WASHINGTON, Dec. 14, 2016 - The U.S. and China have failed in bilateral consultations to resolve a U.S. complaint over Chinese domestic price supports for farmers, setting up the next stage of the dispute with the World Trade Organization (WTO) scheduled to begin the long settlement process.

On Sept. 9, the U.S. Trade Representative officially launched a trade enforcement action against China over its artificially high prices for wheat, corn and rice. Those supports, the U.S. charged, distort world markets and cause billions of dollars in losses every year for U.S. farmers and exporters.

Almost immediately the two countries entered into consultations in a procedural attempt to settle the dispute. Those talks failed, according to U.S. government sources, and the WTO has scheduled – at the request of the U.S. – the first meeting of a panel under its Dispute Settlement Body for Dec. 16.

The failure of the consultations came as little surprise, one U.S. government officials said. According to sources, the U.S. had previously confronted China many times over its crop price subsidies, but China never admitted culpability.

“For us, domestic support in advanced developing countries is the single largest trade irritant that U.S. wheat growers face,” said Dalton Henry, vice president of policy for the U.S. Wheat Associates. “China is the largest of those countries. It’s really hard to overstate the level of impact that has. China is the world’s largest (wheat) producer and also the world’s largest (wheat) consumer. So whatever policies they have are magnified because of that status.” 

An Iowa State University study this year estimated that U.S. wheat exporters lost roughly $700 million in revenue because of China’s domestic support programs that far exceed levels allowed for in the WTO.

Most of that lost revenue, Henry said, is due to China’s artificially high prices – up to $10 per bushel. Those prices are a massive incentive for Chinese farmers to produce way more than they normally would under market conditions that haven’t been altered by the government.

Right now, with China’s support prices in place, the country is the 15th largest importer of wheat. If those supports were taken down, China would become the second-largest world importer. And that’s a lot of demand that U.S. producers would be happy to supply.

“I think most (U.S.) farmers support the lawsuit against China on one big premise, and that’s the fact that farmers believe that they can grow anything as long as it’s on a level playing field,” said Doug Keesling, a farmer and former chairman of Kansas Wheat. “So if the playing field is level between the U.S. and China … I have faith that our farmers will be very competitive on the world market and grow their market share.”

When China joined the WTO in 2001 it agreed to maintain a 9.64-million-ton tariff rate quota for foreign wheat imports. That level has never been reached. U.S. Wheat Associates data show that China came close in 2004, importing about 80 percent of the TRQ, but that was an anomaly.

Henry said China has imported between 2 million tons and 3 three million tons over the past couple years. 

“Can you imagine if we woke up tomorrow and China was actually going to import up to the level of the TRQ they administer?” he said. “We expect if they pulled back their domestic support, they would import at least that much.”

If China bought an additional 6 million tons of wheat, that would be enough to sharply boost prices here in the U.S., he said.

But if China loses the WTO case and eventually agrees to take down its price supports, it will start burning through surpluses. In that case, it’ll likely be a long time before U.S. farmers begin to see new demand, Henry said.

Henry said he expects the WTO process to last between a year and 18 months, and that’s if China doesn’t appeal a losing decision.

U.S. government officials say they are confident of a victory, and Henry agreed.

“Certainly the evidence appears to be overwhelmingly in our favor,” he said. “They administer these price supports. The levels that they committed to (in joining the WTO) are being exceeded by leaps and bounds in all three crops.”


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