Washington Insider -- Wednesday

NAFTA Deal is Set, Sort of

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

Canada's Freeland Hails Mexico NAFTA Concessions

Concessions made by Mexico in the negotiations to update NAFTA with the U.S. were labeled as "major" by Canadian Foreign Minister Chrystia Freeland as she came out of a session with US Trade Representative Robert Lighthizer in Washington.

"The fact that Mexico was able to do something that I think must have been quite difficult for Mexico and make those concessions does really set the stage for some productive conversations here this week," Freeland remarked.

The deal cut by the U.S. and Mexico on auto rules of content and a requirement that auto parts be made by workers earning at least $16 per hour were called "significant" by Freeland.

"These concessions really are going to be valuable for workers in Canada and in the United States who have been concerned for some time about their jobs going to lower-wage jurisdictions."

Freeland was to meet with Mexican Economy Secretary Ildefonso Guajardo later Tuesday and return for another session with Lighthizer Wednesday, but did not say whether that session would include Guajardo.

India Commerce Department Study Says China Market Ripe Due To Tariffs on US Goods

India has the ability to capture market share in China in products where China has placed tariffs on US ag products like cotton, corn, almonds, wheat and sorghum, according to a study by India's Commerce Ministry. There are at least 100 products where this could happen, according to a summary of the study by the Economic Times.

"These retaliatory tariffs provide a window of opportunity for enhancing India's exports to China. The purpose of analysis is to identify such lines," the study said. Fresh grapes, cotton linters, flue-cured tobacco, lubricants and certain chemicals, including benzene, are areas where U.S. exports to China had been above $10 million, the report noted, and are products India exports to China. Exports to China by other countries are covered by Most Favored Nation (MFN) duty rates which are around five percent to 10 percent, the report said.

Plus, India has additional duty concessions via the Asia Pacific Trade Agreement. However, the paper also pointed out that oranges, almonds, walnuts, durum wheat, corn and grain sorghum are some of the products India exports to countries around the world, except China.

The report indicated that corn is a "specific interest" for India as it exported $143.6 million during 2017/18.


Washington Insider: NAFTA Deal is Set, Sort of

The White House is declaring this week that the United States and Mexico have reached an accord to revise key portions of the North American Free Trade Agreement – and would finalize it within days.

However, the New York Times said that the Monday statement suggested that President Donald Trump “was ready to jettison Canada from the trilateral trade pact if the country did not get on board quickly.”

So, the question remains about what exactly the agreement means and what happens next. The Times called the deal a “preliminary agreement.” The Office of the U.S. Trade Representative (USTR) says it includes several important ag provisions and that includes “maintaining zero tariffs on agricultural products” and setting “unprecedented standards for ag biotechnology that include all biotechnologies.”

In addition, USTR says that the United States and Mexico have agreed to provisions to enhance information exchange and cooperation on agricultural biotechnology trade-related matters.

President Trump said that the deal would replace NAFTA and threatened to hit Canada with auto tariffs if it did not “negotiate fairly.” “We’re going to call it the United States-Mexico Trade Agreement,” and that the name NAFTA had “a bad connotation” for the United States and was overall a “bad deal.”

Skeptics argue that while Trump may try to change the name, the agreement is simply a “revision” with updates to provisions surrounding the digital economy, automobiles, agriculture and labor unions. The core of the pact, which allows American companies to operate in Mexico and Canada without tariffs, remains intact, the Times emphasized.

What comes next is uncertain. The president’s apparent willingness to move on without Canada has prompted confusion and concern among lawmakers — who said it may not be legally permissible, let alone smart — and businesses whose supply chains depend on a deal encompassing all three countries.

Mexican officials said that they wanted to have Canada back in the process and were working toward a trilateral deal by the end of the week — but Luis Videgaray Caso, Mexico’s foreign minister, said that “the political relationship between Canada and the U.S. is beyond Mexican control, and that we definitely don’t want to expose Mexico to the uncertainty of not having a deal.”

“Not having a trade agreement with the U.S., that’s a substantial risk to the Mexican economy. Literally millions of jobs in Mexico depend on access to the U.S. market,” he said.

Both the Mexicans and the Americans have been eager to reach a fully revised deal by the end of August, a date that would give the Trump administration enough time to notify Congress that a deal had been finalized and still have that deal be signed by the outgoing Mexican administration of Mr. Pena Nieto.

“Ideally we’ll have the Canadians involved,” said Robert Lighthizer, the United States trade representative, adding that the administration planned to officially inform Congress by Friday of its intent to sign a new deal – a step required before Congress votes on a trade pact. “If we don’t have Canada involved, we will notify that we have a bilateral agreement that Canada is welcome to join.”

Chrystia Freeland, the Canadian foreign minister, is in Washington this week to continue negotiations, her spokesman said. “We will only sign a new NAFTA that is good for Canada and good for the middle class,” Austen added. “Canada’s signature is required.”

Under the changes agreed to by Mexico and the United States, car companies would be required to manufacture at least 75% of an automobile’s value in North America under the new rules, up from 62.5%, to qualify for NAFTA's zero tariffs. They will also be required to use more local steel, aluminum and auto parts, and have 40% to 45% of the car made by workers earning at least $16 an hour, a boon to both the United States and Canada and a win for labor unions, which have been among NAFTA's biggest critics.

The Times cited administration officials who said the United States and Mexico had also reached an agreement over a “sunset clause.” The two countries agreed to a review of the trade pact every six years that would extend its lifetime for 16 more years, officials said. That longer time horizon would give lawmakers a chance to review the pact’s progress, while giving businesses certainty for the near future.

The countries also agreed to limit the kinds of legal challenges that investors can make against foreign governments. The oil and gas, infrastructure, energy generation and telecom industries are exempted from these more restrictive rules, and will operate under the previous terms, Lighthizer said — a win for those industries.

One contentious issue that remains unresolved is whether the administration will exempt Mexico from its steel and aluminum tariffs. Trump hit Mexico, along with Canada, the European Union and other nations, with 25% tariffs on steel and 10% tariffs on aluminum, in part to force concessions on other trade issues. Mexican officials said they expected the tariffs to be addressed down the road.

It is unclear how eager Canada will be to sign on to the revised deal. Relations between the United States and Canada have been strained for months. And any agreement that does not involve Canada is likely to face legal challenges and intense opposition from Congress, which had granted the Trump administration authority to renegotiate NAFTA as a trilateral deal.

Industry groups also said a final agreement must include Canada.

So, we will see. Ag producers likely will feel that they have escaped something like a bullet as they examine what the initial deal may mean for them — and as they push for reestablishment of “trade peace” with Canada. Of course, these talks should be watched closely by producers as they unfold, Washington Inside believes.

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