Washington Insider -- Tuesday

Phase Two China Trade Prospects Fading

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

USDA Releases Clarification On Definitions For Export Sales Rules On Pork, Beef

USDA Monday published its final rule on clarifications to the Export Sales reporting system in the Federal Register, after the Foreign Agricultural Service (FAS) “received informal inquiries whether exports of different types of beef and pork carcasses must be reported under the regulations.”

The final rule notes now there is a footnote to the appendix of items covered under the systems relative to “fresh, chilled or frozen muscle cuts/whether or not boxed” for beef and pork. “For greater clarity, ‘muscle cuts’ includes carcasses, whether whole, divided in half or further sub-divided into individual primals, sub-primals, or fabricated cuts, with or without bone,” the footnote explains. “Carcasses which are broken down, boxed, and sold as a complete unit are muscle cuts. Total weight of carcasses reported may include minor non-reportable items attached to carcasses (e.g., hooves attached to carcasses). Meats removed during the conversion of an animal to a carcass (e.g., variety meats such as beef/pork hearts, beef tongues, etc.) are not muscle cuts nor are items sold as bones practically free of meat (e.g., beef femur bones) or fat practically free of meat (e.g., pork clear plate) removed from a carcass.”

The rule was effective when published as it is “a final rule without prior notice and opportunity for comment.”

USDA had signaled the update was coming in the regulatory agenda released last week and FAS had previously indicated it was going to update guidance to the trade on pork and beef reporting requirements under the export sales reporting system.

China Clears Large Number of US Poultry Facilities For Import

USDA has released a list of 172 facilities that are now approved to export poultry to China, continuing the process of reopening the Chinese market to U.S. poultry.

U.S. facilities approved by FSIS for export to China must be listed on the General Administration of Customs of the People’s Republic of China (GACC) website, FSIS noted, “before slaughtering and processing poultry and poultry products for export to China. U.S. facilities can only export to China poultry that are slaughtered and further processed after the facility has been added to the GACC website.”

Washington Insider: Phase Two China Trade Prospects Fading

Tea leaf reading has always been both difficult and dangerous during times of political turmoil and the current moment is no exception, Reuters said earlier this week.

At a time when most pundits are focused on the likelihood of a “phase one” deal that avoids more and bigger tariffs along with continued pressure on the economy from trade uncertainty, Reuters is suggesting that an ambitious “phase two” trade deal between the United States and China is looking less likely as the two countries struggle to complete a phase one agreement.

Although in October, President Donald Trump told the press in a joint conference with Chinese vice premier Liu He that he “expected to quickly dive into a second phase” once phase one had been completed. But hold-ups in getting the first-stage done along with “the White House’s reluctance to work with other countries to pressure Beijing” are dimming hopes for anything more ambitious in the near future, Reuters said.

The 16-month trade war with China has thrown U.S. businesses and farmers into turmoil, disrupted global supply chains and been a drag on economies worldwide. Failure to address a key reason it was started is already raising questions about whether the sacrifice has been worth it — especially as many of Beijing’s trade practices widely seen as unfair remain unaddressed, Reuters said.

In addition, last week Reuters reported that the signing of a phase one deal could slide into next year as the two countries tussle over Beijing’s demand for more extensive tariff rollbacks.

Representative Jim Costa, D-Calif., who sits on two key agricultural committees, also reported to the Congress last week that “pragmatic” Chinese sources had described significant hurdles to the agreements and a lack of focus by the administration.

White House spokesmen say the administration’s main priority is to secure a “big phase one announcement,” locking in big-ticket Chinese purchases of U.S. ag goods that can be touted as an important win during the coming re-election campaign.

After that, China could recede somewhat on the president’s policy agenda as he turns to domestic issues, the official said. “As soon as we finish phase one we’re going to start negotiating phase two,” a second administration official said. “As far as timing around when a phase two deal could be completed, that’s not something I can speculate on.”

Reuters said that the White House initially laid out ambitious plans to restructure the United States’ relationship with China. But many of these critical concerns will not be addressed in the phase one agreement, which focuses on China agricultural product buys, tariff roll backs, and includes some intellectual property pledges. “That’s the easy stuff,” said Costa. The harder issues are “industrial espionage, copyrights, privacy and security issues.”

Further complicating the issue, the administration’s economic advisers are split: some are pushing for a quick phase one deal to appease markets and business executives, others want the focus to be “a more comprehensive agreement,” Reuters said.

Beijing officials, meanwhile, are balking at pursuing larger structural changes to managing China’s economy and are anxious not to appear to be kowtowing to U.S. interests.

Both China and the United States have a clear interest in getting a phase one deal completed relatively soon to soothe markets and assuage domestic policy concerns, said Matthew Goodman, a former U.S. government official and trade expert at the Center for Strategic and International Studies.

“I think phase one probably will happen because both presidents want it,” Goodman said at a Congressional briefing last week. But he said China was less willing now to make structural changes that might have been possible in the spring. “They’re not going to do those things,” he said.

The United States needs better coordination with its allies to pressure China to make urgently needed structural changes, including ending the forced transfer of technology and better intellectual property protections, trade experts and former officials say.

Europe and other U.S. allies have been reluctant to join Washington’s pressure campaign on Beijing, partly due to frustration with the administration’s focus on unilateral action and in part due to their reliance on Chinese investment.

“We need an international coalition to successfully attack phase two,” said Kellie Meiman Hock, managing partner at McLarty Associates, a trade consulting group in Washington.

So, we will see. Clearly the trade talks with China are a major priority for the administration and for many industry groups including agriculture. However, the administration has set high goals for containing trade practices that are seen as unfair—and can expect substantial criticism if it does not focus systematically in those areas — efforts producers should watch closely as they emerge, Washington Insider believes.

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