Washington Insider-- Monday

Issues Facing the US China Summit

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

Prospects for US Distiller’s Grains and Feed Barley in Canada

Distiller’s dried grain with solubles (DDGS) and feed barley from US producers are in a position to capture an even larger share of the already important Canadian market, as domestic supply there is tight, the US Grains Council (USGC) said.

“Canadian feeders are sophisticated and price sensitive. We’re always looking for an edge in logistics, and proximity to rail transloading facilities is a key,” said Neil Campbell, a USGC consultant in Canada regarding potential imports of US feed.

Canadian feed barley stocks are very tight, so the potential market for US production is lucrative.

Canada is already the top importer of US ag products and third largest importer of US DDGS, with total purchases of US-produced DDGS at 275,000 tonnes for the first half of 2015 alone.

Canada and Mexico could take up some slack from weaker demand for US ag products in China, due to its cooling economy. They may prove to be strategic partners for US DDGS and feed barley producers looking for expansion in other markets, USGC concluded.

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Senate Timeline Murky for Renewing Expired Tax Incentives

Lawmakers are too busy with spending and legislation related to the Iran nuclear deal to take up 52 expired tax breaks that include equipment expensing and biodiesel tax incentives.

Senate Finance Chairman Orrin Hatch, R-Utah, is deferring to Majority Leader Mitch McConnell, R-Ky., on a timeline for moving an extenders measure. McConnell has not given any indication as to when he will take up the extenders bill. The Senate Finance Committee approved a two-year, retroactive renewal of 52 extenders July 21.

Regarding the House timeline, Ways and Means Committee Chairman Paul Ryan, R-Wis., wants to focus on this topic in a faster timeframe than the Senate. Congress has several must-pass legislative issues coming in the next few months, including one to fund the government, another to support the Highway Trust Fund and a third to raise the debt limit. An extenders bill could ride with one of those, but many, including Hatch, oppose that idea.

Business groups want faster action. A coalition of thousands of companies headed by the National Association of Manufacturers and the Broad Tax Extenders Coalition sent a letter to Congress Sept. 10 calling for an extenders bill to move soon. “Failure to extend these provisions is a tax increase,” the letter said. “It will inject instability and uncertainty into the economy and weaken confidence in the employment marketplace.”

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Washington Insider: Issues Facing the US China Summit

To an extent not anticipated as recently as a few months ago, the coming US-China meeting in late September has assumed far greater importance than formerly expected as China intensifies its struggle to boost overseas investments at the same time it deals with US complaints about currency manipulation, cyber-espionage and barriers to foreign investment.

Many people are surprised to learn the US-China bilateral talks have been underway for some time, and that Chinese President Xi Jinping’s state visit to the White House will follow the 21st round in an effort to complete a Business Investment Treaty. The treaty, if it happens, is intended to boost Chinese ventures in the US and loosen restrictions in China to foreign investment. It likely will be high on the presidents’ agenda this fall, according to US-China Business Council President John Frisbie.

The Council has been sponsoring meetings with Chinese officials in recent months, and is reporting growing Chinese worries about the US commitment to conclude the treaty as well as gain US Senate ratification, given the recent extreme Congressional polarization on trade issues—especially, those new concerns that have emerged recently. These include new strict Chinese regulations on foreign information technology trade according to Samm Sacks, a China country risk analyst with the Eurasia Group.

In addition, President Xi’s visit with President Obama comes amid economic turbulence in China with trade lagging, wages rising and its labor supply diminishing. Economic growth has slowed to a 7% annual rate, its lowest level in 25 years. Over the first seven months of 2015, total trade unexpectedly fell 7.3% from the levels seen one year previous. China officials have planned to maintain a 7% growth rate, but that target appears to be at risk.

Chinese officials are well aware of the renewed Congressional focus on China’s early August currency devaluation against the dollar; a policy that lowers the price of Chinese exports to the United States. Treasury Secretary Jacob Lew recently raised the issue with Chinese Vice Premier Wang Yang in a phone call, saying that Treasury will closely monitor how the new regime is implemented.

Chinese Premier Li Keqiang has rebuffed global allegations that China has been devaluing its yuan in order to boost exports and President Obama has been reluctant to take action on the issue and has threatened to veto trade measures with currency manipulation limits that could interfere with the Federal Reserve’s authority.

At the same time, the president has been more forceful in his reaction to cyber-espionage after hackers whom authorities have linked to the Chinese government, broke into the Office of Personnel Management’s computers and took personal data on more than 20 million current and former government employees. It remains to be seen whether the United States will sanction Chinese firms and, if so, which firms the administration will target.

The first meeting of the Strategic Agricultural Innovation Dialogue, co-chaired by Agriculture Secretary Tom Vilsack and his Chinese counterpart, will take place during the Xi-Obama summit, Frisbie said.

Chinese approvals for biotechnology projects will be the major area of discussion, Frisbie said, adding that several applications are awaiting approval.

Wessel said discussions also could produce positive outcomes regarding opportunities for specific crops and foodstuffs. “China is not self-sufficient in agriculture and needs a lot of crops,” he said. “They have a lot of sanitary and phytosanitary barriers, some of which do not have a scientific basis or a market basis.”

Rep. Randy Forbes, R-Va., founder and co-chairman of the Congressional China Caucus told the press he is skeptical about China’s intentions. “If President Xi is serious in his efforts to make China a leading global power, he should start by reassuring China’s neighbors and the United States with actions, not just words, that Beijing is committed to upholding the international legal order that has produced peace and prosperity in Asia for the past 70 years,” Forbes said.

For its part, China announced earlier in September that it had approved changes to its trade regulations, rules and fees in order to make the trade process fairer for companies and to ease the import and export processes at ports. It was not clear if these matters would be discussed at the presidential meeting.

So, there is plenty to talk about at the Sept 25 high-level meetings and plenty of tension to go along with it. It seems now that both parties are at least moderately interested in calming the waters, although they are far apart in many areas. Certainly, producers should watch carefully as these talks proceed Washington Insider believes.


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(GH/CZ)