’s largest agricultural importer and to establish key precedents for future trade agreements.

Agricultural issues are far from the only remaining sticking points. Significant differences remain in automobile market access, the creation of an investor-state dispute settlement (ISDS) mechanism and access to government procurement programs. According to the schedule, negotiators will take stock of progress in late May, with another formal round likely in July.

By Dalton Henry, USW Director of Policy

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Working with partners around the world on shared missions has been a core function of USW throughout its history. That principle applies whether those partners are wheat growers, customers or even international market competitors. An example of this collaboration was on display last week in Winnipeg, Saskatchewan, at the third annual Canadian Global Crops symposium. USW and some of its stakeholders joined more than 250 professionals from the Canadian wheat and grain value chains at the symposium to tackle the big topics facing our industry.

The conference, appropriately themed “Innovation: Opportunity and Challenge,” focused on the application of technology in agriculture and resulting effects on the entire value chain. The broad category of advanced plant breeding techniques, including technologies such as CRISPR-cas9 and TALEN, both commonly referred to as “gene editing,” garnered particular attention. Two seed companies provided detailed explanations of these processes and their applications in breeding programs. Compared to the lengthy process of cross-breeding and its random results, advanced breeding technologies are allowing more precise improvements in plant breeding, in many cases without producing transgenic plants. Grain handling companies and government regulators also provided perspective on the new technologies, including how regulators view the processes and potential challenges that may result from uncoordinated governments’ regulations. USW supports a review process that facilitates industry discussions such as these to ensure compatibility between all governments’ efforts on these new technologies.

During the symposium, the International Grain Trade Coalition (IGTC) held strategy and general sessions. The IGTC includes non-profit trade associations, councils and corporate stakeholders interested in working to support trade in grains, oilseeds and other bulk agricultural products. The organization has multiple working groups that focus on finding solutions to trade irritants and informing discussions on global trade in grains, including expanding the use of electronic documents and harmonization of phytosanitary measures. A number of U.S. and Canadian companies and grower organizations, including USW, are active IGTC members and support its work to better facilitate trade for both our producers and customers around the world.

It is through platforms such as these that both Canadian and U.S. grower organizations are able to work together for the advancement of the entire industry and better serve the needs of the customers we share around the world.

By Dalton Henry, USW Director of Policy

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Last week marked the annual release of the National Trade Estimate (NTE) to Congress by the Offices of the U.S. Trade Representative’s (USTR). The NTE report is a 474-page- list of trade barriers facing U.S. companies and producers. It documents a range of trade barriers, including Sanitary and Phytosanitary (SPS), technical and market access restrictions. USW submitted a host of concerns to USTR on October 28, 2015.

The report highlights a few major accomplishments from 2015, including completion of Trans-Pacific Partnership negotiations and the U.S. ratification of the Trade Facilitation Agreement — the first multilateral trade agreement in the WTO’s 20-year history. Beyond the successes of the past year, the report also lays out a roadmap of future work for USTR. Numerous wheat industry priorities made the listing, two of which are highlighted here.

A new addition to the 2016 report was China’s administration of their tariff-rate quota (TRQ) system, which Chinese millers and USW have repeatedly identified as a major hurdle in expanding the use of U.S. wheat in China. The report stated, “Market access promised through the tariff-rate quota system set up pursuant to China’s WTO accession agreement has yet to be fully realized.” Each year China completely uses the portion of the TRQ allocated directly to flour millers. However, the portion held by the state is not fully utilized and almost never reallocated as required by the WTO agreement.

China is not the only country where a TRQ keeps out potential wheat exports. Nearly two decades ago, Brazil committed to a 750,000 ton duty-free TRQ. The NTE report notes that Brazil never opened the TRQ, and therefore has imported no wheat under it. Without either ad hoc access, which Brazil opened in 2013 and 2014, or a functioning TRQ, Brazilian millers must pay a 10 percent tariff to purchase supplies anywhere outside of the Mercosur trade bloc. That leaves the United States, Canada and others at a significant price disadvantage.

These two barriers are just a preview of the issues listed by USTR. USW will continue to work with our partners to pursue resolutions to these barriers that hinder our customer’s ability to purchase U.S. wheat.

By Dalton Henry, USW Director of Policy