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Could US be Heading for Trade War with China?
US Trade Ambassador Michael Froman had formal talks with the Chinese Minister of Commerce Goa Hucheng earlier this month during the G20 summit in China
The US could be heading for another agricultural trade war – this time with China.
Already in dispute with Russia and facing export sanctions in retribution for sanctions taken over the Russian handling of the crisis in Ukraine, the US has now filed a dispute over Chinese agricultural subsidies.
The US notified the World Trade Organization Secretariat on 13 September that it has initiated WTO dispute proceedings against China regarding China’s domestic support measures in the agriculture sector.
The measures concern domestic support allegedly provided by China for agricultural producers of, among other crops, wheat, Indica rice, Japonica rice, and corn.
The request for consultations formally initiates a dispute in the WTO.
Consultations give each side an opportunity to discuss the matter and to find a satisfactory solution without proceeding further with litigation.
After 60 days, if consultations have failed to resolve the dispute, the complainant can request adjudication by a panel.
The move comes as President Obama is trying to have his Pacific rim trade deal – TPP – ratified by congress.
US Trade Representative Michael Froman and US Agriculture Secretary Tom Vilsack announced the complaint which challenges China’s use of “market price support” for three key crops (rice, wheat, and corn) in excess of China’s commitments under WTO rules.
Mr Froman had formal talks with the Chinese Commerce Minister Goa Hucheng earlier this month during the G20 summit in China (pictured).
The USDA said that in 2015, China’s “market price support” for the disputed products is estimated to be nearly $100 billion in excess of the levels China committed to during its accession.
The US added that China’s excessive market price support for rice, wheat, and corn inflates Chinese prices above market levels, creating artificial government incentives for Chinese farmers to increase production.
The US is challenging China’s government support on behalf of American rice, wheat, and corn farmers to help reduce distortions for rice, wheat, and corn, and help American farmers to compete on a more level playing field.
“These programs distort Chinese prices, undercut American farmers, and clearly break the limits China committed to when they joined the WTO. 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,” said Ambassador Froman.
“We will aggressively pursue this challenge on behalf of American farmers and hold the Chinese government accountable to the standards of fair global trade.”
“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,” said Agriculture Secretary Tom Vilsack.
“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 WTO, 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.
“We see substantial opportunities to meet import demand for grains in China if China is willing to operate a WTO-consistent trade regime.”
The US said that China appears to provide agricultural domestic support to Indica rice (long grain), Japonica rice (short and medium grain), wheat, and corn in excess of its Aggregate Measurement of Support (AMS) commitments under the WTO Agreement on Agriculture (Agriculture Agreement).
China maintains this support through “market price support” programmes through which it announces on an annual basis the minimum prices at which the government will purchase Indica rice, Japonica rice, wheat, and corn in major producing provinces during the harvest season.
Through this programme, the US claims China has maintained domestic prices at levels above world market levels since 2012, influencing domestic production decisions and distorting the Chinese market.
China appears to have breached its WTO Agriculture Agreement commitment not to provide support in favour of domestic producers in excess of the commitment levels provided in its WTO Schedule. China made a commitment through its WTO Schedule not to provide trade-distorting domestic support, except for domestic support at or below a de minimis level of 8.5 per cent for each agricultural product.
However, the US claims that China has provided domestic support for each product – Indica rice, Japonica rice, wheat, and corn – substantially above the 8.5 per cent de minimis level.
The US said that in 2015 the level of support provided through these programmes in excess of China’s commitment was worth nearly $100 billion.
The USDA said that America’s rice, wheat, and corn industries are vitally important to the national economy as together, exports from these industries average $20 billion per year. These exports contribute an additional estimated $70 billion to the United States economy every year, and support 200,000 American jobs.
This trade enforcement action is the 14th complaint brought by the Office of the United States Trade Representative (USTR) against China at the WTO since 2009, when President Obama came to office.
Since 2009, the US has brought 23 enforcement actions (including this one) at the WTO.
The United States said it has won every one of these disputes decided to date.
The USDA said that it reflects the Administration’s commitment to trade enforcement and indicates the resolve that the United States would bring to enforce the high standards won in the Trans-Pacific Partnership (TPP), ranging from market access for United States agriculture exports, labour and intellectual property rights, protection of the environment, and keeping the internet free and open.
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