Complaint by the United States against China in the agri-business

On September 13, 2016, the United States requested consultations with China regarding certain measures through which China appears to provide domestic support in favour of agricultural producers, in particular, to those producing wheat, India rice, Japonica rice and corn.

The United States claimed that the measures appear to be inconsistent with:

    Articles 3.2, 6.3 and 7.2(b) of the Agreement on Agriculture.

On September 29, 2016, the European Union requested to join the consultations. On September 30, 2016, Australia, Canada and Thailand requested to join the consultations. On October 5, 2016, the Philippines requested to join the consultations. Subsequently, China informed the DSB that it had accepted the requests of Australia, Canada, the European Union and Thailand to join the consultations.

Panel and Appellate Body proceedings

On December 5, 2016, the United States requested the establishment of a panel. At its meeting on December 16, 2016, the DSB deferred the establishment of a panel.

At its meeting on January 17, 2017, the DSB established a panel. Australia, Brazil, Canada, Colombia, Ecuador, Egypt, El Salvador, the European Union, Guatemala, India, Indonesia, Israel, Japan, Kazakhstan, Korea, Norway, Pakistan, Paraguay, the Philippines, the Russian Federation, Saudi Arabia, Singapore, Chinese Taipei, Thailand, Turkey, Ukraine and Viet Nam reserved their third-party rights.

Following agreement of the parties, the panel was composed on 24 June 24, 2017.

On February, 22, 2018, the Chair of the panel informed the DSB that the panel expected to issue its final report to the parties no earlier than the third-quarter of 2018, in accordance with the timetable adopted after consultation with the parties. In its communication, the Chair also informed the DSB that the report would be available to the public once it was circulated to the Members in all three official languages, and that the date of circulation depended on completion of translation. On July 27, 2018, the Chair of the panel informed the DSB that the panel expected to issue its final report to the parties no later than December 2018, due to the circumstances of this dispute and in accordance with the timetable adopted in consultations with the parties. In its communication, the Chair also indicated that the report would be available to the public once it was circulated to the Members in all three official languages, and that the date of circulation would depend on completion of translation.

On February 28, 2019, the panel report was circulated to Members.

Summary of key findings

This dispute concerns China’s provision of domestic support, in the form of market price support (MPS), for producers of each of wheat, Indica rice, Japonica rice and corn in 2012, 2013, 2014, and 2015.

The central element of this dispute was the calculation of the value of China’s market price support (MPS) provided to producers of wheat, rice and corn. Under the Agreement on Agriculture (AoA), MPS is calculated using a mathematical formula composed of three variables: the applied administered price (AAP), the fixed external reference price (FERP) and the quantity of production eligible to receive the AAP (QEP). For the purposes of the present case, the resulting value of MPS is compared against China’s 8.5% de minimis commitment.  To allow for this comparison, the MPS is expressed as a percentage of the total value of production of the commodity at issue. In the present dispute, if such percentage is greater than China’s 8.5 % de minimis commitment, then China would not be in compliance with its obligations under Articles 6.3 and 3.2 of the AoA.

As a threshold matter, the Panel addressed a terms-of-reference issue brought by China with respect to the measure relating to corn. The Panel found that, following the 2015 corn harvest, China had removed an essential element of the challenged corn measure: the AAP. As a result, the Panel found that the MPS measure relating to corn had expired prior to US initiation of the dispute. In the circumstances of the case, the Panel ultimately declined to rule on the corn measure.

The Panel then turned to examine the United States’ claims under Articles 6.3 and 3.2 of the AoA regarding wheat and rice. For these purposes, it made findings on how each of the previously mentioned variables were to be defined.

First, the Panel found that, in China’s case, the FERP should be based on years 1996-1998, drawn from Part IV of China’s Schedule, rather than the years 1986-1988, set out in paragraph 9 of Annex 3 of the AoA. The Panel reached this conclusion including by assessing the context provided by the MPS commitments of the 36 Members that have acceded to the WTO since 1995, which generally used a base period other than 1986-1988.  The Panel reasoned that the use of years 1996-1998 also maintained consistency between the manner in which China’s support for agricultural producers was calculated at the time of China’s accession to the WTO and during the Panel proceedings, allowing an apples-to-apples comparison.

The AAP was not in dispute between the parties, as both agreed that it was the price set out in the relevant legal instruments for each product for each year.

Regarding the QEP, the Panel found that in the absence of any explicit or implicit limits in China’s challenged measures, the QEP for wheat and rice is the entire volume of production in the relevant specified provinces. Other than the exclusion of grain of insufficient quality, the Panel found no such limitations in the content of the measures, nor in Part IV of China’s Schedule.

Having determined all components necessary to compute China’s market price support for wheat, Indica rice and Japonica rice, the Panel performed the calculation and found that in each of the years 2012-2015, China exceeded its 8.5% de minimis level of support for each of these products. The Panel then found that because China’s level of support exceeded the de minimis level, it was also in excess of China’s commitment level of “nil” specified in Section I of Part IV of China’s Schedule CLII. On that basis, the Panel concluded that China acted inconsistently with its obligations under Articles 3.2 and 6.3 of the AoA.

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