Wheat and Taxes and Brexit, Oh My!
Andrew and the Trade Guys discuss Brazilian President Jair Bolsonaro’s visit to Washington DC, the chaos with Brexit, and France’s proposal to tax digital companies.
What We’re Reading
“Brazil import quota for U.S. wheat could come with Bolsonaro visit: source”
“Brazil is considering granting an import quota of 750,000 tonnes of U.S. wheat per year without tariffs in exchange for other trade concessions, according to a Brazilian official with knowledge of the negotiations ahead of President Jair Bolsonaro’s visit to Washington.”
“That is about 10 percent of Brazilian annual wheat imports and is part of a two-decades-old commitment to import 750,000 tonnes of wheat a year free of tariffs that Brazil made during the World Trade Organization Uruguay Round of talks on agriculture but never adopted.”
“Bolsonaro is scheduled to arrive in Washington on Sunday and meet with U.S. President Donald Trump at the White House on Tuesday.”
“Farm state senators have asked that wheat sales be on the agenda, in a letter to Trump seen by Reuters. They estimate such a quota would increase U.S. wheat sales by between $75 million and $120 million a year.”
Why it matters: Securing access to Brazil’s wheat market would be a much needed win for President Trump and relax, at least momentarily, pressure on him from lawmakers who represent struggling farmers. Brazil had promised to open up its wheat market when it joined the World Trade Organization but has not followed through.
Key questions: Would Brazil opening its wheat market satisfy agricultural stakeholders and lawmakers? What motivation does Brazil have in opening its wheat market? Why don’t the two countries try to negotiate a broader trade agreement instead of resolving specific issues?
“Brazil Ag Minister Plans Beef-Trade Talks With USDA’s Perdue”
“Reopening the U.S. market to Brazil’s fresh-beef imports will be the main topic of a meeting on March 19 in Washington between Tereza Cristina Dias, Brazil’s agriculture minister, and her U.S. counterpart, Sonny Perdue, the ministry’s press office said in a statement.”
“Brazil, while putting the issue back on the table, doesn’t expect a ‘ready solution’”
Why it matters: The United States banned imports of fresh beef from Brazil in 2017 in the wake of a massive corruption uncovered in the Brazilian meatpacking industry. Reports earlier this week said the U.S. was unlikely to reopen its market at this time. Members of the Brazilian meat industry allegedly bribed government officials to reassign tough food safety inspectors or merely pay them off, which led to concerns that unsafe beef was being exported from Brazil around the world. Beef exports are extremely important to Brazil’s economy. The U.S. was the top destination for processed beef from Brazil in 2017, importing 31,400 tons worth $259 million.
Key questions: What are the difficulties associated with negotiating agricultural market access when food safety becomes a legitimate issue? How can the U.S. verify that Brazilian beef now meets U.S. safety standards?
“May looks for way to Brexit as EU summit looms”
“Prime Minister Theresa May’s Brexit plans were in disarray on Tuesday as her government sought to plot a way around a ruling by the speaker of parliament that she must change her twice-defeated divorce deal to put it to a third vote.”
“After two-and-a-half years of negotiations, Britain’s departure from the European Union remains uncertain, with possible outcomes still ranging from a long postponement, leaving with May’s deal, a disruptive exit without a deal, or even another referendum.”
“In a move that added to the sense of crisis in London and exasperation in European capitals - on the eve of a crucial EU summit and days before the March 29 exit date - speaker John Bercow ruled that her Brexit deal had to be substantially different to be voted on again.”
Why it matters: Brexit chaos continues. British Prime Minister Theresa May’s Brexit plan may not get a third vote in London due to domestic procedures, while EU leaders are not unified on whether the United Kingdom should get an extension to negotiate a withdrawal agreement past the current March 29 deadline. Some leaders have questioned the purpose of an extension. Meanwhile, Prime Minister May appears to be running out of rope at home. The speaker of the UK parliament signaled that a third vote on Prime Minister May’s plan could take place if there is popular support in the parliament for it. Her plan has been defeated twice in Parliament by significant margins.
Key questions: Would an extension past March 29 yield a withdrawal arrangement that could be supported by London? Or are some EU leaders right, that an extension would simply kick the can down the road and not change the substance of the negotiations. Will mounting pressure lead some members of Parliament in the UK to back Prime Minister May’s deal?
“U.S. Weighs Trade Action Over French Digital Tax, Official Says”
“A senior U.S. Treasury official said the country is reviewing how it will respond to France’s proposed tax on digital companies, which it says is highly discriminatory against the U.S.”
“The French government estimates that the 3 percent tax on businesses with 750 million euros ($846 million) in worldwide digital revenue and 25 million euros of French digital sales would net around 30 tech giants, mostly from the U.S.”
“’Various parts of our government are studying whether the discriminatory impact would give us rights under trade agreements,’ Chip Harter, deputy assistant secretary for international tax affairs at the Treasury Department’s Office of Tax Policy, said March 12.”
“The discriminatory impact of the French proposal on U.S. companies could be raised under the World Trade Organization, trade agreements, and treaties, Harter said.”
Why it matters: Due in part to the lack of a unified framework for taxing digital services, countries, in particular those in Europe, are beginning to go it alone with their own digital services tax policies. These policies have been aimed hitting U.S. tech giants hard, while sparing other digital services companies. In response to the proliferation of these tax policies, the United States is weighing litigation at the World Trade Organization.
Key questions: What is a “digital services tax” and why are European countries using them to target U.S. tech companies? How should the U.S. respond? Is the OECD likely to reach consensus on a digital services tax framework?