Is Agriculture a Bright Spot in US-China Relations?

September 15, 2020
 • 
Episode: 
17

Is Agriculture a Bright Spot in US-China Relations?

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host jill o'donnell Jill O'Donnell
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Ambassador Gregg Doud

In the US-China Phase One Deal, China agreed to make 57 structural changes that improve market access for agricultural goods. The majority of those changes have been implemented. U.S. Chief Agricultural Negotiator Ambassador Gregg Doud discusses the significance of these changes, what it took to reach an agreement, and why he describes the deal as “historic.”

Opinions expressed on Trade Matters are solely those of the guest or host and not the Yeutter Institute or the University of Nebraska-Lincoln.

Show Notes

What Ambassador Doud has been reading lately:

The Accidental Superpower: The Next Generation of American Preeminence and the Coming Global Disorder by Peter Zeihan

How to Set World Trade Straight, Wall Street Journal Opinion, Robert E. Lighthizer

How to Make Trade Work for Workers, Foreign Affairs, Robert E. Lighthizer

Transcript

Transcripts are generated using a combination of speech recognition software and human transcribers, and may contain errors. Please check the audio before quoting in print and write yeutterinstitute@unl.edu to report any errors. Transcripts will be posted within one week of the show.

Jill O'Donnell: Welcome to Trade Matters, a podcast by the Yeutter Institute at the University of Nebraska-Lincoln. I am Jill O'Donnell. Our guest today is Ambassador Gregg Doud, Chief US Agricultural Negotiator in the Office of the United States Trade Representative. Ambassador Doud, thanks so much for being on Trade Matters today.

Gregg Doud: Thanks for having me.

Jill O'Donnell: So I'd like to talk with you about the US-China Phase One Deal, something I know you've been talking a lot about lately. And one thing I've noticed is that a lot of the headlines seem to focus on two things. One, whether China is on track to meet its purchase commitments of US products it agreed to do under that deal. And two, whether or not presidents Trump and Xi are talking or not, or cabinet officials are talking with their Chinese counterparts. But I want to talk about something else and something you've been emphasizing lately, which is the part of the deal where China agreed to make 57 structural changes that improve market access for agricultural goods. And you've mentioned lately that China's followed through on about 50 of those 57 things. One example you've cited is that the US now has 3,500 facilities approved to export agricultural products to China up from 1500 before. Could you give us another example or two of what some of those 57 things are that China agreed to do?

Gregg Doud: Absolutely. In fact, if you look at the chapter three, the agricultural chapter, the Phase One Agreement, and it's online on our website, I encourage people to go read it, it isn't really a trade agreement document per se as much as it is just kind of these are the things that both countries agree to do going forward. And as you said in agriculture, in that there are some 57 things, and it didn't start out to be we knew exactly what those were or how we were going to do this, but there are 17 different segments of this 23, 24, 25 pages of what we came up to. And some of the examples are the poultry market was closed to China because of high path avian influenza. We agreed to open up the poultry market, but more importantly, we got China, which was critical to have a regionalization protocol saying if we ever get another high path avian influenza case, whatever state that's in, you just close the state and the rest of the country stays open. And that was really important because it wasn't just a couple months after this entered into force, we'd actually did have a high path avian influenza case again in South Carolina. And we had just gotten this agreement done with China. So China kept the rest of the market open. They closed as South Carolina for a few months, and actually here not long ago, a few months ago, they reopened South Carolina.

We've sold China now something like $350 million for the poultry. And we think that'll be close to a billion dollar market for us. So that's one piece of it. We got beef market almost fully open for the first time ever. We only sold beef about what 10 or $15 million worth of beef to China in 2002, before we got mad cow (disease) in 2003, we'd never had the Chinese beef market fully open. The only thing we're really lacking right now is a resolution on the ractopamine issue, trade name for that as Optaflexx. And we're working on that now, that's one of the remaining things that we've got to do. So the real answer to this is there were only a couple of commodities, corn, or excuse me, soybeans and cotton, that didn't have some sort of structural problem. We couldn't sell pet food to China, we got that resolved.

Here in mid May, there was a remarkable situation where China agreed to open for the first time for fresh potatoes, nectarines, avocados, blueberries, feed and malting barley, alfalfa pellets. But one of the things that they had to do, to do that is they wanted to do an audit. Well, of course during COVID, there was no way China could come over here and do that audit. So our APHIS folks at USDA videoed an audit that they would do. We sent China in the video and lo and behold, China looked at the video and said, "No that looks good." And they opened for all of these different commodities. The last point I would make would be on dairy. Our dairy exports to China are up so far this year, 27%. And if you look in that agreement, there are a lot of very specific things on dairy. Probably the biggest section of ag is on dairy. We have a new health certificate with China on dairy. We've got new products approved. China imports $12 billion in dairy products. And we'd really never had this right in terms of the number of facilities and the new products that we have, like ultra filtered milk. So these are some of the examples of just a multitude of examples that have changed in our relationship in agriculture between the US and China.

Jill O'Donnell: So a couple of points to follow up on there. One is, do any of these changes that you've just mentioned or are any of the other 57 changes overall, do they open up China's markets to the rest of the world, or are they really specific to the US? So that's one followup and the second one is how quickly do you start to see sales or products moving once these types of changes are made? It sounds like you mentioned dairy exports are up quite a bit. So how long does it take for us to see the impacts of these changes in terms of more US exports, more goods flowing to China?

Gregg Doud: Well, I don't think there's any question that other countries have watched what we are doing. They've definitely taken notice. One of the examples I would say is in terms of Vietnam and biotech in particular. The fact that we're moving China forward on the use of biotechnology in agriculture. I would say in terms of timing we didn't really ... This agreement entered into force in mid February, but a real important timeline here was the March 2nd exclusions process began where the 301 tariffs were exempted by China on March the 2nd. That's when this thing really began to kick off. And since that time then in March, and with these 57 things, we had 57 different timelines of five days, 10 days, 20 working days, 32 days, one month, two months. And so as we went down through all of these, and then it took a little while to get it up and running, and then it took a little while to get the product shipped over there. So you're really only beginning now to see in the trade data and in particular, the export sales, the agreement really kick in.

Jill O'Donnell: Do any of these structural changes have any impact on China's ability to meet its purchase commitments? The other part of the deal, the one that seems to get more attention in the media at least, or is that separate?

Gregg Doud: No, they're directly tied together. And so again, the key point here is that other than for soybeans and cotton, there was almost not another single commodity that wasn't restricted in one way or another. And I think this is a key point. We began this conversation a year and a half ago with China. There were some 33 negotiating sessions, the shortest of which would have been a four hour video conference, the longest of which would have been an all day, even almost 10 or 12 hour day, either in Beijing or here in Washington. We had 33 of those. We spent hundreds of hours talking about all of these problems that we had in our trading relationship and how to get our two countries more aligned from a regulatory standpoint. When we started these conversations, we had no idea where this was going to lead. China really didn't either. And it was the over the course of these hundreds of hours that we began to galvanize. And we began to realize, okay, this is the problem, and this is what we need to do to fix it. This is the problem. This is what we need to do to fix it. And then we had to negotiate the words on what the fix meant, and then actually get China to do it. And that's the amazing thing is over the course of that year long discussion, we came up with those 57 things, and now we've actually fixed 50 of the 57 things.

Jill O'Donnell: So you mentioned that 33 negotiating sessions on the agriculture portion of the deal that you took part in you and your team. Is that typical compared to other aspects of the deal or others who were negotiating non-agricultural provisions, is that a typical number of negotiating sessions effort? I know agriculture is usually a really tough issue in trade negotiations. It's different than other goods or services. So putting that into context, how would you answer that?

Gregg Doud: Absolutely not. In fact, I will confide in you that when we signed the agreement at the white house, my counterpart said to me, "Gregg, China's never done anything like this before with any other country." And then I looked at him and I said, "Vice minister, neither have we." This has been an enormously difficult negotiation discussion. There is no other word to describe it other than historic. I think had either one of us realized the undertaking that was about to take place when we started this, I think nobody would have imagined the level of detail that we went into and the complexity of these issues and the fact that both sides, not only have both sides work really, really hard to sort this out, but both sides have worked really, really hard to implement this agreement and to get where we are today. And so where we are today is a situation where in the last two months, about half of our Ag export sales are going to China. If you look at the baseline of 2017, it was like 18 or 20%. So we really change the paradigm and the dynamic here, especially on the meat side of the equation and on the dairy side of the equation.

Jill O'Donnell: What would you say most makes this deal so historic? Is it the scope, what you were able to accomplish with these 57 changes and the fact that they are being implemented? China’s following through, things are moving, exports are happening where they wouldn’t have before. How would you pinpoint or summarize the historic nature of this deal?

Gregg Doud: Well, I think the challenge, the complexity of this discussion was that our two systems of government could not be more different. I mean they're just not possible to have ... Even though they were the two largest economies in the world, the way we regulate things, the way we do things from a regulatory standpoint, whether it's in agriculture or many other things, but especially in agriculture, they're just very different. And then you have the language barrier, which is extraordinary. So when you have these two enormous differences in our economic systems, so the discussion was how do we bring this together? How do we get to a situation where we can do business together? It was an historic effort because they were really trying and we were really trying. I think for the first time we just took time to do this. Let me give you an example, is we were trying to sell them a, what you see in the grocery stores now, and in a 7 Eleven or a convenience store, Fairlife milk, which is the new extended shelf life ultra filtered milk. China had no regulation to do this. It was well, we think it's this, or no, no, no, no, it doesn't fit here, doesn't fit here. And so we had to get China to create a new regulation to deal with this. We were so frustrated at one point, then Under Secretary McKinney at USDA during the lunch break here in Washington, walked over a block to the 7 Eleven and bought $17 in so many cents. He can tell you actually the exact value, but still it was an entire arm load of Fairlife milk and brought it over and handed it out to each one of the individuals in the Chinese delegation and said, "here, try this. This is what we're trying to deal with here." And they all drank and it was like, "wow, this is really good. This would really sell in China." And we were like, "we know." We get it into the country because you're not approving these facilities because you don't understand what this product is. And we got to create a regulation for you to do this. And then they were like okay. And we did that. We accomplished that. And there were so many examples like that where we just had to move the whole regulatory system forward between our two countries and help them understand how we regulate things and do business things in the United States. Whether it's with the food safety inspection service or FDA. And throughout this discussion, we had our best people from the FDA here. We had our best people from FSIS, that's Food Safety Inspection Service, APHIS in the room. And they had their best people. And it was how do you translate back and forth? How do you get the regulations and match up where we can actually do business? And it took hundreds of hours to get that done.

Jill O'Donnell: I've also heard you say recently that even now you and your team still have very frequent significant contact with your Chinese counterparts ongoing as this deal is being implemented. And again, it's not something you hear much about in the headlines. And I think it's a good reminder that this big complex bilateral relationship is managed at many levels in many ways. So I wonder if you could tell us your thoughts, given your experience here how do you assess the role of US agriculture and the overall US China relationship? And can it be more of a ballast in light of the many troubled areas in other aspects of our relationship right now, like on human rights or sovereignty disputes in the South China Sea or tech competition. How do you view agriculture in the midst of all that?

Gregg Doud: The answer is I absolutely and definitely think that agricultural trade between the US and China can be a ballast. The word I would use, we refer to it as a pillar of our relationship. And I think that's absolutely the case. And I want to give you some data to give you some context on this. It was two years ago that China's Ag imports from the entire world were $124. Last year they were $133 billion. We think this year China's on track to import $141 billion in Ag products from the entire world. That $141 billion number is interesting because $141 billion was exactly the totality of US Ag exports to the entire world last year. So getting this relationship right is critical for US farmers and ranchers. Why? Because China's total Ag imports from the world are the same as US total ag exports to the entire world. So our potential in terms of purchases in the Phase One Agreement, what we're trying to do is take China from about $24 billion to about $40 billion in Ag purchases, Ag imports from the United States.

Given we're going from 24 to 40, out of 141. If we make these structural change and get them in place like we have done now 50 of the 57, and get instead of 1,500 facilities 3,500 facilities eligible to export our products to China, that has to be done in order to attain that move from 24 to $40 billion.

Jill O'Donnell: Thanks for putting that into context here. And what about... I guess the 50 changes are underway? What about the seven outstanding ones? What can you say about kind of where those standards or how those are unfolding?

Gregg Doud: Well, some of those changes are ongoing and very difficult. One of those changes is obviously in the context of biotechnology and that we made a lot of progress with China on that topic, did we get everything that we wanted to get in terms of changes on how China is going to approve biotech traits in the future? The answer is no we didn't, but here's the key point. You ask about the dialogue and the discussion between our two countries. We are talking to China at a certain level and our government that's at a technical level or my level or above my level almost every day, once a week, several times a week. And these conversations are really good, really professional, really courteous. They have issues and questions. We have issues and questions. We can sit down and talk back and forth. And we do that very, very often. In the course of all of these conversations, issues come up, that we didn't think about during all this, and how do we want to deal with this and move this forward? I want everybody to know that in terms of agriculture, that dialogue has been really good. And I'm hopeful that as things come up in the future through this dialogue, we're going to be able to raise issues and say whatever. We have a process now to discuss and move through these issues and not just let them faster and not get resolved. And I think that's a key step in our relationship between our two countries and having that in agricultural trade and in trade in general, given the size of our two economies is critical.

Jill O'Donnell: Thank you for that. And pivoting for just a second to a different part of the world. I want to ask you a question about US-EU negotiations. When those negotiating objectives were published, the US really wanted agriculture to be on the table and negotiating a trade agreement with the European Union. The EU did not want us to be on the table. I have seen the recent agreement on lobsters that has gone through, but overall, I mean, how do you even begin to loosen that kind of stance when the US really wants to negotiate access for agricultural products with a very large market, like the EU. But the EU really does not want to do that, or how do you even start on something like that?

Gregg Doud: You could not be more correct. I could use a lot of different adjectives to describe dealing with the EU when it comes to agriculture. Suffice it to say they are a major challenge for us. And when you look at the EU, our frustration is a couple of major issues. Number one, our trade deficit with EU is $180 billion, in agriculture the trade deficit is $18 billion. They send us $18 billion more in Ag products than we send them. So there's really on its face, just pure protectionism going on in the EU. And the context of that protectionism, it evolves technology and the use of technology in agriculture. The way I articulate it often is the fact that in the EU, they want to go back to using a stick and flint rock versus matches and agriculture. They have this new farm to fork initiative, which is kind of farm to empty fork if you ask me. This use of technology in agriculture in the United States is something that we are not going to go backwards on ever. In the United States, in agriculture we are going to continue to use all the technology safe, proven, effective, efficiently as we possibly can. And we are not going to apologize for it. And that right there is where the EU and the US are locking horns in our trading relationship and agriculture, is over the use of technology.

Jill O'Donnell: And do you see any prospects for any movement on that? It sounds like maybe not, but I'm going to ask you directly if you see that loosening up at all at any point.

Gregg Doud: I think in a second term of this administration, we relish the opportunity to take this head on with the European Union. Now, one thing I would say is the fact that I don't see the UK in our current negotiations with the UK and a free trade agreement. I don't see the UK in any way, the same way that I see the EU. I think there is enormous opportunities for us to peel back and get the UK to a point where they are willing. And I think they want to use biotechnology in agriculture. I think they want to move into the 21st century in the use of technology and agriculture in the UK. And I think there is a huge opportunity for both countries here to really take a step forward in agriculture.

Jill O'Donnell: So I want to ask you a question too on how you view your role in terms of engaging the public within your overall role as Chief Ag Negotiator. So I know you were in western Nebraska and other parts of the state earlier this month and talked to a lot of people. How do you view public engagement within as I said you're overall role as chief negotiator, and how do you integrate what you might be hearing from farmers, producers, others on the ground into your job?

Gregg Doud: Well personally, it is a thrill to me anytime I get to get out and talk to farmers and ranchers directly. I grew up on a farm 60 miles straight south of Hastings, and still am very involved in farming, or at least I was until I took this job. And hopefully I'll be involved again at some point. So that to me is getting out and helping farmers understand our level of engagement internationally. They all understand how important trade is and so that's one aspect of it that I love. And you travel like crazy in this job and my wife knew that before I took the job the last six months, not withstanding due to COVID, but I'm mentioning to get back out on the road again, and then getting out to Nebraska was terrific. One of the other things though, I think that is helpful for everybody to understand is that we don't negotiate our deals in public. These are very sensitive conversations. You have to be very careful. And we rely on, I rely on this system of advisory committees in agriculture, and these folks are appointed, they're selected, they get security clearances, where we can have very direct conversations that they cannot share about when we get stuck on an issue, what is the best way to move forward? These folks come to Washington on a pretty regular basis, at least a couple of times a year. In fact, here next week, we're getting ready to have one of those conversations with these folks again, and that relationship and those discussions are absolutely critical when you're really in the throws of the negotiation. And you need to figure out a way to move forward. I have a team of people that I can consult in the industry and at the farm gate that can help me make these decisions.

Jill O'Donnell: Thank you. Ambassador Doud. One more question for you; last question, which I ask every guest on the show.

Gregg Doud: Sure.

Jill O'Donnell: I don't know how much time you have to read. I don't know how much spare time you have, but I ask everyone what is something you've read lately, a book, report, article about trade that's particularly striking to you-other than the Phase One Deal that you helped negotiate- what else have you read lately about trade?

Gregg Doud: I'm going to point you to three things. On August 20th in the Wall Street Journal, there was an op-ed written by my boss, Ambassador Lighthizer regarding reform of the WTO, World Trade Organization. August 20th Wall Street Journal, go look that article up, it's fantastic. One of the great pieces written about trade and this administration's view on trade was actually written by Ambassador Lighthizer and it was published this summer in Foreign Affairs magazine. That's a longer document, but I think everybody should read that as well. And me personally, one of the best books on helping people understand trade and how it works around the world. I would point you to a guy by the name of Peter Zeihan and he's written a series of books. His first book is called The Accidental Superpower. If you are an undergraduate agricultural economists in land grant university in America, you are a young farmer trying to understand how the world works, that book is required reading.

Jill O'Donnell: That sounds like a good book for most of our students. Well, Ambassador Doud, thank you for sharing your thoughts and all of these insights and helping us to understand the phase one deal as well as the role of agriculture on US-China trade more generally. Thank you very much. We appreciate your time and insights today.

Gregg Doud: My pleasure, and it was great to be in Nebraska recently. Thank you.

Jill O'Donnell: We look forward to welcoming you back sometime. Thank you.

That's it for this episode of Trade Matters. Thanks for listening and a big thank you to Alex Voichoskie and Jacy Thoman for helping produce this podcast. Please subscribe to Trade Matters on iTunes, Spotify, Stitcher, or wherever you get your podcasts. If you have ideas or topics you would like to hear about on Trade Matters, we'd love to hear from you. Send us an email at yeutterinstitute@unl.edu or follow us on Twitter @yeutterunl. Opinions expressed on Trade Matters are solely those of the guests or hosts and not to the Yeutter Institute or the University of Nebraska.