Washington Insider -- Monday

Progress Seen on China Trade Deal

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

EPA's Wheeler Says Agency May Not Grant as Many RFS Waivers

EPA may not grant as many small refiner exemptions relative to the Renewable Fuel Standard (RFS), EPA Administrator Andrew Wheeler told Reuters in an interview.

Prices for Renewable Identification Numbers (RINs) have been lower for an extended period, he told the news service. "The RIN prices have been relatively low and relatively calm since last spring so that would tell me that there should be less economic harm in the refining industry right now than there was a year ago," Wheeler said.

Acknowledging there is "more than just the price of RINs for economic harm," Wheeler said, "but just by that factor alone, I would think there would be fewer refinery exemptions because of that."

EPA is still awaiting recommendations from the Department of Energy on the small refiner waivers, Wheeler said, but still expects those to arrive by the end of the week.

Wheeler did not put a timeline on the decision-making for the exemptions, only saying they would be made following receipt of the DOE data.

Grassley Seeking Info From Energy Dept. on Small Refiner Exemptions

Senate Finance Committee Chairman and noted biofuel backer Charles Grassley, R-Iowa, is seeking more information from the Department of Energy (DOE) on the criteria they are using to make recommendations to EPA on small refiner exemptions under the Renewable Fuel Standard (RFS).

Grassley said in an April 10 letter to Energy Secretary Rick Perry that he wanted more information on why the number of small refiner exemptions under the RFS surged for the 2016 and 2017 compliance years, particularly when DOE has indicated that their criteria for evaluating those requests has not changed since 2011. Citing litigation that revealed out of 48 applications for the 2016 and 2017 compliance years, DOE gave the applicants in at least half of those cases a viability score of zero. "This seems to indicate that compliance costs with the RFS had little to no impact on the small refinery's ability to stay competitive and profitable," Grassley stated.

Grassley said he wants to know if DOE has changed criteria on small refiner exemptions, the interpretation of that criteria, the methodology or any other significant aspect of how it makes recommendations to EPA for smaller refiner exemptions. He also asked if DOE is aware of instances when they recommended no exemption or a partial exemptions, only to have EPA grant an exemption anyway.

In a 2011 Small Refinery Study, DOE said they would they would make a recommendation "of disproportionate impact" if both indices they use were greater than a rating of one. "How does DOE's recommendation for a partial exemption to a small refinery with a Viability Index of 0.0 square with the statute's requirement that the exemption can be extended only if the refinery is subject to a 'disproportionate economic hardship' from compliance with the RFS," Grassley asked.

Washington Insider: Progress Seen on China Trade Deal

On Sunday, the New York Times reported that Treasury Secretary Steven Mnuchin told a group at the International Monetary Fund (IMF) headquarters in Washington that the biggest obstacle to a U.S.-China trade deal — how to enforce the pact — was “nearly settled.” He called the proposed deal the “biggest change in the economic relationship between the countries in 40 years,” the Times said.

The Times said Mnuchin’s note of optimism came as the world’s two largest economies are racing to end a protracted trade dispute that has resulted in damaging tariffs and business uncertainty that is providing a “drag on the global economy.”

“We’re hopeful that we’re getting close to the final round of concluding issues,” he told the press. The United States has been pushing China to agree to a mechanism that would allow Washington to impose tariffs on Chinese goods if Beijing reneges on certain parts of the deal.

Mnuchin elaborated that the United States and China would both have the authority to enforce commitments that are agreed to indicating that Beijing “would be able to exert some control in the future as well.”

We’ve already agreed there’s a big component of this that will depend on “real enforcement on both sides,” he said and noted the establishment of an enforcement office “on both sides with significant resources.”

At a congressional hearing in February, Robert Lighthizer, U.S. Trade Representative, described a complex enforcement mechanism under discussion that aimed to ensure China would live up to its promises.

Lighthizer said then that China had agreed to regular meetings at the levels of office director, vice minister and minister that would allow the United States to keep tabs on China’s behavior and air complaints from companies about unfair business practices. If China did not keep its promises, the United States would respond “proportionally but unilaterally.” The implication was that the United States would respond with tariffs.

American officials have also been pressing China to agree not to retaliate against the United States if it reimposes tariffs on Chinese goods. China has been reluctant to agree to a one-sided enforcement mechanism, viewing it as infringing on its sovereignty and giving Washington too much power over its economy.

“If complaints are real, we may have to use tariffs to deal with them and we’re asking the Chinese not to retaliate,” Larry Kudlow, the director of the National Economic Council, said in March when discussing enforcement of a deal.

The Times noted that people who have been closely tracking the talks “cautioned that enforcement continued to be an obstacle that remained unsettled because China and the United States had not agreed on the specifics of penalties.”

“The problem with the so-called enforcement issue has to do with finding a mechanism that allows punishment for violations of the agreement,” said Michael Pillsbury, a China scholar at the Hudson Institute who advises the Trump administration. “That hasn’t been done yet.”

On Saturday, Mnuchin declined to clarify whether the United States and China had agreed on an enforcement mechanism that would allow only Washington to respond with tariffs as punishment for violating the deal. “I want to be careful in answering that because I don’t want to get into the details of the negotiations and specifically on tariffs,” he said.

But Mnuchin said later that he expected enforcement of the trade pact to be reciprocal.

“There are certain commitments that the United States is making in this agreement and there are certain commitments that China is making, and I would expect that the enforcement agreement works in both directions,” he said. “We expect to honor our commitments and if we don’t, there should be certain repercussions and the same way in the other direction.”

The deal under discussion would require China to end its longstanding practice of requiring American companies to hand over valuable technology as a condition of doing business there and would open portions of China’s economy more liberally. The two sides have discussed China’s buying more than $1 trillion worth of goods over the next several years to help lower the trade gap between the countries.

To get China to the negotiating table, the administration slapped tariffs on $250 billion worth of Chinese goods. That punishment has begun to pinch China’s economy and Beijing’s negotiators are demanding that at least some of the tariffs be removed as a condition of any final deal. It remains unclear how many—and at what point—those tariffs will be lifted, the Times said.

The Treasury secretary made clear that there were still provisions that need to be completed and that a deal was not yet certain.

Officials from the United States and China are in regular contact by telephone, Mnuchin noted and they are determining if additional face-to-face meetings are needed.

A far-reaching deal that improves trade relations with China would be a real step forward, especially for U.S. ag producers. But the devil is always in the details which should be watched closely as they emerge Washington Insider believes.

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