U.S. Challenges China's Policies for Rice, Wheat, Corn

The International Trade Practice Center on Bloomberg Law® provides in one comprehensive, time-saving resource.

By Rossella Brevetti

China has breached market access commitments for rice, wheat and corn exports, the U.S. alleged in a World Trade Organization (WTO) challenge.

At the same time, the Office of the U.S. Trade Representative Dec. 15 advanced a separate case by asking the WTO to set up a panel to examine China’s level of domestic support for rice, wheat and corn. The WTO Dispute Settlement Body will consider the panel request Dec. 16.

“Compliance with WTO rules would lead to a reduction in the excessive domestic support provided to China’s grains producers to bring Chinese production in line with market forces, and improvements to China’s TRQ administration would facilitate market access for U.S. and other exporters of these commodities,” according to USTR.

Under a tariff rate quota (TRQ), a low-tariff rate applies to imports up to a specified quantity. A higher tariff rate applies to imports above that amount.

The U.S. request for consultations on China's tariff rate quotas formally launches the dispute. If after 60 days, consultations don't resolve the dispute, the U.S. can ask for a dispute settlement panel.

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

The new complaint marks the 15th WTO enforcement challenge the Obama administration launched against China. The case comes against a backdrop of increased trade tensions between the U.S. and China.

Lawmakers from both sides of the aisle praised the action. House Ways and Means Committee Chairman Kevin Brady (R-Texas) said the case is “huge step forward” for American farmers, adding that he looks forward to “working with the next Administration as we step up our actions to hold China accountable.”

$70 Billion in Economic Activity

National Association of Wheat Growers (NAWG) President Gordon Stoner said the facts of the two cases “go hand-in-hand, demonstrating how Chinese government policies create an unfair advantage for domestic wheat production.” NAWG is a federation of 22 state wheat grower associations.

China’s administration of its tariff rate quotas limit opportunities for U.S. farmers to export high-quality grains to China, USTR Michael Froman said in the statement. U.S. rice, wheat and corn exports produce an estimated $70 billion in economic activity and support 200,000 U.S. jobs, USTR said.

China agreed to allow 2,660,000 metric tons (MT) of short- and medium-grain rice; 2,660,000 MT of long-grain rice; 9,636,000 MT of wheat; and 7,200,000 MT of corn to enter China at lower duty rates through its tariff rate quotas, USTR said.

A separate trade dispute involving phytosanitary measures has prevented the U.S. from shipping rice to China, according to a USTR official, who spoke to reporters on background. Technical work on an agreement to resolve this issue has been completed, but it must still be signed, the official said. At the same time, China has failed to meet TRQ obligations for rice, the official said.

Real Access?

The total annual value of these tariff rate quotas was $2.99 billion for wheat, $ 1.13 billion for short- and medium-grain rice, $1.01 billion for long-grain rice and $1.90 billion for corn, USTR said.

“Real access under tariff-rate quotas is vital to global trade and to providing our farmers and ranchers the opportunity to export high-quality, American-grown products to the world,” Agriculture Secretary Tom Vilsack said in the release. China has become a significant market for U.S. grain exports, but U.S. farmers could be doing much better, he said.

USTR said China's administration of its tariff rate quotas for rice, wheat and corn “is not transparent, predictable or fair.” Further, China “appears to have breached” trade obligations by maintaining impermissible import restrictions and failing to provide notice of the total quantities permitted to be imported.

The tariff rate quotas, which are necessary to import medium- or short-grain rice, long-grain rice, wheat and corn at lower duties, consistently aren't fully used despite conditions favoring importation of grains into China, USTR said. Last year alone, China would have imported as much as $3.5 billion worth of additional crops if the tariff rate quotas had been fully used, according to USTR. A USTR official told reporters during a conference call that prices are much lower for the imported grain than China-produced grain, and that this market situation indicates that the TRQ should be filled.

Similarly, in a statement, U.S. Wheat Associates President Alan Tracy said “consider[ing] that China's domestic wheat prices are more than 40 percent higher than the landed cost of U.S. wheat imported from the Pacific Northwest, it would be logical to assume the TRQ would be fully used if the system were operating fairly, transparently and predictably as the rules intend.”

The U.S. sought consultations with China on Sept. 13 on its domestic support for rice, wheat and corn. Consultations failed to resolve the issue.

USTR estimated that China’s market price support for these commodities was nearly $100 billion above its WTO commitments. Excessive support for rice, wheat and corn inflates Chinese prices above market levels. This, in turn, creates artificial government incentives for Chinese farmers to ramp up production, USTR said.

Officials at China's Embassy in Washington did not immediately respond to a request for comment.

To contact the reporter on this story: Rossella Brevetti in Washington at rbrevetti@bna.com

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

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.

Request International Trade Practice Center on Bloomberg Law