Washington Insider-- Friday

US, Chinese Talks Fail to Resolve Farm Subsidy Issue

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

Trump Picks Iowa Governor for China Post

President-elect Donald Trump officially picked Terry Branstad to become the next U.S. ambassador to China. The 70-year-old Iowa governor has a decades-long relationship with Chinese President Xi Jinping, who first visited Iowa as part of a sister-state exchange program. Branstad and Xi first met in China in 1984 because the program between Iowa and Hebei province. As a rising young agricultural official, Xi then led an animal-feed delegation to Iowa, spending two nights in the home of a Muscatine couple and touring local farms. Xi visited in Iowa in 2012, shortly before assuming the reins of China's Communist Party, and Branstad has led several trade delegations to China since 2011. Beijing welcomed the selection, calling Branstad "an old friend."

His appointment could help assuage tensions with China, after Trump received a congratulatory call from Taiwan President Tsai Ing-wen last week. China considers Taiwan a renegade province. Trump has threatened trade sanctions against China as soon as he takes office. Branstad was an early supporter of the president-elect and campaigned heavily for him in Iowa. The governor's son, Eric, was the Trump campaign's state director.

USTR Froman Urges Trump Not to Withdraw from TPP: Bloomberg BNA

Withdrawing from the Trans-Pacific Partnership (TPP) pact, as President-elect Donald Trump has promised to do, would be a mistake, U.S. Trade Representative (USTR) Michael Froman told Bloomberg BNA.

Froman said any failure to secure the deal, spanning a $28.1 trillion marketplace, could work against U.S. economic and military goals while boosting China's role in the Asia-Pacific region.

"Killing TPP on day one is a huge gift to China," Froman told Bloomberg BNA. "There is way too much at stake for this to be killed, economically and strategically."

Last month, Trump announced in a YouTube video that on "day one" of his administration he will withdraw the U.S. from TPP, calling the deal "a potential disaster for our country."

Withdrawing from TPP would undo a comprehensive effort to boost market access for American businesses and shift trade flows in a way that could harm U.S. farmers and manufacturers, Froman said.

"It's not just the lost opportunity. It's actually the risk of seeing a declining market share," Froman argued. "Current economic opportunity is being eroded in the region as other countries move forward in a reliable way as [free trade agreement] partners, squeezing the US out of these markets."

He noted the importance of the pact to U.S. farmers. "The difference between a family farm being profitable is often the fact that they export, because they are getting 20% to 30% of their income from exports," Froman noted.

Froman also argued Trump's decision to withdraw from TPP would hurt U.S. strategic interests in the Asia-Pacific region and blunt Trump's pledge to confront Chinese trade policies going forward. There is an "inherent tension between being tough on China and killing TPP," Froman observed.

Washington Insider: US, Chinese Talks Fail to Resolve Farm Subsidy Issue

Informa Economics is citing this week that the United States and China have been unable to agree on how to resolve U.S. charges that China is violating its WTO accession agreement with its current corn, wheat, rice subsidies. The U.S. Trade Representative (USTR) says the violations are large, in the range of more than $100 billion in "illegal" subsidies that damage U.S. producers.

China disagrees, and notes that its farmers each receive only small amounts from the programs, while U.S. producers receive much more. Since there was no progress in recent talks, the United States plans to ask the World Trade Organization (WTO) to investigate the issue at a December 16 meeting of its dispute settlement body.

The disagreement focuses on the terms of China's 2001 accession agreement to the WTO and concern the so-called trade-distorting domestic support. The U.S. Trade Representative charges that China is providing subsidies far greater than the ceilings it committed itself to observe. In that deal, China's agreed to limit its domestic agriculture support, both aggregate and product-specific, to 8.5 percent of the annual value of production of each commodity.

If the U.S. succeeds, the dispute could force China to reduce its agricultural subsidies or face substantial retaliatory trade tariffs worth tens of billions of dollars.

The WTO includes a set of rules and procedures as well as a forum for resolving trade disputes between WTO member countries. China is widely expected to use its prerogative to block the initial request for the establishment of a dispute settlement panel, but it may not reject a second one, which could come ahead of the DSB's first meeting in January.

This is a highly complicated issue for the United States because China is such an important markets primarily for soybeans--China accounts for around 60% of U.S. soybean exports, Informa says. While the pending WTO case does not include soybeans directly, China has threatened in the past to include soybeans in any counter measures against imports, including soybeans if it feels U.S. policy is unfairly directed at the country.

In the opaque language of diplomats, China has already indicated there would be "consequences" for the United States if the president-elect follows through on statements he made during the campaign concerning broader U.S.-China controversies. Observers suggest these might include efforts to shift Chinese imports to other suppliers. "A batch of Boeing orders will be replaced by Airbus," the state-run Global Times newspaper said on its website. "U.S. auto and iPhone sales in China will suffer a setback, and U.S. soybean and corn imports will be halted."

So, right now this is a "bureaucratic controversy" based on U.S. interpretations of the accession agreement and affecting significant subsidy violations for important U.S. crops. However, the broader controversy could quickly become much more important and involve a much broader range of issues and geopolitical considerations in which agriculture has an enormous stake.

Well, with regard to the crop subsidy dispute, there likely will be many bureaucratic steps required before retaliatory measures are considered and taken, and many types of deals can be considered in the process. Still, the political spotlight is squarely on U.S.-China trade and geopolitical relationships. The issues involved are large and substantial, and some are quite subtle. Because the stakes for agriculture are especially large, producers should watch these negotiations closely as they proceed, Washington Insider believes.

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