Washington Insider -- Monday
Private Funding for Infrastructure
Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.
Biodiesel Board to Lose Washington Staff
The National Biodiesel Board is losing some of its Washington staff.
NBB head of their Washington, DC, office, Anne Steckel, and Sandra Franco, the head of regulatory affairs and general counsel, are both leaving the group, NBB spokesperson Rosemarie Calabro Tully said. Chief Operating Officer Doug Whitehead will come to DC to run the office.
The apparent moves come as lobbying continues to get a $1-a-gallon biodiesel producers tax credit into any future tax reform bill. The industry also wants Congress to convert the biodiesel tax incentive from a blender's credit to a producer's credit that would no longer apply to imported biodiesel.
NBB members also want EPA to increase the biodiesel requirements in the Renewable Fuel Standard, and they're looking to the Commerce Department to slap sanctions on Argentina and Indonesia.
US ITC Finds Preliminary Injury From Ripe Olive Imports From Spain
The U.S. International Trade Commission (USITC) will continue an investigation into whether imports of ripe olives from Spain are unfairly subsidized and being sold at below fair market value, the agency announced Friday (August 4).
The California-based Coalition for Fair Trade in Ripe Olives sought the investigation and petitioned to have duties imposed on behalf of two California companies -- Bell-Carter Foods Inc. and Musco Family Olive Co.
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The U.S. imported 167,000 metric tons of olives in 2016, nearly half came from Spain, with Greece, Mexico and Morocco the other main suppliers.
The U.S. Commerce Department is expected to issue preliminary countervailing duty determinations around Sept. 15 and preliminary anti-dumping duties around Nov. 29.
Washington Insider: Private Funding for Infrastructure
The New York Times recently examined global trends in infrastructure financing and found what it called a warning for a turn toward private funding for perhaps a trillion dollars' worth of American infrastructure. The lesson is that "handing profit-making companies responsibility for public works can produce trouble."
For example, the Times says that in India, politically connected firms have captured contracts on the strength of relationships with officialdom, yielding defective engineering at bloated prices. And, when Britain handed control to private companies to upgrade London's subway system more than a decade ago, the result was substandard, budget-busting work, prompting the government to step back in. Canada has suffered a string of excessive costs on public projects funneled through the private sector, like a landmark bridge in Vancouver and hospitals in Ontario.
By contrast, China has engineered one of the most effective economic transformations in modern history in part through relentless investment in infrastructure, traditionally financed and overseen by an unabashedly powerful state—and the Times thinks the Chinese case illustrates both the benefits and perils of state domination. It has constructed projects strategically, as part of a highly successful effort to catalyze economic growth. The state also has wielded authoritarian powers, generating waste and corruption.
So the Times worries that overdependence in private funding risks yielding India-like problems while failing to produce China's economic benefits. Governments may have good reason to invest in projects that yield no profit, building roads to nowhere that ultimately open up undeveloped areas. Government alone has the incentive to upgrade shoddy wastewater treatment and supply systems for drinking water. Absent public guarantees for profits, private companies have no inducement to create such works.
"Private investors need to have a decent rate of return," said Louis Kuijs, head of Asia for Oxford Economics, based in Hong Kong. "They cannot wait 40 years, and they are simply not able to take into account the additional tax revenues for the government."
India's heavy reliance on so-called public-private partnerships — the mechanism the administration likely has in mind — comes not from an ideological predisposition toward private enterprise, but from the fact that its government is short of financing. However, the United States attracts virtually unlimited flows of investment by dint of the dollar serving as the global reserve currency.
India has expanded its highway network with private companies collecting tolls. "That hasn't worked out," said Pranab Bardhan, an economist at the University of California, Berkeley, and the author of "Awakening Giants, Feet of Clay: Assessing the Economic Rise of China and India." "Many of the infrastructure projects in India are now stalled." That the administration will find investors for its plans may be taken as a given. Be it Japan, Europe or North America, central banks have maintained rock-bottom interest rates.
Still, experts question why the United States needs to involve private money. The American authorities can tap vast and sophisticated bond markets, with municipal bonds exempt from federal taxes.
China provides a textbook case of what happens when the state invests aggressively in infrastructure. From 1992 to 2013, China allocated about 8.6 percent of its economic output toward infrastructure projects, according to an analysis by the McKinsey Global Institute. In 2013 alone, China spent $829 billion on infrastructure, more than the United States, Canada and Western Europe combined.
Inefficiency has added to the cost of many projects. Corruption has erected no shortage of white elephants. Still, China's huge expansion demonstrates the benefits of the state guiding infrastructure spending.
Had the private sector been shaping plans, the Pearl River Delta in southern China would presumably not have gained the ports, highways and electrical supplies that transformed it into a clattering zone of industry. Once in place, the infrastructure attracted vast sums of foreign investment, the Times says.
Still, in many areas, China overbuilt infrastructure, helping bring government debt levels to alarming proportions. Atif Ansar, the co-author of a paper studying China's infrastructure investments and a management scholar at the SaĂŻd Business School at the University of Oxford, said he and his colleagues found many roads that "were almost empty" in parts of southwestern China.
"Had China focused on about a third of its most productive investments, it would have reaped lasting economic benefits without the debt overhang," Dr. Ansar said.
It is not clear when, or if, the current U.S. administration will begin to move on its infrastructure initiative, or what form it will eventually take. However, the Times suggests that the "globe appears poised for another test case in what happens when private finance is handed control over public works." These policies will be enormously important to producers, and should be watched closely as these details emerge, Washington Insider believes.
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