Issue 28
April 2000

WHEAT WORLD

China makes first PNW wheat purchase in over 20 years

China recently made its first purchase of wheat from the Pacific Northwest in over twenty years, signaling the first step towards implementation of an agriculture agreement reached by the U.S. and China last year.

"The sale of wheat to China from the Pacific Northwest is a significant
break through for the U.S. wheat industry," says Alan Tracy, president of U.S. Wheat Associates (USW), the industry's export market development organization, "and we hope it is just the beginning of a new relationship with this potentially multi-million ton wheat market."

The purchase totaled 50,000 metric tons and is broken down to include three classes of U.S. wheat: 30,000 mt of soft white wheat; 10,000 mt of hard red winter wheat; and 10,000 mt of hard red spring wheat. The variety in the shipment will afford Chinese millers the opportunity to sample several classes of U.S. wheat. This "trial shipment" will be the first after last April's resolution of a 25-year phytosanitary trade dispute between the U.S. and China, resolved in part because of persistent efforts by USW.

China is the largest consumer and producer of wheat in the world and has the potential to again be one of the world's major importers. This purchase is a significant step forward for the U.S.-China trade relationship, and the Chinese have agreed to purchase larger amounts after their accession to the World Trade Organization (WTO) is complete and Congress grants them Permanent Normal Trade Relation status (PNTR).

USW's Tracy points out that shipping wheat to China from the PNW provides a freight advantage for some classes of wheat. "Now that the China market is accepting wheat from the PNW as well as from the gulf ports, we are in a much better position to compete," he says. "Now, more than ever, the passage of Permanent Normal Trade Relations status is critical for the U.S. wheat industry."

Getting what we want from international trade

The effect of regional trade agreements is one of the least discussed but one of the most critical factors to overshadow global trade, said Carol Brookins, Chairman and CEO of World Perspectives Inc., Washington D.C.

Brookins took part in a panel discussion, "How To Get What We Want From The WTO Round" during the  recent Wheat Industry Conference and Exposition.

Nearly 175 regional trade agreements have been reached around the world since 1948, said Brookins, with 67 agreements taking place since 1985 and 38 between 1989 and 1994.  The European Union has been involved in more than 65% of these agreements, omitting agriculture from most if not all of the agreements.  That has the potential to distort global trade talks under the World Trade Organization.

At the same rate, Brookins said the United States should use regional coalitions to help "outflank the EU" on trade issues such as biotechnology, the application of which many countries support.

She said resolving agricultural issues may be "a piece of cake" compared to many of the issues that reared up in Seattle, labor concerns chief among them.

Brookins pointed out that the U.S. for years has publicly reported details of all its grain export sales within seven days of the transaction, something that state trading enterprises (such as the Canadian Wheat Board) do not do.  It's a point that needs to be recognized during the WTO negotiations, she said.

She also said lawmakers must do more to ease unilateral trade sanctions, including the longstanding embargo against Cuba that has done nothing to influence policy and only hurts U.S. trade.  "We need to stand up for ourselves here.  Clinton is willing stand up for Elian Gonzalez, but not U.S. farmers."

U.S. approval of Permanent Normal Trade Relations status of China is also critical, said Brookins  "If we don't get China in PNTR, every other country will go laughing to the bank keeping us out of the market."

Joe Glauber, deputy chief economist, USDA, said that one key issue that needs to be kept in mind is how to keep domestic farm policy objectives "in sync" with international policy obligations.

Chris Shaffer, the U.S. wheat industry's representative at the WTO talks and chair of U.S. Wheat Associates, said that the U.S. has several means of leverage against the EU in the WTO talks.  He points out that a "peace clause" implemented during the Uruguay Round provides the EU a level of protection against some of its distorting trade practices.  However, that expires in 2003.  A farm bill structured with a larger safety net will also keep the EU interested in reform, he said.

Another big stick to keep the EU interested in trade reform: Shaffer points out that a bill by Sen. Max Baucus would create a trigger mechanism that would annually appropriate $2 billion to EEP and tack on an additional $1 million for the Foreign Market Development program in the second year of operation.  "Which means not only will we subsidize exports, we're going to let loose our sales force and beat you at your own game. It's a hammer to get them to come to the table," Shaffer said._