Washington Insider - Friday

Post-NAFTA Concerns

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

Ag Committee Chairman Signals January-February Timeline for House Farm Bill

While still expecting to finish a farm bill ahead of the September 30 expiration of the 2014 Farm Bill, House Agriculture Committee Chairman Mike Conaway, R-Texas, told reporters this week he expects the House version of the bill will come in the January-February timeframe. Tax reform and other matters are likely to take up time for the chamber, putting the early 2018 timeline in play for the House legislation.

Key areas he said that are going to be addressed include dairy policy, cotton policy, changes to the Ag Risk Coverage-County (ARC-CO) program and building a bank of vaccines for foot and mouth disease (FMD). However, he cautioned those changes will come with the panel having less money to work with. Some potential changes could be signaled via individual legislation that could be offered by lawmakers and then melded into the omnibus measure.

Glimmer of Hope on DDG Exports to China

China will remove its value-added tax (VAT) on imports of distillers dried grains (DDGs), according to a statement from the country's foreign ministry. However, there was no timeline offered for the removal of the 11 percent tax. While a positive development, other import duties on imports of DDGs remain in place.

So far, indications are the VAT removal still does not make DDGs price competitive in China due to the antidumping duties. However, traders quoted by Reuters indicated that if the U.S. corn price declines, that could prompt an increase in DDG shipments. The news service also said that traders indicated at least one "test" shipment was in the cards in the hopes that the visit by President Donald Trump to China could spur some revision of import policies. Chinese imports of DDGs are down nearly 90% so far this year compared to the same period in 2016.

Washington Insider: Post-NAFTA Concerns

Amid all the tough discussions on competing tax reform plans now being proposed, a new note of alarm was sounded this week, according to Bloomberg. The group reported that Agriculture Secretary Sonny Perdue said on Wednesday that he was working with Trump administration officials and Congress on a plan to protect farmers and ranchers from the potential market effects of the U.S. withdrawing from NAFTA.

That report came as other news items highlighted the parade of farmers and farm groups circling Congress and executive agencies to caution, cajole and warn about potential damages from severe changes to NAFTA and important ag markets.

However, Perdue took a different track. "We're talking with the administration and Congress about some mitigation efforts if that were to occur; about how we could protect our producers with that [farm] safety net based on prices that may respond negatively to any kind of NAFTA withdrawal," he told the press after a USDA ceremony honoring veterans.

He said he doesn't think a contingency plan will have to be put into action, however, since he thinks that NAFTA 2.0 will be "successfully" renegotiated.

He sees some "some nervous bumps in the meantime," because trade is so important to American agriculture. Well, yes, you might say.

With President Donald Trump threatening to issue a formal intent to withdraw from the trade deal, and Commerce Secretary Wilbur Ross disputing that such a move would cause a drop in agricultural exports, U.S. farm groups say they are increasingly frustrated that their concerns don't seem to have any influence at the highest levels of government, Bloomberg reported.

Perdue acknowledged that pulling out of NAFTA could have "some tragic consequences" for U.S. producers, but also said that farmers can adapt to changes in the market.

Well, Secretary Perdue is only 70, press reports say, so he may be a little young to remember the political explosion that followed the Carter administration’s embargo of ag shipments to Russia in 1980. While there is still some disagreement over the details of that policy, it was accompanied by promises by the administration that farmer’s markets would be bolstered by new price support policies, new grain reserves and other market interventions to soak up surplus grain in both immediate and futures markets.

It seems fair to say that farmers didn’t believe a word of it; moved heaven and earth to end it; and, some think, drove Carter out of the presidency because of it. Certainly, the image of the U.S. as the most reliable global food source suffered badly for several years.

So, while it is not clear yet what the President has in mind for NAFTA, almost everybody knows what the ag sector thinks about maintaining access to important foreign markets. So it is hard to see what Secretary Perdue has in mind that could be afforded politically at a moment of out and out war over budgets and deficits and that would provide all the help he describes. And, it seems unlikely that any major loss of markets could be swept under the political rug in farm circles. It didn’t work last time in 1980 and over the following several years and it seems unlikely to work well now, either.

Maybe Secretary Ross is right, and ending NAFTA might not make much of a dent in overseas ag sales. And, it likely is a good thing that USDA is thinking about what could be done if worst comes to worst. Still, offering cushions for loss of markets almost certainly would be a hard, hard sell politically, it seems—now, as it was then.

It might be more practical for Secretary Perdue to work his magic on the President and on Secretary Ross than on efforts to calm a couple of million irate farmers or their representatives in Congress after an action widely seen as weakening NAFTA, Washington believes.

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