Washington Insider-Wednesday

By DTN's Washington Insider

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

Commerce Review of US-Mexico Sugar Deal to Come by April

Final determinations on whether the government Mexico is living up to terms of the Agreement Suspending the Countervailing Duty Investigation of Sugar from Mexico is expected to come by early April 2017 along with a determination on whether Mexico is meeting the terms of the antidumping (AD) agreement, according to notices published in the Federal Register by the Department of Commerce International Trade Administration (ITA).

The agency announced that based on their preliminary review of the period from December 19, 2014, through December 31, 2015, "may no longer be meeting all of the statutory requirements" of the Countervailing Duty agreement. Based on that finding, the Commerce Department said it needs to obtain additional information in order to confirm whether the Government of Mexico is in compliance with the terms of the agreement, and whether the current Countervailing Duties agreement continues to meet the relevant statutory requirements.

However, International Trade Administration alos said that after making the preliminary determination the agreement may no longer be meeting the statutory requirements, they indicated they do not yet find a sufficient basis to make a reliable judgment as to whether the Mexican government and the Mexican respondent mills have adhered to the terms of the Agreement and whether the Countervailing Duties agreement continues to meet the relevant requirements of the Act for such agreements."

Given the need for additional information, administration said, "absent the issuance of a revised suspension agreement, we intend to issue our post-preliminary finding on these issues as soon as practicable." In their Federal Register filing, the International Trade Administration said they "expect to issue the final results of review within 120 days after publication of these preliminary results in the Federal Register."

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CFTC Reproposes Position-Limit Rule

Regulations implementing limits on speculative futures and swaps positions called for in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) are being proposed again by the Commodity Futures Trading Commission (CFTC), the agency said in a unanimous decision.

CFTC previously published a proposal in December 2013 and a supplemental proposal in June 2016, the agency noted, but in response to comments on those proposals, "the CFTC is reproposing limits on speculative positions in 25 core physical commodity futures contracts and their 'economically equivalent' futures, options, and swaps (referenced contracts), and is deferring action on three cash-settled commodities."

The agency is reproposing the definition of what is a bona fide hedging position, as well as exemptions for bona fide hedging positions in physical commodities. "Exemptions are being reproposed for, among other things, positions that are established in good faith prior to the effective date of the initial limits that would be established by final regulations," the agency said.

In announcing the unanimous decision by the CFTC, Chairman Timothy Massad pointed out the regulator "made many changes to the 2013 proposal we inherited that are reflected in today's reproposal. Certain aspects have been previously proposed in separate pieces, and I believe the public would benefit from seeing the proposal in its entirety, to better understand how the various changes work together."

Plus, since the CFTC is in a "time of transition," Massad said, "I do not want to adopt a final rule today that the Commission would choose not to implement or defend next year. Our markets and the many end-users and consumers who rely on them are served best by having reasonable and predictable regulation. Uncertainty and inconsistency from one year to the next are not helpful."

The new proposal released by the CFTC was hailed by Commissioner Christopher Giancarlo, as he noted the prior version "would restrict bona fide hedging activity or harm America's agriculture and energy industries that have been sorely impacted by plummeting commodity prices and service provider consolidation."

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Washington Insider: The Trade Policy Jawbone Experiment

Well, the current political state of play includes a president-elect who recently attempted, successfully, to prevent a company from moving its jobs to Mexico and a media establishment that is prominently discussing whether or not the incoming administration can follow through on its threats to punish companies that "offshore jobs."

So far, the media evaluation of the Trump jawbone effort is being regarded as highly positive by the president elect's transition team and is receiving high markets from the public. This seems likely to convince the new team that the more personal policy works and is likely to be repeated, perhaps extensively.

However, at the same time, the urban media is rounding up experts who call the policy a likely violation of international trade rules. For example, the Washington Post says that several international trade experts are skeptical of whether the president has the authority to impose such tariffs since the power to levy taxes belongs to Congress, not the executive branch. Any tax bill must originate in the House and would require Democratic support to muster the 60 votes required to move forward in the Senate, an unlikely proposition, the Post thinks.

And, as widely noted, Trump could face an uphill battle for support within his own party for punishing companies that offshore. On Monday, House Majority Leader Kevin McCarthy, R-Calif., declared that he did not want a "trade war," a damaging outcome that economists have predicted could result from implementing Trump's tariffs. Also, House Speaker Paul Ryan, R-Wis., tempered his initial support for the deal with Carrier. Now, however, he says he would rather push the Republicans' long-held goal of lowering the corporate tax rate.

"I think we can get at the goal here, which is to keep American businesses American, build things in America and sell them overseas, that can be properly addressed with comprehensive tax reform," Ryan told the Post.

House Ways and Means Chairman Kevin Brady, R-Tex., whose committee would be responsible for any bill regarding tariffs, voiced a similar sentiment in a recent interview with Fox News. "Carrier really is an example of what we can avoid if we get tax reform right," he said.

Under international law, the president does have the power to impose penalty tariffs against countries or on certain industries, but only under extreme circumstances such as a threat to national security or during war. In addition, Gary Hufbauer, senior fellow at the Peterson Institute for International Economics, a think tank, said it is unlikely that authority extends to specific companies. "With existing statutory powers he can limit or stop imports of particular products and in other ways interrupt foreign commerce," he said. "But targeting individual firms is a step too far."

Still, University of California-Berkeley political science professor Vinod Aggarwal argued that Trump may be able to exploit weak WTO's rules to his advantage, since the organization has no independent enforcement agency. For example; a member country would have to file an official complaint against the United States in order for the WTO to take action. The paper argued that developing countries, such as Brazil, have supported domestic industries through tariffs, tax incentives and subsidies with little repercussion. And, WTO cases can take years to process and the consequences for the losers are often mild, they argue.

"Even if sanctions are imposed, the offending nation may be prepared to suffer the sanctions or, as is allowed under WTO rules, offer some other form of compensation," the authors argue.

Well, trade policy has always been a contentious area and promises to remain so. In addition, it is likely that the most important test will be careful evaluations of the impacts of an episodic trade policy, such as the Trump team appears to be contemplating. If jawbone impacts turn out to be modest or temporary, they likely will be opposed for that reason.

However, it the political view of the effort continues to be anywhere near as positive and strong as it now seems to be, jawboning may become a more widely used approach to U.S. trade policy. Perhaps the key issue is the detailed analyses of the winners and losers of such policies, and their overall intermediate-term impact on the economy, Washington Insider believes.

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