Business Beyond the Reef

It’s been a long while since I beefed about beef, but it appears that our beef companies will have some new old markets to play in as countries begin to relax barriers erected during the BSE panic of 2003. Amazing how, once a trade barrier is created, how long it takes to get rid of it.

I enjoy a good steak or burger, but I don’t think about the beef trade a whole lot. I was reminded of it, however, when I saw Senator Max Baucus’ announcement last week that the United Arab Emirates is eliminating its ban on U.S. beef. The senator took appropriate credit, of course, and may have actually had something to do with it. It made me wonder where we stand on other countries’ beef restrictions.

Unfounded, unscientific restrictions on beef hurt hardworking ranchers in Montana and across the U.S. and create an unlevel playing field for U.S. beef. Simply put, American beef is 100 percent safe and the best in the world, and there is no reason for it to be banned on scientific grounds. The UAE’s decision to recognize sound science and lift its ban on U.S. beef means millions of dollars in new export opportunities for our ranchers.
- Senator Max Baucus

I recall the bad old days when Japanese negotiators kept their faces straight as they told us that American beef just couldn’t be digested by delicate Japanese stomachs – their justification for keeping U.S. steaks out of the market. The world has changed little since then, though Japan may loosen its restrictions later this year. We have heard that before. If it should happen, that’s bad news for our Australian friends who inherited the Japanese market when we were booted out over one stray Canadian dairy cow that crossed the border.

To understand what is happening today, I went back to a 2008 International Trade Commission report on worldwide restrictions on American beef, just to see what had changed. Obviously, bovine spongiform encephalopathy (BSE) isn’t the only reason for import restrictions on beef. But it is a big part of it. In 2008, the ITC estimated that all restrictions restrictions worldwide on beef cost the U.S. industry about $17.3 billion a year. Of that amount, BSE-specific restrictions excluded $11 billion in American beef. The remaining $6.3 billion was mostly traditional tariffs and tariff quotas, most of which would be used to protect local cattle ranchers around the world. So, removing the BSE restrictions would go a long way to restoring the U.S. industry to its previous status of the world’s leading beef export country.

The ITC did not catalog all the BSE-related restrictions in the world, but highlighted those of Japan, South Korea, the European Union, China, Russia and Mexico – all of whom exceeded the recommended restriction level established by the World Organization for Animal Health (OIE). Each had different sorts of restrictions. You can check them out in the ITC report. But are they still in place?

We have been pushing Japan to ease its BSE restrictions for several years, but to no avail so far. The current thinking is that Tokyo may relent later this year, but we have been led to believe that since at least 2009. I’m not holding my breath, though this could be a major boon to Hawaii’s cattle ranchers. The same holds true of South Korea, but here we seem to be well on the way to getting rid of the BSE trade restrictions since they were included in the U.S.-South Korea FTA. I’m not sure of the implementation schedule.

Europe‘s BSE restrictions have been hopelessly commingled with opposition to hormone-fed beef and genetically-modified beef, so it is nearly impossible to separate them out. In fact, Brussels seized on the presence of the one cow with BSE in 2003 to impose new restrictions on hormone-fed beef (hunh?). These restrictions have not been removed, though there is some hope. There is a new report to the European Parliament urging liberalized rules on beef imports from countries that have had BSE cases in the distant past, as well as a proposal that would expand U.S. sales of hormone-free beef in Europe.

China still bans U.S. beef outright, much to the joy of Australian ranchers who have enjoyed a near-monopoly in the Chinese market. Russia‘s restrictions appear to still be in place, though I have not been able to confirm this. There seems to be clear progress in Mexico. Mexican BSE restrictions remain in place, but their application to U.S. beef products has been progressively reduced to a smaller number of products. U.S. beef exports to Mexico topped $818 million in the first ten months of 2011, a 25% increase over the same period in 2010. Who says NAFTA wasn’t worth it?

We looked yesterday at China’s trade Superbowl playbook laid out by Third Way in its new study, China’s Trade Barrier Playbook: Why America Needs a New Game Plan. Continuing their Superbowl analogy, today we’ll look at how Third Way thinks America’s coaches should respond to China’s plays.

Here is Washington’s “new” playbook:

#1 – Appeal to the Commissioner: Aggressively use the WTO disputes process. President Obama must have read an advance copy of the Third Way report because he said much the same thing when he proposed a new Trade Enforcement Unit in the State of the Union address. Both ignore the fact that Washington has a whole passle of trade enforcement units. The United States has relied on this staple play for 65 years now. It works pretty well.

#2 – Build a stronger league: Work with other trading partners. Third Way wants Washington to conclude and implement the Trans Pacific Partnership quickly. OK. More important may be their plea for Congress to give the Administration new trade promotion authority (the current euphemism for voting up or down on trade agreements, no amendments). Good luck.

#3 – Put points on the board: Use a “Rules Plus” approach to achieve results. This one is less than clear. Third Way seems to say that Washington should unilaterally establish performance goals for China on trade restrictions and intellectual property enforcement. Good luck with that. Not sure how they think that will improve relations, but perhaps good relations isn’t their goal.

#4 – Choose the right formation: Pursue an array of results-oriented dialogue. Third Way appears to say that we should pare down the number of trade issues we raise with Beijing to reduce any scope for China to pick the low-hanging fruit and delay on the really important problems. There is also an assumption that current dialogs with China are somehow skewed in favor of China. Not sure about this.

#5 – Change the rulebook: Write new rules for current and emerging issues. Use the WTO to develop new international rules on state-owned-enterprises (SOEs) and currency manipulation. Easy to say, but any such rules could easily come back to bite you. Not to mention that currency manipulation is a question for the IMF, outside the WTO’s purview. This approach could take the rest of our lives to negotiate.

#6 – Spend more on our players: Spend wisely on new trade resources. Provide more China-specific funding for federal agencies to work on enforcement of American rights or promotion of U.S. products in China. Hard to disagree.

#7 – Promote benefits of sportsmanship: Focus on what’s important to China. Convince Beijing that it is in China’s long-term interest to play according to the WTO’s rules.

China’s leaders have … recently announced that they intend to use the WTO process to maintain China’s exports in the face of trade barriers imposed by other countries. The United States should certainly encourage China to bring its legitimate trade complaints to the WTO. But we should also stress the benefits to China of assuming a greater leadership role in the WTO. The power of China’s example in eliminating its own trade barriers, as well as a more constructive role for China in global trade negotiations, would do much to bolster the system of open trade that has helped China perhaps more than any other nation over the last decade.

Hardly a new playbook for Washington. For the most part it is decent advice to continue doing what we are doing, though it is odd that the President’s proposal for a new trade ministry isn’t mentioned.

We don’t know how the China-United States Superbowl comes out, You see, the game never ends and it is not a zero-sum game. The football analogy can only be stretched so far.

That is the way it is presented in a new study published by the usually left-centrist think tank, Third Way: “China’s Trade Barrier Playbook: Why America Needs a New Game Plan“. Their analogy is that China has a marvelous playbook that keeps America’s exporters from scoring.

… we crack open China’s trade playbook and detail some of its key tactics. We focus especially on the unfair strategies that China uses to limit American exports and investments—strategies that prevent our companies and workers from scoring new business and good jobs. We argue that, if America is to achieve a fairer and more beneficial trading relationship with China, we can’t simply game plan for one or two plays. Instead, America must update our own trade game plan so that we have a full array of strong and smart tactics to counter China’s stingy defense and assure that American companies and workers get the full benefits of China’s WTO membership.

Here are China’s best plays:

#1 – Lockout the players: Keeping American exporters and investors on the sidelines. Using arcane, impenetrable rules and extensive “studies” to keep foreign investors out of lucrative fields in China and hinder efforts to sell foreign goods and services in China.

#2 – Take performance enhancers: Pumping up China’s domestic companies. China’s vast array of subsidies and export restrictions, few of which have been reported to the World Trade Organization by Beijing. Third Way cites Washington’s 2011 complaint in Geneva about some 200 problematic Chinese subsidies. [China's typical approach on such things is to do what it wishes, see if anybody complains, then look innocent and say "Oh, is there a problem with that?".]

#3 – Exploit homefield advantage: China as owner, player . . . and referee. Ah, the problem of dealing with state-owned enterprises (SOEs). China isn’t alone in this, but, by owning SOEs, Beijing and its provinces become both a business operator and the regulator for that same business. How do you say “conflict of interest” in Mandarin?

#4 – Change the rules: Imposing China’s “homegrown” standards. China is a master, though not alone, at using locally-produced product standards to put competitors at a disadvantage.

#5 – Steal the play: “Absorbing” American ideas. Lackluster enforcement of intellectual property rules and officially-sanctioned theft of trade secrets through policies such “indigenous innovation” requirements.

U.S. business executives have likened China’s indigenous innovation policies to “the Borg in ‘Star Trek,’ an enormous organic machine assimilating everything in its path, in this case the inventions of other nations.”

#6 – Hide the ball: China’s hidden rules. Lack of transparency in rules and regulations, and unannounced, unpredictable, unpublished changes in those rules.

#7 – Change the play: Switching up China’s trade barriers. If foreigners glom onto one trade barrier, change the barrier to gain more time to protect the Chinese market.

#8 – Bend the rules: Searching for holes in China’s trade obligations. Making it a national policy to see how far WTO obligations can be pushed or obviated. Virtually all countries do this, even the United States. I know that’s a shock. But Beijing seems to do it more assiduously than most.

#9 – Run out the clock: Foot dragging on WTO obligations. Beijing has presented a master class in how to delay implementation of its WTO obligations. The usual tactic is to agree to an obligation, then do nothing until someone complains in Geneva, then delay talking about it and use WTO procedures to string things out for a few more years. Then, you fix the original problem, but also change the play and start the process again. [I find it hard to come down too hard here. After all, Washington and Brussels are also masters at this game.]

Now that Third Way has published China’s gameplan, how do they think the American coaches should respond? Tune in for the second half tomorrow.