Washington Insider -- Thursday

By DTN's Washington Insider

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

WTO Members Seek Tariff-Free Trade for Clean Energy Products

The World Trade Organization this week began negotiations on what could become an Environmental Goods Agreement (EGA), a deal which could end tariffs on certain environmental products. The United States is participating in the first round of EGA talks along with the European Union and 12 other WTO members that together account for just over 85% of the nearly $1 trillion annual global trade in such items as include wind turbines, solar panels and filters to treat wastewater.

According to a fact sheet prepared by the Office of the U.S. Trade Representative, U.S. exports of environmental goods have been growing 8% annually since 2009, and the United States exported $106 billion of environmental goods in 2013.

On the other side of the equation, U.S. manufacturers of solar panels have objected vigorously to increasing imports of competing products from China. Last month, the U.S. Commerce Department imposed steep duties on importers of Chinese solar panels made from certain components, asserting that the manufacturers had benefited from unfair subsidies. The decision, in a long-simmering trade dispute, addressed one of the main charges in a petition brought by the manufacturer SolarWorld Industries America.

Whether the U.S. solar panel industry, or other industries that produce "environmental goods," will agree to go along with tariff-free treatment for imports of competing products is very much an open question.

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Senate Still Looking for a Way Forward on Spending Bills

Disagreements between Senate Majority Leader Harry Reid, D-Nev., and Minority Leader Mitch McConnell, R-Ky., regarding amendments to spending bills are continuing to keep those measures bottled up.

Senate Appropriations Committee Chairwoman Barbara Mikulski, D-Md., says she has no plans to reschedule markups of the Financial Services, Energy and Water, and other domestic bills that were cancelled before the recent recess. Instead, Mikulski says the committee will take up the annual Department of Defense spending bill, as well as work on the White House's $4.3 billion emergency supplemental request for the border crisis and wildfire suppression.

In contrast, the House Appropriations Committee has now cleared 10 of the 12 bills in committee and has seen five of them passed on the House floor. However, the lack of movement and the pessimistic outlook for the remainder of July in the Senate is raising concerns that Congress may have to turn to a long continuing resolution to cover government spending this fall.

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Washington Insider: Estimates of Impacts of Wider Panama Canal

In 2006, when Panama approved plans to modernize the 100-year-old canal to allow for ships carrying 2.5 times as much container cargo as now can be handled, the upgrade was expected to break the West Coast hold on trade with Northeast Asia. For example, today, more than 70% of U.S. container traffic from Asia arrives at Pacific ports. In addition, about a third of those containers pass through Los Angeles and Long Beach by truck and train to consumers in the eastern half of the nation, the Wall Street Journal reported this week.

Certainly, that traffic flow will change once the canal expansion is completed in early 2016. But a key question for investors is how much the flow will change for individual ports. The canal modernization will allow shippers to bypass those West Coast ports and their more-expensive overland supply routes, and go directly to ports in New York, Baltimore, Norfolk, Miami and elsewhere. And, many expect that the cheaper per-unit shipping costs will mean that perhaps 25% of the cargo from Asia could shift to the U.S. South and Northeast. This is driving a surge in investment in industrial real estate on the East Coast, particularly near the ports which will be able to accommodate the bigger "post-Panamax" vessels.

"Clearly, there are investor-developers who are betting that being proximate to these ports is a good investment decision to make in light of the expansion," one industry advisor told the press. At the same time, the Journal notes that brokers now are warning that "too much new warehouse supply could be in the pipeline." If developers "over-anticipate the need for space, they'll negate the benefits of increased demand," one developer said.

"The generally accepted thinking is container traffic at those ports could increase 5% to 15%," said John Morris, head of industrial real estate at Cushman & Wakefield. "I think it won't be anything that matches the hype." For example, one current estimate is that there are more than 12 million square feet of new industrial space under construction at eastern and southern ports that would be able handle post-Panamax ships. Observers are worrying that this new supply will exceed demand.

Today, Baltimore and Norfolk, Va., are the only East ports able to handle post-Panamax ships, the Journal notes. While construction in Norfolk has been limited, Baltimore has 4.9 million square feet of new space on the way. In northern New Jersey, which jointly operates its port with New York, an additional 2.6 million square feet of new warehouse space is under construction. The port's operators are expected to complete the raising of the Bayonne Bridge by 64 feet in 2015, allowing post-Panamax vessels to dock there.

Though not yet ready, ports in Houston, Charleston, S.C., Savannah, Ga., Miami and Fort Lauderdale all are expected to be in operation by 2016. There is new warehouse space under construction in all of these markets.

The eastern ports are hoping that lowered per-unit shipping costs will give them an edge over the traditional ports on the West Coast. But logistics experts caution that speed is a major consideration for their clients, especially those shipping higher-value goods with bigger profit margins. And, there are suggestions that the new routes may not save time. For example, transporting a container from Shanghai to New York via the widened canal will take shippers 36 days compared with 25 by shipping to Los Angeles and transporting it by rail the Journal notes, based on estimates from the logistics firm IMS Worldwide Inc.

"My customers want to get their containers there now," said IMS President Curtis Spencer. He added that overland routes through West ports have maintained their heavy traffic despite the overseas alternative already offered by the Suez Canal, a fact he said should damp expectations of a significant shift eastward.

Still, representatives for the eastern and southern ports argue that even if traffic from the Panama Canal doesn't increase as much as they expect, there are other reasons to expand supply. For example, consumer-goods and e-commerce companies like Amazon also are occupying more warehouse space and their demands are expected to grow, the Journal reported. Last year, Amazon announced a deal with developer Duke Realty to build a one-million-square-foot distribution center surrounding Baltimore's port.

Also, Houston's port is an increasingly popular point of departure for China-bound plastic resin. "Developers are saying it makes sense to build now, and the Panama Canal is helping that," said John Nicholson III, senior managing director of Cassidy Turley, who recently represented Frontier Logistics in a deal with developer Avera to lease 600,000 square feet for a distribution center now under construction. That deal represents the largest build-to-suit lease in the history of Houston's port.

For agriculture, the new canal capacity is expected to improve trade logistics to allow more direct routes and more favorable rates for important Asian markets. And, while over-investment in any facility is always a concern, the prospect of improved market access certainly should make U.S. products more competitive in enormous overseas markets. So, the completion of these facilities deserves close attention by producers as this work continues, Washington Insider believes.

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