U.S./China Talks Progress | U.S. Team May Go to Beijing | March 29 Trump/Xi Meeting?

Posted on 03/13/2019 7:29 AM

Year-round E15 | RINs reform | U.S./Japan trade talks | Biodiesel tax incentive


Tuesday was news day in Washington, with updates on ongoing U.S./China trade talks, EPA finally releasing details on year-round E15 and efforts to temper speculation in RINs, and an update on the possibility of extending lapsed tax incentives, including biodiesel.
     EPA in its advance notice commented on the costs and other impacts regarding the proposed changes. Implementation of the E15 change could be impacted by a coming court challenge. Environmental groups oppose such an expansion for E15, and some groups expect legal challenges to the proposal, claiming the Clean Air Act prohibits year-round sales of E15.
     March 29 just MAY be the date Trump and Xi meet to announce a final trade deal, but nothing official, yet, from the two countries.
     Regarding U.S./China trade talks, chief U.S. trade negotiator, Bob Lighthizer, won’t say whether he believes that trade talks with China will yield the results that President Trump has demanded. “Our hope is we are in the final weeks of an agreement,” Lighthizer told the Senate Finance Committee yesterday. “We’re either going to have a good result or we’re going to have a bad result before too long, but I’m not setting a specific time frame and it’s not up to me,” he added. “I’ll work as hard as I can, and the president will tell me when the time is up, or the Chinese will.” Beijing continues to resist demands by the Trump administration that the Chinese believe could undermine national sovereignty or economic development.
     Accelerated new trade agreement talks with Japan was another news development coming from Lighthizer in his appearance Tuesday before the Senate Finance Committee. On U.S./EU talks he had nothing new, noting the two trading blocs continue to disagree on bringing agriculture into the negotiations, something Lighthizer said is a must for the United States.
     Don't rule out another extension for the lapsed biodiesel tax incentive. A House Ways and Means subcommittee chairman made that clear during a hearing yesterday.

 

U.S./China trade policy update:

  • March 29 is date Trump/Xi officials are talking about for possible meeting. Nothing is official, but usually reliable contacts signal if ongoing talks complete the big hurdles remaining, a session between President Donald Trump and Chinese leader Xi Jinping can take place on or around March 29, reportedly at Mar-a-Lago, but the location is one of several options. On Monday, a White House spokeswoman said no date had been set for a signing ceremony. On Tuesday, U.S. Trade Representative Bob Lighthizer would not commit to a timetable for wrapping up the talks.
  • Talks are in their final weeks but there are “major, major issues” unresolved, Lighthizer told the Senate Finance Committee Tuesday. Lighthizer said he and Treasury Secretary Steven Mnuchin talked to the Chinese Monday and would be in contact again today, confirming reports were ongoing this week. If there is enough progress this week, a U.S. trade team could go to Beijing late this week or weekend, sources advise. "Our hope is that we are in the final weeks of having an agreement," but Lighthizer reiterated the decision on whether to accept a deal ultimately rests with President Donald Trump. "It's not up to me," Lighthizer noted. "The president will tell me when the time is up, or the Chinese will." Lighthizer said there would be no agreement if outstanding issues were not resolved in “a way that’s beneficial to the United States.”
  • Strong enforcement mechanisms must be part of any deal, Lighthizer assured lawmakers. “We are going to have an enforceable agreement, or the president won’t agree to the agreement,” he observed. He would not discuss details of when or how current Section 301 tariffs might be lifted on China under a deal, saying those details are still the subject of ongoing negotiation around enforcement. "That's the subject of the negotiation, so I'm not getting into it here in public," Lighthizer said. But he again noted there would need to be "real progress and we have to maintain the right to be able to — whatever happens to the current tariffs — to raise tariffs when there are situations where there's violations of the agreement." Sen. Ron Wyden (D-Ore.), the top Democrat on the Senate Finance Committee, tried unsuccessfully to get Lighthizer to commit to keeping tariffs in place until China had demonstrated that it could keep its promises. Lighthizer refused to reveal whether the U.S. was pushing for such a policy, or whether it would lift its tariffs altogether once the deal was struck.
  • The U.S.' overriding goal with China remains getting the nation to end the use of forced technology transfer, intellectual property (IP) theft and excessive domestic subsidies, Lighthizer said.

Lighthizer listed several WTO problems and focuses on China as part of them. During his remarks Tuesday before the Senate Finance panel, Lighthizer said:

  • China has not lived up to the WTO commitments it made to liberalize its economy when it joined WTO in 2001, Lighthizer said. He accused China and others of using developing nation status — which is self-designated — to "take advantage" of WTO rules that place more restrictions on developed economies like the United States. The U.S. is "shedding light" on the situation, Lighthizer said, calling it a "fundamental problem" affecting the function of the trade body. Addressing the WTO topic is complex as the trade body operates on the basis of consensus and many members are unwilling to give up their preferential treatment.
  • Lack of timely and accurate support notifications are another issue the U.S. continues to raise at WTO, Lighthizer said. "Many of our trading partners, including significant economies like China and India, have a very poor track record of providing this critical information," he observed.
  • Lighthizer highlighted another key concern: the WTO's dispute settlement process often exceeds the scope of its authority. WTO's Appellate Body, which adjudicates trade cases, "has repeatedly created new obligations out of whole cloth," often to the detriment of the U.S. which "has become the chief target of litigation," he added. "In other words, the WTO has treated the world's freest and most open economy as the world's greatest outlaw," he remarked. U.S. laws governing the use of countervailing duties and WTO member's rights to use safeguard provisions to defend from excessive imports are both areas impacted by inappropriate Appellate Body interference, Lighthizer said. The U.S. has made clear these concerns, but "unfortunately, our concerns have been ignored," he lamented. The tough actions taken by the U.S. in response, which has included blocking new appointments to the panel, are not "to hurt the WTO, but to ensure it remains relevant in a rapidly changing world," he argued.
  • U.S. WTO cases targeting China ag subsides. The issue of whether recent U.S. WTO dispute settlement victories against Chinese ag practices might be impacted by the US blockade of Appellate Body appointments was downplayed by Lighthizer. Without new appointments to the body, it would lack a quorum and be unable to hear new cases later this year. Even if the decisions on China's ag subsidies and tariff-rate quota (TRQ) administration were appealed to the Appellate Body, a final resolution could be a ways off regardless of the blockade, Lighthizer noted. The U.S. might even lose such an appeal, he added. Instead, he suggested the U.S. was seeking to "resolve this case in a way that achieves our goals and avoids the possibility of an Appellate Body decision" as part of broader US-China negotiations.
  • Regarding U.S. metal tariffs on Canada and Mexico, Lighthizer offered a rather downbeat assessment. Lighthizer said he had been trying to come up with a “sweet spot” that would most likely entail quotas, rather than tariffs, on steel and aluminum imports from Canada and Mexico but that would continue protecting the U.S.’ domestic metal industries. Canada has said that it does not believe that any trade barriers on metals are warranted.

Lighthizer comments on new trade pact talks with Japan, EU. Senate Agriculture Committee Chairman Pat Roberts (R-Kan.) pressed Lighthizer on plans for new bilateral trade talks, noting that struggling U.S. ag exporters are keen to get new and expanded export market access. In particular, Roberts asked about countries covered by the Trans-Pacific Partnership (TPP), which the U.S. withdrew from during Trump's first days in office — a clear reference to negotiations with Japan.

"I want to move forward" with U.S./Japan negotiations, Lighthizer said, adding "I think that's really important for farmers." Lighthizer said he understood the U.S. ag sector is losing out on sales to Japan because the country has lowered tariffs on imports from Canada, Australia, New Zealand and the European Union. The U.S. would have had access to those lower tariffs if it had remained in the TPP (now dubbed CPTPP, but President Trump pulled out of that pact the third day in office. “It’ll take a while to get an entire (free-trade agreement), but my own view has been that we have to take care of the agricultural part of it... so it’s balanced at an earlier stage,” Lighthizer said. “Because of the market situation in Japan we have to move in that direction.”

As large a market as Japan is for U.S. exporters, he stressed that securing a deal with China is also key and noted "no one has bigger upside" from opening up the Chinese market than U.S. ag producers.

Regarding talks with the EU, the U.S. continues to insist that ag trade policy be part of the trade negotiations while EU officials are opposing the effort. “We’ll see how that develops, but from my point of view we’re completely committed that any FTA has to deal with agricultural products,” Lighthizer said. “We have an enormous trade deficit of $15 billion a year in agricultural products with Europe.”

Lighthizer also said regarding talks with China, Japan and at the WTO, the issue of sanitary and phytosanitary (SPS) measures continues to be "a major focus of our activity" noting their role as barriers to trade for U.S. ag exporters.

EPA releases plan for year-round E15 sales, RIN reforms. EPA as expected on Tuesday announced its long-awaited plan to allow for year-round sales of E15 (15% ethanol, 85% gasoline) and proposed reforms to the biofuel credits known as Renewable Identification Numbers (RINs).

Under the proposed ethanol expansion, E15 would be allowed to be sold year-round without additional Reid Vapor Pressure (RVP) control, rather than just eight months of the year. “Consistent with President Trump’s direction, EPA is working to propose and finalize these changes by the summer driving season,” EPA Administrator Andrew Wheeler said in a news release. Sales had been limited to eight months — and banned during the sunnier summer season — to reduce emissions that can cause ozone pollution, smog and respiratory ailments. It can also be more corrosive to pipelines.

EPA will hold a public hearing March 29 on the plans and will take public comments on the proposed regulation with an aim of finalizing the effort before the summer driving season starts June 1 — the date that also serves as the start date that blocks sales of E15 fuels in some areas of the country.

For the RIN market, EPA's is proposing the following:

    • Requiring public disclosure when RIN holdings held by an individual actor exceed specified limits.
    • Requiring the retirement of RINs for the purpose of compliance be made in real time.
    • Prohibiting entities other than obligated parties from purchasing separated RINs.
    • Limiting the length of time a non-obligated party can hold RINs.

Next step. EPA appears to be setting the stage for a 45-day comment period as a pre-publication version of the proposed rule indicates that comments will be due by April 29.

EPA said they are proposing "regulatory changes to allow gasoline blended with up to 15% ethanol to take advantage of the 1-pound per square inch (psi) Reid Vapor Pressure (RVP) waiver that currently applies to E10 during the summer months.” EPA is also proposing an interpretive rulemaking which defines gasoline blended with up to 15% ethanol as “substantially similar to the fuel used to certify Tier 3 motor vehicles."

EPA elaborated by saying they are proposing to modify their interpretation of the Clean Air Act (CAA), an interpretation that previously had the agency taking the position that only fuels containing 10% or less ethanol are eligible for the RVP waiver. "The proposed interpretation in this action is in response to the increased presence of E15 in the gasoline marketplace, and the conditions that led us to provide the original 1-psi waiver for E10 in 1990 are equally applicable to E15 today," the agency said.

The pre-publication version of the notice (link) also stated that EPA believes they have the authority to make the changes in CAA interpretation. "It is well settled that EPA has inherent authority to reconsider, revise, or repeal past decisions to the extent permitted by law so long as we provide a reasoned explanation," the notice said. "This authority exists in part because EPA’s interpretations of the statutes we administer 'are not carved in stone.' An agency 'must consider varying interpretations and the wisdom of its policy on a continuing basis,'" the notice said. "This is true when, as is the case here, review is undertaken 'in response to changed factual circumstances or a change in administration.'"

EPA explained that use of the term "containing" in the CAA in the phrase "fuel blends containing gasoline and 10% denatured anhydrous ethanol" is "ambiguous." Given that view, EPA said, "We interpret this language as establishing a lower limit, or floor, on the minimum ethanol content for a 1-psi waiver from the volatility requirements."

Reaction to the announcements went as expected. The American Petroleum Institute (API) pledged to fight the EPA effort, a development that has been widely expected since the potential for year-round sales of E15 surfaced. "The administration needs to scrap this anti-consumer policy that exacerbates problems with the failed Renewable Fuel Standard,” said API Vice President of Downstream and Industry Operations Frank Macchiarola. “This proposal is a bad deal for consumers." Year-round sales of E15, the group said "makes no sense," warning that it is "potentially leaving Americans to pay expensive car repair bills due to bad policy out of Washington. In fact, nearly three out of four vehicles on the road today were not designed for E15. This decision is also contrary to the law as this waiver is in conflict with the clear language of the Clean Air Act. Further, EPA has agreed numerous times that the agency does not have the authority to extend the Reid Vapor Pressure waiver to E15."

The proposed changes to the RIN market "could increase costs for fuel producers and lead to higher prices for consumers," API argued. They contend that while President Donald Trump called on EPA to produce a "win-win" deal on the Renewable Fuel Standard (RFS), API said the plan "only helps the ethanol industry" and negatively impacts small power equipment by setting the stage for mis-fueling. "Our industry plans to aggressively pursue all available legal remedies to protect consumers from this flawed policy," API said.

We appreciate the administration’s efforts to fulfill the president’s promise,” Emily Skor, leader of Growth Energy, an advocacy group for ethanol producers. “This rule is a critical milestone for rural Americans.”

Renewable Fuels Association (RFA) President and CEO Geoff Cooper in a statement said the “proposed rule means EPA is one step closer to making good on President Trump’s promise to allow year-round sales of E15. With just 80 days left before the start of the summer driving season, finalizing and implementing the E15 regulatory fix remains a tall order. That is why we have urged EPA to separate the year-round E15 provisions from the RIN reform provisions and move forward as quickly as possible to finalize a practical and defensible year-round E15 solution. With ethanol plants shutting down or idling and farmers experiencing the worst conditions in more than a decade, removing the summertime ban on E15 once and for all would send a desperately needed signal to the marketplace. We are carefully reviewing the details of the proposed rule and look forward to providing EPA with extensive technical and legal comments to support an expeditious and legally sound resolution of this decades-old red tape barrier. RFA and its member companies will also testify in support of year-round E15 at the upcoming public hearing.”

Ethanol supporter Sen. Chuck Grassley (R-Iowa) tweeted: “Pres Trump updated me by phone abt EPA’s proposed rule to allow yr round sale of ethanol/E15 Out for public comment now Gr8 news! Thx @realdonaldtrump for keeping ur promise to Iowa/farmers.”

National Farmers Union President Roger Johnson said the E15 proposal is “absolutely vital” for corn growers, but he also called for rolling back federal restrictions even further: “Moving forward, we need to build on this achievement by expanding use of E30 gasoline,” Johnson said in a statement.

Bottom line: Given the expectation that API will pursue "all available legal remedies," that suggests the matter will likely end up in court that could delay the actual implementation of the changes outlined by EPA in the coming Federal Register notice.

Regarding economic analysis of year-round E15, EPA said the costs for E15 are basically non-existent since it is not a mandate but noted more recordkeeping costs for RIN reforms. In the proposed rule to allow year-round sales of E15 and reforming the Renewable Identification Number (RIN) market, EPA included its assessment on costs and benefits to the changes.

EPA said they expect providing E15 year-round "could help incentivize retailers to introduce E15 into the marketplace." Where ethanol fuel is cheaper than gasoline, EPA said they believe more retailers could offer the product "which may result in a modest decrease in fuel prices at the pump. This could help further the use of increased volumes of renewable fuels under the RFS [Renewable Fuel Standard] program, which in turn could provide energy security benefits."

As for costs, EPA said they expect "very little change in costs" via the proposal as "fuel manufacturers and distributors of E15 would not be compelled to make or offer E15 and could choose to offer E15 as dictated by market demands and individual business decisions."

As for the RIN reforms, EPA said, "if the proposed reforms deliver on their intended goal, we believe the net benefit of this should help reduce undue costs and lower the risks for both obligated parties and renewable fuel producers." They also said they expect the greater transparency from the reforms should help market participants "plan short- and long-term strategies to manage their compliance costs." As for costs, EPA acknowledges that there will be new costs for recordkeeping and reporting requirements on RIN holdings, but they do not provide any dollar amount related to those costs. For those that would be prevented from purchasing RINs, EPA said, "many of these parties have developed business models and enter into contracts that may require them to leverage the ability to purchase separated RINs on spot markets. Prohibiting this practice would require that these parties adjust their business models."

USDA's NASS to drop Aug. 1 objective yield work for corn and soybeans but still release crop estimates. USDA's National Ag Statistics Service (NASS) on Tuesday announced it will discontinue the objective yield component of its Aug. 1 Crop Production report for corn, cotton (except Texas) and soybeans. However, the agency will still publish an estimate for corn, cotton and soybeans in August.

The shift came as part of a NASS review the agency conducts every five years of its estimating programs. "The primary purpose is to ensure that the NASS annual estimating program targets commodities and states most relevant based on the latest available information," NASS said. This program review uses the Census of Agriculture as the primary source of information "since it is the most comprehensive source of data; however we also take into consideration estimates from the current annual estimating program and administrative data." NASS said the changes announced are an effort to "balance resources across all of the programs included in the annual estimating program, which represents over 400 individual reports."

Changes in its objective yield effort beyond ending the August survey period for cotton (except Texas), corn and soybeans, include eliminating the potato objective yield, removing Louisiana and North Carolina from the cotton objective yield and reducing the sample size for all crops.

NASS also made some adjustments to the states included in the estimating program for field crops, basing their decisions on production and total value of production, with states accounting for the largest proportion of the total were identified for inclusion in the annual estimating program.

NASS did not remove any states from the upland cotton, pima cotton or corn from the estimating program, but did remove Florida and West Virginia from soybeans.

No states were removed from sugarcane and sugarbeets.

Other changes: NASS said it is removing Montana and Texas as estimating states for dry edible beans; Idaho and Oregon are removed from canola; Colorado, Michigan, Minnesota, Nebraska, Texas and Wyoming are removed from chickpeas; Oregon and Washington are removed from mustard; Montana, Oregon and Washington are removed from rapeseed; and North Dakota was moved from safflower.

For sorghum, NASS said it removed Arkansas, Georgia, Illinois, Louisiana, Mississippi, Missouri, New Mexico and North Carolina.

For oats, NASS said it would remove Alabama, Colorado, South Carolina, Washington and Wyoming.

For wheat, NASS said it would remove South Dakota from Durum wheat; Colorado, Nevada, Oregon and Utah from other spring wheat; and Arizona, Florida, Iowa, Louisiana, Minnesota, Nevada and West Virginia.

For livestock, the only changes announced by NASS as part of the review are to add Georgia to the monthly milk survey effort. "Adding Georgia to the monthly estimating program will result in better coverage of the Southeastern United States," NASS said.

Other items of note:

  • White House is negotiating with senators on emergency act changes before Thursday vote. “The White House is privately negotiating with Senate Republicans who want to rein in the emergency powers of President Trump and his successors — which could lead to the surprise defeat of a Democratic resolution rejecting Trump’s emergency declaration at the border,” the Washington Post reported (link). The article said that “would mark a dramatic change in fortunes for Trump, who had been on track for an embarrassing defeat later this week.” The Associated Press also reports Trump “might avoid a long-expected rejection” of the emergency declaration.

  • Ways and Means subcommittee chairman says “quick” action needed on lapsed tax extenders, including biodiesel. Lawmakers should move swiftly to address the raft of expired tax breaks known as extenders, Rep. Mike Thompson (D-Calif.) said after holding a hearing on them Tuesday. “I would like us to move as quickly as possible,” said Thompson, chairman of the House Ways and Means Select Revenue Measures Subcommittee. But the various temporary tax code provisions, most of which benefit the business community, warrant additional scrutiny, Thompson said. Legislation introduced in the Senate, S 617, would extend all the expired extenders for last year and this year. Thompson declined to offer a specific timeline. A House bill to revive extenders could also involve additional elements of the tax code, Thompson said. Importantly, Thompson also said he wants to offset the cost of the tax benefits, which the Senate bill doesn’t do.

  • U.S., EU reach tentative beef deal. Washington and Brussels reached an “agreement in principle” to guarantee U.S. farmers a set portion of the EU’s annual 45,000 ton quota for hormone-free beef imports, Politico reported. The tentative agreement has been sent to European nations for approval.

  • A Midwest restaurant is currently using oil made from gene-edited soybeans, the first commercial use of GE food in the U.S., according to the company that made the oil. Minnesota-based maker Calyxt wouldn’t reveal the restaurant using its biotech product, the Associated Press reports (link).

  • As part of a broad overhaul, Kraft Heinz continues to put long-time brands on the block. One of the latest is its Breakstone’s division, which reportedly could fetch a valuation of roughly $400 million. Kraft Heinz is also weighing the sale of its Maxwell House coffee business and last year announced the sale of its Canadian natural cheese unit to Italian dairy group Parmalat. Link to CNBC article.

Markets. The Dow on Tuesday lost 96.22 points, 0.38%, at 25,554.68. The Nasdaq gained 32.97 points, 0.44%, at 7,591.03. The S&P 500 was up 8.22 points, 0.30%, at 2,791.52.

Theresa May’s Brexit deal was defeated by a whopping 149 votes. May angrily told lawmakers they would now need to make hard choices. Today, MPs will vote on whether to leave the EU without a deal and are expected to vote against doing so. Tomorrow, they will vote on whether to ask the EU to extend the leaving date, something most observers say is likely. Any extension to the timetable would have to be agreed to by the EU side, who have said they would need “credible justification” for such a move. Also, in Parliament, Chancellor of the Exchequer Philip Hammond is due to give his Spring Statement budget. Meanwhile, under a temporary plan, the U.K. will suspend the application of import duties on all but a handful of agricultural food products if it leaves the EU without a deal at the end of this month, according to a temporary tariff schedule published this morning.


 

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