Washington Insider -- Tuesday

EU Counts on US Elections to Constrain US Trade Policy Options

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

US Presses Dispute Settlement Transparency at WTO

The U.S. urged fellow World Trade Organization (WTO) members to voluntarily increase transparency in the dispute settlement process, in a long statement delivered during the July 22 meeting of the WTO Dispute Settlement Body (DSB).

The issue of transparency is "critical for the legitimacy of the WTO," the U.S. said. It urged other members to follow the lead taken by the it, European Union (EU), Australia, Japan and others and voluntarily make their dispute settlement hearings and submissions public.

Nothing in WTO rules prevents members from increasing dispute settlement transparency, so "members cannot defend the lack of transparency on this basis," the U.S. remarked.

"The continued lack of transparency is simply untenable and threatens to further erode public support for and, ultimately the viability of, this system that members profess to support," the U.S. concluded. It pressed fellow members to "immediately take steps in each dispute in which it is participating to request to make its statements publicly observable and to make its written submissions publicly available."

Chinese Firms Request Exemptions From Tariffs On US Ag Products

First rumored late last week, Chinese state media now reports that Chinese firms are asking for tariff exemptions to buy U.S. ag products. Several Chinese companies want to purchase U.S. ag products and have applied for exemptions from the duties imposed on them by Beijing, state media reported.

The filed exemptions will now be heard by a panel of experts from the government, Xinhua reported Sunday. No companies or products were detailed.

The report noted President Trump's promise to suspend imposition of new tariffs on Chinese good and allow U.S. firms to sell products to relevant Chinese companies,” a likely reference to telecom giant Huawei.

Washington Insider: EU Counts on US Elections to Constrain US Trade Policy Options

Bloomberg is reporting this week that some European Union officials think that the threats of U.S. tariffs on Europe’s auto industry and other measures are “very much alive,” but that the U.S. President will be less trigger-happy the closer he gets to the 2020 election. The logic is that he’d risk a voter backlash if the EU retaliated by targeting U.S. exports, notably farm products.

At this time, the “awkward EU-U.S. truce” is held together by the prospect of a big trade accord in the future. To preserve the status quo, one EU proposal would “slow-walk the negotiations,” pushing them deeper into the campaign on the expectation that the administration will be too focused on his re-election to escalate tensions with Europe.

In order to convey the impression that talks are moving forward, the EU would make limited concessions on peripheral issues such as aligning regulatory standards, Bloomberg said. The bigger goal is a reset of trans-Atlantic relations after the election--effectively a high-stakes diplomatic bet.

Bloomberg argues that the strategy carries an element of risk as Trump could always defy expectations and turn up the heat on the EU just as the election nears unleashing more protectionist measures in a bid to play to his core voters.

Still, this proposal is seen as one among a range of options floating around Europe now and while it is not official EU policy, it coincides with a delicate transition at the EU’s power center, Bloomberg says.

Incoming European Commission President Ursula von der Leyen, an ally of German Chancellor Angela Merkel, is signaling she won’t back off the EU’s forceful strategy of defending its commercial interests and upholding the global trading order.

Von der Leyen’s plan is “to convince our friends from the U.S. that it’s better to find a good compromise and work together,” she told Bloomberg recently.

In the past, the U.S. has shown a “willingness to use a variety of mechanisms in an attempt to reduce its trade deficit,” and has already hit the EU with tariffs on steel and aluminum exports; punitive measures were based on an obscure Cold War-era law that gives the president latitude to impose levies on grounds of national security--a justification rejected by the EU.

The EU retaliated with tariffs on about $3.1 billion of politically sensitive U.S. goods from motorcycles to bourbon. However, that barely scratches the surface of what the conflict could escalate into, Bloomberg says.

The President has until November to decide whether to impose duties of as much as 25% on $350 billion in cars and car parts brought into the U.S. each year exceeding the tariffs imposed on $250 billion worth of Chinese imports. The EU has earmarked $22 billion of U.S. products to retaliate against.

The U.S. has readied a separate list of tariffs on $25 billion of EU goods, of which it expects to hit $11 billion in retaliation for illegal subsidies the bloc provided to Toulouse, France-based Airbus SE. The Trump administration is waiting for the World Trade Organization to rule as early as this summer on the amount of damages. The EU has a similar case pending against Boeing Co. and has readied retaliatory tariffs.

U.S. Trade Representative Robert Lighthizer has indicated that Washington could impose retaliatory tariffs or other trade limits on France or any other country that taxes digital revenues of large companies, which would hit tech giants from Facebook Inc. to Alphabet Inc.’s Google.

Some European officials view the U.S. tariff threats as an effort to force EU countries to include agriculture in the trade negotiations, which began after Trump and European Commission President Jean-Claude Juncker met at the White House last year.

The EU plan hinges on the extent to which Trump perceives that he needs to keep core voters in U.S. farm states happy, even as they feel the brunt of the trade conflict. China’s retaliatory tariffs on U.S. farm goods have dented agriculture incomes and disrupted global trade flows, pushing American farmer sentiment to the lowest levels of his presidency, Bloomberg says.

In Washington, the two sides agreed to “work together toward zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods,” then disagreed in public about what was said.

EU Trade Commissioner Cecilia Malmstrom said after the meeting last July that she was in the room and the outcome, “without doubt,” was “that agriculture would not be in.”

U.S. Ambassador to the EU Gordon Sondland has said the EU “misrepresented” the discussion. Juncker explicitly said agriculture would be included in the negotiations but that it would be left out of the public statement after the talks to provide the EU political cover, Sondland said.

The EU is an extremely tough negotiator and has protected its highly intrusive policies for decades against U.S. pressures—and the U.S. already has a major fight going with China, although it seems to have great confidence in its reliance on tariffs to gain access. Clearly, this is another battle producers should watch closely as it proceeds, Washington Insider believes.

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