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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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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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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

In June 2017, U.S. Wheat Associates (USW) suggested that pursuing a strategy of import protection under the guise of national security would set a dangerous precedent. Then USW President Alan Tracy said “… if the United States undermines WTO national security exemptions, it would be handing a gift-wrapped roadmap of protectionism to food self-sufficiency advocates all over the world.”

The United States did impose these tariffs and threatens more. The risk of imitation by other countries is a long-term threat to U.S. agriculture, but most affected countries to date have responded by retaliating against U.S. agriculture exports, rather than imitating the U.S. policy. In addition, these countries have brought several cases against the United States at the World Trade Organization (WTO). The United States claims these tariffs are allowed under the WTO’s national security exception, which is self-determined. Other countries claim such measures are allowed only if they fit under one of the criteria established in the WTO rules.

The WTO earlier this month gave a preview of how it might rule on the cases against the United States with its panel decision in a case that Ukraine brought against Russia. The report was adopted last week by the WTO Dispute Settlement Body (DSB). Ukraine argued that Russia’s restrictions on its transshipment rights violated WTO rules, which would be clearly true in normal circumstances. Russia claimed these restrictions were imposed for national security reasons due to the armed conflict with Ukraine. Russia further argued that the panel had no jurisdiction, because Russia had invoked the WTO’s GATT Article XXI, the rule that allows exceptions to normal WTO rules for national security reasons. Russia argued that determining national security is up to each country and therefore not subject to the panel judgment. The United States made the same argument in a third-party brief.

Russia won the case, because armed conflict is a valid national security issue, but lost the argument that the panel had no jurisdiction. At the risk of oversimplifying, the panel found that if the national security rule was meant to be self-judging, the authors of the agreement would not have included specific criteria. It quoted a U.S. delegate who said in 1947 that they supported the specific criteria due to the recognition “that there was a great danger of having too wide an exception…because that would permit anything under the sun.”

Permitting tariffs on “anything under the sun” could lead to devastating consequences for the competitive U.S. agriculture sector as more protectionist nations around the world follow the U.S. example. However, the United States, consistent with the position it has taken to date in this case, opposed this decision and claimed there should be no parameters on any trade restriction if the country imposing the restriction cites the national security exception.

USW takes no position on the respective arguments in the case but remains extremely concerned with the indiscriminate use of 232 tariffs that will likely put this question in front of the WTO DSB soon. This is a major challenge facing the WTO that did not need to happen and threatens to undermine the global trade rules that are so important to U.S. agriculture and its overseas customers.

The Trump Administration’s trade agenda includes fixing an extensive list of long-standing concerns with how some of our trading partners and international institutions have applied trade rules. USW shares many of these concerns. Unfortunately, we believe that the use of Section 232 undermines the long-term interests of the U.S. economy and U.S. agriculture in particular; and any gains made because of these tariffs are likely to be short term while the damage to the rules-based trading system could be permanent.

For additional information, visit https://bit.ly/2EA9HOn and https://bit.ly/2KmTSRx online.

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By Ben Conner, USW Vice President of Policy

The United States and Japan kicked off negotiations this week on a potential trade agreement between these two Pacific Rim economic giants. While the path forward for these negotiations is not yet clear, the pace is likely to speed up with a schedule of additional meetings between these traditional trading partners.

With the knowledge that U.S. farmers and their Japanese customers face significant challenges in the coming years, we were glad to see agriculture mentioned prominently in the U.S. Trade Representative (USTR) statement about the meetings.

USTR also reported that it raised the “very large trade deficit” with Japan as a primary area of concern. For U.S. agriculture, the concern is that the U.S. trade deficit with Japan seems poised to increase due to the disadvantage of being outside the Trans-Pacific Partnership (all other economic factors such as Japan’s significantly higher savings rate being equal). This month, in fact, Japan lowered its trade barriers further to imported agricultural products from many of the world’s major suppliers, but not the United States. Consequently, U.S. products, including wheat, are more expensive for Japanese importers.

U.S. Secretary of Agriculture Sonny Perdue has noted that there are two ways for other countries to shrink their deficit with the United States: buying more or selling less. His priority for overseas customers to buy more U.S. agriculture products. Here at U.S. Wheat Associates (USW), we strongly support that, but right now, in Japan, it is U.S. agriculture that is selling less.

The Trump Administration has described several trade policy problems facing U.S. industry. USW agrees with many and questions some, but we have strong hopes for an improved global trading system following the disruption that many see as necessary to rebalance trade relationships.

The Administration clearly has not forgotten U.S. agriculture, as the USTR statement proves. Concluding an agreement with Japan to offset the effects of withdrawing from TPP would be a crucial and welcome step toward demonstrating to U.S. farmers that their interests still matter.

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By Ben Conner, USW Vice President of Policy

Two weeks ago, Brazilian President Jair Bolsonaro visited President Trump in Washington, D.C., to help forge closer ties between the two largest countries in the Western Hemisphere. The joint statement published at the end of the visit highlighted several areas for cooperation and expanded commerce. One of those was a commitment to allow “the annual importation of 750 thousand tons of American wheat at zero rate.”

Of course, U.S. wheat farmers would be delighted if Brazilian buyers choose to import all 750,000 tons from the United States, though duty-free treatment mandated by the World Trade Organization (WTO) would apply to all imports from outside existing free trade agreements like Mercosur. Even with competition, annual average U.S. exports to Brazil are likely to increase substantially; and for this, U.S. farmers can thank the hard work of staff at the Office of the U.S. Trade Representative and the U.S. Department of Agriculture, members of Congress who pushed for this outcome, and officials in Brazil who recognized the benefits of closer trade ties with the United States and the importance of complying with WTO rules.

U.S. wheat farmers have long sought expanded commercial ties with Brazil, which is one of the world’s largest agricultural producers but also one of its largest wheat importers. The United States used to be Brazil’s primary wheat supplier, but it has since been supplanted by Argentina. This makes some sense, since duty-free treatment for Argentina and other Mercosur suppliers, coupled with a 10 percent external tariff, made U.S. wheat less competitive.

While Argentine dominance of Brazil’s imports will not be reversed with this new policy, U.S. farmers are hoping for a more stable relationship with their Brazilian customers. Tariffs prevented development of a consistent market in Brazil for a long time but, now with the tariff rate quota (TRQ) open, the opportunity is there for Brazil’s flour millers to consider U.S. wheat every year equally, instead of only after a poor South American wheat crop.

Now Brazil must take the final steps to implement the TRQ. No country has a perfect record of complying with WTO commitments, but U.S. Wheat Associates (USW) is grateful to see President Bolsonaro taking Brazil in that direction on this issue so early in his presidency. Brazil and the United States have much in common as major agricultural exporters and we hope to see our countries to work together at the WTO to advance a trade liberalizing agenda while expanding the commercial relationship between our wheat sectors.

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In much of the Western World, on April 1 people go sometimes to great lengths to create mostly harmless “April Fools’ Day” hoaxes. There are many theories about how this odd “celebration” came to be, including an association with the first day of spring in the Northern Hemisphere, when Mother Nature fooled people with changing, unpredictable weather.

On this April Fools’ Day, however, it is no hoax that today the effective tariff applied to U.S. wheat imported by Japan is nearly $20 per metric ton (or 50 cents per bushel) more than the tariff applied Canadian and Australian wheat. That is because the United States is not a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or CPTPP. In fact, the effective internal tariff on wheat from those CPTPP member countries will drop again on April 1 in 2020 and drop again every April 1 until 2026.

There is no hard evidence that U.S. wheat sales to Japan have gone down because of this harmful situation. Eventually, however, this reduction will be about $70 per metric ton, or 45 percent below the current effective tariff applied to U.S. wheat. Japan has no obligation to change this tariff reduction schedule so that difference will likely shut a major portion of U.S. wheat exports out of the Japanese market and undo decades of market development work.

“We have spent countless hours and millions of hard-earned farmer dollars building demand for U.S. wheat in this market,” said U.S. Wheat Associates (USW) President Vince Peterson last December in testimony to the Office of the U.S. Trade Representative about trade negotiations with Japan.

He continued by saying that achieving a satisfactory outcome in negotiations between the United States and Japan matters a great deal to U.S. wheat farmers who have long ties with Japan.

“That legacy is on the verge of disappearing due to CPTPP,” Peterson said.

USW and U.S. farmers have urged the Trump Administration to act quickly to prevent such losses. Hopefully that will happen long before the next April Fools’ Day.

 

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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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On Feb. 15, 2019, the United States submitted a counter notification, co-sponsored by Canada, in the World Trade Organization (WTO) Committee on Agriculture on India’s market price support for pulse crops – based on publicly available information. With this counter notification, the U.S. government continues to use the rules-based trading system established by the WTO as an appropriate and welcome step toward fairness and transparency for all its member countries.

In May 2018, the U.S. Trade Representative (USTR) formally questioned data India has reported to the WTO about its market price support programs for wheat and rice from marketing years 2010/11 to 2013/14. And in 2016, U.S. Wheat Associates (USW) and the National Association of Wheat Growers (NAWG) welcomed two trade dispute actions by the USTR challenging Chinese government policies that distort the wheat market and harm wheat growers throughout the rest of the world.

Specifically, in September 2016 a U.S. trade enforcement action challenged the level of China’s trade-distorting market price support programs for wheat as well as for corn and rice. In describing its action, the USTR said domestic price support to Chinese farmers “significantly exceeds China’s aggregate measure of support commitments under the WTO Agreement on Agriculture.” In December that year, a U.S. dispute case alleged that China is not fairly administering its annual tariff rate quotas (TRQ) for corn, rice and 9.64 million metric tons of imported wheat. This request stated that China’s TRQ administration unfairly impedes wheat export opportunities.

The WTO is expected to announce the panel decision in the next few weeks on the original U.S. challenge to China’s domestic agricultural subsidies. The TRQ challenge also continues moving through the dispute process at the WTO.

Progress in these dispute cases indicate the WTO dispute mechanisms continue to provide an effective way to challenge unfair practices and policies. But the approach represented by the Trump administration’s use of unilateral tariffs and the threat of escalation to challenge unfair trade practices threatens the stability of the global trading system. That said, instability channeled properly could be beneficial to the trading system and result in greater long-term stability if it results in eliminating trade barriers, rather than creating new ones.

The past two decades have been a lost opportunity for the WTO negotiating function as major countries like China have refused to take on new responsibilities. Perhaps this unfortunate situation will be the wake-up calls countries need to realize that restricting trade and unfairly advantaging domestic industries in global markets winds up hurting everyone.

USW’s stakeholders hope that that the Administration’s alternative policy does result in positive shifts toward a more open trade environment that encourages strong domestic development in all countries. Yet the Administration’s continued use of the WTO dispute settlement and counter notification processes is also a positive sign that trade disciplines, supported by most of the world, will remain an essential part of global trade.