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China isn’t buying Smithfield, Cayman is

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China’s purchase of Smithfield could effect a lot more than pork – Posted by Abe Sauer

The recent announcement that China’s Shuanghui International was buying US pork producer Smithfield Foods has produced much reaction. Some claim the deal is good. Some say it’s bad on grounds ranging from food safety to national security. One of the more interesting opinions comes from the China Private Equity blog which complains that “a Chinese company isn’t buying Smithfield. A shell company based in Cayman Islands is.”

The latter is a legitimate clarification. “China” isn’t buying Smithfield—the Cayman Islands are. It’s a little reported note that could provide meaningful leverage to groups both looking to force corporations to pay taxes and groups looking for straightened environmental agencies.

The claim that Smithfield is being bought not by China but by the Cayman Islands is, while true, a little like saying America doesn’t sell iPhones, the Cayman Islands (or Ireland) sells iPhones. The fact that the media does not mention that the Shuanghui that is doing the buying is a Cayman-located extension of the China-based Shuanghui should be no surprise as every report on Apple’s quarterly earnings makes no mention of the fact that all that money goes to a company that, almost literally, does not exist. As The Wall Street Journal pointed out last week, Shuanghui is made up of “multiple subsidiaries and holding companies.”

If the Smithfield case reveals anything, it’s that global corporations all do business the same now. That is to say, using tax havens is not exclusively an American business practice.

An interesting question that the Smithfield purchase does raise is how Americans—and their politicians—will feel if they learn a “Chinese” company—i.e. a Chinese shell company based in the Cayman Islands—is dodging paying its share of taxes in America. It’s one thing for Apple to tell Congress and citizens that it “complies with the laws” when it comes to its off-shore tax structure. It may be completely different when it’s China that’s avoiding taxes. Would Republican Senator Rand Paul dare say, “I frankly think the committee should apologize to Chinese-owned Smithfield Foods?”

Another unexpected result of the Smithfield deal could be a stronger Environmental Protection Agency. Some have openly voiced concerns that China’s abysmal record on pollution control could spill over into the US, resulting in pork manufacturing that is already more environmentally damaging than it currently is. In this respect, Smithfield’s purchase by China could find many politicians in a bind, especially Republicans, who have made the EPA a target of scorn. (During the 2012 presidential primary, Texas Governor Rick Perry joked about eliminating the agency entirely. And quite ironically, last year Republicans sought to kill funding that, in part, helped the EPA study “swine manure treatment” in China.)

The same, currently embattled EPA regulates much of America’s meat production, setting, for instance, wastewater discharge standards for meat processing and poultry processing facilities. Some anti-EPA politicians have used China fear mongering as a punching bag. For example, current Minnesota Congresswoman Michele Bachmann has expressed a desire to see the EPA’s “doors locked” and has made numerous fear mongering statements about China.

Faced with fear about a “China takeover” of the nation’s meat production (and other industries), those opposed to EPA regulations and China may have a change of heart, and it won’t be about China.

“American Pig” tshirt via Spreadshirt.

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