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By Shelbi Knisley, USW Director of Trade Policy

U.S. Wheat Associates (USW) recently joined a coalition of several U.S. agricultural organizations calling on the Biden Administration to work toward reforms to the World Trade Organization (WTO) “that lead to a market opening agenda for agriculture and a better functioning institution.”

USW signed the July 23, 2021, letter to U.S. Trade Representative Katherine Tai and Secretary of Agriculture Tom Vilsack because it believes the WTO’s mission to liberalize global trade has benefitted the wheat farm families the organization represents and the world’s wheat importers. As the coalition stated on liberalized trade, “It helps connect American farming communities to peoples around the globe.”

Since it was formed in 1995, global wheat trade has doubled. The WTO provides a trade dispute mechanism that has identified the need to amend trade-distorting practices such as China’s domestic wheat support and unfilled wheat import tariff rate quota.

However, the letter also pointed out that “When the WTO functions poorly, and other governments get away with treating U.S. agriculture exports unfairly, trust erodes in our government and international institutions. To restore trust, WTO reform is needed.”

Leading issues of discussion at the WTO include challenges on tariff implementation, domestic support, transparency, sustainability, and climate. Following are some of the areas the coalition would like the U.S. officials to address at the WTO Ministerial Conference (MC12) in late November 2021:

  • Public stockholding (PSH) disciplines – PSH programs may serve a laudable food security goal but often lead to excessive domestic stockpiles, as we have seen in India and China. Those stocks lead to lower global prices and may force U.S. farmers to compete with subsidized exports.
  • Special safeguard mechanism (SSM) rules – SSM’s allow developing countries to temporarily impose import tariffs to protect domestic producers from competition, and at times may unfairly tax U.S. exports.
  • Domestic support limits – Domestic support, a subsidy that encourages production, is one of the most discussed topics in Geneva. Some countries want the U.S. and EU (both of whom are within the limits they agreed to) to slash their farm program spending, while the U.S. argues that many advanced developing countries are dramatically exceeding their own limits. The coalition supports negotiating new limits on domestic support if market access is also considered.
  • Export restrictions are policies that may limit the amount of a product being exported from a country in the form of a tax or set quantity. Some countries will impose export restrictions on commodities to control domestic prices. During the COVID pandemic, Russia imposed export restrictions on wheat exports to control domestic wheat prices. Countries are expected to consider a proposal to exempt purchases by humanitarian organizations like the World Food Program from these limits.

Addressing transparency is a leading concern because it has a significant effect on market access and export competition. For example, global wheat production and trade are negatively impacted by India’s domestic support policies for wheat. Resolving such issues would help the market operate more freely and allow more fair and equal trade for all wheat producers.

The world continues to change, and the demand on the agricultural industry to feed more people in more environmentally and socially sustainable ways is increasing. The coalition supports using science-based approaches to embrace innovations and technologies to address these challenges of sustainability and climate. Also, with this, the coalition supports a declaration on sanitary and phytosanitary (SPS) measures, which would establish a committee on SPS measures to focus on harmonized regulation, risk analysis, sustainability, and innovation at the WTO.

USW remains committed to the WTO’s mission and believes that, with positive reforms, the organization can once again become a functioning, trusted institution for equal and fair trade for the people of the world.

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By Ben Conner, Partner, DTB AgriTrade

Over the last several years, U.S. Wheat Associates (USW) and other industry groups have demonstrated how the policies of a few advanced developing countries are distorting world wheat trade and hurting farmers in the United States and other wheat exporting countries. Chinese government grain policy attracted special attention, leading to two dispute cases at the World Trade Organization (WTO), one on excessive subsidies and one on China’s administration of a tariff rate quota on wheat, corn, and rice. By April 2018, WTO dispute panels had sided with the United States in both cases.

Today, the official settlement process for one of those cases has entered the next phase. On July 26, 2021, the United States asked the WTO Dispute Settlement Body (DSB) for authorization to raise tariffs on imports from China due to its failure to comply with the DSB recommendations on its tariff-rate quota (TRQ) administration. China blocked the request, which puts the matter before an arbitration panel. Simultaneously, China made its own request for another panel to review whether it has brought its policies into compliance.

Very close observers of WTO processes might experience deja vu because this is exactly what happened with the case on China’s subsidies for the same commodities last summer.

The next step is for the WTO to form two panels to review the requests of both China and the United States. The compliance panel will look at whether China’s TRQ administration is now functioning on a “transparent, predictable, and fair basis … using clearly specified administrative procedures,” as required by the DSB recommendations. An arbitration panel will review the U.S. request to raise tariffs and decide whether its methodology is appropriate.

Two Reasons for the Challenge

Why is the U.S. government taking this step forward on this case? After all, China has been importing record amounts of wheat and corn since the signing of the Phase One deal (rice is notably lagging) that included implementation of the WTO recommendations on TRQs and subsidies. There are two main reasons.

Procedurally, the U.S. government had to continue extending the window for China to comply (they had already agreed to seven extensions), allow that window to expire with no further action and forfeit its right to suspend concessions, or request that right within 20 days after the window expired. It chose the third option.

Even though China has allowed higher imports, there is still little clarity on how TRQ shares are allocated and reallocated.

If the process remains opaque and unpredictable, China will not be in compliance with its TRQ obligations, which could prevent imported wheat with qualities supplementing Chinese domestic wheat from reaching the Chinese wheat millers who could use it most effectively. It is encouraging that the U.S. and Chinese governments are continuing this case as it will help resolve disagreements over whether China is in compliance with its TRQ commitments and exert pressure to fix problems with Chinese government grain policy permanently.

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By Dalton Henry, USW Vice President of Policy

It is a country that imports about 800,000 metric tons of wheat each year, a mere 90 miles from the United States. Yet the Cuban wheat market has long been a source of optimism and frustration for U.S. wheat farmers. With the change in administrations, there is hope for re-engagement with Cuba, but ultimately the 60-year-old embargo and associated policies still stand as a solid barrier to beneficial trade.

General public opinion polls on Cuba policy consistently show most Americans favor more engagement, the last decade has seen a roller coaster of changes in U.S. policy. Under the Obama-Biden Administration, there were efforts to establish a new relationship and relax tensions. This included a new interpretation of “cash in advance” rules that apply to payment for any agricultural commodities, bilateral exchanges by technical staff in regulatory agencies and the reopening of the U.S. embassy in Havana. However, none of those changes resulted in actual wheat purchases. Then the Trump Administration further restricted trade by limiting any business conducted between American companies and state-owned companies (such as flour mills) in Cuba.


“Wheat is an important food grain that should be above politics, but the embargo will likely have to end before wheat farmers can help … feed the Cuban people.”


With Biden’s return to the White House, Cuba watchers are anxiously awaiting the next curve in the roller coaster ride and are optimistic the administration will return to the Obama-Biden policy of re-engagement. However, any realistic effort to expand ag trade with Cuba needs to focus on the other end of Pennsylvania Avenue by working to secure meaningful change within the halls of Congress and addressing the bipartisan opposition to trade with Cuba.

Just such a Congressional effort was launched last week by U.S. Senators John Boozman of Arkansas and Michael Bennet of Colorado with the introduction of the Agricultural Export Expansion Act. That bill would allow private financing of agricultural commodities by U.S. companies – a small first step toward normalizing the trading relationship, but an important one to put U.S. companies on a near level playing field when working with Cuban buyers. Several U.S. agricultural organizations including U.S. Wheat Associates (USW) and the National Association of Wheat Growers (NAWG) signed a letter of support for the effort as ad hoc members of the United States Agricultural Coalition for Cuba.

More Legislation

The Ag Export Expansion bill is not the only pro-normalization effort within Congress. U.S. Senators Jerry Moran of Kansas, Amy Klobuchar of Minnesota and Patrick Leahy of Vermont, all long-time Cuba trade advocates, earlier this year introduced the Freedom to Export to Cuba Act, which would lift substantial portions of the embargo, including restrictions prohibiting transactions between U.S. and Cuban firms.

Farmers are right to be interested in opening the Cuban wheat market. Cuba produces no wheat domestically and would be a substantial U.S. market if government barriers were to be lifted. But for any of that optimism to come to fruition, it is going to take a literal act of Congress.

“Wheat is an important food grain that should be above politics,” said former USW President Alan Tracy in 2017, “but the embargo will likely have to end before wheat farmers can help meet the increasing demand for agricultural products to help feed the Cuban people.”

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By Ben Conner, Partner, DTB Associates

The World Trade Organization (WTO) is preparing for its 12th Ministerial Conference (MC12) in Geneva at the end of the year; meanwhile there is widespread concern that the organization is drifting into irrelevance. But for U.S. farmers, the rules established by the WTO are directly relevant to their work in the fields, and their customers depend on the rules to ensure access to a reliable supply.

Here is a not-at-all unrealistic scenario:

Wheat farmers gather for a meeting at the local country elevator where they sell their crop. The manager tells the farmers that the elevator will not be able to buy any wheat treated with a very effective, foliar disease control product approved for use on wheat in the United States. The reason: the government of an overseas market has announced a zero tolerance for residues of that product on imported wheat and the grain trade cannot accept that risk.

This is but one illustration of the influence that policies in one country can have on practices in another. WTO rules – agreed to by almost every country – set parameters for these policies to ensure that they do not unjustifiably restrict trade. In this scenario, the country imposing the residue restriction may be acting consistently with WTO rules (though it is more unlikely if the U.S. Environmental Protection Agency has approved the treatment) but it must be able to demonstrate that it met the criteria laid out in the relevant WTO agreements.

Monthly WTO Committee Meetings

Every month, representatives from WTO member countries meet in committees to probe policy development on issues just like this. They ask things like: what is the policy’s objective? Does the scientific evidence justify that conclusion? Did you consider the trade effects of that subsidy? Why are companies complaining that they cannot get an import license from your customs agencies? When will you submit transparency notifications? This work almost never makes the news but is a critical part of the statecraft needed to reduce friction in international trade.

Image representing trade barriers and the WTO role in preventing them.

“When countries impose trade barriers even after receiving extensive pushback in the World Trade Organization (WTO) committees, there will not be a quick solution and it will disrupt trade.”

The farmers in the fungicide scenario will almost certainly not be able to rely on the WTO committee process nor the dispute settlement mechanism to fix the problem before marketing their grain. When countries impose trade barriers even after receiving extensive pushback in the WTO committees, there will not be a quick solution and it will disrupt trade. Yet the committee process itself helps limit the number of ideas that ultimately become trade barriers. Questioning trade practices helps provide clarity, draw attention to a problem that can lead to a negotiated solution, build coalitions around a particular concern, and can serve as a prelude to dispute settlement litigation.

A WTO that Works

A functioning WTO is perhaps more important for agriculture than any other sector. Global agricultural trade is particularly complicated and there is little more sensitive than the food we eat. There are reasons why agriculture is the only economic sector with its own multilateral trade agreement, though other WTO agreements on sanitary and phytosanitary measures and technical barriers to trade are arguably even more important for the sector. Because of their sensitivity, agriculture issues are sometimes impossible to resolve through negotiation and the backstop of a litigated outcome (with the possibility of retaliation) is the only way to get a government to back down from a harmful trade policy.

Farmers prefer to use the most effective tools available for their crops. When it comes to agricultural trade policy problems, the most effective tools are often found at the WTO. Regardless of what happens at MC12, limiting trade barriers will require robust engagement by governments and industry in the often invisible work of this critical institution.

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By Michael Anderson, USW Market Analyst

On March 21, 2021, Canadian Pacific (CP) Railways announced a $25 billion plan to merge with Kansas City Southern (KCS), calling it a “transformative” remake of the freight-rail industry. The proposed new railroad would be the first U.S.-Mexico-Canada-linked rail line.

To illustrate rail merger proposals

The proposed rail merger of Canadian Pacific and Kansas City Southern would create a new rail system linking Canada, the United States and Mexico. Map: Canadian Pacific.

Not to be out-done, Canadian National Railway (CN) began talks with KCS in late April, saying it could yield a “superior” rail merger proposal and offering $30 billion for KCS compared to CP’s $25 billion.

Wheat is Watching

The U.S. wheat industry is closely watching both proposals but has not taken a position in support of or opposition to either proposed merger. U.S. Wheat Associates (USW), along with a coalition of shippers, has asked the Surface Transportation Board (STB), which regulates U.S. rail service, to apply its most strict standard of “enhances competition” to both proposals.

Also in April, however, the STB granted a waiver to CP that exempted its proposal from that high standard established in 2001. That ruling effectively lowered CP’s burden for winning the deal. The STB defended its decision noting that because the combination of CP and KCS would be the smallest of the large North American railroads, it would “result in the fewest overlapping routes.”

A Dissent

However, one STB member, Robert Primus, dissented in part, saying, “Special treatment for this proposed merger between Class I [railroads] runs counter to the Board’s responsibility to review such major mergers and protect the public interest.”

While the STB waived CP’s proposal from that standard, it has not yet ruled on the CN proposal. However, CN’s effort to brand the merger as enhancing competition has received over 600 letters of support.

USW’s desire to see increased rail competition in these merger proposals is directly related to their potential effect on U.S. wheat export prices.

To show proposed rail routes

Alternative routes created by Canadian National’s proposed rail merger with Kansas City Southern. Map: U.S. Department of Transportation via Bloomberg.

Rail Rates Affect Sellers and Buyers

U.S. railroads are a crucial part of the most efficient grain supply system in the world. The rail system fulfills an essential logistical function that neither grain handlers nor farmers can perform on their own. Wheat must compete for limited rail capacity with other grains as well.

USW, however, has learned that since June 2014, the cost of wheat shipments has increased substantially, due at times to higher basic rates for shipping wheat and other rail pricing strategies. For Mexican wheat buyers who bring in more than 60% of their total U.S. imports directly by rail, rates have a significant, direct impact on their bottom-line costs.

As rail costs increase, grain handlers may try to recover these costs by offering higher grain prices to terminal or export elevators and, as some in the industry believe, by offering lower prices to farmers. As basis increases, overseas buyers must pay more for all classes of wheat, and that affects demand.

While it is unlikely these proposed rail mergers would make Canada more competitive in Mexico due to long shipping distances, Canada’s history of nationalism in rail policies is concerning as it favors only some shippers. It is also possible a merger would increase Canada’s competitiveness in the U.S. domestic market, while the Canadian industry continues benefitting from an archaic, government mandated variety registration system that helps minimize any large-scale U.S. wheat imports north.

Next Steps

The KCS’s board of directors must next decide if they want to accept one of the rail merger proposals. In the meantime, the STB will review the proposed mergers.

In response to the impacts of increasing rail rates on our export competitiveness, USW formed a Wheat Transportation Working group in 2018. The group is currently working with researchers on scenarios that will help identify potentially positive or negative outcomes that could result from a merger. The STB is likely to seek public comments on the final rail merger proposals later in 2021 and the Wheat Transportation Working Group will weigh in on behalf of U.S. wheat farmers.

For more information: https://www.freightwaves.com/news/cn-and-canadian-pacific-vie-for-shippers-and-kcs-shareholders-favor.

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By Ben Conner, Partner, DTB Associates, LLP

The year 2020 will be known for many things, but one overlooked development that could have far-reaching consequences for global food security and sustainability was the juxtaposition of the European Commission’s Farm to Fork (F2F) strategy and the USDA’s Agriculture Innovation Agenda (AIA) at the beginning of that year.

Both plans aim to reduce agriculture’s environmental footprint, but the approaches diverge dramatically. Some key goals of the F2F strategy are:

  • Reduce the use of pesticides by 50%;
  • Reduce fertilizer use by 20%;
  • Reduce sales of antimicrobials in agriculture by 50%;
  • Expand organic farming to 25% of total farmland;
  • Mandatory labeling covering nutrition, climate, environmental, and social aspects of food;
  • Global transition towards sustainable food systems.

These are not necessarily bad goals; one would be hard-pressed to find a U.S. farmer who enjoys having to buy and apply inputs. But without game-changing innovations, the ripple effects could be catastrophic.

A USDA report projects that F2F implementation would lead to a 12% and 16% drop in EU production and farm income, respectively, if the EU alone meets these goals. In contrast, the United States would see exports increase and farm income rise. EU policymakers clearly understand that F2F regulations could damage its farm sector if farmers in more competitive jurisdictions are not subject to the same standards for exports into the single market.

The Commission explicitly seeks a global transition towards what it calls sustainable agri-food systems while promising to use the tools in its trade policy arsenal to make that happen. If these ambitions are realized on a global scale, the USDA report estimates that F2F would reduce global production by 11%, raise food prices by nearly 90%, cost over US$1 trillion in global GDP, and 185 million more people would be food insecure.

Implementation will be critical to watch. World Trade Organization (WTO) rules relating to technical barriers to trade, sanitary and phytosanitary measures, and conservation of natural resources could be applicable and should limit the EU’s scope for action on imports. However, the EU has a long track record of ignoring WTO commitments (though it is not alone), often culminating in trade disputes. If the EU’s trading partners do not work to ensure that F2F measures comply with WTO rules, farmers and companies in other countries could see these measures become de facto global standards.

A Different Approach

USDA has taken a different approach through the AIA by prioritizing farmers’ needs – i.e., the ones simultaneously working with and fighting nature to produce food – while embracing technological innovation as a key component of reducing agriculture’s environmental footprint. The Commission claims that innovation will be a part of the F2F strategy and promises an investment of €10 billion for research, but its approach appears to be driven by high-level input reduction targets rather than environmental outcomes, food security, and farmer profitability.

The AIA prioritizes both public and private sector research, embraces new technologies, and envisions metrics and scorecards for productivity and conservation outcomes. It does not aspire to regulate everything in agriculture “from farm to fork,” but it does seek to harness technology and ingenuity to reduce agriculture’s environmental footprint. These visions do not have to conflict; sustainable intensification can coexist alongside agroecological models and inform each other. Unfortunately, Brussels seems to have included innovation in F2F as an afterthought while it seeks to impose unrealistic and even harmful standards on farmers who rely on access to its market.

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By Dalton Henry, USW Vice President of Policy

Just over a year ago, on Jan. 15, 2020, the U.S.-China “Phase One” agreement was signed, leading to the eventual waiver of China’s retaliatory tariffs against U.S. agricultural products. Those actions opened the door again to the largest wheat consumer in the world after nearly two years in which U.S. wheat producers were all but shut out.

While the final results of the Phase One agreement will not be written for several months, early returns show the agreement paid off in a big way for U.S. wheat producers and their Chinese customers.

The Phase One agreement contained both specific purchase targets for agricultural commodities, and structural changes to China’s import systems. To date, much of the celebration and criticism has centered on the purchase targets — with very little attention paid to the structural changes that in some instance resolved disputes decades in the making.

One dispute of relevance to wheat had been at the center of a WTO case dating back to 2015 on China’s administration of their grain tariff rate quotas (TRQ). In a case the U.S. won in mid-2019, the WTO panel found that China had not administered the quota in such as way as to be “transparent, fair or predictable.” With the WTO case entering compliance at roughly the same time as Phase One agreement was being negotiated, U.S. negotiators included additional language in the agreement to build on the WTO case win and ensure eventual Chinese compliance. That language included stipulations making clear that Chinese “State Trading Enterprises” are subject to the same rules as private companies and specific transparency requirements to make it possible to evaluate Chinese compliance with the allocation and reallocation provisions that are so important to the proper functioning of their TRQ.

With those new rules in place, China is projected to import 9 million metric tons (MMT) of wheat this marketing year — a 25-year high, and almost double their previously highest TRQ purchases. China turned to U.S. wheat producers for a significant portion of that higher import volume. Since the signing of the Phase One agreement, U.S. wheat sales to China have totaled more than 2.8 MMT — nearly 90% above USW’s long-term pre-trade war average. Those imports have come from four different classes of U.S. wheat and helped meet the demand for U.S. wheat from China’s private flour millers. This import volume is likely to make China the fourth largest export market for U.S. producers in marketing year 2020/21, which ends May 31.

Chinese wheat buyers and flour milling managers visited the Wheat Marketing Center in Portland, Ore., in May 2019 during a Contracting for Wheat Value seminar sponsored by USW. USW/Beijing Country Director Shirley Lu (second from right) translates as Wheat Marketing Center Technical Director Dr. Jayne Bock (third from left) and a colleague demonstrate falling number analysis.

There are likely to be substantial trade negotiations between China and the United States in the coming months — something wheat producers should welcome. The Phase One agreement was never supposed to be an “end-all agreement” — in fact, when it was announced, plans were already in place to start on “Phase Two,” which were eventually scrapped after COVID-19 turned the world on its head.

With a new U.S. administration taking office this week, many in agriculture are watching closely to see which way the political winds will blow those discussions with China. While there may be a desire by some for a “fresh start” in the China relationship, the Biden administration would do well for U.S. agriculture to pick up where Phase One left off and continue to build on the tremendous export potential for China. President-elect Biden’s early statements and plans to keep tariffs in place on Chinese goods until they can be reviewed are an important first step in the right direction.

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By Shelbi Knisley, USW Director of Trade Policy

Last week, U.S. Wheat Associates (USW) submitted comments to the United States International Trade Commission (USITC) on the importance of Trade Promotion Authority (TPA) legislation to U.S. wheat producers.

The Office of the U.S. Trade Representative (USTR) describes TPA this way: “Since 1974, Congress has enacted TPA legislation that defines U.S. negotiating objectives and priorities for trade agreements and establishes consultation and notification requirements for the President to follow throughout the negotiation process. At the end of the negotiation and consultation process, Congress gives the agreement an up or down vote, without amendment. TPA reaffirms Congress’s overall constitutional role in the development and oversight of U.S. trade policy.”

TPA is important in securing free trade agreements (FTAs) by establishing a known, reliable process for securing congressional approval of agreements negotiated by the executive branch. TPA has been vital for the growth of U.S. agriculture and future trade agreements, by maintaining competitiveness for U.S. wheat producers in the global market.

U.S. wheat producers have benefitted from several FTAs over the last several decades that were negotiated and approved through the TPA process. For example, the North American Free Trade Agreement (NAFTA) was critical in developing the market for U.S. wheat in Mexico, which is now our number one export destination. USW also supported the updates to NAFTA, found in the U.S.-Mexico-Canada Agreement (USMCA), which will address additional trade issues including an improved sanitary and phytosanitary (SPS) chapter. This is a first-of-its-kind provision for regulating trade in goods developed using agricultural biotechnology and updated methods for resolving technical disputes. These provisions should help avoid future challenges that have the potential to disrupt U.S. wheat exports.

The U.S.-Peru Trade Promotion Agreement FTA is a virtual guarantee that tariffs will remain at zero for U.S. wheat. It entered into force in 2009, the same year as the Peru-Canada agreement. Both allowed immediate duty-free access to Peru’s wheat market. Peru’s overall wheat imports have grown from 1.4 million metric tons (MMT) before the agreement to 2.2 MMT in 2019/20. The U.S. market share is around 20 percent. Argentina and Russia also compete in Peru, which now applies zero duties for all wheat imports.

Grain trade is a high volume, low-margin business. Even relatively small tariff differences can have a detrimental impact on both suppliers and importing industries. Wheat trade can be highly affected by quality, and U.S. wheat tends to be among the highest quality globally. However, quality is not free, and an importer may decide that the value advantage of U.S. wheat is not worth the additional cost of the duty if an alternative origin receives improved market access. Predictable market access and a level playing field are therefore top priorities for USW.

Trade Promotion Authority is a key tool for securing new FTAs. While trade agreements negotiated under TPA do not guarantee success in a market, they have a strong track record of playing an important role in expanding and maintaining access for U.S. wheat producers.

For more details and to read about other FTA’s impacts on U.S. wheat exports, USW comments to USITC can be found here.

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By Shelbi Knisley, USW Director of Trade Policy

Last week U.S. Wheat Associates (USW) submitted comments to the Office of the United States Trade Representative (USTR) for the annual National Trade Estimates (NTE) report.

The NTE report allows U.S. industry organizations to highlight and comment on trade barriers impacting their trade opportunities to the U.S. government. USW highlighted several key U.S. wheat markets where there are many barriers in market access, sanitary and phytosanitary (SPS) issues, export subsidies and domestic support. Two of these barriers are highlighted below.

India

India maintains a trade distorting market price support system that encourages domestic wheat production. This leads to distortion in the international market due to domestic crop size and price. When stocks are too large, India has a history of applying export subsidies to move these excess wheat supplies out of the country. If they were to comply with World Trade Organization (WTO) rules and eliminate these subsidies it would create a more level playing field for U.S. wheat exports and increase U.S. wheat annual value of production by an estimated $516 million per year by 2028/29, according to a study by a Texas A&M University economist.

China

China has long been featured in USW NTE submissions with its violations of domestic support and TRQ policies. This year, both of those sections received substantial updates as China works toward compliance in the WTO case rulings and in implementing the Phase One agreement. When China joined the WTO, it agreed to an annual 9.64 million metric ton (MMT) tariff rate quota (TRQ) with a one percent duty but have always manipulated its administration to prevent proper use. USW is encouraged by the recent changes that have promoted extensive use of the TRQ this year but remains vigilant in monitoring the TRQ administration to ensure full compliance with the WTO ruling. That TRQ administration, coupled with real domestic support reforms, are key to unlocking the long-term potential of China’s wheat market for U.S. farmers and to providing consistent access to U.S. supplies for Chinese millers.

For more details and to read about trade barriers in other countries, USW comments to the USTR can be found here. USTR will use these comments to develop its annual NTE report to be released in early 2021.

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By Joe Sowers, USW Regional Vice President for Philippines and Korea

U.S. Wheat Associates (USW) is very pleased that the Tariff Commission of the Republic of the Philippines has extended anti-dumping duties on imports of wheat flour originating and exported from the Republic of Turkey until 2023. The commission’s ruling, announced Sept. 9, 2020, extended anti-dumping duties that were first imposed in 2014 after PAFMIL, the Philippine Association of Flour Millers, Inc., proved that Turkish flour imports threatened to cause material injury to the domestic milling industry. The decision marks the culmination of a decade-long effort by the Philippine flour industry to deter Turkey’s unfair trade practices and secure a fair and competitive market for wheat and flour trade.

USW and U.S. officials have been aware for many years that the Turkish government employs a complex, inward processing scheme that creates incentives for its milling industry to export flour regardless of price, distorting and disrupting flour markets around the world. In making its original case to the Philippine Tariff Commission, PAFMIL argued that the landed cost of Turkish flour was much lower than imported flour from other countries, lower than the prices of flour produced by the Philippine industry and, indeed, well below flour prices in Turkey. USW provided significant information on relative costs and other factors that supported PAFMIL’s case.

In 2014, anti-dumping duties of up to 16.19% were imposed on Turkish flour. Combined with the MFN tariff rate of 7 percent, the duties were enough to reduce imports of Turkish flour by more than 70 percent and allow the Philippine milling industry to increase production of flour needed to make high-quality Philippine wheat food products. The growth in demand for locally produced flour allowed mills to expand and helped smaller and independent Philippine flour milling companies to enter the growing market.

U.S. wheat farmers, who have had representation in the Philippines for 59 years, will also see benefits from PAFMIL’s effort. The Philippines is currently the world’s third largest wheat importer, with demand for wheat flour and milling wheat nearly doubling in the last decade. Its expanding population, coupled with increasing per capita income, has contributed to a surge in consumption of wheat-based products, especially bread, noodles, biscuits and cakes. The Philippine milling industry purchases nearly all its milling wheat from the United States for its quality and consistency. The impact of PAFMIL’s effort is clear with imports of U.S. hard red spring (HRS), soft white (SW) and hard red winter (HRW) wheat rising from 2.16 million metric tons (MMT) in marketing year 2015/16 to 3.58 MMT in 2019/20.

Source: USDA

 

Source: USDA

However, the original tariffs were set to expire at the end of 2019 and PAFMIL’s request for extension had to make the case that ending the tariffs would encourage Turkish exporters to target the Philippines again, increasing exports through their established dumping practices and, in turn, resume its threat to the Philippine milling industry.

PAFMIL’s successful petition to the Tariff Commission stated: “Once the duty is lifted, Turkish flour will come in at even lower prices and cause damage to the local industry. Extension of the anti-dumping duty will help these emerging independent Philippine flour millers to establish themselves and even expand such that the needs of the Philippine market for flour will be fully addressed.” After finding that Turkish exporters continued to dump flour in the Philippines during the period of investigation and would likely resume large scale exports should the duties be lifted, the Tariff Commission extended the anti-dumping duties for another three years, in fact increasing the top rate to 29.57 percent.

As an organization that believes in the value of a trade environment in which the participants compete fairly and openly, USW was happy to support PAFMIL’s request to reinstate the anti-dumping duties. And we were humbled by a recent letter from PAFMIL Executive Director Ric Pinca to our organization:

“I write to thank you for the support and encouragement the U.S. Wheat Associates extended … in our campaign for fair trade against the Turkish government and its wheat flour milling industry. It was a difficult and uphill fight, but we had the truth and your support behind us. With these, we never wavered in our confidence and we have been rewarded with a favorable ruling by the Philippine Tariff Commission … We couldn’t have gained this victory without your unceasing support, for which we are deeply appreciative and grateful.”