Washington Insider -- Thursday

More on US-China Trade Fights

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

USDA Delays for Six Months Obama-Era GIPSA Rules

USDA’s Grain Inspection, Packers and Stockyards Administration (GIPSA) is pushing back implementing Obama-era rules that would rework contract regulations between livestock producers and processors.

In a stakeholder notification, USDA said it would delay the effective date for the regulations, known as GIPSA Rules, from April 22 to October 19. USDA also pushed back the deadline for public comments to June 12. “The extension allows ample time for stakeholders to review the effects of the Scope Interim Final Rule on their operations, and ensures maximum opportunity for dialogue across every segment of the livestock, meat, and poultry industries,” GIPSA Acting Administrator Randall Jones said in the notification.

Released December 14, 2016, the GIPSA final rules would overhaul the scope of Grain Inspection, Packers and Stockyards Act regulations on “unfair or discriminatory trade practices” by livestock processors. The rule establishes that it is not necessary to demonstrate that a trade practice harms the entire industry in order to prove a violation of the Packers and Stockyards Act rules governing unfair trade practices among processors, who contract with livestock producers. That could make it easier for livestock farmers to sue large processing companies.

The rule also addresses what critics have called undue preference in the tournament-style system in which poultry processors pay producers.

The GIPSA rules were first mandated as part of the 2008 Farm Bill, but lawmakers have blocked their implementation in subsequent appropriations legislation. However, in a measure to fund the federal government in late 2015, Congress did not include language blocking the GIPSA rules from advancing and USDA moved to finalize the rules.

“The Obama administration made the imprudent decision to finalize this rule on their way out the door,” Senate Agriculture Committee Chairman Pat Roberts, R-Kan., said in a statement supporting the department's delay. “I hope the Trump administration's USDA will finally heed the concerns of farmers and ranchers and the Congress to get rid of this unneeded and unwanted rule.”


Livestock Industry Groups Mull Legal Options After CAFO Ruling

Livestock industry groups mull legal options after court ruling significantly increases number of concentrated animal feeding operations, or CAFOs, that must report air emissions from animal waste.

The DC Circuit Court of Appeals said that the George W. Bush administration improperly exempted all but the largest operations from reporting releases of ammonia and hydrogen sulfide and other substances. The Bush EPA said the reports did not serve a regulatory purpose because any federal response to notifications would be “impractical and unlikely.”

The decision will affect the 15,500 CAFOs operating in the US according to numbers from the EPA. A CAFO is a farm that confines more than a certain number of animals — for example, over 1,000 cattle, 2,500 hogs, or 125,000 chickens.

EPA based its exemption on its view that reports of air releases from CAFOs are unnecessary because a federal response to the releases is usually impractical and unlikely. The rule exempted CAFOs from reporting air emissions to the federal government but they were required to continue to report those releases to state and local authorities.

Environmental groups including the Waterkeeper Alliance challenged the rule as a violation of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and the Emergency Planning and Community Right-to-Know Act (EPCRA). Waterkeeper Alliance has targeted pork producer Murphy-Brown LLC, a subsidiary of Smithfield Foods Inc., and others in suits over farm waste.

Agricultural groups including the National Pork Producers Council favored the federal reporting exemption but challenged the part of the rule that required continued state and local reporting.

Judge Stephen Fain Williams sided with the environmental groups, finding that the EPA did not have the statutory authority to grant the reporting exemptions under CERCLA and EPCRA.

Washington Insider: More on US-China Trade Fights

It seems that despite the recent discussions at the summit meeting with Chinese officials, trade tensions between the two countries remain high. For example, the President is continuing to push China to rein in North Korea’s saber rattling and missile testing. At the same time, following last week’s meeting, there has been talk about a 100 day “action plan” with built in milestones, although these have yet to be defined.

In addition, Informa Economics is reporting that the United States recently filed an important claim with the WTO noting that “China still has not delivered a full account of its domestic subsidy programs — many of which probably violate international trade rules.”

The nine-page U.S. notice was filed in response to a report by China that focused on questions about the manner and extent to which Beijing and its provincial authorities provide domestic support to Chinese businesses and state-owned enterprises. The U.S. says it is focusing heavily on several key production sectors such as steel and aluminum, where U.S. manufacturers have struggled to compete with cheap Chinese goods that they allege are being unfairly subsidized.

Informa says that while China's 2016 subsidy report includes significant amounts of information about its sub-central government subsidies, the U.S. concludes that it failed to disclose key government support programs for the production of goods such as aluminum, automobiles, fisheries and steel. Furthermore, the U.S. says that more than half of the programs China reported “appear to be contingent upon exportation, and are (or were), therefore, prohibited” under WTO rules, the filing said.

This dispute is seen as portending a new wave of U.S. enforcement actions against China based on evaluations of whether there is evidence that China should not be granted market economy treatment, a recent WTO analysis said.

"While these subsidies also continue to demonstrate that China is a non-market economy, I think it is most likely that the United States is flagging them so that it can challenge them under U.S. or WTO law,” said Tim Brightbill, a partner at Wiley Rein LLP in Washington. “The U.S. comments are important in showing that the Chinese economy remains heavily distorted by subsidies and state-backed lending."

The agency noted that the U.S. could cite any subsequent findings of Chinese subsidy programs in future WTO trade cases. “Any subsidy program that is contingent on export is plainly illegal under WTO rules, [even] without a showing serious prejudice to the United States,” Brightbill noted. “Therefore, the United States can use these findings either to bring new WTO cases against China, or to bring new U.S. countervailing duty cases — or potentially both.”

If the U.S. reaffirms China's non-market economy status, it could further complicate prospects for China's pending WTO dispute against the U.S. for using a non-market economy methodology in antidumping and countervailing duty investigations.

One particular area of dispute concerns agriculture, and a WTO dispute settlement panel is being convened to examine the U.S. charge made last year that China is exceeding its allotted domestic agricultural subsidy commitments. For example, the United States is claiming that the domestic agricultural subsidies for the wheat, rice and corn industries exceed its WTO commitments by nearly $100 billion—a huge amount.

China brushed off that charge earlier, suggesting that “It is an international common practice for the government to provide supports to the domestic agriculture, stimulate the activity of the agriculture producers and promote the domestic agricultural production capacity, and it is also allowed by WTO rules,” the release said and went to some length to describe China’s commitment to international rules.

The United States has been unimpressed with that argument and points out that China agreed under its accession agreement to limit domestic agricultural support to “8.5% of the value of production of each commodity for both aggregate and product-specific support.”

A key issue is how China calculates that amount. It calculates its product-specific aggregate support by multiplying the difference between the world market price and applied support price by the quantity the government purchases at the support price, according to a report by DTB Associates on behalf of U.S. commodity groups prepared last fall.

By considering only government purchased quantities, China arrives at a substantially lower subsidy number, according to the DTB report. The report notes that total production quantities were required by the Uruguay Round agriculture agreement for subsidy calculations.

So, it appears that the tensions affecting this enormously important market are very deep and may well be growing. How they are managed now and in the future is enormously important to U.S. producers; a process that should be watched carefully as it proceeds, Washington Insider believes.

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