The U.S. and China are expected to sign an ambitious "Phase One" trade package Jan. 15, President Donald Trump announced on Twitter Tuesday morning. The agriculture community is patiently waiting to learn more, as uncertainty over ag export markets continues to hang over commodity markets.
Details of the 86-page document are still being translated and finalized, but Gregg Doud, chief agricultural negotiator with the office of the U.S. Trade Representative, says the new agreement will not only increase Chinese purchases of U.S. agricultural products but pave the way for long-term structural reforms that will benefit farmers and ranchers for decades to come.
Agri-Pulse asked Doud about the China deal, other possible bilateral agreements, and how he views the administration’s progress on trade in 2019. Some questions and comments were edited for brevity.
1. As you worked on the ag trade portion of the “Phase One” Chinese trade deal, describe the negotiations between you and Han Jun, your Chinese counterpart who serves as the vice minister for agriculture and rural affairs in China.
There were 33 negotiating sessions this year related to agriculture. We had hours and hours of conversations about all kinds of things related to an enormous number of topics. He and I both could sense how historic these conversations were. They were very interested in how we regulated things while comparing and contrasting how other countries do it.
We didn't discuss tariffs. This was about structural changes and hopes of making changes that will be lasting for a long time. At times, these conversations were extremely technical in nature. Sometimes, these conversations would get stuck on language barriers between English and Mandarin. I vividly recall a spending an hour arguing over what one word meant. We certainly improved our understanding over time. They were very professional.
2. What should people expect in terms of purchases?
The base period for 2020 and 2021 is $24 billion each year and China has committed to purchase $32 billion in agricultural products over two years. To make the math simple, it’s basically $40 billion a year for two years. Actually, a little less in 2020 and a little more in 2021.
And that’s regardless of price, although there are seasonal components in there. It has to be an economic purchase, obviously, but this is a commitment overall in agriculture. Are there specific commitments for specific commodities within that? The answer is yes, but those numbers will not be made public.
People should expect a full and unfettered range of agricultural products to be included. For example, pet food, all kinds of fruits and vegetables, almonds, ethanol, distillers’ dried grains (DDGs).
In 2018, China bought $124 billion in ag products from around the world. To put that in context, our total ag exports in 2018 were $145 billion. What we are asking China to do is go from $24 billion to $40 billion out of that $124 billion.
Going from $24 billion to $40 billion — when you look at the overall context — to me is not a stretch. Secondly, the people who indicate that this is not possible are not understanding the structural changes that will be made on issues like phytosanitary and sanitary rules and other non-tariff trade barriers.
Hopefully, folks will get a better feel for what those are once they see the agreement. Our expectation is that the agreement will be made public right about the time it’s signed. Everybody will get to see the timelines involved and how all this is going to work and unfold. I think it'll surprise people to see the level of specificity and complexity in our discussions.
3. What happens to other countries like Brazil who have been supplying soybeans to China during our trade war? What if they take additional actions like devaluing their currency to make U.S. soybeans less competitive?
This is an enormous challenge for us. If Brazil's currency continues to devalue against the U.S. dollar, that sends a signal this year to expand acreage for corn and soybeans in Brazil. The strength in the U.S. dollar sends the opposite signal. And if this continues over time, it presents an enormously complicating factor in terms of price discovery.
What does the U.S. do? I don't know the answer to that. I will tell you that something similar happened before in 1985 with the Plaza Accord with Japan. It was a fascinating piece of history, but I'm not foreshadowing that for the future.
4. Are there structural reforms in how biotechnology is approved in China? We’ve heard that members of the crop protection industry were told that they would be pleased.
The only thing I can say at this point is that the topic was discussed. Earlier this week, China approved some new traits. (For import, they approved two traits — one for papaya and one for soybeans from U.S. developers.)
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5. What if commitments aren’t met and basically, things don’t go as planned?
There will be an enforcement structure, meaning that if there's a failure to meet the commitments in the agreement, then an enforcement mechanism will occur that is commensurate with the quantity or the value that is not being complied with.
6. How long will it take to implement the China deal?
It takes time to ramp things up. This poultry deal with China has already been announced but it takes time to get the shipping labels right and the facilities approved. It takes time to get stuff on the water. Over a period of the next several months, you're really going to see things change.
But you just have one shot to get it right. So, you have to take the time to make sure all the i's are dotted, and t's are crossed. As you know, there’s a lot of dollars involved.
7. You’ve been working on more than trade with China. Can you give us a list of other actions that USTR has taken this year to expand trade?
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Here are the highlights.
- We signed on Dec. 30 an agreement with South Korea establishing the largest volume of guaranteed market access for U.S. rice in Korea.
- We had a discussion with Chile about the decision not to impose safeguards on imported milk powder.
- We got a European Commission decision recognizing the sustainability of U.S. soybeans for use in biofuels and of the use renewable energy directive.
- We agreed with South Africa on lifting remaining restrictions on U.S. apples from Washington, Oregon and Idaho.
- We had some success in Tunisia opening up that market for U.S. beef, poultry and egg products.
- We had discussions with the EU, in addition to continuity on wine and spirits.
- We also had an exchange of letters regarding recognition of equivalents on the USDA National organic program with the UK. Again, Brexit-related.
- We had some success with Guatemala on certain corrections to certificates of origin.
- In May of this year, we got Japan to take beef from all ages for U.S. cattle.
- We worked in Central America and FDA on approval of food additives along with what is listed by CODEX on a technical regulation.
- We worked diligently to get USMCA across the finish line.
- We were able to get a higher quota for U.S. beef into the EU. Once we get to year seven on that deal, the industry thinks that'll be a $420 million market compared to about $150 million last year.
- We got the Vietnam market open to U.S. oranges.
- We negotiated the U.S.-Japan trade agreement. That kicks in Jan. 1.
- Also, there was a Tariff Rate Quota (TRQ) for 750,000 tons of wheat into Brazil.
- We got U.S. poultry into China for the first time in 5 years. The industry tells me they think the chicken paws alone will be worth $835 million.
- We got Saudi Arabia to withdraw a measure requiring mandatory sugar limits for processed food and beverage products. They were planning on banning products that exceeded certain levels of sugar. That would have affected about $400 million of U.S. processed food and beverage exports to Saudi Arabia.
8. You’ve listed a lot of successes, but some people are looking back and wondering, if we had just stayed with the Trans-Pacific Partnership (TPP), if we had just left NAFTA alone and possibly tried to deal with China, would we have been better off on the export front?
First of all, you'll recall that 2018 ag exports were up about 1% versus 2017, right? Keep in mind, we've lost 10 million tons of soybean demand China due to African swine fever. We’ve gone from 95 to 85 million tons of total Chinese soybean Imports.
We’ve had a really strong dollar. There was a three-month period last year that I vividly recall where the Brazilian real depreciated 6% against the U.S. dollar. That’s 60 cents a bushel that comes right off the top before you have a conversation about anything else.
That hurts and that's why it's always important to look at those numbers more holistically than just that one certain aspect of export numbers.
Our exports through October are down about $5 billion from a year ago, but one commodity, corn, is down $4 billion through October a year ago. It has nothing to do with the trade war. It has everything to do with enormous crops out of Brazil, Argentina and Ukraine and wet weather that took us out of the market for several months. It’s a supply issue. You know in Brazil, Argentina and the Ukraine, they can't store that corn. It's got to go to market.
And let’s face it, TPP was never going to happen because there were not the votes in Congress. Everybody assumes the TPP was just going to happen. That is a completely inaccurate assumption.
9. So, where do you go next?
The deal with Japan that goes into effect Jan. 1. It is one of the great accomplishments that I can think of in many, many years for U.S. agriculture. When you add up USMCA, China, and Japan, that's 51% of our total ag exports. We have completely overhauled our trading relationship in the last two years or less than two years with over half of U.S. ag exports. That's unprecedented.
Now that we have the results of the recent election in the UK, I would anticipate the opportunity, potentially there very soon, to see if we can begin discussions with the UK. We've already gone through some of the compulsory TPA discussions with Congress on that in terms of negotiating objectives. So, when and if the horn sounds, or the flag drops, or whatever analogy what you want to use, and that opportunity arises, I would anticipate that we will get started quickly.
There will probably be one other opportunity that I'm aware of that. I can't discuss it yet. Another interesting area that needs to be discussed is the WTO, and I think there will be a focus on that in this building next year and as it leads up to the WTO ministerial in Kazakhstan in June.
10. Anything else you expect for 2020?
One of the big projects in the new year will be to implement the agreement with China. By the middle of next year, we'll have a real good feel for where we're at. Things will look very different by the middle of next year because of changes that we've made not only with Canada and Mexico, but with Japan and especially China.
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