Washington Insider -- Friday

President Doubts New NAFTA Deal Can Be Made

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

Canada and Mexico Maintain NAFTA Focus amid Trump Comments

Canadian and Mexican officials have stated they will continue to stay focused on the negotiations under the North American Free Trade Agreement (NAFTA) comments from U.S. President Donald Trump that he still sees potential to exit the pact.

“We're going to stay focused on what we've always known and what we've always said,” Canadian Prime Minister Justin Trudeau said at a news conference. NAFTA benefits both Canadians and Americans, and Canada is “focused on the hard work we have ahead of us at the negotiating table,” he said.

Mexico's Foreign Minister Luis Videgaray said in a tweet that there were “no surprises” in Trump's renewed threat to scrap NAFTA. “We are already in a negotiation. Mexico will remain at the table with serenity and firmness and national interest ahead.” Mexico could have the most to lose if the pact unravels, as the country has been Trump's prime target. If Trump really wanted to break up NAFTA he would have done so already, Videgaray said.

Trump said at a Phoenix rally August 22 that he “personally” did not believe “we can make a deal,” on NAFTA. “So I think we'll end up probably terminating NAFTA at some point,” Trump said. Trump's remarks came just days after negotiators from the three countries met in Washington August 16-20 for the inaugural round of talks to revamp the deal. The next round will begin September 1 in Mexico.

Global Biofuel Battles Intensify With Brazil Hitting Ethanol Imports with Duties

Brazil's foreign trade chamber Camex finally approved putting an import duty on ethanol imports that surpass 600 million liters (159 million gallons). Camex has repeatedly held off imposing the duties until their session Wednesday in which they approved a 20-percent tax on imports above that 600 million liter mark.

The duties will be in place for two years, and will then be reevaluated. The measures enter into force after publication in the official gazette, which is expected in the coming days.

Brazil imports the first half of 2017 have totaled 1.29 billion liters, primarily from the U.S., up 330% compared to the same period in 2016. A coalition of U.S. groups responded with dismay at the move since both the U.S. and Brazil had essentially agreed to keep the ethanol market free of trade-related limits. "We are disappointed and discouraged to see the ruling out of Brazil today," the Renewable Fuels Association (RFA), U.S. Grains Council (USGC) and Growth Energy said in a joint statement. "This action goes against Brazil's longstanding view that ethanol tariffs are inappropriate and will effectively close off an open and bilateral trading relationship that benefits all sides."

Meanwhile, Brazil's top sugar industry group, Unica, hailed the move – virtually all ethanol produced domestically in Brazil is made from sugar cane. "The decision will give us some short-term relief," said director Eduardo Leao. He argued there is a "structural surplus" of ethanol in the U.S. due to restrictions in traditional export markets for the country, including China and Europe. "Brazil became the destiny of that surplus," he concluded.

Washington Insider: President Doubts New NAFTA Deal Can Be Made

President Trump’s negotiation strategies often include bearish assessments of the outlook and it seems the current NAFTA talks are no exception, Politico is reporting this week. He has threatened many times to pull out of NAFTA if he doesn’t get a deal to his liking.

Still, his first comments on the NAFTA talks since the renegotiation began last week were surprising to some. At a rally of supporters in Arizona earlier this week, he upped the ante, Politico says. He told that group “that he doubts a deal can be reached.”

“Personally I don’t think we can make a deal because we have been so badly taken advantage of,” he said. “They have made such great deals, both of the countries but in particular Mexico that I don’t think we can make a deal.”

He went further, concluding, “So I think we’ll end up probably terminating NAFTA at some point, OK, probably. But I’ve told you from the first day that we will renegotiate NAFTA or we will terminate NAFTA. I personally don’t think you can make a deal without a termination but we’re going to see what happens. You’re in good hands, I can tell you.”

It will be interesting to see if ag groups, especially those who have been telling negotiators that one of their main objectives is not to undercut what they continue to see as favorable opportunities under NAFTA, agree.

Politico points out that NAFTA has facilitated a massive increase in agricultural trade among the three countries, making the free trade deal popular across much of the industry. It also commented that Secretary Sonny Perdue may want to dust off his map—the one that was said to have convinced the White House to pull back in an earlier push against NAFTA by showing where negative impacts would be felt if the trade deal were abandoned. So, Politico says “there’s likely to be a whole lot of anxiety from ag groups this morning.”

In addition, Politico thinks “the renewed threat could serve to harden Canadian and Mexican positions at the negotiating table. When Trump threatened to withdraw from the deal in April, Mexican officials said the government would not negotiate “with a gun to its head.”

There were other comments on NAFTA this week. Mexico’s 32 governors sent a message for the chief negotiators. That group argues that “We know what our citizens and economies need better than you do.” So, Mexico’s National Conference of Mexican Governors, CONAGO, has written to the top trade officials from Mexico, Canada and the U.S. urging that they have a chance to participate in the ongoing talks.

The governors are most focused on promoting an integrated North America, improving labor practices, and addressing new issues like immigration, CONAGO President Miguel Angel Mancera Espinosa wrote. On labor, especially, CONAGO would like to see a guarantee of better conditions for workers and an increase in the minimum wage, an issue the Mexican government seems reluctant to broach. The letter was sent to U.S. Trade Representative Robert Lighthizer, Canadian Foreign Minister Chrystia Freeland and Mexican Economy Secretary Ildefonso Guajardo amid last week’s opening round.

It would be very interesting to know what particular information about the talks President Trump is responding to, but there seems to be very little indication that the talks will provide the assurances against the type of trade deficits the administration tends to focus on. Then, the key question is whether the U.S. negotiators will simply ignore the broad success and strong growth in economic activity ag exporters have enjoyed over the years and would like to expand.

If these interests are simply ignored, in pursuit of broader changes, ag leaders—including Congressional Committee major and minority leaders, whose sensitivities are already somewhat bruised over the glacial pace of the nominating process for secretary, are likely to be much more aggrieved. That condition could significantly affect the design of the next farm bill as that process gets underway, Washington Insider believes.

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