American victory at WTO may be meaningless

Looming gridlock at the World Trade Organization means the United States’ latest win against China may go nowhere

Canadian wheat growers will benefit from a recent World Trade Organization ruling, if the WTO’s dispute resolution process gets fixed, says an industry official.

The U.S. Department of Agriculture announced last week that it has won a WTO challenge against China.

A dispute settlement panel found China guilty of mismanaging its tariff-rate quotas (TRQ) for wheat, corn and rice.

It said China’s process was not transparent, predictable or fair and that it prevents the TRQs from being filled, which harms the U.S. and other exporters around the world.

It was the second WTO victory for the U.S. this year. Earlier it won a challenge involving China’s excessive domestic support for its grain farmers.

“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,” U.S. Agriculture Secretary Sonny Perdue said in a news release.

Canada had third party status in the dispute, which was launched in August 2017.

Cereals Canada president Cam Dahl said he was skeptically optimistic about the outcome of the WTO challenge.

“If this results in reform, it’s positive for Canadian farmers and U.S. farmers,” he said.

But that is a big if, considering the WTO’s dispute resolution system is in disarray and heading toward a “grinding halt” because of the U.S.

The U.S. believes the WTO is biased against it. Therefore, it is refusing to allow the appointment of new appellate body members until the organization corrects that bias.

There has to be a minimum of three appellate body members to hear a WTO appeal.

The standing body of seven members is down to three and the terms of service of two of those members expires on Dec. 10.

The upshot is China could refuse to adopt the WTO ruling on TRQs because it has no way to appeal the decision if there is no appellate body.

Roberto Azevedo, director-general of the WTO, said in February that he sees no clear path forward to address the U.S. concerns.

Dahl said China typically doesn’t come close to filling its wheat TRQ and Canadian exporters suffer from that violation of its WTO obligations.

This year an anomaly. China imported 1.27 million tonnes of Canadian wheat through the first seven months of the 2018-19 marketing campaign, up from 444,000 tonnes in the same period a year ago.

But that is due to the trade spat between the U.S. and China.

U.S. farm groups remain optimistic that the WTO’s ruling against China’s TRQ policy will result in substantive change.

“We call on the Chinese government to come into compliance with the rules it accepted when it joined the WTO,” U.S. Wheat Associates president Vince Peterson said in a news release.

“The world now sees that their policies stifle market-driven wheat trade, block export opportunities and force private sector buyers and consumers to pay more than they should for milling wheat and wheat-based foods.”

China’s annual tariff rate quota for wheat is 9.64 million tonnes. However, the country’s average fill rate is just 25 percent, according to China’s notifications to the WTO.

China does not have to fill the TRQ every year but it is violating rules regarding transparency and administration that are designed to facilitate the use of the TRQs, according to U.S. Wheat Associates.

Peterson said the TRQs would be fully used if China was operating fairly because China’s domestic wheat prices are much higher than the landed cost of wheat from the U.S. Pacific Northwest.

But 90 percent of China’s wheat TRQ has been allocated to state trading enterprises, which do not fill their share. The 10 percent allocated to private sector importers is usually filled due to growing flour demand in the country.

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