The U.S. complain about China in WTO regarding agricultural quotes: what are the prospects?

It seems like Barack Obama’s administration used a similar tactic step to Donald Trump’s approach, complaining about China in the World Trade Organization in relation to the fact that China did not meet commitments for providing its trade partners with the access to the local agricultural market in general and wheat, rice and corn in particular. That was the second complaint by the United States about China within WTO, which had been made by US farmers signifying itself “... the case number fifteen of Obama administration’s initiative for compulsory measures in relation to the Chinese government within WTO since 2009”, according to US trade representative.

In particular, the U.S. disputed the volume of quotes for rice, wheat and corn implemented by the Chinese government, underlining the fact that the total of China’s volume of supportive measures to control market prices exceeded the level, which had been discussed during when the country joined WTO, by almost 100 billion dollars. Tariff quotes are instruments of trade policy used by countries’ governments to protect goods produced locally from imported competitors’ products.

China’s aspiration to food independence.

China adheres the policy of protecting local farmers, providing minimal prices for such products as corn, wheat and rice. The supportive prices policy, which had been provided in the last decade, was implemented by the government as the response to the growing population’s demand for cereal and food products, which led to a record imports level of grain and oil.

While the Chinese government was seeking ways of enlarging the food security, subsidiaries affected the growth of local grain prices significantly higher than the global market’s average and substantially increased areas allotted for the cultivation of subsidized cereal products. In fact, the volume of grain output grew by 35.7% to 95 million metric tons in China since 2006.

The minimal supportive price of locally produced wheat procurement, which started in 2006, as well as tariff quotas for wheat, remained unchanged since 2015, reaching 9.63 million metric tons, approximately. Like other grain products, the largest part of the wheat volume (around 90%) was bought by government companies, COFCO and Sinograin, while the private companies’ market share was 10% only.

The minimal support price of wheat was set at the value of 2360 yuan (339.52 US dollars) for metric ton, remaining stable in the last four years. According to Chinese traders, only 30% of tariff quotas were used, although a part of imported wheat was not quoted. In that case, an additional tax of 55% was implemented.

At the same time, unprecedented price support took place in several cases, which caused a corn oversupply estimated by 200 - 250 million metric tons by the end of 2015. China’s government stopped subsidizing in March this year in order to resolve the oversupply issue, which led to a sharp decline of areas allotted to corn.

Nevertheless, the active government’s interference in agricultural policy is brightly expressed in Agricultural Ministry’s speaker during a press conference on May 5: “Here are our plans for this year. First, we plan to decrease lands for corn by not less than 1.33 million hectares. Second, soybean lands will be enlarged by more than 0.4 million hectares. Third, lots of lands will be allotted for other important grain cultures. And rice, wheat lands will remain the same”.

Although the official support price of corn does not exist anymore, according to Chinese traders, the unofficial minimal price of 1400 yuan is still valid with the government’s approval with the goal of supporting local farmers.

Meaningful factors.

There are no doubts that the Chinese government will push hard on the main role of sovereignty above food security, the same way as other countries do. So, what are the prospects of the US complaint about China in WTO besides possible approval from the side of the sceptical electorate?

If the United States will stick to aggressive revaluation policy of trade relationship, which is quite real having in mind Donald Trump’s twits, then China would come back to the negotiations format. If China was persuaded to review its trade policy, that would simplify further discussion of such issues as yuan-dollar exchange rate or Chinese steel export in the U.S. It’s worth also noticing that China was the second largest exporter of agricultural products from the U.S., according to Federal Department of Agriculture. The US goods exports volume in China soared for more than 200% in the latest years which was admitted by US Secretary of Agriculture
Tom Vilsack, who stated: “having lowered tariffs and set other trade restrictions, China enlarged the total import volume of agricultural products from the U.S. from 2 to more than 20 billion dollars per year”.

Donald Trump

Therefore, it’s not worth messing up the relationship with such an important trade partner such as China, especially in light of the significant volume of agricultural imports. Donald Trump could affect the external policy and trade negotiations with China in a very bizarre form. The need for Xi to keep the face should not be underestimated, which could even overweight rational decision, especially in the scope of frightening policy used by the U.S. American farmers hope that the strategy of market cap expansion would not lead to deterioration of an average worker.

Apparently, China is intended to stand firm on country’s positions in WTO. The only reply of the US complaint was a laconic statement which appeared on the website of the Chinese Ministry of Trade on December 16, underlining that the local policy of tariff quotas corresponds WTO rules and that China is sorry about the U.S. actions, going to get the appropriate decision in WTO. The Chinese government had a relatively calm reaction to Trump’s provocative twits.

Trade tensions between the U.S. and China in the agricultural space have a rather interesting perspective. The Black-sea region and South African suppliers expect a chance to touch the water in the Chinese market. We hope that U.S.-China negotiations would potentially increase the trade relationship benefits.
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