Highlights of Interview with Gregg Doud, Top Ag Trade Negotiator at the USTR

Posted on 12/24/2019 7:03 AM

China | Japan | USMCA | TPP | Rice | Meat exports | U.K. | WTO | 2020 outlook

Ambassador Gregg Doud is the top ag trade negotiator at the U.S. Trade Representative's office. On Monday afternoon, Doud responded to questions from John Herath and Jim Wiesemeyer for release in Pro Farmer, Agri-Talk, AgWeb and the podcast, D.C. Signal to Noise.

Gregg brings a multitude of experience to his position, having worked decades ago for U.S. Wheat Associates, later for the National Cattlemen's Beef Association and later for Sen. Pat Roberts (R-Kan.). His knowledge of markets is keen, having been president of the Commodity Markets Council in 2013. He served in that role until March 2018, when he was confirmed by the U.S. Senate to become the Chief Agricultural Negotiator in the Office of the United States Trade Representative.

 

  • Getting to the Phase 1 agreement with China. “We spent this year 33 negotiating sessions with my Chinese counterpart, the Vice Minister of Agriculture of China. We have spent this year hundreds of hours talking about structural issues, all of the non-tariff trade barriers in agriculture that have inhibited our ability to sell China beef, or distillers grains or dairy products or ethanol or pet food. There's a multitude of things that we sell China, a lot of soybeans and a fair amount of cotton when the demand is there, but there are so many products that we have restrictions or non-tariff barriers on that have been going on for years that we tried to address via these hundreds of hours of conversations. The deal is done. And all I can say at this point is that it isn't public yet. We're going through the legal scrub. And our expectation here is probably about the middle of January this will all be ready for prime time and made public and signed by the two countries.”
     
  • What happens now with China? “You go through a process of translation. So it's translated from English into Chinese. Make sure everybody understands, legally, what the agreement is. You have to understand that that takes a significant amount of time, particularly with the Chinese language and I will tell you this is an enormous undertaking, given the differences in governments, the differences in language, etc. I vividly recall at one point in our discussions, we spent an hour arguing over what one word meant. So this takes a little time to get this done, but it's part of the process now. And once that is all done, we'll make it public.” While Doud did not say what the one word was he referred to, sources say it was “maintain.”
     
  • What has the general press missed about the U.S./China Phase 1 developments? “One thing is these purchases and the inability for a lot of people to get their head around exactly what this is. Let me explain it. The purchase commitment on the part of China is based upon a base year of $24 billion of ag purchases, which occurred in 2017. China agreed to buy an additional $32 billion over the next two years on top of the $24 billion. So, to make the math really easy, let's take 32 divided by two and then add that 16 to the 24. That means on average, each of the next two years, China's committed to buy $40 billion of U.S. farm products. Now in the first year, it'll be a little less, and the second year will be a little more. But another very accurate way to describe this is China has committed to buying $80 billion in U.S. ag products over the next two years. So that's the first thing: we have to make sure everybody understands what it is. I've seen a lot of folks say, 'Well, that's just not possible. That doesn't make any sense. It's not a real number.' My reaction to that is, I just don't agree with that. Because here's the statistic for everybody: China imported last year $124 billion in ag products from the world. To put that into context, U.S. total ag exports last year were $145 billion. So what we're really asking China to do here is to move from $24 billion to $40 billion out of $124 billion. Some say that's still difficult. I understand that. But if you don't take into account all the structural changes that we have negotiated in this agreement, which I understand you haven't seen yet, but once you see what the structural changes are, then you can see the context of the discussion, and it will be clear to you that this is very doable. This is not some sort of weird pie-in-the-sky thing. These are commitments that China's made: $80 billion over two years and with these structural changes, I think we're more than capable of accomplishing that.”
     
  • A list of potential U.S. commodity purchases by China. Many observers think U.S. soybeans will be a big winner in purchases ahead, as well as potentially ethanol and DDGs. Asked to list some of the other areas that might see some success after the agreement is signed, Doud said: “I think you're going to see a lot in demand for meat. And China's just extraordinary right now because of the African swine fever thing. When you look across the entire complex, you look at things like pet food, you look at dairy and the enormous potential on all of those. It also should be noted that this year, we won the biggest WTO cases in the history of agriculture against China, one on domestic subsidies. And China's agreed to bring its subsidies on wheat and rice in compliance with what its WTO commitments are by March 31 of 2020. They also lost a case on how they administer their tariff-rate quotas for wheat, rice and corn. And when they became a member of the WTO in 2001, they were supposed to import 9.6 million tons of wheat, 7.2 million tons of corn from the world. They've never done that. But they are a part of the WTO case that they lost; they have agreed to do that and implement this the right way, by the end of the year... the end of this month. We've got to keep a close eye on that. But those are big changes as well that I don't think people fully appreciate.”
     
  • What happens in year three... 2022? Doud said that is “not part of any discussion on Phase 1, so what we have is a purchase commitment. Keep in mind that purchase commitment just isn't for agriculture. It's a $200 billion commitment over there, everything that China imports from the United States... $200 billion over two years. That's a two-year commitment and then the structural changes that were negotiated in this deal, the sanitary and phytosanitary non-tariff trade barriers... those are permanent. So, there's no limitation or time period limitation on those.”
     
  • A new working relationship with China. Doud explained that “after these hundreds of hours that our two countries have spent together” with many of the best trade people in both countries, “these have been extraordinary, historic conversations. I firmly believe that we've changed our understanding of each other in an enormous way over these hundreds of hours. I hope once folks are able to read this agreement, they'll begin to see there is an enormous amount of detail and what we've agreed upon here.”
     
  • U.S./Japan agreement. Doud initially mentioned Japan in relation to dealing with China in the long trade talks. “One of the things we mentioned with China is we talked so much about the use of technology and how we use technology and agriculture in the United States, whether it's biotech or elsewhere. I think that was really helpful for them to get that understanding. It took that long to help them understand why and how we regulate things and how we do it. And, interestingly enough, one of the countries that we pointed to from time to time was Japan, saying, 'Why don't you just do it the way Japan does it?' And they were like, 'Well, what is that? How does that work?' This agreement we have with Japan, I don't think it gets nearly enough credit. I was worried sick from day one in this job about having an ability to get back even with Canada, Australia, the Europeans and the trade agreements they had with Japan, and not having that ability due to getting out of the Trans-Pacific Partnership (TPP).” Doud stressed that “TPP was never going to happen” in being approved by the U.S. Congress. Doud said he gives “all the credit on getting a U.S./Japan agreement to Ambassador Bob Lighthizer, my boss, who figured out a way of using the Trade Promotion Authority and that law to negotiate this ag deal without the need for Congress' approval. On January 1 we will have the same tariffs as Canada, Australia and Europe on over 90% of the ag products that we send to Japan. That is huge for us on particularly the meat side of the equation... beef, pork and some poultry. And on the wheat side of the equation. We were really close to losing that market share.”
     
  • More on why TPP would not have been approved by the U.S. Congress. Doud said, “One of the things that Ambassador Lighthizer explained in congressional testimony was one of the really interesting things that was negotiated in TPP that nobody really knew about was you could have a vehicle that was 45% Vietnamese and 55% Chinese and it could have gotten into the U.S. duty free. And that's why it would not have been approved by Congress.”
     
  • Can U.S. regain meat, wheat market shares with Japan? “Yes,” Doud quickly responded. “Keep in mind the supply chains in agriculture. Japan has enormous investment here in the U.S. You know, Japan has facilities in Portland, they own some of those export facilities out there and some down at the Gulf. That relationship goes back a long way and in terms of wheat back to the late 1940s. So I think this was such a great relief for those folks in the agricultural industry and trading industry in Japan as much as it was for ours because they don't have to redo the supply chains. I'm really excited to see what beef business we're going to do. We're going to bring those tariffs down. When we took the tariff in South Korea from 40% then to where it is today, 20%, we more than doubled our beef exports to Korea from $800 million last year to $1.75 billion. It's really going to be interesting to see what we can do in Japan.”
     
  • What about U.S. rice... they were not included in the U.S./Japan agreement. Doud said, “I've got a huge deal for them that I can't talk about yet just for another few days.”
     
  • Adding it all up. With the Phase 1 of China completed and soon to be announced, with the U.S./Japan agreement implemented Jan. 1, and with the Senate expected to join the House is ratifying the U.S.-Mexico-Canada Agreement (USMCA), we asked Doud what that all means going into 2020. “If you add all of these deals up, it is just over half of our total ag exports, those four countries. So think about it this way: in less than two years here, we've completely overhauled our trading relationship with 51% of our ag exports. That amazing when you stop and think about it. With USMCA there are not a lot of changes, but we did get some additional dairy market access in Canada. It's going to be interesting to see how that shakes out. But, some people have told me this is the first time anybody's ever got a chink in that dairy armor up there in Canada. Regarding Japan, this thing kicks in on January 1 and we really should see a snap there... some buyers were holding off because of the tariffs. So I think that's going to be of immediate difference for us. On China, it's going to take us a little while to implement what we have when we announced this deal. And everybody will get to see that and understand what I mean when you see the text of this. So, it's going to take a little bit to get this thing ramped up, but I would say by the middle of next year, I certainly expect that things are going to look and feel quite a bit different than they do today.”
     
  • What about new trade agreements with other countries? “Certainly the U.K. is the next place to keep an eye on. We've already gone through with Congress and TPA the negotiating objectives, which is kind of the prerequisite discussions... that's already done. So we're ready to go with the U.K. when we can. I think people will be amazed how quickly we going to be able to hit the ground running and negotiating with the U.K. if that opportunity arises. Keep in mind we really kind of feel like we're a seasoned team around here. We've got a few of these deals under our belt. With this administration, we know what we're doing now. And I am looking forward to a chance to roll up our sleeves with the U.K. but tariffs are just one part of the discussion. Technology and biotech and sanitary and phytosanitary issues are going to be really difficult to sort through.”
     
  • Asked about a U.S. trade deal with India and others, Doud said: “We're talking to India. You have to keep in mind the Europeans have been talking to India for 12 years. We're talking to several countries in Southeast Asia, where we will be announcing something sometime next year. I can't give you any more information about it now. But there have been a lot of bilateral discussions going on with a lot of countries right now. We had a meeting with one of them today as a matter of fact.”
     
  • Looking ahead to 2020 initiatives, Doud responded: “Certainly implementation of the China deal. Then watch for more trade bilaterals, including watching what happens with the U.K. Then there are the countries that we're working with on their generalized system of preferences (GSP) programs. Another thing that will be going on and nobody's talked about for a while is that we will have a WTO ministerial in Kazakhstan in June. So we'll be talking WTO and I think the WTO will be a pretty important topic here in the building next year.”
  • How Doud works with USDA. USDA has a new trade position over there, the Undersecretary for trade, and that's Ted McKinney, and Undersecretary McKinney and I talk all the time. We are in the negotiating mode over here and over there, they're in the operational and implementing mode, and they have the technical expertise. So it's really a hand-in-glove kind of deal. We're on the phone all the time trying to coordinate and figure out things because we have our embassies and they have attachés and counselors. I kind of describe this way: We're SEAL Team Six over here at USTR. And that's the full U.S. Army over there.”
  • With 2019 being a difficult year for many farmers and ranchers, what are some upbeat assessments for 2020? “Getting on an even keel and turning market access around. That's going to make a big difference right out of the chute with Japan. Obviously, the Chinese deal is a complete game changer once we get that thing up and running and the commitments that they've made. The thing going forward to me is on the demand side. I don't think most people realize the U.S. economy has been tremendous for the last several years. But you look at South American economies, you look at the Chinese economy, you look at the European economies, they've been soft. And yet the demand, particularly on the meat side of the equation, due to ASF, has been extraordinary. I would argue that on the meat side of the equation, there are still a lot of developments yet to evolve and occur. It's going to be really Interesting next year, too, as we see what happens on the meat side of the equation. To give you some perspective: China bought, and most people don't realize this, China bought $5 billion of beef from the world last year. Through October of this year, they've already bought $6 billion. So, we're seeing the growth of meat demand not only in China, but in Southeast Asia and so many parts of the world really explode. And I think we're well positioned to take advantage of that. Most people don't realize how much our pork production is up this year. Largely because the Chinese market is going to need more and more of our pork because of ASF, that's going to continue to be an issue going into 2020. They're going to need it from somebody.”

 

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