Washington Insider -- Thursday

By DTN's Washington Insider

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

China Will Not Appeal WTO Ruling on TRQ Administration

For a second time, China is opting not to appeal a ruling by the WTO Dispute Settlement Body (DSB), this time in the case where the WTO said that China's administration of their tariff rate quotas (TRQs) on wheat, rice and corn did not meet their WTO obligations.

The Chinese also opted to not appeal an earlier ruling which found the country's support for its wheat and rice producers did not meet its WTO commitments.

China said while it was "disappointed" with some of the findings by the WTO, they would not appeal, saying it had "respect" for the WTO rules and said it would "earnestly fulfill" its obligations and would comply with the decision.

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Court Overturns Obama WOTUS Rule

A federal judge in Galveston, Texas, has struck down the Obama administration's Waters of the U.S. (WOTUS) rule on procedural grounds.

Judge George C. Hanks ruled that EPA violated the Administrative Procedures Act by adding distance limits in the final regulation that were not a "logical outgrowth" of the proposal. He also cited the agency closing off the public comment period on the rule before EPA issued a key scientific report that undergirded the rule.

However, the ruling still keeps the WOTUS rule in place as the judged declined to rule on the challenges to the rule. That means the measure is still on the books in around half the states that are not covered by preliminary injunctions.

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Washington Insider: China Not Currency Manipulator, Treasury says

The New York Times reported this week that Treasury Secretary Steven Mnuchin told a congressional hearing recently that the administration had declined to label China a currency manipulator.

This decision came “despite President Trump’s repeated complaint “that Beijing has weakened the renminbi as a way to take advantage of the United States on trade,” the Times said.

Secretary Mnuchin said the decision could avoid further escalating tensions between Washington and Beijing, which have grown heated after a breakdown in negotiations this month.

He explained that China “remains on the Treasury Department’s watch list,” along with the “currency practices” of Germany, Ireland, Italy, Japan, Malaysia, Singapore, South Korea and Vietnam. And, he emphasized that the administration will continue to raise concerns about China’s activity in managing its currency.

Mnuchin said that Treasury still has “significant concerns” about China’s currency practices and criticized it for lacking transparency. The renminbi has fallen in value by 8% in the last year as China’s bilateral trade surplus in goods with the United States grew to $419 billion as of the end of 2018.

The biannual currency exchange report — the fifth of Trump’s presidency — also updated its criteria for designating countries as currency manipulators, allowing the United States to monitor the foreign exchange practices of a broader set of economies.

The United States has not officially designated another country as manipulator since it assigned that label to China in 1994. Doing so is supposed to prompt negotiations to resolve the problem, but in practice the punitive measures that the designation allows are minor.

The changes put in place in the latest report broadened the criteria necessary to generate the “manipulator” label. Any nation whose trade in goods with the United States exceeds $40 billion will now be monitored.

In addition, if a country actively intervenes in foreign exchange markets for six out of 12 months, rather than the current eight-month threshold, it will be closer to being flagged for manipulation.

A Treasury Department official said that even with the new thresholds, no country in recent years would have been designated. China meets only one of the thresholds, but the department added it to the watch list because of the size of its trade surplus.

Last week, the Commerce Department proposed a rule change that would allow the United States to expand its ability to penalize countries that manipulate their currencies. It proposed to levy countervailing duties when foreign governments “subsidize” their products by weakening their currencies relative to the United States dollar, the department said.

A senior Treasury Department official told the Times that the Commerce Department proposal was a separate matter that would not affect how the Treasury executed its designations.

As a presidential candidate, Trump made labeling China a currency manipulator a central plank of his economic policy, promising in his “contract” with American voters that he would direct the secretary of the Treasury to label China a currency manipulator in the first 100 days of his presidency.

While the Treasury has not yet done so, the administration has used other avenues to push China to refrain from manipulating its currency, primarily through trade negotiations with Beijing.

During a meeting between the American and Chinese delegations at the White House in February, Mnuchin said that a currency agreement between the two countries had been reached.

At that meeting, Trump said currency manipulation was “a very important subject which a lot people didn’t even think in terms of.”

American officials described the agreement as a pledge by China not to devalue its currency and to improve transparency around its foreign exchange practices.

In March, the governor of China’s central bank, Yi Gang, described the agreement as an understanding that both countries would avoid devaluing their currencies to achieve a competitive advantage for their exports.

He said that both countries would also continue to comply with previous currency agreements among the Group of 20 economies, to maintain close communication about currency markets and disclose detailed information in accordance with International Monetary Fund standards.

Democrats have been arguing that the president is being too soft on China, the Times said.

With trade negotiations between the two countries at an impasse, it is unclear when or whether the two sides will come to a formal agreement that includes a currency provision. The president has accused China of backing out of a trade pact with the United States and said on Monday during a trip to Japan that he was “not ready to make a deal.”

While no further discussions between the two countries are scheduled, Trump said he believes China will eventually agree to America’s trade terms.

Clearly, currency rules are important and the details in the proposed currency deal with China should be watched closely as they emerge, Washington Insider believes.

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