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U.S. Gets Favourable WTO Ruling in Dispute Over Mainland China’s Agricultural TRQs

A World Trade Organisation dispute settlement panel recently determined that mainland China has administrated its tariff-rate quotas for wheat, corn and rice inconsistently with its WTO obligations. The Office of the U.S. Trade Representative indicated that this is the second significant victory for U.S. agriculture this year and, “together with the victory against China’s excessive domestic support for grains, will help American farmers complete on a more level playing field.”

The United States argued that the TRQ eligibility criteria, allocation procedures and processing restrictions violated WTO obligations. It asserted that mainland China’s TRQ implementation violated the terms of commitments made in paragraphs 116 and 342 of the working party report for WTO accession to administer TRQs “on a transparent, predictable, uniform, fair and non-discriminatory basis using clearly specified timeframes, administrative procedures and requirements that would provide effective import opportunities; that would reflect consumer preferences and end-user demand; and that would not inhibit the filling of each TRQ.” The United States further claimed that the allocation of a significant portion of each TRQ to a designated state-trading enterprise led to problems, since the only STE for grain importing (China National Cereals, Oils and Foodstuffs Import and Export Corporation) is subject to favourable treatment.

In 2017, mainland China’s National Development and Reform Commission allocated 90 percent of the 9.64 million tonne wheat TRQ, 60 percent of the 7.2 million tonne corn TRQ and 50 percent of the 5.32 million tonne rice TRQ to COFCO. When COFCO did not fill the STE portion of a TRQ, a non-STE would have to contract with COFCO or obtain permission from mainland Chinese regulatory authorities to import without the STE. Non-STEs are subject to penalties in the form of lower TRQ allotments if they do not fill their TRQs. These restrictions led the panel to determine that mainland China was in violation of its obligation to administer its TRQs “in a manner that would not inhibit the filling of each TRQ.” The U.S Department of Agriculture claimed that as much as US$3.5 billion more worth of corn, wheat and rice could have been sold in 2015 if the TRQs had been filled.

The United States was largely successful in its criticism of a range of other mainland Chinese TRQ administration practices as not being transparent, predictable or fair. For example, the panel report stated that “the disparity between what is written in China's legal instruments and what China states that the NDRC does in practice in allocating TRQ amounts does not represent administration in accordance with the applicable rules and standards. On this basis, we find that China fails to administer its TRQs on a fair basis.”

This decision follows a February ruling that domestic production of these same grains had been subject to subsidisation at a level higher than agreed to by mainland China at the time of WTO accession. USTR Robert Lighthizer declared that “this second important victory for the United States further demonstrates that President Trump will take all steps necessary to enforce trade rules and to ensure free and fair trade for U.S. farmers; the Administration will continue to press China to promptly come into compliance with its WTO obligations.” Secretary of Agriculture Sonny Perdue added that “making sure our trading partners play by the rules is vital to providing our farmers the opportunity to export high-quality, American-grown products to the world.”

A representative of mainland China’s Ministry of Commerce said that Beijing will “carefully assess the panel report, properly handling it according to the WTO dispute settlement procedures, and will actively maintain the stability of the multi-lateral trade system.”

Content provided by Picture: HKTDC Research
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