Washington Insider -- Monday

Trade Talks With China Bog Down

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

Canada Continues to Protect Dairy

While the Trump administration is focusing attention on dairy policy in the NAFTA 2.0 talks, those north of the border continue to insist that access to their market – or expanded access – is not a point of negotiation.

A poll released last week by IPSOS found that 75% of Canadians believe the dairy sector should be defended and that the Canadian government should make more effort to do so in the NAFTA 2.0 negotiations. The survey also found that nine out of 10 Canadians think U.S. dairy products need to be held to the same standards as Canadian products and that should be a part of the NAFTA 2.0 deal.

RealAg Radio last week talked with Graham Lloyd, general manager of Dairy Farmers of Ontario, who joined host Shaun Haney to discuss NAFTA 2.0 negotiations and other dairy issues. When Haney asked Lloyd if he felt the Canadian government will continue to protect dairy in the NAFTA 2.0 talks, Lloyd responded, “This government continues to protect us because this a system worth protecting. Canada imports five times what we export to the U.S. Canada is not a solution to the U.S. dairy issue of overproduction.”

As for the contentious Class 7 pricing issue, Lloyd said, "It was developed as domestic resource to price the skim components to be competitive with imports. We did not restrict imports. It is up to the processors to decide which products they want to use. It is based on that that we are seeing an increase in spending on processing and milk processing in Canada."

Midwest Groups Call For Action on Cellulosic Biofuel, Not RFS Waivers

A coalition of Midwest biofuels associations sent a letter Thursday to EPA asking it to move administrative time and staff away from Renewable Fuel Standard (RFS) exemptions and instead toward approvals for cellulosic ethanol.

“The discrepancy between the way EPA is handling RFS exemptions and cellulosic ethanol pathway approvals tells you everything you need to know about how this EPA is treating the RFS,” said Iowa Renewable Fuels Association Executive Director Monte Shaw in a statement.

Meanwhile, another biofuels policy meeting is on tap this week in Washington, with at least four senators some administration officials to be present.

USDA and EPA analyses of various RFS options will reportedly be part of the White House confab, which will include analysis of a proposed cap on RINs and year-round use of E15 ethanol.

Washington Insider: Trade Talks With China Bog Down

Reports from Beijing this weekend by most urban media indicate that the recent two days of trade negotiations with senior Chinese officials ended with no deal and no date set for further talks.

The New York Times reported that the American negotiating team departed without a press statement while Chinese social media said both sides hardened their positions during the talks—and that senior Chinese officials and their advisers were sending a deliberate message to the West “that the days of Beijing being conciliatory were over, and that China was staking out its own position in the negotiations.”

The Times called the extensive list of U.S. trade demands “unexpectedly sweeping” and indicated that the Trump Administration “has no intention of backing down despite Beijing’s assertive stance.” The list “reads like the terms for a surrender rather than a basis for negotiation,” said Eswar Prasad, an economics professor at Cornell University.

The Times listed the highlights of the demands, including the requirement that China cut its trade surplus by $100 billion in the 12 months starting in June and by another $100 billion in the following 12 months. China also would be required to halt all subsidies to advanced manufacturing industries in its so-called Made in China 2025 program; accept that the United States may restrict imports from the industries involved in its new trade policy; and take “immediate, verifiable steps” to halt cyberespionage into commercial networks in the United States.

The U.S. also demanded that China strengthen intellectual property protections; accept United States restrictions on Chinese investments in sensitive technologies without retaliating; cut its tariffs, which currently average 10%, to the same level as in the United States, where they average 3.5% for all “noncritical sectors,” and open up its services and agricultural sectors to full American competition.

Chinese officials tried to put the talks in a positive light. “The two sides agreed that a sound and stable China-US trade relationship is crucial for both and they are committed to resolving relevant economic and trade issues through dialogue and consultation,” Xinhua, the official news agency, said soon after the talks ended.

But the negotiations also highlighted key differences. The Times said that the American delegation’s “tight-lipped departure” suggested that the two sides had made little headway in solving them.

Before the trade talks began, people involved in China’s policymaking thought Beijing was willing to act on some concessions previously laid out by President Xi Jinping — including a willingness to make it slightly easier for foreign automakers and financial services companies to compete in China.

But China has its own demands, the Times says, including pushing the U.S. to relax restrictions on exports of high-tech commercial products that may have military applications. For example, during last week’s talks, Chinese officials also took issue with the penalties that American officials imposed last month on ZTE, a Chinese telecommunications company, for repeatedly violating United States sanctions on Iran.

During the talks, the Chinese had objected to U.S. demands for a specific cut in the bilateral surplus. Li Gang, the vice president of the Commerce Ministry’s research and training institute, told the press last month that a $100 billion cut in the surplus was “impossible.” China’s surplus has been widening lately as the United States economy grows fairly strongly and takes in more imports.

The lack of a deal this week, as well as the failure to schedule further talks right away, does not rule out the possibility that Chinese negotiators will visit the United States next month for further talks. One possibility that American officials have considered is whether China might send Vice President Wang Qishan, who is close to Mr. Xi, on a follow-up trip.

The Beijing talks were thought all along as unlikely to result in a comprehensive deal, but experts said they could still be a first step toward reaching some sort of accord.

“There’s no way our team is going to risk signing up to something without getting back here and making sure that Trump is happy with it first,” a US adviser said. “Maybe there’s also some optics where Trump wants to be seen standing with Wang Qishan and striking the deal.” “I think we’re still several jumps down the track from that.”

We will see. The China-trade confrontation was widely seen as an initial round. However, there are growing murmurs that the administration’s “super-tough” approach to trade negotiations may not be working well—or at all—with China. In the meantime, there is talk that China has already pulled back on purchases of US soybeans. Whether this is a policy decision or something else, that kind of rumor is sending shock waves through the US farm sector and may add urgency to future trade talks, Washington Insider believes.

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