The document summarizes a WTO dispute panel report regarding China's domestic support for agricultural producers of wheat, rice, and corn from 2012-2015. The panel found that China's market price support for wheat, rice, and corn exceeded its commitment levels during those years. China agreed to bring its measures into compliance by March 2020. The document discusses key arguments and findings of the panel report and outlines policy options China is taking to achieve compliance, such as lowering administered prices and capping eligible production quantities.

1. China’s Domestic Support Commitments and Options
for Compliance with the WTO Dispute Panel Report on
Market Price Support for Wheat, Rice and Corn
David Orden
Virginia Tech University
Lars Brink
Independent Advisor, Ottawa, Canada
orden@vt.edu
Lars.Brink@hotmail.com
IAAE-NJAU Inter-Conference Symposium
Session “China’s Agricultural Policies:
Working within the WTO Rules”
Nanjing, China November 11-13, 2019
http://www.iaae-njau.org/

2. – US initiated the dispute 13 September 2016
• Claimed China’s support subject to limits for producers of wheat, Indica
rice, Japonica rice and corn exceeded China’s commitment level in each
year 2012-2015
– Panel established 25 January; composed 24 June 2017
• Substantive meetings 22-24 January and 24-25 April 2018
• 27 third-party participants (met with Panel 23 January 2018)
– Panel issued Interim Report to parties 2 Nov. 2018
– Final Report issued to parties 12 December 2018 and
made public 28 February 2019
• Panel concluded in the years 2012, 2013, 2014 and 2015 China provided
domestic support in excess of its commitment level to producers of
wheat, Indica rice and Japonica rice
– Panel Report adopted 26 April 2019
• China agreed to bring its MPS measures into compliance with its
commitments by 31 March 2020
China – Domestic Support for Agricultural
Producers (DS511)
2

3. – Panel defined measures at issue as Market Price
Support (MPS) for the four crops
• MPS is part of a product’s Aggregate Measurement of Support (AMS)
• One AMS for each product
• China’s limit on each AMS is 8.5% of product’s value of production
• AMS to be calculated “in accordance with” Annex 3 of the Agreement and
“taking into account” the constituent data and methodology incorporated
in the Member’s Schedule of Commitments (Article 1.a.ii)
– Only one earlier domestic support dispute: Korea-Beef
in 2000
• “In accordance with” Annex 3 is “more rigorous standard” than “taking
into account” the constituent data and methodology
• Eligible production is quantity “fit or entitled” to be purchased
– Korea capped purchases at pre-announced quantity
Agreement on Agriculture:
Aggregate Measurement of Support (AMS)
3

4. – WTO MPS is measured differently from economic MPS
• Applied Administered Price (AAP), not domestic market price
• Fixed External Reference Price (FERP), not contemporaneous border price
• Eligible Production, not necessarily total production
WTO MPSt = [Applied Admin Price t – FERPfixed years] x [Eligible Productiont ]
whereas:
Economic MPS t = [Domestic Price t – Border Pricet ] x [Total Productiont ]
– MPS often expressed as a percent of value of
production of the product
Agreement on Agriculture:
Market Price Support
4

5. Economic Context of the Dispute:
China’s Border and Domestic Prices
5
Sources: OECD 2019 PSE Database and China’s announced support prices
The economic %MPSs calculated annually by OECD were positive and in
double digits during 2012-2015
This is the context where, depending on legal interpretations, applying
the WTO rules could reduce economic support
0
1,000
2,000
3,000
4,000
5,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Price(yuanpermetricton)
Rice (milled)
International price Producer price Support price
0
500
1,000
1,500
2,000
2,500
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Price(yuanpermetricton)
Wheat
International price Producer pricce Support price
0
500
1,000
1,500
2,000
2,500
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Price(yuanpermetricton)
Corn
International price Producer price Support price

6. – Base years for FERP
• US: 1986-88 as stipulated for original members in Annex 3
• China: 1996-98 as acceding member; used in its accession
• Panel: 1996-98 to avoid “apples to oranges” comparison
– Eligible production
• US: essentially all production in provinces and regions where price
support programs operate
– About 80% of China’s total wheat and rice production; 45% of corn
• China: quantities procured by government; used in its accession
• Panel: All production where price support programs operate except
of poor quality ineligible to be procured, otherwise calculation of
support “detached from operation of the measures”
• A key Panel consideration was that it found no evidence of limits
on quantities to be procured in the regulatory framework of the
MPS programs
Key Arguments and Panel Findings
6

7. – Adjust FERP for rice to unmilled level
• Parties agreed AAP and FERP should be for product at same stage
• Panel: Evaluate at unmilled level; adjust FERP for milled rice using
China’s coefficient
– Support for corn
• US: corn MPS in 2012-15 is a measure at issue
• China: Corn MPS program terminated in 2016 so earlier MPS not a
measure at issue
• Panel: Corn MPS program had expired before the dispute was
initiated as evidenced by decline in domestic prices after 2015
• Panel concluded it had the authority to rule on an expired
measure, but declined to do so for corn because it found no
compelling evidence that the corn MPS measure “might be
reintroduced”
Key Arguments and Panel Findings
7

8. WTO MPSt = [Applied Admin Price t – FERPfixed years] x [Eligible Productiont ]
(expressed as percent of China’s total Value of Production of the crop)
Source: Authors’ calculations from Panel Report and China’s notifications of 2012-2015 domestic
support
China’s Wheat MPS: Alternative Measurements
8
3.7%
18.6% 18.7%
61.9%
China Panel U.S. U.S.
0%
10%
20%
30%
40%
50%
60%
%MPS (2012-15 averages) using three alternative quantities of eligible production
Notified by China (1996-98 FERP)
Determined by panel (1996-98 FERP)
U.S. claim if 1996-98 FERP
U.S. claim with 1986-88 FERP
Limit on AMS (limits sum of MPS and subsidies)
Effective limit on MPS (net of subsidies in AMS)
8.5%
6.8%

9. 9
Panel Evaluation of MPS
2012 2013 2014 2015
as percent of Value of Production of the crop
Wheat 12.1% 18.2% 21.7% 22.4%
Indica Rice 23.6% 30.3% 31.3% 31.9%
Japonica Rice 13.3% 18.9% 20.7% 21.3%
Sources: Panel Report

10. 10
Adjustments to Bring MPS within AMS Limits
2012 2013 2014 2015
Adjust AAPs downward
(percent reduction required)
Wheat -7.7% -15.2% -19.3% -19.4%
Indica Rice -23.6% -28.6% -28.9% -29.0%
Japonica Rice -8.5% -15.5% -16.9% -17.0%
Cap Eligible Production
(Cap as multiple of procured quantity)
Wheat 2.2 4.3 1.2 1.5
Indica Rice 393.7 1.1 1.8 1.9
Japonica Rice 6.9 1.3 1.0 0.9
Source: Authors’ calculations based on Panel Report
Note: Adjustments take notified AMS subsidies into account

11. – Lower AAP about 5%, not enough on its own to bring
MPS into compliance with China’s commitments
• AAP was 2,360 Yuan/metric ton in 2015; down to 2,240
– Announced (12 October 2019) volume of wheat
purchased at minimum price will be limited
• Cap of 37 million metric tons in two batches
– First batch 33.3 million tons not allocated among provinces; second
batch to be assigned based on need
– Cap exceeds procurements during years of the dispute which were
23.2, 8.2, 25.3 and 20.8 million metric tons in 2012-2015, respectively
– Combination of these policies designed to bring China’s
MPS within its commitments
• Likely to keep China’s prices above international levels
China’s Recent Policy Decisions for Wheat
11

12. – For Japonica rice, AAP has been lowered by 16.1%,
essentially enough on its own to bring MPS into
compliance with China’s commitments
• AAP was 3,100 Yuan/metric ton in 2015; down to 2,600
– For Indica rice, AAP has been lowered by about 9.9%
not enough on its own to bring MPS into compliance
• Average AAP was 2,710 Yuan/metric ton in 2015; down to 2,460
– At lower AAP for Indica rice, cap that would have been
needed to remain within AMS limit in 2015 is about
32.8 million tons
• As for wheat, this is well above actual procurements in 2012-2015
Situation for Rice
12

13. – China’s high levels of domestic compared to border prices in
2012-2015 motivated the dispute and created a situation where
application of the WTO rules potentially could reduce economic
MPS
– Arguments and Panel findings are based upon legal
interpretations of the Agreement on Agriculture
– China agreed to bring its MPS measures into compliance with its
commitments by 31 March 2020
• The level of constraint depends on policies undertaken, either to reduce
AAPs for wheat and rice or announce caps on eligible production that
would allow AAPs to remain at higher levels
– China has now demonstrated the mix of policies it will undertake
to achieve compliance with its commitments
Context and Implications of the DS511
Decisions
13

14. – Panel determination that FERP be based on accession base years
1996-98 gives China more policy space for MPS programs than
FERP based on 1986-88 as stipulated in the Agreement on
Agriculture
• This may have implications for other members that have acceded to the
WTO since 1995, but does not affect obligations of original members
– Border protection is needed to provide domestic price support
• If China keeps domestic grain prices above world levels, US and other
exporters will have an ongoing interest in China meeting its WTO
obligations for market access under its TRQ obligations
– TRQ administration is the subject of our next paper
Implications of DS511 Decisions
14

15. • Brink, L., D. Orden, and C. Zulauf. WTO Dispute Panel Report on China’s
Agricultural Support. farmdoc daily (9):40, Department of Agricultural and
Consumer Economics, University of Illinois at Urbana-Champaign, March 6, 2019.
• OECD. 2019. PSE Database for China. http://www.oecd.org/tad/agricultural-
policies/producerandconsumersupportestimatesdatabase.htm
• Orden, D. and L. Brink. 2018. China’s Price Support for Wheat, Rice and Corn
under Dispute at the WTO: Compliance and Economic Issues, presented at AAEA
Annual Meeting.
• WTO. 2000b. Korea – Measures affecting imports of fresh, chilled and frozen beef.
Report of the Appellate Body. AB-2000-8. WT/DS161/AB/R and WT/DS169/AB/R.
11 December.
• WTO. Various years. Notifications. China. Committee on Agriculture.
G/AG/N/CHN/42-48.
• WTO. 2019. China – Domestic Support for Agricultural Producers, Report of the
Panel, WT/DS511/R, 28 February.
https://www.wto.org/english/news_e/news19_e/511r_e.htm
Selected References
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