Washington Insider-- Tuesday

US, China and Beijing's Market Economy Status

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

TTIP Talks Continue Even After Brexit Vote: US Trade Official

Work on the Transatlantic Trade and Investment Partnership (TTIP) trade deal continued during negotiations the week of July 11-15, despite the UK's vote to leave the EU, according to July 15 comments by U.S. Chief Negotiator Dan Mullaney.

"Brexit affects the calculations of everyone. The value of the EU market shifts if the UK is not there," Mullaney said.

"We continue to analyze the overall impact. That's a big chunk of the EU economy," he said, comparing it to excluding California from the trade deal.

Around 100 trade experts from the U.S. and EU met during the week for the 14th round of TTIP talks. But in the negotiations, major debate over the EU's future composition was absent.

The UK will be an EU country for some time and hasn't yet formally notified the bloc of its intention to leave. "It would not be possible to make assumptions for 17 different scenarios of what the UK's future relationship with the EU could be," one European Commission (EC) official told Bloomberg BNA, picking a number out of the air.

"TTIP may be adjusted later, after a British exit, if necessary. That is normal for trade agreements," the official added.

The EC's official position is to continue negotiations with all trading partners, bilaterally, multilaterally and plurilaterally, regardless of the Brexit vote, Commission spokesman Enrico Brivio said.

Proposed Rule for 'Certified Organic' Meat and Eggs Draws Fire

A proposed rule expanding animal welfare requirements for livestock and poultry sold as "certified organic" drew critical comments from some in the agriculture industry who say they would require costly new upgrades for little benefit.

Due July 13, more than 6,300 comments came from industry groups, individual farmers and animal welfare organizations. Predictably, more opposition to the rule was seen from the ag industry, while animal welfare groups lauded the proposal.

The new rules would require farmers to construct or retrofit facilities to comply with the new standards. Egg and poultry producers would be particularly affected by the proposed rules, which call for specific new living standards for poultry.

The National Organic Program, part of USDA's Agricultural Marketing Service (AMS), oversees standards for the production of "certified organic" products.

The draft rules target four areas of production: animal living conditions, health care, transport and slaughter. The proposal looks to align practices on the farm with what consumers expect when they purchase organic products, USDA said in the draft rules, released April 13.

The requirement that poultry have year-round access to an unroofed, outdoor area with at least 50% soil coverage proved one of the most controversial parts of the proposal. The area must offer drinking water, sunlight and sunshade, as well as "suitable enrichment to entice birds to go outside."

The rules also implement a stocking density for poultry habitats of five pounds of bird per square foot.

Washington Insider: US, China and Beijing's Market Economy Status

Bloomberg is reporting this week that a complex dispute between the United States and China could lead to a major trade confrontation later this year.

A key issue that been near the surface since the world began to admit centrally planned economies to trade agreements is how to esure fair competition when the government is heavily involved in what normally are private investment and marketing decisions. Experts argue that nothing in China's agreement to join the WTO requires trading partners to automatically consider China a market economy and treat Chinese "prices" like those reported in Western nations. Still, the issue intensified in the recent WTO Goods Council meeting.

China acknowledged that its protocol doesn't grant automatic market economy status, but said the expiration of a key provision in the accession agreement "eliminates the legal basis" members may use to "discriminate" against China.

The current terms of China's agreement permit WTO members to use comparable market-based prices or costs in calculating Chinese antidumping investigations to account for the government's dominant role in allocating resources within the Chinese economy. Under WTO rules, a product is considered to be dumped when it is sold abroad at less than normal value.

If the U.S. and other major WTO economies, suas Canada, the EU and Japan—were to grant China market economy status, they would lose some of their ability to protect domestic companies with higher dumping margins based on comparable market conditions, Bloomberg says.

At the same time, if those countries don't grant China market economy status this year, it could provoke China into launching a major WTO dispute against them and risk worsening trade relations.

The U.S. delegation argues that the question of China's market economy status should be based solely on an assessment of the facts on the ground in China and in light of each member's domestic rules regarding antidumping investigations.

There is "little doubt that China's market reforms have fallen below expectations," particularly with respect to its steel and aluminum industries, the U.S. delegation said. For example, China's overcapacity in steel production, combined with weak global demand have led to a flood of cheap Chinese steel in world markets—widely affecting prices and investment.

The issue of overcapacity in the global market for steel and other products is "irrelevant" to the market economy issue, the Chinese delegation argues, adding that WTO members should fulfill their WTO obligations. By contrast, EU President Jean-Claude Juncker argued in a recent speech in Beijing that "there is a "clear link" between the China's steel overcapacity and the country's status as a nonmarket economy.

"The overcapacity of China is exactly twice the entire steel production of Europe," he said, and this demonstrates the kind of problem we have to face." And when we are saying that market rules have to apply, the Chinese know exactly that this, in concrete terms, means the closing down of steel plants.

The EU has "not made up its mind" about whether or not to grant China market economy status before next December, Juncker said, adding that the European Commission will debate the matter late this week.

European Trade Commissioner Cecilia Malmstroem previously said it's "crystal clear" that China is not a market economy, but the Commission is still reviewing the results of its latest public consultation process to determine what path it should take.

This seems like an ideal case for the West to use as a basis to confront China's non-market protections. It is enormously important both in immediate economic terms since it undercuts the profitability of global competitors and arises entirely as a result of economic protections and interventions.

In addition, the Chinese steel policies provide an even stronger basis for the Trans Pacific Partnership's potential to engage China systematically on such policies. China is not a negotiating partner now, but could possibly be, observers suggest.

Certainly, China's commitment to non-market policies is a threat to both trade and world order, and will need to be confronted in a meaningful way in the near future, Washington Insider believes.

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