Washington Insider-- Thursday

US Challenges Chinese Farm Support

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

API Reverses Course On RFS Change

The American Petroleum Institute (API) has changed its position and now opposes shifting the point of obligation for the Renewable Fuel Standard (RFS). Frank Macchiarola, API's downstream director, discussed the change and indicated the group intends to heighten the contradictions it sees in the matter.

"Why try to fix a broken program, and keep the program in place as if everything is fine?" Macchiarola said during a September 12 press call. "We have momentum for real reform of the RFS" in Congress. Macchiarola said he sees a chance for Congress to pass HR 5180, sponsored by Reps. Bill Flores, R-Texas, and Peter Welch, D-Vt., which would cap the share of ethanol in the fuel supply at 9.7%. "We are pleased at the support that the Flores-Welch RFS reform bill is getting in Congress, with a wide range of bipartisan co-sponsors now exceeding 100 members of the House," he noted.

Macchiarola reiterated existing petroleum industry arguments against higher-ethanol gasoline blends. "Changing the point of obligation under the RFS will not fix the blend-wall problem or address vehicle compatibility. Nearly 90% of vehicles on the road today were not designed for higher ethanol blends, such as E15. And many automakers say that using E15 could potentially void those car warranties," he said.

Noting Congressional Budget Office (CBO) forecasts on RFS' cost to consumers, Macchiarola said CBO found "forcing ethanol consumption to statutory levels, mainly by using higher ethanol blends like E85, could cost consumers an additional 26 cents per gallon at the pump." Further, he said "moving the point of obligation does nothing to relieve potential pressure on consumers."

TPP Countries Unwilling to Renegotiate Pact

Renegotiation of or revisions to the Trans-Pacific Partnership (TPP) pact are not an option, according to September 12 remarks by Japanese Economy Minister Nobuteru Ishihara at a gathering in Tokyo hosted by US Ambassador to Japan Caroline Kennedy.

Japan and other members of TPP are committed not to reopen the agreement, Ishihara said, which represents nearly 40 percent of global gross domestic product worth $30 trillion.

Ambassadors to Japan from TPP's 12 member countries, as well as their representatives, met to "accelerate ratification by all members … without a change of a single word of the agreement text" before the Nov. 8 U.S. elections, an official told Bloomberg BNA.

The meeting was convened by the U.S. and Japanese governments to discourage TPP member countries from delaying domestic ratification of the agreement. Some members have indicated they are considering delays in response to opposition from leading U.S. presidential candidates Donald Trump and Hillary Clinton, the official said, speaking on condition of anonymity.

The gathering came over a month after leaders and officials from other TPP nations, including Singapore Prime Minister Lee Hsien Loong and Australian Trade Minister Steven Ciobo, said nobody wants to reopen the negotiations. During a trip to Washington in early August, Lee said U.S. ratification of TPP is "a litmus test of your credibility and seriousness of purpose."

In her remarks, Kennedy said President Barack Obama made it clear his administration is urging Congress to ratify the agreement by the end of the year, the officials said. TPP is a keystone of U.S. policy in the Asia-Pacific region.

Washington Insider: US Challenges Chinese Farm Support

Amid all the budget/spending related toing and froing in Congress in recent days, the United States has quietly challenged China to pull back its farm subsidies. The big surprise, if there is one, is how large and extensive China’s ag spending has become. For example, the U.S. trade Representative (USTR) says China's subsidies exceed their WTO commitments by $100 billion, a huge amount.

President Barack Obama said earlier in the week that he's “confident” the U.S. will win this case which “should bring an end to China's illegal subsidies, remove significant barriers on American exports, and level the playing field for American farmers and their families,” the White House press office said.

A victory for the United States could force China to reduce its agricultural subsidies or face retaliatory trade tariffs worth tens of billions of dollars. Xu Hong, the director-general of China's Department of Treaty and Law, said he “feels regret” that the U.S. launched the dispute and will “handle it properly” in order to “maintain China's interests of industry and trade.”

The United States is alleging that between 2012 and 2015 Beijing supported its farmers at levels that were “substantially” above China's WTO commitment—which are to cap such subsidies at 8.5% of the value of production.

The focus of the U.S. challenge is China's “market price support” programs, which annually set the minimum prices at which the government would purchase Indica rice, Japonica rice, wheat, and corn during the harvest season. WTO rules generally permit countries to maintain basic levels of domestic support up to 5% of the value of production for developed countries and up to 10% for developing countries.

Though China is considered a developing WTO country, it agreed to a stricter level of 8.5% as part of its 2001 WTO agreement. China claims that it has “always respected WTO rules, supported the production and development of its agricultural sector in a manner consistent with international rules, and upheld the international trading system of agricultural products,” Xu said in a news release. He didn’t explain the discrepancy.

Initially, U.S. and Chinese trade officials will try to resolve the dispute through a series of consultations. If negotiators are unable to reach a solution in a 60-day period, the U.S. may then ask a WTO dispute panel to investigate the matter. U.S. and Chinese policies have often been contentious—this request for consultations marks the 14th trade dispute between Washington and Beijing in eight years.

In addition, U.S. trade officials are telling the press that China's use of trade distorting subsidies could sink expectations for a near-term WTO agreement to reduce domestic support policies in line with the goals of the Doha Development Agenda. These negotiations, begun with great fanfare and hopes in the early aughts have been in great trouble for some time and this could be the final straw, experts say.

“It's difficult to see how we can make further progress on the rules governing agricultural subsidies at the WTO,” U.S. Trade Representative Michael Froman said earlier this week. Since 2001, WTO members have failed to forge an agreement to cut back their domestic support schemes, due in large part to the dramatic increases in payments from large, emerging economies like China and India.

An agreement to reduce domestic support is considered key to advancing any other trade agreements at the WTO biennial conference in December 2017, and the lack of such an agreement could jeopardize overall hopes for the WTO's 11th ministerial conference, USTR says.

Given the tone of the confrontations that continue to bubble up in these long, long negotiations, it seems reasonable to believe that this might the final straw—because the Chinese violations are so large now and because trade tensions continue to grow the United States, China and India. So, the USTR is right to keep pressure on China and focus on these clear violations as the dispute becomes increasingly consequential for U.S. producers. It clearly should be watched closely as it proceeds, Washington Insider believes.

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