Commerce Sec. Ross in FBN Interview Gives Details on Phase 1 Issues with China

Posted on 11/15/2019 7:18 AM

Pelosi: USMCA agreement is 'imminent'; other Dems say early December vote likely

In today's updates:

* High-level talks continue today on Phase 1 issues between U.S. and China
* Kudlow again signals trade deal ‘close’ with China
* Commerce Sec. Ross made detailed comments on Phase 1 talks in interview
* Hong Kong anti-government protests continue
* U.S.-China Commission (USCC) report advises Congress to get tough on Beijing
* WSJ looks at China lifting a more than four-year-old ban on U.S. poultry imports
* China to release pork from reserves at appropriate time
* Pelosi: Agreement is 'imminent' on changes to proposed USMCA trade pact
* Dems want USMCA changes agreed to in writing
* Stopgap spending measure update
* Pelosi says withholding of Ukraine aid amounts to bribery
* U.S. threatens Egypt with sanctions
* Kentucky governor concedes tight race
* Bloomberg will spend $100 million on anti-Trump ads
* RMA continues to defer accrual of interest for 2019 crop year insurance premiums
* EU ends funding for fossil fuel projects
* October U.S. deficit hits $134.5 billion

Markets: U.S. equities are signaling higher values at the open, largely on U.S./China trade talk comments from White House economic adviser Larry Kudlow, who signaled talks over the first phase of an agreement were coming down to the final stages and said the two sides are in close contact.

Whether or not: Will we get better weather forecasts? IBM became a major player in meteorology when it purchased The Weather Company in 2016. It's now going live with a global weather model called GRAF - Global High-Resolution Atmospheric Forecasting. A new supercomputer, DYEUS, built to run the model, will issue 12 trillion pieces of weather data every day and process forecasts every hour, providing the system with high-resolution weather forecasts and details for areas as small as 2 miles wide.


U.S./China trade policy update:

  • USDA's McKinney says high-level China talks on tap today. U.S. Trade Representative Bob Lighthizer and Treasury Secretary Steve Mnuchin are to speak today with Chinese Vice Premier Liu He, according to USDA Undersecretary Ted McKinney, who told Todd Gleason of the University of Illinois that there have been deputy level talks via video conference that have been ongoing. McKinney puts odds at “better than 50%” that there will be a signed agreement. “The warming trend continues,” he noted. However, in his remarks at the National Association of Farm Broadcasting, McKinney said “maybe we can get to an eventual signing of a Phase 1 agreement. There were a lot of negotiations going on and then they withdrew, backslid on a number of things.” But things are in a warming trend, he observed. “We’ve got a number of things lined up to sell if they agree to it,” McKinney said. “But we also have to have some structural changes. We have been led down this path before only to see promises fizzle. So unless there is some enforcement opportunity, and unless there are some changes, even modest changes, in structural… how they apply things like please approve biotech traits at a time sooner than eight years, those kinds of things are very, very important and must haves. So we’ll see, but I am very optimistic.”
  • Kudlow again signals trade deal ‘close’ with China. The U.S. and China are in nearly constant communication on trade issues, according to National Economic Council Director Larry Kudlow, who said at a Council on Foreign Relations event that the two sides were “close” on Phase 1 of the trade deal. “We are getting close,” he remarked. “The mood music is pretty good, and that has not always been so in these things.” He observed the two sides are “in communication with them every single day right now. We are coming down to the short strokes.” However, he said that the deal is “not done yet, but there has been very good progress and the talks have been very constructive.”
  • Phase 1 talks are down to these issues: timeline of Chinese purchases of agricultural goods and Beijing’s demand for the removal of existing tariffs as part of a deal.
  • Commerce Sec. Wilbur Ross commented on Phase 1 talks on Fox Business Network this morning, saying there is “a very high probability of a Phase 1 deal with China.” Some of his key remarks:

    “You don't really have a deal on anything until you have a deal on everything, so it's not surprising that at the very last minutes pieces of bouncing around occur. But I think the main thing is what the President said at the rally last night: China wants to make a deal. We think we'd like to make a deal if it's the right deal. This will get done in all likelihood.

“This Phase 1 is relatively limited in scope. And what's really being debated is how much limitation will there be on the scope of Phase 1 relative to Phase 2 or maybe Phase 3. So, let's see what comes out. The devil is always in the details. And we're down to the last details now.”

Ross was asked if China will stop stealing intellectual property and will President Trump remove the tariffs. Ross said: “The president hasn't agreed to move the time so I think he made that pretty clear the other day, but let's just see what comes. I think the important thing is, it looks as though there will be this first giant step toward peace and quiet today with the Chinese, that's the important thing to focus on. We will see the details as they come through, and they're going to be good details or else the President will not go along with this.”

Ross said Phase 1 is “about a lot of things but the major focus is on current trade. That's where the President was talking about the $40 to $50 billion in agriculture. So one of the questions is how firm is that commitment going to be, and what happens if they don't live up to it... that kind of issue is really important to getting this put together.”

Asked if he sees the Chinese balking at at the amount of agriculture product purchases that president Trump said they would buy... does the U.S. have an agreement that the Chinese are actually going to buy the agriculture products President Trump said they would. Ross responded. They can certainly afford to buy $40 to $50 billion; in fact, they really need that phased in over the couple of year time period. The question is: Are they willing to commit to it. And if they are willing to commit, are there any escape patches to the commitment.”

Ross said there is a “very high probability” of a Phase 1 agreement. “We were disappointed in May. Maybe we get disappointed again now, but if we are, the president has made quite clear that he's happy to live with the situation where we impose tariffs. So we are really in a win-win position: either the tariffs will continue, or we will have an acceptable deal with China. So, the important thing is to make sure that the deal is what we think it is and make sure that it is consistent with the promises that they've made to us. If it is what it seems to be, and if it's consistent, they might have a deal.”

Told that it feels like we are in the same place in China talks that we were in last week, Ross was asked if there is any reason to be optimistic that we're any closer this morning. “Oh yeah, we are much farther along in terms of detail,” Ross said. “There are calls all the time, another call today. There's a lot of work being put in on this... this is not a thing where people are just sitting around stargazing; people are working quite actively on a real-time basis to try to put this together. What's a little unfortunate is that when the Chilean conference where it (Phase 1) was to be announced got put off, it eliminated a very important deadline. It's great to have a deadline when you're having negotiations. Now that deadline got removed through no fault of the Chinese through no fault of ours. It takes off a little bit of the time pressure. And I think that's really what we're dealing with.”

  • The Wall Street Journal takes a look at China lifting a more than four-year-old ban on U.S. poultry imports (link), in what an industry group says could lead to sales of some $2 billion of poultry. American poultry had been banned in China since 2015 following an outbreak of avian influenza, and negotiators have discussed lifting the ban in ongoing trade talks. The ban has cost American poultry producers a major market, particularly for specialized products like chicken feet, which are called “paws” in the U.S. meat industry and were sold in big batches for Chinese consumers. China has been looking for more protein sources since an outbreak of African swine fever has decimated homegrown pork stocks, and the decision on chicken could provide some goodwill in the U.S./China trade talks.
  • Hong Kong’s rage continues. Anti-government protesters and police shocked Hong Kong with some of the ugliest incidents in nearly six months of unrest this week, leaving the city’s leaders scrambling for a way to restore order. Hong Kong is now forecasting an economic contraction of 1.3% for 2019 with the government citing an “abrupt deterioration in the third quarter” which it blamed on “local social incidents.” Protesters gathered in the city’s financial district again today. Chinese President Xi Jinping, in a rare remark on the demonstrations, said bringing the violence to an end is Hong Kong’s “most urgent task.” As political unrest grips the territory, Hong Kong forecast GDP will contract 1.3% in 2019, marking the first annual contraction since the global financial crisis a decade ago. Today, university students barricaded campuses and authorities struggled to calm the violence. The U.S.-China Economic and Security Review Commission also said Congress should enact legislation that would suspend the special economic status Hong Kong enjoys under U.S. law, should China deploy forces to crush the demonstrations.
  • U.S.-China Commission (USCC) annual report advises Congress to get tough on Beijing. In an annual report released Thursday, the influential U.S.-China Economic and Security Review Commission advised Congress to restrict some Chinese companies’ access to U.S. stock markets, heighten oversight of university research to prevent academic espionage, and pass legislation to discourage mainland China’s military or police from engaging in an armed intervention in Hong Kong. The commission also advised Congress to take steps to ensure the security of medicines and pharmaceutical ingredients imported from China, warning that growing U.S. reliance on these imports poses “economic and national security risks.” Predictably, China dismissed the USCC report. Foreign Ministry spokesman Geng Shuang said the panel is "full of prejudice" on China and said their reports are not based on fact. "I have no interest in commenting here on the report's contents," he said at a daily briefing.

China to release pork from reserves at appropriate time. China will release pork from reserves at an appropriate time to meet demand, according to Meng Wei, spokeswoman for the National Development and Reform Commission (NDRC). The Chinese government and local governments have a certain amount of frozen pork in storage, Meng said, adding that the country will boost supplies of other proteins like poultry, beef and mutton and will raise imports. She also noted that the country will use its budget to support scale-up breeding farms and other actions to boost hog production.

A lawmaker should never use the word “imminent” but that is what House Speaker Nancy Pelosi said regarding the timing of an agreement on USMCA. Pelosi said Thursday an agreement on improvements to the trade pact between the United States, Mexico and Canada (USMCA) is "imminent... I'd like to see us get it done this year. That would be my goal. I don't imagine that it would take much more in the Senate to pass." Pelosi said if the Trump administration and a working group she appointed to address four areas of concerns with the trade deal strike an agreement, implementing legislation will be written to move the pact through the House and the Senate. "I do believe that if we can get this to the place it needs to be, which is imminent, this can be a template for future trade agreements, a good template," Pelosi said.

Some Democrats must think imminent means the first or second week of December, because that is what a few of them are predicting for a House ratification vote.

Still another letter is going to be written to U.S. Trade Representative Bob Lighthizer by House Democrats who want their enforcement, labor and other issues addressed in writing before the party’s leadership will sign off on a ratification vote. House Ways and Means Chairman Richard Neal (D-Mass.) said the letter would be about "some labor issues we still have to sort." He said he hoped for a quick response after speaking to Lighthizer on Thursday. “We want the text,” Neal said. The working group led by Neal has been negotiating since July with Lighthizer to address Democratic concerns about labor rights, a 10-year monopoly on pricing for biologics by pharmaceutical companies, environmental protections and overall enforcement provisions in the agreement.

Neal said earlier this week he thought the group and Lighthizer were “one or two meetings” away from agreement on the points of contention (remember the word “imminent”). He said the two sides still had to nail down details for enforcement of labor rights under USMCA and address questions about Mexico’s commitment to adequately fund an ambitious package of labor changes that give workers the right to organize independent unions and a court system to pursue labor violations.

Importance of AFL-CIO. Neal also said he wants text before announcing a final agreement because he will need "a broad alliance of labor" to back the package of changes to speed up action on USMCA. "We think Rich Trumka is important to this (effort)," Neal said, referring to the president of the AFL-CIO. Trumka said in October that he wants a trade agreement that removes language that could allow a country facing alleged labor violations to block review by refusing to approve the appointment of panelists to serve on dispute resolution committees. He also called for an enforcement framework of U.S. inspections of manufacturers in Mexico that would stop the export of products made in plants violating labor rules.

This morning, Commerce Secretary Wilbur Ross on Fox Business Network said, “This deal already is a good template for future deals. Much better on labor, environment and economics and protection. There is no substance to their (House Democrats') continued delays in getting this to a vote... there is no question if she puts it to a vote, it will be overwhelmingly approved.”

Bottom line: “If the argument becomes the status quo versus the renewed USMCA, I think we can make a pretty sturdy argument on what we’ve done,” Neal said. “We’ve improved this package, substantially.” While not imminent, it looks like a House ratification vote could still come by the end of this year. But if not, you can just hear Pelosi and other Democrats saying the Trump administration did not get the needed paperwork to Congress to hold a vote.

Stopgap spending measure update. Senate Minority Leader Chuck Schumer (D-N.Y.) said congressional leaders all agreed on the Dec. 20 deadline for the next continuing resolution and said lawmakers can get work done quickly if President Donald Trump doesn’t interfere. “If President Trump stays out of it, I think we can solve the whole problem by Dec. 20,” Schumer said at a press conference. “But you don’t know. He’s erratic, he’s whimsical, he’s egotistical, and he’s often irrational in what should happen with the budget.”

Other items of note:

  • Pelosi says withholding of Ukraine aid amounts to bribery. House Speaker Nancy Pelosi (D-Calif.) said President Trump’s alleged decision to withhold military aid to Ukraine amounted to bribery, using a term specifically mentioned in the Constitution as an impeachable offense.

  • U.S. threatens Egypt with sanctions. The U.S. has warned Egypt of possible sanctions over Cairo’s decision to proceed with a purchase of Russian warplanes, a new source of friction with a country whose leader has been lauded by President Trump. U.S. wheat exporters fret this could indirectly impact potential U.S. wheat sales to Egypt. However, U.S. wheat has either not been offered or has not been competitive in recent global wheat tenders.

  • Kentucky governor concedes tight race. Republican Gov. Matt Bevin conceded a tight Kentucky gubernatorial race after a formal review of county vote totals in last week’s election, making Democrat Andy Beshear the winner by around 5,000 votes.

  • Bloomberg will spend $100 million on anti-Trump ads. Billionaire businessman Michael Bloomberg still has not declared whether he is running for president in 2020 — but he is about to become the single-biggest spender in the presidential race anyway, the New York Times reports (link). Bloomberg is “beginning a $100 million digital campaign designed to attack and define President Trump in the top battleground states seen as likely to decide the 2020 election,” the article notes. “The ads will go online on Friday in four states — Arizona, Michigan, Pennsylvania and Wisconsin — and run through the end of the primary season, even if Bloomberg is not in the race.”

  • Two key goals for food company. Nestlé, the world’s largest food company, is trying to show investors and consumers that it can be both environmentally sustainable and profitable. Link to NYT article.

  • USDA's Risk Management Agency announced it will continue to defer accrual of interest for 2019 crop year insurance premiums to help the wide swath of farmers and ranchers affected by extreme weather in 2019. Specifically, USDA will defer the accrual of interest on 2019 crop year insurance premiums to the earlier of the applicable termination date or Jan. 31, 2020, for all policies with a premium billing date of Aug. 15, 2019. This extension is necessary since harvest progress has been very delayed and crop insurance claims are not typically settled until harvest is complete, squeezing cash flow even further. Bill Northey, USDA's Undersecretary for Farm Production and Conservation, made the announcement Thursday at the National Association of Farm Broadcasters' conference in Kansas City. Link for details.

  • EU ends funding for fossil fuel projects. Cutting €2B of yearly investments, the European Union will stop funding oil, natural gas and coal projects at the end of 2021, as it aims to become the first climate-neutral continent. Gas projects are still possible but would have to be based on "new technologies" such as carbon capture and storage, combining heat and power generation, or mixing in renewable gases with the fossil natural gas. This is a "quantum leap in its ambition," European Investment Bank President Werner Hoyer said after the decision, which comes as the ECB considers adding climate-related risks to its stress-test scenarios.

Markets. The Dow on Thursday eased 1.63 points, 0.01%, at 27,781.96. The Nasdaq was down 3.08 points, 0.04%, at 8,479.02. The S&P 500 gained 2.59 points, 0.08%, at 3,096.02.

October U.S. deficit hits $134.5 billion. The U.S. budget deficit widened to $134.5 billion in October, the Treasury Department’s monthly budget statement showed. The shortfall grew about $34 billion, or almost 34%, compared to last year.


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