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USMCA Moving Closer to Reality

By Dalton Henry, USW Vice President of Policy

The U.S., Mexico, Canada Agreement (USMCA) is moving steadily, if somewhat slowly, to becoming an implemented trade treaty. Mexico’s government first ratified the agreement in June 2019. At the request of the U.S. House of Representatives, the agreement was revised and signed again by all three countries in December 2019, after which Mexico’s government voted to ratify the revised agreement.  President Trump signed the U.S. implementing language for the agreement in a widely attended ceremony on January 29, 2020. And now, ratification is being considered by Canada’s parliament, a process many trade watchers expect to run through March 2020 at least.

The latest step puts us a mere hop, skip and a jump from having a new trade agreement in place with two of the U.S. agriculture’s largest customers. Most importantly to wheat industry stakeholders, the new agreement moves us past the bold threats of withdrawal from NAFTA and fully protects access to U.S. wheat on a duty-free basis for Mexican customers, modernizes sanitary and phytosanitary (SPS) provisions and removes the largest remaining barrier (eligibility for grades) for U.S. producers who want to sell wheat to Canadian elevators.

On that final point, USMCA assures that U.S. wheat sold in Canada is not automatically graded as feed. It is one of the more significant new provisions in the USMCA. President Trump specifically mentioned it in his remarks at the White House signing ceremony. Western Canadian wheat growers support it.

Under the agreement, U.S. farmers interested in taking wheat across the border will still have to verify that wheat is one of the varieties registered in Canada. But it is worth celebrating that farmers near the Canadian border will have additional local outlets for grain, potential market arbitrage opportunities and a basic fairness between growers on either side of the border. These grain grading changes will give Canada a reprieve from the threat of non-compliance with the WTO’s “national treatment” standard and forces legislative changes that the Canadian government had promised to make for the better part of a decade (but never actually put into place).

Necessary changes in domestic regulations across all three countries are still needed. Those changes will be followed by a 60-day monitoring period to verify the changes are being implemented. An exchange of letters between the three countries is the seal for the deal. Wheat growers and buyers in USMCA – the new NAFTA – are very much looking forward to that day.

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An Invitation to a Stronger Relationship with Mexico’s Milling and Wheat Foods Industries

By Vince Peterson, USW President

Today, I had the unique privilege to accept an invitation to the White House to represent U.S. wheat farmers, our state wheat commission members and U.S. Wheat Associates (USW) as President Donald Trump signs implementing legislation for the U.S.-Mexico-Canada Agreement (USMCA) into U.S. law (that’s my viewpoint at the ceremony in the picture above).

While this invitation came addressed to me, it is only because I occupy a specific desk at USW with the consent of our U.S. farmer board of directors. I sincerely hope that everyone associated with our organization feels the same pride I do to witness this important national event because everyone put in a tremendous amount of work to help bring it about.

The trade agreement USMCA will replace (after Canada’s parliament approves it and implementing changes are made, as we are sure will happen) opened mutually beneficial trade between U.S. wheat farmers and Mexico’s flour millers and wheat food industry. Under the North American Free Trade Agreement (NAFTA), USW focused on helping Mexico’s buyers, millers and food processors solve problems or increase their business opportunities with U.S. wheat classes—as it does with all U.S. wheat importing customers. This effort, supported by wheat farmers and the partnership with USDA’s Foreign Agricultural Service, has fostered a productive relationship that has endured through many challenges.

So, when the Trump Administration announced in 2017 it intended to renegotiate NAFTA, USW quickly engaged in the process on many levels to advocate for continued duty-free wheat trade and other improvements in the agreement.

For example, I invited José Luis Fuente, President of the Mexican Millers Association (CANIMOLT), to address the USW board of directors meeting in October 2017. Sr. Fuente had been appointed as an advisor to the Mexican Minister of Agriculture in the negotiations. He made a passionate plea for USW to work together toward resolving the trade agreement as soon as possible. In addition, our former Vice President of Policy Ben Conner was granted status as an advisor to the U.S. Trade Representative and was one of only a few agricultural industry representatives who participated in side-briefings at almost all the official negotiating sessions. Vice President of Communications Steve Mercer, his team and our friends at the National Association of Wheat Growers (NAWG) published an on-going series of press statements, social media posts, comments and fact sheets supporting our positions. As the U.S. Congress considered the agreement, NAWG’s staff and its dedicated farmer officers and directors continued to advocate for its passage.

Regional Vice President Mitch Skalicky and our staff in Mexico City steadfastly maintained contact with Sr. Fuente and our other customers. Then, last year at a USW marketing conference in Mexico, USW and Mexican millers renewed our agreement to work together toward approval of the USMCA. We also made it very clear that our commitment to serving their industries was among our most important goals.

“We have 14 farmers here representing 13 different state wheat commissions, and U.S. Wheat Associates staff from 3 offices here to show you that we take your business seriously,” Past Chairman Chris Kolstad told the millers. Those farmers, state commission members and USW, he added, “are all united in our desire to earn your full trust in the United States as your primary source of imported wheat.”

After I received the White House invitation to the USMCA signing ceremony, I forwarded a copy to Sr. Fuente with a note of thanks and congratulations to him and CANIMOLT members for their work and the collaborative effort toward a favorable agreement for each of us.

“We congratulate U.S. Wheat Associates on behalf of the Mexican millers for all of the collaborative work, negotiations, and achievements attained (in negotiating the new USMCA),” Sr. Fuente responded to Mitch Skalicky and me. “I am very happy and proud to have been part of the effort and above all to confirm the excellent relations and friendship that exists between the Mexican milling industry and the U.S wheat industry.”

That is a humbling and generous confirmation that our relationship stayed strong throughout the negotiations. USW will continue to work hard to make our partnership even stronger in the future.

José Luis Fuente, President of CANIMOLT, addresses the USW Mexican Wheat Trade Conference in June 2019.

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Will Shifting Market Factors Hibernate the Bear Market in Wheat?

By USW President Vince Peterson

Recently, I have heard several of the farmers that U.S. Wheat Associates (USW) represents say they are hoping for a much better year in 2020. No wonder, given the low farmgate prices, trade uncertainty and difficult harvest conditions last year. A better year would be good for our farmers and for our overseas customers, too, who want farmers to have the incentive to continue producing a reliable supply of high-quality U.S. wheat.

From the perspective of global supply, demand and trade factors, we do see mostly positive influences hovering just out in front of us as we start the new year. After a long-term bear market that pulled Chicago wheat futures down from $9.50 in 2012 to a bottom of nearly $3.50, recent firmness in prices represents possible change and momentum on the horizon.

To highlight the primary market factors, we can start with a look at the Southern Hemisphere. Australia remains in the grips of drought that has reduced this year’s harvest outlook by 35 percent below their 10-year average. Australian wheat export prices are currently among the world’s highest at around $265 per metric ton (MT) FOB. In Argentina, the newly elected government has increased export taxes again for wheat from 7 percent to 12 percent (soybean export taxes were raised by 30 percent!). The bump in wheat export taxes raises FOB prices by more than $10 per MT, allegedly to protect domestic producer prices. That is not good for their importing customers, particularly for Brazil. However, after more than a dozen years of negotiations, Brazil on January 1 opened its 750,000 MT duty free tariff rate quota (TRQ), potentially advancing wheat import demand from outside Mercosur. When Mercosur wheat supplies have been tight, U.S. farmers have supplied an average of 80 percent of Brazil’s non-Mercosur needs.

In the Northern Hemisphere, Russian wheat export expectations have been reduced based on lower domestic supplies and prices for their standard 12.5 percent protein wheat (calculated on a dry matter basis and is most closely comparable to U.S. HRW 11 protein calculated on a 12 percent moisture basis). Russian FOB export prices are now around $219 per MT, with U.S. hard red winter (HRW) 11 percent at approximately $222 FOB from the Gulf. Long gone are the $40 to $50 per MT FOB discount spreads that have disrupted what would be normal logistical trade patterns in some recent years.

In its December “Wheat Outlook” report, USDA noted that cuts in wheat production in Argentina, Australia and Canada create potential opportunities for U.S. wheat exports in marketing year 2019/20.

In trade, despite the uncertain slog of negotiations, the United States has completed trade deals with Mexico through the finalization of the U.S.-Mexico-Canada Agreement (the new NAFTA) and through an initial bilateral agreement on agriculture with Japan. U.S. wheat export shipments to Mexico in marketing year 2019/20 already stand at 2.74 million metric tons (MMT) versus sales at the same date last year of 2.18 MMT. Together, Mexico and Japan account for more than 4.0 MMT and 25 percent of all U.S. wheat export sales to date.

Finally, trade negotiations with China, which have been perhaps the biggest weight on U.S. wheat market fundamentals and psychology, appear to be at a more hopeful position. This week, President Trump announced that the U.S. and China will sign a so-called Phase One deal on January 15. Based on information provided by the Office of the U.S. Trade Representative, China has agreed under the Phase One agreement to cancel retaliatory tariffs and import significantly more U.S. agricultural products, including wheat. Running parallel to this potential demand, China has also agreed to start filling its annual 9.6 MMT reduced tariff TRQ for imported wheat. In the five years before the start of the U.S.-China trade “war” in 2018, U.S. wheat exports to China averaged 1.5 MMT per year. That provides a logical basis for a more robust world and U.S. wheat trade with China.

Over the last five years or so, U.S. wheat producers have shouldered many challenges and continued to produce the highest quality, most wholesome milling wheat in the world, as they have done for decades. We do not yet know if these positive shifts in market and trade factors will provide the economic boost they need. But in that hope, our team at USW will be watching how they affect the markets – and how that will affect our overseas customers.

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USW Submits Trade Barriers Report with Additional Detail on China and India

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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U.S. Wheat Farmers Welcome New Chinese Imports, Hope for Long-Term Solutions

On Oct. 3, USDA announced that private exporting companies reported export sales of 130,000 metric tons (MT) of U.S. “white wheat” to China. That is welcome news for U.S. wheat farmers.

Chinese imports of U.S. soft white (SW), hard red spring (HRS) and hard red winter (HRW) wheat classes to China were trending up but abruptly ended when China implemented retaliatory tariffs on U.S. wheat and other agricultural commodities in March 2018. Private purchases of approximately 32,000 MT of HRS and 8,000 MT of SW have been the only sale since then.

“We are glad for this purchase ahead of the latest round of trade discussions between the U.S. and China,” said Doug Goyings, USW Chairman and a wheat farmer from Paulding, Ohio. “It remains to be seen if this is the start of a return to steady purchases by China. In the long run, that is what our farmers need along with good progress toward an agreement and continued support for the rules-based trading system that has given them access to more markets.”

USW Chairman Doug Goyings.

“Even though China has huge domestic wheat stocks, they were buying more U.S. wheat because they need it to meet the growing demand there for higher quality wheat foods, until their government retaliated against U.S. tariffs on Chinese goods,” said Vince Peterson, President of U.S. Wheat Associates (USW), the organization funded by farmers and the U.S. government to promote wheat exports. “So, we hope the new purchases signal a potential turn-around.”

USW President Vince Peterson.

Predictable access to markets is key for USW and their customers. Beyond the retaliatory tariffs that China has applied to U.S. commodities, China has been a challenging wheat importer historically. In recent dispute settlement cases at the WTO, the Office of the U.S. Trade Representative (USTR) demonstrated that, with respect to wheat, China’s government has consistently violated the trade rules it agreed to when it joined the WTO. The country’s domestic support for wheat substantially exceeds its WTO limits and it has never fully met its tariff rate quota for imported wheat. Those two policies have serious effects on farm gate wheat prices and trade. Going forward, USW is optimistic that China will eventually comply with the WTO rulings to facilitate more open trade in wheat.

Read more: U.S. Wheat Farmers Have Not Abandoned Customer Service in China

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Wheat Farmers Call on Congress to Pass USMCA Trade Agreement

The U.S. wheat industry is speaking out boldly on the need to pass the United States-Mexico-Canada Agreement (USMCA) this year.

Speaking at a widely attended rally sponsored by Farmers for Free Trade on Capitol Hill today, Ben Scholz, a wheat farmer from Lavon, Tex., said agriculture and wheat farmers desperately needs a win in trade and “passing the USMCA will put us in the right direction.”

As President of the National Association of Wheat Growers (NAWG), Scholz was representing all U.S. wheat farmers and, by proxy, their loyal customers in Mexico, at the rally. Members of Congress, including House Agriculture Committee Chairman Collin Peterson and Ranking Member Mike Conaway, as well as other farm leaders attended the event to discuss how USMCA provides growers with improved market access while maintaining the zero-tariff platform.

“Over the past five years, Mexico has consistently been the top market for U.S. wheat exports,” said Scholz. “USMCA retains tariff-free access to imported U.S. wheat for our long-time flour milling customers in Mexico. Further, the Agreement takes an important step towards fixing the Canadian grain grading system which automatically designates U.S. wheat imported as the lowest grade wheat which puts America’s wheat growers at a competitive disadvantage.”

Ben Scholz, a wheat farmer from Lavon, Tex.

On behalf of wheat farmers, NAWG is a member of Farmers for Free Trade, which is very focused on getting USMCA passed, including sponsoring #MotorcadeForTrade to highlight the importance of ag trade with Mexico and Canada and passing USMCA. In June 2019, NAWG joined nearly 1,000 groups representing the U.S. food and agriculture value chain at the national, state and local levels in signing a letter supporting USMCA passage. This week, Ben was also joined by fellow NAWG growers from several other states to meet with more than two dozen congressional offices to urge swift consideration of USMCA.

NAWG and U.S. Wheat Associates (USW) applauded the three countries for working together to finalize USMCA. This agreement includes important provisions for wheat farmers. Retaining tariff-free access to imported U.S. wheat for Mexico is a crucial step toward rebuilding trust in U.S. wheat as a reliable supplier in this important, neighboring market.

USW thanks Ben and the entire NAWG organization for their efforts representing wheat farmer interests in Congress.

About NAWG
NAWG is the primary policy representative in Washington D.C. for wheat growers, working to ensure a better future for America’s growers, the industry and the general public. NAWG works with a team of 20 state wheat grower organizations to benefit the wheat industry at the national levels. From their offices in the Wheat Growers Building on Capitol Hill, NAWG’s staff members are in constant contact with state association representatives, NAWG grower leaders, Members of Congress, Congressional staff members, Administration officials and the public.

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The U.S. Wheat Industry’s Partnership with Japan Adds Perspective to Current Trade Negotiations

There is renewed hope this week that the United States and Japan are making good progress toward a trade agreement that we hope will ensure U.S. wheat can continue competing with Canadian and Australian wheat based on quality, variety and value. Currently, under the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), Japan’s effective tariffs on Canadian and Australian wheat imports are discounted and will continue being discounted to the tariff on U.S. wheat imports. U.S. Wheat Associates (USW) has every confidence that our agricultural trade negotiators working with Japan fully understand the need to mitigate the risk to U.S. wheat farmers in an agreement. We thank them for their efforts.

As the talks move forward, USW thinks it is important to review the indelible link between the Japanese people and U.S. wheat producers. It began when the Oregon Wheat Growers League (OWGL) organized a trade delegation to investigate opportunities for expanding U.S. wheat sales to Japan in 1949. In 1956, with a vision to the future, OWGL opened an office in Tokyo to share information the wholesome goodness of wheat foods. The success of this endeavor helped encourage wheat farmer organizations in the state of Washington and Oregon to join OWGL in forming Western Wheat Associates (WWA), which merged with Great Plains Wheat in 1980 to become USW.

In the early years, USW’s legacy organization focused on acquainting the Japanese people with the nutritional value of wheat foods. Perhaps the most famous were “Kitchens on Wheels” traveling through rural Japan to promote wheat foods to Japanese consumers, conducted jointly by OWGL and the Japan Nutrition Association with financial assistance from USDA’s Foreign Agricultural Service (FAS), which has remained an essential partner with USW and our Japanese customers. Eventually, management of these programs transitioned to eight key prefectures. Another early program involved the introduction of bread to school lunch programs.

Kitchen buses helped introduce the Japanese people to the nutritional value of wheat foods. This project started in 1956 was the first of many successful wheat promotion programs sponsored by U.S. wheat farmers in close cooperation with the Japanese government, millers, bakers and the grain trade over the last 60 years.

 

Starting with bread donations, the U.S. wheat industry continued to help introduce bread to school lunch programs allowing Japanese children to enjoy the taste and nutrition of a new type of food.

As market conditions changed, the wheat industry’s Tokyo office contracted with the Japan Institute of Baking to conduct functional and quality testing offering proof that flour products milled from U.S. hard red spring and hard red winter wheat classes could compete with Canadian spring wheat. Those early efforts continued to expand and change as Japan’s milling and baking industries advanced in sophistication and automation to set global standards of cleanliness, uniformity and variety of products for consumers.

Working to Increase Confidence. For example, Japanese flour mills and their customers demand very high standards of cleanliness and uniformity in addition to the variety of wheat classes to make the wide range of flour products for hundreds of different wheat food products — and U.S. wheat producers consistently meet those standards. Recognizing that our customers in Japan needed the confidence they could contract for and receive wheat of the highest quality, USW took action. Managers worked closely with the Ministry of Agriculture, Fisheries, and Forestry (MAFF), Japan’s grain trade and flour millers to refine specifications in tenders for U.S. wheat. At the same time, USW and its state wheat commission members worked with the U.S. grain trade to respond to these specifications. Partly as a result, Pacific Northwest export elevators changed their processes to improve segregation and installed cleaners. That commitment to reliability and customer service combined with the high quality and end-use performance is why Japanese flour mills prefer and choose to source 50 percent of their annual needs – almost 3 million metric tons per year on average – of wheat from the United States.

In 2016, U.S. wheat farmers and U.S. Wheat Associates traveled to Tokyo to celebrate the founding of a U.S. wheat export office in Japan in 1956. Here is that delegation at the offices of the Japan Flour Millers Association. Bringing Japanese millers and U.S. wheat farmers together builds a closer working relationship. The result is greater trust and a big reason why Japanese millers keep producing flour from U.S. wheat.

Over the years, a strong trust had grown between U.S. wheat farmers, state wheat commissions, USW, MAFF, millers and bakers, as well as the Japanese grain trade and their quality assurance partners. USW and the farmers we represent take this opportunity to renew our commitment to producing the highest quality, highest value wheat for our customers in Japan and around the world.

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Trade Promotion Assistance Will Support USW Activities in New and Established Markets

Under the Agricultural Trade Promotion (ATP) program administered by USDA’s Foreign Agricultural Service (FAS), U.S. wheat farmers recently welcomed additional support for the effort to build overseas demand for the high-quality wheat they produce.

FAS awarded $8.2 million to U.S. Wheat Associates (USW) in cost-share assistance in May 2019 and awarded an additional $2.6 million on July 19 earmarked for wheat export promotion through September 2022. To apply for the funding USW was required to demonstrate that wheat farmers were hurt by import barriers laid down as a result of trade disputes. In 2018, USW reported that farmers had experienced losses of more than $330 million as a result of China’s retaliatory tariffs on wheat and a slow down in imports by Mexico.

José Luis Fuente, President of Camara Nacional de LA Industria Molinera de Trigo (CANIMOLT) at the USW Mexico Wheat Trade Conference, June 2 to 4, 2019.

USW will do all it can to use these additional resources as effectively as possible and demonstrate how the addition of ATP funds will help grow new opportunities for wheat farmers and differential service for overseas customers. These include on-going efforts to develop emerging wheat export markets in Myanmar, Malaysia, Vietnam and Indonesia as well as niche soft wheat markets in the Middle East and North Africa.

USW is already putting these ATP funds to work. In June, USW held a very successful conference for Mexican wheat buyers that brought together wheat farmers, the grain trade and flour millers who represent more than 80% of Mexico’s total wheat import volume. USW sees growth potential in Chile and with ATP funding sponsored a representative of a large Chilean buyers’ group to participate in the recent Wheat Quality Council’s annual hard red spring (HRS) wheat tour in North Dakota. ATP funding is now helping build increased awareness of U.S. wheat’s superior baking quality in flour blends in the large regional market around Bogotá, Colombia.

These ATP funds come at a critical juncture for the U.S. wheat industry, said USW President Vince Peterson.

Participants take measurements to estimate yield at the recent 2019 Spring Wheat Quality Tour in North Dakota.

“We appreciated the support for the traditional Market Access Program and Foreign Market Development program in the most recent Farm Bill,” he said. “However, those program apportionments have remained essentially unchanged for 17 years with FMD and 13 years with MAP and the ravages of time and inflation have eaten away at their effective bottom lines. This renewed financial capability is an important response that will help USW adequately address both today’s trade challenges and tomorrow’s new market opportunities.”

Peterson cited several trade challenges. Mexico for example is a leading buyer of U.S. wheat, but almost everything about that relationship depends now on the passage of the pending U.S.-Mexico-Canada Agreement on Trade. In Japan, a strong preference for several U.S. wheat classes there is threatened by the growing tariff advantage for Canadian and Australian wheat supplies under the new Trans-Pacific Partnership agreement. Since March 2018, China has turned to Canada to supply what had been U.S. wheat before tariffs were implemented and just this week its government announced changes that will make it possible to import Russian grain supplies. USW is encouraged by apparent progress in those negotiations reported on July 31.

The Trump Administration’s support through the ATP program, combined with the Market Facilitation Program (MFP), is welcomed by wheat farmers affected by low prices and other risks related to on-going trade challenges. It is no exaggeration to say that the long-term health of an industry that contributes about $6 billion per year to wheat farm families and U.S. wheat supply businesses hinges on a swift and favorable end to the on-going trade disputes.

*Header Photo Caption: Panel on “Optimizing Rail Operations of U.S. Wheat Shipments and Minimizing Additional Expenses for Mexican Importers.” at the USW Mexico Wheat Trade Conference, June 2 to 4, 2019.

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Some Positive News on Wheat Trade with Japan, Mexico and China

Headlines on the trade front this week have direct bearing on the U.S. wheat industry’s desire to reaffirm our trade relationship with long-standing customers in Japan and Mexico, and to renew our relationship with customers in China. For now, at least, the news is positive.

U.S. Trade Representative (USTR) Ambassador Robert Lighthizer this week told members of Congress that the Trump Administration hopes to “wrap up” an agricultural trade agreement with Japan “later this year.” That is good news for flour millers in Japan, who do not want to continue paying incremental effective tariffs for U.S. soft white (SW), hard red spring (HRS) and hard red winter (HRW) relative to Canadian and Australian wheat under the new TPP-11 agreement. Repairing this potential breach with Japan is essential for wheat farmers who, with their partnership with the USDA Foreign Agricultural Service have invested countless resources for more than 60 years to serve the demanding Japanese flour and wheat foods industries.

Amb. Lighthizer also reached out to members of Congress who have expressed concerns about the new U.S. Mexico Canada Agreement on Trade (USMCA). In a description of his remarks, Agri-Pulse reported that the USTR “bent over backwards to assure Democrats on the Senate Finance Committee that he was hearing and addressing their concerns, both about enforcing labor rules in Mexico and about whether the trade pact would hamstring efforts to lower pharmaceutical prices.” At the U.S. Wheat Associates (USW) 2019 Mexico Wheat Trade Conference early this month, our colleagues and our customers in Mexico identified that supporting the USMCA will be our shared focus. They took another big step today with news that Mexico’s Senate on Wednesday passed the USMCA, making it the first country to ratify the new trade pact. Mexico’s imports are the foundation of farm family incomes throughout the southern and central U.S. Plains. Losing it because of trade policies beyond their control is unthinkable.

On June 18, President Trump raised expectations for some positive trade outcome from his planned meeting with Chinese President Xi Jinping at the upcoming G-20 summit. He said he had a “long talk” with Pres. Xi and, according to news reports, said “China very much wants to discuss the future and so do we.” In this case, “we” definitely includes U.S. wheat farmers who have been all but shut out of exporting wheat to China following the imposition of retaliatory tariffs in March 2018. Before then, Chinese flour millers and their baking customers were demanding more high-quality U.S. wheat to blend with domestic wheat. Now, China has replaced our wheat with competing supplies of Canadian spring wheat.

As Amb. Lighthizer said during his congressional testimony on negotiations with Japan, “I think we are making headway and we’re in a situation where we if we don’t make headway quickly, people will lose market share and never get those customers back.”

USW continues to support the need to enforce commitments made in multi- and bilateral trade agreements and, given this week’s upbeat news, look forward to a speedy resolution of these challenging situations.

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A Trade Policy Win for the U.S.-China Wheat Chain

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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