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A Vote on USMCA is a Vote for Predictability

USMCA

A Vote on USMCA is a Vote for Predictability

For all their legal nuance, trade agreements are written to make commerce more predictable. The rules are meant to increase business confidence, boost investment and spur job creation. It’s time for Congress to show bipartisan support for a more predictable North American market, and pass the United States-Mexico-Canada Agreement (USMCA).

USMCA is a much-needed upgrade of the North American Free Trade Agreement (NAFTA), a text that was largely copied over from the US-Canada bilateral trade agreement signed in 1988. To say that NAFTA is outdated is an understatement. Canada and Mexico have concluded trade deals with other countries that do things NAFTA could have never anticipated 25 years ago. USMCA is needed just to keep up.

Three chapters of USMCA deserve far more attention than they’ve received.

First, the chapter on health and safety standards is a must for US agriculture. The biggest threat to our ranchers and farmers is a lack of science-based import regimes abroad, not tariffs.

Tariffs are a tax on trade, whereas health and safety standards, applied in a non-scientific or in a discriminatory way, can act as a ban trade. US agricultural exporters have long demanded more science-based approaches to what are called sanitary and phytosanitary standards, and USMCA delivers on this. USMCA also puts forward a number of consultative mechanisms that will help prevent certain market access problems from arising in the first place.

US agriculture needs Chapter 9 of the USMCA.

Second, the chapter on technical barriers to trade is essential for US manufacturers. It covers the regulatory measures that impact over 90 percent of goods exports from the United States. This is fertile ground for protectionism. Governments can easily use regulatory measures, or ways of assessing conformity with them, that shield domestic producers from import competition. In fact, they can completely shut down trade with a few strokes of the legislative pen.

In USMCA, American manufacturers have more of a voice in the regulatory process in Canada and Mexico concerning their exports. Importantly, USMCA also calls on the three countries to recognize that, in setting technical specifications, performance, and not the provenance of the regulation, is what should matter. This is a longstanding US demand, and USMCA represents a tangible win for US exporters in this regard.

American manufacturing needs Chapter 10 of USMCA.

Third, the chapter on intellectual property is upgraded to reflect the needs of a building a creative economy. The list of international agreements that inform USMCA is striking; many didn’t exist in 1994, never mind in 1988. Copyright protections are modernized, as are those for biologics, a type of drug that could not have been imagined when NAFTA was negotiated. Whereas patents, alone, could help stimulate investment in small molecule drugs, they aren’t enough for the living systems that define biologics. USMCA brings Canada and Mexico closer to the US standard, and in this regard increases protection of American IP abroad.

Other IP provisions will assist a variety of America’s creative industries, from film to fashion to iPhones. These modernized rules, along with consultative mechanisms to ensure a level playing field, will provide the kind of protections that inventors need to bring their ideas to market. This is a win.

America’s creative industries need Chapter 20 of USMCA.

Still, there are some who, while recognizing the benefits of USMCA, worry that the deal cannot effectively enforce labor and environmental standards. They shouldn’t be. The provisions are as good as anything in the EU-Mexico trade agreement, for example, and Europe is renowned for having high expectations on both fronts, both domestically and internationally.

Polls show that, regardless of party, American voters are more supportive of free trade now than ever before. Democrats, Independents and Republicans converge around 80 percent in favor. Polls also show that USMCA has bipartisan backing.

The United States is part of a North American market that thrives on predictability. It’s time for Congress to unite behind USMCA and deliver predictability.

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Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at Georgetown University’s School of Foreign Service.

phase one

The Phase One Deal: How We Got Here And What Is Next

President Trump announced that the United States and China had reached a partial “Phase One” trade deal in mid-October, signaling a pause in the trade tensions that have steadily grown over the past two and half years.  While the precise goals of the President’s trade action against China have always been vague, there was an unquestionable desire to change certain structural issues of the Chinese economy, particularly with the country’s intellectual property and forced technology practices.  

To put the proposed Phase One deal in its proper context, this article breaks down (1) the various stages of escalation since President Trump took office, (2) what’s known about the contents of agreement, and (3) the potential risks that could derail the deal from being signed.  

The Escalation of the Trade War

The President’s most high-profile actions against China have been his use of long-thought-defunct trade authority, Section 301 of the Trade Act of 1974 (“Section 301”).  Section 301 grants the President the authority to impose tariffs on countries if it determines that the acts, policies, or practices of a country are unjustifiable and burden or restrict U.S. commerce.  

Following a lengthy investigation, the Office of the U.S. Trade Representative (“USTR”) officially determined in March 2018 that China’s policies result in harm to the U.S. economy.  Simultaneously, President Trump signed a Presidential Memorandum outlining a series of remedies that his Administration would take in response to these findings, most notably the imposition of tariffs.  

President Trump’s Section 301 tariffs currently cover most products imported from China, after having been rolled out in four different lists:  

-List 1 of the Section 301 tariffs went into effect July 2018 and imposes a 25 percent tariff on $34 billion worth of goods from China.  

-List 2 went into effect August 2018 and imposes a 25 percent tariff on $16 billion worth of goods.  

-Following China’s retaliatory tariffs on Lists 1 and 2, the United States announced List 3, which began imposing a 10 percent tariff on $200 billion of Chinese products in September 2018.  The List 3 tariffs were increased to 25 percent after negotiations between the two countries fell apart.

-List 4 could hit almost $300 billion more of Chinese products.  Part of the list (“List 4a”) went into effect on September 1 and imposes 15 percent tariffs on $112 billion of Chinese products.  The U.S. is scheduled to impose 15 percent tariffs on the remaining $160 billion of the list (“List 4b”) starting December 15.  

The Trump Administration has taken aggressive action to increase pressure on China that goes well beyond the Section 301 tariffs.  Since President Trump took office, he has targeted China’s steel and aluminum industries through global tariffs on these products. He has (at least temporarily) sanctioned major Chinese tech firms or restricted their ability to do business with the United States.  He has sanctioned Chinese individuals and entities connected to North Korea and others related to the treatment of the Uighurs in western China. He signed into law a major expansion of authority for the Committee on Foreign Investment in the United States (“CFIUS”), which has immediate and future implications for Chinese investment in the United States. 

Additionally, the Administration has moved closer to Taiwan. President Trump has authorized significant military sales to Taiwan, and as President-elect, he took a call from Taiwan’s leader Tsai Ing-wen, the first such call by a U.S. President or President-elect since the 1970s. The Administration has either directly or indirectly made clear that these restrictions, sanctions, and geopolitical relationships can be used as points of leverage in the trade negotiations.  

The Phase One Deal

Many details about what is included in the Phase One deal remain unknown.  In announcing the deal, President Trump said “We have a great deal. We’re papering it now.  Over the next three or four or five weeks, hopefully, it’ll get finished. A tremendous benefit to our farmers, technology, and many other things — the banking industry, financial services.”  As the two sides “paper” the agreement into finalized text, what is known about the deal has come largely from statements made by both sides. We know that as part of the deal, the United States will not pursue plans to increase the List 1-3 tariffs from 25 percent to 30 percent. We also know China plans to make large purchases of U.S. agricultural products.  

There are reports the Phase One deal could also delay or cancel the planned List 4b tariffs. Other reports suggest that China is seeking additional eliminations or reductions of the Section 301 tariffs.  

As for the structural changes to the Chinese economy sought by the Trump Administration, it seems as though they could be mentioned in the Phase One deal, but the real work will be addressed in subsequent phases.  

What Comes Next

The stars were aligning for President Trump and President Xi to sign the Phase One deal at the Asia-Pacific Economic Cooperation (“APEC”) meetings in Santiago, Chile this week.  Unfortunately, the APEC meetings were unexpectedly cancelled due to protests in the country, highlighting that a few weeks can feel like an eternity for sensitive trade talks.  

Assuming the U.S. and China can find another location, there are still risks out there that could prevent the deal’s signing.  

One big risk to the deal is the events unfolding in Hong Kong. The Trump Administration has been notably quiet on the protests, outside of President Trump expressing his faith in President Xi to satisfactorily resolve the situation.  The strongest statement from the Administration came from Vice President Pence, who recently said, “[T]he United States will continue to urge China to show restraint, to honor its commitments, and respect the people of Hong Kong.  And to the millions in Hong Kong who have been peacefully demonstrating to protect your rights these past months, we stand with you.”

According to multiple reports, President Trump pledged to Chinese President Xi Jinping that his Administration would remain quiet on the Hong Kong protests throughout the trade talks.  However, the Administration’s hand could be forced if the protests escalate into more sustained violence or if, as is expected, Congress passes legislation in support of Hong Kong with veto-proof majorities.  

Another risk is more vocal opposition from so-called “China hawks” that are dissatisfied that Phase One doesn’t get to the heart of the problems they have with China’s economic practices.  Senate Minority Leader Chuck Schumer (D-NY) cautioned the President that he “shouldn’t be giving in to China unless we get something big in return.” Senator Marco Rubio (R-FL) doubted China’s commitment to the deal long-term, saying, “I do believe that [China] will agree to things they don’t intend to comply with.” There are reports that China hawks within the White House are also pushing the President to reject the deal, notably Director of the Office of Trade and Manufacturing Policy Peter Navarro.  

A deal to end or pause the trade tensions between the United States and China would provide the private sector with more certainty as they make decisions about 2020 and beyond.  The Phase One deal looks to provide at least a pause, but geopolitical actions or domestic opposition could still derail the agreement before it is signed.   

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Rory Murphy is an Associate at Squire Patton Boggs, where his practice focuses on providing US public policy guidance, global cultural and business diplomacy advice that helps US and foreign governments and entities with doing business around the globe.

soybean

Soybean Prices are a Proxy for How the Trade War is Going

Soybeans are in your cereal, candles, crayons and car seats

Soybeans have more far uses than most of us realize. After harvesting, soybeans are dehulled and rolled into flakes as its oil is extracted. Soybean oil has become an ingredient ubiquitous in dressings, cooking oils and many foods, but is also sold for biodiesel production and other industrial uses.

Soy flours feature prominently in commercial baking. Soy hulls are part of fiber bran cereals, breads and snacks. Soybeans are even part of building materials, replacing wood in furniture, flooring and countertops. They are in carpets, auto upholstery and paints. Soybean candles are popular because they burn longer with less smoke. Soy crayons are non-toxic for children. And – because soybeans are high in protein – they are a major ingredient in livestock feed, which provides much of the impetus for globally traded soybeans.

Bean counting

Given this panoply of applications, it should be no surprise that global demand for soybeans is growing, but it’s mostly animal mouths we are feeding. Demand for soybean meal for livestock feed drives two-thirds of the export value of traded soybeans.

According to the Agricultural Market Information System, three countries produce 80 percent of the world’s soybeans to fill this demand: the United States, Brazil and Argentina.

At 123.7 million metric tons produced in 2018, U.S. farmers accounted for 34 percent of world production. Brazil’s farmers yielded 117 million metric tons, accounting for 32 percent of world production, but Brazil exported larger volumes than the United States.

Rounding out the top three, Argentina accounts for 15 percent of world production but exported just 6.3 million metric tons in 2018. China is fourth, producing 15.9 million metric tons in 2018 – just four percent of world production.

America’s second largest crop

Grown on more than 303,000 farms across the United States, soybeans are the second largest cash crop for American farmers. Conventional soybeans are grown in 45 U.S. states while high oleic soybeans are grown in 10 states. Though output varies each year, at 4.54 billion bushels in 2018, U.S. growers are so productive they can now yield twice as many bushels of soybeans as two decades ago. (At SoyConnection.com, you can click on this map to see the number of farms, acres, and bushels produced in each state.)

Three countries produce 80 percent of the world's soybean

China’s insatiable appetite

China cannot get enough soybeans. When China entered the WTO in 2001, the country was already consuming 15 percent of the world’s soybeans, driving 19 percent of global trade in soybeans. By 2018, China’s appetite had grown 815 percent according to the U.S. Farm Bureau, which says China’s demand now supports 62 percent of world trade in soybeans.

According to the Farm Bureau’s calculations, China consumes one-third of every acre harvested in the world – an amount equivalent to or more than total U.S. soybean acreage. Around 60 percent of U.S. yields were sold to China in 2017, which means there was a lot at risk for U.S. farmers caught in the crosshairs of the trade war that unfolded in 2018.

A pawn in the trade war

In July 2018, the United States fired the first tariff shot in its efforts to seek redress for the intellectual property theft cited in its Section 301 investigation into China’s practices, by imposing tariffs on $34 billion worth of China’s imports. China responded with 25 percent tariffs on an equivalent amount, including on soybeans from the United States. The tariff has remained in place as leverage in the trade war – a proxy for whether China perceives progress is being made or not in the negotiations.

In intermittent gestures of goodwill, China agrees to make purchases but has often not fulfilled orders for the promised amounts. When President Trump angrily tweeted on August 23 this year that China was not negotiating in good faith and that U.S. tariffs would cover more imports from China, China responded in part by adding five percent to its tariffs on soybeans.

A factor in price fluctuations

The Food and Agricultural Policy Research Institute at the University of Missouri recently offered a gloomy forecast for lower prices for soybeans: $8.43 per bushel for 2019-20, dropping further to $7.94 per bushel for the 2020-21 marketing years. They say lower prices are resulting from a combination of adverse weather, African swine fever disease that is decimating herd inventories throughout Asia and therefore weakening demand for feed – and the ongoing trade dispute.

On May 13 this year, coincident with some fiery presidential tweets expressing frustration with China, soybean prices reached a 10-year low. USDA estimates that, at 4.54 billion bushels produced last year, a drop in average price per bushel from $9.33 in 2017 to $8.60 in 2018 translates to losses for U.S. soybean farmers of $3.3 billion.

Soybean Prices react to China trade war

Bait and switching

Adding to the strain of lower prices, China has drastically pared back its soybean orders from the United States. In 2016, the United States shipped 36.1 million metric tons of soybeans to China. In 2018, sales dropped to just 8.2 million metric tons.

The Chinese government is able to avoid its own tariffs by directly purchasing U.S. soybeans which it then sells to private users in China. The government has also granted tariff exemptions to Chinese soybean crushers. Just this week, the government granted an exemption to state-owned, private and international companies to import 10 million metric tons of U.S. soybeans tariff-free. Overall, the quantities purchased through these mechanisms is not nearly enough to make up for the vast shortfall in supply from the United States.

So, China is buying more from Paraguay, Uruguay, Argentina, Canada and in particular from Brazil, which has moved in to supply 75 percent of China’s total imports. For U.S. soybean exporters, lower prices per bushel have attracted new buyers from Europe, Mexico and elsewhere, but those sales are not enough to replace lost sales in China.

Plummeting U.S. Soybean Exports to China

Homegrown

China is hedging its bets by rejiggering the incentives it provides to its own farmers. Upon releasing a new white paper, the head of the National Food and Strategic Reserves Administration said that even though China’s food production and reserves are strong, “We must hold the rice bowl firmly in our hands, and fill it with even more Chinese food.”

In addition to directly investing in agricultural infrastructure in Brazil, neighboring Russia, and other suppliers, the Chinese government has set a goal to increase domestic soybean production in five years from 16 million to 24 million metric tons, according to the U.S. Soybean Export Council.

News China reported in January that Chinese farmers in Heilongjiang, China’s main grain producing province, are being provided incentives to switch from wheat and corn to planting more soybeans. For years, the Chinese government has offered price supports for corn. Under new policies, crop rotation can earn Chinese farmers $322 per hectare in subsidies in addition to subsidies of between $373 and $430 per hectare offered by provincial authorities.

The Ministry of Science and Technology is also supporting trials of hybrid soybean seeds that are more weather-resistant and could more than triple the average yield for soybeans grown in China.

China's Soybean Journey

Long term disruptions

It’s possible the United States and China will ink a partial deal in the coming weeks that provides relief for American soybean farmers.

The American Soybean Association says it is “hopeful this ‘Phase 1’ agreement will signal a de-escalation in the ongoing U.S.-China trade war… rescinding the tariffs and helping restore certainty and stability to the soy industry.”

China has reportedly promised to purchase $40 billion to $50 billion in U.S. agricultural goods, which would be scaled up annually. That would be double the $24 billion China spent on American farm goods in 2017.

When seeds are in the ground, the acreage is committed, but as American farmers wait and watch the trade war, they are surely thinking about how to plant around these disruptions in outer growing years.

Over the last year, some reliable overseas customers are buying up stocks of U.S. soybeans that would otherwise have gone to China and some new customer relationships are being forged in emerging markets such as Egypt, Bangladesh, Pakistan and Southeast Asia.

When the tariffs are permanently removed, it will remain to be seen whether trading patterns will also have permanently shifted.

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Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught international trade policy and negotiations for the last fourteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.

This article originally appeared on TradeVistas.org. Republished with permission.

farmers

Yield Guarantee Program Supports Farmers While Mitigating Financial Risk

Farmers and enhancement opportunities are the primary focus of the latest partnership announced this week between Growers Edge Financial, Inc. and GROWMARK, Inc.

While some might associate the agriculture sector with outdated operations, the two companies will offer farmers an opportunity for enhancing efficiencies while maximizing profits through the Yield Guarantee Program from Grower’s Edge.

“In today’s stressed farm economy, farmers are incredibly wary of taking on more financial risk – even when taking that leap could boost profitability. They need guarantees,” said Joe Young, president and chief operating officer, Growers Edge. “Working with strategic partners like GROWMARK, we are providing the financial incentives farmers need to confidently adopt the new technologies that can ultimately drive their long-term sustainability and business success.”

Through carefully and strategically combining AI from Growers Edge’s Growers Analytic Prediction System (GAPS) and information gathered from GROWMARK’s Product Yield Trials, farmers can now rely on the predictive performance and exactly how to benefit from the technology, minus the increased risk for wasted resources and costs.

GROWMARK is committed to helping our customers grow their bottom line with new ag technologies, which makes Growers Edge an ideal partner for us,” added Lance Ruppert, director of agronomy marketing technology, GROWMARK. “The Growers Edge team is removing some of the risk and creating a new value stream for both the farmer and our technology providers. We think the yield guarantee program will help customers deploy the technologies needed to improve profitability, and we are eager to see it in action.”

To read more about how this is changing farming strategies, please visit: Growers Edge Financial or GROWMARK.

Soybeans Containerization

How Soybeans Can Save Billions in Container Repositioning

Containers are essential to the shipping and trade industry, making shipping more efficient and often faster. However, many containers are left to sit idle due to the trade imbalance in the U.S. Costing the industry billions of dollars a year, vacant containers sit empty and cause congestion at ports.

However, container repositioning offers a solution to the wasted money and time many face. By repositioning containers to back-haul with U.S. soybeans, it works to help alleviate a huge problem in global trade.

This introduces profitability when product flows back and forth and offering opportunity to US farmers. In fact, many Asian markets have shown a growing preference for containerized shipping of specific goods, such as soybeans due to the preservation it offers to fresh goods. By working to reposition containers, it offers savings as well as opportunity for U.S. farmers. Read more at https://www.ilsoy.org/.


Automated Farming Solution Increases Stock Production by 20 Percent

Manual methods are becoming a thing of the past for poultry farmers implementing the CapTemp Farming Solution which provides farmers asset analytics that support impressive stock production increases.

CapTemp Farming Solution, a Portuguese company, provided one farmer with a quick, reliable solution after a recorded 20 percent loss on stock production due to lack of automated and analytics tools providing the insight he needed on farm equipment and livestock.

Once implemented, the farmer was successfully able to improve daily weight gains for improved animal growth, reduce stock mortality rate to zero, as well as reduce energy and feed costs due to better environmental conditions.

Through its partnership with market leaders in pig and poultry equipment, Equiporave Iberica, CapTemp provides farmers a sensor control system solution that collects and reports data on temperature, humidity, and gas parameters within the poultry house. Through this level of visibility, farmers are given the advantage and real-time controls.

Additionally, data logging and redundancy functions provide even more of an advantage through features such as scheduled machine usage. The automated solution also boasts features such as sensors networked to a central alarm system, operators that alert unusual conditions in real-time, and remote monitor operations.

For more information, visit: CapTemp

Source: EIN Presswire 

Trump Executive Order on Infrastructure Spending Gets Blowback

President Trump signed an executive order on Jan. 31 that will push for federal dollars spent on infrastructure projects to be put toward American companies. Before the event was captured for media cameras gathered at the White House, Trump trade adviser and former Global Trade cover boy Peter Navarro gave reporters a description of the order whose stated aim is to bolster workers who are “blue-collar Trump people” the administration is focused on helping.
Navarro and Labor Secretary Alexander Acosta stood by as Trump told the press that the reasoning behind the order was that “we don’t get treated great by many countries in terms of our trade deals,” adding that he wants infrastructure projects to be built with “American steel,” “American iron” and “American hands.”
But the order drew a swift rebuke from Nathan Nascimento, executive vice president of Freedom Partners, an Arlington, Virginia-based non-profit that promotes “the benefits of free markets and a free society.”
“With this action, the government is stepping in and dictating winners and losers at the expense of taxpayers who will foot the bill for projects that are needlessly more expensive, take far longer to build, and create a nightmare of bureaucratic red-tape,” said Nascimento. “A better approach is to lower barriers to entry to increase competition and get taxpayers the best value on the dollar. We urge the administration to reject protectionist measures like this that hurt America.”
Nascimento had a busy week in Trump trade land. The day before Trump signed the order, the Freedom Partners executive VP issued this statement with Americans for Prosperity President Tim Phillips: “For months, our economy, farmers, American workers, and businesses have been hampered by uncertainty in the wake of tariff escalation. The bipartisan Bicameral Congressional Trade Authority Act is imperative to reinstate Congress’s authority to approve tariffs and provide a much-needed check on what is just another tax on Americans. The Constitution gives the legislative branch responsibility to impose tariffs. It is essential that those powers over tariffs are restored.”
And the day before that, Freedom Partners chimed in with this: “U.S. and Chinese representatives are scheduled to meet in Washington, D.C., this week to discuss how to resolve the trade war. There is a solution that would enable both sides to win—taking down barriers to trade.
“Across the country, Americans are being harmed by tariffs and the retaliation they’ve invited from abroad. Farmers who can’t sell their products overseas are forced to let them spoil or take deep cuts in their profits to move them. Consumers are paying higher prices to cover the costs of these tariffs. What’s more, businesses that purchase many of the component parts for their products from other countries are feeling the sting from these taxes. After all, that is what tariffs are—taxes paid by American consumers and businesses. And they come with a steep cost.
“We hope a swift resolution to the trade war will be found, starting with these talks. Dropping tariffs and other trade barriers is in the interest of both nations and will promote greater prosperity.”