Washington Insider -- Monday

Ag Trade and the West

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

USTR to Hold Hearing on EU Hormone-Treated Beef Ban

A public hearing on imposing potential 100% import tariffs on some 90 European products -- particularly targeting agricultural products from France, Germany and Italy -- will be held Feb. 15 in Washington, DC, by the Office of the U.S. Trade Representative (USTR).

USTR published the list of potential products to be targeted in a Dec. 28, 2016, Federal Register notice which also announced the Feb. 15 hearing. While most of the 90-odd products targeted by the U.S. retaliatory list are meats, it also includes goods such as for motorbikes, chocolate, mustard, paprika and chestnuts.

The tariff proposal stems from a dispute that has been simmering for nearly 30 years over the European Union’s (EU) refusal to accept imports of U.S. beef treated with hormones. US livestock producer interests are pushing the Trump administration to hit the EU hard. The bloc has a 136 billion euro ($144.6 billion) surplus with the US, making it particularly vulnerable to trade sanctions.

The European Commission (EC) said it was closely following “the US review process to reinstate trade sanctions.” USTR has not commented on the issue, in part because Trump’s nominee for USTR, Robert Lighthizer, has not yet been confirmed by the Senate.

The beef dispute dates back to the 1980s and in 1996, the U.S. filed a complaint at the World Trade Organization (WTO) for the EU ban on imports of hormone-treated beef. After the EU continued to enforce its ban, the WTO allowed the U.S. to impose punitive tariffs equal to the damage suffered because of the hormone ban.

The retaliatory tariffs had a significant impact, causing the value of EU imports affected by the duties to drop from $130 million in 1997-98 to less than $15 million in 2008, according to a Congressional Research Service (CRS) report. In 2009, under President Barack Obama, both sides reached an agreement for ending the trade sanctions in return for allowing the U.S. to export up to 50,000 tons of hormone-free beef per year to Europe.

"That was at a moment when the Americans were truly open to negotiate at eye level," said Godelieve Quisthoudt-Rowohl from the European People’s Party, who was the European Parliament’s rapporteur on the deal. In 2012, the agreement passed the Parliament, just a year before the EU and US started talks on the Transatlantic Trade and Investment Partnership (TTIP) pact. Negotiations on TTIP are ongoing, but there is uncertainty about their future given the stance President Donald Trump has taken on trade issues.

The dispute over beef reignited in part because U.S. farmers argue that the 2009 deal was not fair to them. They say countries such as Australia and Uruguay, which can produce hormone-free beef more cheaply, have moved in to fill the 50,000-metric ton quota originally intended for the U.S.

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Sugar to ITC: Mexican Case Shows Value of No-Cost US Policy

As Mexico dumped subsidized sugar onto the U.S. market in recent years and sent sugar prices spiraling downward, consumers paid more for sweetened products and food manufacturers’ revenues grew, a U.S. sugar proponent group said. Jack Roney, an economist with the American Sugar Alliance, testified before the U.S. International Trade Commission (ITC) in a hearing to examine the economic impact of U.S. import restraints.

The ITC had previously said that eliminating U.S. sugar policy and allowing subsidized imports to flood the U.S. market would mean lower prices for consumers. But, the exact opposite occurred between 2008 and 2014, Roney explained.

“Assessing the impact of U.S. elimination of sugar-import constraints does not require hypothetical modeling,” he said. “The aftermath of actual elimination of sugar-import constraints from Mexico under NAFTA demonstrates the harm to the US sugar-producing industry and the lack of any effect on consumers.”

The ITC itself unanimously found Mexico had injured the U.S. sugar industry during a recent antidumping and countervailing duty case. The U.S. Department of Commerce, in its own trade investigation, found that Mexico dumped sugar with combined subsidy and dumping rates as high as 84%.

“Grocery shoppers saw no benefit and food makers actually increased their prices,” Roney noted. “Conversely, sugar producers lost money and jobs because of Mexico’s unfair trading actions.”


Washington Insider: Ag Trade and the West

Well, there is growing speculation about coming trade policies now, even after the warm meeting between U.S. President Trump and Japanese Prime Minister Shinzo Abe. At Japan’s behest, the leaders put Vice President Pence and Deputy Prime Minister Taro Aso, who also is finance minister, in charge of a new economic dialogue that will focus on three themes: monetary policy, cooperative projects and trade.

This week, for example, the Washington Post featured a report about prospects for Western Agriculture now that the administration has pulled out of the Trans-Pacific Partnership (TPP). It calls the western beef sector is a “poster child” for potential losses because of changing trade dynamics, and says that the TPP put that industry on the cusp of a lucrative agreement with Japan, where consumers pay a premium for cuts Americans don’t prefer, including beef tongue, intestines and short ribs, as well as other products.

Kent Bacus, the director of international trade and market access at the National Cattlemen’s Beef Association (NCBA), said that the TPP would have been “a big shot in the arm for the U.S. beef industry.” “It would have given us the greatest market access ever negotiated in Japan,” he said, gradually reducing the 38.5% tariff Japan levies on US beef to just 9%.

Now farmers and ranchers worry that countries around the globe are forging their own trade pacts that will give competitors an advantage and leave U.S. producers behind. For the beef industry, Australia is a particular concern. On Tuesday, Australian Trade Minister Steven Ciobo said the remaining countries in the Pacific trade pact would push ahead with a deal without the United States.

The other countries in the TPP “will be entering into other deals among themselves, or potentially a collective TPP deal without the US All these deals would disadvantage US commercial interests,” said Wendy Cutler, a vice president of the Asia Society who worked for decades as a negotiator in the Office of the U.S. Trade Representative.

Though they will likely take years to finalize, China is pushing forward on two expansive trade deals, one involving the countries of East and South Asia, as well as Australia and New Zealand, and another involving countries around the Pacific Rim. Mexico recently met with New Zealand, Malaysia and China about bilateral deals, and Japan and the European Union are close to finalizing their own pact, Cutler said.

Now that the prospect of the TPP has vanished, American farmers and ranchers are focusing on the prospect for new bilateral deals. “We would encourage President Trump that if the TPP is not the answer that he’s looking for, that a bilateral agreement with Japan would be our next choice,” said NCBA's Bacus.

“We want a trade treaty,” said Zippy Duvall, president of the American Farm Bureau Federation. “We’re concerned [about Trump’s trade rhetoric], but he’s our president and we’re going to try to support him. We did certainly let him know that we’re nervous.”

The industry’s major competitors, including the European Union and Canada, are pursuing bilateral trade agreements with Japan, he said: “If we become less competitive, we do not have another market that can absorb the volume and the value that Japan purchases. And that has a direct impact on cattle prices and, most importantly, our farmers and ranchers in rural America.”

“Trade is more important than all the US farm programs put together to the U.S. agricultural sector. So anything that can be done to expand opportunities to do business in other markets will be really important,” said Bryan Riley, senior analyst for the Heritage Foundation and free-trade advocate.

Well, we will see. The meeting with Japanese officials last weekend was far more successful than most expected. In addition, the arrival in Washington of Ag Secretary nominee Sonny Perdue could make a difference in the tone of the debate. Certainly, the administration has been warned repeatedly, as Farm Bureau President Duval said, about the importance of ag trade. Still, the economic-trade policy debate should be watched closely as it proceeds, Washington Insider believes.


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