INSIGHTi

U.S. Challenges to China’s Farm Policies
July 27, 2020
In early 2019, the World Trade Organization (WTO) ruled in favor of the United States in two cases that
the U.S. Office of the Trade Representative (USTR) filed against China, alleging that its agricultural
policies were inconsistent with its WTO obligations. While China agreed to conform to the WTO rulings,
USTR contends that Beijing failed to act on one of the cases by the agreed-upon deadline of June 30,
2020. On July 16, 2020, USTR submitted a notification to the WTO requesting authorization to take
countermeasures against imports from China.
China’s Farm Support Spending
In the first case (DS511), USTR contended that China’s support policies to growers of wheat, rice, and
corn exceeded the spending limits it agreed to in 2001, when it joined the WTO, by nearly $100 million
from 2012 through 2015. USTR asserted that these policies created an incentive for Chinese farmers to
increase production of the subsidized crops, displacing imports and distorting international trade.
On February 28, 2019, the WTO dispute settlement body agreed with major parts of the U.S. complaint,
finding that China had exceeded its domestic support limits for wheat and rice in each year between 2012
and 2015. The WTO body also disagreed with China’s methodology for calculating the amount of
domestic support its wheat and rice farmers received. It recommended changes to bring the Chinese
policies into compliance with China’s WTO commitments. It did not make a ruling on corn because,
following the 2015 harvest, China made changes to its calculations of corn support prices, making them
less market distorting.
China did not appeal the ruling but committed to abide by it. China restated that commitment in its Phase
One trade agreement with the United States in January 2020.
On June 18, 2020, China notified the WTO that it had implemented changes to its rice and wheat policies
to comply with the WTO recommendations. China adopted an approach that the dispute settlement body
had indicated as potentially legal under the WTO’s Agreement on Agriculture. China is to cap the annual
quantity of wheat and rice eligible to receive government support at a level substantially less than total
national production. Each year, in advance of planting, China is to announce both the support prices and
the maximum production amounts eligible for government procurement at those prices. Any quantities
produced beyond the announced level would not be eligible for government support and would therefore
not count against spending limits.
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China’s approach would allow it to continue purchasing domestic rice and wheat at the same level or
possibly higher levels. For example, in 2016 China reported that it had purchased 28.5 million metric tons
(MMT) of wheat, representing 6.6% of the total value of national wheat production. Under the prior
system, the dispute settlement body found this to violate China’s WTO commitments because there was
no cap on government procurement, and the price support could have led to greater domestic production.
This meant that China’s spending limits included the potential cost of supports for the entire rice and
wheat crops.
Under the new system, the eligible quantity is announced in advance, so the policy can be perceived as
not encouraging production beyond that cap. With the flexibility to set these amounts annually, China can
alter the quantity of subsidized commodities to remain within the WTO allowable limit of 8.5% of the
value of production. China’s new policy will provide flexibility to determine the quantity of production it
would like to support, possibly influencing the amount of rice and wheat that the country imports.
Although this support framework may appear to be compliant with China’s WTO commitments, the
United States announced that it does not consider the new policy to comply with the WTO ruling. Its
request for authorization to take countermeasures, if granted, would allow the United States to raise tariffs
on $1.3 billion of imports from China. The choice of products to target would be up to the U.S.
government.
China’s Market Access Policy
On December 15, 2016, USTR filed a second WTO dispute settlement case (DS517) against China,
alleging that China’s administration of its tariff-rate quotas (TRQs) for wheat, rice, and corn were unclear
and had prohibited imports, thus undermining U.S. exports. A TRQ sets a low (or even zero) tariff on a
certain annual quantity of imports, while imports above the quota amount are levied a higher tariff rate.
When China joined the WTO in 2001, it agreed to create TRQs to allow imports of wheat, rice, and corn.
By 2004, China had committed to annual TRQs of 9.6 MMT of wheat, 5.4 MMT of rice, and 7.2 MMT of
corn. The in-quota tariffs for all three commodities are 1%, while the over-quota tariffs are set at 65%.
But China has never imported as much of these grains at the 1% tariff rate as its TRQs allow, even when
imported grains were priced much lower than domestic grains. USTR alleged that China’s procedures did
not provide sufficient information on how it actually administered the TRQs.
On April 18, 2019, the WTO ruled in favor of the United States, recommending that China make changes
to conform with its WTO obligations. In the U.S.-China Phase One trade agreement, China stated that it
would ensure its TRQs conform with the ruling. The United States and China informed the WTO in June
2020 that they had agreed that China would comply by October 8, 2020.
Based on Chinese customs data, in 2017, the United States accounted for 27% of China’s 2.8 MMT of
corn imports and 36% of its 4.3 MMT of wheat imports. China did not import significant quantities of
U.S. rice. It is unclear whether resolution of either dispute will lead China to import more grain from the
United States. It is possible that China’s procedural changes to support policies will not bring about
greater trade in the affected grains.

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Author Information

Anita Regmi

Specialist in Agricultural Policy





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