Washington Insider -- Wednesday

Spending Fight Impact on Commodity Proposals

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

US, Mexico Fail to Reach New Sugar Trade Suspension Agreement

No U.S.-Mexico revised sugar trade suspension agreement was secured, despite a May 1 deadline set by Commerce Secretary Wilbur Ross. The U.S. Commerce Department announced late Monday evening that U.S. and Mexico officials failed to reach agreement on a new suspension agreement to limit Mexican sugar exports.

Commerce called it an “impasse” and said it notified the Mexican government that the U.S. would have to begin collecting antidumping and countervailing duties on sugar imports on June 5 unless there is a breakthrough. “While I regret that such measures were needed, it is my hope that Mexico and the U.S. can reach a fair agreement before June,” said Ross. “If no agreement is reached by June 5, 2017 then the antidumping and countervailing duty orders that are presently suspended will become operative and cash deposits on imports will be required,” Ross said.

Juan Cortina, president of the Mexican group, said talks will probably be extended until June 5. The talks reportedly broke down over the question of how much raw vs. refined sugar would be allowed into the U.S. and the standard at which raw sugar could still be classified as such. The suspension deal defines refined sugar as having a polarity or sucrose level of 99.5% or more. A significant portion of Mexico’s raw sugar exports technically fall below that 99.5% threshold but require little to no additional processing to be used in beverages, ice cream and baked goods.

Mexico's economy ministry, the country's top trade authority, weighed in late on Monday with a statement that put the blame for the impasse squarely on the U.S. side. "Excessive demands from US producers and refiners have impeded the ability to reach a solution," the ministry said, adding that U.S. negotiators continued to press for limits on Mexican raw sugar exports for US refiners as well as ending "all competition" from Mexican refined sugar in the U.S. market. The ministry also said, however, it remained open to reaching a negotiated agreement.

Omnibus Bill Includes New Trade Enforcement Funding

Funding for a trade enforcement trust fund established by a wide-ranging 2015 customs bill – the Trade Facilitation and Trade Enforcement Act (TFTEA) – would be provided by the pending omnibus spending bill, according to a Senate Appropriations Committee summary.

The funds for the Office of U.S. Trade Representative (USTR)would be set at $62 million, an increase of $7.5 million over Fiscal 2016 enacted levels. Under the measure, USTR could draw $15 million for the trade enforcement trust fund.

However, most of the additional money slotted for USTR is needed to fund the Interagency Trade Enforcement Center (ITEC), leaving relatively little “extra” for the trust fund a Senate aide told Bloomberg BNA. Former President Barack Obama established the ITEC in 2012 by executive order to take a “whole-of-government” approach to monitoring and enforcing U.S. trade rights.

TFTEA established the Trade Enforcement Trust Fund (TETF), but Congress has yet to appropriate resources for it. The fund would allow USTR to support trade capacity-building assistance to help partner countries meet their free trade obligations and commitments.

Besides USTR funding, the bill would provide $91.5 million for the International Trade Commission (ITC). That would be $3 million above the Fiscal 2016 enacted level. The funding boost would support trade enforcement activities and ITC's responsibilities in the miscellaneous tariff bill process, according to the summary.

Washington Insider: Spending Fight Impact on Commodity Proposals

Two groups have worked hard recently to claim more favorable program provisions through an early “limited reopening” of the 2014 Act, involving a proposed new support program for cotton seed and more favorable protections for the dairy “margin insurance” program.

In the horse trading that surrounded the recent bipartisan spending deal to finish out the Fiscal 2017 budget year, neither program made the grade.

As a result of the dashed expectations, recriminations are swirling among producers and advocate groups. For example, the National Cotton Council charges Sens. Pat Leahy, D-Vt., and Debbie Stabenow, D-Mich., with playing politics at expense of cotton producers.

National Cotton Council Chairman Ronnie Lee said the NCC “is extremely disappointed that the Fiscal Year 2017 omnibus appropriations bill does not include the cottonseed policy developed by the U.S cotton industry in consultation with Congress.”

Lee argued that the cottonseed proposal is broadly supported by the entire U.S. cotton industry, as well as many other farm bill stakeholders and that the cotton plan is budget neutral with the costs offset only by cotton-related provisions.

Sens. Leahy and Stabenow were singled out for sharp criticism over their role in stopping the proposal. Lee, who farms near Bronwood, Ga., said Leahy and Stabenow “chose to play politics at the expense of cotton producers and farm families that continue to struggle with negative economic returns and increasing financial pressures. While many in Congress urge the agriculture community to work collectively on policy issues, it is disheartening that some in Congress choose not to take that same approach in their efforts, instead pitting one commodity or industry against another."

It is hard to know exactly what the trade-offs were instrumental in the decision to exclude the requests for intervention for the two commodities, but Lee charged that “the Senators’ desire to help dairy producers somehow became a pre-requisite for whether Congress could provide a policy to cotton producers to help respond to the ongoing financial and trade policy challenges.

Lee also added that “there was no rationale or justification for linking support between cotton and dairy producers. These actions not only have left cotton producers with no near-term options to help them deal with long-run economic issues he argued, but have harmed the prospects for developing a new farm bill. “Without the cottonseed policy in place, the result is that all farm bill stakeholders will be seeking support from an expected smaller overall budget available for the next farm bill,” he said.

It had seemed that dairy and cotton had managed to move their problems into the spotlight in their push for significantly improving their current support levels. Further, the industries could have modified the commodity baselines in order to better their longer-term position. For cotton, this disappointment extends back to the Obama administration where Secretary Vilsack also declined to accommodate cotton producer’s request for a stronger safety net.

Now, it appears that relationships between cotton and dairy are even more tense than usual—even though it is clear that it will require unity and close cooperation for the sector to achieve its goals in the coming farm bill debate. “The NCC will now shift its focus to working with Secretary Perdue to determine what administrative options USDA has to help cotton producers,” Lee said. “Our industry will remain optimistic that the economic well-being of farm families and our rural communities will ultimately prevail over Congressional politics.”

Thus, the current dairy-cotton flashpoint may well indicate a political vulnerability as a budget conscious Congress begins to consider another big-ticket farm bill, a process producers should watch closely as it develops, Washington Insider believes.

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