U.S. Files WTO Dispute Against Chinese Farm Subsidies

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By Bryce Baschuk

Sept. 13 — The U.S. filed a new World Trade Organization dispute to challenge China's alleged use of “illegal” government subsidies for producing rice, wheat and corn.

China violated the terms of its 2001 accession agreement to the WTO and provided more than $100 billion in trade-distorting domestic support in excess of its WTO commitments, the U.S. trade representative said Sept. 13.

President Barack Obama said he's “confident” the U.S. will win the case which “should bring an end to China's illegal subsidies, remove significant barriers on American exports, and level the playing field for American farmers and their families,” according to a statement issued by the White House press office.

A victory for the U.S. could force China to reduce its agricultural subsidies or face retaliatory trade tariffs worth tens of billions of dollars.

Xu Hong, the director-general of China's Department of Treaty and Law, said he “feels regret” that the U.S. launched the dispute and will “handle it properly” in order to “maintain China's interests of industry and trade.”

Substantial Violation

The U.S. case alleged that between 2012 and 2015 Beijing supported farmers in China at levels that were “substantially” above China's WTO commitment to cap such subsidies at 8.5 percent of the value of production.

The subsidies were conducted under China's “market price support” programs, which annually set the minimum prices at which the government would purchase Indica rice, Japonica rice, wheat, and corn during the harvest season, USTR said.

WTO rules generally permit countries to maintain “de minimis” levels of domestic support of up to 5 percent of the value of production for developed countries and up to 10 percent for developing countries.

Though China is considered a developing WTO country, it agreed to a stricter level of 8.5 percent as part of its 2001 WTO agreement.

China Pleads Innocence

“China has always respected WTO rules, supported the production and development of its agricultural sector in a manner consistent with international rules, and upheld the international trading system of agricultural products,” Xu said in a news release.

U.S. and Chinese trade officials will now try to resolve the dispute in a series of consultations. If negotiators are unable to reach a solution over a 60-day period, the U.S. may then ask a WTO dispute panel to investigate the matter.

The U.S. request for consultations marks the 14th trade dispute between Washington and Beijing in eight years.

Bad MC11 Omen?

China's use of trade distorting subsidies could sink expectations for a near-term WTO agreement to reduce domestic support policies in line with the goals of the Doha Development Agenda, according to U.S. trade officials.

“It's difficult to see how we can make further progress on the rules governing agricultural subsidies at the WTO,” U.S. Trade Representative Michael Froman said during a Sept. 13 press conference.

Since 2001, WTO members have failed to forge an agreement to cut back their domestic support schemes, due in part to the dramatic increases in payments from large, emerging economies like China and India.

An agreement to reduce domestic support is considered key to advancing any other trade agreements at the WTO biennial conference in December 2017, and the lack of such an agreement could jeopardize the overall ambition and success of the WTO's 11th ministerial conference.

Froman added that the U.S.’s decision to launch the first WTO case involving agricultural subsidies indicates how the “U.S. takes seriously the responsibility of all members to abide by their WTO obligations.”

To contact the reporter on this story: Bryce Baschuk in Geneva at correspondents@bna.com

To contact the editor responsible for this story: Jerome Ashton in Washington at jashton@bna.com

For More Information

The USTR press release is available at http://src.bna.com/iyg.

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