China blocks effort to send canola dispute with Canada to WTO panel

Canada's farmers are dealing with more frustration after China blocked an effort to raise the two countries' dispute over canola to a formal complaint requiring dispute settlement.

Two years of bans and restrictions on canola imports to China have cost Canada's industry close to $2 billion through lost sales and lowered prices.

Countries are required to try to resolve trade disputes through negotiation before appealing to the World Trade Organization to set up a dispute resolution panel.

On June 18, Canada informed the WTO that the talks it began with China in October 2019 had failed to settle the dispute. Citing "serious, negative" consequences, it said it would apply for formal resolution at yesterday's meeting of the organization's Dispute Settlement Body.

Yesterday, Chinese officials blocked the move.

Industry wants escalation

Canada prolonged its talks with China far longer than was necessary to justify calling for a panel. 

A WTO member state is only required to negotiate for 60 days before asking for formal resolution. Canada waited closer to 600 days.

China banned shipments from two Canadian companies, Viterra and Richardson International, in March 2019. At the same time, Beijing instituted a more aggressive regime of inspections, slowing trade with other Canadian shippers.

The Canola Council backed the decision to send the dispute to a panel, arguing that talks have not borne fruit. 

"The canola industry had hoped that the bilateral consultations between Canada and China would lead to a resolution restoring full trade in canola seed and ensuring all Canadian exporters are treated equally by the Chinese administration," the council told CBC News in a written statement.

"In the absence of progress, this is the next step to resolve the dispute and preserve rules-based, predictable trade with China."

Canada: No answers from China

Canada told the WTO that China has not provided proper explanations or justifications for many of its actions against Canadian canola.

"Canada has repeatedly attempted to obtain information from China regarding the scientific basis for its measures and on the process to restore full market access for Canadian canola seed," says Canada's notification of June 18. 

"Canada has employed numerous and varied formal and informal mechanisms at its disposal to solicit this information. To date, these efforts have failed to produce satisfactory results."

In a public statement issued three days later, Global Affairs said that "Canada, standing shoulder to shoulder with its farmers and workers, will take the necessary steps to ensure they have the support they need to succeed in international markets … Canada is seeking a solution that reinforces open, rules-based trade and respects international rights and obligations." 

Canada accuses China of violating three agreements to which it is a party: the original General Agreement on Tariffs and Trade that it signed in order to join the WTO, the Agreement on Sanitary and Phytosanitary Measures (intended to prevent countries from using spurious claims about pests and food safety as a cover for trade measures) and the Trade Facilitation Agreement.

A broken adjudication system

China continues to be the single largest export market for Canada's canola, despite a drop in volume of more than half since 2018, when Huawei executive Meng Wanzhou was arrested in Vancouver.

China was widely expected to use WTO rules to block Canada's application yesterday. But it's unlikely to be able to do it again if Canada repeats the request the next time the Dispute Settlement Board meets on July 26.

"The country 'in the dock' can block the creation of a panel once," WTO rules specify, "but when the Dispute Settlement Body meets for a second time, the appointment can no longer be blocked (unless there is a consensus against appointing the panel)."

The WTO's adjudication process is in disarray — mainly because the former Trump administration in the U.S. blocked the replacement of retiring members of its appeals body. There were hopes that the incoming Biden administration might break that logjam, allowing disputes such as Canada's to get a meaningful hearing.

But the Biden administration has so far not withdrawn U.S. objections, saying it "continues to have systemic concerns with the appellate body.

"As members know, the United States has raised and explained its systemic concerns for more than 16 years and across multiple U.S. administrations."