Washington Insider -- Friday

US, China Trade Talk

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

USDA To Work With Hog Plants That Will Need To Slow Line Speeds

USDA's Food Safety and Inspection Service (FSIS) said the agency will not challenge a court ruling which vacated a portion of the “New Swine Slaughter Inspection System” (NSIS) relative to line speeds at hog processing plants.

“The Court vacated the rule only insofar as it eliminated the maximum line speed cap for NSIS establishments,” FSIS said of the decision by the U.S. District Court for the District of Minnesota. “The other provisions of the final rule were not affected by the Court's decision.”

The court issued a 90-day stay to give plants time to adjust, FSIS said. “At this time, establishments operating under NSIS should prepare to revert to a maximum line speed of 1,106 head per hour on June 30, 2021,” the agency said. “We will work with the establishments to comply with the Court's ruling and minimize disruptions to the supply chain.”

Those supply chain disruptions were cited by the National Producers Council (NPPC) as they called on USDA to appeal the decision. They pointed to an economic analysis showing the ruling would mean a 2.5% loss in pork packing capacity and an $80 million drop in income for producers. The group also said they will continue to “pursue all avenues” on the matter.

Biden Budget Arrives Today

The Biden administration's Fiscal Year (FY) 2022 budget arrives today and contains hefty spending for FY 2022 and lots of budget red ink.

For agriculture, the key focus will be on what the plan offers for a spending plan at USDA and what kind of spending increases for areas like conservation that might be included. The focus there will be on what kind of signals, if any, the administration opts to send relative to using those programs to address climate change.

With the Democrats in control of the House and Senate, it ups the odds the Biden budget plan will be able to get through. But there will be changes as lawmakers often want to put their own stamp on certain areas of any spending plan. Even the budgets proposed by the Trump administration were not adopted lock, stock and barrel when Republicans held both the House and Senate.

Washington Insider: US, China Talk Trade

U.S. Trade Representative Katherine Tai and Chinese Vice Premier Liu He held discussions Wednesday evening, the first such session between the two since the Biden administration took office. The session was labeled candid on trade issues between the two sides.

Tai discussed the Biden administration's guiding principles on trade policy and her continuing review of the U.S.-China trade relationship in a virtual meeting, the Office of the U.S. Trade Representative's (USTR) said. And Tai said she expected further discussions with Liu ahead.

No doubt future discussions, depending on timing, will center on the review of U.S.-China policies that USTR is conducting. A review that is still underway, so timing of the next Liu/Tai discussion is not yet certain.

All Tai has said so far about the Phase One agreement is that her view is “mixed” on the agreement that included purchase commitments made by China for manufactured goods, energy and of course agricultural commodities.

From the Chinese side, their Ministry of Commerce described the call as “candid, pragmatic and constructive.” Outstanding issues include tariffs imposed by former President Donald Trump and U.S. sanctions against Chinese companies. The latter is one where the U.S. is not alone as several other countries have been targeting Chinese firms as well.

What has not been given any mention publicly is the situation where the U.S. and others are putting restrictions on imports of cotton/textiles from Xinjiang over the issue of the Uyghur minority. Many outside of China say the Uyghurs are being subjected to forced labor, something China vehemently denies and there have been numerous articles in Chinese state-run media that seek to counter the allegations being made by the Western World.

But even before Tai and Liu spoke, lower-level discussions took place Tuesday night. Chinese trade staffers on that call also called on the U.S. to roll back remaining tariffs on Chinese products. During the call, the Chinese stressed the importance of tariff rollbacks as a necessary component of next steps in the relationship.

It is important that Liu was the point person on the call as there had been talk of him being replaced in the role that saw him negotiate the Phase One agreement with Robert Lighthizer, USTR under President Donald Trump.

In letting Liu, President Xi Jinping's right hand on the economy, speak with Tai, the Chinese leadership is signaling the continued importance of the economic relationship to Beijing.

When it comes to the Phase One agreement, many continue to point out that China is running behind its two-year purchase commitments under the deal. Both Chinese and U.S. data indicated that to be the case.

But agriculture has done better than the other sectors relative to the purchase targets. Long-time trade folks have pointed out that the purchase commitments are kind of the “shiny object” in the deal. Several U.S. commodity interests point to other components of the Phase One agreement as being perhaps even more important.

Indeed, those other matters are things that deal with sanitary and phytosanitary issues, some of the biggest areas where trade problems arise.

Of the more than 55 policy changes that China committed to on agriculture trade, some 50 of those have been implemented. And some have had an immediate impact. Take the agreement between the U.S. and China that was announced in February 2020 where China cannot block all poultry imports from the U.S. in the event we have a bird flu outbreak. China halted its imports of U.S. poultry in 2015 after the bird flu outbreak, and only agreed to reopen its market under the Phase One agreement.

Less than two weeks after that agreement was announced on the regionalized approach to poultry trade issues, the U.S. confirmed a case of bird flu in turkeys in South Carolina. The result was China only blocked poultry from South Carolina, not all of the U.S.

The other that many point to is China now accepts export certification for meat and poultry plants by the U.S. Food Safety and Inspection Service. That has meant more than 4,000 plants can now ship product to China, up from around 1,500 before the Phase One deal.

The changes made by China are important in that they cover not only trade under the Phase One agreement but they put in place changes that will govern future ag trade between the two sides.

And that increased trade between the two sides spurred by the Phase One agreement helped push USDA to raise its forecast for U.S. ag exports in Fiscal Year (FY) 2021 to a record $164 billion.

The U.S.-China relationship is a key one and it is one that has rising tensions as a component. It does not appear that China wants to walk away from the Phase One agreement, but they are pushing the “new” administration on the issue of tariffs, tariffs that got them to the table to negotiate the deal in the first place.

So we will see. U.S. agriculture has clearly benefitted from the Phase One agreement. Perhaps not as much when viewed from the purchase commitments. But when the other critical changes that China has taken governing trade in agricultural products are considered, it is a relationship that so far is a sizable benefit to U.S. agriculture. But the China-U.S. relationship is a delicate one and must be watched closely, Washington Insider believes.

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