The United States is pursuing two WTO disputes against China regarding wheat, rice and corn. This presentation reviews the key issues in the disputes over China's market price support under the Agreement on Agriculture and China's administration of tariff rate quotas for these grains. It draws on public information available as of July 2018 (the Panel is expected to circulate its findings only later in 2018).

1. Lars.Brink@hotmail.com
orden@vt.edu
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What Scope for Price Support in China and
Other Countries in Light of Pending WTO Panel
Ruling on China’s Programs for
Wheat, Rice and Corn?
Lars Brink
Independent Advisor
David Orden
Virginia Tech
Lars.Brink@hotmail.com
orden@vt.edu
International Agricultural Trade Research Consortium (IATRC)
Annual Meeting
Whistler, British Columbia, Canada, 25–27 July 2018

2. – Dispute over domestic support: DS511
• WTO market price support
• Alternative data and interpretations of measurement rules
– Dispute over administration of tariff rate quotas (TRQs): DS517
• Are TRQs administered in a transparent, predictable manner
– Interdependence of domestic policy and border policy
• Support price settings and TRQ administration
Presentation based largely on:
Orden, D. and L. Brink. 2018. China’s Price Support for Wheat, Rice and Corn
under Dispute at the WTO: Compliance and Economic Issues. Selected
Paper, Agricultural & Applied Economics Association Annual Meeting,
August 5-7. http://ageconsearch.umn.edu/record/274277
Outline
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3. What is domestic support dispute about?
– United States: Claims China’s AMSs exceeded their limits
• Wheat, rice (two types), corn in 2012, 2013, 2014, 2015
– China: Claims no excess AMSs
• Measurements similar to its WTO accession documents and
notifications through 2010
– AMS: Aggregate Measurement of Support
• One AMS for each product
• Market price support (MPS) is part of product’s AMS
• WTO MPS is conceptually different from economic MPS
– Applied administered price, not domestic market price
– Fixed external reference price, not contemporaneous border price
» 1986-88 fixed years, at least for original members
– Eligible production, not total production
– China’s WTO limits on AMSs
• 8.5% of product’s value of production in each year; not in dispute
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4. WTO DS511 process
– US initiated dispute in September 2016
– Panel working since June 2017
• Written submissions, oral statements
• Substantive meetings, Panel’s questions, parties’ answers
– Selected USTR input is public – unusual but laudable disputes practice
– China’s input is not public – argumentation not directly known
» Can draw inferences from US public statements, China’s
accession documents and notifications, and answers in CoAg
– Systemic interest in outcome of the dispute
• Only one earlier domestic support dispute: Korea-Beef in 2000
• 27 third-party participants in DS511
– Panel may issue findings after September 2018
• Appeals? May take into 2019 or longer
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5. Key issues for adjudication in DS511
– Base years for fixed external reference price (FERP)
• US: 1986-88 as for original Members and text of Agr. on Agriculture
• China: 1996-98 as acceding Member; used in its accession
– Eligible production
• US: essentially all production in provinces and regions where price
support programs operate
– 4 - 11 provinces and regions, depending on crop
– About 80% of China’s total wheat and rice production; 45% of corn
• China: quantities procured by government; used in its accession
– Support for corn
– US: corn MPS in 2012-15 is a measure at issue
– China: 2016 policy change => earlier MPS not measure at issue
– Adjust reference price or administered price for rice
• Observe prices of a product at same stage: milled or unmilled
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6. – Korea-Beef ruling
• “In accordance with … Annex 3” is “more rigorous standard” than
“taking into account the constituent data and methodology” (CDM)
– Each Member’s CDM was used to establish its commitments
– Fixed external reference price (FERP)
• US: Annex 3 says FERP must be 1986-88
• China: Members agreed in accession process to 1996-98
– Moreover, only one out of 36 accessions has used 1986-88
– Eligible production: Korea-Beef ruling says “fit or entitled”
• US: unlimited production is “fit or entitled” to be purchased by
government in provinces and regions with price support programs
in 2012-15
• China: only government purchased quantity is eligible
Annex 3 rules versus
China’s accession documents?
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7. – Applicability of rulings to other Members than China?
• Future disputes on interpreting Panel or Appellate Body findings?
– Eligible production: importance varies among Members
• If purchased quantity is affirmed, not some larger quantity
– Erodes WTO power to curb trade-distorting support
• If larger quantity is affirmed, not only purchased quantity
– Will more Members face challenges? India on rice and wheat?
– FERP from 1986-88, not the years used in accession?
• Current and any future MPS of any accession Member will likely be
larger than if using FERP of the more recent base years in accession
– Ten Members calculated MPS in their accessions
» E.g., China used 96-98, Chinese Taipei 90-92, Viet Nam 99-01, Ukraine
04-06, Russia 06-08, Kazakhstan 10-12
– Also accession Members who start using MPS in future must use 1986-88
Clearer rules for measuring price support?
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8. – Options to meet AMS limits
• Lower applied administered prices (AAPs)
– Lower AAPs reduce the price gaps
• Cap eligible production
– Korea-Beef ruling (invoked by the US in DS511) points at option of
announcing pre-set limits
• Will these policy choices reduce economic price support?
– Or will DS511 outcome legitimize loopholes as legal rights?
– A challenge of excess support always lags the year of support
• Can policy change shield an earlier excess from dispute challenge?
• Can a finding of past excess support prevent future excess?
– Will rulings affect how Members engage in negotiations?
• “Domestic support” and “Public stockholding …”
– Stronger or weaker push to shield large MPS from challenge?
Implications for WTO effectiveness?
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9. Economic MPS t = [Domestic Price t – Border Pricet ] x [Total Productiont ]
What was the economic MPS?
Economic MPS
(expressed as percent of China’s total Value of Production of the crop)
2012 2013 2014 2015
Wheat 30 29 34 36
Rice 29 32 32 36
Corn 13 23 26 31
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 effectively reduce economic market price support.
Source: OECD (Producer and Consumer Support Estimates Database 2018). Domestic
and border prices are measured at China farm-gate level.
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10. WTO MPSt = [Applied Admin Price t – FERPfixed years] x [Eligible Productiont ]
Notes: Calculations available on request; provinces includes autonomous regions; rice: weighted
average of Indica and Japonica. China’s submissions, assumed to give data on eligible production
and price adjustments for rice, are not public.
China’s WTO MPS: Alternative measurements
(expressed as percent of China’s total Value of Production of the crop)
2012 2013 2014 2015
Alternative A: FERP: 1996-98; Eligible Production: Major provinces
Wheat 12 18 22 22
Rice 27 34 35 36
Corn 17 21 21 19
Alternative B: FERP: 1986-88; Eligible Production: Major provinces
(similar to US First Written Submission)
Wheat 58 61 63 65
Rice 59 66 67 68
Corn 33 38 37 39
Alternative C: FERP: 1996-98; Eligible Production: Purchased quantities
MPSs for wheat and for rice do not exceed 8.5% of value of production
(assumptions: small purchased quantities, price adjustments uncertain)
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11. 11
Reduce AAP to make WTO MPS = 8.5%
of China’s total Value of Production of the crop
AAP reduction required (percent)
2012 2013 2014 2015
Alternative A: FERP: 1996-98; Eligible Production: Major provinces
Wheat -6 -15 -19 -19
Rice -30 -36 -37 -38
Some price support feasible: Reduced AAP would exceed border price by
between 13% and 27% (wheat) and by between 9% and 21% (rice)
Alternative B: FERP: 1986-88; Eligible Production: Major provinces
Wheat -67 -69 -71 -71
Rice -69 -72 -72 -72
Price support infeasible: Reduced AAP would be below border price, which is
then floor price

12. Cap as percent of total production
(cap on government purchases at support prices)
2012 2013 2014 2015
Alternative A: FERP: 1996-98; Eligible Production: Major provinces
Wheat 71 47 39 39
Rice 31 25 24 24
Price support likely unconstrained by cap: 16% of total wheat production and
19% of total rice production was reportedly purchased in 2015 (USDA)
Alternative B: FERP: 1986-88; Eligible Production: Major provinces
Wheat 15 14 13 13
Rice 14 13 13 12
Price support likely constrained by cap: e.g., caps to make WTO MPS = 8.5% of
total Value of Production are less than 2015 reported purchases
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Cap Eligible Production to make WTO MPS = 8.5%
of China’s total Value of Production of the crop

13. Parallel disputes:
domestic support and TRQ administration
– United States initiated TRQ admin dispute in December 2016
• Panel working since February 2018
• Concerns wheat, rice (two types) and corn
– United States argues
• China’s administration of TRQs prohibits or restricts imports
– Not administered on transparent, predictable or fair basis
• Lack of clarity
– Reallocation of unused quota; role of state-trading enterprises
• TRQs were not filled even when domestic (supported) prices
exceeded import prices
– China may argue
• TRQ administration meets China’s WTO obligations
• TRQ fill rates are linked to characteristics of user demand
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14. – Border protection is needed to provide price support
• Over-quota tariffs are prohibitive relative to 2012-15 support prices
– Support prices higher than border prices are incentives to fill
TRQs
• Larger imports add to cost and complexity of supporting prices
• Administering TRQs in certain ways can be a tool to reduce imports
– Lower support prices and more open TRQ administration reduce
distortions
• Reducing support prices does not by itself necessarily increase
imports
• Making within-TRQ access more open expands imports with or
without support programs
Two disputes highlight interdependence
of price support and import access
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15. Selected references
Gale, F. 2017. U.S. Challenge of China’s tariff- rate quota (TRQ) administration system for grains.
Presentation at the International Agricultural Trade Research Consortium (IATRC) 2017
Annual Meeting, December 3-5.
http://ageconsearch.umn.edu/record/266826/files/Session%2012%20-%20Gale.pdf
Orden, D. and L. Brink. 2018. China’s Price Support for Wheat, Rice and Corn under Dispute at
the WTO: Compliance and Economic Issues. Selected Paper prepared for presentation at the
Agricultural & Applied Economics Association Annual Meeting, August 5-7.
http://ageconsearch.umn.edu/record/274277
United States of America. 2018. China – Domestic Support for Agricultural Producers (DS511).
Integrated Executive Summary of the United States of America. https://ustr.gov/issue-
areas/enforcement/dispute-settlement-proceedings/wto-dispute-settlement/pending-wto-
disput29
United States of America. 2018. China – Tariff Rate Quotas for Certain Agricultural Products
(DS517). First Written Submission of the United States of America. https://ustr.gov/issue-
areas/enforcement/dispute-settlement-proceedings/wto-dispute-settlement/pending-wto-
dispute-36
WTO (World Trade Organization). 1995. Agreement on Agriculture.
https://www.wto.org/english/docs_e/legal_e/14-ag_01_e.htm
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16. Thank you!
Lars.Brink@hotmail.com orden@vt.edu
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