Washington Insider-- Wednesday

Bringing Business Home

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

EPA Says Farmers Can Use Dicamba on Hand As Of June 3, Through July 31

EPA has issued guidance for the use of three dicamba products that were on hand as of June 3, the date of the Ninth Circuit Court of Appeals ruling to vacate registrations of those products.

The cancellation order issued by EPA addresses sale, distribution, and use of existing stocks of the three affected dicamba products – XtendiMax with vapor grip technology, Engenia, and FeXapan.

Under the order, “Distribution or sale by any person is generally prohibited except for ensuring proper disposal or return to the registrant,” EPA said. “Growers and commercial applicators may use existing stocks that were in their possession on June 3, 2020, the effective date of the Court decision. Such use must be consistent with the product’s previously approved label, and may not continue after July 31, 2020.”

EPA Administrator Andrew Wheeler said the court decision “has threatened the livelihood of our nation’s farmers and the global food supply.” The cancellation order and existing stocks order is “consistent with EPA”s standard practice following registration invalidation, and is designed to advance compliance, ensure regulatory certainty, and to prevent the misuse of existing stocks.”

Since the court ruling June 3, EPA said it has been “overwhelmed with letters and calls from farmers citing the devastation of this decision on the millions of acres of crops, millions of dollars already invested by farmers, and threat to America’s food supply.”


Lawmakers Urge Trump to Deny Requests To Waive RFS Requirements

Requests by governors of several states to waive requirements under the Renewable Fuel Standard (RFS) should be rejected as they would “only compound the challenges facing rural America and weaken one of the most successful clean air policies in the US,” a bipartisan coalition of House members said in a letter to President Donald Trump.

The requests do not meet the criteria under law for waivers of the RFS as the “Recent oil market volatility is the result of COVID-19 impacts on travel and lower demand for fuel combined with high production levels in Russia and Saudi Arabia, not the RFS,” the letter said. “RFS regulations and requirements account for a drop in the demand for fuel with a proportional change in the volume of renewable fuel required.”

They also point out that there “is an excess supply of RINs (Renewable identification Numbers) currently on the market and available to refiners, offering flexibility for RFS compliance.” House Ag Committee Chairman Collin Peterson, D., Minn., is among the 44 House members signing the letter.

Washington Insider: Bringing Business Home

This week, Bloomberg examined the prospects faced by U.S. efforts to reduce dependence on China and other overseas suppliers for strategic goods.

The Trump administration has talked about “bringing supply chains home” since it began to implement its trade policies, Bloomberg says. It notes that President Trump recently said the U.S. would “save $500 billion” if it cut off ties with China.

However, the report challenges that view, based on interviews with nearly a dozen government officials and analysts in the Asia-Pacific region. It calls administration effort to restructure supply chains “little more than wishful thinking so far,” and warns that “it won’t be simple to dismantle an entrenched system when many companies are struggling to survive.”

The report says “the reality is that many firms have supply chains set up the way they do for very sensible reasons,” said Deborah Elms of the Asian Trade Centre, which has seen an increase of companies looking for advice on reorganizing to increase competitiveness. “Coming out of COVID, it’s going to be even harder to move supply chains because your cash flow is low, your staff are working from home or coming slowly back into the office, and the business climate has shifted.”

While the world trade network mostly held up well amid rolling lockdowns as COVID-19 spread, the economic shock fueled calls among politicians for greater self-sufficiency and alternatives to China. U.S. Secretary of State Mike Pompeo last year named Australia, New Zealand, Japan, India, and South Korea as countries that the U.S. has been talking to on supply chains.

In fact, the State Department’s new Economic Security Strategy is expanding and diversifying supply chains that protect “people in the free world,” according to Keith Krach, the State Department official who leads efforts to develop international policies related to economic growth.

However, analysts are skeptical of State’s efforts and argue that they argue appears to lack any firm foundation.” The Department doesn’t have jurisdiction over trade and officials in other Asian countries say no formal talks were taking place.

At the same time, some governments are moving on their own to shift production away from China. This includes Taiwan and Japan, which were among the biggest investors in China’s manufacturing capacity in the early days.

“Many companies have already begun adopting a ‘China plus one’ manufacturing hub strategy with Vietnam having been a clear beneficiary,” said Anwita Basu, head of Asia country risk research at Fitch Solutions. “Shifts away from China will be slow as that country still boasts an annual manufacturing output that is so large that even a group of countries would struggle to absorb a fraction of it.”

In 2019, Taiwanese officials supported construction of a “non-red supply chain” outside of China and promised rent assistance, cheap finance, tax breaks and simplified administration for investments in Taiwan that helped the island’s economy weather the trade war last year.

Japan recently started down the same path, with Prime Minister Shinzo Abe’s government budgeting about 220 billion yen for companies shifting production back home and 23.5 billion yen for those seeking to move production to other countries.

South Korea has similar plans as part of its economic blueprint for the rest of the year, announced earlier this month. The government said it will provide tax incentives, ease investment-related regulations and expand financial support for companies that ‘u-turn.’ Yet, it hasn’t said how much money will be earmarked for the entire support program.

For all that, China retains key advantages and “remains unmatched as a manufacturing site given its numbers of skilled workers, deep supplier networks and the government’s credible public support for manufacturers and provision of reliable infrastructure,” wrote Gavekal Dragonomics analyst Dan Wang in a report in April.

Even if companies find economic alternatives to Chinese factories, or bow to political pressure to increase production in their home markets, the vast and growing Chinese domestic market is a powerful attraction.

Tesla Inc. is now producing cars there for what is now the world’s largest auto market. Last month Chinese Premier Li Keqiang wrote to Honeywell International Inc. to welcome its new investment in Wuhan. He and other Chinese officials have touted continued economic cooperation with the U.S. and vowed to implement a “phase one” trade deal with the U.S. reached in January.

Over the long term, however, there are questions of who will pay for new plants outside China, Bloomberg says.

In the end, the strongest force diluting China’s position in global supply chains likely will be the long, slow evolution of global trade as opportunities arise from new markets, new technologies and changing patterns of wealth said Elms, whose organization helps governments formulate trade policy.

“The numbers have to make sense,” she said. “The structure that you have is based on millions of individual company decisions. It’s not so easy to wave a wand and say: Make it so!”

So, we will see. The administration has continued its “get tough” policies on Asian, European and even North American supply chains--and reinforced those policies with strong subsidies in some cases. At the same time, the longer-term benefits of these policies are being questioned for a range of economic and policy reasons. This is a debate producers should watch closely as it intensifies, Washington Insider believes.

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