Washington Insider -- Tuesday

The US, London and the Huawei Fight

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

Expectations for US-China Consultations on Phase One Purchase Commitments

The China coronavirus situation is expected to result in the U.S. and China undergoing consultations under the phase-one trade deal relative to purchase commitments of U.S. ag and other products under the deal.

Recall consultations are called for if either party faces a delay in their purchase commitments for reasons outside of their control.

Most observers expect consultations will be held between the two countries, if they have not yet been via phone/video conference. Some expect delays in purchases/shipments of one to two quarters, with the seasonality of China’s buys of U.S. ag goods potentially impacted if the purchase timeline goes beyond that in terms of any delay.

It is possible that with enough supply chain disruption China will not be able to meet the schedule for phase-one purchasing commitments.

USDA Finally Announces Third Round of 2019 Trade Aid Payments

USDA has announced that farmers will be soon receiving the third installment of 2019 Market Facilitation Program (MFP 2) payments.

The payouts have been expected since early January, but officials had signaled there were still details being worked out.

Through January 28, USDA issued $10.89 billion in payments under MFP 2, meaning the payment announced by USDA Monday should total around $3.6 billion.

USDA Secretary Sonny Perdue has cautioned that a 2020 MFP effort is not expected to be in the cards given the phase-one trade deal signed between the U.S. and China.

But the situation could change depending on how the market response plays out to the phase-one deal and amid already rising political pressure for the administration to issue another round of the aid for 2020.

Tue. Feb. 4 Washington Insider: The US, London and the Huawei Fight

Global trade issues are increasingly complicated these days, especially when it comes to tech policies. For example, the New York Times report on technology policy this week concludes that “one of the biggest recent stories began with an announcement in London.”

The background is that for weeks, observers in Washington had been waiting to see whether Prime Minister Boris Johnson would ban Huawei equipment as the U.S. has done or allow it to be used in the nation’s 5G wireless network. The United States has said for years that the company’s networking gear could give the Chinese government access to key infrastructure.

Last week Prime Minister Johnson revealed his decision, that Huawei is in. The company’s equipment can be used in a portion of the 5G, or fifth-generation, network.

NYT thinks this is a big setback for the administration’s global anti-Huawei push. The White House had sent top officials to London to try to sway Johnson, who is seen as a close ally to President Trump. Also, after the British announcement, the European Union told members to limit but not totally eliminate Huawei’s role in their networks.

The Times raised the question of why Prime Minister Johnson decided to allow Huawei to stay involved in building Britain’s 5G network, despite all the pressure he was under from the U.S. administration?

NYT believes there are a few key reasons. The practical one is that Huawei has been part of the British telecom network for years, and that 5G will be built on top of that existing system. To implement a ban now would be “extraordinarily costly” and delay the rollout of the faster network because a lot of that old kit would have to be ripped out.

The second reason, NYT says, is that British intelligence and cybersecurity officials believe the risks of Huawei can be mitigated.

As part of allowing Huawei to be part of its network, British officials years ago required the company to subject its products and code to tests and a lab near Cambridge does that work. For British officials, this gives them a level of confidence that the problem can be managed. Of course, American officials argue that “this is wishful thinking.” With 5G, software plays a much bigger role, meaning it will be harder to keep harmful code from slipping through.

Finally, as Britain exits the European Union, many of its officials believe that it can’t afford to alienate China, which is a big investor in the country and a growing buyer of British exports. From an economic standpoint, it would be a big risk. Britain also sees 5G as a key to the country’s economic future and that any delays could put it at a disadvantage to other countries.

In Washington, the Johnson decision set off a paroxysm of concerned statements from the administration and hawkish members of Congress—but perhaps not as strong as some expected. That included the statement from the White House, as well as the fact that Secretary of State Mike Pompeo traveled to Britain during the week—where U.S. criticisms were seen as muted and delivered behind “closed doors.”

In addition, NYT thinks the Huawei decision is just one example of a split between how tech is regulated in the United States and in Britain but also raises the question of what the future of the “special relationship” between the U.S. and Britain will be in the future with regard to tech?

The Times thinks the answer to that question, like many others these days, is complicated. For example, the report says that Britain, like many countries in Europe, is very frustrated with Big Tech and doesn’t think the companies pay their fair share in taxes. Also with Facebook and Google/YouTube, “not enough is done to limit the spread of harmful content.” Attempts to address taxes and harmful content will gain momentum this year, potentially setting up more tension with the United States.

Finally, the Times notes that tech issues “cover all of Europe, not just Britain,” and the U.S. must decide where it will campaign to keep Huawei out of 5G networks. It sees Germany as another country where the United States has been applying a lot of pressure but where the politics are intense and complicated.

For example, China has threatened Germany with retaliation if Huawei is banned and that threat is resonating there. Chancellor Angela Merkel has signaled she doesn’t want a ban but she is facing pressure from others in government who want to take a more aggressive approach.

So, we will see. The tech issues are particularly fascinating, touching on tech, trade, politics, foreign policy and national security. They pose an increasingly severe challenge to the administration to develop a unified approach that it previously has found difficult to sustain, and which producers should watch closely as these efforts continue, Washington Insider believes.

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