Washington Insider -- Friday

US, Japan Trade Deal Signed

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

China Notes Soy, Pork Buys from US Are Without Duties

Details are still under discussion between the U.S. and China on high-level trade talks set for early October, according to China’s Commerce Ministry.

China is hopeful of making progress at the talks, Commerce Ministry spokesman Gao Feng said, pointing out that Chinese firms have made significant buys of U.S. pork and soybeans, purchases that are exempt from tariffs.

"We hope both sides can work together and take tangible actions to create favorable conditions for such cooperation," Gao said. He also reiterated a China view that they hope the U.S. will meet China half-way and find a win-win solution in the trade dispute.

China could buy even more U.S. farm products, according to Chinese Foreign Minister Wang Yi in New York. Asked by Reuters about the potential for more purchases, he said China would be willing to do so on products “needed by the Chinese market.”


RFA Rebukes EPA’s Wheeler on View Refiner Exemptions Don’t Cut Biofuel Demand

Congressional testimony by EPA Administrator Andrew Wheeler September 19 before a House committee have prompted the Renewable Fuels Association (RFA) to again criticize the EPA leader.

Wheeler testified to the House Science, Space & Technology Committee that small refinery exemptions (SREs) have had no impact on U.S. biofuel demand. “Several statements made during the hearing about ethanol supply and demand are inconsistent with government data and market intelligence,” RFA President and CEO Geoff Cooper said in a September 25 letter to Wheeler.

Cooper cited U.S. Energy Information Administration (EIA) data showing U.S. ethanol consumption fell from 14.485 billion gallons in 2017 to 14.382 billion gallons in 2018 – the first year-over-year decline in over 20 years. The drop in ethanol demand came despite gasoline demand remaining essentially steady from 2017 to 2018.

Plus, the latest EIA projections peg U.S. ethanol consumption at just 14.38 billion gallons for 2019, down from their forecast of 14.82 billion gallons that was made in January 2018 – before 2016 and 2017 SREs had been issued by EPA. In their updated outlook for ethanol consumption in 2019, EIA said that outlook “…assumes growth in higher-level ethanol blends is limited in the near-term by recent Small Refinery Exemptions that reduced volumes of renewable fuels required under the RFS.”

Washington Insider: US, Japan Trade Deal Signed

Despite earlier concerns regarding possible U.S. tariffs on Japan’s auto exports to the U.S., Prime Minister Shinzo Abe and U.S. President Donald Trump signed a trade agreement this week that removed that threat for now, Bloomberg — and others — are reporting.

Akio Toyoda, president of the Japan Automobile Manufacturers Association and the chief executive officer of Toyota Motor Corp., told Trade Minister Isshu Sugawara that he welcomed the pact. However, he was reported as noting that the industry “faces extremely difficult challenges,” citing a stronger yen, an impending hike in sales tax and other uncertainties and hopes for continued support for the sector.

In the months leading up to the deal, Toyoda had pushed for the interests of Japan’s $260 billion automobile industry, using unusually sharp language to rebuff earlier U.S. threats of auto tariffs.

Under the new agreement, Japan will eliminate or reduce import duties on $7.2 billion of U.S. food and agricultural products, while the U.S. will retain its existing 2.5% tariff on cars and light trucks.

“The pact maintains and strengthens the free and fair trade environment in the auto industry between Japan and U.S., and we welcome that,” Toyoda said. “The discussion toward avoiding further tariffs is very beneficial for stakeholders in both countries.”

During the negotiations, the association had stressed the fact that Japan’s auto industry has 24 factories, 45 research-and-development or design centers and 39 distribution centers in 28 U.S. states. Japanese carmakers have invested more than $50 billion in manufacturing facilities and provide more than 93,000 direct American jobs, the group said.

Japan has faced sharp criticism from the administration for the fact that it has accounted for more than a quarter of the $208.8 billion deficit the U.S. ran with the rest of the world in the trading of passenger vehicles and auto parts last year, Bloomberg said.

Bloomberg and others also noted that the agreement is “limited” and covered what U.S. trade officials called the “first stage” and “early achievements.” However, President Trump told reporters that he expects “in the fairly near future” that the U.S. will have “final comprehensive deals signed with Japan.”

Bloomberg repeats that the main “sticking point” in the more than year-long talks was Abe’s need for a guarantee that the U.S. will not impose “national security tariffs” on imported Japanese automobiles and auto parts. “Trump doesn’t intend to levy the duties on Japan for the time being,” U.S. Trade Representative Robert Lighthizer said.

Bloomberg cited U.S. election year politics as important in the agreement reached, and called the U.S. president “eager to make a deal with Japan to appease U.S. farmers who have been largely shut out of the Chinese market as a result of his trade war with Beijing.” American agricultural producers, also reeling from bad weather and low commodity prices, are a core component of the president’s political base.

The president said the agreement, which also covers a $40 billion digital trade agreement, would help reduce a chronic U.S. trade deficit. The countries’ goal is for the accord to go into force on Jan. 1, 2020.

Abe said he was pleased with the deal and said that it will help “bring benefit to everyone in Japan as well in the United States, namely consumers, producers, as well as workers.”

“I confirmed clearly with President Trump that the content of the agreement is intended to mean that extra tariffs will not be imposed on Japan’s cars or car parts and President Trump agreed on that,” Abe told reporters.

Foreign Minister Toshimitsu Motegi, Tokyo’s point man in the trade talks, said he had also confirmed with Lighthizer that no quotas or voluntary restraints would be imposed on Japan’s auto sector. In the longer term, the U.S. agreed to remove existing tariffs on the sector, according to a statement issued by the Japanese government, but no time line was given for this.

Bloomberg noted that the new pact won’t lower the barriers protecting Japan’s rice farmers — a powerful group supporting Abe’s ruling Liberal Democratic Party. This could help the prime minster smooth the deal’s course through parliament, where it must be ratified before coming into effect.

However, Senator Ron Weyden, D-Ore., the ranking member on the Finance Committee, criticized the narrow scope of the agreement. “The agriculture deal is not a comprehensive one and there is much more to do to level the playing field in Japan for American workers, businesses, farmers and ranchers.”

Senator Chuck Grassley, R-Iowa, who chairs the Finance Committee, told reporters that he’s happy with the deal, but added, “I think the negotiations ought to be more comprehensive than just for agriculture.” The President noted that this limited deal would not require a vote by Congress.

So, the new pact is good news for those producers whose products are included, but reflects no immediate change for others. However, it would seem to reflect a reduction in emphasis the administration is placing on the use of tariffs to improve the U.S. trade balance, a metric many analysts regard as “unreliable” in evaluations of important U.S. overseas markets, Washington Insider believes.

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