2010 National Trade Estimate Report Foreign Trade Barriers by idq14496


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              2010 National Trade Estimate Report
                    Foreign Trade Barriers

                                 18 November 2009

The following is a submission to the 2010 National Trade Estimate Report on Foreign Trade
Barriers as requested by the Office of the United States Trade Representative. This presentation
is on behalf of US Wheat Associates (USW).

Export Subsidies
The United States (US) and others have focused on European Union (EU) export subsidies for
many years, and even the EU has come to recognize that total elimination will be needed. The
EU is determined to extract a price from others as phase-out will be difficult in some areas and
will involve a political cost. Nonetheless, we need to continue the pressure for a total
elimination. An effort to eliminate these subsidies is being undertaken in the Doha round of
negotiations. US negotiators need to continue to press for this at Doha and ensure that it is part
of the reciprocity agreement, in line with the US reducing domestic support.

A number of other countries have increased the reliance on agricultural export subsidies as well,
particularly in times of surplus crops or to encourage exports. In the last few years, China has
utilized this mechanism as well. This is a trade distorting mechanism that gives many countries
an unfair advantage in trade and serves as a price control mechanism by managing supply and
disposing of surplus. An eventual Doha agreement will eliminate all export subsidies but until
such an agreement is reached, the practice continues and puts US exports at a competitive
disadvantage. We encourage consistent monitoring of this practice as well as actions to correct
such non-WTO compliant trade behavior and enforce commonly accepted trade principles.

Domestic Subsidies - China
China's subsidies to grain producers are growing rapidly with the inclusion of subsidies on inputs
such as fertilizer, fuel, equipment, and seed. The direct payments to producers on these inputs
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encourage food grain production. It is necessary to monitor subsidies to assure they are not
market impacting and to follow the growth of subsidy payments as the government works to
encourage grain production over other forms of agricultural production or land use.
Transportation subsidies that exist for rail provide a distinct advantage to domestic producers,
but may not be considered in calculations comparing subsidies to total agricultural value. The
transport subsidies are, for all practical purposes, discriminatory and are indirect export subsidies
allowing the exporter to price wheat accordingly, as the exporter is only a broker.

Export Subsidies – European Union
The European Union’s (EU) use of export subsidies continues to be a problem. Not only does
the EU persist in the use of export subsidies to gain market share at the expense of the United
States (US), it also switches subsidies between wheat and flour in such a manner as to
completely disrupt trade in both commodities. The EU spends up to USD $6 billion per year, a
majority of which is used for wheat, while the US discontinued its use of export subsidies in
1996. It is US Wheat Associate’s (USW) objective that the Doha round of multilateral
negotiations will result in the complete elimination of export subsidy use in world agricultural

The US and others have focused on EU export subsidies for many years and even the EU has
come to recognize that total elimination will be needed. The EU is determined to extract a price
from others as phase-out will be difficult in some areas and will involve a political cost.
Nonetheless, we need to continue the pressure for a total elimination. An effort to eliminate
these subsidies is being undertaken in the Doha round of negotiations. US negotiators need to
continue to press for this at Doha and ensure that it is part of the reciprocity agreement, in line
with the US reducing domestic support. Any reductions in US export credit guarantees should
only be made on a 1:1 basis with EU export subsidies.

Export Subsidies - India
When stocks become excessive, India also uses export subsidies which allow the FCI to sell
sound wheat to government owned exporters for less than 50 percent of the acquisition costs,
which makes it one of the largest wheat export subsidizers. These issues must be addressed in
the Doha round of the WTO trade negotiations.

Export Subsidies - Pakistan
Despite drought, quality problems and large subsidy costs, Pakistan remains determined to
export at least some wheat on a regular basis. All export sales by Pakistan require a significant
export subsidy since the cost of Pakistani wheat at the export point of Karachi is estimated at
close to $260 /MT; this figure is based off a $180 /MT official minimum purchase price that was
set in 2006. This practice is a violation of Pakistan's World Trade Organization (WTO)
agreement, as it does not contain provisions for grain export subsidies.

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Export Subsidies- South Africa
There is quantifiable uncertainty in the region as to who is using export subsidies, however, US
wheat producers have lost market share due to lower priced wheat. The countries that appear to
be subsidizing exports either through state trading entities or some type of subsidy scheme
include: Canada, Australia, Russia, Ukraine, Pakistan, India, Turkey and Romania.

Export subsidies from nontraditional origins are not uncommon where traders offer prices
ranging from 10 to 30 percent below US prices for similar quality. Offers from the Canadian
Wheat Board (CWB) range from only a few cents per ton to a few dollars per ton lower or higher
quality is given away at a reduced price.

US Export Credits and Food Aid
The EU and increasingly the rest of the world has been adamant that the US make major changes
in its export credit and food aid programs as a cover for its elimination of export subsidies.
While the US agricultural community has always been to see the GSM program as more than a
minimal subsidy in the past, the program can no longer be classified as such as it covers its costs
and losses. The view is widely held that in a continuing effort to reform the GSM-102 program,
it will need to be phased down to a 180 day tenor. There is little prospect that the direction could
be changed without a major political effort.

Of greater concern to USW and all of US agriculture is the potential retaliation against the US in
the Brazil Cotton case. Brazil is entitled to retaliate against the US up to a value of $800 million
in penalties. While the specific retaliation list has not yet been finalized, Brazil has published in
illustrative list of products it intends to retaliate against, which covers most US agricultural
products, including wheat. The retaliation will not only place punitive tariffs on US wheat
exports to Brazil but will penalize any future use of the GSM-102 program. Wheat is generally
the second largest user of GSM export credit guarantees. Should wheat remain on Brazil’s
retaliation list, the combined effect of these two punitive actions will be a decrease in US wheat
export competitiveness to Brazil and to the other markets that rely on export credit guarantees.
In fact, the retaliation against the GSM program will generate penalties based on usage,
rendering the program prohibitively expensive and in effect shutting down any future use of
export credit guarantees. We urge the USTR to negotiate a settlement with Brazil on this case to
avoid unreasonable penalties, particularly when Brazil has traditionally been the largest user of
the GSM program and due to the fact that access to the program helped keep Brazilian banks
liquid at the height of the Brazilian financial and currency crisis. We also urge the USTR to
work with Brazil to avoid any cross retaliation on US industrial goods which could ignite
tensions between US agricultural and manufacturing during a time when all sectors that rely on
trade need to maintain unity. The continued use of the GSM program is essential for US
agricultural competitiveness, particularly during the prolonged global economic downturn and
credit crunch.

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Export Credit Guarantee Programs - Mercosur
Some credit has been used by Brazil. The GSM-102 currently runs from 120 days to 3 years,
buyers' option. This is very important for the buyer who does not wish to take the risk of
currency devaluation and considers it too expensive to covering risk. Some importers can
benefit with longer terms, by taking a short term risk and transferring the remaining period to the
domestic bank, who will continue to use the line of credit at its own risk. Importers may benefit
from lower bank commissions by providing this opportunity to the domestic bank. Therefore it
is not in our interest to shorten terms but to continue providing the option of shorter terms with
differentiated guarantee fees. Undoubtedly, a competitive guarantee program can be an efficient
marketing tool. Lack of availability or cancellation of credit guarantee programs in some
countries has an adverse affect on US market share. This is of tremendous concern in the Doha

Food Aid
We remain concerned with the current Doha modalities on food aid that limit the practice of
monetization. We are further concerned by domestic pressures to reform food aid programs to
emphasize the use of cash for the local and regional purchase of wheat as more efficient and
effective than the current in-kind programs.

On WTO disciplines on food aid, it’s important to note that US food aid has recently averaged
less than two-percent of US agricultural exports by value and less than three-percent by volume.
The most that the US agricultural community could accept from a Doha agreement would be
new rules to avoid commercial displacement on food aid programs. The US food aid community
also argues that the WTO does not have expertise in this area. The WTO should rely on the
Consultative Subcommittee on Surplus Disposal (CSSD) and the Food and Agriculture
Organization (FAO) on food aid issues. Doha disciplines call for limiting the role of private
voluntary organizations (PVOs), such as World Vision, Africare, Food for the Hungry and
Catholic Relief Services, to conduct emergency programs unless they collaborate with an
international body such as the United Nations (UN). PVOs are frequently the front-line
responders and as they are in direct contact with the target populations, they frequently have
better information on the depth of a crisis and the level of need. Lack of thorough understanding
on the role of non-government relief and development agencies in food aid could potentially cut
off an important avenue of emergency response. Continuing to allow private relief and
development organizations to conduct emergency and non-emergency programs without placing
them under the UN umbrella is critical for addressing hunger and poverty. If PVOs are not
interfering with commercial trade, but are responding to identified needs, their work should not
be restricted.

We remain extremely concerned with US government plans emphasizing cash for the local and
regional purchase (LRP) of food. The US wheat industry believes that it’s essential to have
access to a full range of options in providing food assistance and helping countries achieve food
security. While cash can be a viable option in some very specific emergency situations, the

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process is largely untested and the US government does not yet have sufficient quantitative data
to prove that is in fact a more effective and efficient means of feeding needy populations.

The US has traditionally been and continues to be the top supplier of global food aid. When the
EU switched to cash in lieu of in-kind food donations, their contributions in addressing global
hunger decreased by 40 percent. Switching to a cash based food aid system not only diverts
from the use of US food aid but relies on local supply where there is limited quality control and
where food safety systems are not highly regulated. There are also questions about the
infrastructure in most of the regions that currently receive food aid. There is no confirmation
that infrastructure is developed enough to get product to the people that need it most. A cash
based food aid program also reduces the role of US agriculture in future food aid programming,
which could ultimately result in smaller food aid allocations.

We strongly encourage the US government to wait for the results of the LRP pilot study before
moving ahead with any funding for cash based food aid programs. Additionally, we encourage
the separation of funding for any future cash based programs as this should come from the
Foreign Disaster Assistance bill and be administered by USAID. At the same time we believe
that USDA must remain as the front line entity charged with managing in-kind programs funded
through PL-480. No future cash programs should be funded through PL-480. US farmers have
donated generously to global feeding programs and will continue to do so. While current
monetization programs present some inefficiencies, these can and will be addressed. It is
certainly possible to make improvements to the program without eliminating its critical place in
the US’ plan for global security. Monetization plays a critical role in the US’ global food
security programs. Eliminating these programs wholesale will not contribute to global food
security and may result in more people going hungry.

Food Aid - Bolivia
Food aid does not affect the market price in this region, when it is provided in its natural form,
such as wheat grain. When provided as a value-added product, such as wheat flour, domestic
prices are affected. US Wheat Associates (USW) has reported to USDA and USAID for a
number of years the on-going preference for shipping flour to Bolivia instead of wheat for
monetization purposes in food aid programs. USW is aware that there are many issues at play,
including shipping a commodity that commands the highest price for the PVOs who monetize, as
well as complicated logistics for storing and shipping to a landlocked country. In effect, with so
much flour destined to Bolivia, the local milling capacity has been seriously compromised with
one mill after another declaring bankruptcy and ending operations. This same bleak outlook
applies to mills in Southern Peru near the port of Matarani where most of the wheat destined for
Bolivia arrives. Fewer mills mean no demand for wheat.

USW also understands that it will be difficult to compete with wheat from Argentina in the
region, and that Argentina dumps flour on the Bolivian market. All of the flour that goes into
Bolivia is primarily destined for La Paz and is sold at cheaper than prevailing prices. USW

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requests support in encouraging that a percentage of food aid flour donations to Bolivia be
eliminated in favor of wheat. There has been some progress on the issue throughout 2007.
USAID is reviewing the amount of flour that is monetized and has decreased it by about
10,000 metric tons (MTs). Continued efforts to encourage the sale and/or monetization of wheat
over flour would help the domestic milling industry and future wheat sales to this market.

A number of countries pursue policies that undermine the development, use, and import of
agricultural biotechnology. The US wheat industry is currently pursuing the development of
biotech wheat and forecasts that this product will come to market within the next decade. Of
greatest concern is the potential for marketplace disruption and ultimately loss of market share.
A number of the US wheat industry’s top export markets, including Japan and the EU, have
consistently maintained strong resistance to biotech wheat and their intention to only purchase
non-biotech wheat from the US or to source their wheat elsewhere. This would lead to billions of
dollars in lost wheat sales.

In 1998, EU member States began blocking European Commission (EC) regulatory approval for
new agricultural biotech products. This moratorium effectively prohibits most US corn and corn
product exports to the EU. In addition to being inconsistent with EU law, the US believes that
the moratorium clearly breaches World Trade Organization (WTO) rules. The WTO recently
confirmed this, as well as their role in enforcing trade decisions be scientifically based, by ruling
the EU moratorium in violation of WTO rules governing trade. As a member of the WTO, the
EU region must abide by these rules. The WTO decision effectively lifts trade delays on a
number of biotech products shipped from the US. While the US wheat industry applauds the
WTO’s decision, this measure has not made the EU any more willing to import new biotech
products, particularly for human consumption, which could include wheat in the future.

One of the most critical aspects of the biotech debate is the establishment of standard tolerances
for the low level presence of genetically modified organisms (GMOs). Standard tolerances must
be established and accepted worldwide not only for approved events, but almost more
importantly, for unapproved events. While Japan and the EU both maintain tolerances of 5%
and 0.9% respectively for approved events, they both have a zero tolerance policy for
unapproved events. The unintentional release of GMOs through field testing or other means can
shut down entire markets and could result in billions of dollars in lost sales and numerous trade
complications when there is no established tolerance for an unapproved event, as most recently
occurred with rice in the EU. It is simply not possible to meet a zero tolerance. We request the
support and partnership of the US government as we embrace the opportunities presented by
biotechnology and face a panoply of potential market complications and risks.

The US wheat industry will face significant market disruption in the future if key trade partners
continue to utilize the issue of the presence of GMOs in a non-scientific manner but rather as a

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form of protectionism. Population and resource pressures simply make it impossible to continue
to grow enough food to feed the world without the adaption of modern science.

USW hopes that the USTR can make some progress with both the EU, Japan, and any other
country moving to restrict the trade of goods, emphasizing that not only prohibiting the eventual
import of biotech wheat but shutting off all wheat imports due to the existence of a GM strain, is
a violation of WTO trade rules. The US wheat industry is concerned with the seeming lack of
scientific, health, and environmental evidence used as the basis for the decisions in both the EU
and Japan regarding the import of biotech food and their effect on future trade relationships. A
recent concern is the extremely negative precedent set by Turkey in their decision to ban the
import of 27 commodities that have any relationship to biotechnology. This includes both
biotechnical products currently in the food chain and those that are currently exploring or have
ever done any research relevant to biotechnology. As previously noted, there is no biotech wheat
in commercial production but there has been previous research. As such, wheat is included on
the list of banned products. USW urges the USTR to work closely with the Turkish government
to end this ban.

Biotechnology – European Union
Individual country genetically modified organisms (GMOs) regulation seems to be straining EU
efforts at regulatory harmonization and often seems to be headed in the wrong direction. The
setting of science-based tolerances and their application by the trade are essential. Demanding
zero tolerances for biotech content in finished products requires suppliers to certify zero
tolerances in wheat.

Biotechnology - Japan
The US wheat industry remains concerned with Japan’s insistence that they will shut off all
imports of US wheat upon commercialization of biotech wheat. The wheat industry hopes that
biotech issues, such as low tolerance levels for non approved biotech events, can be dealt with in
a scientific manner.

Biotechnology - Turkey
Turkey has recently banned the import of any product that has engaged in any research in the
field of biotechnology, regardless of whether or not the product has been commercialized. The
Turkish Ministry of Agriculture issued a list of 27 items banned from import. Wheat, as well as
most other food products, is included on this list. There is no scientific basis for this ban; it is an
obstructionist measure resulting from domestic politics. The US government should insist on the
elimination of this list.

Biotechnology - Korea
Korea is a highly sensitive market in terms of the regulatory environment for the purchase of
biotech food and feed, labeling requirements and food safety issues. The US wheat industry is
aware of these challenges and anticipates the potential of market place disruption with the
eventual commercialization of biotech wheat.

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In the past, prohibitive terms for the purchase of LMOs (living modified organisms) appeared in
grain tenders and disrupted purchases. We encourage the US government to engage in dialogue
with their South Korean counterparts to avoid future market share loss.

State (Export) Trading Entities (STEs)
Among the most challenging and long-standing issues facing the US wheat industry in the export
market are the insidious hidden subsidies and trade distorting practices of monopoly export state
trading enterprises (STEs), such as the Canadian Wheat Board (CWB). Capitalizing on their
export monopoly and captive producers, the CWB can and does offer different prices in different
markets. This cross subsidization is a serious market distortion as is the practice of offering
higher protein or cleaner wheat at no extra cost. These extras are not market driven, but they
very certainly are market distorting

While the Australian government disbanded the Australian Wheat Board (AWB), the Canadians
have been much more reluctant to face the need to end the CWB monopoly. They only
grudgingly accepted the concessions included in the framework whereby they agreed to give up
their financing subsidies, which the AWB had earlier phased out. Changes in the Canadian
government in 2007 lead to a re-examination of CWB practices and extensive questioning of its
very existence, as well as a temporary decision to eliminate the barley monopoly, which was
later reversed. There is a sense that Canadian Prime Minister Steven Harper favors elimination
of the CWB but he is not able to push any new legislation through since his party does not hold a
majority in parliament. USW remains concerned that the Canadian government will be facing an
uphill battle in this regard with a smaller minority in government and with Canada facing a back
log in wheat sales that they intentionally retained in order to sell for the highest price. With the
price of wheat facing steep declines from the last months, the CWB has in the past utilized
administrative pricing practices to undercut US wheat prices by up to $50/MT in some export
markets. This is flagrant trade distorting behavior and USW calls for an immediate end to this

It is of critical importance that the CWB lose their export monopoly or the US wheat industry
will continue to face backdoor or hidden subsidies. The fact that the STE subsidies are harder to
detect than the EU subsidies does not make them any less disruptive. It is also critical that any
wheat exporting nation, currently considering the formation of a single-desk wheat export entity,
be prohibited from doing so. The Russian government recently formed the United Grain
Company and despite claims that this entity only serves to buy wheat domestically to maintain
prices, they are also a single desk export entity and can utilize monopoly powers. Ukraine has
also formed a similar monopoly grain export entity. It is important that the US hold fast here and
the EU can help. Some words promising greater transparency on STE exports will not
accomplish anything. Canadian producers need to have the ability to sell to whomever they
choose and receive full value at sale. This would end the means whereby the board is able to
distort markets because part of the proceeds is held back until a final settlement is made at a later

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date. Other exporters beside the boards need to have access to storage and transportation
facilities and be able to export Canadian wheat. The board does not need to be eliminated but
their monopoly practices, both domestic and international, must be eliminated. These changes
would bring major improvements in the market and benefit the US and other producers.

The US wheat industry commends the US trade negotiators for inclusion of the elimination of
export State Trading Enterprises (STEs) in the current Doha draft modalities. This is quite
possibly the single most important market access barrier to free and fair US wheat trade and
would be a major achievement. We look to the negotiators to ensure that this language remains
in the text as the negotiating process resumes and that it is an essential component of a final
Doha agreement. This is perhaps the key item in leveling the playing field for US exports
around the world. Tariff reductions, market access measures, etc. all go a long way but the
single most important action to come out of the multilateral WTO process would be the
elimination of export STEs. This would knock down an egregious impediment to free and fair
wheat trade. Ukraine is a member of the WTO and would be held to these regulations if a final
Doha agreement is reached. Russia continues to go back and forth on their desire to accede to
the WTO with the latest reports noting their definitive intention to join the multilateral trade
body. The US has blocked Russia’s accession package but their admittance to this body would
eliminate any future attempts by United Grain to exercise monopoly export powers once a final
Doha agreement is reached.

STEs - Canada
The Canadian Wheat Board (CWB), a government backed state trading enterprise (STE), has
sole control over the purchase of wheat in western Canada for domestic consumption and export
and is also the sole exporter of wheat and barley for western Canadian producers. The price at
which the CWB sells grain is not transparent. Transportation and other marketing costs are set
by the CWB, but are often supported or subsidized by the Canadian government.

The CWB's activities distort wheat markets and injure US wheat producers. The CWB routinely
reduces export prices that increase the volume of Canadian exports to third country markets
compared to levels that would exist in undistorted markets.

US Wheat Associates (USW) is pleased with the current Doha WTO round text that includes the
elimination of export state trading enterprises and urges the USTR to not give any ground on this
critical trade issue for wheat.

To ensure meaningful reform during these negotiations the US should press for: 1) the
elimination of the export monopoly; 2) the elimination of the supply monopoly; 3) full market
access and national treatment for US wheat entering Canada; 4) elimination of the transportation
preferences and subsidies afforded the CWB by the Canadian government; 5) the elimination of
the government's financial guarantees, and; 6) full transparency of CWB operations.

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STEs - Chile
The Canadian Wheat Board sells Canadian Western Red Spring (CWRS) wheat grade 2 to many
countries in the region and deliver grade 1 quality or if they sell 12 percent protein, they deliver
12.5 percent protein or higher. Likewise, if a customer buys grade 3 quality, on many occasions
grade 2 is received. It is clear that wheat importers recognize the benefit of receiving better
quality against the contracted quality.

STEs - Korea
The two major competitors for market share in Korea continue to be Australia and Canada. The
Australian wheat export system has been changed from the monopoly to a free marketing
structure since July 2008. Among the 22 Australian bulk exporters accredited under the Wheat
Export Authority (WEA), the Australian Wheat Board (AWB) and Cooperative Bulk Handlers
(CBH) have made excessive price competition to take market share in Korea. Sales from these
entities have been made without the use of quality specifications and prices are set at a discount
to competing US wheat classes. The Canadian Wheat Board (CWB) conducts similar practices.
It is important the US-Korea Free Trade Agreement (KORUS) clearly states Korea’s
commitment to work with the US through the World Trade Organization (WTO) negotiations to
ensure transparent tendering as well as the elimination of state trading enterprises. Language to
this effect has become standard in other FTAs and we urge its inclusion in this and all future

STEs - Pakistan
The US has traditionally been the primary wheat supplier to the Pakistani market due to the
quality and reliability of US wheat supplies, as well as the important partnerships it maintains
with Pakistan. However, the AWB, has made significant inroads into this market through the use
of predatory pricing, cheap freight and credit, and other non-market tactics, which is expected to
carry into the private trading program adopted by the AWB. It appears that the Canadian Wheat
Board (CWB) is replacing the now defunct AWB by adopting non-transparent subsidies to
capture market share when Pakistan imports wheat. Sales of Canadian wheat in 2007 were made
by provincial wheat organizations that received financial support and subsidies from the CWB.

STEs - Philippines
As a concrete example of the distortion in trade caused by monopoly state trading enterprises, the
Canadian Wheat Board (CWB) sells Canadian Western Red Spring wheat (CWRS) at a discount
to US hard red spring (HRS) wheat of comparable protein in the Philippines. The CWB also
subsidizes the additional cost for a two port-load, Vancouver, British Columbia, and Portland,
Oregon, when Philippine mills load CWRS and US soft white wheat on the same vessel. When
Canada has sufficient exportable supplies of wheat, the CWB routinely undercuts HRS values to
buy their way into the market.

STEs - South Africa
In this region the Canadian Wheat Board offers some, or all, of the following combinations:
    A. Lower pricing

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   B. Higher than contracted quality at the same contracted price
   C. Reflect a different and cheaper class of wheat on documents than is actually delivered
   D. Offer shipping rates that appear to be better than fair market value. For example, they
      will offer the same price for any port in Egypt despite the possibility of fees associated
      with going through the Suez Canal.
   E. Making a cost and freight (C&F) sale to a buyer where there is a clear advantage over the
      US and then re-selling the ocean freight to get the kick back or the difference.
   F. Having the ability to position wheat in strategic transshipment storages to serve large
      market areas because they do not have to fix prices in advance of shipping to the

In most cases, it is very difficult to obtain documentation to reflect these issues. As a state-
trading exporter, price secrecy is the key. This essentially allows the CWB to receive
preferential treatment in open tenders, where they do not have to comply with the tender rules in
the same degree as their competitors.

Import State Trading - Japan
Import and export state trading should be discussed separately at WTO. State importing entities
impact trade only within the confines of their country’s borders while export state trading entities
employ various practices which distort and disrupt competition and commercial trade channels.
The Ministry of Agriculture, Forestry and Fisheries (MAFF), formerly the Food Agency, has
operated as the main importer of wheat for decades in Japan. Private millers can import wheat at
the in-quota tariff rate, but must export an equivalent amount of flour to avoid out-of-quota

Sanitary-Phytosanitary (SPS) Issues
SPS issues have become a major concern for the US wheat industry. In some instances there is
dispute as to whether SPS requirements are based on sound science or are part of a larger effort
to protect domestic markets. The recent profusion of SPS and food safety issues appears to be
in direct proportion to the reduction in tariffs, as countries increasingly rely on non-tariff
measures to protect domestic markets. The US wheat industry’s focus on SPS issues
corresponds with the priorities of the US government that considers an international trade
paradigm where SPS issues pose a significant barrier to trade.

Food safety issues are attracting increased media attention due to concerns about problems in
other commodities. While wheat has avoided negative headlines, the industry has experienced
an uptick in potential trade disruptions in a number of countries, including China, Indonesia,
Vietnam, Mexico and others. Many of these new food safety laws require government
certification of food safety regulatory systems unlike what is used and has proven effective in the
US. In many cases, the actions complicate the import of US wheat even though the root cause of
the action involves another commodity, industry, or issue altogether.

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Importing country steps to adopt pesticide residue tolerances and implement monitoring for
pesticide residues have presented challenges across many countries due to discrepancies of
residue limits between the Environmental Protection Agency (EPA) and importing country
requirements. This uncertainty creates unnecessary risks to exporters, potentially limiting wheat

It bears mention that some exporters, particularly monopoly wheat boards have no problem
issuing certificates on SPS issues as requested by importers. If a buyer needs a certificate that
the wheat is GMO-free or Karnal Bunt-free, the certificate is issued. USDA’s Federal Grain
Inspection Service (FGIS) on the other hand, is very cautious to make statements that cannot be
verified with 100 percent certainty. This fact sometimes sways buyers towards competitors, as
they will be able to receive the statement they want as opposed to the statement the US can offer.

Regulations limiting the import of commodities derived through biotechnology are a concern to
the future of the wheat industry. While, biotech wheat is not expected to be available for
production in the US for another 10 to 12 years, the acceptance of biotechnology by importing
countries is a concern. The lack of standard tolerances for low level presence of both approved
and unapproved events could create a disruption of trade. The US government’s efforts to ensure
that regulations regarding the trade of commodities derived through biotechnology be based on
scientific evidence is fully supported by the wheat industry.

A number of ongoing non-tariff barriers to wheat trade persist year after year that do not fall
neatly into one category and are grouped here as general trade barriers. It is not unusual for a
country to seek to protect their own markets by creating unjustified, non-scientific, or market
distorting barriers to imports. In many cases, the actions complicate the import of US wheat but
the root cause of the action may involve another commodity, industry, or issue altogether. While
these barriers manifest themselves as other issues, sometimes through SPS or licensing
requirements, it would be helpful to work with USTR to uncover and resolve the root cause of
the disruption to trade. For example, there is an ongoing issue with the ban of wheat originating
from specific areas of the US due to the detection of a pest that requires snow cover in order to
breed. If that wheat is being shipped to places like Kenya and Brazil, it seems highly unlikely
that the climate will provide the requisite host environment to allow the pest to propagate, yet
these requirements remain incorporated in the import regulations for years and require inordinate
hours of human and financial resources to solve the issue at hand. A similar issue persists with
India where their wheat tender terms include SPS requirements that cannot be certified to. The
US is then kept out of this market because our transparent and highly developed regulatory
system admits that the requirements are unobtainable. Other countries are certifying to India’s
requirements but in many cases have questionable plant inspection services. It merits
questioning whether the root cause for these market disruptions is in fact political retaliation for
an unrelated matter. The end result is that the wheat trade is compromised and the industry loses
exports. In this case Brazil and India are top wheat buyers and the US consistently remains
partially or completely shut out of these markets.

2010 National Trade Estimate Report on Foreign Trade Barriers   November 2009

Trade Sanctions
The continued application of trade sanctions against a number of potentially significant wheat
export markets leads to billions of dollars in lost sales for US wheat producers and growers.
While we understand the political evolution of sanctions and collaborate closely with the US
government in all aspects of our trade promotion work, sanctions can be harmful to US
agricultural trade competitiveness. Agriculture is closely tied to politics but our livelihood
depends on commerce and the free flow of goods and services across the globe. While the Trade
Sanctions Reform and Enhancement Act does allow for limited business with sanctioned
markets, it creates complicated and cumbersome requirements that make it easier for potential
partners to transact purchases elsewhere.

Most troublesome is the application of unilateral sanctions as in the case of Cuba. Wheat trade
with Cuba has been as high as 400,000 metric tons (MT) per year but based on trade patterns
with the rest of the Caribbean region, we believe that sales should be closer to 1.0 million metric
tons (MMT), or more than double the current totals. This year, Cuban purchasing authorities
have vowed to divert business from the US to our trade competitors. In the case of wheat, this
means that Cuba will likely purchase most of its wheat from Canada. Export numbers are half of
what they should normally be at this point in the marketing year. At today’s prices, this means a
loss of $50 million for US wheat growers and producers and others involved in the production
and export chain. The trade environment is already sufficiently complicated leaving very little
buffer to absorb this additional sales loss.

USW has and continues to promote full trade normalization between the US and Cuba. We
encourage a total lifting of the travel ban for US and Cuban citizens, direct banking, and the
elimination of cash upfront payment requirements prior to shipment. We can’t afford to lose any
more market share to our competitors.

While not classified as an official barrier to trade, continued sanctions in several key wheat
buying countries continue to lead to the loss of wheat sales for the US. With the understanding
that this section is highly political, it is nonetheless included for informational purposes and the
fact that it does restrict potential trade. At this juncture, this primarily includes the ability to sell
wheat to, Cuba, Sudan, and Iran. USW was pleased to see the reinstatement of trade relations
with Libya. In the Sudan, the licensing requirements and limitations of trade eligibility severely
limit US sales to this market. USW has received a number of inquiries from traders that wish to
import US wheat but face such cumbersome requirements that they eventually source elsewhere.
In the case of a country with civil strife and tremendous humanitarian needs, USW would be
grateful to any assistance from the USTR in facilitating the ability to trade wheat.

Commentary on Cuba has been submitted through other vehicles and other government agencies
and the issues are known to the US government. Suffice to note that while the US can sell wheat
to Cuba for humanitarian purposes, the restrictions in place make it difficult for Cuba to purchase
from the US and they are increasingly turning elsewhere, most recently to Canada. The US

2010 National Trade Estimate Report on Foreign Trade Barriers   November 2009

historically maintains low wheat market share in Cuba, whereas US market share is over 80
percent in the Caribbean country region.

US licensing and business requirements for Iran remain complicated and are becoming further
complicated by the entry of several private importers, whereas in the recent past sales were
conducted through a government purchasing agency.

Visa Requirements
Trade missions are an important function for promoting exports and ensuring positive
relationships with trading partners. It is vital to any American industry and specifically to USW
that our foreign customers and potential new customers are able to travel to the US without any
paperwork delays. The US wheat industry has experienced a number of delays in the processing
of visa applications with travelers from all over the world, particularly in the Middle East and
North Africa. On one occasion, the head buyer of the Tunisian Office of Cereals was prevented
from participating in a trade team to the US. In another more recent example, a Philippine trade
team participant was detained for unsubstantiated security reasons and not allowed to enter US
territory. These claims were never justified nor explained. These missions and trade exchanges
educate overseas buyers about US products and many sales are based on these visits. Delays in
obtaining visas from the US hurt USW’s marketing efforts and become barriers to trade with our
overseas customers. It also puts USW at a disadvantage with competitors who are able to invite
foreign visitors to their countries without delay.

Market Access - Ecuador
Wheat coming from Argentina is exempt from an eight-percent ad-valorem duty, from Paraguay
the exemption is 40 percent, an eight-percent relief is given to Brazil, and Uruguayan wheat is
exempt from 90 percent of the ad-valorem duties. This clearly provides the indicated countries
with at least a theoretical price advantage in the market. Additionally, all tariffs applied to wheat
imports from Mercosur countries will be phased out by 2012. Other wheat imports, including
US wheat are held to a 10 percent tariff structure. The eventual signing of a Free Trade
Agreement with Ecuador would address this market disadvantage as US wheat would enjoy
preferable tariffs.

Market Access - Brazil
US wheat imports are subject to a 25% marine export tax and a 10% transportation tariff. The
transportation tariff was temporarily suspended for shipments to the Northeast port of
Fortaleza for a ten year period but has since been reinstated. These tariffs put the US at a
competitive disadvantage to Argentine wheat imports that enter Brazil duty free under the
Mercosur agreement. Brazil occasionally suspends tariffs when Argentina has limited exports but
these need to be eliminated permanently.

2010 National Trade Estimate Report on Foreign Trade Barriers   November 2009

Market Access - Chile
Chile has traditionally had a price band system in place that affected wheat from all origins. The
government would set a floor price to protect the domestic wheat producer, which frequently
resulted in a higher priced input to the mill and consequently higher flour and bread prices. This
impacted total wheat product consumption in Chile, despite the fact that Chile is already a very
high per capita consumer as compared to worldwide figures. The price band system was to be in
effect until 2012, at which time the sitting President would make a determination as to whether
or not to renew this policy. However, in 2007 Argentina won a dispute settlement case through
the WTO resulting in the official elimination of the price band system. However, in its place,
Chile instituted a scaled tariff system that will mirror the price band system and continue to be
based on price floors and ceilings. Since the US and Chile have a Free Trade Agreement, this
system will not apply to US wheat exports that will face the common tariff of six-percent, the
same duty as other countries that have bilateral agreements with Chile. This system will be in
place until at least 2012 and then tariffs will revert to zero for the US.

Market Access - China
Out-of-quota tariffs for wheat at 65 percent are extremely high and prohibitive for any imports
other than within quota. Overall, China's agricultural import duties average a much lower level.
With respect to TRQ administration, the process of determining which applicants receive TRQs,
whether state trading enterprise (STE) or non-STE, remains non-transparent. No STE TRQs go
to private mills, non-national trading corporations or non-state controlled entities. Based on
China’s WTO accession and the intent of the working party during accession discussions (which
are integral to the agreement), while STE TRQs must utilize a state-designated buying agent to
purchase the commodity, there is no limitation as to the recipients (state or non-state). Current
procedures do not guarantee full STE allocation and eliminate full fill rate of the total TRQ in
any given year regardless of whether the non-STE allotment is fully applied.

Market Access - European Union
There have been increasing US exports of high protein and durum wheat to the EU that we
would wish to foster and increase. USW is observing the EU’s current Common Agriculture
Policy (CAP) reform Health Check and has learned of the possible elimination of reference
pricing on durum imports. USW hopes to see this happen. Through the Doha round negotiations,
the EU may also lock in a zero duty on wheat or match the duty over the last three years. USW
supports this initiative as well.

There also will be a need for negotiations with the EU to deal with subsidized wheat gluten and
starch exports to the United States.

Market Access - India
India has a long history of being one of the most protective markets and it has clearly manifested
in the agricultural sector. In the past, when imports were clearly required, India repeatedly
insisted that they had no need to import wheat. The Indian government may even use import
tenders from time to time to pressure farmers to sell more wheat to the Food Corporation of India

2010 National Trade Estimate Report on Foreign Trade Barriers   November 2009

(FCI) and thereby avoid the need to import at all. Floating tenders to bring pressure on local
wheat prices and creating unrealistic contract terms that no wheat exporting country can
realistically meet are trade distorting practices that the US industry finds unacceptable in the
current environment of warming trade relations between the US and India.

India has traditionally imposed prohibitively high tariffs on wheat. In 1999, the government of
India raised the import tariff on wheat from zero to 100 percent. India's protectionist wheat
policies also include extending credit to buyers for up to 15 years. Due to a wheat stock
shortfall, the Indian government dropped the tariff on wheat to zero and also allowed for the
private sector to temporarily import wheat at this level as well. Tariffs rise when buffer stocks
are restored to acceptable levels, albeit with the same rigid phytosanitary specifications which
will virtually place an exorbitant risk to private importers.

India has consistently been obstructionist in the Doha round of talks. USW supports our
negotiators decision to end previous ministerial meetings due to India’s intransigence on Special
Safeguard Mechanism (SSM) trigger levels. We encourage US negotiators to continue to look
for a solution to this stand-off with India without sacrificing US interests and preventing India’s
ability to instate a trade protective mechanism that will disrupt normal trade flows. The US
wheat industry continues to question India’s intentions in the Doha round and their commitment
to moving the negotiations towards consensus.

We are disappointed with India’s current Doha market access offer which will allow India to
self-declare the majority of their tariff lines as special products and therefore either completely
exempt from or only subject to limited reductions. The current Doha offer for agriculture will not
lead to any new market access for wheat as the US wheat industry anticipates that India will
declare wheat as a special product.

Market Access - Israel
A Free Trade Agreement (FTA) of some form with Israel has been in place with the US since
1985. US wheat exports to Israel benefit accordingly with duty free market access. The US and
Israel have a separate agreement, apart from the FTA that commits to the purchase of 1.6 million
metric tons (MMT) of grain from the US, including wheat. Any future negotiation of the FTA
should incorporate this language into the body of the FTA, as well as language to the effect that
wheat will continue to maintain duty free market access for the life of the renegotiated FTA.

Another potential trade sensitive item is the 50 percent US cargo preference requirement for US
origin grain imports, which seems out of place for a commercial market. The Israeli government
currently pays the freight differential between the US freight rate and the commercial world
market rate. This policy should be reviewed in the renegotiation process.

Market Access - Japan
The in-quota tariff rate is zero. The out-of-quota tariff rate is 55 yen/kg ($620/MT), which
should be targeted for reduction.

2010 National Trade Estimate Report on Foreign Trade Barriers   November 2009

Market Access - Kenya
Kenya currently applies a 10% duty on the imported wheat value or $50/MT, whichever is
higher. This encourages unfair trade practices, including under-invoicing by many smaller
exporters. Since the US is the only supplier that has a transparent price, invoices cannot be
changed and the duty places the US at a disadvantage to competitors who can alter the values
shown on documents for taxation purposes.

Market Access - Mercosur Trade Block
The wheat import tariff is zero for inter block countries. For third country suppliers from any
origin, outside of MERCOSUR, including the US, there is a tariff of 10 percent that is based on
the landed cost. Wheat flour inter block trade is duty free and imports from third countries are
taxed 12 percent. The US is clearly disadvantaged by the MERCOSUR tariff structure as it is not
a level playing field. Argentina will likely remain a prime competitor due to its wheat
production and proximity.

Market Access - Pakistan
Private sector wheat imports are charged a 35 percent import duty and a 15 percent sales tax.
Imported flour is subject to a 10 percent import duty and the same 15 percent sales tax.

Market Access – South Africa
The tariff is based on the initial implementation of a domestic reference price of USD $157/MT,
being the long-term average of US #2 HRW (ORD) price at the Gulf of Mexico. The tariff is
calculated on the differential between this domestic reference price and the three week moving
average for HRW. The currency exchange rate is based on the prevailing rate of exchange.

South Africa is in discussion with MERCOSUR trade block and India on forming Free Trade
Agreements (FTA). Negotiations have been completed with the EU, but wheat and flour are
currently on the exclusion list. However it is inevitable that the exclusion list will be revisited.

MERCOSUR, of which Argentina is a member, is a major threat to imports of US wheat into the
region since Angola, Botswana, Lesotho, Mauritius, Mozambique, Namibia, Seychelles,
Senegal, Tanzania, Zambia and Zimbabwe follow South Africa's lead. Negotiations are
currently on hold due to chaotic economic position of Argentina. It is likely that Argentina will
fight any effort to put wheat and flour on an exclusion list, which is what South Africa wants to
do in order to protect its domestic production from competition. In order for the US to counter
these possible FTAs, it is essential that the US establish a trade agreement with South Africa.

The US has agreed on a framework for trade talks with the South African Customs Union
(SACU), which includes South Africa, Botswana, Lesotho, Namibia, and Swaziland. An
eventual FTA would guarantee preferential access to this crucial market in sub-Saharan Africa.
An FTA would level the playing field in areas where US exporters are disadvantaged by FTAs

2010 National Trade Estimate Report on Foreign Trade Barriers   November 2009

negotiated by the EU. A direct FTA between the US and South Africa would be more effective
and allow for greater and/or more immediate success for the US wheat industry.

Market Access - Turkey
Turkey currently applies an import tax of 130 percent on all wheat that effectively provides
protection for the domestic farm price that is set at a level above the international price. The tax
level varies each year based on domestic production levels. In addition, the government of
Turkey often refuses to issue import permits, despite the customs duties on wheat. Turkey
allows up to 300,000 MT of wheat from the EU to be imported on a duty-free basis. In Turkey,
flour exporters are also entitled to import duty-free wheat that is equivalent to the quantity of
flour exported. Turkey’s protection policies help to effectively permit the sale of subsidized
flour, where profit margins can be realized from the sale of duty-free wheat. At current domestic
and import prices, flour exports from Turkey can be priced well below the market price, resulting
in cheap flour sales that impact wheat exporters from all origins.

Value Added Tax (VAT) – China
China’s wheat imports have a 13 percent VAT levied upon arrival whereas domestically
produced wheat has no VAT at first point of sale to trading companies or grain storages. China’s
levy of VAT favors domestic production as some handlers of commodity never pay a full VAT
levy or may have no VAT levied at different points in the marketing chain. China exported large
amounts of wheat and flour to countries in Asia, particularly Korea, the Philippines, and Vietnam
prior to a ban on wheat and flour exports at the beginning of 2008 and the implementation of up
to a 25 percent duty on flour exports, along with no VAT rebates for either wheat or flour. China
reduced export duties and prohibitions as the national crop improved and pressure on the
Consumer Price Index waned. In most cases exporters have a VAT rebate which may or may not
have been paid initially. If there was never an initial VAT assessment or only a partial VAT
assessment, any rebate effectively becomes an export subsidy. As there is only one corporation
with the right to act as the agent for export of wheat, the transparency of VAT payment or rebate,
commodity pricing, subsidies and competitive marketing does not exist.

Free Trade Agreement - Korea
USW urges immediate ratification of the US/Korea FTA. Competitors continue to sign their
own bilateral agreements while the US agreement is stalled in Congress. If Australia signs an
FTA with Korea it will put the US at a significant c

Free Trade Agreement - Market Access - Morocco
The US-Morocco Free Trade Agreement (FTA) is in effect, which has resulted in some increase
of US wheat exports to Morocco, a market traditionally dominated by the EU. However, there
continue to be issues in terms of compliance with the terms of the FTA. One particular area of
concern is ensuring that Morocco comply with the full in-quota quantity of US wheat to be
imported. The FTA does not contain strong assurances, or any suggestion of enforcement

2010 National Trade Estimate Report on Foreign Trade Barriers   November 2009

mechanisms, to adequately implement the preference. Furthermore, there needs to be more
transparency in the allocation of the quota quantity to ensure the full quantity is utilized. If
Morocco zeros out duties on wheat again in the future, USW suggests that Morocco must first
fill zero duty quotas on existing FTAs before purchasing zero duty wheat from other countries.
USW recommends that a calendar be fixed for specified quantities to be tendered for during
specified periods. USW also requests stronger enforcement of the fill-rate for wheat TRQs as
specified in the agreement.

There are additional problems with the FTA that are rendering the agreement ineffective and
Moroccan cereal authorities are continuing to satisfy the majority of their wheat needs with EU
origin wheat and are filling a minimal amount of the TRQ for bread wheat. Additionally, the
MFN rate for durum is lower than the in quota rate for US wheat which allows Morocco to buy
durum from their origin of choice, Canada, at a cheaper price.

To date, when the Moroccan harvest is small and wheat supplies are tight, Morocco drops tariffs
to zero and purchases from all origins, including the US. This has been the case for three of the
last four years of the agreement. When the agreement is in force and Morocco raises tariffs, they
continue to use tactics to buy from their suppliers of choice and not from the US.

Other – Bolivia
USW supports the administration’s consideration of banning Bolivia from the Andean Trade
Preferences program but believes that a careful review is warranted, which could result in
reinstatement. Since the US wheat industry faces some considerable market barriers in Bolivia, a
long-term prohibition from participation in this program will likely have a negative effect on
potential purchases of wheat from the US.

The region is very sensitive to dumping rules and antidumping actions. There is concern that if
there is no Doha agreement in the near future, Brazil will continue to pursue trade litigation
against the US on a number of issues related to US amber box expenditures.

Other - Ecuador
USW supports renewal of Andean Trade Preferences for Ecuador for the full one year accorded
to Peru and Colombia. Ecuador is an important export destination for US wheat and one where
we face ongoing competition from Argentina and Canada. In any given year, the Canadian
Wheat Board (CWB) can utilize administrative pricing mechanisms to keep the US out of the
market. Two years ago, the US wheat industry saw market share drop from over 60 percent to
under 30 percent as buyers in Ecuador turned to Canada. Disallowing Ecuador’s longer-term
participation in the Andean preferences program will hurt future sales of US wheat.

2010 National Trade Estimate Report on Foreign Trade Barriers   November 2009

Other - Japan
The recent change in governing parties has lead to strong statements about Japan’s drive for food
self-sufficiency. While this is a noble goal, it is unlikely that Japan will attain self-sufficiency in
wheat. We encourage the US government to engage Japanese counterparts in a continuing
dialogue about the US/Japan trade relationship and the importance of keeping markets open.

The Japanese government is the responsible purchasing agent for wheat. There has been some
discussion of revising purchasing patterns including divestment of a percentage of purchases to
the private sector. Japan is the top export destination for exports of US wheat and there is
concern that a change in purchasing patterns could have a negative impact on purchases of US


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