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Hollow US WTO victory

4rd April 2019

As bilateral talks between the US and China continue to overhang the global economy, a recent World Trade Organisation (WTO) ruling put additional pressure on Chinese agricultural subsidies. The WTO  ruled in favour of a 2016 US complaint, finding China has consistently exceeded its agricultural subsidy limits. China must now bring its program in line with WTO rules, or the US has the legal right to retaliate.

Much of the focus in the US-China dispute is focussed on trade in manufactured goods, technology and intellectual property. However, China is now the world’s largest agricultural producer and fourth-largest agricultural exporter. It has a massive impact on global agriculture markets due to the size of its consumer market and its importance as an importer. China is also the world’s largest agriculture subsidiser, providing US$212 billion in farm support in 2016 compared to the usual suspects the EU (US$100 billion) and the US ($33 billion).

Subsidies now make up a significant portion of earnings for Chinese farmers, accounting for 38% of their revenue for wheat producers, 29% for corn and 32% for rice. By comparison, U.S. subsidies constitute 8% of US farm earnings for wheat, 4% for corn and 2% for rice. Chinese policies of paying domestic producers over-the-odds for agricultural commodities, amassing massive stockpiles and periodically dumping them at below costs is highly disruptive for global markets.

China will almost certainly appeal the WTO ruling, meaning the case will go to the Appellate Body which acts as the final arbiter of international trade disputes. However, the Trump Administration has blocked all appointments to the WTO Appellate Body as terms of current judges expire. The Appellate Body has been reduced to three judges — the minimum needed to adjudicate a dispute — with the remaining four of its seven seats vacant.

With two of those judges reaching the end of their terms in December, the Appellate Body will be left without enough judges to review cases. And once an appeal is lodged, a dispute settlement panel decision is blocked until the decision of the Appellate Body. Effectively without a functioning Appellate Body, China may be able to simply block the WTO ruling on its agricultural subsidies, placing the case in legal limbo.

For agriculture in general, the current US Administration’s determination to undermine the far from perfect WTO leaves the world open to back-sliding on trade liberalisation that has taken decades to achieve.

The WTO’s dispute settlement system that enforces international trade rules is regarded by most member countries as one of the most effective in international law. For all the US President’s talk of “fairness” in trade, Trump’s Administration has actively undermined the most effective means of enforcement – even for the disputes it has already won. Sad.