Washington Insider - Friday

Mexican Warning Over NAFTA

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

EPA Rejects Requests to Change Point of Obligation for RFS

Requests to change the point of obligation away from refiners to show compliance with the Renewable Fuel Standard (RFS) have been rejected by the Environmental Protection Agency (EPA).

"Based on a wide range of stakeholder input and information provided as a part of the public comment period, the agency has determined that changing the regulatory point of obligation for compliance with the RFS program is not appropriate," EPA said in announcing the decision. EPA said the petitioners requesting the change were unanimous in shifting the point of obligation away from refiners, but "they differed somewhat in their suggestions for alternatives."

Even if there were "some marginal net benefits to changing the point of obligation, we believe that the disruptive effects of a change at this time would still warrant denial," EPA said. Plus, the agency warned it believed there would be "no beneficial impact on the RFS program or renewable fuel volumes and would decrease competition among parties that buy and sell transportation fuels at the rack, potentially increasing fuel prices for consumers and profit margins for refiners, especially those not involved in fuel marketing."

For more on the decision, including a link to official documents, see Todd Neeley's piece in our Top Stories sections.

GAO: USDA Must Boost Oversight of Checkoff

USDA is being urged to increase oversight of the 22 federal agricultural research and promotion programs, known as checkoffs, according to a report from the Government Accountability Office (GAO). However, the GAO assessment did note some progress has been made following a critical report from the department's Inspector General.

The report said the Agricultural Marketing Service's oversight of checkoffs remains inconsistent, despite recent improvements such as AMS establishing standard operating procedures for checkoff oversight and conducting internal reviews of oversight efforts. Those recommendations came from the 2012 Office of the Inspector General report.

Washington Insider: Mexican Warning Over NAFTA

The New York Times and other urban papers are carrying new warnings from Mexico and Canada over NAFTA talks as the fifth round talks concluded in the Mexican capital earlier last week. Canada and Mexico told the United States that it “would make little headway with its current approach.”

Robert Lighthizer, the United States trade representative, took aim at his counterparts earlier in the week, saying “thus far, we have seen no evidence that Canada or Mexico are willing to seriously engage on provisions that will lead to a rebalanced agreement. Absent rebalancing, we will not reach a satisfactory result.”

The Times commented that in an indication of how far the talks have to go, Lighthizer will not meet again with his Canadian and Mexican counterparts until late January in Montreal, while lower-level negotiators will continue to hash out details in Washington next month.

During meetings in Mexico City, trade negotiators focused on technical details, including those that govern digital trade, telecommunications, anti-corruption, customs procedures and health and safety standards for food.

But the parties continued to clash on the most contentious issues, including mechanisms to resolve trade disputes and award government contracts, as well as so-called rules of origin, which govern the amount of a good that needs to be manufactured in North America in order to qualify for zero tariffs, the Times said.

The United States has called for raising that threshold for the automobile industry to 85 percent, up from 62.5 percent previously. It also has asked for a new requirement that half of a car be manufactured solely in the United States — a provision at odds with the wishes of American automakers, who fear it will drive up their costs and make them less competitive globally.

Canadian and Mexican officials did not make specific counterproposals to these requests. Instead, they presented data showing the harm the proposition would inflict on the auto sector and pressed the United States to explain its reasoning.

That response appeared to frustrate the United States. A senior American official pushed back against the idea that the United States proposals were unworkable, saying the failure of Canada and Mexico to offer counterproposals had halted progress.

On government procurement, Mexico answered a tough American proposal with one of its own — the first tit-for-tat exchange in the talks so far. The United States had proposed limiting the amount of American government contracts it offers to Canadian and Mexican companies by capping the level dollar-for-dollar to the total size of Canada and Mexico’s much smaller markets.

In response, Mexico suggested linking its government contracts to the size of deals that Mexican companies win in the United States. Since Mexican companies win few American contracts — less than half a million dollars in 2016, that would significantly restrict the goods and services American companies supply to the Mexican government.

Moisés Kalach, a textile executive who represents Mexico’s private sector in the talks, said that Mexico did present a counterproposal to the American request for a “sunset clause,” under which NAFTA would expire every five years unless the three countries agree to renew it. Mexican negotiators, supported by Canada, suggested that NAFTA be reviewed every five years, but not automatically expire.

Kalach added that Mexico has also rejected an American demand that would allow new seasonal restrictions on imports of Mexican produce, like tomatoes and avocados.

At the last round of negotiations, in Washington in October, USTR’s aggressive proposals raised tensions and provoked fears of NAFTA’s demise. In response, more than 70 bipartisan members of Congress sent a letter to the administration on Nov. 15 saying the U.S. proposal for the automobile sector would diminish America’s competitiveness globally.

In comments before the Canadian parliament Tuesday, the foreign minister, Chrystia Freeland, said she was “heartened” to see dozens of members of Congress sign a letter about the benefits of NAFTA.

The administration has often threatened to withdraw from NAFTA if the United States does not secure a better deal. However, any such move would set off a six-month process to terminate America’s membership, which he President has described as a potential negotiating tool for persuading Canada and Mexico to accede to American demands.

It’s unclear whether that tactic would work, the Times said. “People close to the discussions say Mexican officials would instead use those months to conclude trade negotiations with Brazil and the European Union.”

While the President argues that “no deal is preferable to the current one,” economists tend to disagree with that conclusion and many believe that abandoning NAFTA could damage the United States.

In a study published last week, researchers at the Peterson Institute for International Economics found that withdrawing from the North American pact would directly cost the United States 187,000 jobs over a one- to three-year period — not accounting for further indirect damage to the economy.

So, there seems to be increasing evidence that the USTR’s highly aggressive NAFTA approach is not working well and that criticism of its efforts is growing. How future trade talks should go—and what the “bottom line” really is--will certainly trigger yet another tense fight over the coming weeks, and should be watched closely by producers, Washington Insider believes.

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