By the end of the year, China is finally expected to implement the quotas for corn, wheat and rice as it agreed to do about 20 years ago, but it may not be a cause for celebration for American farmers.
It’s been more than two years since the U.S. Trade Representative filed a suit in the World Trade Organization against China, claiming the country never properly implemented the tariff rate quotas it agreed to for corn, wheat and rice.
The U.S. recently won that case and China declined to appeal, handing U.S. farmers and exporters an apparent victory — but maybe not if the U.S.-China trade war continues to rage. China is levying a 25% tariff on U.S. corn, wheat and rice in retaliation for U.S. tariffs.
“We could have a situation where we actually make this damn TRQ work and it benefits our competitors as long as those tariffs are in place,” said a U.S. grain industry source, who spoke to Agri-Pulse on condition of anonymity.
The tariff rate quotas China agreed to when it joined the World Trade Organization in 2001 don’t specify which country would benefit, but it was always generally assumed that the U.S. would benefit the most by selling millions of tons more grain to the Chinese.
China agreed to a 9.64-million-metric-ton quota for wheat, a 7.2-million-metric-ton quota for corn, a 2.66-million-metric-ton quota for long grain rice and a 2.66-million-metric-ton quota for short and medium grain rice when it joined the WTO.
But China’s “opaque and unpredictable management of the TRQs” violated the countries promises and effectively shut out U.S. grains, the USTR charged when it filed a complaint with the WTO in September 2016.
“China’s failure to comply with WTO rules means that traders are not able to enjoy full access to China’s tariff-rate quotas,” the USTR said at the time. “Despite lower global prices that favor the importation of grains into China, the TRQs for each commodity persistently do not fill.”
The win this year at the WTO was supposed to fix the system and allow U.S. grains to flow into China through the TRQs. That may no longer be the case, U.S. government and industry officials worry.
China has already shown it’s not as dependent on U.S. crops as many had hoped, buying Ukrainian corn, Canadian wheat, Dutch pork and Brazilian soybeans in larger quantities since the trade war has progressed over the past year. Even U.S. exports of crops like walnuts, oranges, almonds, cherries, apples and peaches have suffered.
China has been diversifying its agricultural suppliers as the Trump administration ratcheted up the trade war, telling farmers here they have to rely less on China and sell more of their commodities to the European Union, the bloc of countries that’s already in a separate trade battle with the U.S. over steel, aluminum and potentially auto tariffs.
USTR and USDA officials have promised the corn, wheat and rice sectors that they will be closely monitoring China in the months to come to make sure it’s living up to its WTO pledges. But unless the tariffs come down, it will be difficult to get in the quotas, says U.S. Wheat Associates Regional Vice President Jeff Coey, who leads the group’s efforts in China from an office in Hong Kong.
“With quota, (Chinese) buyers can import whatever origin is wanted, but usually buyers will opt to avoid the punitive duty, hence the lack of business for U.S. origins,” Coey told Agri-Pulse in written correspondence. “Our wheat is good, but not good enough to justify a 25% premium. Besides which, the imposition of the tariff sends messages from the government that importing U.S. products is not encouraged.”
Just the fact that there are tariffs creates a “chilling effect” for business, he said, but that hasn’t dissuaded USW from maintaining contacts in the country and reaching out to new millers to market U.S. wheat.
Frustratingly, U.S. wheat is sought after in China because of its reputation for quality, especially when compared to domestic grain, Coey said.
“Due to years of trade and technical servicing by USW, all major users of wheat in China are familiar with the advantages of U.S. wheat, especially” hard and soft spring wheats, he said. “U.S. wheat maintains a strong reputation in China among mills who seek to produce specialty flour, such as for bread and cake.”
It’s not just the wheat farmers who have been frustrated. The USDA estimates that if China had set up the TRQs as it was supposed to, the U.S. would have likely shipped an additional $3.5 billion worth of grain in 2015 alone.
There have been recent positive signs for the on-again, off-again talks to end the U.S.-China trade war, but China has brought in new muscle (Commerce Minister Zhong Shan) for the renewed negotiations that have so far only been a long-distance, over-the-phone conversations since Presidents Donald Trump and Xi Jinping met in June.
The latest telephone negotiations last week, went well, Trump said, but neither the U.S. or Chinese governments held press conferences or released descriptions of the talks — not even to announce that progress was being made.
“They had a very good talk. We'll see what happens,” Trump said about the call between USTR Robert Lighthizer, Treasury Secretary Steven Mnuchin and their Chinese counterparts Vice-Premier Liu He and Zhong.
The White House announced Wednesday that Lighthizer and Mnuchin will fly to Shanghai next week for face-to-face talks that will start Tuesday.
“The discussions will cover a range of issues, including intellectual property, forced technology transfer, non-tariff barriers, agriculture, services, the trade deficit, and enforcement,” the White House said.
But Chinese tariffs remain firmly in place on virtually all U.S. crops, choking trade with the U.S., and Chinese officials are already warning that the U.S. better be willing to give as well as take during the rekindled talks.
"There will never be an agreement where the U.S. is the sole winner; the agreement must be mutually beneficial," said Zhang Xiaoqiang, vice chairman of the Beijing-based China Center for International Economic Exchanges. Zhang was quoted in an article Saturday by China Daily, a government-run outlet.
Meanwhile, U.S. wheat farmers just want a fair shake at supplying Chinese millers who want the American-made grain.
“We are concerned that Chinese customers are learning to make do without us,” USW’s Coey said. “However, unlike more steady and loyal markets, China has only ever offered us an opportunistic crack at a sliver of their market … We are hoping that business will bounce back if we return to normal tariff treatment, and can again go toe to toe with other imported origins.”
This story has been updated to include new information from the White House on trade talks in Shanghai next week.
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