US files WTO complaint against Chinese agriculture subsidies

Farmers working in a seedling raising field in Lianyungang, China.
Farmers working in a seedling raising field in Lianyungang, China.PHOTO: AFP

CHICAGO (BLOOMBERG) - The US has brought a trade complaint to the World Trade Organisation alleging China is offering excessive support for the production of corn, rice and wheat, in the process denying American farmers the ability to compete fairly for exports.

The value of China's price support for the commodities last year was an estimated US$100 billion (S$136.74 billion) more than what it had committed to when the nation joined the WTO, the US Trade Representative, which launched the action, said on Tuesday (Sept 13) in a statement.

China's Ministry of Commerce responded by expressing regret at the US action, saying on its website that it had complied with WTO rules and would handle the compliant in accordance with established procedures.

The complaint is the 14th brought by the USTR against China at the WTO since 2009, and comes as free-trade policy as well as US trade with the Asian country become hot topics in this year's US presidential election campaign. China is an increasingly large importer of all kinds of foods, while the US is the world's biggest agricultural exporter.

"Through tariff cuts and the removal of other trade barriers, China has gone from a US$2-billion-a-year market for US agricultural products to a US$20-billion-plus market," Agriculture Secretary Tom Vilsack said in the statement. "But we could be doing much better, particularly if our grain exports could compete in China on a level playing field."

American farmers have seen their incomes slide amid booming global supplies and lower commodity prices. But while Tuesday's action was welcomed by some US farm groups, others in the industry cautioned that there might  be a backlash.

"The most likely impact in the next six months might be to motivate China to impose anti-dumping tariffs on US products, including agricultural products," Mr William Tierney, chief economist for Chicago-based research and analysis firm AgResource Co, said in a telephone interview. "It will have little or no impact on Chinese agricultural policies."

The Chinese Ministry of Commerce is expected to announce its decision this month on potential tariffs on imports of US dried distillers grains, or DDGS, an animal-feed by-product from ethanol production, Platts reported in August. Chinese ethanol producers called for the investigation in January, arguing that US producers were selling DDGS at artificially low prices.

China has been selling corn and other commodities from government-owned reserves over the past two months to reduce stockpiles. The US Department of Agriculture says Chinese corn inventories reached a 16-year high in 2016. Effective Sept 1, China resumed a 13 per cent value-added tax rebate on exports of corn products, including corn starch and ethanol, the Ministry of Finance said last month.

US wheat prices fell to 10-year low last month and corn dropped near a nine-year low as favourable weather boosted yields to a record this year. China was the biggest buyer after Canada for US agricultural products in 2015, according to USDA data.

"The timing of the WTO is perilous, with most corn and wheat farmers trying to make ends meet," said Mr Peter Meyer, senior director of agricultural commodities at Pira Energy Group in New York. "Rather than talk and negotiate, the US has gone out and irritated one of its best customers. Subsidising your own farmers for food security is not trade distorting."