U.S. challenges China's grain subsidies

by Ron Sterk
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China's grains - wheat, corn, rice
U.S. says subsidies inflated wheat, corn and rice prices in China.

WASHINGTON — The United States on Sept. 13 launched trade enforcement action against China at the World Trade Organization concerning excessive government support for domestic wheat, corn and rice production.

U.S. agriculture secretary Tom Vilsack and U.S. Trade Representative Michael Froman were joined by bipartisan members of Congress in announcing the challenge to China’s use of “market price support” for the three crops in excess of China’s commitments under W.T.O. rules. The U.S. said China’s market price support for wheat, corn and rice in 2015 was estimated at $100 billion in excess of the levels committed to by China, which inflated Chinese prices above market levels, creating artificial government incentives for Chinese farmers to boost production.

Michael Froman
U.S. Trade Representative Michael Froman

“These programs distort Chinese prices, undercut American farmers and clearly break the limits China committed to when they joined the W.T.O.,” Mr. Froman said. “As this administration has consistently and repeatedly shown, we will not stand by when our trading partners fail to follow the rules like everyone else. We will aggressively pursue this challenge on behalf of American farmers and hold the Chinese government accountable to the standards of fair global trade.”

The National Association of Wheat Growers (N.A.W.G.) and U.S. Wheat Associates (U.S.W.) welcomed the new trade enforcement action against China.

“The significant investigative effort by the Office of the U.S. Trade Representative and the U.S. Department of Agriculture followed five years of work by U.S.W., N.A.W.G. and other industry partners to demonstrate how China’s domestic support policies hurt U.S. farmers,” the groups said in a joint statement. “These programs cost U.S. wheat farmers between $650 million and $700 million annually in lost income by pre-empting export opportunity and suppressing global prices, according to a 2016 Iowa State University study sponsored by U.S.W. That loss estimate is actually 19% more than the losses estimated by a similar 2015 study due to the effect of increasing global stocks and resulting market price decline.”

The Office of the U.S.T.R said China through its market price support programs appeared to provide domestic support for Indica rice (long grain), Japonica rice (short and medium grain), wheat and corn in excess of its Aggregate Measurement of Support commitments under the W.T.O. Agreement on Agriculture. China announces on an annual basis the minimum prices at which the government will purchase those commodities in major producing provinces during harvest, the complaint said. Through the program, China has maintained domestic prices above world market levels since 2012, influencing domestic production decisions and distorting the Chinese market.

Alan Tracy
U.S.W. president Alan Tracy

“Wheat production subsidies in China and other advanced developing countries are the single biggest policy issue affecting our farm gate prices and global trade flows,” said U.S.W. president Alan Tracy. “In taking this step, U.S.T.R. and U.S.D.A. are demonstrating that trade enforcement can ensure that our many trade agreements and a pro-trade agenda really work for American farmers.”

Gordon Stoner
N.A.W.G. president Gordon Stoner

N.A.W.G. president Gordon Stoner, a wheat grower from Outlook, Mont., said, “This enforcement action shows a welcome willingness to defend farmers against governments that blatantly disregard the rules of the road under their trade agreements. It comes at a critical time for farmers who have seen market prices collapse to unsustainable levels in recent years.”

The complaint noted that China committed through its W.T.O. Schedule not to provide trade-distorting domestic support, except for domestic support at or below a de minimis level of 8.5% for each agricultural product, but has provided domestic support substantially above that level, thus breaching its W.T.O. Agriculture Agreement commitment.

Secretary Tom Vilsack
U.S. agriculture secretary Tom Vilsack

“Through tariff cuts and the removal of other trade barriers, China has gone from a $2-billion-a-year market for U.S. agricultural products to a $20-billion-plus market,” Mr. Vilsack said. “But we could be doing much better, particularly if our grain exports could compete in China on a level playing field. Unfortunately, China's price supports have encouraged wheat, corn and rice production in China that has displaced imports. When China joined the W.T.O., it committed to limit this kind of trade-distorting support, which it has failed to do. This has resulted in significant losses to American producers.”

This trade enforcement action marks the 14th complaint brought by the U.S.T.R. against China at the W.T.O. since 2009. 
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