On Thursday, the Obama Administration launched a new trade enforcement action against the People’s Republic of China at the World Trade Organization concerning China’s administration of tariff-rate quotas (TRQs) for rice, wheat and corn. The complaint, filed by the Office of the U.S. Trade Representative, charges that China’s administration of its TRQs for these commodities breaches China’s WTO commitments and undermines American farm exports.

USTR said the U.S. is launching this trade enforcement challenge to hold China to its trade commitments and help level the playing field for American rice, wheat and corn farmers. Today’s announcement marks the 15th trade enforcement challenge the Obama Administration has launched against China at WTO.

The U.S. Department of Agriculture estimates that China’s TRQs for these commodities were worth more than $7 billion in 2015. If the TRQs had been fully used, China would have imported as much as $3.5 billion worth of additional crops last year alone.

“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. “Although China has become a significant market for our grain exports, we could be doing much better than we are today. When China joined the WTO, it committed to implementing an agriculture regime that would facilitate market access consistent with international obligations. However, China has frustrated exporters through generous price support and unjustified market restrictions. Taking action against grain price supports was one piece of the puzzle, and now we must confront China’s improper administration of its TRQs to ensure that our grains have the meaningful market access that China bound itself to as a member of the WTO. Today’s announcement is another step towards advocating for fairness in the global trading system on behalf of American farmers.”

The U.S. Wheat Associates (USW) said China’s wheat TRQ was established in its WTO membership agreement in 2001. Under that agreement, China is allowed to initially allocate 90% of the TRQ to be imported through government buyers, or state trading enterprises (STEs), with only 10% reserved for private-sector importers. The private-sector portion of the TRQ is functioning well enough to be filled in recent years, in part because Chinese millers are trying to meet growing demand for products that require flour from different wheat classes with better milling and baking characteristics than domestically produced wheat provides. However, China's notifications to WTO on TRQ usage show an average fill rate of only 23%.

“As with its price support case, the USTR is shining a light on other policies that pre-empt market driven wheat trade, stifle our export opportunities and force private-sector buyers and Chinese consumers to pay far more for milling wheat and wheat-based foods,” USW president Alan Tracy said.

Dispute settlement panel

In a separate matter, USTR also announced that it has requested that WTO establish a dispute settlement panel to examine China’s level of domestic support for Chinese producers of rice, wheat and corn. USTR launched a WTO challenge on this matter in September 2016, noting that China’s market price support for these commodities was estimated to be nearly $100 billion in excess of its WTO commitments. According to USTR’s analysis, China's domestic support measures and non-transparent TRQ regime work together to distort global markets for wheat, rice and corn. Compliance with WTO rules would lead to a reduction in the excessive domestic support provided to China’s grain 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.

"In September, I joined in the bipartisan call for China to be held accountable to their World Trade Organization commitments. Today's enforcement action on China's administration of tariff-rate quotas for wheat, corn and rice appears to be yet another example of China's refusal to play by the rules,” said Sen. Pat Roberts (R., Kan.) chairman of the Senate Agriculture Committee. “I am committed to working with our producers and alongside USDA and USTR as we continue to fight for U.S. farmers' ability to compete in the global market on a level playing field."

House Agriculture Committee chairman Michael Conaway (R., Texas) said, “China continues to ignore the commitments it made in joining the WTO. Not only is China unfairly subsidizing its producers to the detriment of American farmers; they are also refusing to provide the market access they promised. We have been sounding the alarm, and I am pleased to see USTR taking action to hold China accountable.”

"An equal playing field is vital for America's farmers to compete in a global marketplace," House Agriculture Committee ranking member Collin Peterson (D., Minn.) added. "It is imperative that the United States take this action to hold China accountable for failing to meet WTO commitments."

“I welcome this USTR action against China’s mis-administration of tariff-rate quotas for rice, wheat and corn. It is not the first, nor will it be the last, enforcement action brought against China, which routinely adopts protectionist policies ranging from unscientific regulations on biotech products to excessive market price supports for agriculture commodities,” said Rep. Adrian Smith (R., Neb.), member of the House Ways & Means Committee and chair of the Modern Agriculture Caucus. “China represents a large and growing market for American producers, and our involvement in trade negotiations and institutions such as the WTO is what enables us to hold our trading partners accountable. We must continue to remain a vigilant and engaged actor in the international economy to ensure a level playing field for our farmers and ranchers.”

Overall, the Obama Administration has launched 24 trade enforcement challenges at WTO since 2009 – more than any other country in the world over that period. USTR has won every trade enforcement challenge decided at WTO so far, worth billions of dollars in trade opportunities for U.S. exporters.

Challenging tariff-rate quotas

In an effort to level the playing field for American farmers and hold the Chinese government to its trade commitments, USTR this week launched a new trade enforcement challenge at WTO. This new challenge contends that China’s opaque and unpredictable management of TRQs for rice, wheat and corn is inconsistent with WTO rules.

According to USTR’s analysis, China appears to administer its TRQs – which are necessary to import medium- or short-grain rice, long-grain rice, wheat and corn at lower duty rates – in a manner inconsistent with the commitments in China’s WTO Accession Protocol and the General Agreement on Tariffs & Trade 1994 (GATT). China announces on an annual basis the opening of TRQs. However, China’s application criteria and procedures are unclear, and China does not provide meaningful information on how it actually administers the TRQs. China’s administration of short- and medium-grain rice, long-grain rice, wheat and corn TRQs is not transparent, predictable or fair.

China also appears to have breached its GATT obligations by administering TRQs in an unreasonable manner, by maintaining impermissible restrictions on importation and by failing to provide notice of the total quantities permitted to be imported and changes to the total quantity permitted to be imported. China’s failure to comply with WTO rules means that traders are not able to enjoy full access to China’s TRQs.

Despite lower global prices that favor the importation of grains into China, the TRQs for each commodity persistently do not fill.