Washington Insider-- Thursday

Brexit Tensions Continue

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

Australia Takes China To WTO Over Barley Tariffs

Australia is opting to pursue remedies at the WTO over China's imposition of tariffs on barley from Australia.

Simon Birmingham, Australia's trade minister, said that following Australia taking China to the World Trade Organization (WTO) over barley tariffs, Australia reserved the right to appeal several other Chinese trade sanctions levied against Australian coal, beef, timber and lobsters in recent months to the WTO.

Beijing imposed tariffs of 80% on Australian barley after bilateral relations deteriorated, but China contends Australian barley imports were sold below cost in China and due to subsidies to Australian growers.

Australia has acknowledged that the WTO process could take years to resolve and noted that China had refused to engage with it over the expanding range of trade disputes. Beijing has already imposed sanctions on barley, beef and wine imports following Canberra's call for an inquiry into the origins of the COVID-19 pandemic that first surfaced Wuhan.

Interestingly, China has sought barley from other global suppliers but has not yet turned to the U.S. even though the two sides reached agreement on barley trade as part of the Phase One trade deal between the two countries.

Ag Provisions COVID Aid

The package of COVID aid that congressional leaders are working on and are aiming to finalize to include with a funding plan for Fiscal Year (FY) 2021 continues to contain help for agriculture.

The package would authorize $13 billion in farmer aid and $13 billion in food assistance, including a temporary 15% increase in SNAP benefits. It also provides $10 billion for broadband improvements.

Another provision would allow farmers and other small businesses that obtained Paycheck Protection Program (PPP) loans to deduct from their tax obligations the same expenses they used to qualify for loan forgiveness.

Some maintain the amounts in the package are not enough to cover ag losses at this stage. That will likely mean a push for additional financial assistance for the sector will continue next year.


Washington Insider: Brexit Tensions Continue

The New York Times reported last weekend that Britain and the European Union “passed another do-or-die moment in their trade negotiations with neither a breakthrough nor a breakdown.”

As a result, the Times said there were distinct glimmers of hope that the two sides might at last find a way to bridge the gulf between them.

Prime Minister Boris Johnson and the president of the European Commission, Ursula von der Leyen, agreed to extend the negotiations after what both described as a “useful” midday phone call. She dropped her previous admonition that Britain and the European Union were far apart on key issues.

Johnson struck a warier tone, noting that the gaps remained significant and that Britain should prepare for a failure to reach a deal by the Dec. 31 deadline. But even he said that British negotiators would not walk away from the talks and reaffirmed, “there is a deal to be done, if our partners want to do it.”

Tellingly, neither set a fresh deadline – though as a practical matter, the two sides have only until New Year's Eve, which is when the transition period to hammer out a long-term trade agreement expires. After that, Britain and the European Union would begin levying tariffs on each other's goods.

Mujtaba Rahman, an analyst at the political risk consultancy Eurasia Group, said, “Today was the moment where it all could have gone wrong—and it didn't. Both sides have committed to avoiding a cliff edge, which means the likelihood of an agreement has now risen substantially,” he added.

At the heart of the talks is the thorny question of how the European Union would respond if Britain diverged from the bloc in its industrial policy. Both sides initially staked out a hard line: Brussels insisting it had to be able to defend the single market from unfair competition from British companies getting state support; and the British declaring it was a matter of sovereignty to be free to chart their own course.

In recent days, however, the European Union has softened its stance, the Times said. Rather than automatically impose tariffs to counteract British divergence, the two sides are negotiating other ways to resolve disputes over state aid and other competition policies.

That could allow Johnson to claim a victory, which would help him sell a trade agreement to the Brexiteers in his Conservative Party. But Britain has given ground in important respects as well.

On Wednesday in Parliament, before he traveled to Brussels for a dinner meeting with von der Leyen, Johnson dismissed the European Union's position as an unacceptable infringement of British sovereignty.

Brussels, he said, wanted to ensure that “if they pass a new law in the future with which we in this country do not comply or do not follow suit, they should have the automatic right to punish us and to retaliate.”

Johnson's use of the word “automatic” was noteworthy because it suggested there were other ways the two sides could resolve such disputes. Before that, British negotiators had refused to accept any other safeguards against future divergence except those in standard trade agreements, though they did commit not to water down existing rules on labor and environmental standards.

“It seems as if the UK has conceded the principle,” said David Henig, director of the UK Trade Policy Project at the European Center for International Political Economy, a research institute. “There is a difference between having a difference on a point of principle and trying to find a practical solution that satisfies both sides.”

None of this means the talks could not still run aground. Time is short, the two sides still need to work out a politically fraught deal on fishing quotas, and negative blowback from pro-Brexit Conservative lawmakers could yet persuade Johnson to pull back from endorsing the difficult details.

“If Ursula is optimistic, then that's great,” Johnson told the press. “But as far as I can see, there are some serious and very, very, very difficult issues that currently separate the UK from the EU.” Britain, he said, had made extensive preparations for a failure in the talks, after which its trade with the European Union would default to World Trade Organization terms. Some analysts dismissed that as a calculated effort to take a tough posture before the inevitable compromises to come.

Henig, the analyst, said the prime minister was under intense pressure from British business not to risk a trade war in January over Britain's theoretical right to take measures for which it currently has no plans.

Chris Patten, a former chairman of the Conservative Party and governor of Hong Kong from 1992 to 1997, accused Johnson of being on a “runaway train of English exceptionalism.” The prime minister, he added, was “not a Conservative,” in the sense of being committed to alliances, institutions or the rule of law, but an “English nationalist.”

Johnson, for his part, said he was eager to negotiate directly with Europe's two most powerful leaders, Chancellor Angela Merkel of Germany and President Emmanuel Macron of France. But both have refused to engage with him, leaving von der Leyen and her chief negotiator, Michel Barnier, in control of the talks.

That has denied Johnson the opportunity to exploit divisions between the 27 members of the European Union. It has revealed, diplomats say, Britain's misconception that it could force Brussels to back down in the final days of the negotiation.

So, we will see. Clearly, there is significant willingness to negotiate, even though the issues are very tough. And the outcome of the discussions are important to global agriculture and should be watched closely by producers as they proceed, Washington Insider believes.

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