Washington Insider-- Monday

Ending Globalization

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

US, India Pledge to Expand Bilateral Trade

A joint pledge to expand bilateral trade in goods and services was voiced by US and Indian trade officials following the conclusion of the 10th round of U.S.-India Trade Policy Forum in New Delhi.

The trade officials, such as U.S. Trade Representative (USTR) Michael Froman and India's Minister of Commerce and Industry Nirmala Sitharaman, promised to keep working to resolve trade disputes. However, they acknowledged that the potential for their countries to increase trading ties remains limited.

"Both sides agreed to continue their efforts for exploring possibilities for opening up the markets as well as expand share of existing trade to each other's territory," the trade ministers said in a joint statement after the meeting.

"Sharing a desire to increase bilateral trade in goods and services, the two governments reviewed substantive progress achieved in deepening bilateral trade and investment in 2016, and discussed planned engagement for 2017 which can further promote economic growth and job creation in both India and the United States," the statement read.

No new updates were provided regarding lingering and contentious poultry trade issues between the two countries.

US Ethanol Could Help Japan Achieve Greenhouse Gas Reduction: Study

A study recently released by the U.S. Grains Council found that a significant portion of U.S.-produced corn ethanol will likely meet Japan's 50% greenhouse gas reduction threshold over gasoline, something the group said supports the case for that fuel's competitiveness and its sustainability compared to other fuel sources.

The report's results will help the Grains Council and its industry partners for opening the door for U.S. ethanol in the Japanese market, ethanol proponents noted. In particular, they said, the study will help show key Japanese government officials and industry stakeholders that U.S. corn ethanol meets Japan's rigorous international sustainability requirements.

The ongoing efficiency improvements in corn ethanol production, an increased number of co-products from that production and improvements in U.S. corn cultivation practices have resulted in significant reductions in ethanol's greenhouse gas life cycle emissions and are widening its environmental advantage over petroleum, according to the study, authored by Dr. Steffen Mueller, principal economist at the University of Illinois at Chicago Energy Resources Center, and Stefan Unnasch, managing director of Life Cycle Associates.

Japan has put into place a requirement that all biofuels must reduce greenhouse gas by 50%, and Japanese regulators will decide whether or not to include US corn ethanol in Japan's biofuel policy in the spring of 2017 for implementation in 2018.

Currently, only sugarcane ethanol, largely from Brazil, meets Japanese standards developed ten years ago.

Washington Insider: Ending Globalization

The New York Times reported over the weekend that the breakdown of a pending European Union (EU)-Canadian trade deal over opposition from in Wallonia, a small French-speaking portion of Belgium, has dealt a death knell for globalization, pretty much everywhere. The Times was reporting on the talks designed to promote commerce between the EU and Canada that had seemed like a safe bet on both sides of the Atlantic, but now are at least temporarily stalled.

The article sees this as a powerful portent. As usual in its trade reporting, the Times feels the need to point out that trade opponents are sort of justified. Although liberalized trade has amplified economic growth, "the spoils have been largely monopolized by wealthy and corporate interests," which is an amazingly one sided view of economic history. Recriminations growing economic inequalities are now so ferocious that modern history has been altered and "the phase of globalization that began with the ending of World War II is essentially over."

It goes on to opine that, "if a deal negotiated at the highest level between two large and advanced economies like Canada and Europe can be upended by narrow interest groups—like the dairy industry in a relatively minor participating nation—forget about every other large and complex deal under discussion."

Even for the Times, this report is gloomy, perhaps a little too gloomy. But the evidence is stark.

The British government insists that it will find a way to leave the European Union while maintaining access to the European single market— the buyer of almost half of Britain's exports. Since any deal resulting from these tortuous negotiations must win the assent of the 27 other members of the EU and any one of those countries seeking to protect the concerns of a single affected industry can essentially kill any deal, the Times thinks that the UK may achieve the isolation it said it wants.

Still, the recent pull back on the Canadian deal was surprising. The Wallonia region of Belgium has single-handedly blocked a deal produced over seven years and "effectively determined the terms of commerce applying for 500 million Europeans." So, "somewhere in the European Union must surely lurk some other Wallonia that will seize the opportunity to slap tariffs on British goods even at the cost of broader economic interests."

Well, we will see. The collapse of the EU-Canadian talks certainly is another sign of headwinds facing trade as politicians around the world generate populist threats to tap into voters' fears, Bloomberg reported.

Still, EU Trade Commissioner Cecilia Malmstroem is telling the press that she "still hopes to find" a solution to sign the pact and European Commission representatives are still conferring with Walloon diplomats after a leaders' summit dispersed in Brussels where they discussed the deal, which requires unanimous support.

European Commission President Jean-Claude Juncker said after a recent meeting, "I hope that we'll be able to see an agreed settlement in a few days with the Walloons, our friends, because I believe this agreement is the best agreement we have ever been able to negotiate to date."

The EU says the proposed Canadian deal would boost its economic output by about 12 billion euros annually and expand EU-Canada trade by about a quarter. The accord would end 98% of tariffs on goods traded from the outset and 99% after seven years. Each side would dismantle all industrial tariffs and more than 90% of agricultural duties. Markets for services and public procurement would also be opened.

It may be true, as the Times says, that the era of growing trade and globalization is over, but many observers suggest that the economics of trade are still very powerful and that isolation or protectionism will not solve the economic problems associated with advances in technology.

It will be important to watch the EU as it struggles to regain momentum in the Canadian talks, and to deal with the UK's extensive demands. Still, tough negotiations are not new or unusual and tough trade votes in the United States are not unusual, either.

So, we will see. The concept of isolation as a "comeuppance for the elites" has always had political appeal. Whether it will generate a broad appetite for the economic and geopolitical risks that would come with more inward looking US policies remains to be seen, but the outcome is certainly important and the process should be watched as it proceeds. Washington Insider believes.

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