The WTO ruled in favor of the United States in its complaint that China had rigged its tariff system to constrict entry of foreign-grown grain. The ruling was the second U.S. victory in seven weeks against trade-distorting Chinese agricultural practices. The Trump administration said it “will continue to press China to come into compliance with its WTO obligations.” China has the right to appeal both decisions, which could stretch out the cases for months.
When it filed its challenge, the United States said American farmers had lost as much as $3.5 billion in wheat, rice, and corn sales in a year because of China’s “opaque and unpredictable management” of so-called tariff-rate quotas (TRQs), which allow entry of a specific quantity of a commodity at lower-than-usual tariff rates. A WTO dispute settlement panel agreed, saying, “We have found that China’s administration of its wheat, rice, and corn TRQs inhibits the filling of these TRQs.”
“Today’s panel report is a clear win for U.S. rice producers and exporters and comes quickly on the heels of the WTO finding earlier this year of excessive Chinese subsidies for rice and other grain production,” said California grower Charley Mathews Jr., chairman of the trade group USA Rice. In the February decision, the WTO said China had paid vast subsidies to its wheat and rice growers, exceeding WTO rules and distorting global trade.
“The administration will continue to press China to promptly come into compliance with its WTO obligations,” said U.S. trade representative Robert Lighthizer. He said the government “will take all steps necessary to enforce trade rules and to ensure free and fair trade for U.S. farmers.”
China agreed when it joined the WTO to set up TRQs allowing entry of 9.6 million tonnes of wheat, 5.3 million tonnes of rice, and 7.2 million tonnes of corn annually. In practice, said export promoter U.S. Wheat Associates, only a quarter of the wheat TRQ is filled on average. China assigns most of the TRQ to state trading enterprises. “With these decisions, we call on the Chinese government to come into compliance with the rules it accepted when it joined the WTO,” said Wheat Associates president Vince Peterson.
The U.S. trade representative’s office said in 2016 that China set impermissible restrictions on the imports and failed to announce either the quantities of grain that could be imported or changes to those totals. When China announces the opening of the annual TRQ period, its application criteria and procedures are unclear, said the trade representative’s office, and it does not provide a meaningful explanation of how it runs the TRQs.
The panel that handled the TRQ case recommended that the WTO take the next step in the dispute settlement process, which is to request that China modify its policies so they conform with world trade rules. China has 60 days to appeal the decision, just as it has until the end of April to appeal the February decision on wheat and rice subsidies. If China decides not to change its practices, it can offer compensation, such as a trade concession in other areas. If there is no agreement on compensation in a WTO case, the winning country can seek WTO permission to impose retaliatory measures, such as tariffs, against exports of the other nation.
The February decision on crop subsidies was expected to add impetus to a resolution of the Sino-U.S. trade war. China reportedly has offered, as a step to reduce its trade surplus with the United States, to buy large quantities of U.S. products, including farm exports. Before the trade war, China was the No. 1 market for U.S. food and ag exports. It is forecast to drop to fifth place this year.
To read the ruling by the WTO dispute settlement panel, click here.